MANAGEMENT’S DISCUSSION & ANALYSIS · APHRIA INC. MANAGEMENT’S DISCUSSION & ANALYSIS Page ½2 INVESTOR HIGHLIGHTS Q2-2017 Q1-2017 Revenue $ 5,226,589 $ 4,375,512 Kilograms (or

APHRIAINC.MANAGEMENT’SDISCUSSION&ANALYSIS

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MANAGEMENT’SDISCUSSION&ANALYSISThismanagementdiscussionandanalysis(“MD&A”)ofthefinancialconditionandresultsofoperationsofAphriaInc.,(the“Company”or“Aphria”),isforthethreeandsixmonthsendedNovember30,2016.Itissupplementalto,andshouldbereadinconjunctionwiththeCompany’sunauditedcondensed interimconsolidated financial statementsandtheaccompanyingnotes for thethreemonthsendedAugust31,2016,aswellas thefinancial statements and MD&A for the year ended May 31, 2016. The Company’s financial statements are prepared in accordance withInternationalFinancialReportingStandards(“IFRS”).AllamountspresentedhereinarestatedinCanadiandollars,unlessotherwiseindicated.ThisMD&Ahas beenpreparedby reference to theMD&Adisclosure requirements establishedunderNational Instrument 51-102 “ContinuousDisclosureObligations”(“NI51-102”)oftheCanadianSecuritiesAdministrators.AdditionalinformationregardingAphriaInc.isavailableonourwebsiteatwww.aphria.comorthroughtheSEDARwebsiteatwww.sedar.com.InthisMD&A,referenceismadetocashcoststoproduce,“all-in”costofsales,adjustedgrossprofit,adjustedgrossmargin,EBITDA,cashbreak-evenandEBITDApercentage,whicharenotmeasuresoffinancialperformanceunderIFRS.TheCompanycalculateseachasfollows:• Cashcoststoproduceisequaltocostofsaleslessthenon-cashincrease(plusthenon-cashdecrease)inthefairvalue(“FV”)ofbiological

assets,ifany,amortizationandpackagingcostsdividedbygramssoldinthequarter.Managementbelievesthismeasureprovidesusefulinformationas it removesnon-cashandpostproductionexpenses tied toourgrowingcostsandprovidesabenchmarkofCompanyagainstitscompetitors

• “All-in”costofsalespergramisequaltocostofsaleslessthenon-cashincrease(plusthenon-cashdecrease)intheFVofbiologicalassets,ifany,dividedbygramssoldinthequarter.Managementbelievesthismeasureprovidesusefulinformationasabenchmarkofthecompanyagainstitscompetitors.

• Adjustedgrossprofitisequaltogrossprofitlessthenon-cashincrease(plusthenon-cashdecrease)intheFVofbiologicalassets,ifany.Managementbelievesthismeasureprovidesusefulinformationasitremovesfairvaluemetricstiedtoincreasingstocklevels(decreasingstocklevels)requiredbyIFRS

• Adjustedgrossmarginisadjustedgrossprofitdividedbysales. Managementbelievesthismeasureprovidesuseful informationasitrepresentsthegrossprofitbasedontheCompany’scosttoproduceinventorysoldandremovesfairvaluemetricstiedtoincreasingstocklevels(decreasingstocklevels)requiredbyIFRS.

• EBITDAisnetincome(loss),plus(minus)incometaxexpense(recovery)plus(minus)financeexpense(income),plusamortization,plusshare-basedcompensation,plus(minus)non-cashFVadjustmentsrelatedtobiologicalassets,plusamortizationofnon-capitalassets,plus (minus) loss (gain) on sale of investments and certain one-time non-operating expenses, as determined by management.Managementbelievesthismeasureprovidesusefulinformationasitisacommonlyusedmeasureinthecapitalmarketsandasitisacloseproxyforrepeatablecashgeneratedbyoperations.

• Cashbreak-evenrepresentstheyear-to-dateEBITDAoftheCompany.ManagementbelievesthismeasureprovidesusefulinformationasitincludesallEBITDAfortheyear-to-date.

• EBITDApercentage isequaltoEBITDAdividedbyrevenue. Managementbelievesthismeasureprovidesuseful informationas it isacommonlyusedmeasureinthecapitalmarkets.Thismeasureisnotnecessarilycomparabletosimilarlytitledmeasuresusedbyothercompanies.

AllamountsinthisMD&AareexpressedinCanadiandollarsandwhereotherwiseindicated.ThisMD&AispreparedasofJanuary10,2016.

COMPANYOVERVIEW

AphriaInc.isincorporatedinOntario,theCompany’scommonsharesarelistedunderthesymbol“APH”ontheTSXVentureExchange(“TSX-V”)andunderthesymbol“APHQF”ontheUnitedStatesOTCQBVentureMarketexchange.PureNaturesWellness(PNW),awholly-ownedsubsidiaryoftheCompany, is licencedtoproduceandsellmedicalmarijuanaundertheprovisionsoftheAccesstoCannabisforMedicalPurposesRegulations(“ACMPR”).PNWreceivedits licence toproduceand sellmedicalmarijuanaonNovember26, 2014, followedby its licence to sell cannabisextractsonAugust18,2016.PNW’soperationsarebasedinLeamington,Ontario.TheLeamingtongreenhousefacilityprovidesAphriawiththeopportunitytobeascalablelowcostproducerofmedicalmarijuana.TheCompanyisfocusedonproducingandsellingmedicalmarijuanaanditsderivativesthroughatwo-prongedgrowthstrategy, includingbothretailsalesandwholesalechannels.RetailsalesareprimarilysoldthroughAphria’sonlinestoreaswellastelephoneorders.WholesaleshipmentsaresoldtootherACMPRLicencedProducers.


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INVESTORHIGHLIGHTS

Q2-2017 Q1-2017Revenue $5,226,589 $4,375,512Kilograms(orkilogramequivalents)sold 639.0 585.2Cashcosttoproduce/gram $1.31 $1.23“All-in”costofsales/gram $1.85 $1.80Adjustedgrossmargin 77.4% 75.9%Cashandcashequivalentsonhand $98,614,981 $53,452,414Workingcapital $102,438,357 $56,513,651Capitalandintangibleassetexpenditures $5,389,351 $7,529,688

• Retail&wholesaleplatforms• Capacitysecuredtoservicerecreationalmarket• Nocropfailuressinceinception• FourconsecutivequartersofEBITDAandNetIncome,bothwithandwithoutIFRSfairvalueadjustments• Strongexecutiveteam

o 20+yearsofPharmaexperienceo 35+yearsofgreenhousegrowingexperience

QUARTERLYHIGHLIGHTSAphriapositiveearningsforthefourthconsecutivequarterTheCompanyreportedpositiveearningsforthequarterincludingnetincomebothwithandwithoutIFRSfairvalueadjustments,netincomeforthequarterwas$945,678withIFRSfairvalueadjustmentsand$871,410withoutIFRSfairvalueadjustments,respectively.AnnouncementofTokyoSmokeLicensingDealOnSeptember7,2016,theCompanyannouncedaground-breakinglicensingdealwithTokyoSmoke,apremiumcannabis-orientedlifestylebrand.Thetransactionwillbethefirst-of-its-kindinCanadaasitcombinesapremiumconsumerlifestylebrandandalicensedproducerandseekstopavethewayforhowfuturecannabisbrandsoperateinCanada.ThedealwillallowAphriatoshipTokyoSmokebrandedcannabisinCanadatoregisteredpatientsthroughtheAccesstoCannabisforMedicalPurposesRegulations(“ACMPR”)system.BoardApprovalReceivedforPartIIIExpansionOnSeptember16,2016,theCompanyannouncedthatitsBoardofDirectorsapprovedafullyfunded$24.5millioncapitalprojectinternallyidentifiedasPartIIIexpansion.TheprojectwillincreaseAphria’scapacityundertheAccesstoCannabisforMedicalPurposesRegulations(“ACMPR”)from100,000squarefeetto300,000squarefeetandisexpectedtoincreasetheCompany’sACMPRcompliantgrowingcapabilitiesfrom7,500kgsannuallyto21,000kgsannually.Theprojectincludes200,000squarefeetofstate-of-the-artDutchstylegreenhouses,21,000squarefeetofinfrastructure,includingfourLevel9vaults,automationforboththegreenhousesandprocessingareasandsecurityconsistentwithACMPRstandards.Aphriaanticipatescompletionofthisphaseoftheprojectwithin12monthsoftheannouncement,HealthCanadaapprovalswithin4monthsofcompletingtheexpansionandreachingfullcroprotationwithin4monthsafterHealthCanadaapproval.


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IPTransferAgreementwithCopperstateFarmsLLCinArizonaOnOctober27,2016,theCompanyagreedtotransferitsgreenhousegrowingintellectualpropertytoCopperstateFarmsLLCinexchangeforacashless5%membershipinterest.Atthesame,theCompany,throughitssubsidiaryAphria(Arizona)Inc.,paid$1.3million(USD)fora5%membershipinterestinCopperstateFarmsInvestorsLLC,theparentcompanyofCopperstateFarmsLLC.OnDecember19,2016,theCompanypaidanadditional$1.3MillionUSDforanadditional5%membershipinterestinCopperstateFarmsInvestors,LLC.ClosingofboughtdealfinancingOnNovember30,2016,theCompanyannouncedtheclosingofitsboughtdealfinancing.Undertheboughtdeal,theCompanyraisedgrossproceedsof$40,250,000,andnetproceedsof$37,263,475afteraccountingforunderwriting,legalandothercostsandissued10,062,500commonshares.TheCompanyplanstousetheproceedsprimarilytofundfutureexpansion.FAIRVALUEMEASUREMENTSImpactoffairvaluemetricsonbiologicalassetsandinventoryInaccordancewithIFRS,theCompanyisrequiredtorecorditsbiologicalassetsatfairvalue.Duringthegrowthphase,thecostofeachplantisaccumulatedonaweeklybasis.Atthetimeofharvest,theaccumulatedcostofeachplantisbasedonthenumberofgramsharvested.Uponharvest,theCompanyincreasesthecostvaluetofairvalue.AsatNovember30,2016,theCompany’sharvestedcannabisandcannabisoil,asdetailedinNote6ofitsfinancialstatements,isasfollows: November30,2016 August31,2016Harvestedcannabis–atcost $843,808 $917,206Harvestedcannabis–fairvalueincrement 956,224 1,037,067Cannabisoil–atcost 517,342 372,246Cannabisoil–fairvalueincrement 357,968 202,857Cannabisproducts–atfairvalue $2,675,342 $2,529,376

Inanefforttoincreasetransparency,theCompany’scannabisproduct,whichconsistsofdriedflowerandcannabisoil,arecarriedatfairvaluesof$3.75pergramand$0.62permL,respectively. Theindividualcomponentsoffairvalueareasfollows: November30,2016 August31,2016Harvestedcannabis–atcost–pergram $1.76 $1.76Harvestedcannabis–fairvalueincrement–pergram 1.99 1.99Cannabisoil–atcost–permL 0.37 0.40Cannabisoil–fairvalueincrement–permL 0.25 0.22


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COSTPERGRAMTheCompanycalculates“all-in”andadjusted“all-in”costofsalespergramasfollows:

Threemonthsended November30, August31,“All-in”costofsalespergram 2016 2016 Costofsalesforthequarter $1,105,581 $593,367NeteffectofFVchangeinbiologicalassets (74,268) (460,549)CostofsalesexcludingIFRSadjustments $1,179,849 $1,053,916 Gramssold 638,999 585,187 “All-in”costofsalespergram $1.85 $1.80

Introductionofoilprocessinghasresultedinadditionalprocessingcostsincostofsales.Absenttheseadditionalcosts,“all-in”costofsalespergramforthequarterwouldhavedecreasedbyapproximately$0.06pergram.CalculationofcashcoststoproducepergramTheCompanycalculatescashcostsandadjustedcashcoststoproducepergramasfollows:

Threemonthsended November30, August31,Cashcostspergramtoproduce 2016 2016 CostofsalesexcludingIFRSadjustmentsfromabove $1,179,849 $1,053,916Amortization (228,324) (253,208)Packagingcosts (111,357) (79,132)Cashcoststoproduce $840,168 $721,576 Gramssold 638,999 585,187 Cashcoststoproducepergram $1.31 $1.23

INDUSTRYTRENDSANDRISKSTheCompany’soverallperformanceandresultsofoperationsaresubjecttoanumberofrisksanduncertainties.Theeconomic,industryandriskfactorsdiscussedinourAnnualReport,eachinrespectoftheyearendedMay31,2016andinourShortFormProspectus,datedNovember24,2016,remainsubstantiallyunchangedinrespectofthethreemonthsendedNovember30,2016,however,themostsignificantofwhicharerepeatedbelow.RelianceontheLicenceAphria’sabilitytogrow,storeandsellmedicalmarijuanainCanadaisdependentonmaintainingitslicencewithHealthCanada.Failuretocomplywiththerequirementsofthe licenceoranyfailuretomaintainits licencewouldhaveamaterialadverseimpactonthebusiness,financialconditionandoperatingresultsofAphria.AlthoughAphriabelievesitwillmeettherequirementsoftheACMPRforextensionofthelicence,therecanbenoguaranteethatHealthCanadawillextendorrenewthelicenceor,ifitisextendedorrenewed,thatitwillbeextendedorrenewedonthesameor


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similarterms.ShouldHealthCanadanotextendorrenewthelicenceorshoulditrenewthelicenceondifferentterms,thebusiness,financialconditionandresultsoftheoperationofAphriawouldbemateriallyadverselyaffected.LegislativeorRegulatoryReformThecommercialmedicalmarijuanaindustryisanewindustryandtheCompanyanticipatesthatsuchregulationswillbe subject to change as the FederalGovernmentmonitors LicencedProducers in action. Aphria’s operations aresubject to a variety of laws, regulations, guidelines and policies relating to the manufacture, import, export,management,packaging/labelling,advertising, sale, transportation, storageanddisposalofmedicalmarijuanabutalso including laws and regulations relating to drugs, controlled substances, health and safety, the conduct ofoperationsandtheprotectionoftheenvironment.Whiletotheknowledgeofmanagement,Aphriaiscurrentlyincompliancewithallsuchlaws,anychangestosuchlaws,regulations,guidelinesandpoliciesduetomattersbeyondthecontrolofAphriamaycauseadverseeffectstoitsoperations.HistoryofLossesTheCompanyincurredlossesinpriorperiods.Aphriamaynotbeabletoachieveormaintainprofitabilityandmaycontinue to incur significant losses in the future. In addition, Aphria expects to continue to increase operatingexpensesasitimplementsinitiativestocontinuetogrowitsbusiness.IfAphria‘srevenuesdonotincreasetooffsettheseexpectedincreasesincostsandoperatingexpenses,Aphriawillnotbeprofitable.

Competition

OnOctober19,2015,theLiberalPartyofCanada(“Party”)obtainedamajoritygovernmentinCanada.ThePartyhascommittedtothelegalizationofrecreationalcannabisinCanada,thoughnomodelforthisregulatorychangehasbeenpubliclydisclosedortimelineforimplementationputforward.Thisregulatorychangemaynotbeimplementedatall.Theintroductionofarecreationalmodelforcannabisproductionanddistributionmayimpactthemedicalmarijuanamarket.TheimpactofthispotentialdevelopmentmaybenegativefortheCompanyandcouldresultinincreasedlevelsofcompetitioninitsexistingmedicalmarketand/ortheentryofnewcompetitorsintheoverallcannabismarketinwhichtheCompanyoperates.

ThereispotentialthattheCompanywillfaceintensecompetitionfromothercompanies,someofwhichcanbeexpectedtohavelongeroperatinghistoriesandmorefinancialresourcesandmanufacturingandmarketingexperiencethantheCompany.Increasedcompetitionbylargerandbetterfinancedcompetitorscouldmateriallyandadverselyaffectthebusiness,financialconditionandresultsofoperationsoftheCompany.

Thegovernmenthasonlyissuedtodatealimitednumberoflicenses,undertheACMPR,toproduceandsellmedicalmarijuana.Thereare,however,severalhundredapplicantsforlicenses.ThenumberoflicensesgrantedcouldhaveanimpactontheoperationsoftheCompany.BecauseoftheearlystageoftheindustryinwhichtheCompanyoperates,theCompanyexpectstofaceadditionalcompetitionfromnewentrants.AccordingtoHealthCanadatherearecurrently36LicensedProducers.IfthenumberofusersofmedicalmarijuanainCanadaincreases,thedemandforproductswillincreaseandtheCompanyexpectsthatcompetitionwillbecomemoreintense,ascurrentandfuturecompetitorsbegintoofferanincreasingnumberofdiversifiedproducts.Toremaincompetitive,theCompanywillrequireacontinuedlevelofinvestmentinresearchanddevelopment,marketing,salesandclientsupport.TheCompanymaynothavesufficientresourcestomaintainresearchanddevelopment,marketing,salesandclientsupporteffortsonacompetitivebasiswhichcouldmateriallyandadverselyaffectthebusiness,financialconditionandresultsofoperationsoftheCompany.


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ExchangeRestrictionsonBusiness

AsaconditiontoinitiallylistingontheTSXV,theTSXVrequiredthattheCompanydeliveranundertaking(the‘‘Undertaking’’)confirmingthat,whilelistedonTSXV,theCompanywillonlyconductthebusinessofproduction,acquisition,saleanddistributionofmedicalmarijuanainCanadaaspermittedundertheLicense.TheUndertakingcouldhaveanadverseeffectontheCompany’sabilitytodobusinessoroperateoutsideofCanadaandonitsabilitytoexpanditsbusinessintootherareasincludingtheprovisionofnon-medicalmarijuanaintheeventthatthelawsweretochangetopermitsuchsalesandtheCompanyisstilllistedontheTSXVandstillsubjecttotheUndertakingatthetime.TheUndertakingmaypreventtheCompanyfromexpandingintonewareasofbusinesswhentheCompany’scompetitorshavenosuchrestrictions.RESULTSOFOPERATIONSRevenueRevenueforthethreemonthsendedNovember30,2016was$5,226,589versus$2,026,975inthesameperiodof2015and$4,375,512inthefirstquarterof2017fiscal.Theincreaseinrevenueduringthequarterwaslargelyrelatedto:

• Continuedaccelerationofpatientonboarding;• Improvedaveragesellingpricepergram(orgramequivalent)sold;• Continuedimprovementingramssoldperorder;and,• Arefinementofstrains,resultingingreatervarietyofproductofferingsforpatients.

RevenueforthesixmonthsendedNovember30,2016was$9,602,101versus$2,977,715inthesameperiodof2015.Thereasonfortheincreaseinsalesinthesix-monthperiodisconsistentwiththereasonsfortheincreaseinsalesinthethree-monthperiodabove.WiththerecentchangesannouncedbyVeteransAffairsCanadawithrespecttoapricecapof$8.50pergram,forreimbursementbyveterans,theCompanyanticipatesitsaveragesellingpricepergramtodecreaseintheupcomingquarter.GrossprofitandgrossmarginThegrossprofit forthethreemonthsendedNovember30,2016was$4,121,008,comparedto$1,309,254inthesameperiod intheprioryear. The increase ingrossprofit fromtheprioryear isconsistentwiththemuch largerpatientbaseovertheprioryearcombinedwithimprovedproductioncostspergramoverthesamequarterintheprioryear.The gross profit for the six months ended November 30, 2016 was $7,903,153, compared to a gross profit of$1,987,809inthesameperiodoftheprioryear.Due to the rapid volume of growth in the Company over the past 12 months as a result of continued patientacquisitions,managementbelievesmoreappropriatecomparisonsofgrossprofitandgrossmarginarebetweenthethreemonthsendedNovember30,2016andthethreemonthsendedAugust31,2016.


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ThegrossprofitforthethreemonthsendedNovember30,2016increased$338,863to$4,121,008,comparedto$3,782,145inthepriorquarter,asshownbelow:

Threemonthsended November30,2016 August31,2016Revenue $5,226,589 $4,375,512 Costofsales Costofgoodssold 951,525 800,708Amortization 228,324 253,208NeteffectofFVchangeinbiologicalassets (74,268) (460,549) 1,105,581 593,367 Grossprofit $4,121,008 $3,782,145Grossmargin 78.8% 86.4%

Costofsalescurrentlyconsistofthreemaincategories:(i)costofgoodssold;(ii)amortizationand,(iii)neteffectofFVchangeinbiologicalassets.

(i)Costofgoodssoldincludethedirectcostofmaterialsandlabourrelatedtothemedicalmarijuanasold.Thiswouldincludegrowing,cultivationandharvestingcosts,stringentqualityassuranceandqualitycontrol,aswellaspackagingandlabelling.AllmedicalmarijuanashippedandsoldbyAphriahasbeengrownandproducedbytheCompany.(ii)Amortizationincludesamortizationofproductionequipmentandleaseholdimprovementsutilizedintheproductionofmedicalmarijuana.(iii)NeteffectofFVchangeinbiologicalassetsispartoftheCompany’scostofsalesduetoIFRSstandardsrelating toagricultureandbiologicalassets (i.e. livingplantsoranimals). This line itemrepresents theneteffectofthenon-cashfairvalueadjustmentofbiologicalassets(medicalcannabis)producedandsoldintheperiod.Inanefforttoincreasetransparency,managementdeemsitnecessarytodisclosethatinventoryofHarvested cannabis (Note 6 – Interim consolidated financial statements period ended August 31, 2016)consistsofdriedflowerandcannabisoil,allofwhichiscarriedatavalueof$3.75pergram(cannabisoil iscarriedat$0.62/mL,6mLofcannabisoilisequivalentto1gramofdriedproduct).

Thedecreaseingrossmarginwasattributabletoalesserfairvalueadjustmentforchangeinbiologicalassetsinthequartercomparedtolastquarter,decreasingcostofgoodssoldinthequarterby$74,268versus$460,549inthefirstquarteroffiscal2017.Inthesecondquarter,thecostofgoodssoldasapercentageofsaleswas78.8%comparedto86.4%inthefirstquarter.Managementbelievesthattheuseofnon-cashIFRSadjustmentsincalculatinggrossprofitandgrossmargincanbeconfusingduetothelargevalueofnon-cashfairvaluemetricsrequired.Accordingly,managementbelievestheuseofanadjustedgrossprofitandadjustedgrossmarginprovidesabetterrepresentationofperformancebyexcludingnon-cashfairvaluemetricsrequiredbyIFRS.Adjustedgrossprofitandadjustedgrossmarginarenon-GAAPfinancialmeasuresthatdonothaveanystandardizedmeaningprescribedbyIFRSandmaynotbecomparabletosimilarmeasurespresentedbyothercompanies.ThegrossprofithasbeenadjustedfromIFRSbyremovingthenon-cashchangeinbiologicalassetsof$74,268and$534,817inthethreeandsixmonthsrespectively.


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ThefollowingistheCompany’sadjustedgrossprofitandadjustedgrossmarginascomparedtoIFRSforthequarter: Threemonthsended Threemonthsended November30,2016 November30,2016 IFRS Adjustments AdjustedRevenue $5,226,589 $-- $5,226,589 Costofsales Costofgoodssold 951,525 -- 951,525Amortization 228,324 -- 228,324NeteffectofFVchangeinbiologicalassets (74,268) 74,268 -- 1,105,581 74,268 1,179,849 Grossprofit $4,121,008 $4,046,740 Grossmargin 78.8% 77.4%

ThefollowingistheCompany’sadjustedgrossprofitandadjustedgrossmarginascomparedtoIFRSforthesixmonthsendedNovember30,2016: Sixmonthsended Sixmonthsended November30,2016 November30,2016 IFRS Adjustments AdjustedRevenue $9,602,101 $-- $9,602,101 Costofsales Costofgoodssold 1,752,233 -- 1,752,233Amortization 481,532 -- 481,532NeteffectofFVchangeinbiologicalassets (534,817) 534,817 -- 1,698,948 2,233,765 Grossprofit $7,903,153 $7,368,336 Grossmargin 82.3% 76.7%

Selling,generalandadministrativeSelling,generalandadministrativeexpensesarecomprisedofgeneralandadministrative,share-basedcompensation,selling,marketingandpromotion,amortizationandresearchanddevelopment.Thesecostsincreasedby$1,880,421to$3,634,626from$1,784,205inthesamequarterintheprioryearandincreased$3,641,621to$6,628,943from$2,987,322inthesix-monthperiodoftheprioryear.

ThreemonthsendedNovember SixmonthsendedNovember 2016 2015 2016 2015

Generalandadministrative $1,224,718 $506,902 $2,184,310 $930,834Share-basedcompensation 251,494 212,318 454,589 259,331Selling,marketingandpromotion 1,819,193 965,602 3,199,840 1,581,250Amortization 250,570 44,631 452,240 74,656Researchanddevelopment 88,651 54,752 337,964 141,251 $3,634,626 $1,784,205 $6,628,943 $2,987,322


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Generalandadministrativecosts

ThreemonthsendedNovember SixmonthsendedNovember 2016 2015 2016 2015

Executivecompensation $204,615 $131,541 $416,924 $254,495Consultingfees 34,647 17,387 79,412 27,287Officeandgeneral 417,241 103,546 708,385 224,057Professionalfees 133,857 99,755 239,864 135,581Salariesandwages 262,932 85,379 487,580 151,469Travelandaccommodation 146,479 56,551 219,045 115,362Rent 24,947 12,743 33,100 22,583 $1,224,718 $506,902 $2,184,310 930,834

Theincreaseingeneralandadministrativecostsduringthequarterwaslargelyrelatedtoanincreasein:

• Salariesandwagesandofficeandgeneralasaresultofincreasedactivitywithinthebusinessoverthesameperiodintheprioryear;

• Professionalfees,predominantlycomprisedoflegalcosts,associatedwithvariousnegotiationsandreviewsofcurrentandpotentialbusinessrelationshipsnecessarytosustaingrowthoftheCompany;and,

• ExecutivecompensationassociatedwithincreasesincompensationpayabletoC-suiteexecutives.• Officeandgeneral,predominantlycomprisedofincreasesininformationtechnologyexpenses,insurance,

andcharitabledonations.Theincreaseingeneralandadministrativecostsduringthesix-monthperiodwaslargelyrelatedtothesamefactorsasinthethree-monthperiod.Share-basedcompensationTheCompanyrecognizedshare-basedcompensationexpenseof$251,494forthethreemonthsendedNovember30,2016 compared to $212,318 for the prior year. Share-based compensation was valued using the Black-Scholesvaluationmodelandrepresentsanon-cashexpense.Theincreaseinshare-basedcompensationisconsistentwiththe increase in stock options issued during the respective period, 1,145,000 in the current period compared to290,000inthesameperiodoftheprioryear,ofthestockoptionsgrantedinthequarteronly416,424vestedinthequartervestedinthequarter.For the sixmonthsendedNovember30,2016, theCompany incurred share-based compensationof$454,589asopposedto$259,331.1,568,000optionsweregrantedduringthesix-monthperiodendedNovember30,2016,asopposedto320,000optionsinthecomparableperiodoftheprioryear.Oftheoptionsgrantedinthesix-monthperiodendedNovember30,2016,only575,753vestedinthatsix-monthperiod.Selling,marketingandpromotioncostsForthethreemonthsendedNovember30,2016,theCompanyincurredselling,marketingandpromotioncostsof$1,819,193, versus $965,602 in the comparable prior period. These costs related to commissions on sales, theCompany’s call centre operations, shipping costs, as well as the development of promotional and informationmaterials. The increase isdirectlycorrelatedwiththe increase inpatientandsalesvolumesoverthecomparableperiod.For the sixmonths endedNovember 30, 2016, the Company incurred selling,marketing and promotion costs of$3,199,840asopposedto$1,581,250inthecomparablepriorperiod.Theincreaseincostsinthesix-monthperiodisconsistentwiththeincreaseinthethree-monthperiod.


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AmortizationThe Company incurred non-production related amortization charges of $250,570 for the three months endedNovember30,2016comparedto$44,631forthesameperiodintheprioryear.Theincreaseinamortizationchargesarearesultofthecapitalexpendituresmadeduringthepriorandcurrentyear,thelargestofwhichrelatestotheacquisitionsofCannWayPharmaceuticalsLtd.andlandandgreenhousespurchasedfromCacciavillaniandF.M.FarmsLtd.TheCompanyincurredamortizationchargesof$452,240forthesixmonthsendedNovember30,2016comparedto$74,656forthesameperiodinthepreviousyear.Theincreaseforthesix-monthperiodisconsistentwiththeincreaseforthethree-monthperiod.ResearchanddevelopmentResearchanddevelopment costsof$88,651wereexpensedduring the threemonthsendedNovember30,2016compared to $54,752 in same period last year. These relate to costs associated with process validation of theCompany’sinternalchemistryandmicrobiologylabs,aswellasresearchdifferentaspectsofgenetics.TheCompanyis also experimenting with different methods of extraction of cannabis oils and related derivatives for futurecommercialization.ForthesixmonthsendedNovember30,2016,theCompanyincurredresearchanddevelopmentcostsof$337,964asopposedto$141,251inthecomparablepriorperiod.Theincreaseincostsprimarilyrelatesto:

• Validationoflaboratory• Developmentofprocessesandmethodsassociatedwithextraction• Phenotypingofgenetics

Non-operatingitemsDuring the three months ended November 30, 2016, the Company earned non-operating income of $459,296consistingof$291,483of finance income,$95,286of financeexpense,and$263,099 related toagainon saleofinvestmentscomparedtonon-operatingincomeof$43,853intheprioryear,consistingof$37,402offinanceincome,and$6,451relatedtoagainonsaleofcapitalassets.ForthesixmonthsendedNovember30,2016,theCompanyearnednon-operatingincomeof$566,737consistingof$436,109 finance income, $143,838 finance expense, $263,099 related to a gain on the sale of investments and$11,367relatedtoagainonsaleofcapitalassetscomparedtonon-operatingincomeof$91,590intheprioryear,consistingof$85,139offinanceincome,and$6,451relatedtoagainonthesaleofcapitalassets.Netincome(loss)ThenetincomeforthethreemonthsendedNovember30,2016was$945,678or$0.01pershareasopposedtoanetlossinthesameperiodoftheprioryearof$431,098or$0.01pershare.ThenetincomeforthesixmonthsendedNovember30,2016was$1,840,947or$0.02pershareasopposedtoanetlossinthesameperiodoftheprioryearof$907,923or$0.02pershare.EBITDAEBITDAisanon-GAAPfinancialmeasurethatdoesnothaveanystandardizedmeaningprescribedbyIFRSandmaynotbecomparabletosimilarmeasurespresentedbyothercompanies.TheCompanycalculatesEBITDAasnetincome


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(loss)plus(minus)financeexpense(income)plusamortizationplus(minus)loss(gain)onsaleofcapitalassets,plusshare-based compensation, plus (minus) non-cash fair value (“FV”) adjustments related to biological assets, plusallowanceforbaddebts,plusamortizationofnon-capitalassets,plusexpensesrelatingtoadjustmentofstandardcosts,plus(minus)loss(gain)onsaleofinvestmentsallasfollows:

ThreemonthsendedNovember

SixmonthsendedNovember

2016 2015 2016 2015Netincome(loss) $945,678 $(431,098) $1,840,947 $(907,923)Financeincome (291,483) (37,402) (436,109) (85,139)Financeexpenseandamortizationoffinancefees 96,536 -- 145,921 --Amortization 478,894 158,196 933,772 269,915Share-basedcompensation 251,494 212,318 454,589 259,331Non–cashFVadjustmentsinbiologicalassets (74,268) 82,250 (534,817) (42,790)Amortizationofnon-capitalassets 33,120 19,844 47,141 111,014Gainonsaleofcapitalassets -- -- (11,367) --Allowanceforbaddebts 21,748 -- 75,911 --Sub-total $1,461,719 $4,108 $2,515,988 $(395,592)Gainonsaleofinvestments (263,099) -- (263,099) --EBITDA $1,198,620 $4,108 $2,252,889 $(395,592)

LIQUIDITYANDCAPITALRESOURCESCashflowfromoperationsforthesixmonthsimprovedby$3,089,875fromcashflowusedinoperationsof$977,691in the three-monthperiodof theprioryear tocash flowgenerated fromoperationsof$2,112,184 in thecurrentthree-monthperiod.Theimprovementincashflowgeneratedfromoperationsisprimarilyaresultofa:

• Increasedprofitabilityfortheperiodstemmingfromincreasedsalesvolume;• Decreasedproductioncostspergram;and,• Increasedaccountspayableandaccruedliabilities,whichprimarilyrelatedtounpaidcapitalexpendituresat

theendoftheperiod.Thesefactorswerepartiallyoffsetby:

• Increasedinventory,theincreaseisprimarilymadeupofanincreaseintheamountofcannabisoilinstorage.

Cashresources/workingcapitalrequirementsTheCompanyconstantlymonitorsandmanagesitscashflowstoassesstheliquiditynecessarytofundoperations.Asat November 30, 2016, Aphria maintained $98,614,981 of cash and cash equivalents on hand, compared to$16,472,664atMay31,2016and$3,285,867atNovember30,2015.Cashandcashequivalentsonhandincreased$82,142,317inthesix-monthperiodandincreased$95,329,114fromNovember30,2015.WorkingcapitalprovidesfundsfortheCompanytomeetitsoperationalandcapitalrequirements.AsatNovember30,2016,theCompanymaintainedworkingcapitalof$102,438,357. ManagementexpectstheCompanytohaveadequatefundsavailableonhandtomeettheCompany’splannedgrowthandexpansionoffacilitiesoverthenext24months.


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CapitalandintangibleassetexpendituresForthethreemonthsendedNovember30,2016,theCompanyinvested$5,389,351incapitalandintangibleassets,ofwhich$52,432areconsideredmaintenanceCAPEXandtheremainder$5,336,919growthCAPEX,relatedtothepropertyacquisitionsandCompany’sPartIIexpansion.ForthesixmonthsendedNovember30,2016,theCompanyinvested$12,919,039incapitalassets,ofwhich$314,024areconsideredmaintenanceCAPEXandtheremainder,$12,605,015growthCAPEXrelatedtotheCompany’sPartIIexpansion.FinancialcovenantsTheCompanymetitsfinancialcovenantsatalltimessincetheyhavecomeintoeffect.TheCompanybelievesthatithassufficientoperatingroomwithrespecttoitsfinancialcovenantsforthenextfiscalyearanddoesnotanticipatebeinginbreachofanyofitsfinancialcovenantsduringthisperiod.Contractualobligationsandoff-balancesheetfinancingDuringtheyear,theCompanyterminatedits leasecommitmentforrentalofgreenhouseandwarehousespaceinconjunctionwiththepurchaseofthe265TalbotSt.Westproperty. TheCompanycontinuesto leaseofficespacefromarelatedparty,theleasecommitmentendsDecember31,2018withtheoptiontorenewfortwoadditionalfiveyear terms. TheCompanyhasa leasecommitmentsuntil September2019andAugust,2020 formotor vehicles.Minimumpaymentspayableoverthenextfiveyearsareasfollows: Paymentsduebyperiod Total Lessthan1year 1–3years 4–5years After5yearsOutstandingcapitalrelatedcommitments

$2,887,876 $2,887,876 $-- $-- $--

Operatingleases 113,150 77,712 35,438 -- --Motorvehiclelease 97,471 28,911 55,494 13,066 --Total $3,098,497 $2,994,499 $90,932 $13,066 $--

ExceptasdisclosedelsewhereinthisMD&A,therehavebeennomaterialchangeswithrespecttothecontractualobligationsoftheCompanyduringtheyear.Aphriadoesnotmaintainanyoff-balancesheetfinancing.SharecapitalAphriahasthefollowingsecuritiesissuedandoutstanding,asatNovember30,2016: Presently

outstanding

ExercisableExercisable&

in-the-money*

Fullydiluted

Commonstock 111,610,973 111,610,973Warrants -- 4,564,839 4,564,839 4,564,839Stockoptions -- 4,288,433 4,288,433 5,873,000Fullydiluted 122,048,812

*BasedonclosingpriceonNovember30,2016of$5.20pershare


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QUARTERLYRESULTSThefollowingtablesetsoutcertainunauditedfinancial informationforeachoftheeightfiscalquartersuptoandincludingthesecondquarteroffiscal2017,endedNovember30,2016.TheinformationhasbeenderivedfromtheCompany’sunauditedconsolidatedfinancialstatements,whichinmanagement’sopinion,havebeenpreparedonabasisconsistentwiththeauditedconsolidatedfinancialstatementsfiledintheCompany’s2016AnnualReportandincludealladjustmentsnecessaryforafairpresentationofthe informationpresented. Pastperformance isnotaguaranteeoffutureperformanceandthisinformationisnotnecessarilyindicativeofresultsforanyfutureperiod. Feb/16 May/16 Aug/16 Nov/16Revenue $2,679,898 $2,776,316 $4,375,512 $5,226,589Netincome(loss) 3,720 1,302,164 895,269 945,678Income(Loss)pershare-basic 0.00 0.02 0.01 0.01Income(Loss)pershare–fullydiluted 0.00 0.02 0.01 0.01 Feb/15 May/15 Aug/15 Nov/15Revenue $51,540 $499,890 $950,740 $2,026,975Netincome(loss) (3,103,111) (481,380) (476,825) (431,098)Losspershare-basic (0.06) (0.01) (0.01) (0.00)Losspershare–fullydiluted (0.06) (0.01) (0.01) (0.00)

TheCompanyobtaineditsMMPRlicencetoproduceandsellonNovember26,2014,withsalescommencingshortlythereafter.TheCompanyrecognizedlistingcostsof$2,708,031inthethirdquarterof2015.RELATEDPARTYBALANCESANDTRANSACTIONSPriortogoingpublic,theCompanyfundedoperationsthroughthesupportofrelatedparties.Sincegoingpublic,theCompanyhascontinuedtoleveragethepurchasingpoweroftheserelatedpartiesforcertainofitsgrowingrelatedexpenditures.TheCompanyowed$niltorelatedpartiesasatNovember30,2016(2015-$nil).Theseamountsweredueupondemandandarenon-interestbearing.ThesepartiesarerelatedastheyarecorporationsthatarecontrolledbycertainofficersanddirectorsoftheCompany(Mr.ColeCacciavillaniandMr.JohnCervini).TheCompanytransactswithrelatedpartiesinthenormalcourseofbusiness.Throughtheserelatedparties,Aphriaisableto leveragethepurchasingpowerforgrowingrelatedcommoditiesand labour,whichprovidestheCompanywithbetterratesthanifAphriawassourcingtheseonitsown.Thesetransactionsaremeasuredattheirexchangeamounts.DuringthethreemonthsendedNovember30,2016,relatedpartycorporationschargedorincurredexpendituresonbehalfoftheCompanytotaling$71,578(2015-$403,344),whichwereoraretobereimbursed, includingrentof$8,178(2015-$42,511).DuringthesixmonthsendedNovember30,2016,relatedpartycorporationschargedorincurredexpendituresonbehalfoftheCompanytotaling$266,946(2015-$648,725),whichwereoraretobereimbursed,includingrentof$33,033(2015-$77,173).SUBSEQUENTEVENTSOnDecember7,2016,theCompanyannounceditsintentiontoparticipateintheprivateplacementfinancingofCanaboMedicalInc.purchasing6,000,000commonsharesofthecompanyatapriceof$1.40persharerepresentinga16.6%ofthetotalissuedandoutstandingcommonshares.TheprivateplacementclosedonDecember22,2016.


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OnDecember12,2016,theCompanygranted500,000stockoptionstoconsultants.TheoptionsexpireonDecember12,2019andareexercisableat$5.25peroption.66,666oftheoptionsgrantedvestedimmediatelyandtheremaindervestbasedontheachievementofvariousoperatingmetrics.OnDecember14,2016,theCompanyannouncedthatitremovedallconditionsattachedtoapurchaseandsaleagreementtoacquire5acresoflargelyvacantlandlocatedontheeasternborderofitsexistingHealthCanadaapprovedsitelicence.Thepurchasepriceforthe5acreswas$750,000andclosedonDecember22,2016orearlyJanuary2017.Concurrentwiththistransaction,theabuttingpropertywillbemergedintoAphria'sexistingmunicipaladdress,therebyavoidingtheneedtoapplyforanewHealthCanadasitelicenceforthisparcelofland.OnDecember14,2016,theCompanyenteredintoapurchaseandsaleagreementtoacquire200acresoffullyservicedvacantlandfor$6.24millionlocatedat521MerseaRoad8,Leamington,Ontario.AsthelandacquireddoesnotabuttheCompany'sexistingoperations,theCompanyrequiresanewsitelicencefromHealthCanadafortheproperty.TheCompanyanticipatesthetransactionclosinginJanuary2017.OnDecember19,2016,theCompanypaidanadditional$1.3millionUSDforanadditional5%membershipinterestinCopperstateFarmsLLC.This MD&A contains forward-looking statements within the meaning of applicable securities legislation with regards to expected financialperformance,strategyandbusinessconditions.Weusewordssuchas“forecast”,“future”,,“should”,“could”,“enable”,“potential”,“contemplate”,“believe”,“anticipate”,“estimate”,“plan”,“expect”,“intend”,“may”,“project”,“will”,“would”andsimilarexpressionsare intendedto identifyforward-lookingstatements,althoughnotallforward-lookingstatementscontaintheseidentifyingwords.Thesestatementsreflectmanagement’scurrentbeliefswithrespecttofutureeventsandarebasedoninformationcurrentlyavailabletomanagement.Forward-lookingstatementsinvolvesignificantknownandunknownrisksanduncertainties.Many factorscouldcauseactual results,performanceorachievement tobemateriallydifferentfromanyfutureforward-lookingstatements.Factorsthatmaycausesuchdifferencesinclude,butarenotlimitedto,generaleconomicandmarketconditions,investmentperformance,financialmarkets,legislativeandregulatorychanges,technologicaldevelopments,catastrophiceventsand other business risks. These forward-looking statements are as of the date of thisMD&A and the Company andmanagement assume noobligationtoupdateorrevisethemtoreflectneweventsorcircumstancesexceptasrequiredbysecuritieslaws.TheCompanyandmanagementcautionreadersnottoplaceunduerelianceonanyforward-lookingstatements,whichspeakonlyasofthedatemade.Someofthespecificforward-lookingstatementsinthisMD&Ainclude,butarenotlimitedto,statementswithrespecttothefollowing:

• theintendedexpansionoftheCompany’sfacilitiesandreceiptofapprovalfromHealthCanadatocompletesuchexpansion;• theexpectedcosttoproduceagramofmedicalcannabis;and• theanticipatedfuturegrossmarginsoftheCompany’soperations.

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MANAGEMENT’S DISCUSSION & ANALYSIS · APHRIA INC. MANAGEMENT’S DISCUSSION & ANALYSIS Page ½2 INVESTOR HIGHLIGHTS Q2-2017 Q1-2017 Revenue $ 5,226,589 $ 4,375,512 Kilograms (or