Mr. Edoardo Mattei of Red White reports

RED WHITE AND BLOOM AND ALEAFIA HEALTH EXECUTE BINDING LETTER AGREEMENT FOR BUSINESS COMBINATION

Red White & Bloom Brands Inc. and Aleafia Health Inc. entered into a binding letter agreement on June 6, 2023, whereby the company has agreed to acquire Aleafia and its subsidiaries in a business combination transaction.

Under the terms of the letter agreement, each outstanding common share in the capital of Aleafia will be exchanged for 0.35 of a common share in the capital of the company, subject to customary adjustment. Upon the completion of the proposed transaction, existing Red White shareholders are expected to own approximately 76 per cent of the combined company resulting from the proposed transaction and Aleafia shareholders are expected to own approximately 24 per cent of the combined company.

The letter agreement provides for the parties to enter into a definitive arrangement agreement setting out the final terms and conditions of the proposed transaction, at which time additional information will be provided in a subsequent press release.

Management commentary

"The intended acquisition of Aleafia expands our footprint to the largest federally legal cannabis market globally," said Brad Rogers, chief executive officer and director of Red White. "Combining our award-winning brands and IP [intellectual property] with Aleafia's proven cultivation, manufacturing and distribution capabilities creates one of the most dynamic cross-border companies in the industry. We continue to focus on delivering significant value to our shareholders and believe this transaction aligns with that commitment."

"The potential acquisition of Aleafia represents a transformative milestone for RWB. It provides a well-established distribution beachhead for RWB and its premium Platinum brand into the Canadian market, opens up the larger U.S. market to Aleafia's select brands through RWB's distribution and retail channels, and provides both companies with an opportunity to mutually leverage their respective competencies in the areas of cultivation, procurement, product development, and sales and marketing," said Eddie Mattei, chief financial officer of Red White. "Working together, we believe RWB and Aleafia are well positioned to capitalize on value-added synergies that will ultimately enhance the profitability of the combined company."

"The Canadian cannabis market has the potential to be a dynamic industry and is rapidly experiencing consolidation. In 2022 and 2023, Aleafia has achieved significant milestones, including growing the Divvy brand through expansion into five provincial markets and bolstering its international business through sales into Europe and Australia. The proposed transaction is a next step in the Aleafia story as it enhances our size and scale which is a critical requirement to compete in this market and provides Aleafia improved access to capital to execute on our strategic growth opportunities," said Tricia Symmes, chief executive officer of Aleafia.

"This is a prime opportunity for Aleafia to merge with a multistate operator. The proposed transaction would recapitalize Aleafia's balance sheet and provide our shareholders with access to a larger market capitalization and exposure to the U.S. recreational and medical cannabis markets," said Matt Sale, chief financial officer of Aleafia. "The improved financial flexibility and capacity of the combined company will enhance the ability to execute on organic and acquisitive growth strategies," continued Mr. Sale.

Key business and transaction highlights:

• Enhanced size and scale: Aleafia generated $40-million in revenue in the 12 months ended Dec. 31, 2022, which, on a pro forma basis, increases the combined company's revenue profile by 41 per cent.
• Expanded retail and distribution opportunities: Expected to create an opportunity to collaboratively launch Red White and Aleafia's premium brands across multiple product categories into well-established distribution and retail networks throughout North America, providing approximately 3,000 retail locations in active markets, including Michigan, Florida, California, Arizona, Missouri, select provinces in Canada, including Ontario, British Columbia, Alberta, Manitoba and Saskatchewan, and Europe.
• Potential synergies: The combined company is anticipated to realize synergies of approximately $10-million as the combined company will aim to (i) leverage Red White's supply chain and manufacturing competencies, (ii) increase each of Red White and Aleafia's respective economies of scale with the introduction of incremental premium product volumes, and (iii) optimize Aleafia's postclose operations as a subsidiary of Red White versus a stand-alone publicly traded entity.
• Platinum vapes: The combined company will be positioned to debut Platinum Vape in the Canadian market as it sets to launch its premium products in Canada. Aleafia will continue to serve as the manufacturing and distribution partner for Platinum Vapes' first international brand expansion. Over the years, the Platinum brand has received significant recognition and achieved numerous accolades. BDSA ranks Platinum Vap as the No. 1 selling vape brand in Michigan for multiple months running earning the title of the No. 1 vape brand in Michigan according to ArcView Industry Vape Report for Platinum Vape.
• Divvy, Aleafia's everyday brand, is consistently one of the top searched brands in Ontario and one of the fastest-growing brands in Aleafia's core markets. The success of Aleafia's preroll and milled (cropped) product formats, supplied by sun grown flower from the largest outdoor cultivation facility in Canada, has propelled them into a peak No. 4 and No. 2, respectively, market share ranking for fiscal year 2023 in Ontario, the largest provincial market in Canada.
• Management expertise: The combined company will be led by a deep roster of seasoned executives with several years of execution experience in markets, including cannabis, consumer packaged goods and vertically integrated manufacturing.

Summary of the proposed transaction

The proposed transaction is expected to be completed by way of a court-approved plan of arrangement under the Business Corporations Act (Ontario). Under the terms of the letter agreement, Red White will acquire all of the issued and outstanding Aleafia shares in exchange for Red White shares on the basis of the exchange ratio. Outstanding options and warrants to purchase Aleafia shares will become exercisable to acquire Red White shares on the same terms and conditions, on the basis of the exchange ratio. Outstanding restricted and deferred share units of Aleafia will be settled upon closing in Red White shares on the basis of the exchange ratio.

The proposed transaction will require the approval of (a) (i) two-thirds of the votes cast by shareholders of Aleafia and, if required, (ii) a simple majority of the votes cast by minority Aleafia shareholders in accordance with Multilateral Instrument 61-101 (Protection of Minority Security Holders in Special Transactions) at a special meeting of Aleafia shareholders expected to take place in the third quarter of 2023; (b) debentureholders of the requisite percentage of the principal amount of each series of Aleafia convertible debentures; and, (c) if required, Red White shareholders at a special meeting of Red White shareholders expected to take place in the third quarter of 2023. Completion of the proposed transaction will be subject to customary closing conditions and receipt of necessary court and regulatory approvals, including stock exchange approval. Subject to receipt of all necessary approvals, the proposed transaction is expected to close by no later than 5 p.m. on Oct. 31, 2023.

A copy of the letter agreement will be filed on Aleafia and Red White's SEDAR profiles. Prior to entering into a definitive arrangement agreement, all members of the board of directors of Aleafia, all officers of Aleafia and certain other securityholders of Aleafia will enter into customary support and voting agreements.

The letter agreement provides for the parties to enter into a definitive arrangement agreement setting out the final terms and conditions of the proposed transaction on or before July 31, 2023. The letter agreement contains, and the arrangement agreement will continue to contain, standard non-solicitation and superior proposal provisions and a break fee of $2-million. The letter agreement includes, and arrangement agreement will continue to include other provisions such as conditions to closing the proposed transaction, and representations and warranties and covenants customary for arrangement agreements. Further details with respect to the proposed transaction will be included in the arrangement agreement and in an information circular to be mailed to Aleafia shareholders in connection with the Aleafia meeting and to holders of Aleafia convertible debentures, as applicable, and to Red White shareholders in connection with the Red White meeting. Once available, copies of the arrangement agreement and information circular will be filed on each of Aleafia and Red White's SEDAR profiles at SEDAR, as applicable.

Fairness opinion

Prior to entering into a definitive arrangement agreement, the disinterested members of the board of directors of Aleafia will engage a financial adviser to provide Aleafia with an opinion stating that the consideration offered pursuant to the letter agreement and subsequent definitive arrangement agreement is fair, from a financial point of view, to the holders of Aleafia common shares and, if required, pursuant to MI 61-101, Aleafia will obtain a formal valuation from an independent valuator.

Aleafia board approval

As previously announced by Aleafia, a committee of disinterested members of the board of directors of Aleafia was previously established to review and evaluate all options available to Aleafia, including the proposed transaction. After conducting an analysis of the options available, including the proposed transaction, the committee unanimously recommended the proposed transaction to the board of directors as being in the best interests of Aleafia and Aleafia's securityholders.

In recommending the proposed transaction, the committee considered and evaluated a number of factors, including but not limited to:

• Aleafia has experienced recurring losses and currently faces substantial challenges in meeting its financial obligations and maintaining liquidity to finance continuing operations and further revenue growth.
• Existing contractual restrictions, constraints on accessing capital markets and Aleafia's financial condition make it challenging to secure alternative sources of financing. Aleafia has been unable to secure sufficient additional equity or debt financing to alleviate its continuing liquidity issues.
• The proposed transaction also provides a viable solution to address Aleafia's financial stability, finance its continuing operational expenses, service applicable debt requirements and finance essential strategic projects.
• The combination of Red White and Aleafia brings together complementary strengths and resources in the cannabis industry. The committee recognizes that the prospective combined entity enhances the ability of both parties to the transaction to achieve their strategic goals and continue to build both shareholder value and confidence in the newly formed, combined entity.

The committee will continue to independently assess the proposed transaction through to closing, including upon completion of diligence and receipt of the fairness opinion, to ensure that Aleafia securityholders' interests are protected.

Red White board approval

From a Red White perspective, Colby De Zen has a disclosable interest with respect to the proposed transaction given his involvement with certain affiliated parties that may be directors, creditors and/or shareholders of Red White and Aleafia, and which are owned and controlled by members of Mr. De Zen's family. In accordance with Canadian corporate law requirements, he declared the nature and extent of his interest in the proposed transaction and recused himself from consideration and voting on the proposed transaction. The disinterested directors of Red White participated in evaluating and recommending the proposed transaction.

Assignment of secured debt

Concurrent with entering into the letter agreement, the loan agreement made as of Dec. 24, 2021, between Aleafia and certain of its subsidiaries, as borrower, with certain of Aleafia's other subsidiaries as guarantors, and NE SPC II LP, as lender, as amended on March 28, 2022, June 17, 2022, April 26, 2023, May 15, 2023, and May 31, 2023, was assigned by NE SPC II to Red White.

Credit facility and settlement of Aleafia convertible debentures

Pursuant to the letter agreement, within 30 days of the letter agreement, Red White and Aleafia will negotiate in good faith a credit facility to be provided by Red White to Aleafia of $17.5-million. In the event that either party terminates the letter agreement or arrangement agreement, the board of directors of Aleafia does not unanimously recommend that Aleafia shareholders vote in favour of the proposed transaction or the proposed transaction fails to gain any of the prerequisite approvals required to close, including but not limited to any required securityholder approvals, such as the approval of the holders of the Aleafia convertible debentures, or court approval of the arrangement, or if any conditions to closing the proposed transaction are not satisfied or waived, the due date of the Red White credit facility will accelerate.

Red White intends to secure a $30-million credit facility. The proceeds from the new credit facility will serve multiple purposes, including the financing of the assignment of the Aleafia senior secure loan agreement to Red White, full and final settlement of all outstanding principal and accrued interest and any other amounts owing in respect of certain Aleafia convertible debentures issued under the amended and restated debenture indenture providing for the issue of certain convertible debentures dated as of June 27, 2022, between Aleafia and Computershare Trust Company of Canada, as the trustee, as supplemented by: (a) the first supplemental indenture dated as of June 27, 2022 (providing for the issue of the 8.5 per cent Series A secured convertible debentures due June 30, 2024); (b) the second supplemental indenture dated as of June 27, 2022 (providing for the issue of the 8.5 per cent Series B secured convertible debentures due June 30, 2026); and (c) the first supplemental indenture dated as of June 27, 2022 (providing for the issue of 8.50 per cent Series C secured debentures due June 30, 2028), for an aggregate of $6-million at the effective time (subject to receipt of debentureholder approval), financing working capital requirements and targeted growth initiatives of the combined company, and covering general corporate expenses and transaction costs associated with the proposed transaction. Specific terms for the new credit facility will be confirmed upon execution of final funding agreements and will be subject to the completion of the proposed transaction.

Concurrently with the execution of the letter agreement, Royal Group Resources Ltd. (RGR), an existing creditor of both Red White and Aleafia, provided Red White with $14-million as an advance under the company's existing secured note in favour of RGR dated March 27, 2023. The RGR advance will be retired upon closing of the new credit facility.

Also concurrent with the execution of the letter agreement and upon receipt of the RGR Advance, Red White will enter into an agreement to advance to Aleafia an amount equal to $1.5-million under the Aleafia senior secured loan agreement.

About Red White & Bloom Brands Inc.

Red White & Bloom is a multistate cannabis operator and house of premium brands in the United States legal cannabis sector. Red White is predominantly focusing its investments on the major United States markets, including Arizona, California, Florida, Massachusetts, Missouri and Michigan.

About Aleafia Health Inc.

Aleafia is a federally licensed Canadian cannabis company offering cannabis products in Canadian adult-use and medical markets and in select international markets, including Australia and Germany. Aleafia operates a virtual medical cannabis clinic staffed by physicians and nurse practitioners which provide health and wellness services across Canada.

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