• Adult-use cannabis net revenue increased 87% compared to the prior quarter
• Medical cannabis net revenue increased 23% compared to the prior quarter
• 13 additional product SKUs released across multiple product formats
• For the first time, medical cannabis product was made available for sale in Germany
• Commenced onboarding of medical cannabis patients through exclusive partnership with Unifor
• Maintained strong adjusted gross margin on cannabis net revenue of 49%
• After quarter end, launched Nith & Grand, a premium positioned cannabis brand

Aleafia Health Inc. (TSX: AH, OTCQX: ALEAF) (“Aleafia Health” or the “Company”) is pleased to report its financial results for the three and six months ended June 30^th, 2021.

“This quarter clearly demonstrates the success of our expanded product portfolio, with strong sequential growth across all sales channels and a shift towards a more balanced mix with sizable contributions from both the medical and adult-use cannabis markets. Credit goes to our management team and employees for delivering record adult-use, and medical cannabis revenue this quarter,” said Aleafia Health CEO Geoffrey Benic. “Despite industry-wide price compression, we have maintained robust gross margins on cannabis revenue when compared to other Canadian licensed producers, based on most recently reported quarterly results. This was achieved through our twin pillars of low-cost cultivation and high-quality, differentiated cannabis derivative formats.

“With an already well-established line of cannabis wellness products, we were delighted to see sequential revenue increases driven by our newly launched dried flower and pre-roll portfolio. Gaining access to the German medical cannabis market marks an important milestone that, with continued successful shipments, can contribute revenue growth and gross margin expansion. The development of our domestic medical cannabis channel and broader patient ecosystem are well positioned as we continue the ramp-up of our exclusive partnership with Unifor, Canada’s largest private sector union.

“Lastly, we were able to complete planting across 86 acres outdoors, over a full a month earlier than last year, laying the groundwork for the 2021 harvest. Outdoor cultivation remains a core competitive advantage both in cost and scale, for our dried flower portfolio and as input for cannabis product derivative formats. Likewise, it will allow us to be opportunistic in securing bulk wholesale revenue later this year and into early 2022.”

CONDENSED INCOME STATEMENT

OPERATIONAL RESULTS

• During the three months ended June 30, 2021 (“Q2 2021”) cannabis net revenue was $9.6 million, an increase of 53% over the previous quarter. The sequential increase was due to increases in the sale of cannabis across the adult-use, medical and bulk wholesale sales channels.
• Medical cannabis net revenue for Q2 2021 was $3.3 million, a 23% and 67% increase over the previous and prior year’s quarter respectively, due to improved product offerings and increased international medical cannabis sales.
• Net adult-use cannabis revenue for Q2 2021 was $3.2 million, an increase of 87% over the previous quarter and 270% over the prior year’s quarter. The sequential increase was primarily due to greater product availability, including the launch of new product formats and SKUs.
• Net bulk wholesale revenue received from sales to cannabis licensed producers was $3.1 million, compared to $1.9 million and $6.2 million in the previous and prior year’s quarter, respectively. Bulk wholesale was up over Q1 2021, but lower than the prior year’s quarter, primarily driven by dried flower allocation, which was redirected to the adult-use sales channel.
• Adjusted gross margin before FV adjustments on cannabis net revenue was 49%, compared to 59% and 33% in the previous and prior year’s quarters, respectively. The sequential decline in gross margin percentage was primarily due to industry-wide price compression, which was reflected in a lower net revenue per gram equivalent sold.
• Adjusted EBITDA for Q2 2021 was a loss of $3.3 million, compared to a profit of $3.1 million in the prior year’s quarter. The decline over the prior year’s quarter was primarily due to increases in wages & benefits expense, partially offset by increased gross profit from the sale of cannabis.
• Net loss for the three months ended June 30, 2021 was $36,000, compared to a net loss of $4.0 million over the prior year’s quarter. The improvement in net loss over the prior year’s quarter is primarily due to improved gross profit, a $12.1 million gain on the sale of certain clinic assets in the transaction with Myconic, partially offset by bad debt expense of $7.2 million.

PRODUCT LAUNCHES & KEY DEVELOPMENTS

Throughout the reporting period, the Company undertook an expansion of its cannabis brand and product portfolio, including differentiated formats and new SKUs in the important value flower and pre-roll categories.

• Exports to Germany & Australia: During Q2 2021, the Company announced dried flower grown at its Niagara greenhouse facility had been exported to Germany. Gaining access to Europe’s legal cannabis market is an important breakthrough for Aleafia Health. Shipments of medical cannabis products to Australia were also completed during the quarter.
• Dried Flower & Pre-rolls: The Company has undertaken an expansion of its dried flower and pre-roll offering, which represents the first and third largest product categories in the Canadian cannabis market, respectively. These include a pre-roll line extension with 12 pre-rolls each of 0.35 grams, and larger format 14-gram flower and 10-gram milled flower pouches. Sales of these products and other new dried flower SKUs commenced during Q2 2021, under the newly launched brand Divvy.
• Differentiated Wellness Products: During Q2 2021, the Company launched Lavender Fizz CBD bath bombs, and CBD Freshly Minted Roll-on, under its trailblazing wellness brand Noon & Night. The quarter also featured the launch of the Omega CBD Soft Gels which feature full-spectrum, single strain CBD extract, and are the first Canadian cannabis products to be suspended in fish oil containing omega-3.
• Confectionary Edibles: The Company strengthened its edibles portfolio with Salted Caramel Pretzel Bites, which were launched under the Bogart’s Kitchen edibles brand.
• Unifor Program: During the reporting period, the Company commenced providing medical cannabis products and services to unionized employees of the Ford Motor Company of Canada, through its exclusive partnership with Unifor, Canada’s largest private sector union.
• 2021 Outdoor Cultivation Season: On June 18, 2021, the Company completed planting across 86 acres at the Port Perry Facility outdoor cultivation site. The milestone was achieved a month earlier, and on a significantly larger scale, than the 2020 outdoor season, which yielded 31,200 kgs of dried flower, at a cost of $0.10 per gram to harvest.

SELECTED BALANCE SHEET INFORMATION

CONFERENCE CALL & WEBCAST

Date: August 12, 2021
Time: 9:30 a.m. ET
USA/Canada Toll-Free Participant Call-in: (866) 679-9046; Passcode: 6096362
International Toll-Free Participant Call-in: (409) 217-8323; Passcode: 6096362

WEBCAST LINK

This conference call will be webcast live over the internet and can be accessed through the link provided. Audio of the call will be available to participants through both the conference call line and webcast; however, the presentation may only be viewed via the webcast. A replay of the call be viewed at any time via the link provided.

For Investor & Media Relations:

Nicholas Bergamini, VP Investor Relations
1-833-879-2533
IR@AleafiaHealth.com
LEARN MORE: www.AleafiaHealth.com

About Aleafia Health

Aleafia Health is a vertically integrated and federally licensed Canadian cannabis company offering cannabis health and wellness services and products in Canada. The Company has developed an international footprint, with subsidiaries or investments in German and Australian medical cannabis companies and has products available in both markets. The Company owns and operates a virtual network of medical cannabis clinics staffed by physicians and nurse practitioners who have seen over 75,000 patients to date.

Aleafia Health owns three licensed cannabis production facilities and operates a strategically located distribution centre all in the province of Ontario, including the first large-scale, legal outdoor cultivation facility in Canadian history. The Company produces a diverse portfolio of cannabis derivative products including oils, capsules, edibles, sublingual strips, and vapes, for sale in Canada in the medical and adult-use markets, and in select international jurisdictions.

Forward Looking Information

This news release contains forward-looking information within the meaning of applicable Canadian and United States securities laws. Often, but not always, forward-looking information can be identified by the use of words such as “plans”, “expects”, “estimates”, “intends”, “anticipates”, or “believes” or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved. Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company or its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by the forward-looking information contained in this news release. Risks, uncertainties and other factors involved with forward-looking information could cause actual events, results, performance, prospects and opportunities to differ materially from those expressed or implied by such forward-looking information, including risks contained in the Company’s annual information form filed with Canadian securities regulators available on the Company’s SEDAR profile at www.sedar.com. Although the Company believes that the assumptions and factors used in preparing the forward-looking information in this news release are reasonable, undue reliance should not be placed on such information and no assurance can be given that such events will occur in the disclosed time frames or at all. The forward-looking information included in this news release are made as of the date of this news release and the Company does not undertake any obligation to publicly update such forward-looking information to reflect new information, subsequent events or otherwise unless required by applicable securities legislation.