Core One Labs : MD&A for the Year Ended December 31, 2019

CORE ONE LABS INC.

(FORMERLY LIFESTYLE DELIVERY SYSTEMS INC.)

MANAGEMENT’S DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

FOR THE YEAR ENDED

DECEMBER 31, 2019

Marijuana is illegal under U.S. federal law and enforcement of relevant laws is a significant risk. See “Risk Factors”.

CSE : COOL | OTCQX : CLABF | Frankfurt: LD6, WKN: A14XHT

INTRODUCTION

The following Management Discussion and Analysis (“MD&A”) of Core One Labs Inc. (formerly Lifestyle Delivery Systems Inc.) (the “Company” or “Core One”), has been prepared by management, in accordance with the requirements of National Instrument 51-102 as of August 18, 2020, and should be read in conjunction with the audited consolidated financial statements of the Company for the year ended December 31, 2019, and the related notes contained therein which have been prepared under International Financial Reporting Standards (“IFRS”).

The information contained herein is not a substitute for detailed investigation or analysis on any particular issue. The information provided in this document is not intended to be a comprehensive review of all matters and developments concerning the Company. Additional information relevant to the Company’s activities can be found on SEDAR at www.sedar.com and the Company’s website at www.core1labs.com.

All financial information in this MD&A has been prepared in accordance with IFRS. All dollar amounts are quoted in Canadian dollars, the reporting currency of the Company, unless specifically noted.

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

Certain statements contained in the foregoing MD&A constitute forward-looking statements. Forward-looking statements often, but not always, are identified by the use of words such as “seek”, “anticipate”, “believe”, “plan”, “estimate”, “expect”, “targeting” and “intend” and statements that an event or result “may”, “will”, “should”, “could”, or “might” occur or be achieved and other similar expressions. Forward-looking statements in this MD&A include statements regarding the Company’s future plans and expenditures, the satisfaction of rights and performance of obligations under agreements to which the Company is a part, the ability of the Company to hire and retain employees and consultants and estimated administrative assessment and other expenses. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statements were made, and readers are advised to consider such forward-looking statements in light of the risks set forth below.

COMPANY OVERVIEW AND DESCRIPTION OF BUSINESS

The Company was incorporated on September 14, 2010, pursuant to the provision of the Business Corporations Act (British Columbia). On September 6, 2019, the Company changed its name from Lifestyle Delivery Systems Inc. to Core One Labs Inc. The name change was done to more accurately reflect the Company’s operational expertise, as well as the Company’s overall product and service offerings. In conjunction with changing its name, the Company consolidated its issued and outstanding common shares on the basis of six (6) pre-consolidation shares for every one (1) post-consolidation share. On July 7, 2020, the Company further consolidated its issued and outstanding common shares on the basis of two (2) pre-consolidation shares for every one (1) post-consolidation share. All shares, options, warrants, and per share amounts were adjusted to reflect the consolidation ratio and are presented in this MD&A on a post-consolidation basis.

Core One is a technology company that licenses its technology to a state-of-the-art production and packaging facility located in Southern California. The Company’s technology produces infused strips that allow for bioavailability of cannabis constituents. Through its wholly-owned subsidiaries, Core Isogenics Inc. and CSPA Group Inc., the Company operates a licensed vertically integrated cannabis cultivation, manufacturing, and distribution facility in the City of Adelanto, California.

The Company’s head office is located at Suite 3123 – 595 Burrard Street, Three Bentall Centre P.O. Box 49139; Vancouver, BC V7X 1J1, Canada. The Company’s shares trade on the Canadian Securities Exchange under the trading symbol “COOL,” on the OTCQX under the trading symbol “CLABF,” and on the Borse Frankfurt

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CSE : COOL | OTCQX : CLABF | Frankfurt: LD6, WKN: A14XHT

Exchange under the symbol “LD6, WKN: A14XHT”.

The Company operates in two geographical locations; California, USA, and British Columbia, Canada. A majority of the assets of the Company, as well as daily operations, are located in the City of Adelanto, California. The Parent Company operates in British Columbia; its primary function is the financing of the day- to-day operations in California as well as holding and developing intellectual property of the Company associated with CannaStripsTM technology.

As of the date of the filing of this MD&A, the Company has the following subsidiaries:

Adelanto Operations

At the date of this MD&A, the Company’s main operating facility is located in the City of Adelanto, California (the “Facility”). The facility is being leased under a long-term lease expiring on March 31, 2021, which can be renewed for an additional three consecutive 5-year terms. The Facility houses a full cultivation and manufacturing cycle starting with nursery, cultivation, extraction, distillation, strip coating, and packaging operations. The Facility is divided into four distinct divisions: nursery, cultivation, manufacturing, and distribution. Retrofitting/construction of the manufacturing division was completed in the summer of 2018. Distribution division including outbound transportation became operational in the fall of 2018. The nursery division was completed in late April 2019, and the cultivation division of the Facility was completed in September 2019.

As of the date of this MD&A, the Company’s main business activity includes the manufacturing of CannaStripsTM, cannabis-infused strips (similar to breath strips) based on the patent-pending technology, as well as producing oils, distillates, and resin for the Company’s Rêveur product brand, as well as for the white- label distribution market. These operations are carried out through the Company’s wholly-owned subsidiary, CSPA Group, Inc. (“CSPA”), which is managed by the Company’s 75%-owned subsidiary, LDS Scientific Inc., under a management services agreement. Based on the agreement, LDS Scientific acts as the sole manager of CSPA’s cannabis extraction and manufacturing operations, supervising and ensuring the performance of all functions related to the extraction and manufacturing operations, including compliance with applicable laws and regulations for marijuana-related activities.

The Company started retrofitting the Facility in November of 2016 and in September of 2017, the majority of required improvements for the extraction and manufacturing division were completed, and CSPA was granted a Certificate of Occupancy (“COO”) allowing CSPA to begin operations managed by LDS Scientific.

The Company owns a 75% interest in each of LDS Agrotech and LDS Scientific. The remaining 25% of LDS

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CSE : COOL | OTCQX : CLABF | Frankfurt: LD6, WKN: A14XHT

Agrotech is owned by its President, Matthew Ferguson, the remaining 25% of LDS Scientific is owned by its former President, Jonathan Hunt (Mr. Ferguson and Mr. Hunt are collectively referred to as “Minority Shareholders”). The Company retains options to purchase the remaining 25% of each of LDS Agrotech and LDS Scientific (the “LDS Agrotech and LDS Scientific Options”), which can be exercised by:

1. issuing 208,334 common shares to each Minority Shareholder; and
2. making a US$1,000,000 cash payment.

Nursery and Cultivation Operations

On December 12, 2018, the California Department of Food and Agriculture (“CDFA”) issued Core Isogenics Inc., the Company’s wholly-owned subsidiary focused on developing isogenic seed strains and automated cultivation methods, temporary nursery and cultivation licenses (the “Temporary Licenses”). The Temporary Licenses allow the Company to control all aspects of seed genetics, cultivation, and formulation of the Company’s products.

In September 2019, Core Isogenics received an annual renewable Provisional Nursery License and in October 2019, an annual renewable Provisional Cultivation License, which are issued by CDFA. Both licenses renew in September of 2020. As of the date of this MD&A, permanent licenses are not being granted by CDFA. Once CDFA starts issuing permanent licenses, it is the Company’s understanding that Core Isogenics will not be required to re-submit any additional documentation in order to receive its first annual license.

The Cultivation License covers two rooms, a vegetation room and a slightly larger flowering room. The vegetation room houses a two-storystate-of-the-art rolling table system and 192 lights. The flower room includes the same two-storystate-of-the-art rolling table system equipped with 288 lights. Both the flowering and the vegetation rooms have automated irrigation systems in order to maintain an accurate feeding regimen for the plants and to reduce the amount of labor required to service those plants. The genetics for the rooms are bred by Core Isogenics’ Nursery located in the same facility, in separate premises adjacent to the cultivation rooms.

Developing its proprietary plant genetics and the germination and grow technology allows the Company to produce seeds and plants with properties identical to those used in CannaStripsTM formula, thereby reducing the number of extraction steps that would be required to extract ingredients from conventional plants.

The nursery utilizes the seeds grown based on the Core Isogenics process. These seeds are grown inside the Company’s climate-controlled,negatively-pressurized, and remotely-monitored rooms to ensure contaminant- free plant development. The Company is planning to develop both indoor and outdoor strains with a focus on future large outdoor cultivations.

In December 2019, Core Isogenics began harvesting the indoor flower. First harvest yielded approximately 345 pounds of flower which, following the drying and curing process, yielded 69 pounds of marketable flower, or 20% of the initial harvested weight. The Company continues to harvest once a week with the harvests ranging from 15 pounds to 50 pounds. Once the Company determines the optimal mix of seeds, nutrients, lights, and grow space per plant, it expects the average harvest to normalize at approximately 45 pounds per week.

In early 2020, Core Isogenics Inc. partnered with Reiziger® Holland for a 12-month study of its hydroponic solutions. The Core Isogenics’ nursery dedicated approximately 25% of the genetic rooms to the project which the Company hopes will improve its harvests by accelerating the growth of cannabis plants, increasing flower yield and their quality. The initial project is estimated to take approximately twelve months and will include matching genetics to nutrients and creating feeding regimens specifically designed for maximum absorption and conversion of nutrients into cannabinoids. The early results have been promising, showing improved growth of seedlings with the stalk size doubling in diameter in half the time. The possible benefits for Core Isogenics are shorter cultivation times, and higher flower yields, both of which will translate into higher profit margins. The nursery facility is uniquely suited for this type of project, with its ability to track the growing conditions in isolated rooms, as well as documenting the feeding schedule and soil condition in order to gather information to accurately assess the cultivation process.

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CSE : COOL | OTCQX : CLABF | Frankfurt: LD6, WKN: A14XHT

Outdoor Cultivation Operations

In April 2019, the Company incorporated an additional subsidiary, Agrotech LLC., of which 50% of equity was issued to an unaffiliated third party (“Agrotech”). Agrotech entered into two separate crop-share farm lease agreements with two licensed California cannabis farms consisting of over two acres of outdoor cultivation and three-quarters of an acre of covered canopy cultivation land in Yolo County, CA (the “Sacramento Farms”). Both contracts had substantially the same terms expiring on December 31, 2019 and were subject to US$300,000 (US$150,000 each) upfront lease payments. Pursuant to the agreements, the Company became the main operator on the leased land and therefore was required to supply seedlings, nutrients, and all other required material and manpower to facilitate operations at the Sacramento Farms. All operations had to be approved by the farm owners. The Sacramento Farms have two years of successful contaminant-free growth and all the necessary infrastructure, which allowed the Company to start cultivation of cannabis in May 2019, when the Company planted 10,000 seeds on the farm’s outdoor cultivation acreage. As at December 31, 2019, all the plants were harvested and transferred to inventory.

New Product Development

During the year ended December 31, 2019 and for the subsequent period, the Company continued expanding its product offering.

In November 2019, the Company rolled out a new Rêveur premium indoor flower line. Prior to introducing this new product, the Company had three strains that were available in the marketplace, and all used only half a gram of live resin concentrate. The new product uses a one-gram premium indoor flower that has been successfully state-certified and packaged to be sold by the Company’s distribution partner, Fenix Logistics.

In December 2019, the Company completed formulation of the CannaStripsTM Nightime Formula and the compliant packaging, which completed the primary product line for CannaStripsTM. The Company believes that the large senior community in California may represent a significant market for the Nighttime version of CannaStripsTM.

In January 2020, the CSPA Group started using Color Remediation Technology (“CRT”) to enhance its extraction capabilities. CRT is a system that utilizes a series of filters with a proprietary combination of fine media. CRT provides a cleaner more potent end-product while preserving valuable terpenes and controlling the color of the finished product. CSPA’s ability to refine the CRT method allowed to expand production to additional forms of concentrate products including diamonds, live resins, sauces, shatters, and terpene distillate blends, and opened the door to additional white labelling for some of the largest brands in California.

Distribution

During the year ended December 31, 2019, in addition to delivering its CannaStripsTM and Rêveur products under the distribution license granted to CSPA Group, the Company engaged services of several independent distribution providers, including lbs. Distribution, Rise Logistics and Fenix Logistics. At December 31, 2019, and up to the date of the filing of this MD&A the Company continues to work with Fenix Logistics on non- exclusive basis. In addition to distribution services, Fenix Logistics also assists the Company with labeling, testing, and packaging of the Company’s products. As of the date of this MD&A, the Company’s products are available in 90 stores across the State of California.

Construction of Dispensary and Increase of Distribution Operations

On February 28, 2019, the Company’s affiliate, Highway 395 Dispensary Inc. (“Highway 395”), filed plans with the Planning Department of the City of Adelanto for the construction of a freestanding structure for dispensary and delivery operations. The president of Highway 395 is Kelly Christopherson. Ms. Christopherson is the CEO of CSPA and is the partner of Brad Eckenweiler. The land parcel where the dispensary is being built is owned by LDS Development Corporation, a wholly-owned subsidiary of the Company (“LDS DevCo”). In January 2020, the Company entered into an option agreement with Optimus Logistics Inc., (“Optimus”), a company formed for the purpose of financing the construction of the marijuana dispensary being developed by the Company in Adelanto, California, and parent of Highway 395, whereby the

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CSE : COOL | OTCQX : CLABF | Frankfurt: LD6, WKN: A14XHT