Exhibit 99.2

THE VALENS COMPANY INC.

MANAGEMENT’S DISCUSSION & ANALYSIS

For the Three and Six Months Ended May 31, 2022

(Expressed in Thousands of Canadian Dollars Except Share Amounts or Where Otherwise Noted)

The following management's discussion and analysis ("MD&A") of the financial condition and results of the operations of The Valens Company Inc. (the “Company”) constitutes management's review of the factors that affected the Company's financial and operating performance for the three and six months ended May 31, 2022. This MD&A has been prepared in compliance with the requirements of National Instrument 51-102 - Continuous Disclosure Obligations. This discussion should be read in conjunction with the unaudited condensed interim consolidated financial statements of the Company for the three and six months ended May 31, 2022 and 2021 together with the notes thereto and the audited annual consolidated financial statements for the Company for the years ended November 30, 2021 and 2020 together with the notes thereto. The results for the three and six months ended May 31, 2022 are not necessarily indicative of the results that may be expected for any future period.

All financial information contained in this MD&A is current as of July 13, 2022, unless otherwise stated.

All financial information in this MD&A has been prepared in accordance with International Financial Reporting Standards (“IFRS”) and all dollar amounts are expressed in thousands of Canadian dollars, unless otherwise specified.

Additional information regarding the Company is available on SEDAR at www.sedar.com, on EDGAR at www.edgar.com, and the Company’s website www.thevalenscompany.com. The date of this MD&A is July 13, 2022.

FORWARD-LOOKING INFORMATION

Inherent in forward-looking statements involve known and unknown risks, and factors may include, but are not limited to: unavailability of financing, changes in government regulation, general economic condition, general business conditions, limited time being devoted to business by directors, escalating professional fees, escalating transaction costs, competition, fluctuation in foreign exchange rates, stock market volatility, unanticipated operating events and liabilities inherent in industry.

Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this MD&A. Such statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, the following assumptions: that there is no material deterioration in general business and economic conditions; that there is no unanticipated fluctuation of interest rates and foreign exchange rates; that the supply and demand for, deliveries of, and the level and volatility of biomass, bulk cannabis oil and consumer packaged goods prices develop as expected; that the Company receives regulatory and governmental approvals as are necessary on a timely basis; that the Company is able to obtain financing as necessary on reasonable terms; that there is no unforeseen deterioration in the Company’s activity costs; that the Company is able to procure equipment and supplies, as necessary, in sufficient quantities and on a timely basis; that there are no unanticipated changes to market competition; that no environmental and other proceedings or disputes arise; and that the Company maintains its ongoing relations with its employees, consultants and advisors.

Readers are cautioned that the foregoing list of important factors and assumptions is not exhaustive.

Management Discussion & Analysis

Forward-looking statements are not guarantees of future performance. Events or circumstances could cause the Company’s actual results to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements or the foregoing list of factors, whether as a result of new information or future events or otherwise, except as may be required under applicable laws.

The forward-looking statements contained herein are based on information available as of July 13, 2022.

COMPANY OVERVIEW

The Valens Company Inc. was previously incorporated under several predecessor names under the laws of British Columbia. On November 24, 2016, the Company changed its name to “Valens GroWorks Corp.” to reflect the change in its prior business activities following completion of its acquisition, pursuant to a reverse takeover, of Valens AgriTech Ltd. Effective June 18, 2020, the Company completed a continuance under the Canada Business Corporations Act (the “CBCA”) under its current name, “The Valens Company Inc.”. The Company’s common shares trade under the trading symbol “VLNS” on the Toronto Stock Exchange (“TSX”) and Nasdaq Capital Market (the “Nasdaq”). The Company delivers a diverse suite of extraction methodologies and end-to-end development and manufacturing of innovative, cannabinoid-based products. In addition to its bulk services to the broader industry, the Company has strong product offerings in all the major cannabis categories including dried cannabis flower, pre-rolls, cannabis concentrates inclusive of vapourizers, edibles, beverages, and topicals. The Company also provides analytical testing services to third party licensed producers in the cannabis space through its ISO 17025 accredited analytical lab.

The Company operates through its eight subsidiaries, Valens AgriTech Ltd. (“VAL”), Valens Labs Ltd. (“Labs”), Valens Farms Ltd. (“Farms”), LYF Food Technologies Inc. (“LYF”), and Citizen Stash Cannabis Corp. (“Citizen Stash” or “CS”) all based in the Okanagan Valley of British Columbia, Southern Cliff Brands Inc. (“Pommies”) in the greater Toronto area of Ontario, Green Roads, Inc. (collectively, “Green Roads” or “GR”) in Florida, U.S., and Valens Australia Pty Ltd. (“VAPL”) in Australia.

VAL was incorporated under the Business Corporations Act (British Columbia) (the “BCBCA”) on April 14, 2014. On November 2, 2016, the Company completed the acquisition of VAL pursuant to a share exchange agreement dated October 31, 2016. VAL was granted its Licensed Producer (“LP”) license to cultivate and produce oil under the Access to Cannabis for Medical Purposes Regulations and subsequently, a standard processing and standard cultivation license under the Cannabis Act. This license was subsequently amended by Health Canada to permit sales directly to provinces and territories, sales of dried cannabis products to authorized provincial and territorial retailers, and the addition of the second production facility in Kelowna. VAL also holds an analytical testing license and received a cannabis research license from Health Canada under the Cannabis Act.

Labs was incorporated under the BCBCA on October 18, 2018 to provide sector-leading analytical and proprietary testing services. Labs, in collaboration with Thermo Fisher Scientific (Mississauga) Inc., is developing a “Centre of Excellence in Plant Based Medicine Analytics” at the Company’s 25,000 square foot facility in Kelowna, British Columbia.

Farms was incorporated under the BCBCA on July 19, 2018. Farms currently holds the real estate interest of the Company’s processing facilities in Kelowna, British Columbia.

On November 8, 2019, the Company acquired 100% of the shares of Pommies. Pommies is an Ontario based manufacturer and distributer of alcoholic beverages within the cider industry. Pommies is also a cannabis micro-processing license holder.

On June 26, 2020, VAPL was incorporated under the laws of Western Australia to begin to develop the Company’s presence in the Australian market.

On March 5, 2021, the Company acquired 100% of the shares of LYF Food Technologies Inc. LYF is a premier edibles manufacturer based in Kelowna, British Columbia with expertise in novel product creation, white label manufacturing and infusion technologies. LYF also holds a standard processing license that was subsequently amended by Health Canada to permit sales directly to provinces and territories.

On June 17, 2021, the Company acquired 100% of the shares of Green Roads and its manufacturing subsidiary. Green Roads was the largest privately-owned cannabidiol (“CBD”) company in the United States. Based in South Florida, Green Roads produces health and wellness products using hemp-derived CBD across a variety of consumer categories such as oils, topicals, ingestibles, personal care and pet products.

Management Discussion & Analysis

On November 8, 2021, the Company acquired 100% of the shares of Citizen Stash Cannabis Corp. Citizen Stash is the parent company of Experion Biotechnologies Inc., a Health Canada licensed cultivator and processor of cannabis, based in Mission British Columbia, with a portfolio of premium cannabis genetics, strains, and products.

CORPORATE HIGHLIGHTS

NASDAQ listing

The Company’s common shares commenced trading on the Nasdaq on December 9, 2021.

On June 13, 2022, the Company received written notice (the “Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC indicating that the Company is not in compliance with the minimum bid price requirement (“Minimum Bid Requirement”) of US$1.00 per share under the Nasdaq Listing Rules (the “Listing Rules”). Based on the closing bid price of the Company’s common shares for the last 30 consecutive business days, the Company has failed to meet the Minimum Bid Requirement set forth in Listing Rule 5550(a)(2) during that period. The Notice is only a notification of deficiency, it is not a notice of imminent delisting, and it has no current immediate effect on the listing or trading of the Company’s common shares on the Nasdaq Capital Market.

Under Nasdaq Listing Rule 5810(c)(3)(A), the Company has 180 calendar days from the date of the Notice, or December 12, 2022, to regain compliance with the Minimum Bid Requirement, during which time the common shares will continue to trade on the Nasdaq Capital Market. If at any time before December 12, 2022, the bid price of the common shares closes at or above US$1.00 per share for a minimum of 10 consecutive business days, the Company will regain compliance with the Minimum Bid Requirement. If the Company does not regain compliance with the Minimum Bid Requirement by December 12, 2022, the Company may be eligible for an additional period of 180 calendar days to regain compliance or may be subject to delisting of the common shares from the Nasdaq Capital Market. The Company’s common shares are also listed on the Toronto Stock Exchange and the Notice does not affect the Company’s compliance status with such listing.

The Company is currently formulating a plan to regain compliance of the minimum bid price requirements within the allowable timeframe as per the Nasdaq Listing Rules.

International Expansion Initiatives

United States

On June 17, 2021, the Company closed the acquisition of all of the issued and outstanding shares of Green Roads in a cash and share transaction for closing consideration of $40,000 USD plus up to an additional $20,000 USD in consideration payable upon the business achieving certain earn-out EBITDA milestones. The earn-out payment to the vendors of Green Roads is capped at $20,000 USD to be settled in cash or common shares. As at May 31, 2022 the Company does not expect that the EBITDA milestones will be met and has reduced the related liabilities to $nil and recognized a gain on remeasurement of $4 (May 31, 2021 - $nil) and $367 (May 31, 2021 - $nil) for the three and six months ended May 31, 2022, respectively.

Green Roads was the largest privately-owned CBD company in the United States, with a focus on quality from its pharmacist-founded background. Based in South Florida, the company produces an award-winning lineup of health and wellness products using hemp-derived CBD across a variety of consumer categories such as oils, topicals, ingestibles, personal care and pet products.

On January 19, 2022, Green Roads announced the launch of its first-ever brand campaign “Own the Day”. The campaign celebrates Green Roads’ products and their ability to help consumers with common health and wellness challenges such as stress, sleep, muscle and joint pain, relaxation, and focus.

On April 21, 2022, Green Roads announced a new partnership with Signifi Solutions, Inc. to place cloud-managed Green Roads smart kiosks in various premium mall locations around the United States. The kiosks began rolling out in June 2022, which will continue throughout fiscal 2022.

Management Discussion & Analysis

Australia

During the three and six months ended May 31, 2022 the Company generated revenue of $1,073 and $1,451 from sales in Australia, respectively, by utilizing its existing distribution relationships and by engaging a third-party manufacturer based in Australia. The Company has taken a capital light approach to global expansion outside on Canada and the United States.

Domestic Expansion Initiatives

Product Line Expansion

During the six months ended May 31, 2022, the Company launched two new brands poised to compete in the value and ultra premium segments of the Canadian adult-use market. The Versus value brand, which replaces the Company’s existing Verse brand, will aim to provide the best possible cannabis products at the best possible prices. The Contraband brand will leverage Citizen Stash’s catalogue of premium genetics for a new line of ultra-premium products, expanding the Company’s reach to a new, more discerning consumer in the high value segment. With the launch of these brands and related products, the Company believes it can effectively compete in the adult-use Canadian market across key segments.

Subsequent to May 31, 2022, the Company launched a Quebec-exclusive brand Bon Jak, which is focused on delivering unique user experiences in the province of Quebec.

Pommies Facility Expansion

Construction and retrofitting of the Pommies facility for use in the production of cannabinoid-based beverages was completed in the first quarter of 2022 and is now operational. The budget for the construction and retrofitting for the facility including equipment purchases was approximately $6,000.

On February 23, 2021 the Company submitted a site evidence package to Health Canada under its existing micro-processing application for the Pommies facility. The micro-processing license application submitted by Pommies was formally approved by Health Canada on November 19, 2021.

The earn-out payout to the vendors of Pommies pursuant to the Pommies Acquisition is capped at $500 cash and 115,057 Common Shares that will be proportionally earned upon the achievement of each of the following milestones: (i) receipt of the Micro-Processing License, (ii) the amendment of the Health Canada micro-processing license to permit sales, (iii) production of a target number of revenue earning units, and (iv) achieving a trailing twelve month EBITDA target. As of May 31, 2022, the first milestone had been fulfilled, and 28,764 shares were released from escrow.

LYF Food Technologies

On March 5, 2021, the Company announced that it had closed the acquisition of all of the issued and outstanding shares of LYF in a cash and share transaction for total consideration of $25,603. Total consideration consisted of closing consideration of $18,410 ($3,909 cash and $14,501 common shares) plus $1,713 indemnity shares, $1,110 working capital adjustment, $2,172 in settlement of pre-existing relationships, and up to an additional $17,500 in consideration payable upon the business achieving certain earn-out EBITDA milestones As at May 31, 2022 the Company does not expect that the EBITDA milestones will be met and has reduced the related liabilities to $nil and recognized a gain on remeasurement of $1,940 (May 31, 2021 - $nil) and $2,250 (May 31, 2021 - $nil) for the three and six months ended May 31, 2022, respectively. As of May 31, 2022, the first two milestone shares were still held in escrow, as milestone requirements were not met.

LYF is a premier edibles manufacturer based in Kelowna, British Columbia with expertise in novel product creation, white label manufacturing and infusion technologies. LYF operates from a licensed 10,500 square foot production facility with a product development and manufacturing platform focused on consumer-driven innovation, and product safety and consistency.

Citizen Stash Cannabis Corp.

On November 8, 2021, the Company announced that it had closed the acquisition of all of the issued and outstanding shares of Citizen Stash in a share-only transaction for total consideration of $36,812. Total consideration consisted of closing consideration of $35,760 in common shares and $1,052 in settlement of pre-existing relationships.

Management Discussion & Analysis

Citizen Stash was a licensed cultivator and processor of premium craft cannabis products based in Mission, British Columbia, and will provide Valens the opportunity to unlock additional growth with its extensive and specialized product portfolio in the premium flower and pre-roll segments. Citizen Stash operates a unique, asset-light platform comprised of a network of craft contract growing partners from which it selectively sources premium bulk flower grown from Citizen Stash’s industry leading proprietary genetics. The Company has designated the facility in Mission, BC as assets held for sale, while the Citizen Stash brand has been retained and continues to be sold in various provinces across Canada.

Provincial and territorial distribution expansion

In addition to the existing provincial and territorial distribution channels in British Columbia, Alberta, Saskatchewan, Ontario, Manitoba and New Brunswick, the Company has commenced its first listings of cannabis derivative products in the Yukon territory. The company continues to expand its reach across the provinces and territories and evaluate new opportunities. On August 18, 2021, the Company received authorization to contract with a public body from Autorité des marchés publics (AMP) in Quebec. On October 18, 2021, the Company announced it had successfully executed a letter of intent with the Société québecoise du cannabis (SQDC) for the distribution of its products in Quebec. Subsequent to May 31, 2022 the Company launched six Quebec-specific SKUs that are expected to be listed and distributed by SQDC in September 2022.

Capital Expenditures

The Company has completed all significant construction projects and expects that capital expenditures will be limited to items such as automation equipment that will increase productivity and have a positive financial impact in the short-term.

Board of Director Changes

On May 16, 2022, the Company announced that it has separated the roles of Chair and Chief Executive Officer (CEO) and appointed Andrew Cockwell as its new Chair of the Board. This decision follows the Company’s recent Nasdaq listing and its commitment to governance best practices including transparency and accountability. Tyler Robson has stepped down as Chair in full support of this decision and will remain on the Board and as the CEO of the Company.

Integration Activities

During the six months ended May 31, 2022, the Company commenced integration initiatives that aim to achieve a total of $20 million in annualized cost savings by fiscal year end 2022. The Company has actioned $15 million in cost savings to date with further cost reductions identified. Furthermore, with approximately 75% of the total $20 million in annual cost savings now actioned, the Company expects to realize most of these benefits beginning in the third quarter of 2022, with the remaining $5 million in identified cost savings to be actioned in the coming quarters.

As a result, the Company has recognized restructuring charges of $3,341 (May 31, 2021 – $nil) and $4,123 (May 31, 2021 – $nil) for the three and six months ended May 31, 2022, respectively. The restructuring charges related to head count reductions across all business units and departments.

Impairment Charges

In the second quarter of 2022, indicators of impairment were identified as a result of market conditions surrounding the Company and poor capital markets specific to the cannabis industry. This included an excess in the carrying value of the Company’s net assets compared to its market capitalization, as well as an increase in market interest rates. These indicators resulted in management re-assessing its future cash flow forecasts for each of its Cash Generating Unit (“CGU”), as well as the current valuation of certain intangible assets and goodwill. As a result of the analysis, which resulted in lower overall cash flow expectations that were further reduced by discounting the future cash flows by a higher discount rate, the Company recorded an impairment loss on goodwill of $52,936 (May 31, 2021 - $nil) and intangible assets $67,933 (May 31, 2021 - $nil) for the three and six months ended May 31, 2022. The Company does not expect the impairment charges to have any impact on future operations, nor its liquidity, cash flow from operating activities, or compliance with the financial covenants set forth in the Company’s term loan agreement.

The resulting impairment charges have contributed to a decrease in the net book value of the Company from $235,288 on February 28, 2022 (November 30, 2021 – $259,438) to $105,323 on May 31, 2022.

Management Discussion & Analysis

Debt and Equity Transactions for the six months ended May 31, 2022

On December 16, 2021, the Company entered into a secured non-revolving term loan with a private institutional lender for an aggregate principal amount of $40 million. The loan accrues interest at a rate of 10% per annum, is payable quarterly, and matures on December 15, 2023. A portion of the proceeds were used to repay the existing term loans and mortgage assumed in the acquisition of Citizen Stash, in full on December 20, 2021.

On April 5, 2022, the Company closed a bought deal financing, pursuant to which the Company issued 12,205,186 units at a price of $2.65 per unit, valued at $32,344, which were comprised of one common share of the Company and one-half share purchase warrant. Each full share purchase warrant is exercisable at a price of $3.20 per share for a period of forty-eight months from the date of closing. In connection with the financing, the Company incurred share issuance costs of $2,987.

SELECTED FINANCIAL INFORMATION

Management Discussion & Analysis

NON-GAAP PERFORMANCE MEASURES AND RATIOS

This MD&A contains certain financial performance measures that are not recognized or defined under IFRS (termed “Non-GAAP Measures and Ratios”). As a result, this data may not be comparable to data presented by other licensed producers of cannabis and cannabis companies. For an explanation of these measures to related comparable financial information presented in the consolidated financial statements prepared in accordance with IFRS, refer to the discussion below. The Company believes that these Non-GAAP Measures and Ratios are useful indicators of operating performance and are specifically used by management to assess the financial and operational performance of the Company. These Non-GAAP Measures and Ratios include, but are not limited, to the following:

Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)

The Company has identified adjusted EBITDA as a relevant industry performance indicator. Adjusted EBITDA is a non-GAAP financial measure used by management that does not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. Management defines adjusted EBITDA as loss for the period, as reported, adjusted for financing costs (net), recovery of income taxes, depreciation and amortization, share-based payments, fair value and realized biological assets changes, foreign exchange gains, inventory valuation allowance, remeasurement of contingent consideration, restructuring charges, gains and losses on disposal of capital assets, gains and losses on marketable securities and derivatives, non-recurring and transaction costs, financing costs and ongoing costs related to assets held for sale. Management believes this measure provides useful information as it is a commonly used measure in the capital markets to approximate operating earnings. See table below for determination of specific components of Adjusted EBITDA.

For the three months ended May 31, 2022, adjusted EBITDA loss decreased by $1,762 over the previous quarter ended February 28, 2022, as a result of the implementation of the Company’s cost-saving strategic restructuring plan as evident by the reduction in general and administrative expenses, whereby headcount reductions were initiated to focus on short-term and long-term profitability.

For the three months ended May 31, 2022, adjusted EBITDA loss increased by $10,924 over the same period in fiscal 2021, as a result of the Company’s continued transition away from toll extraction services to a consumer product development and manufacturing platform, including bulk cannabis oil sales. Also contributing to the increase in adjusted EBITDA loss is the addition of three acquisitions being included in the results of the current quarter, which took place between the second and fourth quarters of fiscal 2021. As described above, the Company has initiated a cost-saving strategic restructuring plan which is aimed to streamline the operations of the acquired business and return the Company to positive adjusted EBITDA.

Management Discussion & Analysis

For the six months ended May 31, 2022, adjusted EBITDA loss increased by $26,329 over the same period in fiscal 2021, as a result of the factors described above.

Adjusted Gross Profit

Management utilizes this measure to provide a representation of performance in the period by excluding the inventory impairment measurement adjustments and impacts of biological asset changes as required by IFRS. Adjusted gross profit is a non-GAAP ratio, which management believes provides useful information as it represents gross profit for management purposes based on costs to manufacture, package and ship inventory sold, exclusive of any impairments due to changes in internal or external influences impacting the net realizable value of inventory and non-cash items.

For the three months ended May 31, 2022, adjusted gross profit decreased by $15 from the first quarter in fiscal 2022. The proportion of revenue to cost of sales remained relatively consistent from the first quarter of fiscal 2022, resulting in a corresponding consistent adjusted gross profit. The Company’s integration and cost reduction initiatives coupled with operational improvements are aimed at increasing the adjusted gross profit of the Company in the second half of fiscal 2022.

For the three months ended May 31, 2022, adjusted gross profit decreased by $970 over the same period in fiscal 2021, as a result of the Company’s continued transition away from toll extraction services to a consumer product development and manufacturing platform, including bulk cannabis oil sales. Additionally, the Company has not yet realized all of the planned synergies from the acquisitions completed in fiscal 2021, adding to the negative pressure on adjusted gross profit. Also contributing to the decreased adjusted gross margin is the pricing compression the Canadian cannabis industry has experienced over the past twelve months.

For the six months ended May 31, 2022, adjusted gross profit decreased by $2,716 over the same period in fiscal 2021, as a result of the factors described above.

SEGMENTED INFORMATION

The Company has two reportable segments: Canada and United States and International, which is the way the Company reports information to its chief decision makers and Board of Directors.

The Canada operating segment includes all business-to-business and business-to-consumer activity within Canada. This includes toll processing and co-packing, product sales, and analytical testing. Segment assets include those arising from the Company’s main operations in Kelowna, British Columbia, the Pommies beverage facility in Bolton, Ontario and the LYF manufacturing facility in Kelowna, British Columbia. Ongoing costs associated with the Citizen Stash cultivation facility in Mission, British Columbia, which has been designated as an asset held for sale, are also included in the Canada operating segment.

The United States and International operating segment includes all activity related to the Green Roads CBD health and wellness manufacturing facility in Florida, United States. Segment assets include those arising from Green Roads’ operations. Also included are activities related to the distribution agreement with Cannvalate.

Management Discussion & Analysis

The operating segments for the three months ended May 31, 2022 and 2021:

The geographical breakdown for the three months ended May 31, 2022 and 2021:

Included in net revenue arising from the Canada operating segment is $5,452 from Customer A, $5,100 from Customer B, $4,908 from Customer C, and $2,719 from Customer D. Customers A through D each contributed 10 per cent or more to the Company’s net revenue for the three months ended May 31, 2022 (2021 – Customer A $2,869, Customer B $2,423, Customer C $2,290, Customer D $2,100, and Customer E $2,068).

Management Discussion & Analysis

The operating segments for the six months ended May 31, 2022 and 2021:

The geographical breakdown for the six months ended May 31, 2022 and 2021:

Included in net revenue arising from the Canada operating segment is $12,704 from Customer A, $9,923 from Customer B, $9,457 from Customer C, and $4,295 from Customer D. Customers A through D each contributed 10 per cent or more to the Company’s net revenue for the six months ended May 31, 2022 (2021 – Customer A $5,728, Customer B $4,752, Customer C $4,581, Customer D $4,552, and Customer E $3,927).

SUMMARY OF RESULTS

Net revenue

Management Discussion & Analysis

Net revenue is comprised of revenue from operations within Canada, including proprietary and industry leading extraction services, white label product formulation and manufacturing, the sale of bulk winterized oil and distillate and the sale of cannabis products. The Company entered into bill and hold transactions for the three and six months ended May 31, 2022, totaling $1,394 (May 31, 2021 – $10,527) and $1,394 (May 31, 2021 – $18,530), respectively. The Company also generates revenue from analytical testing from the Company’s ISO 17025 accredited lab. During the three and six months ended May 31, 2022, the Company generated revenues in the United States through the acquisition of Green Roads, which closed during the year ended November 30, 2021.

Three Months Ended May 31, 2022 compared to February 28, 2022

Net revenue increased $819 or 3.5% to $23,999 in the three months ended May 31, 2022, compared to $23,180 in the previous quarter ended February 28 2022. The increase is due primarily to an increase in demand of toll processing and co-packing revenue in the second quarter of Q2 with an increase of $2,258. Additionally, there was an increase in international sales in Australia, contributing to an increase of $695. These increases were offset by a decrease in product sales of $2,421, product sales were negatively impacted by shipments late in the quarter that did not meet the revenue recognition criteria as the shipments were still in transit on May 31, 2022.

Three Months Ended May 31, 2022 compared to May 31, 2021

Net revenue increased $5,235 or 27.9% to $23,999 in the three months ended May 31, 2022, compared to revenues of $18,764 in the same period in fiscal 2021. The increase in net revenue was driven primarily by the contribution of LYF, Green Roads, and Citizen Stash as the companies were acquired in the second, third, and fourth quarters of 2021, respectively. In addition to LYF, Green Roads, and Citizen Stash acquired revenue, the Company continues to ramp up product sales through the provincial boards and through the scale up of white label product formulation and manufacturing and saw an increase in other revenue during the quarter related to international sales in Australia. Additionally, although the Company is transitioning away from its focus on toll processing to product development and manufacturing, there was an increased demand during the second quarter of fiscal 2022, resulting in an increase of $1,686.

Six Months Ended May 31, 2022 compared to May 31, 2021

Net revenue increased $8,401 or 21.7% to $47,179 in the six months ended May 31, 2022, compared to revenues of $38,778 in the same period in fiscal 2021, due to the factors described above.

Cost of sales, inventory valuation allowance, and fair value changes on biological assets

Three Months Ended May 31, 2022 compared to February 28, 2022

Cost of sales, inventory valuation allowance, and fair value changes on biological assets increased by $13,529 or 63.8% to $34,748 in the three months ended May 31, 2022, compared to $21,219 in the previous quarter ended February 28, 2022. Cost of sales are comprised of raw cannabis and hemp biomass, hardware and other product costs, packaging, analytical testing costs, shipping, consumables, wages and salaries including benefits, and an allocation of other operating expenses including facility overhead and depreciation costs. The Company recorded an inventory write-down of $13,875 in the three months ended May 31, 2022, compared to $1,340 in the three months ended February 28, 2022, largely driven by a decrease in market selling prices on certain Company products. The Company recorded a net loss on fair value changes on biological assets of $234 in the three months ended May 31, 2022, compared to $74 in the three months ended February 28, 2022. The increase in cost of sales before impairment or fair value adjustments of 4.2% was driven by a corresponding gross revenue decrease of 2.0% in the same period.

Three Months Ended May 31, 2022 compared to May 31, 2021

Cost of sales, inventory valuation allowance, and fair value changes on biological assets increased by $20,121 or 137.6% to $34,748 in the three months ended May 31, 2022, compared to $14,628 in the same period in fiscal 2021. The increase in cost of sales is due primarily to increased sales during the quarter compared to the same period in fiscal 2021, as well as to an increase in inventory write-down. The Company recorded an inventory write-down of $13,875 in the three months ended May 31, 2022 compared to $194 in the same period in fiscal 2021, driven by the factors described above. The Company recorded a net loss on fair value changes on biological assets of $234 in the three months ended May 31, 2022, compared to $nil in the same period in fiscal 2021. The increase in cost of sales before impairment or fair value adjustments of 43.0% was driven by a gross revenue increase of 43.0% in the same period.

Management Discussion & Analysis

Six Months Ended May 31, 2022 compared to May31, 2021

Cost of sales, inventory valuation allowance, and fair value changes on biological assets increased by $26,094 or 87.3% to $55,967 in the six months ended May 31, 2022, compared to $29,872 in the same period in fiscal 2021. The increase in cost of sales is due primarily to increased sales during the quarter compared to the same period in fiscal 2021, as well as to an increase in inventory write-down. The Company recorded an inventory write-down of $15,215 in the six months ended May 31, 2022 compared to $545 in the same period in fiscal 2021, driven by the factors described above. The Company recorded a net loss on fair value changes on biological assets of $308 in the six months ended May 31, 2022, compared to $nil in the same period in fiscal 2021. The increase in cost of sales before impairment or fair value adjustments of 37.9% was driven by a gross revenue increase of 40.0% in the same period.

Gross profit

Three Months Ended May 31, 2022 compared to February 28, 2022

Gross profit decreased by $12,710 to ($10,749) in the three months ended May 31, 2022, compared to $1,961 in the three months ended February 28, 2022, mainly driven by an increase in cost of sales, including write-down of inventory in the second quarter of fiscal 2022 of $13,875, compared to $1,340 in the first quarter of fiscal 2022, which accounted for $12,535 of the quarter-over-quarter increase. Adjusted gross profit percentage remained relatively consistent at 14.0%, compared to 14.6% in the previous quarter as a result of consistent margins on gross sales quarter-over-quarter.

Three Months Ended May 31, 2022 compared to May 31, 2021

Gross profit decreased by $14,886 to ($10,749) in the three months ended May 31, 2022, compared to a $4,136 in the same period in fiscal 2021, mainly driven by an increase in cost of sales and an increase in inventory write-down, as mentioned above. Adjusted gross profit percentage decreased to 14.0% from 23.1% in the prior year as a result of increased cost of sales within the Company’s Canadian operations as a result of declining sales prices in the Canadian market and the timing of synergy realization of the Company’s acquisitions.

Six Months Ended May 31, 2022 compared to May 31, 2021

Gross profit decreased by $17,693 to ($8,788) in the six months ended May 31, 2022, compared to a $8,906 in the same period in fiscal 2021, mainly driven by an increase in cost of sales and an increase in inventory write-down, as mentioned above. Adjusted gross profit percentage decreased to 14.3% from 24.4% in the prior year as a result of increased cost of sales within the Company’s Canadian operations due to declining sales prices in the Canadian market and the timing of synergy realization of the Company’s acquisitions.

Operating Expenses

General and administrative

General and administrative expenses decreased to $14,250 in the second quarter of 2022, compared to $15,801 in the first quarter of fiscal 2022. The decrease is a result of cost saving initiatives and partial synergies realized by the Company, which led to decreases in salaries and wages and management and consulting fees, totalling $1,654. There were also decreases in facility costs and other general and administrative expenses of $927. Additionally, included in general and administrative expenses are the ongoing costs of $517 related to the cultivation facility in Mission, BC, which has been designated as a held for sale asset, after disposition of the asset the Company will avoid these costs. These decreases were offset by an increase in professional fees of $187.

Management Discussion & Analysis

General and administrative expenses increased to $14,250 in the second quarter of 2022, compared to $9,605 in the same period in fiscal 2021. The overall increased level of activity within the Company as it continues the next stage of growth. The continued expansion of the corporate office in Toronto, Ontario, the Pommies manufacturing facility in Ontario, as well as through the acquisitions of the LYF facility in Kelowna, British Columbia, the Green Roads facility in Florida, USA, and the Citizen Stash facility in Mission, British Columbia, all of which contributed to the increased general and administrative costs in the current quarter.

General and administrative expenses increased to $30,050 in the six months ended May 31, 2022, compared to $16,190 in the same period in fiscal 2021, due primarily to the factors described above.

Selling and marketing

Selling and marketing expenses increased to $6,654 in the first quarter of 2022, compared to $6,495 in the first quarter of fiscal 2022. The increase is a result of increased spending due to a new Green Roads marketing campaign, offset by a decrease in salaries due to cost saving initiatives and partial synergies realized by the Company.

Selling and marketing expenses increased to $6,654 in the second quarter of 2022, compared to $1,422 in the same period in fiscal 2021. The increase is a result of increased marketing & promotional materials, as the Company builds relationships with retail storefronts as it continues to execute a focus on product sales of the Company’s own brands. Additionally, the Company saw increases in online media and advertising expense due to the acquisition of Green Roads, as online advertising and sales are permitted for CBD products in the United States. There was an increase in commission and selling expenses, following the acquisition of Green Roads. Green Roads pays commission fees on inside sales, contract sales, affiliates, and outside agencies in relation to the sale of finished goods. Finally, there were additional costs incurred in the second quarter compared to the same period in fiscal 2021, due to the incremental expenses incurred via acquisition of LYF, Green Roads, and Citizen Stash, and due to increased spending to support the launch of the Versus and Contraband product lines.

Selling and marketing expenses increased to $13,150 in the second quarter of 2022, compared to $2,514 in the same period in fiscal 2021, due primarily to the factors described above.

Depreciation and amortization

Depreciation and amortization expense decreased to $2,945 in the second quarter of 2022, compared to $3,186 in the first quarter of fiscal 2022. The decrease is a result of the reclassification of certain assets from property, plant and equipment and intangible assets to assets held for sale, as these assets’ depreciation and amortization is ceased at the time of being classified as such. Additionally, there were significant balances within intangible assets which were impaired in the second quarter of 2022, reducing cost base, and therefore, amortization booked during the quarter.

Depreciation and amortization expense increased to $2,945 in the second quarter of 2022, compared to $2,702 in the same period in fiscal 2021. The increase in depreciation for the second quarter is attributable to the K2 production facility being in service during the quarter, which was not yet ready for use in the same period in fiscal 2021. Furthermore, as a result of the LYF (acquired during the second quarter of fiscal 2021), Green Roads, and Citizen Stash acquisitions, newly acquired fixed and intangible assets were being depreciated in the quarter, which were not being depreciated in the second quarter of fiscal 2021. Finally, the Company saw increased depreciation related to the right-of-use assets in the Toronto office, which began depreciating in July 2021. During the three months ended May 31, 2022, $761 (three months ended May 31, 2021 – $410) of depreciation was allocated to cost of sales.

Depreciation and amortization expense increased to $3,186 in the first quarter of 2022, compared to $2,508 in the same period in fiscal 2021, due to the factors described above. During the six months ended May 31, 2022, $1,456 (six months ended May 31, 2021 – $724) of depreciation was allocated to cost of sales.

Share-based payments

Share-based payments increased to $2,250 during the second quarter of fiscal 2022, compared to $1,753 in the first quarter of fiscal 2022, as a result of the annual share-based grants being awarded mid way through first quarter of fiscal 2022 resulting in only partial expense of the annual grant in the first quarter.

Management Discussion & Analysis

Share-based payments increased to $2,250 in the second quarter of 2022, compared to $1,245 in the same period in fiscal 2021. The increase is mainly the result of an increase in expense recognized associated with the Company’s LTIP stock options, RSU and DSU plans, which increased in the second quarter of 2022 by $1,651 compared to the same period in fiscal 2021. This increase was offset by decreases in expense recognized related to the Company’s legacy stock option plan and its obligation to issue shares related to employee compensation agreements with certain officers of the Company, which had a combined decrease of $646 in the second quarter of 2022 compared to the same period in fiscal 2021.

Share-based payments increased to $4,003 in the six months ended May 31, 2022, compared to $2,976 in the same period in fiscal 2021. The increase is mainly a result of an increase in expense recognized associated with the Company’s LTIP stock options, RSU and DSU plans, which increased through the first two quarters of 2022 by $2,328 compared to the same period in fiscal 2021. This increase was offset by decreases in expense recognized related to the Company’s legacy stock option plan and its obligation to issue shares related to employee compensation agreements with certain officers of the Company, which had a combined decrease of $1,301 in the six months ended May 31, 2022 compared to the same period in fiscal 2021.

Impairment loss on prepaid deposits

In fiscal 2020, the Company had made a prepaid deposit for the purchase of certain raw materials at a fixed price. During the second quarter of fiscal 2022, the Company re-assessed the value of this deposit based on updated market prices for the raw materials and determined it to be onerous, which resulted in an impairment loss of $4,075 in the three and six months ended May 31, 2022.

Restructuring charges

The Company recognized $3,341 in restructuring charges during the second quarter of fiscal 2022, compared to $782 in the first quarter of fiscal 2022. The restructuring charges incurred in both periods were due to activities undertaken to realize long-term savings, mainly due to acquisition synergies. The increase is the result of further action under this initiative.

The Company recognized $3,341 in restructuring charges during the second quarter of fiscal 2022, compared to $nil in the same period in fiscal 2021, related to the same initiatives noted above.

The Company recognized $4,123 in restructuring charges during the six months ended May 31, 2022, compared to $nil in the same period in fiscal 2021, related to the same initiatives noted above.

QUARTERLY RESULTS

The following table presents certain unaudited financial information for each of the eight quarters up to and including the quarter ended May 31, 2022. The information has been derived from our unaudited quarterly consolidated financial statements. Past performance is not a guarantee of future performance, and this information is not necessarily indicative of results for any future period.

Management Discussion & Analysis

FINANCIAL POSITION

The following table provides a summary of the Company’s financial position as at May 31, 2022 and November 30, 2021:

Total assets

Total assets decreased by $141,620 since fiscal year end 2021, to a balance of $203,064 as at May 31, 2022 from $344,684 as at November 30, 2021. The decrease is primarily the result of impairment losses recognized on intangibles assets and goodwill of $121,021, with additional net decreases of asset balances of $5,267 in the normal course of business. There was a net decrease in inventory of $10,181, which included inventory write-downs of $15,215, offset by $5,034 in net inventory purchases. Prepaid expenses, deposits, and other current assets decreased by $10,237, which included an impairment of $4,075, combined with additional operational decreases. Property, plant and equipment and assets held for sale decreased by $1,758 as a result of continued depreciation and impairment of $2,767 on the assets held for sale during the second quarter of fiscal 2022, offset by purchases made during the year. These decreases were offset by an increase in cash and cash equivalents increased by $8,846, primarily as a result of the completed bought deal during the second quarter of fiscal 2022 for a total net cash inflow of $29,357, offset by spend to settle various obligations. Other insignificant decreases totalled $2,002 from November 30, 2021.

Total liabilities

Total liabilities increased by $12,495 to $97,741 as at May 31, 2022 compared to $85,246 as at November 30, 2021. The increase is due primarily to the addition of a new term loan entered into during the period, which resulted in a net increase in term loan and other debt of $28,434. These increases were offset by a decrease in contractual obligations of $2,605, a decrease in deferred income tax liabilities of $10,072, and a decrease in contingent consideration liabilities of $2,618. Other insignificant increases totalled $644 from November 30, 2021.

Share capital

Share capital increased to $359,189 as at May 31, 2022 from $336,097 as at November 30, 2021. The increase was due primarily to the completion of the bought deal during the second quarter of fiscal 2022, resulting in an increase in share capital of $22,216, net of share issuance costs. Additionally, there were increases due to the issuance of 70,000 common shares in connection with employment compensation agreements, resulting in an increase in share capital of $471 and the release of RSUs and DSUs resulting in an increase in share capital of $405.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

Management intends to finance operating costs over the next twelve months with current cash on hand and raising additional capital through equity, as deemed necessary. There is no assurance that the Company will be successful in raising additional capital on commercially reasonable terms or at all. See “Risks and Uncertainties”. The Company has substantially completed capital intensive construction projects and expect to invest in capital expenditures that improve efficiencies and have a short pay back period.

On December 16, 2021, the Company entered into a secured non-revolving term loan with a private institutional lender for an aggregate principal amount of $40 million. The loan accrues interest at a rate of 10% per annum, is payable quarterly, and matures on December 15, 2023. A portion of the proceeds were used to repay the existing term loans and mortgage assumed in the acquisition of Citizen Stash, in full, on December 20, 2021. The Company is in compliance with all applicable covenants.

Management Discussion & Analysis

On April 5, 2022, the Company closed a bought deal financing, pursuant to which the Company issued 12,205,186 units at a price of $2.65 per unit, valued at $32,344, which were comprised of one common share of the Company and one-half share purchase warrant. Each full share purchase warrant is exercisable at a price of $3.20 per share for a period of forty-eight months from the date of closing. In connection with the financing, the Company incurred share issuance costs of $2,987.

Operating activities

Net cash used in operating activities for the six months ended May 31, 2022 was $42,861 as a result of a loss for the period of $186,555, an increase in non-cash working capital of $3,814, recovery of income taxes of $10,041, foreign exchange gain of $27, a modification of lease liability of $38, and a gain on remeasurement of contingent liability of $2,617. This decrease was partially offset by non-cash expenses related to share-based payments of $4,003, impairment losses on intangible assets, goodwill, assets held for sale, and prepaid deposits totalling $127,863, depreciation and amortization of $7,587, impairment loss on trade receivables of $2,017, accretion of $781, interest expense of $107, an impairment loss on inventory of $15,215, a loss on marketable securities and derivatives of $2,328, a loss on disposal of capital assets of $22, and a fair value loss on changes in biological assets of $308.

The increase in working capital adjustments is primarily due to an increase in trade and other receivables, driven by the timing of revenue transactions and the related receipt of funds, a decrease in contractual obligations due to repayments, and an increase in accounts payable and accrued liabilities as a result of the timing of payments and the Company’s focus on more favourable payment terms with vendors.

During the comparative period ended May 31, 2021, net cash used from operating activities was $17,251 as a result of a loss for the period of $14,812, increase in non-cash working capital of $8,861, recovery of income taxes of $2,849, foreign exchange gain of $658, interest income of $217, gain on disposal of capital assets of $34 and a gain on marketable securities and derivatives of $395, this decrease was partially offset by non-cash expenses related to share based payments of $2,976, depreciation and amortization of $5,935, impairment loss on trade receivables of $186, accretion of $826, interest expense of $107 and an impairment loss on inventory of $545.

Financing activities

Net cash received from financing activities for the six months ended May 31, 2022 was $56,183 as a result of net proceeds received from the term loan of $40,000 and net proceeds received from the bought deal closed during the second quarter of fiscal 2022 of $29,357, which was offset by the payment to settle obligation to issue shares of $54, payments to settle RSUs and DSUs of $158, payments on term loan and other debt of $9,754, financing fees paid of $2,400, and payments on the lease liability of $808.

During the comparative six months ended May 31, 2021 net cash received from financing activities was $35,534 as a result of net proceeds received from the bought deal financing of $36,767, exercise of warrants of $9 and exercise of stock options of $481, which was offset by the payment on exercise of RSUs of $212, payment to settle obligation to issue shares $133, payments on the term loan of $1,000 and payments on the lease liability of $378.

Management Discussion & Analysis

The Company filed a prospectus dated October 3, 2018 (the “2018 Prospectus”). Since the 2018 Prospectus, the Company has progressed with its business plan and continues to remain substantially in line with the budget and timing estimates disclosed in the 2018 Prospectus, with the exception of the geographic expansion facility buildout and related equipment purchase, which is now completed. Set out below is an approximate breakdown of the funds spent by the Company to date from the proceeds disclosed in the 2018 Prospectus, compared with the estimated expenditures as disclosed in the 2018 Prospectus:

The Company filed a prospectus dated April 2, 2019 (the “2019 Prospectus”). Since the 2019 Prospectus, the Company has progressed with its business plan and continues to remain substantially in line with the budget and timing estimates disclosed in the 2019 Prospectus, with the exception of the retrofit of the building at 180 Carion Road which on November 22, 2020 the Company received an amendment to its existing Health Canada processing license to allow operations to commence at the second facility which is now completed. Set out below is an approximate breakdown of the funds spent by the Company to date from the proceeds disclosed in the 2019 Prospectus, compared with the estimated expenditures as disclosed in the 2019 Prospectus:

On January 28, 2021 the Company filed a prospectus supplement (the “2021 Prospectus”). The Company issued 6,454,666 units valued at $39,696 which were comprised of one common share of the Company and one-half share purchase warrant. Each full share purchase warrant is exercisable at a price of $7.65 per share for a period of thirty-six months from the date of closing.  In connection with the financing, the Company incurred share issuance costs of $2,929. The Company intends to use the net proceeds from the offering to largely pursue strategic M&A and business expansion opportunities in Canada and international markets, including in connection with “Cannabis 3.0”-related products (i.e., where cannabis is an ingredient in a consumer product) and brands, including everything from skincare, to supplements, topicals, and other products and for working capital requirements and other general corporate purposes. Since then, the Company has utilized the proceeds as cash consideration for the Green Roads acquisition in addition to acquisition and project costs.

Management Discussion & Analysis

On May 27, 2021 the Company filed a prospectus supplement (the “May 2021 Prospectus”). The Company issued 4,646,767 units valued at $46,003 which were comprised of one common share of the Company and one-half share purchase warrant. Each full share purchase warrant is exercisable at a price of $12.45 per share for a period of thirty-six months from the date of closing. In connection with the financing, the Company incurred share issuance costs of $2,848. The Company intends to use the net proceeds from the offering to largely pursue strategic M&A and business expansion opportunities in Canada and international markets, including in connection with “Cannabis 3.0” - related products (i.e., where cannabis is an ingredient in a consumer product) and brands, including everything from skincare, to supplements, topicals, and other products and for working capital requirements and other general corporate purposes.

On April 5, 2022, the Company filed a prospectus supplement (the “April 2022 Prospectus”). The Company issued 12,205,186 units valued at $32,344 which were comprised of one common share of the Company and one-half share purchase warrant. Each full share purchase warrant is exercisable at a price of $2.30 per share for a period of forty-eight months from the date of closing. In connection with the financing, the Company incurred share issuance costs of $2,987. The Company intends to use the net proceeds from the offering to largely pursue strategic growth initiatives in North America, provide funding for working capital, and for general corporate purposes.

Investing activities

During the six months ended May 31, 2022, net cash used in investing activities was $4,484 due to the acquisition of property, plant and equipment of $3,919, acquisition of intangible assets of $161, and the purchase of marketable securities and derivatives of $500. The net cash used was offset slightly by proceeds from the sale of capital assets of $87 and repayment of promissory note receivable of $9. Use of proceeds from prospectus’ have been allocated as shown above in “financing activities”.

During the comparative six months ended May 31, 2021, net cash used in investing activities was $14,701 due to the acquisition of property, plant and equipment of $12,562, acquisition of intangible assets of $157, acquisition of LYF $3,713 and issuance of promissory note receivable of $750. Net cash used was partially offset by proceeds from sale of marketable securities and derivatives of $794, repayment of the promissory note for $1,614, and proceeds from sale of capital assets of $73.

Capital resources

The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to maintain operations. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company’s management to sustain future development of the business. The Company defines capital that it manages as shareholders equity and debt.

Management Discussion & Analysis

The Company has historically relied on the equity markets and debt markets to fund its activities. Management reviews its capital management approach on an on-going basis and believes that this approach, given the relative size of the Company, is reasonable to ensure optimal capital structure to reduce the cost of capital.

The Company is not currently subject to externally imposed capital requirements. As at May 31, 2022, total current assets less current liabilities totaled $60,794 (November 30, 2021 – $60,147).

OUTSTANDING SHARES, OPTIONS, SHARE UNITS AND WARRANTS

The Company is authorized to issue an unlimited number of common and preferred shares. The table below outlines the number of issued and outstanding common shares, warrants and options.

OFF-BALANCE SHEET AGREEMENTS

The Company has not engaged in any off-balance sheet arrangements such as obligations under guarantee contracts, a retained or contingent interest in assets transferred to an unconsolidated entity, any obligation under derivative instruments or any obligation under a material variable interest in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company or engages in leasing or hedging services with the Company.

COMMITMENTS

The Company does not have any purchase commitments for hemp and cannabis biomass over the next year.

Effective May 14, 2020, the Company entered into a five-year non-exclusive distribution agreement with Cannvalate Pty Ltd. (“Cannvalate”). The agreement is based on a pay for performance model, providing Cannvalate achieves milestones based on certain financial targets and facility construction and licensing timelines outlined in the agreement. The Company will pay $9,247 in consulting fees over the term of the agreement, subject to Cannvalate meeting the milestones as defined in the agreement. As at May 31, 2022, there remains $5,406 (November 30, 2021 – $6,312) payable under the terms of this agreement.

Based on the above, the future commitments, which include other purchase commitments due in each of the next five reporting years are as follows:

Obligation to issue shares

The Company has entered into an agreement with an officer, to issue the following shares:

There were no new commitments entered into by the Company during the period ending May 31, 2022 to issue shares. Upon termination of the services, the entitlement to the shares may be forfeited. Any share-based payments previously recognized related to the remaining unvested tranches will be reversed against profit and loss.

Management Discussion & Analysis

FINANCIAL RISK MANAGEMENT

The Company is exposed to varying degrees to a variety of financial related risks. The Board approves and monitors the risk management processes, inclusive of counterparty limits, controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:

Interest risk

The Company’s exposure to interest risk relates to its investment of surplus cash, and restricted short-term investments. The Company may invest surplus cash in highly liquid investments with short terms to maturity and would accumulate interest at prevailing rates for such investments. At May 31, 2022, the Company had cash and restricted short-term investments of $25,300 and a balance of $nil on term loans and other debt subject to fluctuations in interest rates (November 30, 2021 – $16,354 and $9,739). At May 31, 2022, a 1% decrease in interest rates would result in a reduction in interest income by $253 (November 30, 2021 – $164) and a reduction of interest expense of $nil (November 30, 2021 – $97), compared to a 1% increase in interest rates which would have an equal and opposite effect.

Credit risk

Credit risk is the risk of an unexpected loss if a customer or third party to a financial instrument fails to meet its contractual obligations. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, marketable securities and derivatives, restricted short-term investments, and receivables. The Company’s cash, and restricted short-term investments are held through large Canadian financial institutions and no losses have been incurred in relation to these items.

The Company’s receivables are comprised of trade accounts receivable, GST input tax credits, unbilled revenues, and government assistance receivable. In addition, the Company has $9,885 in trade accounts receivable outstanding over 60 days at May 31, 2022 (November 30, 2021 – $6,820). The expected credit loss for overdue balances is estimated to be $3,405 (November 30, 2021 – $821) based on historical collection experience, discussions with associated customers and analysis of the credit worthiness of the customer. Of the total invoiced trade receivables at May 31, 2022, the Company has subsequently collected, has trade payables outstanding with the same customers, or has recorded a trade receivables valuation allowance loss provision representing 56% of the total balance. Of the Company’s trade receivables outstanding at May 31, 2022, 38% are held with two Health Canada licensed customers of the Company and 25% are held with two provincial boards (November 30, 2021 – 43% held with four Health Canada licensed customers and 24% held with three provincial boards).

The carrying amount of cash, marketable securities and derivatives, restricted short-term investments, and trade and other receivables represent the maximum exposure to credit risk, and as at May 31, 2022, this amounted to $55,370 (November 30, 2021 – $48,124).

Economic dependence risk

Economic dependence risk is the risk of reliance upon a select number of customers which significantly impact the financial performance of the Company. The Company recorded sales from one Health Canada licensed customer of the Company representing 27% and 24% of total revenue in the three and six months ended May 31, 2022, respectively (2021 – four Health Canada licensed customers representing 44% and 44% of total revenue). The Company recorded sales from three provincial boards representing 69% and 69% of total revenue in the three and six months ended May 31, 2022, respectively (2021 – three provincial boards representing 32% and 36% of total revenue).

Liquidity risk

Liquidity risk is the risk that the Company will not be able to pay financial liabilities as they come due. The Company manages its liquidity risk by reviewing on an ongoing basis its capital requirements, as well as by forecasting cash flows from operations for future periods. As at May 31, 2022, the Company has $25,300 of cash, and restricted short-term investments (November 30, 2021 – $16,354). The Company is obligated to pay accounts payable and accrued liabilities, current portions of the lease liability, contractual obligation, contingent consideration, and term loan and other debt with a carrying amount of $40,167 (November 30, 2021 – $50,633).

Management Discussion & Analysis

Foreign currency risk

The Company is exposed to foreign currency risk on fluctuations related to cash, trade and other receivables, accounts payable and accrued liabilities, other liability, and contractual obligations (including contingent consideration) that are denominated in US dollars and Australian dollars. As at May 31, 2022, a 10% appreciation of the Canadian dollar relative to the US dollar would have decreased loss for the period by approximately $902 (November 30, 2021 – $1,048). A 10% depreciation of the Canadian dollar relative to the US dollar would have had the equal but opposite effect. A 10% appreciation of the Canadian dollar relative to the Australian dollar would have decreased loss for the period by approximately $75 (November 30, 2021 – $15). A 10% depreciation of the Canadian dollar relative to the Australian dollar would have had the equal but opposite effect.

In addition, the Company is exposed to foreign currency risk on fluctuations related to a commitment that is denominated in Australian dollars. As at May 31, 2022, a 10% appreciation of the Canadian dollar relative to the Australian dollar would have decreased the commitment by approximately $541 (November 30, 2021 – $631). A 10% depreciation of the Canadian dollar relative to the Australian dollar would have had the equal but opposite effect.

CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of these condensed interim consolidated financial statements in conformity with IAS 34 requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period.

Estimates and assumptions are continuously evaluated and are based on management’s experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates.

Significant assumptions about the future and other sources of estimation uncertainty that management has made at the end of the reporting period, that could result in a material adjustment to the carrying amounts of assets and liabilities in the event that actual results differ from assumptions made, relate to, but are not limited to, the following:

Management Discussion & Analysis

CHANGES IN ACCOUNTING POLICIES

New IFRS Standards in issue but not yet effective:

The amendment specifies that ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The amendment is effective for annual periods beginning on or after January 1, 2022 with early application permitted. The Company is currently evaluating the potential impact of these amendments on the Company’s condensed interim consolidated financial statements.

The amendment clarifies the requirements relating to determining if a liability should be presented as current or non-current in the statement of financial position. Under the new requirement, the assessment of whether a liability is presented as current or non-current is based on the contractual arrangements in place as at the reporting date and does not impact the amount or timing of recognition. The amendment applies retrospectively for annual reporting periods beginning on or after January 1, 2023. The Company is currently evaluating the potential impact of these amendments on the Company’s condensed interim consolidated financial statements.

The amendment narrowed the scope of certain recognition exemptions so that it no longer applies to transactions that, on initial recognition, give rise to equal taxable and deductible temporary differences. An entity applies the amendments to transactions that occur on or after the beginning of the earliest comparative period presented. It also, at the beginning of the earliest comparative period presented, recognizes deferred tax for all temporary differences related to leases and decommissioning obligations and recognizes the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at that date. The amendment is effective for annual periods beginning on or after January 1, 2023 with early application permitted. The Company is currently evaluating the potential impact of these amendments on the Company’s condensed interim consolidated financial statements

Management Discussion & Analysis

As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued amendments to IAS 41. The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flow when measuring the fair value of a biological asset using a present value technique. This will ensure consistency with the requirements in IFRS 13. The amendment is effective for annual reporting periods beginning on or after January 1, 2022. The Company is currently evaluating the potential impact of these amendments on the Company’s consolidated financial statements.

On February 12, 2021, the IASB issued Definition of Accounting Estimates (Amendments to IAS 8).

The amendments introduce a new definition for accounting estimates, clarifying that they are monetary amounts in the financial statements that are subject to measurement uncertainty. The amendments also clarify the relationship between accounting policies and accounting estimates by specifying that a company develops an accounting estimate to achieve the objective set out by an accounting policy.

The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted. The Company is currently evaluating the potential impact of these amendments on the Company’s condensed interim consolidated financial statements.

On February 12, 2021, the IASB issued Disclosure Initiative – Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements). The amendments help companies provide useful accounting policy disclosures. The key amendments include:

The amendments are effective for annual periods beginning on or after January 1, 2023. Early adoption is permitted. The Company is currently evaluating the potential impact of these amendments on the Company’s condensed interim consolidated financial statements.

NEWLY ADOPTED ACCOUNTING POLICIES

Assets held for sale

The Company accounts for its assets held for sale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations. The Company designates its assets and disposal groups as being held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through their continued use. For assets and disposal groups to be classified as being held for sale, their ultimate sale must be highly probable within one year, they must be available for immediate sale in their current condition, and they must be actively marketed by management. Assets held for sale are carried at the lower of their carrying amount and fair value less costs to sell and are presented separately in the condensed interim consolidated statements of financial position.

Management Discussion & Analysis

RELATED PARTY TRANSACTIONS

Key Management Compensation

Key management personnel are those persons having the authority and responsibility for planning, directing, and controlling the activities of the Company, directly or indirectly. The Company has defined key management personnel to include the CEO, CFO, COO, CCO, President, Executive Vice Presidents, and directors of the Company.

The remuneration paid or accrued for the Company’s key management personnel and directors are as follows:

Management Discussion & Analysis

Related Party Balances

The following related party amounts were included in receivables:

REGULATORY FRAMEWORK AND U.S. CANNABIS INDUSTRY INVOLVMENT OPERATIONS

The Company is subject to various industry specific regulatory frameworks in Canada, the United States and other international jurisdictions which are discussed in greater detail under the heading “Regulatory Framework” in the Company’s Annual Information Form dated May 31, 2022 available at www.sedar.com.

The Company does not directly engage in any U.S. cannabis-related activities as defined in Canadian Securities Administrators Staff Notice 51-352.

RISK FACTORS

Many factors could cause the Company’s actual results, performance and achievements to differ materially from those expressed or implied by the forward-looking statements and forward-looking information, including without limitation, the factors discussed in detail under the heading “Risk Factors” in the Company’s Annual Information Form dated May 31, 2022 available at www.sedar.com, which risk factors are incorporated by reference into this document, and should be reviewed in detail by all readers:

Management Discussion & Analysis

Management Discussion & Analysis

Management Discussion & Analysis

Management Discussion & Analysis

If its efforts to comply with new United States laws, regulations and standards differ from the activities intended by regulatory or governing bodies, such regulatory bodies or third parties may initiate legal proceedings against the Company and its business may be adversely affected. As a public company in the United States, it is more expensive for the Company to obtain director and officer liability insurance, and it will be required to accept reduced coverage or incur substantially higher costs to continue its coverage. These factors could also make it more difficult for the Company to attract and retain qualified directors.

The Sarbanes-Oxley Act (“Sarbanes-Oxley”) requires that the Company maintain effective disclosure controls and procedures and internal control over financial reporting. In the event that the Company is not able to demonstrate compliance with Sarbanes-Oxley, that its internal control over financial reporting is perceived as inadequate, or that it is unable to produce timely or accurate financial statements, investors may lose confidence in its operating results and the price of the Common Shares may decline. In addition, if the Company is unable to continue to meet these requirements, it may not be able to remain listed on Nasdaq.

Following a transition period permitted for a newly public company in the United States, the Company’s independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting. Even if management concludes that our internal controls over financial reporting are effective, its independent registered public accounting firm may issue a report that is qualified if it is not satisfied with the Company’s controls or the level at which its controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently than the Company does;

Management Discussion & Analysis

As a foreign private issuer, the Company is exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. The Company is also exempt from Regulation FD, which prohibits issuers from making selective disclosures of material non-public information. While the Company complies with the corresponding requirements relating to proxy statements and disclosure of material non-public information under Canadian securities laws, these requirements differ from those under the Exchange Act and Regulation FD and shareholders should not expect to receive the same information at the same time as such information is provided by U.S. domestic companies. In addition, the Company may not be required under the Exchange Act to file annual and quarterly reports with the SEC as promptly as U.S. domestic companies whose securities are registered under the Exchange Act.

In addition, as a foreign private issuer, the Company has the option to follow certain Canadian corporate governance practices, except to the extent that such laws would be contrary to U.S. securities laws, and provided that the Company disclose the requirements it is not following and describe the Canadian practices it follows instead. The Company may in the future elect to follow home country practices in Canada with regard to certain corporate governance matters. As a result, the Company's shareholders may not have the same protections afforded to shareholders of U.S. domestic companies that are subject to all corporate governance requirements;

For so long as the Company remains an emerging growth company, it is permitted to and intends to rely upon exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley. The Company cannot predict whether investors will find the Common Shares less attractive because the Company relies upon certain of these exemptions. If some investors find the Common Shares less attractive as a result, there may be a less active trading market for the Common Shares and the Common Share price may be more volatile. On the other hand, if the Company no longer qualifies as an emerging growth company, the Company would be required to divert additional management time and attention from the Company's development and other business activities and incur increased legal and financial costs to comply with the additional associated reporting requirements, which could negatively impact the Company's business, financial condition and results of operations.

Management Discussion & Analysis

Dividends

The Company has no dividend record and is unlikely to pay any dividends over the next fiscal year as it intends to deploy available funds for growth opportunities in the cannabis sector. Any future determination to pay dividends will be at the discretion of the Board of Directors and will depend on the Company’s financial condition, results of operations, capital requirements and such other factors as the Board of Directors deem relevant.

Nature of the Securities

The purchase of the Company’s securities involves a high degree of risk and should be undertaken only by investors whose financial resources are sufficient to enable them to assume such risks. The Company’s securities should not be purchased by persons who cannot afford the possibility of the loss of their entire investment. Furthermore, an investment in the Company’s securities should not constitute a major portion of an investor's portfolio.

Proposed Transactions

There are currently no significant proposed transactions except as otherwise disclosed in this MD&A. Confidentiality agreements and non-binding agreements may be entered into from time to time, with independent entities to allow for discussions of the potential acquisition and/or development of potential business relationships.

Approval

The Board of Directors oversees management’s responsibility for financial reporting and internal control systems through an Audit Committee. This Committee meets periodically with management and annually with the independent auditors to review the scope and results of the annual audit and to review the financial statements and related financial reporting and internal control matters before the financial statements are approved by the Board of Directors and submitted to the shareholders of the Company. The Board of Directors of the Company has approved the financial statements and the disclosure contained in this MD&A.

MANAGEMENT’S REPORT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING

Disclosure Controls and Procedures

As required by National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings and Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, the Company has evaluated, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this MD&A. Disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in reports that the Company files under the Exchange Act is accumulated and communicated to the Company’s management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported.

Based upon the evaluation of the Company’s disclosure controls and procedures as of May 31, 2022, the Company’s CEO and CFO have concluded that, as a result of the material weaknesses in the Company’s internal control described in the Annual MD&A for the year ended November 30, 2021, as of such date, the Company’s disclosure controls and procedures were not effective.

Based upon the evaluation, the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) have concluded that the Company’s disclosure controls and procedures were not effective as of November 30, 2021, at the reasonable assurance level due to the material weaknesses described below under “Management’s Assessment on Internal Control Over Financial Reporting.” As a result of the material weaknesses identified, the Company performed additional analysis and other post-closing procedures. Notwithstanding this material weaknesses, management has concluded that the consolidated financial statements for the year ended November 30, 2021 and the condensed interim consolidated financial statements for the six months ended May 31, 2022 present fairly, in all material respects, the financial position of the Company at November 30, 2021 and May 31, 2022 in conformity with IFRS and our external auditors have issued an unqualified opinion on our consolidated financial statements as of and for the year ended November 30, 2021.

Management Discussion & Analysis

Management’s Assessment on Internal Control over Financial Reporting (“ICFR”)

In accordance with National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings and as required by Rule 13a-15(f) and 15d-5(f) of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, management is responsible for establishing and maintaining adequate ICFR. ICFR have been designed by management to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards (“IFRS”). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management concluded that ICFR was not effective as of November 30, 2021 as a result of certain material weaknesses in internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the assessment of the effectiveness of our internal control over financial reporting, management identified material weaknesses that existed as of November 30, 2021. For the year ended November 30, 2021, the Company identified material weaknesses in the business-to-business revenue and procurement processes, specifically:

These material weaknesses resulted in audit adjustments to inventory and accounts payables related financial statement disclosure s, which were recorded prior to the issuance of the consolidated financial statements as of and for the year ended November 30, 2021.

Additionally, these material weaknesses, individually and in the aggregate, could result in a material misstatement of the Company’s accounts or disclosures that would not be prevented or detected.

Status of Remediation Plan

Management, with the assistance of external consultants, began reviewing and revising our internal control over financial reporting. Management is committed to implementing changes to our internal control over financial reporting to ensure that the control deficiencies that contributed to the material weaknesses are remediated.

The following remedial activities are in process as at May 31, 2022:

Management Discussion & Analysis

While we believe these actions will remediate the material weakness, we have not completed all the corrective processes, procedures and related evaluation or remediation that we believe are necessary. As we continue to evaluate and work to remediate the material weaknesses, we may need to take additional measures to address the control deficiencies. Until the remediation steps set forth above, including the efforts to implement any additional control activities identified through our remediation processes, are fully implemented, and concluded to be operating effectively, the material weaknesses described above will not be considered fully remediated.

Changes in Internal Control Over Financial Reporting

Other than disclosed above, there have been no changes in the Company's internal control over financial reporting during the Company's fiscal quarter ended May 31, 2022 that have materially affected or are reasonably likely to materially affect its internal control over financial reporting.

DIRECTORS AND OFFICERS

OTHER REQUIREMENTS

Additional disclosure of the Company’s material change reports, news releases and other information can be obtained on SEDAR at www.sedar.com and EDGAR at www.edgar.com.

On Behalf of the Board,

THE VALENS COMPANY INC.