.3

MTL Cannabis Corp.

Consolidated Financial Statements

For the years ended March 31, 2025 and 2024

[Expressed in Canadian dollars]

Independent Auditor's Report

To the Shareholders of MTL Cannabis Corp. :

Opinion

We have audited the consolidated financial statements of MTL Cannabis Corp. and its subsidiaries (the "Company"), which comprise the consolidated statements of financial position as at March 31, 2025 and March 31, 2024, and the consolidated statements of income and comprehensive income, changes in shareholders' equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of material accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at March 31, 2025 and March 31, 2024, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with IFRS® Accounting Standards as issued by the International Accounting Standards Board.

Basis for Opinion

We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the consolidated financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Impairment Assessment for Goodwill
Key Audit Matter Description

The Company performs impairment testing on an annual basis, or whenever events or change in circumstances indicate that the carrying value of a cash generating unit (“CGU”) might exceed its recoverable amount. The recoverable amount of a CGU is determined using the higher of its value in use and its fair value less costs of disposal. Goodwill was determined to not be impaired as a result of the Company’s impairment tests as at March 31, 2025. Refer to Notes 2, 3 and 10 of the consolidated financial statements for further details.

We identified the impairment assessment for goodwill to be a key audit matter. There was a high degree of auditor judgment required, including the involvement of internal valuation specialists, to evaluate the significant assumptions used by management in determining the recoverable amount including, but not limited to, forecasted revenue, gross margin, operating expenses, long-term growth rates, and discount rates. The sensitivity of reasonable changes to the significant assumptions could have a significant impact on the determination of the recoverable amount of the CGUs and the Company’s determination of impairment.

Audit Response

We responded to this matter by performing procedures in relation to the impairment assessment for goodwill. Our audit work in relation to this included, but was not restricted to, the following:

Valuation of Biological Assets and Inventory

Key Audit Matter Description

Biological assets are measured at fair value less costs to sell. Inventory is measured at the lower of cost and net realizable value. In estimating the fair value of biological assets, management is required to make a number of estimates, including estimating the stage of growth of the cannabis up to the point of harvest, expected yield, harvesting costs, selling costs, selling price, and the allocation of indirect costs. In estimating the fair value of final inventory values, management is required to determine an estimate of spoiled or expired inventory. Refer to Notes 2, 3, 6 and 7 of the consolidated financial statements for further details.

We identified valuation of biological assets and inventory as a key audit matter, as a high degree of auditor judgment was required to evaluate the significant assumptions and estimates made by management.

Audit Response

We responded to this matter by performing procedures in relation to the valuation of biological assets and inventory. Our audit work in relation to this included, but was not restricted to, the following:

Other Information

Management is responsible for the other information. The other information comprises Management's Discussion and Analysis.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audits of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audits or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information obtained prior to the date of this auditor's report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of Management and for the Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS® Accounting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor's Responsibilities for the Audit of the consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audits and significant audit findings, including any significant deficiencies in internal control that we identify during our audits.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor's report is Walter-Armando Gomez Figueroa.

Montréal, Québec   July 21, 2025

1

¹ By CPA auditor, public accountancy permit No. A142237

MTL Cannabis Corp.

Consolidated Statements of Financial Position
[expressed in Canadian dollars]

Approved by the Board of Directors on July 18, 2025:

The accompanying notes are an integral part of these consolidated financial statements.

MTL Cannabis Corp.

Consolidated Statements of Income and Comprehensive Income

[expressed in Canadian dollars, except number of shares]

The accompanying notes are an integral part of these consolidated financial statements.

MTL Cannabis Corp.

Consolidated Statements of Changes in Shareholders’ Equity

For the years ended March 31, 2025 and 2024

[expressed in Canadian dollars, except number of shares and warrants]

The accompanying notes are an integral part of these consolidated financial statements.

MTL Cannabis Corp.

Consolidated Statements of Cash Flows
[expressed in Canadian dollars]

The accompanying notes are an integral part of these consolidated financial statements.

MTL Cannabis Corp.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2025 and 2024

(expressed in Canadian dollars, except share amounts)

1            Nature of business

MTL Cannabis Corp. (the "Company" or “MTLC”), formerly Canada House Cannabis Group Inc. (“Canada House”) up to completion of the Tranche Two Closing, as defined below, was incorporated on September 29, 1982 under the Company Act of the Province of British Columbia. The Company’s head office and principal place of business is located at 4225 Autoroute Transcanadienne, Pointe-Claire, Québec, Canada, H9R 1B4. The Company’s common shares are listed on the Canadian Securities Exchange under the symbol “MTLC”, and on the OTCQB Venture Market under the symbol “MTLNF”. The Company through its subsidiaries, engages in cultivation and production of cannabis products for recreational and medical purposes in Canada. It also operates clinics that work directly with primary care teams to provide specialized cannabinoid therapy services to patients suffering from medical conditions. The Company produces various cannabis products, including lines of dried flower, hash, and pre-rolls.

These consolidated financial statements (“financial statements”) of the Company for the years ended March 31, 2025 and 2024, comprise the results of the Company and its wholly owned subsidiaries Montréal Cannabis Médical Inc. (“MTL Cannabis”), Abba Medix Corp. ("Abba"), Canada House Clinics Inc. (“CHC”), The Longevity Project Corp. ("TLP"), IsoCanMed Inc. (“IsoCanMed”), and Margaree Health Group Inc. (“Margaree”).

Reverse Take Over (“RTO”) Transaction

On August 9, 2021, Canada House, MTL Cannabis, and the MTL Cannabis shareholders entered into a share exchange agreement. Subsequently, on July 22, 2022, Canada House and MTL Cannabis entered into a restated share exchange agreement (the “Agreement”). Pursuant to the Agreement, Canada House would acquire all of the issued and outstanding shares of MTL Cannabis over two tranches (the “RTO Transaction”).

The first stage of the RTO Transaction was completed on August 30, 2022 (the “Tranche One Closing”). The Tranche One Closing resulted in Canada House acquiring 24.99% of the issued and outstanding common shares of MTL Cannabis from the MTL shareholders in exchange for 49.99% of the issued and outstanding common shares of Canada House. Canada House issued 22,779,340 common shares to the shareholders of MTL Cannabis on the Tranche One Closing. Subsequent to the Tranche One Closing, 46,152,564 common shares of Canada House were issued and outstanding.

The second stage of the RTO Transaction was completed on July 28, 2023 (the “Tranche Two Closing”). The Tranche Two Closing resulted in Canada House acquiring the remaining 75.01% of the issued and outstanding shares of MTL Cannabis from the MTL Cannabis shareholders in exchange for 70,713,556 common shares of Canada House, resulting in MTL Cannabis becoming a wholly owned subsidiary of Canada House. Upon completion of the Tranche Two Closing, the existing MTL Cannabis shareholders held a majority of the Canada House outstanding common shares, constituting a reverse take over of Canada House by the shareholders of MTL Cannabis. Upon completion of the RTO Transaction, Canada House changed its name to MTL Cannabis Corp.

2            Basis of preparation

Statement of compliance

These financial statements have been prepared by management in accordance with IFRS® Accounting Standards as issued by the International Accounting Standards Board (“IASB”) and IFRIC® Interpretations of the IFRS Interpretations Committee. The policies set out below have been consistently applied to all periods presented, unless otherwise noted.

These financial statements were approved and authorized for issuance by the Board of Directors of the Company on July 18, 2025.

Basis of measurement

These financial statements have been prepared on a historical cost basis, with the exception of certain financial instruments measured at fair value on initial recognition and biological assets which are measured at fair value less costs to sell. Historical costs are generally based upon the fair value of the consideration given in exchange for goods and services received.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Company takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and disclosure purposes in these financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of IFRS 2 Share-based Payment, leasing transactions that are within the scope of IFRS 16 Leases (“IFRS 16”), and measurements that have some similarities to fair value but are not fair value, such as net realizable value in IAS 2 Inventories (“IAS 2”), or value in use in IAS 36 Impairment of Assets.

MTL Cannabis Corp.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2025 and 2024

[expressed in Canadian dollars, except share amounts]

Basis of consolidation

These financial statements comprise the accounts of the Company and its wholly-owned subsidiaries.

Subsidiaries are fully consolidated from the date of acquisition, which is the date on which the Company obtains control and continues to be consolidated until the date when such control ceases. Control is achieved when the Company has power over the investee, is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate there are changes to one or more of the three elements of control listed above. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intercompany balances, transactions and unrealized gains and losses resulting from intercompany transactions and dividends are eliminated on consolidation.

Functional currency and presentation currency

These financial statements are presented in Canadian dollars, which is the functional currency of the Company and its subsidiaries.

Use of estimates, judgments and assumptions

The preparation of these financial statements in conformity with IFRS requires management to make estimates, judgments and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the critical judgments and estimates that management has made in the process of applying the Company’s accounting policies and that have the most significant effect on the amounts recognized in the financial statements:

At the time of an acquisition, management uses judgment to determine whether an acquisition is a business combination or an asset acquisition. IFRS 3, Business Combinations (“IFRS 3”) is only applicable when a business has been acquired.

In a business combination, substantially all identifiable assets, liabilities and contingent liabilities acquired are recorded at the date of acquisition at their respective fair values. One of the most significant areas of judgment and estimation relates to the determination of the fair value of these assets and liabilities, including the fair value of consideration given. If any intangible assets are identified, depending on the type of intangible asset and the complexity of determining its fair value, the Company determines the fair value, using appropriate valuation techniques, which are generally based on a forecast of the total expected future net cash flows. These valuations are linked closely to the assumptions made by management regarding the future performance of the assets concerned and the discount rate applied.

In cases where there is a reverse takeover, management also uses judgment in the identification of the acquiror in business combinations. A reverse takeover is a business combination in which the legal acquirer becomes the acquiree for accounting purposes and the legal acquiree becomes the acquirer for accounting purposes. The Company considers the guidance in IFRS 10 Consolidated Financial Statements, when determining which entity has obtained control for accounting purposes.

For the purposes of impairment testing, goodwill acquired through business combinations is allocated to a cash-generating unit (“CGU”) or group of CGUs. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Significant judgment is involved in determining the smallest group of assets that generates independent cash flows.

MTL Cannabis Corp.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2025 and 2024

[expressed in Canadian dollars, except share amounts]

Goodwill is reviewed annually for impairment. Goodwill impairment testing is performed by comparing the carrying value to its recoverable amount. The recoverable amounts of the cash-generating units were estimated based on the greater of value in use, using a discounted cash flow approach, and fair value less costs to sell. The approach uses cash flow projections based upon a financial forecast approved by management, covering a five-year period. Cash flows for the years thereafter are extrapolated using the estimated terminal growth rate. The risk premiums expected by market participants related to uncertainties about the industry and assumptions relating to future cash flows may differ or change quickly, depending on economic conditions, identification of cash-generating units, and other events.

Depreciation of property, plant and equipment and intangible assets is dependent on estimates of useful lives and residual values, which are determined through the exercise of judgment. The assessment of any impairment of these assets is dependent on estimates of recoverable amounts that take into account factors such as economic and market conditions and the useful lives of assets.

Measurement of right-of-use assets and lease liabilities require judgment in determining lease terms, such as assessing the likelihood of exercising extension options and determination of the appropriate discount rate. In the case where an incremental borrowing rate is used, the Company estimates the incremental borrowing rate based on the lease term, collateral assumptions, and the economic environment in which the lease is denominated. Renewal options are only included if management is reasonably certain that the option will be renewed.

The Company assesses whether the transfer of its assets under a sale and leaseback transaction should be accounted for as a sale of those assets, applying relevant guidance of IFRS 16 and IFRS 15. This involves the determination of when a performance obligation is satisfied in IFRS 15 to determine whether the transfer of an asset has occurred. The Company distinguishes the right to control an asset (as conveyed in a lease agreement subsequent to a sale and leaseback transaction) from the transfer of control of an asset, and considers any rights to repurchase the assets, the lease term in relation to the economic life of the assets, the transfer of physical possession (legal title), and the ability to obtain substantially all the remaining benefits from the asset amongst other applicable factors specific to the transaction.

The Company has made the judgment that the requirements for a sale under IFRS 15 were met in relation to the sale and leaseback transaction involving its land and building (Note 8).

Inventories are valued at the lower of cost and net realizable value. The costs of inventory involve estimates in determining the allocation of fixed and variable production overhead. These estimates include determination of normal production capacity and nature of expenses to be allocated. In assessing the recoverability of final inventory values, management compares the inventory cost to estimated net realizable value. Management records a provision to inventory to the extent the cost of inventory exceeds the estimated net realizable value.

In calculating the value of the biological assets, management is required to make a number of estimates, including estimating the stage of growth of the cannabis up to the point of harvest, harvesting costs, selling costs, average or expected selling prices and list prices and expected yields for the cannabis plants.

The recognition of trade and other receivables requires the Company to assess credit risk and collectability when assessing allowances for expected credit loss. The Company considers historical trends and any available information indicating a customer could be experiencing liquidity or going concern problems and the status of any contractual or legal disputes with customers in performing this assessment. The Company’s provision is based on its historical credit loss experiences, adjusted for forward-looking factors specific to the debtors and the economic environment.

MTL Cannabis Corp.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2025 and 2024

[expressed in Canadian dollars, except share amounts]

The identification of convertible note components is based on interpretations of the substance of the contractual arrangement and therefore requires judgment from management. The separation of the components affects the initial recognition of the convertible debenture at issuance and the subsequent recognition of interest on the liability component. The determination of the fair value of the liability is also based on a number of assumptions, including contractual future cash flows, discount rates and the presence of any derivative financial instruments.

3            Material accounting policies

[a]             Revenue recognition

The Company’s accounting policy for revenue recognition under IFRS 15, Revenue from Contracts with Customers (“IFRS 15”), is to follow a five-step model to determine the amount and timing of revenue to be recognized by applying the following steps:

i)            identify the contract with a customer;

ii)           identify the performance obligations in the contract;

iii)         determine the transaction price;

iv)         allocate the transaction price to the performance obligations in the contract; and

v)          recognize revenue when or as the Company satisfies a performance obligation.

Revenue from the sale of cannabis is recognized when the Company transfers control of the good to the customer. This is generally considered to have occurred when products have been delivered to the location specified in the sales contract and accepted by the customer. The Company recognizes deferred revenue when proceeds are received but not earned. Revenue is recognized when the products are transferred to the customer and the Company’s performance obligations have been fulfilled. Revenue from the referral of clinic patients to licensed producers is recognized once the Company’s performance obligation is met, which is when the Company consults the patient, the patient completes a purchase, and the licensed producer is billed.

The Company recognizes revenue in an amount that reflects the consideration the Company expects to receive taking into account any variation that may result from rights of return, price concessions, price protection and discounts.

Gross revenue includes excise taxes, which the Company pays as principal. Excise taxes are a production tax which becomes payable when a cannabis product is delivered to the customer and are not directly related to the value of the revenue. Excise taxes are netted against gross revenue on the consolidated statements of income and comprehensive income.

The determination of whether revenue should be reported on a gross or net basis is based on an assessment of whether the Company is acting as the principal or an agent in these transactions with resellers and involves judgment based on an evaluation of the terms of each arrangement. While none of the factors individually are considered presumptive or determinative, in reaching conclusions on gross versus net revenue recognition, management places the most weight on the analysis of whether the Company controls and are responsible for the condition of the goods until they are ultimately sold to the end customer.

Areas of judgment include identifying the customer per the definition within IFRS 15, determining whether control has passed to the customer, and estimating expected returns and variable consideration for discounts.

[b]             Financial instruments

Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

MTL Cannabis Corp.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2025 and 2024

[expressed in Canadian dollars, except share amounts]

On initial recognition, a financial asset is classified as measured at amortized cost, fair value through other comprehensive income (“FVOCI”), or fair value through profit and loss (“FVTPL”). The classification of financial assets is based on the business model in which a financial asset is managed and its contractual cash flow characteristics.

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL:

A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition.

The following accounting policies apply to the subsequent measurement of financial assets.

The Company initially recognizes financial liabilities at fair value on the date at which the Company becomes a party to the contractual provisions of the instrument.

The Company classifies its financial liabilities as either financial liabilities at FVTPL or amortized cost.

Subsequent to initial recognition, other liabilities are measured at amortized cost using the effective interest method. Financial liabilities at FVTPL are stated at fair value with changes being recognized in profit or loss.

The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire.

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by a group entity are recognized at the proceeds received, net of direct issue costs.

Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.

MTL Cannabis Corp.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2025 and 2024

[expressed in Canadian dollars, except share amounts]

The Company classifies its financial assets and liabilities depending on the purpose for which the financial instruments were acquired, their characteristics and management intent as outlined below:

An expected credit loss ("ECL") model applies to financial assets measured at amortized cost. The Company’s financial assets measured at amortized cost and subject to the ECL model consist primarily of trade and other receivables. The Company applies the simplified approach to impairment for trade and other receivables by recognizing a loss allowance based on lifetime expected losses at each reporting date taking into consideration historical credit loss experience and financial factors specific to the debtors and general economic conditions. The Company has assessed the impairment of its trade and other receivables using the expected credit loss model, and no material difference was noted.

[c]              Biological assets

While the Company’s biological assets are within the scope of IAS 41 Agriculture, the direct and indirect costs of biological assets are determined using an approach similar to the capitalization criteria outlined in IAS 2. They include the direct cost of seeds and growing materials as well as other indirect costs such as utilities and supplies consumed throughout the growing process. Indirect labour for individuals involved in the growing and quality control process is also included, as well as depreciation on production equipment and overhead costs such as rent to the extent it is associated with the growing space. All direct and indirect costs of biological assets are capitalized as they are incurred, and they are all subsequently recorded within “cost of sales” in the consolidated statements of income and comprehensive income in the period that the related product is sold. Unrealized fair value gains on growth of biological assets are recorded in a separate line on the face of the consolidated statements of income and comprehensive income. Biological assets are measured at their fair value less costs to sell on the consolidated statements of financial position.

[d]              Inventories

The direct and indirect costs of inventory initially include the fair value of the biological asset at the time of harvest. They also include subsequent costs such as materials, labour and depreciation expense on equipment involved in transformation, packaging, labeling and inspection. Cost is determined using the weighted average or ‘First-in First-Out’ method. All direct and indirect costs related to inventory are capitalized as they are incurred and they are subsequently recorded within “cost of sales” in the consolidated statements of income and comprehensive income at the time cannabis is sold, except for realized fair value amounts included in inventory sold, which are recorded as a separate line on the face of the consolidated statements of income and comprehensive income. Inventory is measured at the lower of cost or net realizable value on the consolidated statements of financial position.

[e]              Property, plant and equipment

Property, plant and equipment is measured at cost less accumulated depreciation and impairment losses. The cost of an item of equipment includes expenditures that are directly attributable to the acquisition or construction of the asset. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

The cost of replacing part of an item of equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing of property, plant and equipment are recognized in consolidated statements of income and comprehensive income.

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance costs incurred are charged to the consolidated statements of income and comprehensive income.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount and are recognized net within other income in the consolidated statements of income and comprehensive income.

Depreciation is based on the estimated useful lives of the assets provided as follows:

An item of property, plant and equipment and any significant part initially recognized are derecognized upon disposal or when no future economic benefits are expected from their use or disposal. The assets’ residual values, useful lives and methods of depreciation and the depreciation charge are adjusted prospectively, if appropriate.

[f]             Business combinations

Business combinations are accounted for using the acquisition method. In applying the acquisition method, the Company separately measures at their acquisition-date fair values, the identifiable assets acquired, the liabilities assumed, goodwill acquired and any non-controlling interest in the acquired entity. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Company. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement that does not require continued employment services. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.

Acquisition costs in connection with a business combination are expensed as incurred.

Goodwill is measured as the excess of the fair value of the consideration transferred, less any non-controlling interest in the entity being acquired at the proportionate share of the recognized net identifiable assets acquired. Goodwill acquired through a business combination is allocated to each CGU or group of CGUs that are expected to benefit from the related business combination. A group of CGUs represents the lowest level within the entity at which the goodwill is monitored for internal management purposes, which is not higher than an operating segment.

[g]           Intangible assets

The Company’s intangible assets largely consist of intangible assets acquired from business combinations. The cost of intangible assets acquired in a business combination is measured based on their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite. The Company’s has no indefinite life intangible assets.

The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for prospectively by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates.

Amortization of an intangible asset with a finite useful life is recorded using the straight-line method over the estimated useful lives as outlined below:

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

[h]           Impairment of long-lived assets

Long-lived assets, including property, plant and equipment, and intangible assets, are tested for impairment when there are indicators of impairment which are reviewed at each reporting date or earlier whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. Goodwill is not subject to amortization but is assessed for impairment on at least an annual basis and, additionally, whenever events and changes in circumstances suggest that the carrying amount may not be recoverable.

For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the CGU). The recoverable amount of an asset or a CGU is the higher of its fair value, less costs of disposal, and its value in use. If the carrying amount of an asset exceeds its recoverable amount, an impairment charge is recognized immediately in net income equal to the amount by which the carrying amount exceeds the recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the lesser of the revised estimate of recoverable amount, and the carrying amount that would have been recorded had no impairment loss been recognized previously.

[i]            Leases

At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company recognizes a right-of-use (“ROU”) asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of the costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received. The ROU assets are depreciated to the earlier of the end of useful life of the ROU asset or the lease term using the straight-line method as this most closely reflects the expected pattern of the consumption of the future economic benefits. The lease term includes periods covered by an option to extend if the Company is reasonably certain to exercise that option. In addition, the ROU asset can be periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from the change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the ROU asset, unless it has been reduced to zero.

A lease modification will be accounted for as a separate lease if the modification increases the scope of the lease and if the consideration for the lease increases by an amount commensurate with the stand-alone price for the increase in scope. For a modification that is not a separate lease or where the increase in consideration is not commensurate, at the effective date of the lease modification, the Company will remeasure the lease liability using the Company’s incremental borrowing rate, when the rate implicit to the lease is not readily available, with a corresponding adjustment to the ROU asset.

[j]            Sale and leaseback

The Company accounts for sale and leaseback transactions in accordance with IFRS 16. If the transfer of the asset or group of assets qualify as a sale under IFRS 15, the Company derecognizes the asset or group of assets and recognizes a ROU asset and a lease liability. The ROU asset is measured at the proportion of the previous carrying amount of the asset that relates to the right-of-use retained. Any gain or loss is limited to the rights transferred to the buyer-lessor and is recognized in profit or loss during the period in which the sale occurred.

[k]            Income Taxes

Income tax expense comprises of current and deferred tax. Current tax and deferred tax are recognized in net profit or loss except to the extent that it relates to a business combination or items recognized directly in equity or in other comprehensive income.

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss for the current year and any adjustment to income taxes payable in respect of previous years. Current income taxes are determined using tax rates and tax laws that have been enacted or substantively enacted by the year-end date.

Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax base, except for taxable temporary differences arising on the initial recognition of goodwill and temporary differences arising on the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit or loss.

Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is restricted to those instances where it is probable that future taxable profit will be available against which the deferred tax asset can be utilized. At the end of each reporting period, the Company reassesses unrecognized deferred tax assets. The Company recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

[l]            Share-based payments

The Company grants equity-settled share options to purchase common shares to certain employees and officers. Share options generally vest over 4 years and expire after 5 years.

The fair value of the share options is determined using the Black-Scholes option-pricing model. Estimates are required for inputs to this model including the fair value of the underlying shares, the expected life of the option, volatility, expected dividend yield and the risk-free interest rate. Variation in actual results for any of these inputs will result in a different value of the share option realized from the original estimate. The assumptions and estimates used are further outlined in the share options note.

[m]           Government assistance

Government assistance is recognized when there is reasonable assurance it will be received, and all related conditions will be complied with. When government assistance relates to an expense item, it is recognized as a reduction of the expense over the period necessary to match the government assistance on a systematic basis to the costs it is intended to subsidize. When government assistance relates to depreciable assets the value of the grant is deducted from the carrying amount of the asset. The grant is recognized over the life of the depreciable asset as a reduction to depreciation expense.

[n]           Net income per share

Net income per share is calculated based on the income for the financial year and the weighted average number of common shares outstanding during the year. Diluted net income per share is calculated using the income or loss for the financial year adjusted for the effect of any dilutive instruments and the weighted average diluted number of shares (ignoring any potential issue of common shares that would be anti-dilutive) during the year.

New standards, amendments and interpretations recently adopted by the Company

IAS 1 – Presentation of financial statements (“IAS 1”)

In January 2020, the IASB issued Classification of Liabilities as Current or Non-current (Amendments to IAS 1). The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the consolidated statements of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. The amendments include clarifying the classification requirements for debt a company might settle by converting it into equity.

The amendments are effective for annual reporting periods beginning on or after January 1, 2024, with earlier application permitted. The Company early adopted these amendments effective April 1, 2023. The impact of adopting these amendments on the Company’s financial statements was not significant.

IFRS 16 – Leases (“IFRS 16”)

In September 2022, the IASB issued amendments to IFRS 16, Leases, which add to requirements explaining how a company accounts for a sale and leaseback after the date of the transaction.

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

The amendments are effective for annual reporting periods beginning on or after January 1, 2024. Earlier application is permitted. The Company adopted these amendments effective April 1, 2024. The impact of adopting these amendments on the Company’s financial statements was not significant.

New standards, amendments and interpretations not yet adopted by the Company

IFRS 18 – Presentation and Disclosure in Financial Statements (“IFRS 18”)

In April 2024, the IASB issued a new standard IFRS 18, introducing a defined structure for the statement of profit and loss and new specific disclosure requirements to the statement of profit and loss.

The standard is effective for annual reporting periods beginning on or after January 1, 2027 and also applies to comparative information. The Company is still assessing the impact of adopting these amendments on its financial statements.

All other IFRSs and amendments issued but not yet effective have been assessed by the Company and are not expected to have a material impact on the Company’s financial statements.

Acquisition of Canada House

On July 28, 2023, MTL Cannabis and Canada House completed the RTO Transaction following the Tranche Two Closing. Pursuant to the restated share exchange agreement, the MTL Cannabis shareholders acquired 80% of the rights, title and interest in and to all of the issued and outstanding shares in the capital of Canada House. The transaction was determined to meet the definition of a reverse acquisition per IFRS 3 – Business Combinations, and the acquisition method was applied. In exchange for the shares in the capital of Canada House, the Company agreed to pay total consideration of $14,280,361, comprised of share consideration of $11,014,000, replacement warrants and options issued with a fair value of $1,377,000, and settlement of the pre-existing relationship for the amount of $1,889,361. The Company issued 5,978,089 replacement warrants and 1,765,000 replacement options. The share consideration was measured at the fair value of the shares that MTL Cannabis would have to issue to the shareholders of Canada House, to give the shareholders of Canada House the same percentage of equity interest in the combined entity that results from the reverse takeover had it taken the legal form of MTL Cannabis acquiring Canada House. Canada House issued 22,779,340 common shares to the shareholders of MTL Cannabis on the Tranche One Closing, and 70,713,556 common shares to the shareholders of MTL Cannabis on the Tranche Two Closing.

The fair value of the replacement warrants and options were assessed using a combination of a Monte Carlo analysis and Black-Scholes option pricing model. Key assumptions used in both models were a share price of $0.47, estimated volatility of 95% and a risk-free rate of 4.0%.

The settlement amount of pre-existing relationships was determined by reviewing the net balance of the outstanding receivables and payables between MTL Cannabis and Canada House.

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

The allocation of the fair value of the purchase price to the identifiable assets acquired and liabilities assumed as at the date of the acquisition is as follows:

Goodwill arising on the acquisition reflects the benefits attributable to synergies, revenue growth and future market development opportunities expected to be realized from the acquisition. These benefits were not recognized separately from goodwill because they did not meet the recognition criteria for identifiable intangible assets. The goodwill is not deductible for income tax purposes.

Amount payable to the pre-RTO existing shareholders of MTL Cannabis

As a part of the acquisition of Canada House on July 28, 2023, an amount was payable to the pre-RTO existing shareholders of MTL Cannabis if certain revenue targets are achieved during the first and second twelve-month periods following the Tranche Two Closing. The maximum amount payable to the pre-RTO existing shareholders of MTL Cannabis is $5,000,000. The Company uses a scenario-based model to independently assess individual earn-outs and calculate the best estimate of the earn-out based on probabilities of success attributable to each individual scenario in accordance with IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. The provision of the amount payable was determined to be $4,358,000. The Company determined that the obligation was not part of the RTO Transaction under IFRS 3 – Business Combinations. The provision is recorded as a liability on the consolidated statements of financial position and a charge to retained earnings for distribution of equity to pre-RTO existing shareholders within the consolidated statement of changes in shareholders’ equity. During the year ended March 31, 2025, the Company recognized $507,000 (2024 – $135,000) in the consolidated statement of changes in shareholder’s equity, for accretion of the amount payable to the shareholders of MTL Cannabis. As at March 31, 2025, the total provision was $5,000,000 (2024 – $4,493,000) as the revenue targets are expected to be met.

Acquisition costs in connection with the RTO Transaction are expensed as incurred and recorded within the line item ‘General and administrative’ expense. During the year ended March 31, 2024, the Company incurred total transaction costs of $232,905. The Company also recognized an expense of $61,777 as share-based compensation expense relating to 131,441 common shares issued for services in connection with the RTO Transaction. The common shares were valued at a price of $0.47 per common share.

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

5       Trade and other receivables

The Company’s trade and other receivables include the following:

During the year ended March 31, 2025, the Company purchased light fixtures in the amount of $2,677,500. As a part of the Hydro-Québec Efficient Solutions Program, the Company obtained a subsidy for these lights in the amount of $1,990,014. The net cost of the lights are included as additions of property, plant and equipment (see Note 9).

For trade receivables, the change in allowance for credit losses for the year ended March 31, 2025 was as follows:

6       Inventory

The Company’s inventory consists of the following:

During the year ended March 31, 2025, the Company expensed $36,476,741 of inventory in cost of sales (2024 – $32,986,487). Included in the amount of inventory expensed to cost of sales is $2,133,090 (2024 – $1,281,304) of depreciation allocated from property and equipment and ROU assets. During the year ended March 31, 2025, the Company recorded $577,048 (2024 – $705,768) of inventory write-downs that were included in cost of sales.

As of March 31, 2025, the carrying value of inventory includes $598,601 of inventoried depreciation costs (March 31, 2024 – $620,933).

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

7       Biological assets

Biological assets consist of cannabis plants. The changes in the carrying value of biological assets are as follows:

The Company measures its biological assets at their fair value less costs to sell. This is determined using a model which estimates the expected harvest yield in grams for plants currently being cultivated, the expected selling price per gram and the expected costs to sell per gram.

The fair value measurements for biological assets have been categorized as Level 3 fair values based on the inputs to the valuation technique used. The Company’s method of accounting for biological assets attributes value accretion on a straight-line basis throughout the life of the biological asset from initial cloning to the point of harvest.

The following table quantifies each significant unobservable input, and also provides the impact a 10% increase or decrease in each input would have on the fair value of biological assets at period end:

The Company estimates the harvest yields for cannabis at various stages of growth. As of March 31, 2025, it is expected that the Company’s biological assets will yield approximately 4,035,798 (March 31, 2024 – 4,153,916) grams of dry cannabis flower when harvested. The fair value adjustments on biological assets are presented separately on the consolidated statements of income and comprehensive income.

The Company's estimates, by their nature, are subject to changes that could result from volatility of market prices, unanticipated regulatory changes, harvest yields, loss of crops, changes in estimates and other uncontrollable factors that could significantly affect the future fair value of biological assets.

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

8       Leases

Right-of-use asset

The Company’s right-of-use assets and lease obligations relate to the Company’s warehouse and office premises. On closing of the RTO Transaction, the Company also acquired leases related to a licensed cultivation facility and clinics.

The following table sets out a maturity analysis of the lease payments payable, showing the undiscounted lease payments to be paid on an annual basis, reconciled to the lease obligation.

The Company received rental income of $29,980 during the year ended March 31, 2025 (2024 – $401,637) relating to the short-term rental of unused warehouse facilities, which has been included in general and administrative expenses on the consolidated statements of income and comprehensive income.

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

On April 1, 2024, the Company commenced a lease for additional space at its production facility with a termination date of March 31, 2033. As a result of the additional space, the Company recognized an additional right-of-use asset and lease liability in the amount of $2,064,762. The leased premises is owned by a company controlled by the Chief Cultivation Officer and the Chief Operating Officer.

On April 1, 2024, the Company commenced a lease for a new clinic in Greenwood, Nova Scotia with a termination date of March 31, 2029. As a result of the new clinic, the Company recognized an additional right-of-use asset and lease liability in the amount of $99,242.

On April 12, 2024, the Company modified its lease agreement at a clinic in Pembroke, Ontario. The modification extended the lease and increased the monthly payments. As a result of the modification, the Company remeasured the lease liability by discounting the revised lease payments using a revised discount rate and made a corresponding increase to the ROU asset in the amount of $33,219.

On January 27, 2025, the Company closed a transaction to sell and lease back the CHC land and building at the clinic in Oromocto, New Brunswick. The Company sold the land and building for gross cash consideration of $700,000. Net cash proceeds totaled $693,444 after deducting applicable transaction expenses.

Additionally, the Company entered into a lease agreement for the clinic for an initial term of three years commencing on February 1, 2025, with an optional one-year renewal period. Management determined that the sale and leaseback transaction met the requirements for a sale under IFRS 16 and IFRS 15 as it was determined that the criteria for the transfer of control of the assets to the Purchaser were met. This resulted in the recognition of a lease liability of $135,831, derecognition of the underlying assets representing the rights transferred to the purchaser of $796,745, recognition of a right of use asset of $135,831, and a loss on disposal of $80,252. The disposal of the underlying assets is included in Note 9.

For its leased premises, the Company hypothecates all of its equipment and other moveable effects to its landlord up to the market value equivalent of one years’ rent as security against the lease obligation.

9       Property, plant and equipment

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

During the year ended March 31, 2025, the Company allocated $1,511,354 (2024 – $1,503,944) of depreciation expense to the production of biological assets and inventory. During the year ended March 31, 2025, the Company recognized a loss on disposal of $55,882 (2024 – loss of $62,808) and impairment of $168,530 (2024 – $nil) in other (income) loss.

10     Intangible assets and goodwill

The Company performs an assessment for goodwill impairment as of March 31 of each year and whenever there is an indication of impairment.

The recoverable amount of the two CGUs to which goodwill has been allocated was determined using the value-in-use approach. Under the value-in-use approach, the recoverable amount is calculated based on the present value of expected cash flows expected to be derived from the CGU. For the years ended March 31, 2025 and 2024, the Company concluded that the recoverable amount of the group of CGUs was higher than the carrying amount, and therefore no impairment was recognized. The value-in-use was determined using a discount rate of 24% (2024 – 27%) and a terminal rate of 3% (2024 – 3%).

11      Notes payable

The following table presents the notes payable for the Company:

[i]      Due to related parties

Notes payable are due to certain related parties of the Company. The notes payable bear interest at 17% per annum and are unsecured. As of March 31, 2024, the notes payable due to related parties were due on demand.

On July 25, 2024, the Company and the related parties entered into amending agreements for the notes payable. The amended agreements deferred repayment of the principal and accrued and outstanding interest until June 1, 2025. All other terms of the notes remained the same.

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

[ii] Promissory notes

On July 28, 2023, as part of the RTO Transaction (Note 4), the Company assumed three promissory notes (the “ISO Promissory Notes”) each with a principal value of $4,167,667, for an aggregate amount of $12,500,000, bearing interest at 5% payable annually. The maturity dates of the three promissory notes are December 12, 2023, June 12, 2024, and December 12, 2024. Until maturity, the principal amount of $666,667 of each note may be converted into common shares of the Company, at the option of the noteholder, at a conversion price of $1.50. The promissory notes are secured by a general security agreement registered against the assets of IsoCanMed. On closing of the RTO Transaction, the Company determined that the fair value of the ISO Promissory Notes was $10,875,572.

As a part of the RTO Transaction, the Company also issued 333,333 replacement warrants to each noteholder for an aggregate issuance of 999,999 replacement warrants. The warrants had an exercise price of $1.20 and were exercisable up to August 30, 2025. The fair value of these replacement warrants were included as a part of the purchase consideration (see Note 4 and Note 14(c)).

On December 11, 2023, the Company and one of the note holders agreed to amend one of the promissory notes (the “Amended ISO Promissory Note”). The Amended ISO Promissory note extended the maturity date from December 12, 2023 to April 30, 2024. In exchange for the extension, the Company repaid $1,000,000 of the outstanding principal of the promissory note and amended the terms of outstanding warrants (see Note 14). The exercise price of 333,333 warrants issued in conjunction with the ISO Promissory Notes were reduced from $1.20 per common share to $0.66 per share. The warrants were also amended to include a clause where, if the closing price of the common shares for ten consecutive trading days exceeds $0.825 per Share (the "Accelerated Period"), the expiry date of the Warrants will be automatically accelerated without any further action on the part of the Company or the holder of the Warrants to a date that is 30 days following the end of the Accelerated Period.

The Company determined that the Amended ISO Promissory note was a substantial modification. Therefore, the Company extinguished the existing debt of $3,244,863 and recognized new debt with a fair value of $3,035,956. For the year ended March 31, 2024, the Company recognized a gain on extinguishment of $208,907, recorded in the line-item ‘Finance Expense, net’ in the consolidated statements of income and comprehensive income.

The Company also determined that the exercise price of the modified warrants will remain fixed after modification. Therefore, the warrants will remain classified as equity. For the year ended March 31, 2024, the Company recorded a loss on modification of $23,013 on remeasurement of the warrants, recorded in the line-item ‘Finance expense, net’ in the consolidated statements of income and comprehensive income.

On July 28, 2024, the Company and all of the note holders agreed to amend the promissory notes (the “Second Amended ISO Promissory Notes”). The Second Amended ISO Promissory Notes extended the maturity date for all notes to June 2, 2025. All other terms of the notes remained the same.

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

12     Borrowings

The following table presents the borrowings for the Company:

[i] Mortgage payable

On July 28, 2023, as part of the RTO Transaction (Note 4), the Company assumed a mortgage payable balance (the “Mortgage”) for an aggregate principal of $2,000,000, bearing interest at 12% per annum. The Mortgage is secured by the property and assets of the Company’s wholly owned subsidiary, IsoCanMed, in Louiseville, Quebec, and is subject to monthly interest-only installments of $11,667, with the principal amount due on January 1, 2024. On closing of the RTO Transaction, the Company determined that the fair value was $2,058,334.

On December 20, 2023, the Company and lender entered into an amended mortgage agreement (the “Amended Mortgage”). The Amended Mortgage delayed repayment of the principal and accrued and outstanding interest from January 1, 2024 to January 1, 2025. Under the terms of the Amended Mortgage, the interest rate was increased from 12% to 13.25% per annum, payable monthly beginning February 1, 2024.

The Company incurred cash transaction costs of $30,000 which are being amortized as accretion expense over the term of the Amended Mortgage. The amortization of transaction costs is included in the line-item ‘Finance expense (income), net’ in the consolidated statements of income and comprehensive income. As a result of the Amended Mortgage, the Company recognized a loss on modification of $39,770 during the year ended March 31, 2024. The loss on modification was recorded in the line-item ‘Finance expense, net’ in the consolidated statements of income and comprehensive income.

During the year ended March 31, 2025, the Company incurred $244,331 of interest expense (2024 – $192,305) and made payments totaling $2,338,695 (2024 – $116,505) comprised of principal and interest. In December 2024, the Company repaid the mortgage in full.

[ii] Unsecured loan

On July 28, 2023, as part of the RTO Transaction (Note 4), the Company assumed a three-year unsecured loan provided by a vendor, bearing interest at 2% per annum, payable annually. The loan matured on October 31, 2021 and is due on demand.

On closing of the RTO Transaction, the Company determined that the fair value was $340,010, comprised of the principal amount of $313,000 and accrued but unpaid interest of $27,010. During the year ended March 31, 2025, the Company incurred and accrued $6,250 of interest expense (2024 – $4,178).

13     Convertible debentures

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

(i) 2017 Debentures

On July 28, 2023, as part of the RTO Transaction (Note 4), the Company assumed unsecured convertible debentures with an outstanding balance of $607,000 (the “2017 Debentures”). Each 2017 Debentures unit comprises a principal amount of $1,000 and bears interest at 18% per annum, payable monthly. As of July 28, 2023, the 2017 Debentures are due on demand and are no longer convertible.

The Company determined that the fair value of the 2017 Debentures was $607,000. During the year ended March 31, 2025, the Company incurred $72,085 of interest expense (2024 – $55,958).

(ii) Archerwill Debentures

On July 28, 2023, as part of the RTO Transaction (Note 4), the Company assumed a secured convertible debenture with a principal value of $6,500,000 (the “Archerwill Debenture”). The Archerwill Debenture bears interest at 8% per annum. The Archerwill Debenture are convertible into common shares at a conversion price of $0.57, or payable in cash at maturity, at the option of the lender. Unless converted earlier, the Archerwill Debenture matures on August 8, 2025. The Archerwill Debenture is secured by a first ranking security over all present and after-acquired property.

The Archerwill Debenture also contains a repayment clause where for each $1.00 paid towards principal or accrued interest of notes payable, $0.50 shall be paid towards the ISO Promissory Notes (Note 11), $0.25 shall be paid towards the notes payable to certain related parties (Note 11), and $0.25 shall be paid towards the Archerwill Debenture. Any repayment shall first be credited to any accrued and unpaid interest. In addition, for each repayment made, the Company must issue the number of warrants equal to the repayment amount divided by the conversion price of $0.57.

In conjunction with the Archerwill Debenture, the Company issued 4,333,333 common share purchase warrants (the “Archerwill Debenture Warrants”), exercisable until August 5, 2027 at an exercise price of $0.75. On September 18, 2023, 60% or 2,600,000 of the Archerwill Debenture Warrants were cancelled as the 20 day VWAP of Common Shares following the resumption of trading on the CSE was less than $0.65 per common share.

On closing of the RTO Transaction (Note 4), the Company determined that the fair value of the host debt instrument, the conversion option derivative, and warrant liability was $5,254,366, $4,843,000, and $557,000 respectively. The fair value of the conversion feature and warrants were assessed using a combination of a Monte Carlo analysis and Black-Scholes model. Key assumptions used in both models were a share price of $0.47, estimated volatility of 95% and a risk-free rate of 4.0%. The fair value of the host debt instrument was fair valued based on a discount rate of 22%.

After the first 20 trading days following the resumption of trading, the conversion option derivative and warrant liability met the criteria for equity classification on September 18, 2023. In accordance with IAS 32, the conversion option derivative and the remaining 1,733,333 Archerwill Debenture Warrants were reclassed into equity at the remeasured fair value on September 18, 2023.

As at September 18, 2023, the Company determined the fair value of the conversion option derivative, and warrant liability as $2,740,000, and $310,000 respectively. The fair value of the conversion feature and warrants were assessed using a combination of a Monte Carlo analysis and Black-Scholes model. Key assumptions used in both models were a share price of $0.31, an exercise price of $0.57 for options, an exercise price of $0.74737 for warrants, estimated volatility of 105% and a risk-free rate of 4.1%. The gain of $2,350,000 was recorded in the line item ‘Finance expense, net’.

On December 22, 2023, January 31, 2024, and March 13, 2024, the Company repaid an aggregate of $1,000,000 towards the Archerwill Debenture, resulting in the issuance of 1,739,432 warrants (the “Archerwill Prepayment Warrants”). The Archerwill Prepayment Warrants expire on August 5, 2027. The fair value of the Archerwill Prepayment Warrants was assessed using the Black-Scholes model. Key assumptions used in the model were a share price of $0.27 - $0.435, an exercise price of $0.57, estimated volatility of 95%, an expected life of 3.40 – 3.62 years, and a risk-free rate of 3.85%. The fair value of $344,155 was recorded in the line item ‘Finance expense, net’ on the consolidated statements of income and comprehensive income.

On June 26, 2024, the Company repaid $250,000 towards the Archerwill Debenture, resulting in the issuance of 434,858 warrants (the “Second Archerwill Prepayment Warrants”). The Second Archerwill Prepayment Warrants expire on August 5, 2027. The fair value of the Second Archerwill Prepayment Warrants was determined using the Black-Scholes model. Key assumptions used in the model were a share price of $0.27, an exercise price of $0.57, estimated volatility of 95%, an expected life of 3.11 years, and a risk-free rate of 3.88%. The fair value of $53,146 was recorded in the line item ‘Finance expense, net’ on the consolidated statements of income and comprehensive income.

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

14     Share capital

(a)         Authorized

The Company has authorized capital consisting of an unlimited number of common shares without par value.

(b)         Issued and outstanding

(c)         Warrants

On July 28, 2023, as a result of the RTO Transaction (Note 4), the Company issued replacement warrants for all warrants issued and outstanding of Canada House at the time of the Tranche Two Closing. The replacement warrants were issued on the same terms, except they were exercisable into common shares of MTL Cannabis Corp., rather than Canada House. Each warrant converts into one common share of the Company on exercise. The fair value of the replacements warrants in MTL Cannabis Corp. was included as a part of the total purchase consideration (Note 4).

The changes in the numbers of warrants outstanding during the year ended March 31, 2025 were as follows:

The following table is a summary of the Company’s warrants outstanding as at March 31, 2025:

MTL Cannabis Corp. 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

March 31, 2025 and 2024 

[expressed in Canadian dollars, except share amounts]

The following table is a summary of the Company’s warrants outstanding as at March 31, 2024:

The weighted average remaining contractual life of warrants outstanding as at March 31, 2025 was 1.87 years (2024 – 2.85 years).

(d)         Share options

The Company has a share option plan (the “Option Plan”) for directors, officers, employees and consultants of the Company. The Company’s Board of Directors determines, among other things, the eligibility of individuals to participate in the Option Plan and the term, vesting periods, and the exercise price of options granted to individuals under the Option Plan.

Each share option converts into one common share of the Company on exercise. No amounts are paid or payable by the individual on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of their expiry.

The Company’s Option Plan provides that the number of common shares reserved for issuance may not exceed 10% of the Common Shares that are outstanding unless the Board of Directors shall have increased such limit by a resolution of the Board. In addition, the aggregate number of Common Shares so reserved for issuance to one person may not exceed 5% of the total issued and outstanding common shares. If any options terminate, expire, or are cancelled, the number of options so terminated, expired or cancelled shall again be available under the plan.

On July 28, 2023, as a result of the RTO Transaction (Note 4), the Company issued replacement share options for all options issued and outstanding of Canada House at the time of the Tranche Two Closing. The replacement share options were issued on the same terms, except they were exercisable into common shares of MTL Cannabis Corp., rather than Canada House. Each share option converts into one common share of the Company on exercise. No amounts are paid or payable by the individual on receipt of the option. The options carry neither rights to dividends nor voting rights. Options may be exercised at any time from the date of vesting to the date of expiry. The fair value of the replacement options was included as a part of the total purchase consideration (Note 4).

The change in the number of share options outstanding during the year are as follows:

MTL Cannabis Corp.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2025 and 2024

[expressed in Canadian dollars, except share amounts]

On April 10, 2024 and June 10, 2024, the Company granted 2,550,000 and 3,175,000 share options, respectively, with 25% of the options granted vesting immediately. The remaining options granted vest evenly over the next three years on the anniversary date of the grant.

The fair value of share options granted on April 10, 2024 and June 10, 2024, were estimated at the date of grant using the Black-Scholes option pricing model using the following inputs:

The expected volatility was estimated using the volatility of publicly traded companies that the Company considered to be comparable. The expected option life represents the period of time that options granted are expected to be outstanding. The risk-free interest rate is based on the government bonds with a term equal to the expected life of the options.

During the year ended March 31, 2025, the Company recognized $764,188 in share-based compensation expense (2024 – $61,777).

The following table is a summary of the Company’s share options outstanding as at March 31, 2025:

The following table is a summary of the Company’s share options outstanding as at March 31, 2024:

MTL Cannabis Corp.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2025 and 2024

[expressed in Canadian dollars, except share amounts]

The Company presents basic and diluted EPS data for its shares. Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the year. Diluted EPS is determined by adjusting net income and the weighted average number of common shares outstanding, for the effects of all dilutive potential shares.

The Company has three categories of potentially dilutive securities: convertible debentures, warrants and share options. Basic and diluted income per share were the same for the years ended March 31, 2025 and 2024, as the exercise of any potentially dilutive instruments would be anti-dilutive.

Finance expense, net for the years ended March 31, 2025 and 2024 consists of the following:

General and administrative expenses for the years ended March 31, 2025 and 2024 consists of the following:

MTL Cannabis Corp.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2025 and 2024

[expressed in Canadian dollars, except share amounts]

The Company reports segment information based on internal reports used by the Chief Operating Decision makers (“CODM”) to make operating and resource decisions and to assess performance. The CODM is represented by the Chief Executive Officer, Chief Operating Officer, Chief Cultivation Officer, and Chief Financial Officer. The CODM makes decisions and assesses performance of the Company through two reportable and operating segments. The Company cultivates and distributes cannabis related products via federally approved cannabis programs by way of its Licensed Producer business. In addition, Company operates its clinic business through its CHC subsidiary. The Company derives substantially all of its revenue from these two segments.

The Company primarily operates in one principal geographical area, Canada, accordingly all of the Company’s long-lived assets are located in Canada. For the year ended March 31, 2025, the Company generated revenue of $3,247,000 in Portugal (2024 – $291,500).

The following table presents details on the Company’s segments for the year ended March 31, 2025:

MTL Cannabis Corp.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2025 and 2024

[expressed in Canadian dollars, except share amounts]

The following table presents details on the Company’s segments for the year ended March 31, 2024: