Filed by newsfilecorp.com FSD PHARMA INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As used in this management's discussion and analysis of financial condition and results of o

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

As used in this management's discussion and analysis of financial condition and results of operations ("MD&A"), unless the context indicates or requires otherwise, all references to the "Company", "FSD", "we", "us" or "our" refer to FSD Pharma Inc., together with our subsidiaries, on a consolidated basis as constituted on March 31, 2020.

This MD&A for the three months ended March 31, 2020 and 2019 should be read in conjunction with the Company's unaudited consolidated financial statements, the accompanying notes for three months ended March 31, 2020, and 2019 and the audited financial statements and accompanying notes for the year ended December 31, 2019. The financial information presented in this MD&A is derived from the Company's unaudited consolidated financial statements for the three months ended March 31, 2020 and 2019 which have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). All amounts are in Canadian dollars except where otherwise indicated.

This MD&A is dated as of May 14, 2020.

FORWARD-LOOKING INFORMATION

The information provided in this MD&A, including information incorporated by reference, may contain certain forward-looking statements and forward-looking information (collectively referred to as "forward-looking statements") within the meaning of applicable Canadian and U.S. securities legislation about our current expectations, estimates and projections about the future, based on certain assumptions made by us in light of the Company's experience and perception of historical trends. Although we believe that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.

This forward-looking information is identified by words such as "anticipate", "believe", "expect", "plan", "forecast", "future", "target", "project", "capacity", "could", "should", "focus", "proposed", "scheduled", "outlook", "potential", "may" or similar expressions and includes suggestions of future outcomes, including statements about the Company's intention to increase its production through its proposed expansion of the cannabis cultivation facility located in Cobourg, Ontario and owned by the Company's wholly owned subsidiary FV Pharma Inc. and the expected costs and timing thereof; the Company's proposed partnership and joint ventures with, and investments in, other entities; the Company's expected production capacity; the estimated costs of the Company's proposed capital projects and future investments; potential proceeds from the exercise of the Company's outstanding share purchase warrants; actions taken by the Company, or that the Company may take in the future, to adjust its capital structure; potential effects of regulations under the Cannabis Act (Canada) (together with the regulations thereunder (the "Cannabis Regulations"), the "Cannabis Act") and related legislation introduced by provincial governments; the undertaking of clinical research to study the effects of the Company's products on client health; the outcome of Phase 1 clinical trials related to ultra micro-palmitoylethanolamide; and the completion of any transaction with respect to FV Pharma, the Facility, the Facility Property, or the Disposal Group. Readers are cautioned not to place undue reliance on forward-looking information as the Company's actual results may differ materially from those expressed or implied.

The Company has made certain assumptions with respect to the forward-looking statements regarding, among other things: the Company's ability to generate sufficient cash flow from operations and obtain financing, if needed, on acceptable terms or at all; general economic, financial market, regulatory and political conditions in which the Company operates; the expected yield from the Company's cultivation operations; purchaser interest in the Company's products; competition from other licensed producers; anticipated and unanticipated costs; government regulation of the Company's activities and products; the timely receipt of any required regulatory approvals; the Company's ability to obtain qualified staff, equipment and services in a timely and cost efficient manner; the Company's ability to conduct operations in a safe, efficient and effective manner; and the Company's expansion plans and timeframe for completion of such plans.

Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because no assurance can be given that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to: reliance on the Licenses issued by Health Canada designating that, pursuant to the Cannabis Act, FV Pharma is authorized to cultivate, process cannabis and sell cannabis to other holders of licenses under the Cannabis Act pursuant to its Cultivation License, Processing License and Sale for Medical Purposes License; the limited operating history of the Company and history of losses; the Company's ability to continue as a going concern; the highly speculative nature of drug development; the Company's ability to generate sufficient revenue to be profitable; the Company's ability to raise the capital necessary for it to execute its strategy; impact of any future recall of the Company's products; increased competition in the cannabis or pharmaceutical markets in Canada and internationally; the impact of any negative scientific studies on the effects of cannabis and/or micro-PEA; the Company's inability to complete clinical trials and attain the regulatory approvals it needs to commercialize its pharmaceutical products; the Company's product candidates being in the preclinical development stage; the Company's ability to obtain regulatory approval in jurisdictions for any product candidates; delays in clinical trials; failure of clinical trials to demonstrate substantial evidence of the safety and/or effectiveness of product candidates; results of earlier studies or clinical trials not being predictive of future clinical trials; difficulties enrolling patients in clinical trials; potential side effects, adverse events or other properties or safety risks of pharmaceutical product candidates; regulatory regimes of locations for clinical trials outside of the United States; failure to obtain approval to commercialize product candidates outside of the United States; published clinical trial data may change in future trials; manufacturing problems resulting in delays in development or commercialization programs; inability to successfully validate, develop and obtain regulatory approval for companion diagnostic tests for drug candidates; changes in funding for the U.S. Food and Drug Administration ("FDA") and other government agencies; risks associated with development and commercialization of pharmaceutical products, including the inability to accurately predict timing or amounts of expenses, requirements of regulatory authorities, and completion of clinical studies; risks inherent in an agricultural business; rising energy costs; the Company's reliance on key persons; the Company's compliance with environmental, health and safety laws and regulations; insurance risks; interruptions in the supply chain for key inputs; demand for skilled labour, specialized knowledge, equipment, parts and components; the Company's reliance on the Facility (as defined herein) as its only property for cannabis cultivation and related ancillary business; the Company's ability to manage its growth; the Company's ability to successfully implement and maintain adequate internal controls over financial reporting or disclosure controls and procedures; the Company not having been required to certify that it maintains effective internal control over financial reporting or effective disclosure controls and procedures; increased costs as a result of operating as a public company in the United States; risks relating to our status as a foreign private issuer; the Company taking advantage of reduced disclosure requirements applicable to emerging growth companies; the Company's ability to successfully identify and execute future acquisitions or dispositions; expansion of international operations; reliance on the operations of the Company's partners; results of litigation; conflicts of interest between the Company and its directors and officers; payment of dividends; the partial dependence of the Company's operations on the maintenance and protection of its information technology systems; unforeseen tax and accounting requirements; tax risks related to the Company's status as a "passive foreign investment company"; regulatory risks relating to the Company's compliance with the Cannabis Act and Cannabis Regulations; changes in laws, regulations and guidelines; the Company's ability to maintain the Licenses; changes to the market price of cannabis; the ability of the Company to produce and sell cannabis supply; failure to execute definitive agreements with entities in which the Company has entered into letters of intent or memoranda of understanding; changes in government; changes in government policy; failure of counterparties to perform contractual obligations; the Company's ability to successfully develop new products or find a market for their sale; lack of certainty regarding the expansion of the cannabis market; ability of key employees of the Company to obtain or renew security clearances in the future; the ability of the Company's employees or shareholders to enter the United States; unfavorable publicity or consumer perception of the Company and the cannabis industry; the Company's ability to promote and sustain its brands; marketing constraints in the cannabis and pharmaceutical industries; product liability claims or regulatory actions; the shelf life of inventory; fair value adjustments to the Company's biological assets; reputational risks to third parties with whom the Company does business; the Company's ability to produce and sell its medical products outside of Canada; co-investment risks; failure to comply with laws and regulations; the Company's reliance on its own market research and forecasts; competition from synthetic production and new technologies; the Company's ability to transport its products; liability arising from any fraudulent or illegal activity; the existence and growth of the cannabis industry; product liability lawsuits; misconduct or other improper activities by employees, independent contractors, consults, commercial partners and vendors; failure to achieve market acceptance in the medical community; inability to establish sales and marketing capabilities; failure to comply with health and data protection laws; reliance on third parties to conduct clinical trials; loss of single-source suppliers; reliance on contract manufacturing facilities; inability to obtain or maintain sufficient intellectual property protection for the Company's products; third-party claims of intellectual property infringement; patent terms being insufficient to protect competitive position on product candidates; inability to obtain patent term extensions or non-patent exclusivity; inability to protect the confidentiality of trade secrets; inability to protect trademarks and trade names; filing of claims challenging the inventorship of the Company's patents and other intellectual property; invalidity or unenforceability of patents; claims regarding wrongfully use or disclosed confidential information of third parties; inability to protect intellectual property rights around the world; the Company's dual class share structure; that additional issuances of the Company's shares could have a significant dilutive effect; and other factors beyond the Company's control.

The Company cautions that the foregoing list of important factors is not exhaustive. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. There is no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. You should carefully consider the matters discussed under "Risks Factors" in our Annual Information Form for the year ended December 31, 2019.

The forward-looking statements contained or incorporated by reference in this MD&A are made as of the date of this MD&A or as otherwise specified. Except as required by applicable securities laws, we undertake no obligation to update publicly or otherwise revise any forward-looking statements or the foregoing list of factors affecting those statements, whether as a result of new information, future events or otherwise or the foregoing lists of factors affecting this information.

All of the forward-looking information contained in this MD&A is expressly qualified by the foregoing cautionary statements.

Additional information relating to FSD can be found on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

The Company was formed under and is governed by the provisions of the Business Corporations Act (Ontario) (the "OBCA") on November 1, 1998 pursuant to the amalgamation of Olympic ROM World Inc., 1305206 Ontario Company, 1305207 Ontario Inc., Century Financial Capital Group Inc. and Dunberry Graphic Associates Ltd. On May 24, 2018 pursuant to Articles of Amendment, the Company changed its name to "FSD Pharma Inc." Our head office and principal place of business is at 520 Williams Street, Cobourg, Ontario, Canada K9A 3A5. Our registered office is at 1 Rossland Road West, Suite 202, Ajax, Ontario, Canada, M5C 1P1.

As of the date hereof, the Company currently has two material subsidiaries: (i) Prismic Pharmaceuticals Inc. ("Prismic"), which is wholly-owned by the Company and incorporated under the laws of the State of Arizona; and (ii) FV Pharma Inc. ("FV Pharma"), which is wholly-owned by the Company and incorporated pursuant to the OBCA. References herein to FSD Pharma's Bioscience division include Prismic.

The Company currently operates two business divisions. FSD Pharma Bioscience is focused on bioscience, including research and development ("R&D") and clinical development of synthetic cannabinoid based treatments of certain disease conditions with an aim to improve patient outcomes. Our goal is for these compounds to ultimately be approved by the FDA and other international regulatory agencies as prescription medications. FV Pharma is a licensed producer of cannabis in Canada under the Cannabis Act (Canada) (together with the regulations promulgated thereunder (the "Cannabis Regulations"), the "Cannabis Act") and associated Cannabis Regulations, focused on producing and extracting high-quality, hydroponic, pharmaceutical- grade cannabis. The common denominator between the two divisions is the medicinal-grade cannabis plant and its derivative cannabinoids.

FSD Pharma Bioscience

FSD Pharma Bioscience intends to leverage pharmaceutical synthetic compounds that target the endocannabinoid system of the human body, with a focus on pharmaceutical development through review and approval by the U.S. Food and Drug Administration (the "FDA") and other international regulatory agencies. The specific mechanisms of action of the various compounds is not yet fully understood, but it is likely that they work by mimicking the effects of the body's own cannabinoids, or endocannabinoids. The discovery of endocannabinoids - neurotransmitters, neuromodulators, and specialized receptors that the body produces autonomously and naturally and of cannabinoid receptors in the brain and central nervous system, the peripheral nervous system, the body's immune system, and the gastrointestinal and genitourinary tracts, provided the basis for the belief these compounds may play an important medical role in impacting inflammation and disordered homeostasis in humans.

Endocannabinoids and their receptors play pivotal roles in the body's health and in many disease processes. In recent years, there has been considerable interest in cannabinoids for the treatment of human disease, through modulation of the endocannabinoid system. Scientific research since the 1960s shows that the endocannabinoid system may play a role in the management of many medical conditions and chronic diseases.

Through the Prismic transaction, the Company acquired an exclusive, worldwide (excluding Italy and Spain) license to exploit for pharmaceutical purposes patents and other intellectual property rights to ultra micro-palmitoylethanolamide ("PEA") owned by Epitech Group SpA. PEA is a naturally occurring substance that is produced within the body in response to inflammation and interacts with endocannabinoid receptors throughout the body, including the central nervous system. FSD is currently seeking to advance pharmaceutical development programs centered on ultra micro-PEA that meet one or more selected criteria. All efforts are intended to be founded on a biologic plausibility of an efficacious effect with a high safety profile.

The Corporation announced on March 9, 2020, that it received approval from the Ethics Committee of the Alfred Hospital, part of the Alfred Health group of hospitals serving the state of Victoria, Australia, to initiate a Phase 1, randomized, double-blind, placebo-controlled study to evaluate the safety, tolerability and pharmacokinetics of single and multiple ascending doses of ultra- micronized-PEA in normal healthy volunteers. The principal researcher of these first-in-human safety and tolerability studies is the Chief Medical Officer of Nucleus Network, Australia's largest and most experienced Phase 1 clinical research organization. The studies are being completed in accordance with FDA-approved guidelines.

The Company holds three licenses from Health Canada: (i) a Cultivation License (defined below); (ii) a Processing License (defined below); and (iii) a Sale for Medical Purposes Licence (collectively, the "Licenses"). FV Pharma received its initial License under section 22(2) of the Access to Cannabis for Medical Purposes Regulations ("ACMPR") on October 13, 2017, authorizing FV Pharma to cultivate and process cannabis (the "Cultivation Licence"). In addition, the License permitted FV Pharma to acquire cannabis plants and/or seeds for the purpose of initiating plant growth and for conducting analytical testing.

On February 19, 2019, the Company announced that FV Pharma had received its Standard Processing Licence (the "Processing Licence"). The Processing Licence allows FV Pharma to produce cannabis, other than obtain it by cultivating, propagating or harvesting it (i.e. extract oils). Under Health Canada's new Cannabis Regulations, the Processing Licence is required for any facility that is processing more than the equivalent of 600 kg of dried flowers per year.

On April 18, 2019, the Company received a Sale of Medical Cannabis Licence (the "Sale for Medical Purposes Licence") to supply and sell certain cannabis products under the Cannabis Act, which was limited to cannabis plants and cannabis plant seeds. On June 21, 2019, the Company received an amendment to its Sale for Medical Purposes Licence, which now permits FV Pharma to sell or provide fresh cannabis or dried cannabis oil to such other persons who are permitted to purchase medical cannabis products under the Cannabis Act. The Licences are valid until October 13, 2020.

The Company commenced sales of medical cannabis under the Licenses in August 2019. The Company is not currently licensed to sell cannabis for adult recreational use, and has no immediate plans to apply for a license that would permit us to do so. However, the Company has made investments in certain recreational cannabis retailers in Canada.

FV Pharma's plant and operations are located at its facility located at 520 William Street, Cobourg, Ontario, K9A 3A5 (the "Facility"). FV Pharma acquired the Facility in November 2017 and expanded operations into the Facility in 2018, following approval from Health Canada and the completion of financing to complete its proposed capital improvements. The Facility is licensed for 25,000 square feet. Within this 25,000 square feet, the space is designated for several purposes: flowering, vegetation, drying, packaging and ancillary space. The overall square footage also includes truck traps and hallways. 9,500 square feet is canopy space (flower rooms plus vegetation rooms). In total, the Facility hosts an existing 620,000 square feet of building space.

As of the date hereof, the Company has not entered into any contractual arrangements and has no current commitments for capital expenditures with respect to the build-out of the Facility. The Company owns the 70-acre property on which the Facility is located (the "Facility Property"). Approximately 32 acres of the Facility Property are utilized for the Facility's current building, with the remaining 38 acres available for additional development.

During the period ended March 31, 2020, the Company decided to focus its efforts and resources on the pharmaceutical business operated through FSD Pharma Bioscience and Prismic. The Company is actively exploring a sale of the Facility and/or the Facility Property. The Corporation has not entered into any binding agreements in this regard, and there are no assurances that discussions with prospective purchasers will culminate in a sale, nor as to the timing or terms associated with any such sale. See further discussion below under "Discontinued Operations".

The Company is not engaged in cannabis-related activities in the United States. Prismic is a pharmaceutical company and not a cannabis company. Prismic has the worldwide license (except Spain & Italy) to develop patent-protected micronized formulation of palmitoylethanolamide (micro-PEA). Micro-PEA has the potential to be used in combination or concomitantly with tetrahydrocannabinol and cannabidiol but Prismic is not involved with the cultivation and processing of any type of cannabis and does not currently intend to create such combinations. The company initiated Phase 1 first in-human safety and tolerability trials for its lead candidate, PP-101 micro-PEA during the first quarter of 2020.

During the three months ended March 31, 2020, the outbreak of the novel strain of coronavirus, specifically identified as "COVID- 19," has resulted in governments worldwide enacting emergency measures to combat the spread of COVID-19. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused material disruption to businesses globally, resulting in an economic slowdown. Global equity markets have experienced significant volatility and weakness. Governments and central banks have reacted with significant monetary and fiscal interventions designed to stabilize economic conditions. The extent to which COVID-19 and any other pandemic or public health crisis impacts the Company's business, affairs, operations, financial condition, liquidity, availability of credit and results of operations will depend on future developments that are highly uncertain and cannot be predicted with any meaningful precision, including new information which may emerge concerning the severity of COVID-19 and the actions required to contain COVID- 19 or remedy its impact, among others. The duration and impact of the COVID-19 outbreak is unknown at this time, as is the efficacy of the government and central bank interventions and measures recommended by public health authorities. It is not possible to reliably estimate the length and severity of these developments and any resulting impact on the financial results and condition of the Company and its operating subsidiaries in future periods.

In order to mitigate the impact of COVID-19 the Company implemented a systematic and orderly scale back of FV Pharma's cultivation operations and a furlough policy for its workforce, except for certain personnel working staggered shifts to ensure continuity of operations and licensure effective March 23, 2020. The Company has also closed its facility to collaboration partners and ceased their operations. These restrictions are expected to stay in place until further guidance is provided by provincial and local Canadian health officials advising it is safe for such restrictions to be removed. The impact of COVID-19 did not have a material impact on our financial results for the three months ended March 31, 2020.

DISCONTINUED OPERATIONS

In March 2020, the Company decided to focus its efforts and resources on the pharmaceutical business operated through FSD Pharma Bioscience and Prismic. Accordingly, the Company has initiated a process to sell its Cobourg facility and exit the medical cannabis industry. The Company expects that the sale of the Cobourg Facility will be completed within the next 12 months and is actively marketing the Facility for sale.

Assets held for sale consists of the Cobourg Facility, all biological assets and inventory on hand, and equipment related to the Cobourg Facility operations (collectively the "Disposal Group"). It is anticipated that no liabilities of the Company will be transferred as part of any proposed transaction. Results of operations related to the Cobourg Facility are reported as discontinued operations for the three months ended March 31, 2020 and 2019.

Discontinued operations are reported when a component of the Company, representing a separate major line of business or area of operations with clearly distinguishable cash flows, has been disposed of or is held for sale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. Discontinued operations are reported as a separate element of net income or loss on the consolidated statement of net and comprehensive loss for both the current and comparative periods. When a disposal group is classified as held for sale, assets and liabilities are aggregated and presented as separate line items, respectively, on the consolidated statement of financial position. Comparative periods are not restated on the consolidated statement of financial position. Assets held for sale are not depreciated and are measured at the lower of carrying value and fair value less costs to sell.

In accordance with IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations, the assets held for sale were assessed for impairment based on fair value less costs to sell. The fair value was measured using the price at which the Company expects to receive for the disposal group less estimates for the costs of disposal. The fair value less costs to sell was higher than the carrying value of the disposal group resulting in recognition of the resulting group at carrying value.

SELECTED FINANCIAL HIGHLIGHTS

The following table presents selected interim financial information for the three months ended March 31, 2020 and 2019:

OVERALL FINANCIAL PERFORMANCE

Three months ended March 31, 2020

For the three months ended March 31, 2020, general and administrative expense was $4,008,869 compared to $2,104,330 for the three months ended March 31, 2019. The increase of $1,904,539 or 91% is primarily related to the expanded operations associated with the acquisition of Prismic and higher professional fees and insurance expense as a result of the NASDAQ listing.

For the three months ended March 31, 2020, research and development expense was $403,287 compared to $nil for the three months ended March 31, 2019, an increase of $403,287 or 100%. The increase is related to expenses incurred for the research and development of Ultra Micro-Palmitoylethanolamide (PEA) and the commencement of Phase 1 clinical trial of PP-101 micro- PEA.

For the three months ended March 31, 2020, share-based payments expense was $3,062,930 compared to $302,858 for the three months ended March 31, 2019, an increase of $2,760,072 or 911%. The increase in share-based payments is primarily related to $2.3M of expense recognized for replacement share options issued during the three months ended March 31, 2020. The remaining increase is related to options that were granted and vested during the three months ended March 31, 2020.

For the three months ended March 31, 2020, depreciation and amortization was $1,291,148 compared to $nil for the three months ended March 31, 2019, an increase of $1,291,148 or 100%. The increase is primarily related to amortization on the intangible asset recognized on the acquisition of Prismic on June 29, 2019.

For the three months ended March 31, 2020, impairment of right-of-use asset was $119,447 compared to $nil for the three months ended March 31, 2019. The increase is related to the impairment of the right-of-use asset related to an office lease. As of March 31, 2020, the Company did not occupy the leased premise and was unsuccessful in subleasing the space. As a result, the Company recognized an impairment loss of $119,447 resulting in right-of-use asset balance of $nil.

For the three months ended March 31, 2020, net loss was $12,444,200 compared to $2,297,286 for the three months ended March 31, 2019. Net loss for the three months ended March 31, 2020 is comprised of net loss from continuing operations of $10,846,613 and net loss from discontinued operations of $1,597,587 compared to net loss from continuing operations of $1,167,141 and net loss from discontinued operations of $1,130,145 for the three months ended March 31, 2019.

The Company concluded the three months ended March 31, 2020 with cash of $8,358,899 (December 31, 2019 - $7,932,737).

Cash used in operating activities for the three months ended March 31, 2020 was $7,303,278 compared to $4,005,888 for the three months ended March 31, 2019.

Cash provided by investing activities for the three months ended March 31, 2020 was $7,743,492 compared to cash used in investing activities of $482,430 for the three months ended March 31, 2019. The change is due to $7,743,492 from sale of investment in Q1 2020 compared to $482,430 used to purchase property, plant and equipment in Q1 2019.

Cash used in financing activities for the three months March 31, 2020 was $14,052 compared to cash provided by financing activities of $459,199 for the three months ended March 31, 2019. The change is due to $14,052 related to lease payments made during the three months ended March 31, 2020 compared to $459,199 proceeds from exercise of share options during the three months ended March 31, 2019.

RESULTS OF OPERATIONS

The following table outlines our consolidated statements of loss and comprehensive loss for the three months ended March 31, 2020 and 2019:

REVIEW OF CONTINUING OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

Research and development

Research and development increased from $nil to $403,287 or 100% for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The increase is related to expenses incurred for research and development of Ultra Micro-Palmitoylethanolamide (PEA).

Share-based payments

Share-based payments increased from $302,858 to $3,062,930 or 911% for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. This is primarily related to $2.3M of expense recognized for replacement share options issued during Q1 2020. The remaining increase is related to options that were granted and vested during the three months ended March 31, 2020.

Depreciation and amortization

Depreciation and amortization increased from $nil to $1,291,148 or 100% for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The increase is primarily related to amortization on the intangible asset recognized on the acquisition of Prismic during Q2 2019.

Impairment of right-of-use asset

Impairment of right-of-use asset increased from $nil to $119,447 or 100% for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The increase is related to the impairment of the right-of-use asset related to an office lease. The right-of-use asset is carried at lower of carrying value and present value of the expected future lease payments to be received from subleasing the premise over the remaining term of the lease. As of March 31, 2020, the Company did not occupy the leased premise and was unsuccessful in subleasing the space, the asset has been written down to $nil.

General and administrative

General and administrative expenses for the three months ended March 31, 2020 and 2019 are comprised of:

Professional fees increased from $353,267 to $1,380,828 or 291% for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The increase is related to legal fees incurred related to the NASDAQ listing of $411,000, increase in audit fees of $240,000 and other legal fees related to general corporate matters. Professional fees fluctuate period to period based on the nature of the transactions the Company undertakes.

General office, travel and administration expenditures

General office, travel and administration expenditures increased from $216,443 to $1,321,492 or 511% for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The increase is attributed to the following:

Insurance expenses increased from $nil to $760,065 or 100% for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The increase in insurance expense is due to the Company incurring higher insurance costs associated with expanded operations due to the acquisition of Prismic Pharmaceuticals and being a NASDAQ listed entity as of January 9, 2020. For the three months ended March 31, 2019 all insurance expenses incurred were related to discontinued operations.

Travel, meals and entertainment

Travel expenses increased from $107,717 to $357,511 for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The variance of $249,794 or 232% is primarily related to travel expenditures incurred related to the Phase 1 clinical trial of PP-101 micro-PEA and by management and employees attending Company related meetings and events.

Shareholder and public company costs

Shareholder and public company costs increased from $51,531 to $144,072 or 180% for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The increase compared to the prior comparable period is due to the Company being listed on the NASDAQ for the three months ended March 31, 2020.

Office and general administrative

Office and general expenses increased from of $57,195 to $59,844 or 5% for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The increase in office and general expenses for the three months ended March 31, 2020 is related to growth of the company and acquisition of Prismic Pharmaceuticals.

Consulting fees increased from $472,389 to $849,631 or 80% for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. Consulting fees include fees paid to individuals and professional firms who provide advisory services to the Company and management team and fluctuate period to period based on the nature of the transactions the Company undertakes.

Salaries, wages and benefits

Salaries, wages and benefits expenses increased from $529,404 to $644,551 or 22% for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The increase is primarily due to contractors being hired as full-time employees offset by employees terminated due to headcount reduction as the Company scaled operations back impacted by COVID-19.

Stock promotion decreased from $1,102,663 to $403,138 for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. The variance of $699,525 or 63% is primarily related to lower spending on stock promotion and marketing during the three months ended March 31, 2020.

Building and facility costs

Building and facility costs decreased from $677,973 to $241,043 for the three months ended March 31, 2020, compared to the three months ended March 31, 2019. Such costs include property taxes, security services, repairs and maintenance expenditures and utilities. The decrease of $436,930 or 64% is primarily related to the scale back of operations due to COVID- 19 and expenditures capitalized to the production of biological assets and inventory.

Foreign exchange gain