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Investor PresentationSeptember 2019
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Legal DisclaimerThe information provided herein is not intended to provide financial, tax, legal or accounting advice. The contents hereof do not constitute an offer to sell or a solicitation of an offer to buy securities of Auxly Cannabis Group Inc. (the “Company”) or represent an intention to induce any person to make an investment in the Company or to assist any person in the making of an investment decision. Information provided in this presentation and on the Company's website(s) is for information purposes only and shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any state in the United States of America in which such offer, solicitation or sale would be unlawful. This presentation includes market share, industry and other statistical information that the Company has obtained from independent industry publications, government publications, market research reports and other published independent sources. Such publications and reports generally state that the information contained therein has been obtained from sources believed to be reliable. Although the Company believes these publications and reports to be reliable, it has not independently verified any of the data or other statistical information contained therein, nor has it ascertained or validated the underlying economic or other assumptions relied upon by these sources. The Company has no intention and undertakes no obligation to update or revise any such information or data, whether as a result of new information, future events or otherwise, except as, and to the extent required by applicable securities laws.
Forward-looking InformationThis corporate document contains “forward-looking statements” and “forward-looking information” (collectively, “forward-looking information”) within the meaning of applicable Canadian securities legislation. This corporate document may use words such as “may”, “would”, “could”, “will”, “likely”, “except”, “anticipate”, “believe”, “intend”, “plan”, “forecast”, “project”, “estimate”, “outlook”, and other similar expressions to identify forward-looking information. In addition, the Company’s assessment of, and targets for, the benefits and expected synergies of the transaction, future supply of raw cannabis and finished cannabis products, timing of relevant legislative and regulatory changes, production capacity and timelines, average margin on transactions, investment returns on transactions, average selling prices, cost of goods sold, operating expenses are considered forward-looking information. Actual results, performance or achievement could differ materially from that expressed in, or implied by, any forward-looking information in this corporate document, and, accordingly, investors should not place undue reliance on any such forward-looking information. Forward-looking information involves significant risks, assumptions, uncertainties and other factors that may cause actual future results or anticipated events to differ materially from those expressed or implied in any forward-looking statements and accordingly, should not be read as guarantees of future performance or results. Forward-looking information involves risks and uncertainties including, but not limited to: whether Auxly and Imperial Brands can
complete the transaction described herein on the anticipated terms and timeline; the ability to obtain governmental and regulatory approvals of the transaction on the proposed terms and timeline; the risk that synergies and expected collaboration from the transaction may not be fully realized or may take longer to realize than expected; consumer demand for cannabis products in Canada and globally; the expected benefits of the transaction may not materialize in the manner or timeframe expected, or at all; general economic, financial market, legislative, regulatory, competitive and political conditions in which Auxly and its subsidiaries and partners operate will remain the same,and the Company's ability 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 statements. Forward-looking information contained in this presentation is based on the Company’s current estimates, expectations and projections, which the Company believes are reasonable as of the current date, and the forward-looking information contained in this presentation is expressly qualified by the foregoing cautionary statements. The Company can give no assurance that these estimates, expectations and projections will prove to have been correct. Historical statements should not be taken as a representation that such trends will be replicated in the future. No statement in this presentation is intended to be nor may be construed as a profit forecast.
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STRATEGIC VALUE PROPOSITIONFocused on providing branded cannabis products backed by science and innovation
HIGHLY EXPERIENCED AND SKILLED TEAM DEDICATED TO GROWTH• Industry first-movers, enterprising visionaries, and deep subject matter experts; team with unique expertise positions the company to successfully
execute its strategy
VERTICALLY INTEGRATED INFRASTRUCTURE CAPTURES BENEFITS ACROSS THE VALUE CHAIN• High-quality portfolio of assets that crosses all facets of the cannabis business, from cultivation and extraction through to product development,
manufacturing and retail
SCIENCE-BACKED, INNOVATIVE PRODUCT DEVELOPMENT• Extraction, product development and manufacturing capabilities focused on developing science-backed derivative cannabis products in time for the
legalization of edibles, extracts and topicals later this year
CLINICAL TRIALS & EFFICACY RESEARCH• In-house ability to test products through clinical trials and substantiate claims
FOCUS ON SAFETY AND QUALITY• Upholding commitments to high standards, rigorous testing and our duty to the consumer
THOUGHTFUL BRAND DEVELOPMENT• Internally developed and third-party licensed brands designed to target a broad market, including medical, wellness and adult-use and price points
across all markets
POISED TO TAKE ADVANTAGE OF A GROWING INDUSTRY• Solid presence in Latin America; strategic partnerships for growing global markets
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PIVOTAL MOMENT IN CANADIAN MARKET EXPANSIONFocused on high-margin, value-added, branded derivative products
Q4 2019Oct. 2018
ABILITY TO DIFFERENTIATE DRIVES A SUSTAINED COMPETITIVE ADVANTAGE
C$11B 2025 Est. Canadian Market Size
(legal medical and adult-use market)
Aug. 2017
PHASE 1:Legalization and first sales of cannabis (dried flower, certain extracts)
PHASE 2:Legalization of derivative products expected
2025
C$6B2019 Canadian Market Size
(legal medical and adult-use market)
2020+
Advanced derivatives through R&D and clinical testing
1 1
1 Ernst & Young LLP, Defining the cannabis sector in Canada by 2025
OUR FOCUS
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HIGHLY EXPERIENCED AND SKILLED TEAM
Chuck Rifici, CPA, MBAChairman
Hugo Alves, JDChief Executive Officer
Mike Lickver, JD, MBASVP, Strategy
Jeff Tung, CFA, MBAChief Operating Officer
Ian RapseyChief Creative Officer
Brian Schmitt, CPA, CFAChief Financial Officer
Jeff O’Neill, MBAHead of Commercial
Peter QuiringCEO, Sunens JV
Dr. Raul UrbinaCEO, Inverell S.A.
Najla GuthrieCEO and President,KGK Science
Dr. Corey HilmasChief Scientific Affairs and Regulatory Officer, KGK Science
Dr. Bob ChapmanChief Science Officer, Dosecann
Dr. Tina WoollardPrincipal Scientist, Auxly
Greg BooneCEO, Dosecann
Brad McNameeChief Infrastructure Officer
Peter CrooksChief of Product Innovation, Dosecann
Team with unique expertise positions company to successfully execute strategy
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UNIQUE COMBINATION OF ASSETS AND CAPABILITIESStrong capabilities across the entire value chain
SCIENCE BACKED PRODUCT DEVELOPMENT
DIVERSIFIED CULTIVATION PLATFORM
LARGE SCALE SUPPLY
BRAND BUILDING FLOWER
DIVERSIFICATION OF SUPPLY
COMMERCIALIZATION
ANALYTICAL TESTING, EXTRACTION, R&D, PRODUCT DEVELOPMENT AND
MANUFACTURING
CLINICAL TRIALS AND CLAIMS SUBSTANTIATION
IN HOUSE BRANDS
LICENCED BRANDS
PEI Hemp Farmers
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Unique, diversified supply platform increases optionalityDIVERSIFIED CULTIVATION PLATFORM
SUNENS ROBINSONS INVERELL
- Portfolio of cultivation assets provide expected supply of over 100,000 kgs per annum
- Mitigates operational risk of single-source of raw cannabis
- Provides additional quality assurance/control of input product for R&D and derivative product development
- Canadian cultivation is diversified across 10 projects, including quality greenhouse and ultra premium indoor grows
- 300-acre hemp cultivation and purchase agreement with a hemp farming co-operative in PEI; expected to result in approximately 100,000 kgs of hemp biomass for the 2019 cultivation season
- Focus on low-cost cultivation, including large outdoor hemp cultivation footprint in Uruguay
- Ability to share best practices among subsidiaries and partners
PEI HEMP FARMERS
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Uniquely positioned to manufacture and substantiate derivative productsDEVELOPING PRODUCTS BACKED BY SCIENCE AND INNOVATION
Extraction & Science Platform Designed for Innovative Product Development
- Extraction and in-house analytical testing infrastructure and expertise
- Cannabis clinical production formulation experience- State-of-the-art, GMP compliant 52,000 sq. ft. facility- CO2 and cold ethanol extraction capabilities
- CO2 capacity: 14,000 kg per annum- Cold ethanol capacity: 140,000 kg per annum
- Distillation and purification capabilities
- Full service Contract Research Organization (CRO) expertise and facilities
- Trusted CRO for natural health product and nutraceutical scientific research for more than 22 years
- Clinical trials and claims substantiation - Strong relationships with decision makers in Health
Canada, EFSA and the FDA- Extensive network of industry partners
R&D, Testing, Extraction and Manufacturing Science and Clinical Backbone
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1 EFSA = European Food Safety Authority; FDA = US Food and Drug Administration
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Partnerships with leaders to leverage best practices, accelerate growth and bring the best products to marketSTRATEGIC PARTNERS
Dixie Brands
Dixie Brands Inc., parent of Dixie Elixir, is a leading producer and brand of cannabinoid infused products in the United States.
Auxly has entered into an exclusive licensing arrangement with Dixie for access to the branding and formulation methodologies for over 100 products in Dixie’s portfolio.
These products are intended for distribution into the Canadian medical, wellness and adult use markets.
Spiritleaf
Parent of Spirit Leaf Inc, Inner Spirit aims to be the leader in franchising retail dispensaries and is the first and only cannabis company to be granted Canadian Franchise Association membership. To date, Inner Spirit has over 100 corporate and franchise Spiritleaf retail cannabis locations under development in Canada.
Auxly owns approximately 15% of the outstanding shares of Inner Spirit and has a Strategic Alliance Agreement with Inner Spirit, pursuant to which Auxly and Inner Spirit will collaborate on retail initiatives.
Capsugel
Capsugel Inc., a subsidiary of Lonza Group Ltd., designs, develops and manufactures a wide range of innovative dosage forms for the biopharmaceutical and consumer health & nutrition industries.
Auxly’s wholly owned subsidiary, DosecannInc., has entered into a definitive agreement with Capsugel to provide Dosecann with a complete line of equipment for capsule filling and sealing, including state-of-the-art LEMS® machine, Lonza’s proprietary liquid-filled Capsugel® Licaps® capsules and rights to its capsule filling and sealing LEMS® technology.
Dosecann and Lonza will also work collaboratively on new product formulations for cannabis capsule products.
Imperial Brands
Imperial Brands PLC is an international fast-moving consumer goods company that continually evolves to embrace changing market dynamics and develop new consumer experiences. Its Next Generation Products prioritizes the fast growing vapour segment with innovative products and proprietary technologies, including its pioneering brand, blu.
Imperial Brands has granted Auxly a global licence to its vaping technology and intellectual property and access to its vapor innovation business, Nerudia.
Imperial Brands has selected Auxly as its exclusive partner for cannabis-related initiatives globally.
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A COMPELLING PARTNERSHIP TO DRIVE FUTURE GROWTH IN DERIVATIVE PRODUCTSImperial’s Chosen, Exclusive Partner for Cannabis-related Initiatives Globally
THOUGHTFUL BRAND DEVELOPMENT
SCALABLE OPERATIONAL EXCELLENCE AND SUPPLY CHAIN MANAGEMENT
GLOBAL BRAND BUILDING IN HIGHLY REGULATED MARKETS
PRODUCT COMMERCIALIZATION EXPERTISE
INVESTMENT PROVIDES CAPITAL TO DELIVER ON BUSINESS PLAN
VERTICALLY INTEGRATED INFRASTRUCTURE
SCIENCE-BACKED, INNOVATIVE PRODUCT DEVELOPMENT
EXPERIENCED TEAM DEDICATED TO GROWTH
PROPRIETARY AND VALUABLE VAPE IP AND R&D
CLINICAL TRIALS & EFFICACY RESEARCH CAPABILITIES
LEADING CANNABIS REGULATORY EXPERTISE
BEST-IN-CLASS GOVERNANCE PRACTICES
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INVESTMENT AND R&D PARTNERSHIP WITH IMPERIALKey Transaction Terms
Investment
Imperial Brands to invest approximately $123 million by way of a debenture convertible into 19.9%1 ownership of Auxly at a price of $0.81 per share, which represents an 11% premium to Auxly’s closing share price on July 24, 2019 and a 12% premium to Auxly’s10-day trailing VWAP as of July 24, 2019
Term of convertible debenture is three years, at an interest rate of 4.00% per annum (payable annually)
The debenture is convertible into Auxly shares at any time during the three-year term
Imperial has certain top-up and pre-emptive rights to maintain its pro rata ownership in Auxly
If at the end of the term Imperial Brands has not converted, the debenture will be repayable in full
Commercial Terms
Imperial Brands will grant Auxly global vape IP licenses for cannabis use
Auxly will be Imperial’s exclusive partner for cannabis related opportunities and initiatives anywhere in the world
Collaboration in research and development activities for the cannabis industry
Imperial Brands and Auxly will establish a Commercial Cooperation Group to foster collaboration between the parties to enablethem to leverage their respective capabilities and expertise for the benefit of growing Auxly’s business
Governance Imperial Brands will have the right to nominate one out of five directors and one non-voting observer to Auxly’s Board of Directors
Chair of Imperial’s Product Stewardship and Health Group will sit on Auxly’s Safety Board, which will have oversight of the controls in place to ensure the safety, efficacy, and quality of Auxly’s products
Approvals & Timeline
Subject to certain closing conditions including approval from the TSX-V
Closing expected in Q3 2019
1 Based on basic shares outstanding
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12,000m2 NERUDIA FACILITYLiverpool, UK
- Imperial grants Auxly a global vape IP licence for cannabis use- Supports cannabinoid innovation to create products and
brands across various categories- Imperial’s NGPs are underpinned by proprietary technologies
- Imperial subsidiary, Nerudia has a growing team dedicated to cannabis research and a facility licensed for R&D activities with cannabis
- Auxly and Nerudia to develop proprietary vape technology for cannabis use and a portfolio of new and enhanced products and brands
PROVEN INNOVATION AND EXTENSIVE IN-HOUSE R&D
Proprietary technology, IP and R&D boosts Auxly’s capability in derivative productsIMPERIAL ACCELERATING AUXLY’S ENTRY INTO HIGH-GROWTH VAPE CATEGORY
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Dosecann equipping Auxly to capture market share following derivative product legalizationINNOVATIVE DERIVATIVE PRODUCT PORTFOLIO
DOSECANN
DERIVATIVE PRODUCT PORTFOLIO
- Innovative derivative product formulation and manufacturing underway in readiness for Phase 2 of legalization, including:
Vapes Chewables Tablets
Lozenges
Chocolates Oils/Sprays Capsules
Topicals
DOSECANN
Q4/19
Q1/20
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Dosecann is a clinical wellness brand built on pillars of quality, efficacy and safety. Backed by science and advanced research and development, Dosecann products are driving today's innovation and establishing tomorrow's standards.
Robinsons is Canada’s premier producer of fine crafted cannabis. Hand-tended and cultivated in the heart of Annapolis Valley, NS, Robinsons’ commitment to quality is unwavering at every stage of cultivation and production, working to produce a premium product for discerning cannabis consumers.
Foray aims to be an accessible entry point for anybody—at any stage of their cannabis journey. Designed for the curious, we aim to both celebrate and educate one’s foray into cannabis, ultimately inviting them to see cannabis differently.
Kolab Project is a platform dedicated to arts, design and culture. Our mission is to provide Canadians with a carefully curated selection of exceptional cannabis products, while championing high quality, purposeful goods produced in collaboration with culturally-relevant creators.
Internally developed brands designed to target a broad market of current and future consumersDIVERSE BRAND PLATFORM
Addressing key market segments and multiple price points across medical, wellness and adult-use markets
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Focus on provincial boards, wholly-owned retail, strategic partners and medical channels DOMESTIC DISTRIBUTION CHANNELS
PROVINCIAL PATHWAYS
BC AB SK MB ON QC NL PEI NS NB
Online Model Public Public Private Private Public Public Public Public Public Public
Brick & Mortar Retail Model Hybrid Public/Private
Private Private Private Private Public Private Public Public Public
Retail Stores 45 185 19 23 23 16 24 4 12 20
AUXLY’S ROUTE TO MARKET
BC AB SK MB ON QC NL PEI NS NB
Board Engaged
Planned Sales Efforts to Retailers
Wholly-owned/Retail Collaboration
Online
Medical (Direct to Consumer)
- Established relationships with provincial boards across Canada
- Developed a retail presence through our wholly owned subsidiary Kolab and through our strategic partnerships
- Targeted sales efforts to retailers to capture national market share
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AUXLY IS POISED TO CAPITALIZE ON THE DERIVATIVE MARKET Integrated platform providing branded products backed by science and innovation
R&D PEOPLE
INFRASTRUCTURE PRODUCTS BRANDSSCIENCEPEOPLE
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CAPITALIZATION TABLE
AS OF JUNE 30, 2019
AMOUNT (UNIT)
Common Shares Outstanding1
Stock Options (weighted average exercise price of $0.87)2
Warrants (weighted average exercise price of $1.80)3
Convertible Debentures (strike at $1.55)
Fully Diluted Shares
606.7M
44.8M
85.9M
63.7M
801.1M
75.7%
5.6%
10.7%
7.9%
100%
PRO FORMA (UNIT)
70.8%
5.3%
6.3%
-
100%
606.7M
45.3M
53.7M
-
857.4M
Imperial Brands Convertible Debentures (strike at $0.81) 17.7%4151.7M
1 Amount calculated using stock price ($0.90)2 Amount calculated as average exercise price multiplied by the options outstanding 3 Assumes no conversions4 Based on fully diluted shares outstanding
AMOUNT ($) PRO FORMA ($)
$546.0
AS OF FEBRUARY 1, 2020
$39.0
$154.2
$99.0
$838.2
$122.9
$96.3
$39.4
$546.0
$804.6
-
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BOARD OF DIRECTORS
Troy GrantIndependent Director
Since 2000, Troy has held senior positions in thefinancial service sector, including head of corporatefinance at a Canadian broker dealer, focusing on theresource sector and more recently head ofinstitutional European sales. He has also beeninstrumental in venture formation, financing anddevelopment of a number of resource, technologyand agriculture companies operating globally. Troyis currently the CEO of Elcora Advanced Materials, aTSX Venture Exchange-listed graphene materialscompany. He holds a BBA, economics, from SaintFrancis Xavier University.
Genevieve YoungIndependent Director
Genevieve Young is the President and ChiefOperating Officer of Global Public Affairs, Canada’sleading privately held strategic communications andgovernment advocacy consultancy representing someof Canada’s largest and most dynamic organizations.Genevieve has two decades of experience in publicaffairs, leading national mandates and campaignsacross jurisdictions and managing multiplestakeholders, government(s) and media. Genevieve’sfocus has expanded to the emerging cannabisindustry as the executive champion of Global PublicAffairs’ Cannabis team guiding the practice as theyrapidly scale to meet market and service evolutiondemand. Genevieve is responsible for all GlobalPublic Affairs’ corporate functions, driving anaggressive growth trajectory across all existing andpotential markets, practice and service lines. Sheholds a Bachelor of Arts in Canadian Politics and anMBA from the Smith School of Business at Queen’sUniversity.
Hugo AlvesCEO and Director
Hugo has played a key role in shaping the regulatedcannabis industry in Canada, including acting as counseland advisor to many of the industry's leadingcompanies. Hugo is also the co-founder of Hope forHealth, the world's first registered charity focusedmedical cannabis and an adjunct professor at theUniversity of Western Ontario Law School, where heco-created and teaches Marijuana Law and Practice.Prior to founding Auxly, Hugo was a senior corporateand commercial Partner at Bennett Jones LLP where hebuilt the firm's cannabis practice group. Hugo obtainedhis BA from Carleton University, and obtained hisDoctor of Law from the University of Toronto.
Chuck RificiChairman
Chuck is a pioneer of the North American cannabisindustry, having created and managedopportunities which have had an incredible andwidespread impact on the Canadian cannabislandscape. The founder of Canopy Growth (FKATweed Marijuana), Chuck is a charteredprofessional accountant (CPA). He obtained hisMBA from Queen’s University and holds a BASc inComputer Engineering from the University ofOttawa.
Upon completion of the transaction with Imperial, Auxly will further strengthen its governance through the addition of one director nominee and one non-voting observer to Auxly’s Board of Directors
