Filed by newsfilecorp.com FORM 51-102F4 BUSINESS ACQUISITION REPORT Item 1 - Identity of Company 1.1 - Name and Address of Company This business acquisition report pertains to IM Cannabis Corp. (the " Company "), with a

BUSINESS ACQUISITION REPORT

Item 1 - Identity of Company

1.1 - Name and Address of Company

This business acquisition report pertains to IM Cannabis Corp. (the "Company"), with a head address located at Kibbutz Glil Yam, Central District, Israel 4690500 and a registered address located at 550 Burrard Street, Suite 2300, Bentall 5, Vancouver, British Columbia, V6C 2B5.

1.2 - Executive Officer

The following executive officer of the Company is knowledgeable about the Arrangement (as defined below) and this business acquisition report:

Item 2 - Details of Acquisition

2.1 - Nature of Business Acquired

Trichome Financial Corp. ("Trichome") is the 100% shareholder of Trichome JWC Acquisition Corp ("TJAC") d/b/a JWC, a federally licensed producer of cannabis in Canada. TJAC acquired the assets of James E. Wagner Cultivation Corp. on August 28, 2020 by way of a court supervised process under the Companies' Creditors Arrangement Act (Canada). Trichome is focused on acquiring related assets to compliment TJAC and leveraging the knowledge, expertise and insights of its employees, management and founders.

2.2 - Acquisition Date

On December 30, 2020, the Company entered into an arrangement agreement (as amended subsequent to the date thereof, the "Arrangement Agreement") with Trichome pursuant to which, and subject to the terms and conditions of the Arrangement Agreement, the Company had agreed to acquire (and did acquire on the acquisition date noted in Item 2.2 above), all of the issued and outstanding shares of Trichome (the "Trichome Shares") by way of a statutory plan of arrangement under the Business Corporations Act (Ontario) (the "Arrangement").

Pursuant to the terms of the Arrangement, former holders of Trichome Shares (the "Trichome Shareholders") received 0.24525 of a common share of the Company (each whole common share, an "IMC Share") for each Trichome Share held (the "Exchange Ratio") and former holders of Trichome in-the-money convertible instruments (together with the Trichome Shareholders, the "Trichome Securityholders") received a net payment of IMC Shares based on the Exchange Ratio.

As a result of the Arrangement, a total of 10,104,901 IMC Shares were issued to the Trichome Securityholders, resulting in former Trichome Securityholders holding approximately 20.06% of the total number of issued and outstanding IMC Shares.

2.4 - Effect on Financial Position

The expected effect of the acquisition on the Company's financial position is outlined in the unaudited pro forma consolidated financial statements of the Company included with this business acquisition report.

The Company does not currently have any plans or proposals for material changes in the business acquired pursuant to the Arrangement which may have a significant impact on the financial performance and financial position of the Company, including any proposal to sell, lease or exchange all or substantially all or a substantial part of the business acquired pursuant to the Arrangement or to make any material changes to the Company's business.

Upon completion of the Arrangement, Trichome became a wholly-owned subsidiary of the Company. The business and operations of Trichome have combined with those of the Company.

2.5 - Prior Valuations

To the knowledge of the Company, there has not been any valuation opinion obtained within the last 12 months by the Company or Trichome and required by securities legislation or a Canadian exchange or market to support the consideration paid by the Company in connection with the Arrangement.

However, the Company obtained a fairness opinion from Cormark Securities Inc. dated December 29, 2020 attesting to the fairness of the consideration offered by the Company pursuant to the Arrangement, from a financial point of view. Trichome obtained a fairness opinion from Desjardins Securities Inc. dated December 29, 2020 attesting to the fairness of the consideration to be received by Trichome Securityholders pursuant to the Arrangement, from a financial point of view.

2.6 - Parties to Transaction

The Arrangement was not with an informed person (as that term is defined in section 1.1 of National Instrument 51-102 - Continuous Disclosure Obligations), associate or affiliate of the Company.

2.7 - Date of Report

Item 3 - Financial Statements and Other Information

The following documents of Trichome are attached as Schedule "A" to this business acquisition report: the audited consolidated financial statements of Trichome, together with the notes thereto and the auditor's report thereon, for the years ended December 31, 2020 and 2019.

The following pro forma documents of the Company are attached as Schedule "B" to this business acquisition report:

(a) the unaudited pro forma condensed consolidated statement of financial position of the Company as at December 31, 2020; and

(b) the unaudited pro forma consolidated statements of profit or loss and other comprehensive income for the year ended December 31, 2020 of the Company and pro forma earnings per share for the financial year ended December 31, 2020.

ANNUAL AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF TRICHOME FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019

Please see attached.

TRICHOME FINANCIAL CORP.

Consolidated Statements of Financial Position

As at December 31, 2020 and December 31, 2019

(Expressed in Canadian Dollars)

Commitments and contingencies (Note 25)

Subsequent events (Note 28)

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

Approved on behalf of the Board:

TRICHOME FINANCIAL CORP.

Consolidated Statements of Net Loss and Comprehensive Loss

For the years ended December 31, 2020 and December 31, 2019

(Expressed in Canadian Dollars)

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

TRICHOME FINANCIAL CORP.

Consolidated Statements of Cash Flows

For the year ended December 31, 2020 and December 31, 2019

(Expressed in Canadian Dollars)

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

TRICHOME FINANCIAL CORP.

Consolidated Statements of Shareholders' Equity

(Expressed in Canadian Dollars)

* Number of shares is inclusive of the 3:1 share split, and has been applied retrospectively for the January 1, 2019 comparative figures.

** Number of shares adjusted down by four shares from December 31, 2019. This relates to monthly fractional share adjustments throughout 2020.

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

1. Description of the business

Trichome Financial Corp. (the "Company" or "Trichome" or "Trichome Financial"), formerly 22 Capital Corp., was incorporated pursuant to the provisions of the Business Corporations Act of Ontario on January 4, 2017. The Company is located at 150 King Street West, Suite 200, Toronto, Ontario, Canada. On October 4, 2019, in connection with Trichome Financial Corp.'s reverse takeover ("RTO") of 22 Capital Corp., the Company completed a 3:1 share split.

Trichome Financial is the 100% shareholder of Trichome JWC Acquisition Corp ("TJAC") d/b/a JWC, a federally licensed producer of cannabis in Canada. TJAC acquired the assets of James E. Wagner Cultivation Corp. on August 28, 2020 under a court supervised process under Companies' Creditors Arrangement Act (Canada). Trichome is focused on acquiring related assets to compliment JWC and leverage the knowledge, expertise and insights of its employees, management and founders.

2. Basis of Preparation

Statement of Compliance with International Financial Reporting Standards

These consolidated financial statements ("Financial Statements") have been prepared in compliance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations of the IFRS Interpretations Committee applicable to the preparation of the Financial Statements.

Basis of presentation

These Financial Statements have been prepared by the Company on a historical cost basis using the accrual basis of accounting, except for the revaluation of certain assets and liabilities to fair value, including derivative assets, biological assets, assets acquired through a business combination, investments, convertible debentures, and certain loans receivable.

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 the price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or liability, the Company takes into account the characteristics of the asset or liability that market participants would take into consideration when pricing the asset or liability at the measurement date.

Fair value measurements are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.

The currency of presentation within these Financial Statements is the Canadian dollar, which is also the functional currency of the Company and its subsidiaries, unless stated otherwise.

During the year ended December 31, 2020, the Company reclassified certain prior period balances to conform to the current period presentation. These included reclassifying expected credit losses from operating expenses to other expenses on the Consolidated Statements of Net Loss and Comprehensive Loss.

These Financial Statements were approved by the Company's Board of Directors and authorized for issue on April 23, 2021.

Basis of consolidation

On May 7, 2020, the Company incorporated TJAC. TJAC was formed specifically for the acquisition of James E. Wagner Cultivation Corporation ("JWC"), which closed on August 28, 2020 (Note 5). TJAC holds the assets and required cannabis licenses for the cultivation, processing, and sales of cannabis, and has two facilities located in Kitchener, Ontario, Canada. TJAC is a subsidiary of the Company and the financial results are consolidated with those of the Company's as part of the financial reporting process.

The Company incorporated Trichome Financial Cannabis Private Credit GP Inc. (the "GP"), Trichome Financial Cannabis Manager Inc., and Trichome Asset Funding Corp. as wholly owned subsidiaries and consolidates the financial results of these entities. The entities were formed in preparation for the opening of an alternative investment fund. The Company formed Trichome Financial Cannabis Private Credit LP (the "Fund"), which became an equity accounted investee during the year (Note 11). The Fund performs receivables factoring with cannabis companies in Canada.

3. Significant accounting policies

Below is a summary of the Company's significant accounting policies. The following policies were adopted during the year ended December 31, 2020, as a result of the acquisition of JWC (Note 5): Revenue Recognition (cannabis revenues recognized under IFRS 15), Business Combinations, Other Non-controlling Interests, Biological Assets, Inventories, Property Plant & Equipment, and Leases.

Financial Instruments

The Company records financial instruments, including lending arrangements in accordance with IFRS 9 - Financial Instruments ("IFRS 9"):

Financial assets can be classified as at:

2) fair value through other comprehensive income ("FVTOCI"), with gain or losses recycled through profit or loss on derecognition; and

3) fair value through profit and loss ("FVTPL")

Financial liabilities can be classified as at:

1) amortized cost; and

In order for a financial asset to be classified as at amortized cost, it must meet two criteria that are deemed consistent with a basic lending arrangement: i) they are held within a business model in which the lender is expected to hold the asset to maturity and collect the contractual interest and principal payments until maturity of the loan (known as the "hold to collect" business model); and ii) the contractual cash flows of the lending arrangements are solely payments of principal and interest by the borrower ("SPPI"). However, instruments which meet the SPPI criteria, but that are subsequently sold, can still be recognized at amortized cost, so long as these sales are infrequent (even if significant in value), or insignificant in value both individually and in aggregate (even if infrequent).

Principal is defined as the fair value of the financial asset at initial recognition, which may change over time due to repayments or amortization of a premium or discount. Interest is defined as consideration for credit risk and time value of money.

Financial assets can be classified as FVTOCI when both of the following are met: i) the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and ii) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding.

The majority of the Company's financial assets are loans receivable held in order to collect the associated contractual cashflows. The cashflows in these lending arrangements are typically repayment of principal and interest.

The Company's financial liabilities consist of amounts payable and accrued liabilities and convertible debentures. Amounts payable and accrued liabilities are recorded at amortized cost. The convertible debentures are discussed in more detail in the Compound financial instruments section further below.

Transaction costs in connection with loans:

In accordance with IFRS 9, the Company capitalizes transaction costs directly incurred for lending arrangements which are measured at amortized cost, and expenses transaction costs for lending arrangements measured at FVTPL. Capitalized transaction costs are included in the calculation of interest revenue over the term of the loan through the effective interest rate method in accordance with IFRS 9. Transaction costs generally include, but are not limited to legal fees, professional fees, and insurance fees directly incurred as part of entering into the lending arrangement.

Transaction costs may be incurred in a period before initial recognition of the loan. When transaction costs are incurred related to a potential loan that the Company concludes is probable to be recognized at amortized cost, these transaction costs are recorded within prepaid expenses, net of any deposits received from potential borrowers. When transaction costs are incurred related to a potential loan that the Company concludes is probable to be recognized at FVTPL, these transaction costs are expensed in the period incurred, net of any deposits received from potential borrowers. If transaction costs are capitalized related to a potential loan that had probable amortized cost recognition, but failed to close, these transaction costs are expensed in the period the Company determined the loan was not probable to close.

Loans receivable - modification and settlement gains and losses:

There are instances in which the terms of a lending arrangement may be modified and/or a loan may be settled prior to the stated maturity. In both instances, in accordance with IFRS 9, the Company will determine the gain or loss on modification or settlement of the loan in the period in which the modification or settlement occurs.

When there has been a modification to the terms of a loan, the Company will recalculate the value of the loan on the date of modification, based on the newly modified terms. This value is determined based on the present value of the future cashflows the Company expects to collect from the borrower under the new terms of the lending arrangement. The difference between the present value of these cashflows and the value of the loan just prior to modification, is then recorded in other income or other expense as a modification gain or loss on modification of loans receivable.