Mr. Edoardo Mattei reports

RED WHITE & BLOOM PROVIDES UPDATE RELATING TO ALEAFIA HEALTH

Red White & Bloom Brands Inc. is providing an update on matters relating to Aleafia Health Inc.

The Ontario Superior Court of Justice (commercial list) has approved a stalking horse asset purchase and share subscription agreement pursuant to which Red White would acquire certain assets from Aleafia Health and subscribe for shares of certain subsidiaries of Aleafia Health if Red White becomes the successful bidder pursuant to the sale and investment solicitation process (SISP) also approved by the court in connection with the proceedings of Aleafia and certain of its subsidiaries under the Companies' Creditors Arrangement Act (the CCAA).

As part of the Aleafia CCAA proceedings, Aleafia obtained an order from the court earlier today approving, among other things: (i) an extension of the stay period until Oct. 31, 2023; (ii) the SISP submitted by the Aleafia group and KSV Restructuring Inc. in its capacity as monitor in the Aleafia CCAA proceedings; (iii) the stalking horse agreement (solely for the purposes of being the stalking horse bid under the SISP); and (iv) the preservation and maintenance of the Aleafia group's Health Canada and cannabis excise licences until the expiration of the stay period, including the ability of the Aleafia group to sell cannabis in the ordinary course under the licences and, to the extent any licence may expire during the stay period, an extension of such licence by a period equal to the stay period.

The stalking horse agreement provides for a reverse vesting transaction whereby a wholly owned subsidiary of Red White would subscribe for shares of Emblem Cannabis Corp., Canabo Medical Corp., Aleafia Farms Inc. and Aleafia Retail Inc. (collectively, the Aleafia purchased entities) and acquire specific intellectual property owned, licensed or leased by Aleafia Health. Certain excluded assets and liabilities of the Aleafia purchased entities would be transferred to one or more corporations that would not be included among the Aleafia purchased entities at closing. Red White's subsidiary would be the sole shareholder of the Aleafia purchased entities following closing.

The consideration for the purchased shares and purchased IP will comprise:

1. A credit bid consisting of:
   • A release of all amounts outstanding and obligations payable by the Aleafia group under the loan agreement made as of Dec. 24, 2021, as amended, which was assigned to Red White on June 6, 2023, and all related loan and security documentation, which amount as of July 31, 2023, was $15,414,622, including the principal amount of such claim, plus all accrued and unpaid interest thereon through to and including the closing date of the stalking horse bid, plus any fees and expenses associated therewith;
   • A release of all amounts outstanding and obligations payable by the Aleafia group as of the closing date pursuant to the debtor-in-possession (DIP) financing of up to $6.6-million previously approved by the court and all related loan and security documentation, including the principal amount of such claims and interest accrued as of the closing date, plus all accrued and unpaid interest thereon through to and including the closing date, plus any fees and expenses associated therewith.
2. Cash consideration consisting of:
   • Up to $400,000 payable to the monitor on the closing date to be used to pay the costs and expenses of the monitor and its legal counsel after the closing date in connection with the completion of the Aleafia CCAA proceedings (to the extent such amount has not be prefinanced under the DIP loan prior to the closing date);
   • Cash in an amount that is sufficient to satisfy any amounts remaining payable as of the closing date secured by (A) the charge to secure the fees and disbursements of the Aleafia group's counsel, the monitor and its counsel of up to $1.25-million, and (B) the charge in favour of the directors and officers of the Aleafia group of up to $2.85-million, each as previously approved by the court, and each without duplication to amounts satisfied under the above points;
   • Cash in an amount sufficient to satisfy the outstanding obligations of the Aleafia group to 1260356 Ontario Ltd. as secured lender under the credit agreement between Aleafia and 1260356 dated Aug. 20, 2021, and as amended on Dec. 24, 2021, and Aug. 26, 2022, which amount as at July 31, 2023, was approximately $5,952,056;
   • An amount sufficient to satisfy any remaining priority payments as of the closing date as required under the CCAA.

The consummation of the transactions contemplated under the stalking horse agreement are subject to satisfaction or waiver of certain conditions set forth in the stalking horse agreement, including, among other things, the court granting the requisite approval and vesting order as a final order, the stalking horse agreement being determined to be the successful bid under the SISP, receipt of all required regulatory approvals, and the licences being in good standing and continuing in good standing and not suspended or terminated following the closing date.

There is no assurance that Red White's stalking horse bid will be the successful bid under the SISP. If Red White's stalking horse bid is unsuccessful, the stalking horse agreement will terminate. Any alternative successful bid would result in the repayment in full of all amounts outstanding under the Aleafia senior secured loan agreement and the DIP loan in addition to the payment of an expense reimbursement of up to $500,000 associated with transaction costs incurred by Red White in connection with the preparation of Red White's stalking horse bid.

A copy of the stalking horse agreement can be found on Red White's SEDAR+ profile.

The entering into the stalking horse agreement was evaluated and ultimately approved by the disinterested members of the board of directors of each of Aleafia Health and Red White. The disinterested members of the board of directors of Red White excluded Colby De Zen, president and director, who, in accordance with Canadian corporate law requirements, recused himself from consideration of, and voting on, the stalking horse agreement.

About Red White & Bloom Brands Inc.

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

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