Neil Linsdell, CFA April 29, 2019 Page | 1

Research Update April 29, 2019

Neil Linsdell, CFA | nlinsdell@iagto.ca | 1.514.499.0158 Associate: Dimitri Troulis, CFA | dtroulis@iagto.ca | 1.514.284.4180

Aurora Joins List of Cannabis Players Partnering with EnWave for Drying; Places Sizeable Order and Enters into Global Licensing

Event On Friday, EnWave and Aurora Cannabis (ACB-T, Not Rated) issued a joint press release, which included a royalty-bearing license agreement for the EU, and options for South America and Australia, along with sizeable equipment orders, and a $10M equity investment.

Highlights Royalty-bearing commercial license. Aurora has entered into a royalty-

bearing commercial license agreement with EnWave for exclusivity using REV™ for cannabis drying in the European Union, excluding Portugal (already licensed to Tilray [TLRY-Q, Not Rated]). EnWave has also granted Aurora options for both Australia and South America, excluding Peru (due to an agreement with Fresh Business), conditional on additional REV™ machine purchases. Aurora has also signed a sub-license for Canada.

Sizeable purchase orders estimated at over $6M. Aurora is also purchasing two large-scale 120kW REV™ units for Canada for its Aurora Sky (near Edmonton, AB) and Aurora Sun (Medicine Hat, AB) facilities with the intention to purchase another 120kW unit within 60 days for its Denmark facility. It is also buying the 10kW unit that it was previously renting for trials and that will be used for product development, protocol development, and R&D. The two will also jointly develop new innovations relating to REV™ technology that are applicable to the cannabis industry with IP to be owned by EnWave, but any realizable commercial value will be shared with Aurora.

Contribution to royalties next year. We expect all of the Aurora units to be installed before the end of the calendar year, with royalties starting a few months thereafter. Note that REV™ units drying cannabis are expected to produce 2-3× the royalties of equivalently sized units drying other food products given the high value per volume ratios.

$10M investment. Both companies have issued $10M of common shares to the other party, although EnWave has announced its intent to sell its ACB shares as soon as permissible.

Valuation We use a sum-of-the-parts valuation to derive our target price. With minor revisions to our financial model, our target price increase to $2.75 (from $2.50).

Bottom Line This joint announcement significantly increases EnWave’s scope and scale in the cannabis sector, supporting our current year forecasts and requiring modest increases in subsequent years as additional royalty-bearing unit deliveries boost both hardware sales and anticipated royalties. Although EnWave’s NutraDried business, producing Moon Cheese, continues to dominate the financial statements and valuation method, cannabis continues to grow in influence. We maintain our Buy recommendation.

Rating: (unchanged)

Target Price: (from $2.50)

Market Data

Target return (incl. dist.): 29.7%

Dividend/yield: $0.00 / 0.0%

Shares outstanding (M): 101.5

Market capitalization ($M):

Enterprise value ($M):

52-week range ($): 1.10 - 2.16

Last fiscal year reported:

CAD

Forecast summary F18A F19E F20E F21E

22.8 42.7 59.6 72.2 Previous n/c 58.1 70.4

2.9 8.4 14.0 18.4

Previous n/c 13.8 18.2

(0.01) 0.04 0.09 0.12

Previous 0.05 n/c n/c

Key trading multiples F18A F19E F20E F21E

70.1x 24.5x 14.7x 11.2xn/a 47.2x 24.2x 17.7x

Q1 Q2 Q3 Q4 YE

Revenue ($M)

F2018 4.5 4.2 6.8 7.4 22.8

F2019 7.8 8.7 11.9 14.3 42.7

F2020 13.1 13.4 15.2 17.9 59.6

F2021 15.9 16.2 18.4 21.8 72.2

Adj. EBITDA ($M)

F2018 0.3 0.0 1.3 1.3 2.9

F2019 1.2 1.6 2.4 3.2 8.4

F2020 2.7 2.8 3.6 4.8 14.0

F2021 3.7 3.8 4.8 6.2 18.4

EPS fd ($)

F2018 (0.01) (0.01) (0.00) 0.00 (0.01)

F2019 (0.00) 0.01 0.01 0.02 0.04

F2020 0.02 0.02 0.02 0.03 0.09

F2021 0.02 0.02 0.03 0.04 0.12

Company Profile

215

Last Price: $2.12

BUY

$2.75 ↑

Ticker: ENW-V

206

Sep. 30, 2018

Average weekly volume: 390,488

Currency (unless otherwise indicated):

EnWave is an applied technology company that licenses,

builds, and installs commercial-scale dehydration

platforms for manufacturing companies primarily serving

the food, pharmaceutical, and cannabis sectors. The

Company’s dehydration platform applies microwave

energy under vacuum to offer flexible, efficient, low

temperature processing suitable for food products,

cannabis, and biomaterials.

Revenue ($M)

Adj. EBITDA ($M)

EPS fd ($)

EV/adj.EBITDAP/E

shaded values above are iAS forecasts

$0.00

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

$1.75

$2.00

$2.25

$2.50

0

200

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800

1,000

1,200

1,400

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1,800

Ap

r-1

8

May

-18

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-18

Jun

-18

Jul-

18

Au

g-1

8

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-18

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-18

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-18

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8

No

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EnWave Corporation (ENW-V)

Consumer Products

EnWave Corporation

Neil Linsdell, CFA April 29, 2019 Page | 2

Investment Thesis EnWave is a high growth technology, manufacturing, and consumer products company, using proprietary Radiant Energy Vacuum (REV™) technology to manufacture and sell dehydration equipment for various markets, including dairy, fruits, vegetables, other snack products, cannabis, and pharmaceuticals. EnWave currently has 28 royalty-bearing commercial licenses for the use of its proprietary REV™ technology, and another nine potential partners in the Technology Evaluation License Option Agreement (TELOA) stage, which is a precursor to becoming a commercial licensed partner. Also, through its wholly owned subsidiary, NutraDried, EnWave has experienced rapid growth in the production of its own cheese snack product (Moon Cheese) using REV™ technology, most recently doubling manufacturing capacity to keep up with demand. EnWave’s current value is derived from both the rapid and near-term growth in Moon Cheese sales, the ongoing sale of REV™ equipment, and the increasing royalty stream being generated on a long-term basis from the growing installed base of REV™ units.

Aurora Cannabis Opportunity: Significant Purchase Orders and a Strategic $10M Stock Swap Aurora Cannabis is a global player in the cannabis space with funded capacity in excess of 625,000 kg per year through 14 production facilities, with sales and operations in 24 countries across five continents. Friday’s joint announcement makes Aurora EnWave’s third official cannabis partner (four in total, with Your Wasabi Farms being the most recent [Jan. 2019] after expanding its license to use its REV™ unit to include drying industrial hemp). Given Aurora’s diverse acquisitions and strategic initiatives completed to date, we believe that it is capable of capitalizing on the significant opportunity presented in the cannabis industry both domestically and internationally.

Global partnership spans three continents. Aurora has been granted exclusive rights to use REV™ technology to dry cannabis, with sub-licensing rights in the European Union (excl. Portugal due to Tilray [see below]) as well as the option to secure the same rights in Australia and South America (excl. Peru). Aurora has also signed a non-exclusive sub-license to use REV™ technology in Canada. Aurora will pay EnWave a royalty on all cannabis products processed using the REV™ machinery and will receive an undisclosed share of royalties derived from any cannabis product dried by sub-licensees.

Purchase orders could total 370kW of capacity and over $6M in value. Aurora is purchasing two 120kW REV™ units for Canada at its Aurora Sky and Aurora Sun facilities in Alberta, with the intention of purchasing another 120kW unit within 60 days for Denmark, plus it is buying a 10kW unit that it was previously renting for trials. Although financial details were not provided, we estimate the purchase of all four machines to be valued at over $6M.

$10M investment by each company. Both companies have issued $10M of common shares to the other, with Aurora purchasing 5,302,227 common shares of EnWave based on a VWAP of $1.886 (~4.91% of ENW’s issued and outstanding common shares), with Aurora issuing 840,576 common shares at a VWAP of $11.8966. EnWave intends to sell its stake in Aurora shares, which are subject to a four-month hold period, to strengthen its cash position.

Intellectual Property Agreement. Aurora and EnWave have also agreed to enter into an Intellectual Property Agreement (IPA) with the intent to jointly develop new innovations relating to REV™ technology that are applicable to the cannabis industry. All intellectual property developed under the IPA will be owned by EnWave, but any realizable commercial value will be shared on an undisclosed basis with Aurora.

Operational benefits, an increase in the speed to market, and significant working capital savings for Aurora. EnWave’s REV™ technology offers licensed cannabis producers the fastest (1 hour vs. 5-7 days) and most controllable process to dry and decontaminate cannabis in its natural state without any additives (which prevents microbial contamination). As such, the Aurora Sun and Nordic facilities will benefit from CAPEX savings on drying space and related HVAC investments, as well as free up space for the purpose of increasing production.

Financial benefit details. The big long-term benefit of supplying REV™ units to the cannabis industry is in the royalties paid to EnWave based on volume/value produced. Unlike royalties from other food and snack producers, where products can face customer acceptance risks, we see limited risk in the acceptance of cannabis in the immediate future. Additionally, we anticipate that equivalently sized REV™ units can produce 2-3× the royalties drying cannabis than other food products given the high value per volume ratios.

EnWave Corporation

Neil Linsdell, CFA April 29, 2019 Page | 3

Exhibit 1: Aurora Cannabis’ Footprint and Global Cannabis Opportunity

Source: Aurora Cannabis Inc.

EnWave Entered the Cannabis Space in October 2017

Significant Cannabis Opportunity First Launched Through Partnership with Tilray…

EnWave launched into the cannabis space with Tilray in October 2017, granting the company an exclusive right to use and sub-license EnWave’s proprietary REV™ dehydration technology in Canada for efficient production of cannabis products. Tilray produces medical and adult-use cannabis in Canada and medical cannabis in Europe, and supplies high-quality cannabis products to tens of thousands of patients in twelve countries spanning five continents (see Exhibit 2) through its subsidiaries in Australia, Canada, Germany, and Latin America. Tilray was the first cannabis producer to export medical cannabis from North America and legally import cannabis into the European Union, and has licenses to cultivate cannabis in Canada and Portugal. This partnership provided EnWave with the opportunity to optimize the processes around cannabis, and created an important validation to the value of its equipment. To date, Tilray has ordered three units with a combined capacity of 130kW.

Exhibit 2: Tilray’s Global Footprint

Source: Tilray Inc.

…Followed by a Sub-License with TGOD

On January 3, 2019, EnWave and Tilray signed a royalty-bearing commercial sub-license with TGOD, a major Canadian producer of medical and adult-use cannabis, and a global leader in cultivating premium, certified organic cannabis. The agreement grants TGOD the right to use the Company’s REV™ dehydration technology to dry organic cannabis in Canada. EnWave and Tilray will share royalties from TGOD’s use of EnWave’s REV™ technology on an undisclosed basis. At that point, TGOD also signed an equipment purchase agreement and submitted a purchase order to EnWave for a large-scale 60kW commercial REV™ machine to initiate commercial production at its Hamilton facility in Canada. TGOD also made good on its order for three 120kW REV™ machines that we expect to be installed in its Valleyfield facility by the end of 2019. This 1,310,000 sq. ft. facility is expected to produce 185,000 kg of cannabis annually through expansion coming on line between the end of 2019 and the end of 2021. TGOD’s order will bring its machine count to four with a combined capacity of 420kW.

EnWave Corporation

Neil Linsdell, CFA April 29, 2019 Page | 4

Valuation As summarized in Exhibit 3, we use a sum-of-the-parts approach on our Q2/F20-Q1/F21 forecasts. We are increasing our target price to $2.75, from $2.50, on minor revisions to our financial model following the Aurora press release. We maintain our Buy recommendation.

Exhibit 3: Valuation Summary

Source: iA Securities

Sum-of-the-parts Valuation

Metric Multiple Value ($M) per share

NutraDried EV/Rev 4.0x Revenue ($M) 42.2 168.6 $1.48

EnWave Canada EV/EBITDA 8.0x EBITDA ($M) 2.0 16.4 $0.14

Royalties (NutraDried only) DCF Royalties ($M) 2.0 28.2 $0.25

Royalties (excl. NutraDried) DCF Royalties ($M) 1.5 62.7 $0.55

Net cash (at end of Q1/F21) 34.8 $0.31

$2.73

Rounded $2.75

Forecast (Q2/F20-Q1/F21)

EnWave Corporation

Neil Linsdell, CFA April 29, 2019 Page | 5

Investment Recommendation Rating System

Strong Buy: Expected to provide a substantial return over the next 12 months, with a lower level of risk than comparable investments.

Buy: Expected to provide a reasonably positive return over the next 12 months.

Speculative Buy: Expected to provide a positive return over the next 12 months, but with a high level of risk, or based on a future uncertain event.

Hold: Expected to remain in a trading range near the current share price for the next 12 months.

Sell: Expected to deliver a negative return over the next 12 months.

Under Review: Currently available information is inadequate to provide an investment rating.

Tender: Investors should tender their shares to the current offer.

Company related disclosures:

Issuer Company Ticker Applicable Disclosures

EnWave Corporation ENW-V 1, 3, 7

See legend of Disclosures on next page.

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EnWave Corporation

Neil Linsdell, CFA April 29, 2019 Page | 6

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