Mr. Hugo Alves reports

AUXLY REPORTS Q3 2023 FINANCIAL RESULTS

Auxly Cannabis Group Inc. has released its financial results for the three and nine months ended Sept. 30, 2023. These filings and additional information regarding Auxly are available for review on SEDAR at www.sedar.com. All amounts are Canadian dollars except common shares ("Shares") and per Share amounts.

Q3 2023 Highlights and Subsequent Events

Total net revenues of $28.2 million in Q3 2023, representing an increase of $8.4 million or 42% compared to the same period in 2022;

SG&A reduced by $1.5 million or 13% from the same period in 2022 as the Company continues to focus its efforts on reducing overhead in the Company;

Adjusted EBITDA was positive $0.1 million, an improvement of $5.9 million as compared to the same period last year;

Retained the #5 LP position in Canada with a 4.8% share of market at the end of the quarter, which has increased to 5.0% share of market as of the end of October1;

We continued to improve sales in the pre-roll segment, one of the fastest growing product categories, finishing the quarter with 4.2% share of market up from 3.4% in the previous quarter;

Back Forty Wedding Pie remained the top-selling non-infused pre-roll SKU nationally in the quarter, and Back Forty Banana OG pre-rolls moved to the #2 position in October;

Our newest brand Parcel, launched earlier in the year, has gained significant traction in the dried flower category, and Parcel Sweet Notes was the top-selling 14g dried flower SKU nationally in October;

Introduced innovative cannabis products to the market backed by consumer insights, including the launch of new Back Forty all-in-one vapes, which will be available in Alberta, Ontario, Saskatchewan and Manitoba in November;

Successfully upgraded post-harvest operations to improve dried flower quality while maintaining throughput from the Auxly Leamington cultivation facility;

Strengthened the Company's balance sheet by entering into an agreement with strategic partner Imperial Brands plc to extend the maturity date of the Imperial Brands convertible debenture by two years from September 25, 2024 to September 25, 2026.

Hugo Alves, CEO of Auxly, commented "During the quarter we continued to take positive steps to focus our operations, reduce costs and improve profitability. We saw increased demand for our products due to strong operational execution, the persistent efforts of a dedicated internal sales force and the increasing popularity of our Back Forty and Parcel brands. The successful consolidation of our manufacturing activities, enhancements in pre-roll automation and disciplined spending have directly improved margins and resulted in better overall financial performance. We were also able to strengthen our balance sheet by obtaining a two-year extension of the unsecured convertible debenture held by our strategic partner Imperial Brands. Our Q3 results reflect the tireless efforts of our talented employees and their commitment to making incredible products that help people live happier lives. We are united in our mission, encouraged by our quarterly results and dedicated to building on those positive achievements."

Net Revenues

For the three and nine months ended September 30, 2023, net revenues were $28.2 million and $74.2 million as compared to $19.8 million and $69.8 million during the same period in 2022, an increase of 42% and 6% respectively. Revenues for the three and nine months ended September 30, 2023 were comprised of approximately 67% and 61%, respectively, in sales of dried flower and pre-roll Cannabis Products, with the remainder from oils and Cannabis 2.0 Product sales. Auxly maintained its position as a top 5 LP, by maintaining strength in sales of both Cannabis 1.0 and Cannabis 2.0 Products.

Consistent with prior periods, as the Company does not participate in the Quebec market, approximately 84% of cannabis sales during the nine-month period originated from sales to British Columbia, Alberta and Ontario.

Gross Profit

Auxly realized a gross profit of $4.6 million and $18.5 million for the three and nine months ending September 30, 2023 resulting in a 16% and 25% Gross Profit Margin respectively, as compared to $2.2 million (11%) and $15.7 million (23%) during the same periods in 2022. Excluding non-cash amounts, the Cost of Finished Cannabis Inventory Sold Margin for the three months ended September 30, 2023 improved to 30% versus 25% in the same period of 2022. This is primarily as a result of a higher proportion of Cannabis 1.0 Products sold by the Company utilizing low-cost cannabis cultivated at Auxly Leamington, and the streamlining of certain Cannabis Products and operating costs.

Realized and unrealized fair value gains and losses reflect accounting treatments associated with Auxly Leamington cultivation activities and sales and are influenced by changes in production, sales and net realizable value assumptions.

Inventory impairments during the third quarter of 2023 of $3.2 million were associated with certain slower moving SKUs and certain product not meeting quality specifications, an increase of $1.2 million from the comparative period. The impairments recognized in the nine months ending September 30, 2022 include impairments related to the closure of the Auxly Annapolis facilities.

Total Expenses

Selling, general and administrative expenses ("SG&A") are comprised of wages and benefits, office and administrative, professional fees, business development, and selling expenses. SG&A expenses were $10.0 million during the third quarter of 2023, $1.5 million lower than the third quarter of 2022 primarily due to lower wages and benefits and selling expenses. Year-to-date expenditures of $28.9 million in 2023 are $8.2 million lower than the same period in 2022 primarily due to measures taken to reduce overhead in the organization and lower selling expenditures.

Wages and benefits were $4.0 million for the third quarter of 2023, as compared to $4.8 million for the same period of 2022. The decrease in expenses was related to the streamlining of operations and support staff for a more focused product portfolio. Year-to-date expenditures of $11.9 million were lower than those of $15.6 million during the same period of 2022. The decrease is primarily due to measures taken after the third quarter of 2022 to reduce overhead in the organization.

Office and administrative expenses were $2.6 million during the third quarter and $8.1 million year-to-date which was $0.2 million higher and $0.5 million lower than the same periods in 2022. The increased expenditures primarily relate to a provision for bad debt related to Fire & Flower Holdings Corp. filing for creditor protection under the Companies' Creditors Arrangement Act and the timing and costs associated with product innovation.

Auxly's professional fees were $1.0 million during the third quarter of 2023 and $2.4 million year-to-date which was $0.3 million and $0.2 million higher than the same periods in 2022. Professional fees incurred primarily related to accounting fees, regulatory matters, reporting issuer fees, and legal fees associated with certain corporate activities and as a result can fluctuate significantly from one period to the next.

Business development expenses were $0.1 million for the three and $0.4 million for the nine months ended September 30, 2023 as compared to $0.1 million and $0.2 million during the same periods in 2022. These expenses primarily relate to acquisition, business development and travel related expenses.

Selling expenses were $2.3 million for the three months ended September 30, 2023 and $6.2 million year-to-date, decreases of $1.3 million and $4.4 million over the same periods in 2022, primarily as a result of cost reductions associated with the internalization of the sales team and reduced marketing initiatives, partially offset by higher Health Canada fees related to higher revenues.

Equity-based compensation for the three and nine months ended September 30, 2023 was $0.7 million and $1.5 million respectively. During the same periods of 2022, these amounts were $0.5 million and $3.6 million, primarily reflecting the impact of restricted share units ("RSU") granted in June 2022, in respect of services provided by employees in 2021.

Depreciation and amortization expenses were $1.8 million for the period ended September 30, 2023, and $5.2 million year-to-date decreasing by $1.7 million and $6.8 million respectively over the same periods in 2022, primarily as a result of reductions in intangible assets, completion of certain leases and right of use assets, and depreciation associated with disposed assets.

Interest expenses were $6.6 million and $18.9 million for the three and nine months ended September 30, 2023, an increase of $1.1 million and $3.0 million over the same periods in 2022. The increase in expense is primarily a result of the impact of rising interest rates where such obligations are subject to variable charges and higher accretion expense on convertible debentures. Interest expense includes accretion on the convertible debentures and interest paid in kind on the $123 million Imperial Brands Debenture. Interest payable in cash was approximately $2.4 million for the three month ended September 30, 2023, an increase of $0.6 million over the same period in 2022.

Total Other Incomes and Losses

Total other incomes and losses for the third quarter of 2023 was a net income of $47.2 million primarily related to gains due to the extension of the Imperial Brands Debenture. Total other loss in the third quarter of 2022 was $43.4 million primarily due to the impairment of goodwill and other assets of $45 million partially offset by gains related to foreign exchange, assets and liabilities and interest and other income.

Total other incomes and losses for the nine months ending September 30, 2023 was a net income of $45.5 million compared to a net loss of $66.4 million in the comparative period. Total other incomes and losses for the nine months ended September 30, 2023 included gains due to extensions on unsecured promissory notes, partially offset by the closure of Auxly Ottawa facility where the carrying value exceeded the fair value less cost to sell. Total other incomes and losses during the comparative period of 2022 included the first quarter losses associated with the closure of Auxly Annapolis and Auxly Annapolis OG facilities where the carrying value exceeds the fair value less cost to sell.

Net Income and Loss

Net income for the three months ended September 30, 2023 was $32.6 million, representing a net income of $0.03 per share on a basic and diluted basis. The change in net income in the third quarter of 2023 as compared to a net loss of $60.1 million for the same period of 2022 was primarily driven by the gains on the extension of the Imperial Brands Debenture and changes in total expenses and improved gross profits. The net loss of $114.2 million through nine months of 2022 includes the net impact of approximately $25.7 million related to the closure of the Auxly Annapolis and Auxly Annapolis OG facilities during the first quarter of 2022.

Adjusted EBITDA

Adjusted EBITDA for the three months ended September 30, 2023 was $0.1 million, an improvement of $5.9 million over the same period of 2022, primarily as a result of improvements in gross profits and SG&A.

Outlook

In 2023, we aim to continue to improve earnings performance, increase focus on key product formats, lower costs and increase efficiency, which we expect will yield positive results. With these actions in mind, our goals for 2023 are broadly defined below:

Increase net revenues by 15%, with a focus on key product categories, enhanced by strategic expansion of our product portfolio, while supporting strong retail distribution through our internal sales team.

Continue to leverage Auxly Leamington's large-scale, low-cost cultivation facility and the Company's manufacturing automation to increase blended Cost of Finished Cannabis Inventory Sold Margin to an average of 35-40%.

Vigorously manage SG&A as a percentage of net revenues to keep it below 40%.

Prudently manage the Company's balance sheet and streamline assets where possible.

The Company successfully continued its efforts to improve earnings performance resulting in positive Adjusted EBITDA for the third quarter of 2023.

The Company increased its pre-roll manufacturing capabilities and advanced the implementation of alternate post-harvest drying methods at Auxly Leamington to improve dried flower quality. Stronger execution in our key product formats, the persistent efforts of a dedicated internal sales force and the increasing popularity of our Back Forty and Parcel brands contributed to increased demand for our products and revenue expansion during the quarter.

We prudently managed our spending and continued to focus operations on vape, pre-roll and dried flower products to improve overall efficiency. The consolidation of our pre-roll and dried flower manufacturing activities at our Auxly Leamington facility, automation enhancements and continual process improvements all contributed to improved margins.

The Company also strengthened its balance sheet during the quarter by successfully working with its strategic partner Imperial Brands to extend the maturity date of its unsecured convertible debenture until September 25, 2026 and is actively working with BMO and the syndicate of lenders towards a longer-term extension of the Auxly Leamington secured credit facility.

We continue to work towards achievement of our full year plan, built upon proven demand for our products, outstanding employees, top-tier assets and an underlying desire to continue to put our consumers first by delivering safe, effective, high-quality products that address their evolving needs and preferences and help them live happier lives.

Non-GAAP Measures

Please see the Company's MD&A for the three months and nine months ended September 30, 2023, under "Non-GAAP Measures" for a further description of the following financial and supplementary financial measures.

Financial Measures

EBITDA and Adjusted EBITDA

These are non-GAAP measures used in the cannabis industry and by the Company to assess operating performance removing the impacts and volatility of non-cash adjustments. The definition may differ by issuer. The Adjusted EBITDA reconciliation is as follows:

Supplementary Financial Measures

Cost of Finished Cannabis Inventory Sold Margin

"Cost of Finished Cannabis Inventory Sold Margin" is a supplementary financial measure and is defined as Cost of Finished Cannabis Inventory Sold divided by net revenues.

Gross Profit Margin

"Gross Profit Margin" is defined as gross profit divided by net revenues. Gross Profit Margin is a supplementary financial measure.

Debt

"Debt" is defined as current and long-term debt and is a supplementary financial measure. It is a useful measure in managing our capital structure and financing requirements. Conference Call

The Company will not host an earnings conference call and the Company does not anticipate reinstating earnings conference calls until further notice. All investor inquiries should be directed to IR@auxly.com.

ON BEHALF OF THE BOARD

"Hugo Alves" CEO About Auxly Cannabis Group Inc. (TSX: XLY)

Auxly is a leading Canadian consumer packaged goods company in the cannabis products market, headquartered in Toronto, Canada. Our focus is on developing, manufacturing and distributing branded cannabis products that delight our consumers.

Our vision is to be a leader in branded cannabis products that deliver on our consumer promise of quality, safety and efficacy.

We seek Safe Harbor.