Auxly Cannabis : Q4 (2024 12 31 2024 AIF)

Published: 2025-03-20 07:50:06 ET XLY.TO

AUXLY CANNABIS GROUP INC.

ANNUAL INFORMATION FORM

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2024

March 20, 2025

TABLE OF CONTENTS

NOTICE TO READER

FORWARD-LOOKING STATEMENTS

CORPORATE STRUCTURE

GENERAL DEVELOPMENT OF THE BUSINESS

Three Year History

DESCRIPTION OF THE BUSINESS

Overview

Brand Portfolio

Current Products

Product Development

New Products

Distribution

Revenue

Cannabis Input Materials and Supply

Specialized Skill and Knowledge

Competitive Conditions

Intangible Properties

Economic Dependence

Employees

Foreign Operations

Canadian Regulatory Environment

RISK FACTORS

DIVIDENDS AND DISTRIBUTIONS

DESCRIPTION OF CAPITAL STRUCTURE

MARKET FOR SECURITIES

PRIOR SALES

ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER ....

DIRECTORS AND OFFICERS

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

TRANSFER AGENT AND REGISTRAR

MATERIAL CONTRACTS

AUDIT COMMITTEE INFORMATION

INTERESTS OF EXPERTS

ADDITIONAL INFORMATION

GLOSSARY

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SCHEDULE "A" AUDIT COMMITTEE CHARTER………………………………………………………………………………. A-1

NOTICE TO READER

In this annual information form (the "AIF"), unless otherwise noted or the context indicates otherwise, "Auxly", the "Company", "we", "us" and "our" refer to Auxly Cannabis Group Inc. and its subsidiaries. All financial information in this AIF is prepared in Canadian dollars and using International Financial Reporting Standards as issued by the International Accounting Standards Board. Unless otherwise specified, in this AIF, all references to "dollars" or to "$" are to Canadian dollars and references to "US$" are to U.S. dollars. Unless otherwise specified, information contained in this AIF applies to the business activities and operations of the Company for the year ended December 31, 2024, as updated to March 20, 2025. Capitalized terms have meanings assigned to them in the "Glossary" on page 55.

FORWARD-LOOKING STATEMENTS

This AIF contains "forward-looking information" ("forward-lookinginformation") within the meaning of applicable Canadian securities legislation. All information, other than statements of historical fact, included in this AIF, including information that addresses activities, events or developments that the Company expects or anticipates will or may occur in the future, is forward-looking information. Forward-looking information is often identified by the words "plans", "expects" or "does not expect", "budgets", "schedules", "estimates", "forecasts", "proposes", "continues", "anticipates" or "does not anticipate", "believes", "intends", and similar expressions or statements that certain actions, events or results "may", "could", "would", "might", "shall" or "will" be taken, occur or be achieved.

Forward-looking information in this AIF may include, but is not limited to:

By identifying such information and statements in this manner, the Company is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such information and statements.

Forward-looking information is based on the reasonable assumptions, estimates, analysis and opinions of management made in light of its experience and its perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances at the date that such statements are made, but which may prove to be incorrect. Many factors could cause actual results to differ materially from a conclusion, forecast or projection contained in the forward-looking information. The forward-looking information contained herein is based on certain assumptions, including without limitations, that:

Although the Company believes that the expectations reflected in such forward-looking information are reasonable, it can give no assurance that such expectations will prove to have been correct. New factors emerge from time to time, and it is not possible for management to predict all of those factors or to assess in advance the impact of each such factor on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward- looking information. The Company's forward-looking information is based on information currently available and what management believes are reasonable assumptions. The forward-looking information contained herein is made as of the date of this AIF and speaks only to such assumptions as of the date of this AIF.

The Company's forward-looking information is expressly qualified in its entirety by this cautionary statement. In particular, but without limiting the foregoing, disclosure in this AIF under "General Development of the Business" and "Description of the Business" as well as statements regarding the Company's objectives, plans and goals, including future operating results, and economic performance may make reference to or involve forward-looking information. The purpose of forward-looking information is to provide the reader with a description of management's expectations, and such forward-looking information may not be appropriate for any other purpose. Readers should not place undue reliance on forward-looking information contained in this AIF. By its nature, forward-looking information is subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. Many factors could cause actual events, performance or results to differ materially from what is projected in the forward‐looking information. Some of the risks and other factors which could cause actual results to differ materially from those expressed in the forward‐looking information contained in this AIF include, but are not limited to, the factors included under "Risk Factors".

CORPORATE STRUCTURE

Name, Address and Incorporation

The Company was incorporated on August 24, 1987, pursuant to the Company Act (British Columbia) (as it then was called). On January 12, 2017, the Company's shareholders approved the increase of the Company's authorized share capital from 100,000,000 Shares to an unlimited number of Shares and the adoption of new articles to better reflect the provisions of the Business Corporations Act (British Columbia).

On May 5, 2017, the Company changed its name from "Knightswood Financial Corp." to "Cannabis Wheaton Income Corp." and on May 8, 2017, the Company began trading on the TSXV under its new name and under the trading symbol "CBW". On July 11, 2017, the Company adopted an advance notice policy, which was approved by its shareholders on September 8, 2017. On June 8, 2018, the Company changed its name to "Auxly Cannabis Group Inc." and on the same date, began trading on the TSXV under its present name and under the trading symbol "XLY". On April 20, 2021, the Company began trading on the Toronto Stock Exchange (the "TSX") under the trading symbol "XLY". The Company's Shares also trade on the OTC Market's OTCQB under the symbol "CBWTF" and on the Frankfurt Stock Exchange under the symbol "3KF".

On May 20, 2021, the Company continued from British Columbia to Ontario pursuant to the Business Corporations Act (Ontario) which was approved by the Company's shareholders on July 15, 2020.

The Company's head office and registered office is located at 777 Richmond St. W., Unit 002, Toronto, Ontario, M6J 0C2. The Company's corporate website is www.auxly.com.

Intercorporate Relationships

The Company's material subsidiaries are: Auxly Charlottetown Inc. ("Auxly Charlottetown"), Auxly Ottawa Inc. ("Auxly Ottawa") and Auxly Leamington Inc. ("Auxly Leamington").

The jurisdiction of incorporation or organization of each entity and the Company's ownership interest is set out in the organizational chart below.

GENERAL DEVELOPMENT OF THE BUSINESS

Three Year History

Developments During the Financial Year Ended December 31, 2022

On February 7, 2022, the Company announced the closure of its Auxly Annapolis and Auxly Annapolis OG facilities located in Kentville and Hortonville, Nova Scotia, to focus its efforts on streamlining and simplifying its cultivation platform and reducing costs. Through streamlining its cultivation footprint, the Company can focus efforts and resources on optimizing the output of high-quality cannabis from its newly acquired large- scale greenhouse cultivation facility, Auxly Leamington. The Company intends to divest of the non-core assets and apply the proceeds from any such sale to support the Company's ongoing operations.

On June 1, 2022, Auxly was named Licensed Producer of the Year at the O'Cannabiz Industry Awards Gala. This award recognizes top service, top quality products and LPs that make a true contribution to the future as voted by the cannabis industry itself. Along with Licensed Producer of the Year, Auxly received several additional nominations for its industry-leading brands and innovative product suite.

On June 22, 2022, the Company amended and restated the unsecured convertible debentures in the capital of the Company issued under the investment agreement ("Investment Agreement") with an institutional investor (the "Investor") for the issuance of convertible debentures up to a maximum principal amount of $25 million (the "Standby Facility"), which was previously announced on April 28, 2020. The Standby Facility allowed the Company to sell, on a private placement basis, convertible debentures in tranches for an aggregate principal amount of up to $25 million. Under the Standby Facility, the Company sold $11.25 million in convertible debentures in five tranches throughout 2020. As of the date of the amendment, the Company had repaid $2.5 million of principal owing under such debentures. The Investor and the Company agreed to amend and restate the remaining original convertible debentures on the following terms: (i) $8.75 million aggregate principal amount will remain outstanding until July 15, 2022, where on such date the Company will repay $1.25 million thereby reducing the aggregate principal amount to $7.5 million; (ii) extended maturity date for the balance of the $7.5 million principal amount until August 15, 2024; (iii) guaranteed interest rate of 7.5% per annum, payable semi-annually; (iv) reduced conversion price of $0.1380 being convertible at the option of the holder into Shares at any time prior to the maturity date; (v) removal of the Company's previous conversion rights; and (vi) inclusion of certain repayment conditions should the Company raise additional capital prior to the maturity date. As consideration for amending the convertible debentures, the Company paid the Investor an amendment fee of $0.5 million through the issuance of 4,347,826 Shares and issued the Investor Warrants to purchase 20,000,000 Shares, with each Warrant being exercisable for a period of 36 months following the date of issuance at a price per share of $0.1495. As of the date hereof, $6.24 million of the principal amount of convertible debentures is outstanding.

On June 30, 2022, the Company closed the sale of its Auxly Annapolis indoor cultivation facility located in Kentville, Nova Scotia to a private purchaser for total proceeds to the Company of $6 million. As previously announced by the Company, Auxly ceased operations at the cultivation facility in February 2022. The Company intends to apply the proceeds from the sale to support Auxly's ongoing operations.

On August 2, 2022, the Company introduced a new extension to its Foray brand: Edi's. Launching this new brand extension into the market is Edi's Gumdrops, low-dosed edibles with familiar flavours and 20 snackable pieces per pack.

On August 9, 2022, the Company closed the sale of its Auxly Annapolis OG outdoor cultivation facility located in Hortonville, Nova Scotia to a private purchaser for total proceeds to the Company of $4.1 million. The Company intends to apply the proceeds from the sale to support Auxly's ongoing operations.

Developments During the Financial Year Ended December 31, 2023

On February 10, 2023, the Company announced that it intended to amend the terms of certain Warrants which were issued on June 14, 2021 (the "June 2021 Warrants"). The purpose of the proposed amendments was to (i) reduce the exercise price of the June 2021 Warrants from $0.38 to $0.045 per Share, and (ii) extend the expiry date of the June 2021 Warrants from June 14, 2024 to June 14, 2026 (the "June 2021 Warrant Amendments"). None of the June 2021 Warrants are held, directly or indirectly, by insiders. The June 2021 Warrant Amendments were subject to the completion of formal documentation and the Company receiving all necessary approvals, including any required approvals from the holders of the June 2021 Warrants under the terms of the indenture governing the June 2021 Warrants. The Company subsequently received all necessary approvals required to implement the warrant amendments, and the 2021 Warrant Amendments became effective as of July 14, 2023.

On February 15, 2023, the Company closed a private placement for 96,000,000 Shares at a price of $0.035 per Share and 96,000,000 Warrants, with each Warrant entitling the investors to purchase one Share at an exercise price of $0.045 per Share at any time up until February 15, 2028, resulting in total gross proceeds of approximately $3.36 million, before deducting any applicable fees or expenses.

On May 30, 2023, the Company announced the transition of the Company's dried flower and pre-roll cannabis product manufacturing, processing and distribution activities from its Auxly Ottawa facility in Carleton Place, Ontario to the Auxly Leamington facility. This strategic decision came after careful consideration in identifying opportunities to optimize operations and effectively reduce operating costs, while increasing product quality and ensuring no material impact on the Company's manufacturing capabilities and forecasted sales revenue. The Auxly Ottawa Carleton Place facility was subsequently closed in November 2023.

On July 26, 2023, the Company announced an agreement with Imperial Brands PLC ("Imperial Brands") to amend certain provisions of its previously issued $123 million convertible debenture to Imperial Brands (the "Imperial Debenture") dated September 25, 2019, as amended on July 6, 2021 (the "Second Amending Agreement"). Certain terms of the Imperial Debenture and the investor rights agreement entered into by the Company and Imperial Brands (the "Investor Rights Agreement"), both of which were part of Imperial Brands' strategic investment in the Company which occurred on September 25, 2019 (the "Imperial Transaction") were previously amended by an amending agreement entered into between the Company and Imperial Brands on April 19, 2021 (the "First Amending Agreement"). Under the Second Amending Agreement, Imperial Brands and the Company agreed to extend the maturity date of the Imperial Debenture by 24 months from September 25, 2024 to September 25, 2026. The amendment came into effect on August 21, 2023. The Imperial Debenture is convertible into Shares at a price of $0.81 per Share at any time prior to the close of business on the business day immediately preceding maturity. At such time, Auxly remained Imperial Brands' exclusive global partner for any future development, manufacture, commercialization, sale and distribution of Cannabis Products (such right was later removed upon completion of the Imperial Debt Conversion as described below). In connection with the Imperial Transaction, the parties entered into the Investor Rights Agreement which provides, among other things, that for so long as Imperial Brands holds a partially diluted percentage of outstanding Shares in the capital of Auxly of not less than 15%, it is eligible to nominate one individual designated by Imperial Brands for election as a director to Auxly's Board. As Imperial

Disclaimer

Auxly Cannabis Group Inc. published this content on March 20, 2025, and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on March 20, 2025 at 11:49:03.624.