© 20 21 Fundamental Research Corp. “1 8 + Years of Bringing Undiscovered Investment Opportunities to the Forefront ” www.researchfrc.com December 3 , 202 1 Ayurcann Holdings Corp ( CSE: AYUR / OTCQB: CDCLF / FSE: 3ZQ0 ) Expecting a Stronger Q2 Despite Lower Product Pricing BUY Current Price: C $ 0. 1 7 Fair Value: C$0.55 Risk * : 4 Sector/Industry : Cannabis Click here for more research on the company and to share your views Key Financial Data (C$) 2021 2022E 2023E YE June 30 Cash 725,016 3,548,020 5,288,075 Working Capital 3,859,132 7,285,763 11,689,437 Total Assets 6,677,006 10,868,328 16,367,678 Total Debt 73,359 73,359 73,359 Revenue 7,633,656 12,075,000 18,750,000 Net Income (278,360) 2,385,417 4,542,763 EPS (basic) (0.00) 0.03 0.04 *See last page for important disclosures, rating, and risk definition s . All figures in C $ unless otherwise specified. Highlights • In Q1 - FY 202 2 ( quarter ended September 30, 2021), AYUR reported $ 1.9 M in revenue, up 1 37 % YoY , but down 30 % QoQ , missing ou r expectations. W e were expecting stronger bulk oil sales , which fell 46% QoQ , due to a sector - wide decline in produc t pricing amid excess supply/inventory • However, we were pleased to see revenue from w hite - label services increas e 11% QoQ driven by growth in white - label partnerships • As price compression is likely to continue through 2022, w e are lowering our FY2022 revenue forecast for bulk oil sales, but ra ising our estimate for white - label services as the company has been adding white - label clients. • Our discussions with management indicated they are expecting a significant ramp - up in revenue in the coming qua r ters • In November, AYUR launched their THC and CBD infused topical creams and vapes in New Brunswick and Saskatchewan Management is expecting increased orders from Manitoba, Ontario, and Alberta in the coming quarters. • AYUR was awarded “ Extraction Facility of the Year ” and “ Toll Processing Facility of the Year ” at the GrowUp Awards Gala, which we believe is a vote of confidence on AYUR’s management . Such recognitions will also attract new white - label clients. • We are maintaining our FY2023+ revenue projections , and believe that AY UR is well positioned for growth. The recreational cannabis market in Canada is expected to grow from $2.6B in 2020, to $8.62B by 2026 (Statista). • The cannabis sector has been out of favor this year . Share prices of AYUR and most cannabis companies have b een on a downward trend. We believe the market is overlooking fundamentally strong companies, such as AYUR. • AYUR is trading at 1. 5 x revenue vs the comparables’ average of 3.9 x, implying a 6 1 % discount YTD 12 M AYUR N/A N/A CSE - 2 2 % - 1 0 % 52 - Week Range $0.1 2 - $0.75 Shares O/S 121 M Market Cap. $2 0 M Current Yield N/A P/E (forward) N/A P/B 4.1 x Sid Rajeev, B.Tech, CFA, MBA Head of Research Dushan Ratkovic, HB Com Equity Analyst AYUR Price and Volume (1 - year) Company Data Equity Research Page 2 of 7 © 20 21 Fundamental Research Corp. “1 8 + Years of Bringing Undiscovered Investment Opportunities to the Forefront ” www.researchfrc.com D eclining d ried flower pricing due to oversupply and competition We believe price compression is likely to continue through 2022 Revenue down 30% QoQ due to a 46% decline in bulk oil sales Margins declined QoQ due to lower product prices; we are expecting QoQ fluctuat ions as the company offers a wide - range of services EBITDA, EPS, and FCF declined QoQ due to lower revenue Market Canadian Retail Dried Cannabis Flower Pricing Source: Online Provincial Cannabis Stores, FRC Despite lower prices, cannabis sales in Canada hit a record high of $357M in August ($339M in July). According to Statista, the legal recreational cannabis market will grow to $8.6B by 2026, from $2.6B in 2020. Q1 Financials Source: Company Filings, FRC S t a t e m e n t s o f O p e r a t i o n s ( $ ) Q 3 - 2 0 2 1 Q 4 - 2 0 2 1 Q 1 - 2 0 2 1 Q 1 - 2 0 2 2 Y o Y Q o Q T r a d e s a l e s - ( b u l k o i l s a l e s ) 2 , 2 0 2 , 4 8 4 1 , 9 1 6 , 8 6 2 3 8 6 , 3 5 0 1 , 0 4 0 , 1 8 6 1 6 9 % - 4 6 % P r o c e s s i n g f e e s - ( w h i t e - l a b e l s a l e s ) 4 2 4 , 0 3 2 7 4 2 , 2 2 5 4 0 1 , 6 3 0 8 2 5 , 6 9 2 1 0 6 % 1 1 % R e v e n u e 2 , 6 2 6 , 5 1 6 2 , 6 5 9 , 0 8 7 7 8 7 , 9 8 0 1 , 8 6 5 , 8 7 8 1 3 7 % - 3 0 % G r o s s P r o f i t 1 , 8 4 2 , 1 6 1 2 , 3 0 2 , 5 6 9 1 6 8 , 5 2 6 9 3 0 , 9 9 4 4 5 2 % - 6 0 % E B I T D A 1 , 0 1 1 , 0 3 1 1 , 2 0 6 , 8 6 4 ( 4 5 , 8 3 7 ) 1 6 8 , 1 2 6 - 4 6 7 % - 8 6 % N e t I n c o m e ( N e t L o s s ) ( 9 7 4 , 6 1 7 ) 1 , 0 4 0 , 1 0 1 ( 2 1 4 , 3 4 9 ) 1 2 4 , 7 0 3 - 1 5 8 % - 8 8 % E P S ( 0 0 0 9 ) 0 0 1 2 ( 0 0 0 3 ) 0 0 0 1 M a r g i n s A n a l y s i s Q 3 - 2 0 2 1 Q 4 - 2 0 2 1 Q 1 - 2 0 2 1 Q 1 - 2 0 2 2 G r o s s 7 0 % 8 7 % 2 1 % 5 0 % E B I T D A 3 8 % 4 5 % - 6 % 9 % E B I T 3 8 % 4 5 % - 6 % 9 % N e t - 3 7 % 3 9 % - 2 7 % 7 % S u m m a r y o f C a s h F l o w s ( $ ) Y E J u n e 3 0 C a s h F l o w s f r o m O p e r a t i o n s 4 8 , 2 3 8 1 , 3 2 8 , 0 6 8 3 6 4 , 7 9 4 C a s h F l o w s f r o m I n v e s t i n g ( 2 0 , 1 9 0 ) 7 6 7 , 5 1 6 ( 7 0 , 6 2 4 ) C a s h F l o w s f r o m F i n a n c i n g ( 2 6 , 5 4 4 ) ( 2 , 4 3 7 , 3 5 7 ) ( 4 2 , 9 9 2 ) N e t C h a n g e 1 , 5 0 4 ( 3 4 1 , 7 7 3 ) 2 5 1 , 1 7 8 F O R E X F r e e C a s h F l o w s 2 8 , 0 4 8 2 , 0 9 5 , 5 8 4 2 9 4 , 1 7 0 Q 1 - 2 0 2 1 Q 1 - 2 0 2 2 Q 4 - 2 0 2 1 Equity Research Page 3 of 7 © 20 21 Fundamental Research Corp. “1 8 + Years of Bringing Undiscovered Investment Opportunities to the Forefront ” www.researchfrc.com Healthy balance sheet with $3. 9 6M in working capital, and minimal debt Subsequently raised $1.39M through an equity financing Can raise up to $2.3 2 M from in - the - money options and warrants Lowering our FY2022 revenue and EBITDA projections due to weaker than expected bulk oil sales in Q1 DCF valuation of $0. 70 per share (previously $0.71) Source: Company Filings, FRC Stock Options and Warrants 3.1 1 M options ( weighted average exercise price of $0.1 7 ) , and 24.82 M warrants ($0. 1 8 ) are outstanding. 2.4 1 M options and 14.4 2 M warrants are in - the - money, implying a potential to raise up to $ 2.3 2 M if exercised FRC Projections Source: FRC L i q u i d i t y a n d C a p i t a l S t r u c t u r e ( $ ) Y E J u n e 3 0 C a s h 7 2 5 , 0 1 6 9 7 6 , 1 9 4 W o r k i n g C a p i t a l 3 , 8 5 9 , 1 3 2 3 , 9 6 3 , 1 1 6 C u r r e n t R a t i o 3 4 6 3 2 9 L T D e b t 4 0 , 0 0 0 4 0 , 0 0 0 T o t a l D e b t ( i n c l d r e l a t e d p a r t y ) 7 3 , 3 5 9 5 8 , 9 0 0 T o t a l D e b t / C a p i t a l 0 0 2 0 0 1 L T D e b t / C a p i t a l 0 0 1 0 0 1 Q 1 - 2 0 2 2 2 0 2 1 F Y 2 0 2 2 E ( O l d ) F Y 2 0 2 2 E ( N e w ) F Y 2 0 2 3 E - M a i n t a i n i n g R e v e n u e $ 1 3 , 1 2 5 , 0 0 0 $ 1 2 , 0 7 5 , 0 0 0 $ 1 8 , 7 5 0 , 0 0 0 E B I T D A $ 3 , 3 1 3 , 8 0 5 $ 3 , 2 5 0 , 2 0 0 $ 6 , 2 3 2 , 7 4 0 N e t I n c o m e $ 2 , 3 8 6 , 3 8 9 $ 2 , 3 8 5 , 4 1 7 $ 4 , 5 4 2 , 7 6 3 E P S $ 0 0 3 $ 0 0 3 $ 0 0 4 Equity Research Page 4 of 7 © 20 21 Fundamental Research Corp. “1 8 + Years of Bringing Undiscovered Investment Opportunities to the Forefront ” www.researchfrc.com AYUR is trading at 1. 5 x revenue (previously 1.6x) vs the comparables average of 3.9 x (previously 4.2x) Maintaining our risk rating of 4 Source: FRC/Capital IQ We are reiterating our BUY rating, and adjusting our fair value estimate from $0. 60 to $0. 5 5 per share. We are expecting a stronger Q2, which will likely be the next major catalyst for AYUR. Risks We believe the company is exposed to the following risks (list is non - exhaustive): ➢ O perates in a highly regulated industry subject to government intervention. ➢ Highly competitive market ➢ No guarantee that the company’s products will continue to attract clients for tolling/white - label services. ➢ No guarantee that the company will be able to stay competitive in the markets it operates or plans to operat e in Equity Research Page 5 of 7 © 20 21 Fundamental Research Corp. “1 8 + Years of Bringing Undiscovered Investment Opportunities to the Forefront ” www.researchfrc.com Appendix Equity Research Page 6 of 7 © 20 21 Fundamental Research Corp. “1 8 + Years of Bringing Undiscovered Investment Opportunities to the Forefront ” www.researchfrc.com Equity Research Page 7 of 7 © 20 21 Fundamental Research Corp. “1 8 + Years of Bringing Undiscovered Investment Opportunities to the Forefront ” www.researchfrc.com Fundamental Research Corp. Equity Rating Scale: Buy – Annual expected rate of return exceeds 12% or the expected return is commensurate with risk Hold – Annual expected rate of return is between 5% and 12% Sell – Annual expected rate of return is below 5% or the expected return is not commensurate with ris k Suspended or Rating N/A — Coverage and ratings suspended until more information can be obtained from the company regarding recent events. Fundamental Research Corp. Risk Rating Scale: 1 (Low Risk) - The company operates in an industry where it has a str ong position (for example a monopoly, high market share etc.) or operates in a regulated industry. The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of pr ofitability. The capital s tructure is conservative with little or no debt. 2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash flows (though current free cash flow may be negative due to capital investment). The company’s capital structure is conservative with little to modest use of debt. 3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive to economic factors although the company has d emonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and coverag e ratios are sufficient. 4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start - up mode or in a turnaround situation. These companies should be considered speculative. 5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products. Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues and may rely on external funding. These stocks are considered highly speculative. Disclaimers and Disclosure The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward look ing statements” are our best estimates and opinions based upon information that is publicly available an d that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. A related party of F RC owns shares of the subject comp any, but does not make a market or offer shares for sale of the subject company, and does not have any investment banking business wit h the subject company. The Analyst does not own shares of the subject company. Fees were paid by AYUR to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensure independence including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct. Additionally, analysts may not trade in any security under coverage. Our full editorial control of all research, timing of release of the reports, and release of liability for negative reports are protected contractually. To further ensure independence, AYUR has agreed to a minimum coverage term including an initial report and three updates. Coverage cannot be unilaterally terminated . Distribution procedure: our reports are distributed first to our web - based subscribers on the date shown on this report then made available to delayed access users through various other channels for a limited time. The distribution of FRC’s ratings are as follows: BUY (6 9 %), HOLD ( 5 %), SELL / SUSPEND (2 4 %). To subscribe for real - time access to research, visit https://www.researchfrc.com/website/subscribe/ for subscription options. This repo rt contains "forward looking" statements. Forward - looking statements regarding the Company and/or stock’s performance inherently involve risks and uncertainties that could cause actual results to differ from such forward - looking statements. Factors that would cause or contribute to such differences include, but are not limited to, continued acceptance of the Company's products/services in the marketplace; acceptance in the marketplace of the Company's new product lines/services; competitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and other ri sks discussed in the Company's periodic report filings, including interim reports, annual reports, and annual information forms fil ed with the various securities regulators. By making these forward - looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update these statements for rev isions or changes after the date of this re port. A report initiating coverage will most often be updated quarterly while a report issuing a rating may have no further or less f requent updates because the subject company is likely to be in earlier stages where nothing material may occur quarter to quarter. Fundamental Research Corp DOES NOT MAKE ANY WARRANTIES, EXPRESSED OR IMPLIED, AS TO RESULTS TO BE OBTAINED FROM USING THIS IN FORMATION AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OR FITNESS FOR A PARTICULAR USE. ANYONE USING THIS REPORT ASSUM ES FULL RESPONSIBILITY FOR WHATEVER RESULTS THEY OBTAIN FROM WHATEVER USE THE INFORMATION WAS PUT TO. ALWAYS TALK TO YOUR FINANCIAL ADVISOR BEFOR E YOU INVEST. WHETHER A STOCK SHOULD BE INCLUDED IN A PORTFOLIO DEPENDS ON ONE’S RISK TOLERANCE, OBJECTIVE S, SITUATION, RETURN ON OTHER ASSETS, ETC. ONLY YOUR INVESTMENT ADVISOR WHO KNOWS YOUR UNIQUE CIRCUMSTANCES CAN MAKE A PROPER RECOMMENDATION AS TO THE ME RIT OF ANY PARTICULAR SECURITY FOR INCLUSION IN YOUR PORTFOLIO. This REPORT is solely for informat ive purposes and is not a solicitation or an offer to buy or sell any security. It is not intended as being a complete description of the company, industry, securities or developments referr ed to in the material. Any forecasts contained in this report we re independently prepared unless otherwise stated and HAVE NOT BEEN endorsed by the Management of the company which is the su bject of this report. Additional information is available upon request. THIS REPORT IS COPYRIGHT. YOU MAY NOT REDISTRIBUTE THI S REPORT WITHOUT OUR PERMISSION. Please give proper credit, including citing Fundamental Research Corp and/or the analyst, when quoting information from this report. The information contained in this report is intended to be viewed only in jurisdictions where it may be legally viewed and is not intended for use by any person or entity in any jurisdiction where such use would be contrary to local regulations or which would require any registration requirement within such jurisdiction.