CHARLOTTE’S WEB HOLDINGS, INC. CONSOLIDATED ......CHARLOTTE'S WEB HOLDINGS, INC. (In thousands of...

CHARLOTTE’S WEB HOLDINGS, INC.

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in United States dollars)

CONSOLIDATED FINANCIAL

STATEMENTS For the Years Ended December 31, 2019 and 2018

CONTENTS

INDEPENDENT AUDITOR’S REPORT .......................................................................................................................... 1 CONSOLIDATED FINANCIAL STATEMENTS: STATEMENTS OF FINANCIAL POSITION ............................................................................................................. 3 STATEMENTS OF (LOSS) INCOME AND OTHER COMPREHENSIVE (LOSS) INCOME ........................................... 4 STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY .................................................................................. 5 STATEMENTS OF CASH FLOWS .......................................................................................................................... 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ....................................................................................... 7

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

INDEPENDENT AUDITOR’S REPORT


CHARLOTTE'S WEB HOLDINGS, INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(In thousands of United States dollars)

December 31, 2019

December 31, 2018

ASSETSCurrent assets:

Cash 68,553$ 73,404$ Trade and other receivables, net (note 4) 5,462 4,874 Note receivable (note 5) 1,421 - Inventories (note 7) 64,054 23,969 Prepaid expenses and other current assets (note 10) 3,592 3,917 Income taxes receivable 3,273 1,787

146,355 107,951 Non-current assets:

Property and equipment, net (note 8) 42,949 6,806 Intangible assets, net (note 9) 1,596 619 Deferred tax assets (note 16) 30,417 23,449 Loan due from related parties (note 6) - 128 Other long-term assets 1,625 181

222,942$ 139,134$

LIABILITIES AND SHAREHOLDERS' EQUITYCurrent l iabil ities:

Accounts payable 8,798$ 3,379$ Accrued liabil ities 7,323 6,483 Deferred revenue 550 467 Current cultivation l iabil ities (note 13) 10,803 3,531 Current note payable 9 9 Current lease obligations (note 11) 1,945 283

29,428 14,152 Non-current l iabil ities:

Long-term cultivation l iabil ities (note 13) 14,289 3,286 Long-term note payable 3 12 Long-term lease obligations (note 11) 22,116 113 Deferred rent - 73 Warrant l iabil ity (note 12) 3,408 -

69,244 17,636 Shareholders' equity:

Share capital 123,927 78,316 Contributed surplus 27,513 25,357 Retained earnings 2,258 17,825

153,698 121,498

222,942$ 139,134$


CHARLOTTE'S WEB HOLDINGS, INC.CONSOLIDATED STATEMENTS OF (LOSS) INCOME AND OTHER COMPREHENSIVE (LOSS) INCOME (In thousands of United States dollars, except per share amounts)

Year ended December 31,2019 2018

Revenue 94,594$ 69,501$

Cost of sales (note 15) 44,144 17,010

Gross profit before (gain) loss on fair value of biological assets 50,450 52,491

Realized fair value (gain) included in inventory sold (note 7) (994) (1,133)

Unrealized fair value loss on growth of biological assets (note 7) 842 1,324

Gross profit 50,602 52,300

Expenses:General and administrative (note 15) 45,546 22,337 Sales and marketing (note 15) 28,107 12,808 Research and development (note 15) 1,754 837 Offering related costs - 1,332

75,407 37,314

Operating (loss) income (24,805) 14,986

Financing costs 326 185 Interest income (994) (547) Other income, net (2,928) (194)

(Loss) income before taxes (21,209) 15,542

Income tax (benefit) expense (note 16) (5,642) 3,734

Net (loss) income and comprehensive (loss) income (15,567)$ 11,808$

Weighted average number of common shares - basic (note 14d) 96,539,194 83,902,648 Weighted average number of common shares - diluted (note 14d) 96,539,194 95,029,844

(Loss) earnings per share - basic (note 14d) (0.16)$ 0.14$ (Loss) earnings per share - diluted (note 14d) (0.16)$ 0.12$


CHARLOTTE'S WEB HOLDINGS, INC.

(In thousands of United States dollars)

Year ended December 31, 2018 Share capitalContributed

surplusRetained earnings Total

Balance - December 31, 2017 5,835$ 787$ 6,017$ 12,639$

Initial public offering 71,958 - - 71,958

Private placement 4,256 - - 4,256

Exercise of common stock options (note 14b) 42 - - 42

Issuance of broker stock warrants (845) 845 - -

Exercise of broker stock warrants 2,128 - - 2,128

Income tax benefit from stock options (note 16) - 22,859 - 22,859

Share-based compensation expense (note 14e) - 866 - 866

Share issuance costs (note 14b) (5,058) - - (5,058)

Net income - - 11,808 11,808

Balance - December 31, 2018 78,316$ 25,357$ 17,825$ 121,498$

Year ended December 31, 2019 Share capitalContributed

surplusRetained earnings Total


Share offering, net of warrants (note 14b) 44,295 - - 44,295

Exercise of common stock options (note 14b) 2,850 (1,264) - 1,586

Exercise of broker stock warrants (note 14b) 1,328 (842) - 486

Income tax benefit from stock options (note 16) - 1,284 - 1,284

Share-based compensation expense (note 14e) - 2,978 - 2,978

Share issuance costs (note 14b) (2,862) - - (2,862)

Net (loss) - - (15,567) (15,567)


CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

CHARLOTTE’S WEB HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2019 and 2018

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1. Company overview

(a) Organization and Reorganization

Charlotte’s Web Holdings, Inc. and its subsidiary, Charlotte’s Web, Inc., (collectively the “Company”) is a public company incorporated pursuant to the laws of the Province of British Columbia. The Company is publicly listed on the Toronto Stock Exchange (TSX) under the symbol “CWEB.”

The Company’s head office is located at 1600 Pearl Street, Suite 300, Boulder, Colorado, 80302, United States and its registered and records office is located at 2800 Park Place, 666 Burrard Street, Vancouver, British Columbia V6C 2Z7, Canada.

The Company was incorporated under the Business Corporations Act (British Columbia) on May 18, 2018, as Stanley Brothers Holdings Inc. On July 12, 2018, the Company changed its name to Charlotte’s Web Holdings, Inc. The Company was created to indirectly acquire and hold all of the shares of CWB Holdings, Inc. (“CWB”).

Stanley Brothers, Inc. was incorporated under the laws of Delaware on June 15, 2018 and is a wholly owned subsidiary of Charlotte’s Web Holdings, Inc. In conjunction with the initial public offering, Stanley Brothers, Inc. changed its name to Charlotte’s Web, Inc. The registered office of Charlotte’s Web, Inc. is located at Corporation Service Company, 251 Little Falls Drive, City of Wilmington, County of New Castle, Delaware 19808, United States.

CWB was incorporated under the Colorado Business Corporation Act (‘‘CBCA’’). CWB was initially formed December 8, 2013 under the name Stanley Brothers Social Enterprises, LLC, and on June 19, 2015, changed its name to CWB Holdings, LLC. On December 30, 2015, it converted from a limited liability company to a corporation pursuant to Colorado law and changed its name to CWB Holdings, Inc. The registered office and head office of CWB are located at 2425 55th Street, Suite 200, Boulder, Colorado 80301, United States.

Immediately following the Company’s initial public offering, Charlotte’s Web Holdings, Inc. and CWB completed the following reorganization steps (collectively, the “Reorganization”) pursuant to a merger agreement between Charlotte’s Web Holdings, Inc., CWB and Charlotte’s Web, Inc.

(1) CWB merged into Charlotte’s Web, Inc. (formerly Stanley Brothers, Inc.). (2) Shareholders of CWB exchanged their shares in CWB for shares in Charlotte’s Web Holdings,

Inc. The shares of common stock of CWB owned immediately prior to the Reorganization were converted into the right to receive from the Company one Proportionate Voting Share for every 44.444 shares of common stock of CWB. The ratio was intended to give effect to an approximate 9:1 split of common stock of CWB in connection with the exchange of such stock for Proportionate Voting Shares. The stock split was given effect to the earliest date presented in these financial statements.

(3) All the issued and outstanding shares of CWB were cancelled and the shareholders of CWB ceased to have any rights other than the right to receive consideration of any rights of dissenting shareholders.

CWB had one wholly owned subsidiary which operated under the name of Stanley Brothers Social Enterprises, LLC (“SBSE”) through its dissolution date of April 17, 2018.



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(b) Nature of operations

Charlotte’s Web is a market leader in the production and distribution of innovative hemp-based, Cannabidiol (CBD) wellness products. Through its vertically integrated business model, the Company strives to improve customers’ lives and meet their demands for stringent product quality, efficacy and consistency. The Company does not produce or sell medicinal or recreational marijuana or products derived therefrom.

The Company’s hemp products are made from high quality and proprietary strains of whole-plant hemp extracts containing a broad spectrum of phytocannabinoids, including CBD, terpenes, flavonoids and other minor but valuable hemp compounds. The Company believes the presence of these various compounds work synergistically to heighten the effects of the products, making them superior to single-compound CBD isolates.

The Company’s hemp extracts are produced from hemp, which is defined in the 2018 Farm Bill as the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol (“THC”) concentration of not more than 0.3 percent on a dry weight basis. THC causes psychoactive effects when consumed and is typically associated with marijuana (i.e. Cannabis with high-THC content). The Company does not produce or sell medicinal or recreational marijuana or products derived from high-THC Cannabis/marijuana plants. Hemp products have no psychoactive effects.

The Company’s current product categories include human ingestible (tinctures, capsules, and gummies), topicals, and pet products. Planned product categories, as or when approved by the U.S. Food and Drug Administration (“FDA”) include powdered supplements, beverage, food, beauty, sport, professional (dedicated health care practitioner products) and over-the-counter wellness. The Company’s products are distributed through its ecommerce website, third party ecommerce websites, select distributors and a variety of brick and mortar retailers.

The Company grows its proprietary hemp on farms leased or owned in eastern Colorado and sources high-quality hemp through long term contract farming operations in Kentucky and Oregon.

2. Basis of preparation

(a) Statement of compliance The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IAS). The consolidated financial statements for the years ended December 31, 2019 and 2018 were approved and authorized for issue by the board of directors on March 22, 2020. The board of directors has the power to amend the financial statements after issuance.

(b) Measurement basis

The consolidated financial statements have been prepared mainly on a historical cost basis. Other measurement bases used are described in the applicable notes.



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(c) Basis of consolidation The consolidated financial statements include the accounts of Charlotte’s Web Holdings, Inc. and its wholly-owned subsidiary, Charlotte’s Web, Inc., as of December 31, 2019 and 2018. In addition, the Company’s financial statements consolidate the Company and its wholly owned subsidiary, Stanley Brothers Social Enterprises, LLC, through its dissolution date of April 17, 2018. Inter-company balances and transactions are eliminated in preparing the consolidated financial statements. The accounting policies of the subsidiary are consistent with Charlotte Web Holdings, Inc.’s policies.

(d) Critical accounting estimates and judgments

The preparation of consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

i. Biological assets and inventory In calculating the value of the biological assets and inventory, management is required to make a number of estimates, including estimating the stage of growth of the industrial hemp plants to the point of harvest, harvesting costs, and selling costs. In calculating final inventory values, management is required to determine an estimate of obsolete inventory and an estimate for any inventory for which cost is lower than estimated net realizable value and recognizes inventory provisions accordingly.

ii. Useful lives of depreciable and amortizable assets In calculating the depreciation and amortization expense, management is required to make estimates of the expected useful lives of property and equipment and intangible assets.

iii. Share-based compensation

The Company uses the Black-Scholes option-pricing model to determine the grant date fair value of share-based compensation. The following assumptions are used in the model: expected volatility; expected option life; risk-free interest rate and fair value. Changes to assumptions used to determine the grant date fair value of share-based compensation awards can affect the amounts recognized in the consolidated financial statements.

iv. Taxes

In calculation of current and deferred income taxes, management is required to make estimates and assumptions regarding the carrying values of assets and liabilities that are subject to accounting estimates inherent in those balances, the interpretation of tax legislation in various jurisdictions, expectations on future operating results, timing of reversal of temporary differences and possible audits by regulating tax authorities.



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Changes in estimates or assumptions may result in changes to the current or deferred income tax balances in the consolidated financial statements.

v. Impairment of financial assets The Company recognizes a loss allowance for the expected credit losses associated with its financial assets, other than financial assets measured at fair value. Expected credit losses are measured by making estimates and assumptions in regard to probability-weighted amounts, the time value of money, information regarding past events, current conditions and forecasts of future economic conditions.

vi. Leases The application of IFRS 16 “Leases” requires significant judgements and certain key estimations to be made. Critical judgements required in the application of IFRS 16 include the following: (i) identifying whether a contract includes a lease; (ii) determining whether it is reasonably certain that an extension or termination option will exercised; (iii) determining whether variable payments are in-substance fixes; (iv) establishing whether there are multiple leases in an arrangement; and (v) determining the stand-alone selling price of lease and non-lease components. Key sources of estimation uncertainty in the application of IFRS 16 include the following: (i) estimating the lease term; (ii) determining the appropriate rate to discount lease payments; and (iii) assessing whether a right-of-use (RoU) asset is impaired.

(e) Reclassifications and prior period presentations

Certain amounts presented in prior periods have been reclassified to conform with the current period presentation.

(f) Functional and presentation currency The consolidated financial statements are presented in United States dollars (unless otherwise noted), which is the functional currency of the Company and its subsidiary. All financial information is presented in United States dollars and has been rounded to the nearest thousand, except for per share amounts.

(g) Current versus non-current classification The Company presents assets and liabilities in the statements of financial position based on current/non-current classification. An asset is current when it is:

• Expected to be realized or intended to be sold or consumed in the normal operating cycle; • Held primarily for the purpose of trading; • Expected to be realized within twelve months after the reporting period; or • Cash or cash equivalent, unless restricted from being exchanged or used to settle a liability for

at least twelve months after the reporting period. All other assets are classified as non-current.



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A liability is current when: • It is expected to be settled in the normal operating cycle; • It is held primarily for the purpose of trading; • It is due to be settled within twelve months after the reporting period; or • There is no unconditional right to defer the settlement of the liability for at least twelve months

after the reporting period. All other liabilities are classified as non-current. Deferred income tax assets and liabilities are classified as non-current assets and liabilities.

3. Summary of significant accounting policies

(a) Cash

The Company maintains its cash in accounts that, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.

(b) Biological assets Biological assets, consisting of industrial hemp plants, are measured at fair value less costs to sell up to the point of harvest. Determination of the fair values of the biological assets requires the Company to make assumptions about how market participants assign fair values to these assets. These assumptions primarily relate to the level of effort required to bring the industrial hemp plants up to the point of harvest, sales price and expected remaining future yields for the industrial hemp plants. Gains or losses arising from changes in fair value less costs to sell during the year are included in the statements of income and other comprehensive income of the related year. In determining the fair value of hemp plants, the Company used its average purchase price from third-party farmers, based on potency, as a proxy for fair value as the Company’s strains of hemp do not have an active market as the Company does not sell its harvested hemp plants. One of the Company’s strains of industrial hemp includes an 8% and 16% premium for the years ended December 31, 2019 and December 31, 2018, respectively, because of its estimated increased value due to its prime genetics. The premium is based on the hemp extract cost differential between products containing such prime genetics compared to other genetics used in the manufacture of its finished products. Processing costs after harvest include drying, stripping, hammermilling and packaging of the raw material. At December 31, 2019 and December 31, 2018, estimated weighted average costs were $5.16 and $1.90 per pound of industrial hemp, developed from historical cost breakdowns. Costs to sell are estimated at 30% of fair value. These costs are reductions from the average purchase price. The net fair value is then capitalized into inventory and becomes a raw material element of finished goods sold. The fair value of biological assets is considered a Level 3 categorization in the IFRS fair value hierarchy and there have been no changes between levels during the years. The significant estimates and inputs used to assess the fair value of biological assets include the following assumptions: (a) The cost to complete the hemp plant post-harvest (b) Cost to sell (c) Selling price (d) Potency



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(e) The stage of plant growth; and (f) Expected yields by plant

Fair value pricing can result in a decrease in the value of biological assets as a result of seasonal crop yields, and the reduction of processing and estimated costs to sell from the average purchase price.

The Company capitalizes the direct and indirect costs associated with the production of its biological assets as incurred, less estimated yield losses and fair value adjustments. Indirect costs capitalized include utilities and supplies used in the growing process, indirect labor for individuals involved in the quality control process, depreciation on production equipment and overhead costs to the extent it is associated with grow space.

(c) Inventories Inventories are stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less any applicable selling expenses. Cost includes all expenses directly attributable to the manufacturing process as well as suitable portions of related production overheads, based on normal operating capacity. Cost is determined by use of the first-in, first-out method. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions, including forecasted demand compared to quantities on hand, as well as other factors such as potential excess or aged inventories based on product shelf life, and other factors that affect inventory obsolescence. Inventories of harvested hemp are transferred from biological assets at their fair value less cost to sell at harvest, which becomes deemed cost.

(d) Property and equipment, net

Property and equipment are stated at cost less accumulated depreciation. Construction-in-process assets are capitalized during construction and depreciation commences when the asset is available for use. Repair and maintenance costs are recognized in profit and loss as incurred unless the recognition criteria for capitalization are satisfied, and it substantially changes the useful life of an asset.

Depreciation is calculated on the straight-line basis over the following estimated useful lives of the assets:

Assets Useful Life

Building 30 yearsMachinery & Equipment 3-10 yearsFurniture and fixtures 2-7 yearsLeasehold improvements Shorter of useful l ife or term of lease (1-12 years)

(e) Intangible assets, net

Intangible assets consist of software and the Company’s internet domain name. Software is stated at cost less accumulated amortization. The costs of purchasing the Company’s internet domain name through an open market is capitalized as an indefinite-lived intangible asset. This asset is reviewed for impairment annually or whenever events or changes in circumstances indicated the carrying amount of the asset may not be recoverable (see note 3(l)).



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Amortization of software is calculated on the straight-line basis over the following estimated useful lives of the assets:

Assets Useful LifeSoftware 3-5 years

(f) Leases

Management applies judgment in considering the substance of a lease agreement and whether it transfers substantially all the risks and rewards incidental to ownership of the leased asset. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments under an operating lease (net of any incentives received from the lessor) are recognized on a straight-line basis over the period of the lease. Assets acquired under lease liabilities are measured at the lower of the present value of the minimum lease payments or the fair value of the leased asset at the inception of the lease. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Recorded lease obligations are reduced by the principal portion of lease payments. The imputed interest portion of lease payments is charged to finance costs.

(g) Revenue recognition

The majority of the Company’s revenue is derived from sales of branded products to consumers via our direct-to-consumer (DTC) ecommerce website, and distributors, retail and wholesale business-to-business (B2B) customers. The following table sets forth the disaggregation of the company’s revenue from DTC customers from our ecommerce website versus B2B customers:

2019 2018B2B 40,816$ 30,775$ DTC 53,778 38,726 Total 94,594$ 69,501$

Year ended

The Company recognizes revenue from customers when control of the goods or services are transferred to the customer, generally when products are shipped, at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services. Freight revenue is generally exempt from state sales taxes. Sales tax collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from revenues in the statements of income. Contracts are written to include standard discounts and allowances. Contracts are not written to include advertising allowances, tiered discounts or any other performance obligation. Since there is only a single performance obligation, there is no allocation of the transaction price. The Company also offers ecommerce discounts and promotions through its online rewards program. The Charlotte’s Web Love Reward Program offers customers rewards points for every dollar spent through the Company website to earn store credit for future purchases. Per Company policy, any product that doesn’t meet the customer’s expectations can be returned within the first 30 days of delivery in exchange for another product or for a full refund. Any product sold through a distributor or retailer must be returned to the original purchase location for any return or exchange. The Company accounts for customer returns utilizing the “expected value method.”



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Expected amounts are excluded from revenue and recorded as a “refund liability” that represents the Company’s obligation to return the customer’s consideration. Estimates are based on actual historical data. Under IFRS 15, the Company must also recognize a “return asset” for the value of goods recovered. The Company currently destroys all returned product for safety and quality purposes, and as such, no return asset is recognized.

(h) Research and development

Research costs are expensed as incurred. Development costs are also expensed unless they meet specific criteria related to technical, market and financial feasibility, in which case they are deferred, recognized as an intangible asset, and amortized to operations using the straight-line method over the economic life of the product from the date of completion of the project.

(i) Income taxes

Income tax expenses are comprised of current and deferred tax. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using the tax rates enacted or substantially enacted at the reporting date. Deferred tax is recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for taxation purposes. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized, or the liability is settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment dates. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

The Company records interest related to unrecognized tax benefits in interest expense and penalties in general and administrative expenses.

(j) Share-based compensation

The Company has a share option plan for employees (including officers), consultants and directors from which options to purchase common shares of the Company are issued. Share-based compensation costs are accounted for on a fair value basis, as measured at the grant date. All share-based compensation is ultimately recognized as an expense in profit or loss with a corresponding credit to contributed surplus. If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Any adjustment to cumulative share-based compensation resulting from a revision, such as changes in vesting expectations due to forfeitures or cancelations, is recognized in the current period. The number of vested options ultimately exercised by holders does not impact the expense recorded in any period. Upon exercise of share options, the proceeds received, net of any attributable transaction costs, are allocated to share capital up to the nominal (or par) value of the shares issued with any excess being recorded as contributed surplus.



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(k) Earnings per share Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic earnings per share, except the weighted average number of common shares outstanding are increased to include additional shares from the assumed exercise of share options, if dilutive.

(l) Long-lived assets Long-lived assets, such as property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of their carrying amounts to future undiscounted net cash flows expected to be generated from the operation and sale of the long-lived assets. If such assets are considered impaired, the impairment to be recognized is measured by the amount in which the carrying amount of the long-lived assets exceeds their fair values. No impairment was recorded for the years ended December 31, 2019 or 2018. Other long-term assets consist of long-term deposits on various equipment and leases for premises.

(m) Financial instruments

Recognition, initial measurement and derecognition Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the financial instrument and are measured initially at fair value adjusted for transaction costs, except for those carried at fair value through profit or loss which are measured initially at fair value. Subsequent measurement of financial assets and financial liabilities is described below. Financial assets are derecognized when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all the risks and rewards are transferred. A financial liability is derecognized when it is extinguished, discharged, cancelled, or expires. Classification and subsequent measurement of financial assets and liabilities IFRS 9 contains three principal categories for financial assets and liabilities:

• amortized cost, • fair value through other comprehensive income, or • fair value through profit or loss (FVTPL)

Based on the new classification and measurement requirements of IFRS 9, the Company’s financial assets previously classified as loans and receivables are classified as amortized financial assets. Financial liabilities previously classified as other liabilities are now classified as amortized financial liabilities. All financial assets are reviewed for impairment at least at each reporting date to identify whether there is any objective evidence that a financial asset or a group of financial assets is impaired. All income and expenses relating to financial assets that are recognized in profit or loss are presented within finance costs, finance income, or other financial items, except for impairment of trade receivables which is presented within operating expenses.



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Amortized Cost A financial asset is measured at amortized cost if it is held in loans and receivables that are non-derivative financial assets with fixed or determinable payments not quoted in an active market. After initial recognition, these are measured at amortized cost using the effective interest method, less provision for impairment. Discounting is omitted where the effect of discounting is immaterial. The Company recognizes expected credit losses for trade receivables based on the simplified approach under IFRS 9. The simplified approach to the recognition of expected losses does not require the Company to track the changes in credit risk; rather, the Company recognizes a loss allowance based on lifetime expected credit losses at each reporting date from the date of the trade receivable. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Trade receivables are reviewed qualitatively on a case-by-case basis to determine whether they need to be written off. For financial assets carried at amortized cost (loans receivable), the Company recognizes loss allowances for ECLs on its financial assets measured at amortized cost. ECLs are a probability-weighted estimate of credit losses. The Company applies a three-stage approach to measure ECLs. The Company measures loss allowance at an amount equal to 12 months of expected losses for performing loans receivable if the credit risk at the reporting date has not increased significantly since initial recognition (Stage 1) and at an amount equal to lifetime expected losses on loans receivable that have experienced a significant increase in credit risk since origination (Stage 2) and at an amount equal to lifetime expected losses which are credit impaired (Stage 3).

The Company considers a significant increase in credit risk to have occurred if contractual payments are more than 30 days past due and considers the loans receivable to be in default if they are 90 days past due. A significant increase in credit risk or default may have also occurred if there are other qualitative factors (including forward looking information) to consider; such as borrower specific information (i.e. change in credit assessment). Such factors include consideration relating to whether the counterparty is experiencing significant financial difficulty, there is a breach of contract, concessions are granted to the counterparty that would not normally be granted, or it is probable the counterparty will enter into bankruptcy or a financial reorganization.

Financial liabilities are measured subsequently at amortized cost using the effective interest method. The Company’s financial liabilities include cultivation liabilities, notes payable, lease obligations, accounts payable, and accrued liabilities. Financial assets and liabilities at fair value through profit or loss (FVTPL) Financial assets at FVTPL include financial assets that are either classified as held for trading or that meet certain conditions and are designated at FVTPL upon initial recognition. All derivative financial instruments fall into this category, except for those designated and effective as hedging instruments, for which the hedge accounting requirements apply. Assets in this category are measured at fair value with gains or losses recognized in profit or loss. The fair values of financial assets in this category are determined by reference to active market transactions or using a valuation technique where no active market exists.



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Financial liabilities at FVTPL are initially measured at fair value on the transaction date using the Black-Scholes option pricing model, with the following assumptions used in the model: expected volatility; expected option life; risk-free interest rate and fair value. Financial liabilities are subsequently measured at fair value at reporting date, with changes in fair value recognized in profit or loss for the period. The Company has a financial liability at December 31, 2019 measured at fair value through profit or loss related to a warrant liability arising from the 2019 Share Offering (note 14b) that closed December 3, 2019 (note 12).

The following is a summary of the classification the Company has applied to each of its significant categories of financial instruments outstanding: Financial instrument Classification Cash Amortized cost Trade and other receivables, net Amortized cost Note receivable Amortized cost

Loan due from related parties Amortized cost Accounts payable and accrued liabilities Amortized cost

Notes payable Amortized cost Cultivation liabilities Amortized cost

Lease obligations Amortized cost Warrant liability FVTPL

(n) Share capital

Share capital represents the nominal (par) value of shares that have been issued. Contributed surplus includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from share premium, net of related income tax benefits.

(o) Segments

The Company operates in one segment, hemp-based CBD wellness products. All long-lived assets are located in the United States. Revenues were principally generated in the United States during the years ended December 31, 2019 and 2018, except for $647 and $386, respectively, that were generated outside the United States.

(p) Foreign Currency

Transactions entered into by the Company in a currency other than the functional currency are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognized immediately in profit or loss. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. During the year ended December 31, 2019, the Company recognized a foreign currency gain of $449 related to the 2019 Share Offering (note 14b).



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(q) Adoption of new accounting standards and policies

The Company has adopted the following new accounting standards which became effective as of January 1, 2019.

IFRS 16, “Leases” In January 2016, the International Accounting Standards Board (“IASB”) issued a new International Financial Reporting Standard on lease accounting which was incorporated into Part I of the CPA Canada Handbook – Accounting by the Accounting Standards Board (“AcSB”) in June 2016. IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC 15 Operating Leases - Incentives and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 introduces a single lessee accounting model that requires a lessee to recognize RoU assets and lease liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. The Company had immaterial short-term and low-value leases, which were not included in the initial measurement upon transition to IFRS 16. RoU assets are initially recognized on a present value basis and subsequently, at cost less depreciation. Lease liabilities are initially recognized on a present value basis and subsequently, at amortized cost. The lessor accounting requirements are substantially unchanged and, accordingly, continue to require classification and measurement as either operating or finance leases. The new standard also introduces detailed disclosure requirements for both the lessee and lessor. The Company’s date of initial application was January 1, 2019. The Company adopted IFRS 16 using the modified retrospective transition approach. Accordingly, comparative figures at and for the year ended December 31, 2018 have not been restated and continue to be reported under IAS 17 Leases and IFRIC 4 Determining Whether an Arrangement Contains a Lease. The Company used the following practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17.

• Excluded initial direct costs from measuring the RoU assets at the date of initial application.

• Used hindsight when determining the lease term if the contract contains options to extend or terminate the lease.

• Elected not to reassess whether a contract is, or contains, a lease at the date of initial application.

At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. The Company recognizes a RoU asset and a lease liability at the lease commencement date. The RoU asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The RoU asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the RoU asset or the end of the lease term. The lease term includes consideration of an option to renew or to terminate if the Company is reasonably certain to exercise that option. Lease terms range from 1 to 12 years for manufacturing, distribution, and



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administrative facilities. In addition, the RoU asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. Depreciation for the RoU assets is calculated on the straight-line basis over the following estimated useful lives of the assets:

Assets Useful Life

RoU - Buildings Shorter of useful l ife or term of lease (1-12 years)RoU - Cultivation Equipment Shorter of useful l ife or term of lease (1-10 years)

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. Lease payments mainly include fixed, or in substance fixed, payments and variable lease payments that depend on an index or a rate. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, or if the Company changes its assessment of whether it will exercise a purchase, extension, or termination option. Some office leases include an option to renew the lease for an additional period after the non-cancellable contract period. Where practicable, the Company seeks to include extension options in new leases to provide operational flexibility. Extension options are exercisable only by the Company and not by the lessors. The Company assesses at lease commencement whether it is reasonably certain to exercise the extension options. The Company reassesses its portfolio of leases to determine whether it is reasonably certain to exercise the options if there is a significant event or significant change in circumstances within its control. The Company considers all facts and circumstances when making this decision. The Company examines whether there is an economic incentive or penalty that would affect the decision to exercise the option, for example, whether the lease option is below market value or whether the Company has made significant investments in leasehold improvements. Where it is not reasonably certain that the lease will be extended or terminated the Company will not recognize these options.

Impacts on financial statements On transition to IFRS 16, the Company recognized an additional $3,148 of RoU assets and $3,121 corresponding lease liabilities related to the discounted amount of commitments and extension options. When measuring lease liabilities, the Company discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average rate applied is 4.80%.



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Finance lease commitment as disclosed in the Company's Consolidated Financial Statements for the Year ended December 31, 2018 2,901$

Finance lease commitment for the Year ended December 31, 2018, discounted using incremental borrowing rate 2,644$

Finance lease commitment for the Year ended December 31, 2018, undiscounted 396

Extension options reasonably certain to be exercised 550

Transition adjustment to IFRS 16 - deferred rent (73)

Lease liabilities recognized at January 1, 2019 3,517$

Leases in which a significant portion of the risks and rewards of ownership are not assumed by the Company are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to net earnings on a straight-line basis over the lease term. Leases of property, plant and equipment where the Company has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term. IFRIC 23, “Uncertainty over Income Tax Treatments” IFRIC 23, Uncertainty over Income Tax Treatments clarifies how to apply the recognition and measurement requirements in IAS 12, Income Taxes, when there is uncertainty regarding income tax treatments. The Interpretation addresses whether an entity needs to consider uncertain tax treatments separately, the assumptions an entity should make about the examination of tax treatments by taxation authorities, and how an entity considers changes in facts and circumstances in such determinations. The adoption of IFRIC 23 did not have an impact on the Company’s consolidated financial statements as at the effective date of adoption.

(a) Future accounting standards issued but not yet effective In October 2018, the IASB issued amendments to IFRS 3, Business Combinations. The amendments clarify the definition of a business, with the objective of assisting entities in determining whether a transaction should be accounted for as a business combination or as an asset acquisition. The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and apply prospectively. The Company will assess the impact of the amendments on future acquisitions.



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4. Trade and other receivables Trade and other receivables consist of the following:

December 31,

2019December 31,

2018Trade receivables 5,677$ 4,690$ Other miscellaneous receivables 326 303 Expected credit losses ("ECLs," see note 17) (541) (119)

5,462$ 4,874$

The Company provides for ECLs based on its assessment of probability of specific losses, estimates of future individual exposures and provisions based on historical experience. The aging of receivables is as follows:

December 31, 2019

December 31, 2018

Current 3,340$ 3,057$ Aged 1-30 days past due 1,028 1,245 Aged 31-60 days past due 541 76 Aged >60 days past due 1,094 615 Expected credit losses (541) (119)

5,462$ 4,874$

5. Note receivable Effective May 2019, the Company entered into a promissory note up to $2,800 secured by extraction units with one of the Company’s third-party farming suppliers. As of December 31, 2019, $1,400 of the note was funded. The note bears interest at 2.52% per annum for twelve months and requires the unpaid principal and unpaid interest balances to be paid on or before the maturity date of May 30, 2020. The borrower may pay the principal and accrued interest in the form of an offset to the Company’s purchases of extracted hemp. The note is carried at amortized cost, with an outstanding balance of $1,400 and accrued interest of $21 as of December 31, 2019. As of December 31, 2019, the credit risk related to the note receivable has not increased significantly since initial recognition and is deemed to be in Stage 1 of ECLs. The Company assessed the note receivable as fully collectible with no related ECLs.

6. Loan due from related parties At December 31 2018, the Company had non-interest bearing, unsecured, receivables with no specified terms of repayment, due from certain founders of the Company in the amount of $128. During the year ended 2019, the balance was paid in full.



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7. Inventories Inventories consist of the following:

December 31, 2019

December 31, 2018

Harvested hemp and seeds 37,549$ 10,463$ Raw materials 19,785 7,765 Finished goods 22,593 6,140

79,927 24,368 Less: inventory provision (15,873) (399)

64,054$ 23,969$

An inventory provision is estimated by management and is included in cost of sales. For the years ended, December 31, 2019 and 2018, inventory provisions of $15,474 and $324, respectively, were expensed through cost of sales. In anticipation of significant growth in the CBD industry, the Company expanded production of finished goods extensively in 2019. Due to stagnant movement in the current regulatory environment, expected sales were significantly lower than estimated. During the fourth quarter of 2019, the Company recognized $13,937 of inventory provision, of which $11,974 was against finished goods. This increase is primarily due to expiration of products prior to estimated sales.

For the year ended December 31, 2019, the Company had no inventory write-offs against the provision. For the year ended December 31, 2018, the Company had inventory write-offs of $178. The amount of inventory expensed through cost of sales during the years ended December 31, 2019 and 2018, is $22,731 and $12,670, respectively.

Details of the harvested hemp and seeds consists of the following:

December 31, 2019

December 31, 2018

Balance, beginning of period 10,463$ 1,582$ Transferred to hemp and seeds upon harvest 35,411 10,494 Consumed in production (8,325) (1,613) Balance, end of period 37,549$ 10,463$



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Amount of harvested hemp and seeds transferred to inventories upon harvest consisted of the following:

December 31, December 31,2019 2018

Cultivated hemp and seeds 32,056$ 8,338$ Materials 391 442 Labor 2,060 2,373 Rent and warehousing 632 400 Equipment 325 148 Other 789 117 Unrealized fair value adjustment (842) (1,324)

35,411$ 10,494$

The Company grows its industrial hemp and seeds (i) on leased farms operated entirely by Company personnel, and (ii) through third-party farming operations with oversight by the Company. The grow season for the Company’s hemp products is generally from May through early October of each year. All harvesting of seeds and plants is complete prior to year-end. For the years ended December 31, 2019 and 2018, the Company’s hemp was consumed internally for its finished goods products and was not sold in its raw or processed form.

The Company measures its biological assets at their fair value less costs to sell. This is determined using a model which estimates the expected harvest yield in pounds for plants currently being cultivated, and then adjusts that amount for the expected selling price per pound and for any additional costs to be incurred, such as post-harvest costs.

The following significant unobservable inputs, all of which are classified as level 3 on the fair value hierarchy, were used by management as part of this model: Selling price – calculated as the weighted average historical selling price from third-party farming operations, based on potency, sold to the Company, which is expected to approximate selling prices

a. Stage of growth – represents the weighted average number of weeks that biological assets

have reached as of the measurement date out of the 20-week growing cycle

b. Yield by plant – represents the expected number of pounds of harvested hemp inventory which are expected to be obtained from each harvested plant

c. Post-harvest costs – calculated as the cost per pound of harvested hemp to complete the sale

of hemp finished goods, consisting of the cost of direct and indirect materials and labor related to labelling and packaging

The following table quantifies each significant unobservable input and provides the impact a 10% increase/decrease in each input would have on the fair value of biological assets.



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December 31, 2019

December 31, 2018

10% Change as at 12/31/2019

10% Change as at 12/31/2018

Average sell ing price per pound 3.62$ 13.73$ 76$ 926$ Stage of growth 20 weeks 20 weeks - - Total yield of harvest crop (lbs) 195 674 84$ 132$ Post-harvest costs per pound 5.16$ 1.90$ 76$ 128$

A 10% change in average potency would increase/decrease fair value of the biological assets by $122 and $150 at December 31, 2019 and 2018, respectively. The changes in the carrying value of biological assets are as follows:

Biological assets

Carrying amount, December 31, 2017 -$ Production costs 3,480 Purchases 8,338 Changes in fair value less costs to sell due to biological transformation (1,324) Transferred to inventories upon harvest (10,494)

Carrying amount, December 31, 2018 -$ Production costs 4,197 Purchases 32,056 Changes in fair value less costs to sell due to biological transformation (842) Transferred to inventories upon harvest (35,411)

Carrying amount, December 31, 2019 -$

The effect of changes in fair value of biological assets and inventory during the year ending December 31, 2019 and 2018, respectively, include:

2019 2018Realized fair value (gain) included in inventory sold (994)$ (1,133)$ Unrealized fair value loss on growth of biological assets 842 1,324 Net effect of changes in fair value of biological assets and inventory (152)$ 191$



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8. Property and equipment Details of the Company’s property and equipment and their carrying amounts are as follows:

Land and Building

Machinery and

equipment

Furnitures and

fixturesLeasehold

improvementsUnder

constructionRoU assets -

buildings

RoU assets - cultivation equipment Total

CostAt December 31, 2017 -$ 3,357$ 307$ 407$ 142$ -$ -$ 4,213$ Additions - purchased assets - 2,508 232 2,075 159 - - 4,974 Additions - right of use assets - - - - - - - - Transfers - 134 (134) - - - - - Disposals - (41) - - - - - (41) Transfers under construction - - - 142 (142) - - - At December 31, 2018 - 5,958 405 2,624 159 - - 9,146 Transition to IFRS 16 - - - - - 3,017 131 3,148 Additions - purchased assets 1,086 6,495 4 636 7,487 - - 15,708 Additions - right of use assets - - - - - 21,648 1,286 22,934 Transfers 2,292 1,924 - 1,088 (5,304) - - - Disposals - (95) (5) (21) - - - (121) Transfers under construction - - - - - - - - At December 31, 2019 3,378$ 14,282$ 404$ 4,327$ 2,342$ 24,665$ 1,417$ 50,815$

Land and Building

Machinery and

equipment

Furnitures and

fixturesLeasehold

improvementsUnder


buildings


Accumulated depreciationAt December 31, 2017 -$ (828)$ (95)$ (94)$ -$ -$ -$ (1,017)$ Depreciation - expensed - (1,122) (48) (183) - - - (1,353) Disposals - 30 - - - - - 30 At December 31, 2018 - (1,920) (143) (277) - - - (2,340) Depreciation - expensed (19) (328) (126) (880) - (2,313) - (3,666) Depreciation - capitalized to inventory - (1,680) - - - - (233) (1,913) Disposals - 39 4 10 - - - 53

At December 31, 2019 (19)$ (3,889)$ (265)$ (1,147)$ -$ (2,313)$ (233)$ (7,866)$

Land and Building

Machinery and

equipment

Furnitures and

fixturesLeasehold

improvementsUnder


buildings


Property and Equipment, netAt December 31, 2018 -$ 4,038$ 262$ 2,347$ 159$ -$ -$ 6,806$

At December 31, 2019 3,359$ 10,393$ 139$ 3,180$ 2,342$ 22,352$ 1,184$ 42,949$

Depreciation expense for the year ended December 31, 2019 and 2018 was $3,666 and $1,353, respectively. The Company has certain equipment held under finance lease agreements. As of December 31, 2019, and 2018, the net carrying amount included in machinery and equipment is $331 and $799, respectively.



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9. Intangible assets Details of the Company’s intangible assets subject to amortization and indefinite-lived and their respective carrying amounts are as follows:

SoftwareInternet

domain nameUnder

development TotalCost

At December 31, 2017 193$ -$ -$ 193$ Additions 440 150 - 590 At December 31, 2018 633 150 - 783 Additions 120 - 1,157 1,277 Transfers 1,112 - (1,112) - Disposals - - - - At December 31, 2019 1,865$ 150$ 45$ 2,060$

SoftwareInternet

domain nameUnder

development TotalAccumulated amortization

At December 31, 2017 (16)$ -$ -$ (16)$ Amortization (148) - - (148) At December 31, 2018 (164) - - (164) Amortization (300) - - (300) Disposals - - - - At December 31, 2019 (464)$ -$ -$ (464)$

SoftwareInternet

domain nameUnder

development TotalIntangible assets, net

At December 31, 2018 469$ 150$ -$ 619$ At December 31, 2019 1,401$ 150$ 45$ 1,596$

Amortization expense for the year ended December 31, 2019 and 2018 was $300 and $148, respectively. For the years ended December 31, 2019 and 2018, the Company’s intangible assets consist of an internet domain name, which is an indefinite-lived intangible asset that is not subject to amortization. As of December 31, 2019, the carrying amount of the internet domain name is $150. No impairment was recorded for the years ended December 31, 2019 and 2018.



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10. Prepaid expenses and other current assets Details of the Company’s prepaid expenses and other current assets are as follows:

December 31, 2019

December 31, 2018

Prepaid expenses:Marketing 794$ 233$ Insurance 1,940 1,116 Other 482 392

Deposits:Inventory 173 1,439 Other 203 737

3,592$ 3,917$

11. Lease obligations In conjunction with the adoption of IFRS 16 January 1, 2019, the Company leases RoU assets related to office space and land to facilitate agricultural operations. The leases expire on various dates through 2032. Information about leases for which the Company is a lessee is presented below.

December 31, 2019

Maturity analysis - contractual undiscounted cash flowsLess than one year 2,710$ One to five years 11,980 More than five years 19,567

Total undiscounted lease liabilities at December 31, 2019 34,257$

Lease liabilities recognized at January 1, 2019 3,517$ Additions 22,934 Repayments (2,671) Interest 281

Lease liabilities includes in the statement of financial position at December 31, 2019 24,061$

Current 1,945$ Non-current 22,116$

Variable lease payments not included in the measurement of lease liabilities 47$

12. Warrant liability

The share purchase warrants issued in conjunction with the 2019 Share Offering (note 14b) are classified as a financial liability, as the warrants were not issued in exchange for goods or services and the Company will deliver its equity instruments in return for a fixed amount of cash denominated in a currency other than the Company’s functional currency. This treatment satisfies the conditions under IFRS 9 as this designation significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or liabilities or recognizing gains or losses on them on a different basis. This financial liability was initially measured at fair value on the transaction date of December 3, 2019 using the Black-Scholes option pricing model, with the following assumptions used in the model: expected volatility; expected term; risk-free



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interest rate and value of the underlying share. The financial liability is remeasured to fair value at each reporting date, with changes to fair value recognized in profit or loss for the period.

December 3, 2019

December 31, 2019

Expected volatility 85.57% 84.23%Expected term (years) 1.00 1.00Risk-free interest rate 1.57% 1.59%Value of underlying share 9.16$ 7.64$

December 31, 2019

Balance, beginning of period -$ Initial fair value measurement 5,515 Change in fair value (2,107)

Balance, end of period 3,408$

13. Cultivation liabilities Cultivation liabilities consist of current and long-term amounts owed to third-party farming operations. The total amount to be paid is based on the potency and yield of the crops. The amounts are paid over multiple years as stated in the contracts with the third-party farming operations. The cultivation liabilities are initially measured at the present value of future payments, discounted using the Company’s incremental borrowing rate. Total imputed interest on cultivation liabilities for the year ended December 31, 2019 was $138. Future payments due under cultivation contract obligations are as follows:

Long-term Short-term Total

January 1, 2018 115$ 67$ 182$ 3,263 3,794 7,057

Settlement payments - (422) (422) Conversion to short-term borrowings (92) 92 - December 31, 2018 3,286$ 3,531$ 6,817$

January 1, 2019 3,286$ 3,531$ 6,817$ 13,180 9,858 23,038

Settlement payments - (4,763) (4,763) (2,177) 2,177 -

December 31, 2019 14,289$ 10,803$ 25,092$

Costs incurred related to 2018 crop

Costs incurred related to 2019 crop

Conversion to short-term borrowings



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Within 1 year 1-5 years Total

Cultivation l iabil ities 10,889$ 14,341$ 25,230$ Imputed interest (86) (52) (138)$ Total cultivation l iabilties at December 31, 2019 10,803$ 14,289$ 25,092$

14. Shareholders’ equity

The Company’s share capital was reorganized as a result of the initial public offering (note 14b). The Company’s share capital consists of two classes of issued and outstanding shares: Common Shares and Proportionate Voting Shares; and one authorized class of Preferred Shares issuable in series, none of which are issued and outstanding.

(a) Authorized Share Capital

The Company’s authorized share capital consists of (i) an unlimited number of Common Shares, (ii) an unlimited number of Proportionate Voting Shares, and (iii) an unlimited number of Preferred Shares, issuable in series. Specifics on rights associated with outstanding shares can be found in the Company’s annual information form filed April 29, 2019 on SEDAR at www.sedar.com. Common shares may at any time, at the option of the holder and with the consent of the Company, convert into Proportionate Voting Shares on the basis of 400 Common Shares for one Proportionate Voting Share. No fractional Common Shares will be issued upon conversion of any Proportionate Voting Shares and any fractional Common Shares will be rounded down to the nearest whole number. For all matters coming before shareholders, Common Shares carry one vote per share and Proportionate Voting Shares carry 400 votes per share. Proportionate Voting Shares may at any time, at the option of the holder, be converted into Common Shares at a ratio of 400 Common Shares per Proportionate Voting Share. Common Shares may at any time, at the option of the holder and with the consent of the Company, be converted in Proportionate Voting Shares on the basis of 400 Common Shares for on Proportionate Voting Share.

(b) Issued and outstanding

i. Initial Public Offering and Private Placement

On August 30, 2018, the Company completed its initial public offering by issuing 13,312,150 of its common shares (“Common Shares”) in the capital of the Company at a price of C$7.00 (US$5.41) per Common Share. Aggregate proceeds, net of underwriting fees of C$6,103 (US$4,713), were C$87,082 (US$67,245). For the year ended December 31, 2018, share issuance costs of $1,332 were recognized as expense in the statements of (loss) income and other comprehensive (loss) income and $5,058 were recognized in the statements of changes in shareholders’ equity.

On September 5, 2018, the Company completed a non-brokered private placement (“Private Placement”) of 802,216 Common Shares at a price of C$7.00 (US$5.30) per Common Share. Aggregate proceeds were C$5,616 (US$4,256). The private placement was completed to accommodate certain investors who could not participate in the initial public offering due to their jurisdictions outside of Canada.



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ii. 2019 Share Offering

On December 3, 2019, the Company closed its underwritten public share offering (the “2019 Share Offering”) of 5,000,000 units ("Offered Units") of the Company at a price of C$13.25 (US$9.96) per Offered Unit (the "Offering Price"), for total aggregate gross proceeds of C$66,250 (US$49,810). Each Offered Unit consisted of one common share (each, a "Unit Share") of the Company and one-half of one common share purchase warrant of the Company (each whole common share purchase warrant, a "Warrant"). Each Warrant entitles the holder to purchase one common share of the Company (each, a "Warrant Share") at a price of C$16.50 on the date that is two years after the closing of the 2019 Share Offering. At initial measurement, the 2,500,000 warrants issued resulted in a $5,515 financial liability reported in the statements of financial position (note 12). For the year ended December 31, 2019, share issuance costs of $2,862 were recognized in the statements of changes in shareholders’ equity. Changes for the years ending December 31, 2019 and 2018 is as follows:

Proportional voting shares

Number of common

voting shares outstanding

Treasury shares

Number of shares issued

January 1, 2018 - 81,390,203 (1,835,370) 79,554,833 Exercise of stock options - 74,998 - 74,998 Cancelled - (970,723) - (970,723) Conversion to proportional voting shares, net 177,978 (71,191,220) - (71,191,220) Initial public offering - 13,312,150 - 13,312,150 Private placement - 802,216 - 802,216 Broker stock warrant exercise - 399,547 - 399,547

December 31, 2018 177,978 23,817,171 (1,835,370) 21,981,801 Exercise of stock options - 7,238,048 - 7,238,048 Conversion to common voting shares (82,636) 33,054,235 - 33,054,235 Offering - 5,000,000 - 5,000,000 Broker stock warrant exercise - 92,693 - 92,693 Common shares granted - 51,397 - 51,397

December 31, 2019 95,342 69,253,544 (1,835,370) 67,418,174

On June 4, 2018, an existing employee and shareholder of the Company forfeited 970,723 shares due to a change in employment status.

On August 30, 2018, the shareholders of CWB exchanged their common voting shares in CWB for proportionate voting shares in the Company (note 14b). One proportionate voting share is equal to 400 common shares.

On October 1, 2019, the Company issued 51,397 common shares as part of a compensation agreement.

During the year ending December 31, 2019 certain existing shareholders’ proportional voting shares were cancelled and converted to common voting shares.



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(c) Dividends The common proportionate voting share shareholders are entitled to receive dividends out of the assets available for the payment of dividends at such times and in such amount and form as the Board of Directors may from time to time determine, subject to any preferential rights of the holders of any outstanding preferred shares, on the following basis, and otherwise without preference or distinction among or between the shares. Each proportionate voting share will be entitled to 400 times the amount paid or distributed per common share.

(d) Earnings per share

Basic and diluted earnings per share have been calculated using net income. Prior periods have been converted into post stock split shares for comparability.

The reconciliation of the weighted average number of shares for the purpose of diluted earnings per share to the weighted average number of ordinary shares used in the calculation of basic earnings per share is as follows:

2019 2018Weighted average number of common shares - basic 96,539,194 83,902,648 Dilutive effect of stock options and awards - 11,127,196 Weighted average number of common shares - diluted 96,539,194 95,029,844

Earnings per share - basic (0.16)$ 0.14$ Earnings per share - diluted (0.16)$ 0.12$

Awards excluded due to anti-dilutive effect on diluted earnings per share 10,077,295 -

Year ended December 31,

Awards excluded due to anti-dilutive effect on diluted earnings per share consist of stock options, founder options, broker stock warrants, and common share warrants.

(e) Stock incentive plans On December 31, 2015, the Company adopted the Stanley Brothers, Inc. 2015 Stock Option Plan (the “2015 Plan”), which provides for grants of incentive share options and nonqualified share options to employees (including officers), consultants and directors. The 2015 Plan, and grants made under the 2015 Plan, are designed to align shareholder and participant interests. The Company’s board of directors establishes the terms and conditions of any grants under the 2015 Plan. Incentive share options may be granted only to employees.

On August 31, 2018, the Company adopted the Charlotte’s Web Holdings, Inc. 2018 Long-Term Incentive Plan (the “2018 Plan”), which provides for grants of stock options, stock appreciation rights, stock awards, stock units, performance shares, performance units, and other stock-based awards (collectively the “Awards”) to eligible individuals on the terms and subject to conditions set forth in the 2018 Plan. The 2018 Plan is designed to attract and retain key personnel and service providers. The Company’s board of directors, or appointed administrators, establish the terms and conditions of any grants under the 2018 Plan.



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The aggregate number of common shares of the Company as to which options may be granted from time to time under both the 2015 Plan and 2018 Plan shall not exceed 13,500,000 shares. The maximum exercise period of any option grant shall not exceed ten years from the date of grant. The options vest over a time-based service period, generally a period of one to five years, and are settled in equity. The number of available awards at December 31, 2019 was 5,582,051. Share-based compensation expense recognized for the year ended December 31, 2019, and 2018, was $2,978 and $866, respectively.

i. Stock options

1. Founder options

On January 15, 2015, the Company issued nonqualified share options, in lieu of common stock, to a limited number of consultants (“Founder Options”). Each of these option holders did not qualify for the issuance of common stock under the Company’s then existing S-Corporation status due to their residence standing. Issued Founder Options were for 5,187,904 underlying common shares and were fully vested after one year. The exercise price and the fair value at grant date was $0.005 per share.

For the years ending December 31, 2019 and 2018, the number of common shares under option and exercisable was 799,948 and 5,187,904. Weighted average remaining contractual life is 0.04 years as of December 31, 2019 and 1.04 years as of December 31, 2018.

2. 2015 and 2018 Plan

The Company recognizes compensation expense for share option grants based on the fair value at the date of grant using the Black-Scholes option pricing model. The following assumptions were used to determine the fair value of share option grants. Volatility was estimated by considering comparable industry share price volatility. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome. The expected life of the share options is based on vesting term and contractual life of grants and is not necessarily indicative of exercise patterns that may occur.

2019 2018

Expected volatility 85.0%-101.4% 54.0%Expected term (years) 1.0-5.0 4.64 Risk-free interest rate 1.44%-2.46% 2.2%Value of underlying share $9.54-$21.10 $0.49-$5.37



33

Changes for the years ended December 31, 2019 and 2018, is as follows:

Number of shares

under option

Weighted average exercise

price (USD)

Balance at January 1, 2018 6,544,793 0.56$ Granted 2,535,924 0.67 Exercised (74,998) 0.56 Forfeited (915,050) 0.56

Balance at December 31, 2018 8,090,669 0.59$

Exercisable at December 31, 2018 4,223,671 0.58$

Balance at January 1, 2019 8,090,669 0.59$ Granted 456,853 15.15 Exercised (2,850,092) 0.56 Forfeited and expired (795,236) 0.70

Balance at December 31, 2019 4,902,194 1.95$

Exercisable at December 31, 2019 4,251,343 0.81$ For the balance at December 31, 2018, weighted average remaining contractual life is 8.47 years. The weighted average grant-date fair value of options granted during the year ended December 31, 2018 was $0.29. For the balance at December 31, 2019, weighted average remaining contractual life is 7.94 years. The weighted average grant-date fair value of options granted during the year ended December 31, 2019 was $11.52. The weighted average share price at the date of exercise of options exercised during the year ending December 31, 2019 was $12.97. Vesting of awards under these plans were generally time based over a period of one to four years. Of the 4,902,194 options outstanding at December 31, 2019, 4,394,441 options have an exercise price of $0.56, and the remaining 507,753 options have an exercise price ranging between $5.37 and $21.10.

ii. Restricted share awards

During the year ended December 31, 2019, the Company issued time-based restricted share awards to certain employees as permitted under the 2018 Plan. The restricted share awards granted vest in accordance with the board-approved agreement, typically over equal installments over four years. Upon vesting, one share of the Company’s common stock is issued for each restricted share awarded. The fair value of each restricted share award



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granted is equal to the market price of the Company’s stock at the date of the grant, less an estimated forfeiture rate of 10%. Details of the number of restricted share awards outstanding under the 2018 Plan is as follows:

Number of restricted

shares

Weighted average grant-date fair value

(USD)Balance at January 1, 2019 - -$

Granted 114,266 20.52 Balance at December 31, 2019 114,266 20.52$

(f) Broker stock warrants

Broker stock warrants were issued in conjunction with the initial public offering. Each broker stock warrant entitles its holder to purchase one common share. As these broker stock warrants were issued for external services, they are measured at fair market value and are considered an equity-settled share-based payment transaction. The Company accounts for broker stock warrants based on the fair market value of the instrument using the Black-Scholes option pricing model utilizing certain weighted average assumptions such as expected stock price volatility, term of the options and warrants, risk-free interest rates, and expected dividend yield at the grant date. Total broker stock warrants issued during the year ended December 31, 2018 were 493,350 at a fair market value of $1.71 per share totaling $845 as reported in share capital and the corresponding amount in contributed surplus. The following assumptions were used to determine fair value of broker stock warrant grants:

Year endedDecember 31,

2018Valuation assumptions:

Expected annualized volatil ity 54.0%Expected term (years) 2.00 Risk-free interest rate 2.6%

Volatility was estimated by considering comparable industry share price volatility. The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may not necessarily be the actual outcome.



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Details of the number of broker stock warrants outstanding at December 31, 2018, is as follows:

Number of broker stock warrants

outstanding

Balance at January 1, 2018 - Granted 493,350 Exercised (399,547) Balance at December 31, 2018 93,803

For the year ended December 31, 2018, 399,547 broker stock warrants were exercised at a price of C$7.00 (average US price of $5.22) per share for total proceeds of $2,128. Details of the number of broker stock warrants outstanding at December 31, 2019, is as follows:

Number of broker stock warrants

outstandingBalance at January 1, 2019 93,803 Exercised (92,693) Balance at December 31, 2019 1,110 For the year ended December 31, 2019, 92,693 broker stock warrants were exercised at a price of C$7.00 (average US price of $5.10) per share for total proceeds of $486.

(g) Common share warrants

Common share warrants were issued in conjunction with the 2019 Share Offering (note 14b). Each common share warrant entitles its holder to purchase one common share. The common share warrants are measured at fair value using the Black-Scholes option pricing model. Total common share warrants issued were 2,500,000 at a fair market value of $2.206 per share totaling $5,515 as reported as a warrant liability (note 12). Details of the number of common share warrants outstanding at December 31, 2019, is as follows:

Number of common share warrants

outstandingBalance at January 1, 2019 - Granted 2,500,000 Exercised - Balance at December 31, 2019 2,500,000



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15. Expenses by nature The costs of sales and operating expenses by nature are as follows:

2019 2018

Cost of sales 44,144$ 17,010$ Inventory expensed to cost of sales 22,731 12,670 Inventory provision 15,474 324 Other production costs 5,095 2,798 Depreciation and amortization 844 1,218

General and administrative 45,546$ 22,337$ Personnel 26,881 13,103 Facilities and other expenses 14,508 7,568 Accretion, depreciation and amortization 2,888 354 Travel and entertainment 1,269 1,312

Sales and marketing 28,107$ 12,808$ Advertising, promotions and selling costs 16,417 7,651 Personnel 9,493 3,936 Facilities and other expenses 1,058 719 Travel and entertainment 993 502 Depreciation and amortization 146 -

Research and development 1,754$ 837$ Personnel 1,118 475 Other operating expenses 485 362 Accretion, depreciation and amortization 89 - Travel and entertainment 62 -



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The personnel costs by nature are as follows:

2019 2018

General and administrative - personnel 26,881$ 13,103$ Salaries and wages 19,184 10,813 Defined contribution plans 572 234 Other benefits expense 7,125 2,056

Sales and marketing - personnel 9,493$ 3,936$ Salaries and wages 8,251 3,672 Defined contribution plans 191 76 Other benefits expense 1,051 188

Research and development - personnel 1,118$ 475$ Salaries and wages 1,074 457 Defined contribution plans 31 7 Other benefits expense 13 11

Year endedDecember 31,

16. Income taxes

(a) Components of income taxes The major components of income tax expense attributable to income from continuing operations consists of:

Current Deferred TotalYear ended December 31, 2019:U.S federal (103)$ (4,966)$ (5,069)$ State and local 146 (719) (573)

43$ (5,685)$ (5,642)$

Current Deferred TotalYear ended December 31, 2018:U.S federal 3,708$ (37)$ 3,671$ State and local 66 (3) 63

3,774$ (40)$ 3,734$

For the year ended December 31, 2019, the Company recognized an additional net benefit of $1,284 related to the income tax benefit of stock options.

(b) Tax Rate Reconciliation

Income tax expense attributable to income from continuing operations for the years ended December 31, 2019 and 2018, differed from the amounts computed by applying the U.S. federal income tax rates of 21% and 21% for 2019 and 2018, respectively, as a result of the following:



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2019 2018Computed "expected" tax expense 21.0% 21.0%State income taxes, net of federal tax benefit 2.3% 0.2%Permanent items 1.8% 1.9%Other, net 1.5% 0.9%

26.6% 24.0%

(c) Component of deferred taxes

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2019 and 2018 are presented below.

2019 2018Deferred tax assets:

Accrued expenses 736$ 650$ Change in fair value of biological assets 228 251 Share-based compensation 6,461 23,230 Inventory provision 3,816 91 Accrued employee paid time off 99 59 Deferred rent - 25 Expected credit losses 130 27 Right of use assets 97 - UNICAP - 263A 922 - Other 168 - Net operating loss carryforward 18,215 - Other carryforwards 363 -

31,235 24,333 Deferred tax liabilities:

Property and equipment (818) (884)

Net deferred tax asset 30,417$ 23,449$ As of December 31, 2019, the Company had $30,417 in net deferred tax assets, which includes $18,215 related to net operating loss carryforwards that can be used to offset taxable income in future periods and reduce income taxes payable in those future periods. Federal net operating loss carryforwards of $15,940 can be carried forward indefinitely. Some of the state net operating loss carryforwards of $2,275 will expire if they are not used within certain periods. At this time, the Company considers it probable that it will have sufficient taxable income in the future that will allow realization of these deferred tax assets.

(d) Uncertain tax position Due to the adoption of IFRIC 23, uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. The Company recognizes the tax benefit from an uncertain tax position only if it is probable that the tax position will be sustained based on its technical merits. The Company measures and records the tax benefits from such a position based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company’s estimated liabilities related to these matters are adjusted in the period in which the uncertain tax position is effectively settled, the statute of limitations for examination expires or when additional information becomes



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available. The Company’s liability for unrecognized tax benefits requires the use of assumptions and significant judgement to estimate the exposures associated with our various filing positions. Although the Company believes that the judgments and estimates made are reasonable, actual results could differ and resulting adjustments could materially affect our effective income tax rate and income tax provision. During the years ended December 31, 2019 and 2018, the Company did not record a provision for uncertain tax positions.

17. Financial risk management

The Company has exposure to the following risks from its use of financial instruments. The main types of risks are market risk, credit risk and liquidity risk. The Company’s senior management oversees the management of these risks. The Company’s financial instruments and policies for managing these risks are detailed below.

(a) Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect the Company’s income or the value of it holding financial instruments.

The Company conducts sales transactions with foreign entities. The transactions are denominated in USD, the functional currency, and therefore the Company does not have exposure to foreign exchange rate risk. Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of change in market interest rates. The Company’s trade receivables and accounts payable are non-interest bearing. Financial assets and financial liabilities with variable interest rates expose the Company to cash flow interest rate risk. The Company does not have any debt instruments outstanding with variable interest rates at December 31, 2019 or 2018. Changes in market interest rates cause the fair value of long-term debt with fixed interest rates to fluctuate but does not impact net income as the Company records debt at amortized cost and the carrying value does not change as interest rates change.

(b) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligation, resulting in financial loss to the Company. Such risks arise primarily from certain financial assets held by the Company consisting of trade receivables and deposits. The Company’s maximum exposure to credit risk is limited to the carrying amount of the financial assets as summarized below:

December 31, 2019

December 31, 2018

Trade and other receivables, net 5,462$ 4,874$ Other long-term assets 1,625 181 Notes receivable 1,421 -

8,508$ 5,055$

The Company applies the simplified approach to providing for expected credit losses as prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables. The loss allowance provision is based on the Company’s historical collection and loss experience



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and incorporates forward-looking factors, where appropriate. The provision matrix below shows the excepted credit loss rate at each aging category of receivables.

CurrentAged 1-30 days

past dueAged 31-60 days

past dueAged > 60 days

past dueExpected loss rate 3.08% 3.60% 9.11% 32.14%Gross carrying amount 3,340 1,028 541 1,094

Loss allowance provision, end of the period 103 37 49 352

i. Trade and other receivables

Individual receivables which are known to be uncollectible are written off by reducing the carrying amount directly. Other receivables are assessed collectively to determine whether there is objective evidence that an impairment has been incurred, but not yet been identified. The Company maintains an allowance for doubtful accounts that represents its estimate of the uncollectible amounts based on specific losses estimated on individual exposures and provisions based on historical experience.

The Company considers that there is evidence of impairment if any of the following indicators are present:

• significant financial difficulties of the debtor; • probability that the debtor will enter bankruptcy or financial reorganization;

and/or • default or delinquency in payments

See note 4 for information about the aging of trade and other receivables.

ii. Deposits

Deposits are made primarily for equipment and facility usage. The Company manages its credit risk surrounding deposits by dealing solely with what management believes to be reputable financial institutions.

(c) Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they become due. The Company manages liquidity risk by evaluating working capital and forecasting long-term financial liabilities as well as forecast cash inflows and outflows from business operations. The Company’s cash balances at December 31, 2019, and 2018 were $68,553, and $73,404, respectively. Net working capital at December 31, 2019, and 2018 was $116,927 and $93,799, respectively.

18. Fair value measurement Financial assets and financial liabilities measured at fair value in the statement of financial position are grouped into three levels of a fair value hierarchy. The three levels are defined based on the observability of significant inputs to the measurement, as follows:



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• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities • Level 2: inputs other than quoted prices included within Level 1 that are observable for the

asset or liability, either directly or indirectly • Level 3: unobservable inputs for the asset or liability

The fair value hierarchy requires the use of observable market inputs whenever such inputs exist. Cash is classified as Level 1 financial instrument. Obligations under finance leases are classified as Level 2 financial instruments. The Company’s other financial instruments, including accounts receivable, loan due from related party, accounts payable and accrued liabilities and notes payable are carried at cost which approximates fair value due to the relatively short maturity of those instruments. Set out below is a comparison by class of the carrying amounts and fair value of the Company’s financial instruments.

Carrying Amount Fair Value

Carrying Amount Fair Value

Financial assetsCash 68,553$ 68,553$ 73,404$ 73,404$ Trade and other receivables, net 5,462 5,462 4,874 4,874 Note receivable 1,421 1,421 - - Loan due from related parties - - 128 128

75,436$ 75,436$ 78,406$ 78,406$

Financial liabilitiesAccounts payable and accrued liabilities 16,121$ 16,121$ 9,862$ 9,862$ Cultivation liabilities 25,092 25,092 6,817 6,817 Notes payable 12 12 21 21 Lease obligations 24,061 24,061 396 396 Warrant liability 3,408 3,408 - -

68,694$ 68,694$ 17,096$ 17,096$

December 31, 2019 December 31, 2018

19. Capital management For capital management purposes, the Company defines capital as its shareholders’ equity that includes share capital, contributed surplus and retained earnings. The amounts included in the Company’s capital for the relevant period are as follows:

December 31, 2019 $ 153,698 December 31, 2018 $ 121,498

The Company’s principal objectives in managing capital are: • to ensure that it will continue to operate as a going concern; • to be flexible to take advantage of contract and growth opportunities that are expected to provide

satisfactory returns to its shareholders;



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• to maintain a strong capital base to maintain customers, investors, creditors and market confidence; and

• to provide an adequate rate of return to its shareholders.

The Company manages and adjusts its capital structure considering changes in economic conditions. To maintain or adjust its capital structure, the Company may issue debt or new shares. Financing decisions are generally made on a specific transaction basis and depend on such things as the Company’s needs, capital markets and economic conditions at the time of the transaction. Management reviews its capital management approach on an ongoing basis and believes that this approach is reasonable, given the size of the company. The Company does not have any externally imposed capital compliance requirements at December 31, 2019. There were no changes in the Company’s approach to capital management during the year.

20. Related party transactions The Company entered into an agreement for the lease of property held by an entity owned by certain founders of the Company. The lease term is effective January 1, 2019 through December 31, 2020. Per the terms of the lease agreement, the Company prepaid base rent in full upon execution in the amount of $144. The lease asset is presented as a right of use asset with property and equipment on the statement of financial position.

21. Remuneration of key management of the Company The remuneration awarded to senior key management includes the following: For the year ending December 31, 2019 2018Wages 2,285$ 531$ Benefits 236 28 Share based compensation 926 516

3,447$ 1,075$

22. Subsequent Events

The Company has evaluated subsequent events through March 24, 2019, which is the date the financial statements were available to be issued. On February 28, 2020, the Company entered into an Asset Purchase Agreement with Stanley Brothers Bio Tec, Inc. The Company purchased substantially all the assets related to Stanley Brothers Bio Tec Inc. for total consideration of $250. The purchased assets consisted of lab equipment, trademarks, and inventories for the Company to establish an internal division for research and development, known as CS Labs R&D Sciences Division. On March 23, 2020, the Company entered into a new Asset Backed Line of Credit with J.P. Morgan for $10 million with an accordion feature to extend the line to $20 million with a 3-year maturity. In addition, Charlotte’s Web has partnered with J.P. Morgan for its commercial banking services including its merchant processing services to support the Company’s global growth.



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On March 23, 2020 Charlotte’s Web announced the acquisition of Abacus Health (“Abacus”) in an all-stock transaction valued at $69,000. Upon closing of the transaction Abacus shareholders will own approximately 15% of Charlotte’s Web effective outstanding common shares. Subsequent to December 31, 2019, the global emergence of coronavirus (COVID-19) occurred. The impacts of COVID-19 on the Company’s business are currently unknown. The Company will monitor the situation and may take actions that alter its business operations as may be required by federal, state or local authorities or that the Company determines are in the best interests of its employees, customers, partners, suppliers, shareholders and stakeholders. Any such alterations or modifications could cause substantial interruption to the Company’s business, any of which could have a material adverse effect on the Company’s operations or financial results, and could include temporary closures of one or more of the Company’s facilities; temporary or long-term labor shortages; temporary or long-term adverse impacts on the Company’s supply chain and distribution channels; the potential of increased network vulnerability and risk of data loss resulting from increased use of remote access and removal of data from the Company's facilities.

CHARLOTTE’S WEB HOLDINGS, INC. CONSOLIDATED ......CHARLOTTE'S WEB HOLDINGS, INC. (In thousands of...

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