CARDIOL THERAPEUTICS INC. CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 (EXPRESSED IN CANADIAN DOLLARS) (UNAUDITED) Cardiol Therapeutics Inc. Condensed Interim Consoli

CARDIOL THERAPEUTICS INC.

CONDENSED INTERIM CONSOLIDATED

FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED

IN CANADIAN DOLLARS)

The accompanying notes to the unaudited condensed interim consolidated

financial statements are an integral part of these consolidated financial statements.

Commitments (notes 5 and 12)

Subsequent event (note 15)

Approved on behalf of the Board:

The accompanying notes to the unaudited condensed interim consolidated

financial statements are an integral part of these consolidated financial statements.

The accompanying notes to the unaudited condensed interim consolidated

financial statements are an integral part of these consolidated financial statements.

The accompanying notes to the unaudited condensed interim consolidated

financial statements are an integral part of these consolidated financial statements.

Cardiol Therapeutics Inc. (the "Corporation"

or "Cardiol") was incorporated under the laws of the Province of Ontario on January 19, 2017. The Corporation's registered

and legal office is located at 2265 Upper Middle Rd. E., Suite 602, Oakville, Ontario, L6H 0G5, Canada.

The Corporation is a clinical-stage life sciences

company focused on the research and clinical development of anti- inflammatory and anti-fibrotic therapies for the treatment of heart

disease. The Corporation's lead drug candidate, CardiolRx (cannabidiol) oral solution, is pharmaceutically manufactured and in

clinical development for use in the treatment of heart disease.

On December 20, 2018, the Corporation completed

its initial public offering on the Toronto Stock Exchange (the "TSX"). As a result, the Corporation's common shares commenced

trading on that date on the TSX under the symbol "CRDL", and on May 12, 2021, warrants commenced trading under the symbol

"CRDL.WT.A". On August 10, 2021, the Corporation's common shares commenced trading on The Nasdaq Capital Market under the

Statement of compliance

The Corporation applies International Financial

Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and Interpretations

issued by the International Financial Reporting Interpretations Committee ("IFRIC"). These unaudited condensed interim financial

statements have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Accordingly,

they do not include all of the information required for full annual financial statements required by IFRS as issued by IASB and interpretations

The policies applied in these unaudited condensed

interim consolidated financial statements are based on IFRSs issued and outstanding as of November 9, 2023, the date the Board of

Directors approved the statements. The same accounting policies and methods of computation are followed in these unaudited condensed interim

consolidated financial statements as compared with the most recent annual consolidated financial statements as at and for the year ended

Any subsequent changes to IFRS that are given

effect in the Corporation's annual consolidated financial statements for the year ending December 31, 2023, could result in

restatement of these unaudited condensed interim consolidated financial statements.

Interest earned on cash and cash equivalents for the three and nine

months ended September 30, 2023 amounted to $515,538 and $1,590,162 (three and nine months ended September 30, 2022 - $389,338

and $652,985). As at December 31, 2022, Cash and cash equivalents included a cashable Guaranteed Investment Certificate totaling

$61,875 earning interest of 0.5% per annum and maturing on December 4, 2023. The Guaranteed Investment Certificate was redeemed

prior to maturity without penalty during the nine months ended September 30, 2023.

Exclusive global agreement ("Meros License Agreement")

In 2017, the Corporation was granted by Meros

Polymers Inc. ("Meros") the sole, exclusive, irrevocable license to patented nanotechnologies for use with any drugs to diagnose,

or treat, cardiovascular disease, cardiopulmonary disease, and cardiac arrhythmias. Meros is focused on the advancement of nanotechnologies

developed at the University of Alberta.

Under the Meros License Agreement, Cardiol agreed

to certain milestones and milestone payments, including the following: (i) payment of $100,000 upon enrolling the first patient in

a Phase IIB clinical trial designed to investigate the safety and indications of efficacy of one of the licensed technologies; (ii) payment

of $500,000 upon enrolling the first patient in a Pivotal Phase III clinical trial designed to investigate the safety and efficacy of

one of the licensed technologies; (iii) $1,000,000 upon receiving regulatory approval from the FDA for any therapeutic and/or prophylactic

treatment incorporating the licensed technologies. Cardiol also agreed to pay Meros the following royalties:

of worldwide proceeds of net sales of the licensed technologies containing cannabinoids, excluding non-royalty sub-license income in (b) below,

that Cardiol receives from human and animal disease indications and derivatives as outlined in the Meros License Agreement;

of any non-royalty sub-license income that Cardiol receives from human and animal disease indications and derivatives for licensed technologies

containing cannabinoids as outlined in the Meros License Agreement;

of worldwide proceeds of net sales that Cardiol receives from the licensed technology in relation to human and animal cardiovascular and/or

cardiopulmonary disease, heart failure, and/or cardiac arrhythmia diagnosis and/or treatments using the drugs, excluding cannabinoids

included in (a) above, outlined in the Meros License Agreement; and

of any non-royalty sub-license income that Cardiol receives in relation to any human and animal heart disease, heart failure and/or arrhythmias

indications, excluding cannabinoids included in (b) above, as outlined in the Meros License Agreement.

In addition, as part of the consideration under

the Meros License Agreement, Cardiol (i) issued to Meros 1,020,000 common shares; and (ii) issued to Meros 1,020,000 special

warrants convertible automatically into common shares for no additional consideration upon the first patient being enrolled in a Phase

1 clinical trial using the licensed technologies as described in the Meros License Agreement.

(i) When measuring the lease liability for

the property lease that was classified as an operating lease, the Corporation discounted the lease payments using its incremental borrowing

rate. The original property lease expires on May 31, 2024, and the lease payments were discounted with a 9% interest rate. During

the nine months ended September 30, 2023, the property lease was extended to October 30, 2028. The lease liability was revalued

as of the extension date with lease payments discounted with a 15% interest rate.

On November 5, 2021, the Corporation issued

8,175,000 warrants as part of a unit financing. Each warrant is exercisable into one common share at the price of USD$3.75 per share

for a period of three years from closing. The original estimated fair value of $11,577,426 was assigned to the 8,175,000 warrants issued

by using a fair value market technique incorporating the Black-Scholes option pricing model, with the following assumptions: a risk-free

interest rate of 1.01%; an expected volatility factor of 81%; an expected dividend yield of 0%; and an expected life of 3 years. The

only significant unobservable input is the volatility, which could cause an increase or decrease in fair value. The warrants have been

classified as a derivative liability on the statement of financial position and are re-valued at each reporting date, as the warrants

were issued in a currency other than the Corporation's functional currency. As at September 30, 2023, the fair value of the derivative

liability was $809,832 (December 31, 2022 - $419,901), resulting in an increase/(decrease) in the value of the derivative liability

for the three and nine months ended September 30, 2023 of $392,881 and $(389,931) (three and nine months ended September 30,

2022 - increase/(decrease) in fair value of $1,723,442 and $4,717,559).

Significant assumptions used in determining the fair value of the

derivative warrant liabilities are as follows:

The authorized share capital consists of an unlimited number of common

shares. The common shares do not have a par value. All issued shares are fully paid.