Mr. Jay Wilgar reports

NEWSTRIKE CEO UPDATE TO SHAREHOLDERS

Newstrike Brands Ltd. has provided an update to shareholders from Jay Wilgar, chief executive officer.

In a little over a month from now, on Oct. 17, 2018, Canadians will lead the world by being the first G7 country to legalize cannabis. We are setting the pace for global change, influencing the introduction of this product into mainstream society in a careful and constructive manner.

At Newstrike Brands, we have been preparing for this moment by putting tremendous work into developing Canada's cannabis company and always ascribing to our core values. One of which is "to keep it real." It seems to us, while many in our emerging industry are aspiring toward some form of global domination set against a backdrop of aspirational but likely unattainable goals, we have a far more realistic and humble approach with a focused strategy to achieve value for our shareholders.

If you recall earlier in the year, our message to the street was to focus on our recreational strategy therefore creating a prominent cannabis brand in Canada once full legalization was launched. This vision has not changed and here is what we have done to ensure we stay firm to this plan. We have established four strategic pillars, and our goal is to execute as aggressively as we can against these four pillars:

1. Well-run grow operations that yield the highest-quality production;
2. A trusted and recognizable brand known for pioneering the normalization of cannabis;
3. Established distribution networks throughout Canada and abroad;
4. Innovation with new products that challenge the status quo.

Production

Nearly every licensed producer in Canada with capital is now in the process of managing a massive increase in production capacity and scale. Within this context, our capacity estimates across our two facilities in Brantford and Niagara may seem modest but will prove to be very achievable projects that provide for significant growth and an impressive return on investment.

The retrofit and expansion at Niagara continue to progress on schedule. We were conservative when we set initial production targets at Niagara and as work has progressed we have increased our production estimate to 30,000 kilograms per year, as per our management's discussion and analysis disclosure for the three months ended June 30, 2018.

Given early indications from our product yields, it is not unrealistic to expect our Niagara facility to produce over 40,000 kg in cannabis annually once fully developed. To recap:

• Niagara is a modern, state-of-the-art greenhouse facility with highly controlled and monitored capabilities across all key growth factors, such as humidity, light and nutrients. A fully automated Dutch tray system maximizes the available real estate for plant production.
• We are in the final stages of getting our sales licence amendment to permit the packaging and sale of Brantford produced product from the Niagara facility.
• We have submitted an application to Health Canada for a sales licence amendment for Niagara grown product to be sold from the Niagara facility.
• Construction to expand the existing 200,000-square-foot greenhouse facility is under way that will increase it to approximately 455,000 square feet in Q2 2019. This state-of-the-art facility will include the following areas upon completion of approximately:
  • 350,000 square feet dedicated to growing;
  • 80,000 square feet dedicated to processing, packaging and extraction;
  • 25,000 square feet dedicated to a research and development lab and innovation.

Branding

Early on we made the decision to invest in our brand development. It has actually been a lot of fun defining and designing our identity. Our main brand is named Up Cannabis. It signals our intent to lighten up the world by virtue of more good times and less dullness. It is a promise to fully enjoy life in the moment, and everything our brand touches builds upon this premise. It is implicitly Canadian, an expression of our roots by promoting diversity, acceptance and friendliness in our actions, rather than through the use of explicit Canadiana.

Our Up Cannabis brand was officially launched over the summer and we have been proud to host several events that have garnered significant mainstream media attention.

The goal of our brand launch was to record impression metrics to ensure Up Cannabis established our share of voice in this very busy sector. We are proud to report that our two main events alone garnered over 62 million trackable media impressions. Needless to say, we are very excited and consider our brand launch a resounding success.

In line with our ethos of keeping things simple, Up Cannabis will start by offering five dried cannabis strains with names inspired by Tragically Hip experiences -- Grace, 50, Moon, Meridian and Gems. By sticking with a smaller focused product portfolio, we can better manage the initial experience consumers have with Up Cannabis and position ourselves as a premium producer. These five strains are inspired by the most popular varieties that account for the majority of cannabis sales in established adult-use markets like Colorado, Washington and California.

As many of you are well aware, the Tragically Hip band members are a critical part of Newstrike. As we know from their careers and music, they are passionate about this country, and believe strongly in this once-in-a-lifetime opportunity to positively impact the Canadian landscape. They are shareholders, creative partners, product advisers and, like all 110 of us in the company, just part of the team.

Distribution

Along with production capacity and strong branding, we have secured distribution with five provinces to date that will make Up Cannabis available to Canadians from coast to coast. This includes supply for the Nova Scotia Liquor Corp., Alberta Gaming, Liquor & Cannabis Commission, Ontario Cannabis Store, British Columbia Liquor Distribution Branch, and Saskatchewan Liquor and Gaming Authority.

At the end of the second quarter, we reported $8.2-million in dried and finished goods cannabis inventory and work in progress biological assets that will yield approximately 1,000 kg of additional cannabis. This will allow us to fulfill initial orders that have already been received from the provinces.

Our strategy extends beyond distribution as having a presence in retail is important to connecting with the consumer. Through our strategic alliance with Inner Spirit Holdings Ltd., we will help create and operate Up Cannabis experiential hubs within Spirit Leaf stores across Western Canada.

In Ontario, the province's decision to move to a private retail model for cannabis sales in 2019 presents a tremendous opportunity to further connect with our customers and establish a channel for safe, regulated product that will help eliminate the black market. We are actively exploring several different options to further solidify our position in Ontario as we fully support the new provincial legislation surrounding private retail and the opportunities it brings.

Innovation and new product development

The long-term opportunity for Newstrike and Up Cannabis extends well beyond domestic cultivation and dried cannabis. The most exciting developments in our industry are yet to come when concentrates, vape pens, edibles and beverages are permitted. With a cash balance of nearly $125-million at the end of the second quarter, Newstrike is in a strong position to take an active role in the evolution of our industry as we look to mergers and acquisitions, partnerships, joint ventures, and licensing agreements to build out our offering. We are exploring several opportunities to add innovative products to our portfolio that will create new revenue streams and leverage the brand investment that we have made, and continue to make, in Up Cannabis. We believe strategic investments and partnerships will allow us to develop innovative mainstream products that extend far beyond the typical or what may be considered industry norm.

While the approach I have stated might be interpreted as humble, in fact, our aim is high. By building a strong domestic presence in a large market that is now just around the corner, we will also look to leverage the strengths of our platform into emerging cannabis markets beyond Canadian borders.

Our decision to focus on our strategic pillars in production, branding, distribution and innovation will enable us to fill our estimated capacity with the market opportunities available to us right now. Once we do, then we will strategically add additional capacity where required to continue our growth trajectory. Setting reasonable targets, preserving our balance sheet and deploying capital wisely might seem like a quintessentially Canadian approach but we also think it is good business and the best way to create long-term shareholder value.

Lastly, our recent graduation to a Tier 1 listing on the TSX Venture Exchange is further testament to the progress we have made in our business and I am excited for the progress to come. To our shareholders, thank you for your continued support and I look forward to sharing our perspective on future developments as we execute our growth strategy.

About Newstrike Brands Ltd. and Up Cannabis

Newstrike is the parent company of Up Cannabis, a licensed producer of cannabis that is licensed to both cultivate and sell cannabis in all acceptable forms. Newstrike, through Up Cannabis and together with select strategic partners, including Canada's iconic musicians The Tragically Hip, is developing a diverse network of high-quality cannabis brands.

We seek Safe Harbor.