---



HEXO CORP.



ANNUAL INFORMATION FORM

For the fiscal year ended July 31, 2019











OCTOBER 28, 2019

---

TABLE OF CONTENTS

|ANNUAL
      INFORMATION FORM                                               | 3 
|--------------------------------------------------------------------------- | --
|                                                                            |   
|FORWARD-
      LOOKING STATEMENTS                                           | 3 
|                                                                            |   
|CORPORATE
      STRUCTURE                                                   | 5 
|                                                                            |   
|GENERAL
      DEVELOPMENT OF THE BUSINESS                                   | 6 
|                                                                            |   
|DESCRIPTION
      OF THE BUSINESS                                           | 15
|                                                                            |   
|RISK
      FACTORS                                                          | 24
|                                                                            |   
|DIVIDENDS                                                                   | 47
|                                                                            |   
|CAPITAL
      STRUCTURE                                                     | 47
|                                                                            |   
|MARKET
      FOR SECURITIES                                                 | 48
|                                                                            |   
|PRIOR
      SALES                                                           | 50
|                                                                            |   
|ESCROWED
      SECURITIES AND SECURITIES SUBJECT TO RESTRICTION ON TRANSFER | 50
|                                                                            |   
|DIRECTORS
      AND OFFICERS                                                | 51
|                                                                            |   
|LEGAL
      PROCEEDINGS AND REGULATORY ACTIONS                              | 55
|                                                                            |   
|INTEREST
      OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS            | 55
|                                                                            |   
|TRANSFER
      AGENT AND REGISTAR                                           | 55
|                                                                            |   
|MATERIAL
      CONTRACTS                                                    | 55
|                                                                            |   
|AUDIT
      COMMITTEE INFORMATION                                           | 56
|                                                                            |   
|INTERESTS
      OF EXPERTS                                                  | 57
|                                                                            |   
|ADDITIONAL
      INFORMATION                                                | 57

2

---

ANNUAL INFORMATION FORM

In this annual information form (Annual Information
Form or AIF), unless otherwise noted or the context indicates
otherwise, the Company, HEXO, we, us and our refer to HEXO Corp. and
its wholly-owned subsidiaries, and the terms cannabis, CBD, client,
licence, licenced producer, THC and marijuana have the meanings given to
the terms cannabis, CBD, client, licence, licenced producer, THC and
marihuana respectively in the Cannabis Act (Canada) (the Cannabis
Act) and the Cannabis Regulations made under the Cannabis Act (the
Cannabis Regulations).

All currency amounts in this AIF are stated in Canadian
dollars, unless otherwise noted. All financial information of the Company in
this AIF is reported according to International Financial Reporting Standards as
issued by the International Accounting Standards Board (IFRS).

Unless otherwise noted, all information in this AIF is given as
of July 31, 2019.

FORWARD-LOOKING STATEMENTS

This Annual Information Form contains certain forward-looking
information and forward-looking statements (collectively, forward-looking
statements) which are based upon the Companys current internal
expectations, estimates, projections, assumptions and beliefs. Any statements
contained herein that are not statements of historical facts may be deemed to be
forward-looking statements. Such statements can often, but not always, be
identified by the use of forward-looking terminology such as expect, likely,
may, will, should, intend, or anticipate, potential, proposed,
estimate and other similar words, and expressions that are predictions or
indicate future events and future trends, including negative and grammatical
variations thereof, or statements that certain events or conditions may or
will happen, or by discussions of strategy. Forward-looking statements include
estimates, plans, expectations, opinions, forecasts, projections, targets,
guidance, or other statements that are not statements of fact. Forward-looking
statements included in this Annual Information Form are made only as of the date
of this Annual Information Form. Forward-looking statements in this Annual
Information Form include, but are not limited to, statements with respect to:

- the competitive and business strategies of the Company;
- the intention to grow the business, operations and potential activities of
  the Company; including entering into
- joint ventures and leveraging the brands of third parties through joint
  ventures and partnerships;
- the ongoing expansion of the Companys facilities, its costs and receipt
  of approval from Health Canada to complete such expansion and increase
  production and sale capacity;
- the expansion of business activities, including potential acquisitions;
- the integration of our acquisition of Newstrike Brands Ltd.
  (Newstrike) into our operations;
- the expected production capacity of the Company;
- the expected sales mix of offered products;
- the development and authorization of new products, including cannabis
  edibles, topicals and extracts;
- the competitive conditions of the industry, including the Companys
  ability to maintain or grow its market share;
- the establishment of the Companys Truss joint venture with Molson Coors
  Canada and the future impact thereof;
- the establishment of the Companys HEXO MED joint venture with QNBS P.C.
  (formerly Qannabos) for the Companys Eurozone processing, production and
  distribution centre in Greece and the future impact thereof;
- the expansion of the Companys business, operations and potential
  activities outside of the Canadian market, including but not limited to the
  U.S., Europe, Latin America and other international jurisdictions;
- whether the Company will have sufficient working capital and its ability
  to raise additional financing required in order to develop its business and
  continue operations;
- the applicable laws, regulations and any amendments thereof;

3

---

- the Companys ability to maintain its status as neither a passive foreign
  investment company within the meaning of Section 1297 of the U.S. Internal
  Revenue Code of 1986, as amended nor an investment company within the
  meaning of the U.S. Investment Company Act of 1940, as amended;
- the grant, renewal and impact of any licence or supplemental licence to
  conduct activities with cannabis or any amendments thereof;
- the filing of trademark and patent applications and the successful
  registration of same;
- the anticipated future gross margins of the Companys operations; and
- the performance of the Companys business and operations.

The purpose of forward-looking statements is to provide the
reader with a description of managements expectations, and such forward-looking
statements may not be appropriate for any other purpose. In particular, but
without limiting the foregoing, disclosure in this Annual Information Form under
Description of the Business as well as statements regarding the
Companys objectives, plans and goals, including future operating results,
economic performance and patient acquisition efforts may make reference to or
involve forward-looking statements. Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to have been correct.

Certain of the forward-looking statements and other information
contained herein concerning the cannabis industry and its medical and adult-use
markets and the general expectations of HEXO concerning the industry and the
Companys business and operations are based on estimates prepared by HEXO using
data from publicly available governmental sources as well as from market
research and industry analysis and on assumptions based on data and knowledge of
the cannabis industry which HEXO believe to be reasonable. However, although
generally indicative of relative market positions, market shares and performance
characteristics, such data is inherently imprecise. While HEXO is not aware of
any misstatement regarding any industry or government data presented herein, the
cannabis industry and newly forming adult-use market involves risks and
uncertainties that are subject to change based on various factors.

Forward-looking statements are subject to numerous risks and
uncertainties, including those relating to the Companys ability to execute its
business plan, renew required permits and licences and related regulatory
compliance matters, and other factors described in this Annual Information Form
under Risk Factors. Although the Company has based forward-looking
statements contained in this Annual Information Form on assumptions that it
believes are reasonable, it cautions the reader that actual results and
developments (including the Companys results of operations, financial condition
and liquidity, and the development of the industry in which the Company
operates) may differ materially from those made or suggested by the
forward-looking information contained herein.

Certain assumptions made in preparing the forward-looking
statements contained in this document include:

| | the Companys ability to implement its growth strategies;                                                                               
|- | ----------------------------------------------------------------------------------------------------------------------------------------
| | the Companys ability to complete the conversion or
      buildout of its facilities on time and on budget;                             
| | the Companys competitive advantages;                                                                                                   
| | the development of new products and product formats for
      the Companys products;                                                   
| | the Companys ability to obtain and maintain financing on
      acceptable terms;                                                       
| | the impact of competition;                                                                                                              
| | the changes and trends in the cannabis industry;                                                                                        
| | Changes in laws, rules and regulations;                                                                                                 
| | the Companys ability to maintain and renew required
      licences;                                                                    
| | the Companys ability to maintain good business
      relationships with its customers, distributors and other strategic
      partners;
| | the Companys ability to keep pace with changing consumer
      preferences;                                                            
| | the Companys ability to protect intellectual property;                                                                                 
| | the Companys ability to manage and integrate
      acquisitions, particularly Newstrike;                                               
| | the Companys ability to retain key personnel; and                                                                                      
| | the absence of material adverse changes in the industry
      or global economy.                                                        

4

---

A number of factors could cause actual events, performance or
results to differ materially from what is projected in the forward-looking
statements. You should not place undue reliance on forward-looking statements
contained in this Annual Information Form. In addition, even if results and
developments are consistent with the forward-looking statements contained in
this document, those results and developments may not be indicative of results
or developments in subsequent periods. Such forward-looking statements are made
as of the date of this Annual Information Form. We undertake no obligation to
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by applicable law.
The Companys forward-looking statements are expressly qualified in their
entirety by this cautionary statement.

CORPORATE STRUCTURE

Name, Address and Incorporation

The Company was incorporated under the Business Corporations
Act(Ontario) (the OBCA) on October 29, 2013 as BFK Capital Corp.
(BFK). On August 29, 2018, the Company filed articles of amendment
under the OBCA to change its name to HEXO Corp. The Companys head office is
located at 204-490 Boulevard Saint-Joseph, Gatineau, Québec, J8Y 3W9. The
Companys registered office is located at Suite 6000, 1 First Canadian Place,
100 King Street West, Toronto, Ontario, M5X 1E2.

Intercorporate Relationships

As of the date of this Annual Information Form, the Company has
two wholly-owned subsidiaries, HEXO Operations Inc. (HEXO Operations or
HOI) and HEXO USA Inc. (HEXO US).

The following chart illustrates the Companys corporate
structure as of the date of this Annual Information Form, including details of
the jurisdiction of incorporation of each subsidiary:



In addition, through HEXO Operations, the Company owns
interests in certain associates and joint ventures as follows:

| | (a) | a 42.5% interest in Truss Limited Partnership Truss, an
      entity formed under the laws of Ontario for the Companys joint venture
      with Molson Coors Canada (see General Development of the Business -
      Three Year History - Molson Coors Canada Joint Venture -
    Truss);
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                             
| | (b) | a 51% interest in HEXO MED S.A., an entity formed under
      the laws of Greece for the Companys joint venture with QNBS P.C.
      (formerly Qannabos) (see General Development of the Business - Three
      Year History - Expansion into Greece);                                   

5

---

| | (c) | a 25% interest in Belleville Complex Inc., an entity
      formed under the laws of Canada for the Companys joint venture with
      Olegna Holdings Inc. for the ownership of the Companys facility in
      Belleville, Ontario (see General Development of the Business - Three
      Year History - Belleville Facility);
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                  
| | (d) | a 60% interest in Neal Up Brands Inc., an entity formed
      under the laws of Ontario for the Companys joint venture with Neal
      Brothers Inc. (see General Development of the Business - Significant
      Acquisitions - Newstrike); and                                                                              
| |     |                                                                                                                                                                                                                                                                                                                                  
| | (e) | a 60% interest in Keystone Isolation Technologies Inc.,
      an entity formed under the laws of Ontario for the Companys joint venture
      with Chroma Global Technologies Ltd (see General Development of the
      Business - Three Year History - Keystone Isolation Technologies
      Inc).                            

GENERAL DEVELOPMENT OF THE BUSINESS

Three-Year History

Introduction

The Company is in the business of producing, marketing and
selling cannabis through its wholly-owned subsidiary, HEXO Operations, from its
facilities in Ontario and Québec. HEXO Operations is a licenced producer under
the Cannabis Regulations.

The business of the Company was formed when BFK, which had
completed an initial public offering as a Capital Pool Company under Policy 2.4
of the TSX Venture Exchange (the TSXV) on November 12, 2014, acquired
all of the issued and outstanding common shares of The Hydropothecary
Corporation (Predecessor THCX) on March 15, 2017 pursuant to a
three-cornered amalgamation which was BFKs Qualifying Transaction under
Policy 2.4 of the TSXV (the Qualifying Transaction).

Predecessor THCX had been formed in August 2013 with the
strategic purpose of seeking a licence under the regulatory regime for cannabis
for medical purposes introduced by Health Canada in 2013, the Marihuana for
Medical Purposes Regulations(the MMPR) and developing a premium
brand and offering a suite of products and services for this new market. In
November 2014, Predecessor THCX acquired 167151 Canada Inc. (167
Canada), which had received a licence under the MMPR in March 2014 to
produce, possess and destroy cannabis for medical purposes. Through 167 Canada
as its wholly-owned subsidiary, Predecessor THCX commenced commercial production
and sales of legal cannabis for medical purposes in Canada. Predecessor THCX had
its first harvest on October 8, 2014. In connection with the completion of the
Qualifying Transaction, the Company filed articles of amendment under the OBCA
on March 15, 2017 to consolidate the Companys common shares prior to the
acquisition of the common shares of Predecessor THCX and to change its name to
The Hydropothecary Corporation. As a result of the Qualifying Transaction, the
Company met the TSXVs listing requirements and the common shares of the Company
(the Common Shares) commenced trading on the TSXV under the symbol
THCX on March 21, 2017.

Health Canada Licence

The Company is licenced to produce and sell cannabis and
cannabis products as a licenced producer under the provisions of the Cannabis
Regulations. Predecessor THCX was issued its initial licence under the MMPR to
cultivate cannabis for medical purposes through 167 Canada in March 2014 and the
licence was amended in May 2015 to permit it to sell cannabis for medical
purposes. The MMPR were replaced by the Access to Cannabis for Medical
Purposes Regulations ACMPR) in August 2016 and subsequently
replaced by the Cannabis Regulations on October 17, 2018. HEXOs current licence
for its facility in Gatineau, Quebec under the Cannabis Regulations was most
recently renewed on October 15, 2019 and has a term ending on April 15, 2021
(the Gatineau Licence). The Gatineau Licence is issued to HEXO
(formerly Hydropothecaire/Hydropothecary), the operating name of the business
run by HEXO Operations.

6

---

The Gatineau Licence authorizes the Company to conduct
activities relating to cannabis and permits the production, sale, possession,
shipping, transportation, delivery and destruction of fresh cannabis, dried
cannabis, cannabis plants, cannabis seeds, cannabis oil and cannabis resin, all
as set out therein, delivered pursuant to the ACMPR and the Controlled Drugs
and Substances Act (the CDSA). The licence covers all nine of the
facilities at the Companys campus in Gatineau, Québec described below and
authorizes unlimited production of cannabis.

The Company submitted a notice for an amendment to its Gatineau
licence on July 15, 2019 to allow it to manufacture cannabis-infused edibles and
extracts, and received approval on October 21, 2019. The Company has also filed
notifications to Health Canada regarding each of its new cannabis-infused
edibles and extracts products, including cannabis-infused beverages to be sold
under the Truss brand.

On October 25, 2019, Health Canada also issued a Research and
Development Licence (the R&D Licence) for its facility in Gatineau.
The R&D Licence expands the scope of work that can be conducted on cannabis
and its derivatives at the Gatineau facility. The R&D Licence expires on
October 25, 2024. The Company will apply for an amendment to the R&D Licence
in order to allow it to also conduct research and development at its Montreal,
Vaughan and other facilities.

Through the acquisition of all of the issued and outstanding
common shares of Newstrike on May 24, 2019, the Company also acquired two Health
Canada licences issued under the name Up Cannabis Inc. (Up Cannabis), a
subsidiary of Newstrike, for its facilities in Brantford, Ontario (the
Brantford Licence) and Niagara, Ontario (the Niagara Licence)
(see General Development of the Business - Significant Acquisitions -
Newstrike). The Brantford Licence was most recently renewed on November 10,
2018 and has a term ending on December 19, 2019. The Niagara Licence has a term
ending on March 29, 2021. Newstrike and Up Cannabis have subsequently been
amalgamated with HEXO Operations. The Brantford Licence and Niagara Licence are
currently issued in the name of Up Cannabis Inc. The Company has notified Health
Canada of its intention to have the Brantford Licence and Niagara Licence
re-issued under HEXO Operations.

Near the end of each term of the licences, HEXO must submit an
application for renewal to Health Canada containing information prescribed by
the Cannabis Regulations. The Gatineau Licence expires on April 15, 2021.The Brantford licence expires on December 19, 2019. The Niagara licence
expires on March 29, 2021. HEXO is not currently aware of any reason why it
would not be able to receive a renewal of its licences. See Risk Factors -
Reliance on Licence Renewal and Amendment.

On October 21, 2019, the Company received a licence from Health
Canada for the first phase of its Belleville facility.

Stock Exchange Listings

On June 21, 2018, the Company received approval from the
Toronto Stock Exchange (the TSX) to graduate from the TSXV and list its
Common Shares on the TSX. The Common Shares commenced trading on the TSX under
the symbol HEXO on June 22, 2018. Certain common share purchase warrants of
the Company also commenced trading on the TSX under the symbol HEXO.WT On
January 17, 2019, the Company received approval from the NYSE American LLC (the
NYSE-A) to list its Common Shares on the NYSE-A. The Common Shares
commenced trading on the NYSE-A under the symbol HEXO on January 23, 2019.

On July 11, 2019, the Company received approval from the New
York Stock Exchange (the NYSE) to transfer the listing of its Common
Shares from the NYSE-A to the NYSE. The Common Shares commenced trading on the
NYSE under the symbol HEXO on July 16, 2019.

Financing Activities

7

---

Predecessor THCX Financings

Between March 2014 and November 2016, Predecessor THCX completed various private placement financings for gross proceeds of approximately $35 million to funds its operations and investigated options for going public and raising additional
capital to grow its business. In addition, in connection with the Qualifying Transaction, Predecessor THCX completed both a brokered and a non-brokered private placement of common shares for gross proceeds of $17.5 million.

Private Placement and Conversion of Unsecured 8% Convertible Debentures

On July 18, 2017, the Company closed a bought deal private placement of unsecured convertible debenture units for aggregate gross proceeds of $25.1 million. Under the placement, the Company issued a total of $25.1 million of 8.0% senior
unsecured convertible debentures and 7,856,300 common share purchase warrants. Effective December 27, 2017, the Company forced the conversion of all of the outstanding principal amount of the debentures and unpaid accrued interest thereon into
Common Shares, after it became entitled to do so because the volume weighted average price (“VWAP”) of the Common Shares on the TSXV for 15 consecutive trading days was equal to or exceeded $2.25. In addition, effective
January 2, 2018, the Company accelerated the expiry date of the warrants from July 18, 2019 to February 1, 2018, after it became entitled to do so because the closing trading price of the Common Shares on the TSXV exceeded $3.00 for 15
consecutive trading days.

Public Offering and Conversion of 7.0% Unsecured Debenture Units

On November 24, 2017, the Company closed a bought deal public offering of 7.0% unsecured convertible debenture units for aggregate gross proceeds of $69.0 million. Under the offering, the Company issued a total of $69.0 million of 7.0%
unsecured convertible debentures and 15,663,000 common share purchase warrants. Effective January 15, 2018, the Company forced the conversion of all of the outstanding principal amount of the debentures and unpaid accrued interest thereon into
Common Shares, after it became entitled to do so because the VWAP of the Common Shares on the TSXV for 10 consecutive trading days was equal to or exceeded $3.15. In addition, effective May 24, 2018, the Company accelerated the expiry date of
the warrants from November 24, 2019 to June 25, 2018, after it became entitled to do so because the closing trading price of the Common Shares on the TSXV exceeded $4.50 for 10 consecutive trading days.

Public Offering of Units

On January 30, 2018, the Company completed a bought deal public offering of 37,375,000 units at a price of $4.00 per unit for aggregate gross proceeds of $149.5 million. Each unit consisted of one Common Share and one-half of one common
share purchase warrant, with each whole warrantbeing exercisable to purchase one Common Share for a period of two years at an exercise price of $5.60 per share, subject to adjustment in certain events.

Public Offering of Common Shares

On January 30, 2019, the Company completed a marketed underwritten public offering of 8,855,000 Common Shares at a price of $6.50 per share for aggregate gross proceeds of $57,557,500, inclusive of a fully exercised over-allotment of
1,155,000 common shares.

Private Placement

On October 23, 2019, the Company entered into subscription agreements with a group of investors pursuant to which the investors have agreed to purchase, on a private placement basis, $70 million principal amount of 8.0% unsecured debentures of
the Company (the “Debentures”).

The Debentures will bear interest from the date of closing at 8.0% per annum payable quarterly and will mature on the date which is three years from issuance. Following the date, which is one year from issuance, the Debentures will be convertible at
the option of the holder into common shares of the Company at any time prior to maturity at a conversion price of $3.16 per share (the “Conversion Price”), subject to adjustment in certain events.

8

---

Beginning on the date which is one year from issuance, the
Company may force the conversion of all of the principal amount of the then
outstanding Debentures at the Conversion Price on not less than 30 days notice
should the daily volume weighted average trading price of the common shares of
the Company be greater than $7.50 for any 15 consecutive trading days.

At any time on or before the date which is one year from
issuance, the Company may repay all, but not less than all, of the principal
amount of the Debentures, plus accrued and unpaid interest.

The Company intends to use the net proceeds of the private
placement for working capital and general corporate purposes.

Closing of the Offering is expected to occur on or about
November 15, 2019. The private placement is subject to certain conditions
including, but not limited to, the receipt of all necessary regulatory and stock
exchange approvals, including the approvals of the Toronto Stock Exchange and
the New York Stock Exchange.

SAQ Agreement

On April 11, 2018, the Company announced that it has entered
into a commercial agreement with the Société des alcools du Québec (the
SAQ) to be the preferred supplier of cannabis products for the Québec
market for the first five years post-legalization, with an option to extend the
term for an additional year. Under the agreement, the Company was slated to
supply 20,000 kg of products in the first year of the agreement and expected to
supply 35,000 kg in the second year and 45,000 kg in the third. The volumes for
the final two years of the agreement will be established based on the sales
generated in the first three years. The supply arrangement covers the full range
of the Companys products and brands, from flowers to cannabis oil. During the
first year of the agreement, HEXO supplied approximately 10,000 kg under the
agreement. While the Company did not achieve the expected sales during the first
year of the agreement, it remains a preferred supplier of the Société québécoise
du cannabis (SQDC) with an approximately 33% market share based on
volume and is working on expanding its product offerings with the SQDC based on
consumer demands and as the SQDC continues the roll-out of its retail
distribution channels, and it believes that any exercise of committed purchase
features for a larger amount during the first year of the agreement would be
short sighted.

Molson Coors Canada Venture - Truss

On August 1, 2018, HEXO and Molson Coors Canada, the Canadian
business unit of Molson Coors Brewing Company (NYSE: TAP; TSX: TPX), entered
into an agreement to form a joint venture to pursue opportunities to develop
non-alcoholic, cannabis-infused beverages for the Canadian market following
adult-use legalization.

The transaction was subsequently completed on October 5, 2018.
Under the transaction, HEXO and Molson Coors Canada have formed a stand-alone
entity named Truss Limited Partnership (Truss) with its own board of
directors (through its general partner, Truss GP Inc.) and an independent
management team led by former Molson Coors executive, Brett Vye, in the role of
Chief Executive Officer. The Company holds a 42.5% interest in Truss, while
Molson Coors Canada holds the remaining 57.5% interest. The five-member board of
directors for Truss is comprised of Frederic Landtmeters, President and CEO of
Molson Coors Canada, Paul Holden, VP of Legal and Industry Affairs of Molson
Coors Canada, Scott Cooper, VP, Global Innovation of Molson Coors (and Chairman
of the Truss board), Sebastien St-Louis, President and Chief Executive Officer
and co-founder of HEXO, and James McMillan, VP of Business Development of
HEXO.

In connection with the closing of the transaction, HEXO issued
11,500,000 common share purchase warrants to an affiliate of Molson Coors
Canada, each of which is exercisable to acquire one Common Share for a period of
three years at an exercise price of $6.00 per share.

9

---

Belleville Facility

On September 10, 2018, HEXO announced the acquisition of an
interest in an initially configured 2,004,000 sq. ft. facility in Belleville,
Ontario. This is the first facility of the Company to be established outside of
Québec, further delivering on our national expansion strategy and providing
capacity for the manufacturing of advanced cannabis products, including
cosmetics, vapes, non-alcoholic beverages and other edibles. The centralized
location, conveniently located along primary shipping routes in Ontario,
presents the opportunity to process and distribute products and to fulfil
commitments across Canada. The space also supports the Companys Hub and Spoke
model. Its scalability, flexibility and location are ideal to deliver on
anticipated future joint ventures with Fortune 500 companies for cosmetics,
edibles, vapes, and other products containing cannabis, positioning it to become
a centre of excellence for all of HEXOs joint ventures (see Description of
the Business  Facilities).

The building, previously used as a Sears distribution centre,
is owned by Belleville Complex Inc. (Belleville Complex), which is
owned by Olegna Holdings Inc., a corporation controlled by a director of the
Company. In addition to initially leasing approximately 579,000 sq. ft. of space
in the building under a long-term lease, HEXO acquired a 25% interest in
Belleville Complex from Olegna Holdings Inc. In addition to its initial lease of
space, HEXO has rights of first offer and first refusal to lease the remaining
space in the building. As part of the transaction, HEXO loaned $20,279,000 to
Belleville Complex to acquire the building. The loan and all accrued interest
was repaid on April 30, 2019.

On October 25, 2019, the Company received a processor licence
from Health Canada for the first phase of its Belleville facility. The licence
will allow the Company to possess, produce and sell cannabis from the facility.
The licence expires on October 25, 2020. In the order for the facility to become
fully operational, ground floor construction, office allocation, manufacturing
line commissioning, warehouse design, IT build out, extraction engineering
design and installation have to be completed. As of July 31, 2019, the Company
is forecasting expenditures in the amount of $55 million for the facility to
become fully operational.

Expansion into Greece

On September 26, 2018, HEXO announced plans to enter into a
joint venture with Greek company QNBS P.C. (formerly Qannabos) (QNBS)
to establish a Eurozone processing, production and distribution centre in Greece
to catalyze a vertically integrated cannabis enterprise to capitalize on the
current medical markets. HEXOs plan to establish operations in Greece marks the
Companys first foray into the European cannabis market. The move will provide
the Company with a presence in Europe with the expectation of supplying a full
suite of brands in France, the United Kingdom, and other European markets once
regulations permit. The agreement between HEXO and QNBS plans for the
development of 350,000 sq. ft. of licenced infrastructure that will be used for
manufacturing, processing and distribution of medical cannabis products, powered
by HEXO, destined for the European market.

The transaction was subsequently completed on October 30, 2018.
Under the transaction, HEXO and QNBS have formed a stand-alone entity named HEXO
MED S.A. (HEXO MED). HEXO MEDs board of directors is comprised of five
members, 2 of whom are appointed by HEXO and the remaining 3 of whom are
appointed by QNBS.The Company held an initial 33.3% interest in the
entity, while QNBS held the remaining 66.4% interest. On August 22, 2019, HEXOs
ownership in HEXO MED was increased to 51% through an additional investment by
HEXO in HEXO MED in the amount of €500,000 completed on September 27, 2019.

While opportunities have been considered and discussions
between HEXO and QNBS remain ongoing, plans have not been finalized for the
development and construction of HEXO MEDs manufacturing facility. HEXO has
advised QNBS it has no intention, for the time being, of further financing HEXO
MEDs operations through additional debt or equity financing.

Keystone Isolation Technologies Inc.

On July 19, 2018, HEXO entered into a joint venture with Chroma
Global Technologies Inc. (Chroma) to carry on a cannabis extraction
business applying Chroma chromatography extraction solutions to carry out
cannabis and hemp extraction on an industrial scale. The joint venture, Keystone
Isolation Technologies Inc (KIT) will be a critical component in HEXOs
plans to enter the U.S. CBD market.

10

---

As at the date of this report, KITs management is still being
assembled and implemented. The board is comprised of 5 members as follows; Taras
Korec Sr. VP of Procurement at HEXO, James McMillan, VP of Business Development
at HEXO, Mohammed Max Alsayar, IP and Compliance Manager at HEXO, Rene David of
Chroma and Fake (Frank) Zhu of Chroma.

Credit Facility

On February 14, 2019, the Company entered into a syndicated
credit facility with the Canadian chartered bank affiliate of CIBC World Markets
Inc. as Sole Bookrunner, Co-Lead Arranger and Administrative Agent and the
Canadian chartered bank affiliate of BMO Nesbitt Burns Inc. as Co-Lead Arranger
and Syndication Agent (together, with other lenders under the credit facility,
the Lenders). The Lenders have provided the Company up to $65 million
in secured debt financing at a rate of interest that is expected to average in
the mid-to-high 5% per annum range. The credit facility consists of a $50
million term loan and a $15 million revolving loan with an uncommitted option to
increase the facility by another $135 million for a total of $200 million. Both
loans mature in 2022. The Company may repay the loan without penalty, at any
time. The proceeds from the credit facility, which provides the Company with
additional capital without the current or future dilution of its shareholders,
has been used by the Company to partially fund the continuing expansion to the
Gatineau campus as well as retrofitting and leasehold improvement activity to
the new transformation centre located in Belleville, Ontario.

Product Recalls

Up Cannabis Inc.s ELDO dried cannabis, lot
1204201

On January 4, 2019, Newstrike and its wholly-owned subsidiary,
Up, announced a voluntary product recall as a precautionary measure. The
voluntary recall involved one lot of Up Cannabis Inc. Eldo dried cannabis with a
specific packaging date of November 28, 2018, which was sold through the Alberta
Gaming Liquor & Cannabis Commission. Approximately 1,428 units of recalled
product were sold between November 29, 2018 and January 4, 2019. The affected
product may have contained mould. To date, no material complaints have been
received related to the recalled lot and Health Canada has not received any
adverse reaction reports for the recalled product. The recall was officially
closed by notice sent to Health Canada on April 11, 2019. The ELDO recall
pertained to an event occurring before Newstrikes previous end of year (March
31, 2019) and predated closing of the Newstrike acquisition on May 24, 2019) and
has had no adverse impact on HEXOs financial position, business and
operations.

HEXOs HELIOS flower dried cannabis, lot
AAA-112502

On September 16,2019, HEXO received notice from Health Canada
in relation to HELIOS Flower dried cannabis, lot AAA-112502. The recall resulted
from a package mislabelling, raised no safety or security concerns and has had
no impact on HEXOs operations. Neither Health Canada nor HEXO have received any
adverse reaction reports for the recalled cannabis product. The recall involved
245 units within the same lot (245 units out 16,818 sold or 1,45% of the lot) of
HEXOs dried cannabis which was sold through the SQDC. 245 units in lot
AAA-112502 may have been containing a different cannabis product with a lower
THC content than the labelled THC total. To date, HEXO has received one
complaint related to the recalled lot and Health Canada has not received any
complaints related to the recalled lot.

Significant Acquisitions

Newstrike

On May 24, 2019, the Company acquired all of the issued and
outstanding common shares of Newstrike through a plan of arrangement which was
announced on March 13, 2019 (the Newstrike Acquisition). Newstrike was
the parent company of Up Cannabis, a producer of cannabis licenced to both
cultivate and sell cannabis in all acceptable forms. There are currently two Health Canada licences issued in
the name of Up Cannabis: one licence is for a facility in Brantford, Ontario and
the other is for a licence for a facility in Niagara, Ontario.

11

---

Under the arrangement, each former Newstrike common share was
exchanged for 0.06332 of a HEXO Common Share (the Exchange Ratio),
subject to certain exceptions. In addition, all issued and outstanding stock
options of Newstrike were replaced with stock options of HEXO having the same
terms but adjusted for the Exchange Ratio, and all issued and outstanding common
share purchase warrants of Newstrike became exercisable for HEXO Common Shares
adjusted for the Exchange Ratio. As a result of the acquisition, the Company
issued a total of 35,394,041 Common Shares to the former shareholders of
Newstrike and reserved an additional 2,011,863 and 7,196,166 Common Shares for
issuance to the former holders of the Newstrike options and the holders of the
Newstrike warrants, respectively.

The effect of the Newstrike Acquisition was that: (i) Newstrike
continued as a wholly-owned subsidiary of HEXO, as a result of which all of the
property and assets of Newstrike became indirectly held by HEXO; and (ii) former
shareholders in Newstrike continued to hold an indirect interest in the property
and assets of Newstrike through the exchange of Newstrike common shares for HEXO
Common Shares which they received pursuant to the Newstrike Acquisition. As part
of the Newstrike Acquisition, the Company acquired certain material supply
agreements and arrangements, including with the Alberta Gaming and Liquor
Commission, the Ontario Cannabis Retail Corporation, the British Columbia Liquor
Distribution Branch and Cannabis N.-B. Ltée / Cannabis NB Ltd.

Following the acquisition, the Newstrike shares were delisted
from the TSXV on May 29, 2019. Certain classes of Newstrike warrants which were
listed for trading on the TSXV under the symbols HIP.WT and HIP.WT.A will
continue to trade on the TSXV until the earliest to occur of their exercise,
expiry or delisting.

The Newstrike acquisition constituted a significant
acquisition for the Company under applicable securities laws. As a result, the
Company filed a business acquisition report in respect the acquisition on August
7, 2019, and amended and restated business acquisition reports on September 25,
2019 and October 9, 2019. The reports are available under the Companys profile
on SEDAR at www.sedar.com.

On August 1, 2019, Newstrike together with certain other
entities amalgamated into Hexo Operations (see Recent Developments 
Reorganization of Corporate Structure).

Recent Developments

Reduction of Cost Structure

On October 24, 2019, the Company announced that it has taken
steps to reduce its workforce. The Company is rightsizing its operations to
adjust to a changing market and regulatory environment with a view towards
profitability and long-term stability. The actions taken are intended to
right-size the organization to the revenue the Company expects to achieve in
fiscal 2020. As part of the changes to its operations, the Company has
eliminated approximately 200 positions across its departments and locations. The
cuts include the elimination of some executive positions and the departures of
Arno Groll, Chief Manufacturing Officer and Nick Davies, Chief Marketing
Officer. In addition, cultivation has been suspended at the Niagara facility
acquired from Newstrike, and in 200,000 sq. ft. at the Companys main facility
in Gatineau. The Company determined that this cultivation space is not required
at this time given the current market conditions in Canada. HEXO continues to
drive improvements in yields and processing facilities. Operations in the
suspended areas can be recommenced when required.

Private Placement of Convertible Debentures

On October 23, 2019, the Company announced that it has entered
into subscription agreements with a group of investors pursuant to which the
investors have agreed to purchase, on a private placement basis, $70 million
principal amount of 8.0% unsecured convertible debentures of the Company. See
General Development of the Business  Three-Year History  Financing
Activities.

12

---

Launch of Original Stash

On October 16, 2019, the Company announced the launch of
Original Stash, its new value brand. Adult-use consumers will be able to
purchase 28 grams (1 oz) at black market prices, at a retail price in Quebec of
$125.70 including sales taxes, equivalent to $4.49 a gram all in. Original
Stashs first product, OS.210, will be offered as a hybrid sativa dried flower
blend at 12%-18% THC. Original Stash comes in odour-proof and resealable
packaging and will be available in SQDC retail stores on October 17, 2019. The
product will roll out in the rest of Canada soon after.

Our aim with Original Stash is to attract consumers who may
otherwise purchase cannabis from unlicenced dispensaries and black market
participants, educate consumers about the value of a regulated and tested
product, and drive them to purchase their cannabis legally. The Company intends
to compete directly with unlicenced dispensaries and black market participants
and provide consumers with an affordable, controlled, quality product. Moreover,
we are giving consumers the option of less packaging in a 1 oz format, which we
know is a priority for many.

Announcement of Preliminary Fourth Quarter 2019 Revenue
Results and Withdrawal of Fiscal 2020 Outlook

On October 10, 2019, the Company provided preliminary revenue
for its fiscal fourth quarter and year ended July 31, 2019 and withdrew its
previously issued financial outlook for fiscal 2020. Based on preliminary
financial information and subject to year-end closing adjustments, HEXO
announced that it expected net revenue for the fourth quarter to be
approximately $14.5 million to $16.5 million and net revenue for the year to be
approximately $46.5 million to $48.5 million.

Slower than expected store rollouts, a delay in government
approval for cannabis derivative products and early signs of pricing pressure
are being felt nationally. The delay in retail store openings in the Companys
major markets has meant that the access to a majority of the target customers
has been limited. Additionally, regulatory uncertainty across the pan-Canadian
system and jurisdictional decisions to limit the availability and types of
cannabis derivative products have contributed to an increased level of
unpredictability. As a result, HEXO withdrew its previously issued financial
outlook for fiscal year 2020.

The Company released its audited consolidated financial
statements for the years ended July 31, 2019 and 2018 and accompanying MD&A
concurrently with this Annual Information Form.

Chief Financial Officer

On October 4, 2019, the Company announced that Stephen Burwash,
who was previously Vice-President of Strategic Finance for the Company and also
acted as interim Chief Financial Officer from May 1, 2019 to June 17, 2019, was
appointed as Chief Financial Officer effective as of October 4, 2019. Michael
Monahan resigned as Chief Financial Officer, effective immediately. Mr. Monahan
was appointed as Chief Financial Officer on June 17, 2019.

Reorganization of Corporate Structure

In August 2019, the Company reorganized and simplified its
corporate structure. The reorganization included the amalgamation of Newstrike
and its subsidiaries 1977121 Ontario Inc. and Up Cannabis Inc., as well as the
Companys previously owned subsidiary 8980268 Canada Inc., into HEXO Operations.
The Company also dissolved its previously owned subsidiaries Coral Health Group
Inc. and Banta Health Group Inc., neither of which had active operations.

Amended Employment Agreement with Chief Executive
Officer

On February 21, 2019, the Company entered into an amended and
restated employment agreement with Sébastien St-Louis, President, Chief
Executive Officer and co-founder of HEXO. Under the terms of the agreement, Mr.
St-Louis annual salary was increased to $500,000, with an annual increase of
5%. In addition, he is entitled to an annual incentive payment of $1.5 million,
$500,000 payable in stock options of the Company having a 10 year term and
exercise price equal to the market value of the shares at the time of grant,
subject to vesting in equal amounts over a three year period, and $1.0 million
payable in restricted share units, subject to vesting in equal amounts over a
three year period. Mr. St-Louis is also entitled to an annual cash
bonus equal to the difference between his annual incentive payment and 5% of the
Companys earnings before tax in excess of $30 million to a maximum of $250
million.

13

---

In the event the Company terminates Mr. St-Louis without cause,
the agreement provides he is entitled to a lump sum severance payment equal to
his then annual salary, plus two times the annual incentive payment earned
during the previous fiscal year, plus two times his cash bonus earned during the
previous fiscal year.

The agreement also provides that in the event of a change of
control in the Company where Mr. St-Louis employment is terminated within 24
months or where there is a material change in his duties and responsibilities
and he resigns within 24 months, he is entitled to a lump sum severance payment
equal to two times his then annual salary, plus two times the annual incentive
payment earned during the previous fiscal year, plus two times his cash bonus
earned during the previous fiscal year. In addition, the vesting of all
security-based compensation awards held by Mr. St-Louis will accelerate and
become vested and exercisable for a period of 12 months from the date he ceases
to be an employee or resigns.

Restrictions on Business Activities in the United
States

On January 4, 2018, former U.S. Attorney General Jeff Sessions
issued a memorandum to U.S. district attorneys which rescinded previous guidance
from the U.S. Department of Justice specific to cannabis enforcement in the
U.S., including the August 29, 2013 memorandum authored by then Deputy Attorney
General James Cole (the Cole Memorandum) indicating that the U.S.
Department of Justice would not prioritize the prosecution of cannabis related
violations of U.S. federal law in jurisdictions that had enacted laws legalizing
cannabis in some form and that had also implemented strong and effective
regulatory and enforcement systems. With the Cole Memorandum rescinded, U.S.
federal prosecutors can exercise their discretion in determining whether to
prosecute cannabis related violations of U.S. federal law.

In addition, on October 16, 2017, the TSX provided clarity
regarding the application of Sections 306 (Minimum Listing Requirements) and 325
(Management) and Part VII (Halting of Trading, Suspension and Delisting of
Securities) of the TSX Company Manual (collectively, the TSX
Requirements) to applicants and TSX-listed issuers with business activities
in the cannabis sector. In TSX Staff Notice 2017-0009, the TSX notes that
issuers with ongoing business activities that violate U.S. federal law regarding
cannabis are not in compliance with the TSX Requirements. These business
activities may include (i) direct or indirect ownership of, or investment in,
entities engaging in activities related to the cultivation, distribution or
possession of cannabis in the U.S., (ii) commercial interests or arrangements
with such entities, (iii) providing services or products specifically targeted
to such entities, or (iv) commercial interests or arrangements with entities
engaging in providing services or products to U.S. cannabis companies. The TSX
reminded issuers that, among other things, should the TSX find that a listed
issuer is engaging in activities contrary to the TSX Requirements, the TSX has
the discretion to initiate a delisting review.

HEXO does not engage in any U.S. cannabis-related activities as
defined in Canadian Securities Administrators Staff Notice 51-352, and does not
engage in any other activities involving cannabis or hemp with any level of THC
or CBD in the United States except to the extent fully in compliance with U.S.
federal law and all applicable state laws. We only conduct business in
jurisdictions outside of Canada where such operations are legally permissible in
accordance with all of the federal laws, and the state, provincial or similar
laws, of the foreign jurisdiction, the federal, provincial and territorial laws
of Canada and our regulatory obligations with to the TSX. In addition, we do not
currently have any partnerships, joint ventures or similar arrangements with
U.S.-based companies that may themselves participate in the U.S. cannabis market
except in compliance with U.S. federal law and all applicable state laws.

Activities Outside Canada

The Corporation only conducts business in jurisdictions outside
of Canada where such operations are legally permissible in accordance with all
of the laws of the foreign jurisdiction, the laws of Canada and its regulatory
obligations with the TSX and NYSE. The legal and regulatory requirements in the
foreign countries in which the Corporation operates with respect to the
cultivation and sale of cannabis, as well as local business culture and
practices are different from those in Canada. Prior to commencing operations in
a new country, in partnership with its local legal counsel, consultants and
partners, the Corporation conducts legal and commercial due diligence in order
to ensure that it and its officers and directors gain a sufficient
understanding of the legal, political and commercial framework and specific
risks associated with operating in such jurisdiction. Where possible, the
Corporation seeks to work with respected and experienced local partners who can
help to understand and navigate the local business and operating environment,
language and cultural differences. In consultation with advisors, the
Corporation takes steps it deems appropriate in light of the level of activity
and investment it expects to have in each country to ensure the management of
risks and the implementation of necessary internal controls.

14

---

DESCRIPTION OF THE BUSINESS

The Company is a leading branded cannabis producer and product
innovator. The Company is in the business of producing, marketing and selling
cannabis through its wholly-owned subsidiary, HEXO Operations. HEXO Operations
is a licenced producer under the Cannabis Act. The Company holds three licences:
(i) the Gatineau Licence, which was most recently renewed on October 15, 2019
and has a term ending on April 15, 2021, (ii) the Brantford Licence, which was
most recently renewed on November 10, 2018 and has a term ending on December 19,
2019, and (iii) the Niagara Licence, which has a term ending on March 29, 2021.
The Company has also applied for a Health Canada licence for its facility in
Belleville, Ontario. The Company is not currently aware of any circumstances
that would impede the renewal of the Brantford Licence.

The Companys near-term strategy is to be a vertically
integrated consumer packaged goods (CPG) company in the emerging legal
adult-use and previously existing medical cannabis markets across Canada with
the intention to expand internationally where regulations allow. Its primary
business is to cultivate, process, package and distribute cannabis in order to
serve these markets, which it currently does through its 143-acre facility in
Gatineau, Québec. The Company serves both the legalized Canadian adult-use
market and the medical market through its HEXO brand. The Company expects to
ultimately follow a branded Ingredients For Food business model while
journeying through a CPG model by maintaining top three market share in markets
where HEXO core products are available.

HEXOs overall strategy is establishing a top three global
cannabis company with a top two market share in Canada, built upon three
pillars: operational scalability, innovative products and brand leadership. To
achieve brand leadership, HEXO will set up the legal, physical, and human
capital infrastructure to participate in legal markets in North America, Europe
and Latin America. HEXO will invest heavily in better, science backed cannabis
experiences, and intends to partner with Fortune 500 companies to leverage their
base products, international distribution and deep understanding of the consumer
experience in their respective verticals. As HEXO continues to operate in the
Canadian adult-use market, it is focused on the execution of these three
strategic priorities.

Through its Hub and Spoke strategy, HEXO is centralizing its
intellectual property and branding it Powered by HEXO and as we have done with
Molson Coors Canada partnering with Fortune 500 companies in different facets of
the CPG market, HEXO to enable them to participate in the cannabis market
beginning in Canada and around the world. Fundamentally, HEXO brings its brand
value, cannabinoid isolation and delivery technology, licenced infrastructure
and regulatory expertise to established companies, and in turn, HEXO plans to
leverage their international distribution, base products and deep understanding
of consumer markets.

Facilities

HEXO currently owns approximately 1.3 million sq. ft. of
operating space across several facilities at its home base 143-acre campus in
Gatineau, Québec, comprised of our original 7,000 sq. ft. greenhouse, a 35,000
sq. ft. greenhouse, a 250,000 sq. ft. greenhouse, a warehouse, two stand-alone
laboratories, two modular buildings for final packaging and customer service,
and our 1 million sq. ft. greenhouse.

In addition, the Company owns a further 14,000 sq. ft. and
455,000 sq. ft. (once fully retrofitted) of operating space in Brantford and
Niagara, Ontario, respectively, across 17.6 acres of land which was acquired
through the Newstrike Acquisition. The retrofitting in Niagara was expected to
be completed in late Q1/early Q2 of FY20. On October 24, 2019, cultivation was
suspended at the Niagara facility. The Company determined that this cultivation
space is not required at this time given the current market conditions in
Canada. Operations can be recommenced when required.

15

---

Once retrofitted and licensed, the Company will also possess
579,000 sq. ft. of industrial space for manufacturing, distribution and product
research and development needs in Belleville, Ontario. This space is leased from
Belleville Complex, in which the Company has a 25% interest. The Company has
rights of first offer and refusal to lease an additional 1.5 million sq. ft. of
the facility. The Company anticipates a licence will be issued for the
Belleville facility in the second quarter of fiscal year 2020. In the order for
the facility to become fully operational, ground floor construction, office
allocation, manufacturing line commissioning, warehouse design, IT build out,
extraction engineering design and installation have to be completed. The Company
is forecasting expenditures in the amount of $55 million for the facility to
become fully operational.

The Company leases 58,000 sq. ft. of distribution space in
Montreal, Québec and corporate office space in Gatineau, Québec. Once licensed
and completed, HEXO also plans to operate a 14,200 sq. ft. food research
laboratory in Vaughan, Ontario, and a 19,600 sq. ft. laboratory in Montreal,
Québec.

Product Offerings

Under the brands HEXO, Up and Original Stash, the Company
offers dried cannabis and cannabis-derived products under three product types:
dried cannabis, cannabis oils and decarb. The Company has submitted a noticefor an amendment of its licence for the ability to manufacture edibles and
extracts and received approval on October 21, 2019.

Dried Cannabis Premium and mid-range products offered
under the Time of Day and H2 lines. Both lines offer a relatively wide spectrum
of CBD and THC levels, through sativa, hybrid and indica plant strains. HEXO
offers 15 dried marijuana products priced between $3 and $15 a gram. Each
product is carefully selected to treat symptoms universally reported by patients
and meet the needs of adult-use customers.

Oil-Based Products Elixir, a cannabis oil sublingual
mist product line, includes both a high THC and high CBD content, and is
Canadas only peppermint-based cannabis oil product. Fleur de Lune, is one of
Canadas first cannabis-based THC intimate oils. Both products provide
alternative, smokeless methods to consume cannabis. HEXO offers three oil-based
products priced between $69 and $89 per bottle, as well as an intimate-use oil
product priced $59 per 60 ml spray bottle.

Decarb Decarb is an activated fine-milled cannabis
powder product offered in a range of high- to low- CBD and THC content. Decarb
is offered in six products, priced between $3 and $15 a gram.

Brands

HEXO

During the first quarter of fiscal 2019, the Company announced
HEXO as the adult-use brand name that will serve the legalized Canadian
adult-use market. The goal of HEXO is to continue to offer a premium house of
brands, signaling innovation, quality and consistency of experience, and seek to
become a top two Canadian market share brand and obtain a 10% international
market share in the U.S., Europe and Mexico. As a brand, HEXO shares the same
focus on award-winning product innovation and high-quality cannabis that the
market has come to expect from its former medical sister brand, Hydropothecary.
The former Hydropothecary medical brand has integrated under the HEXO brand
name. As a result, HEXO now serves as the Companys brand name for both
adult-use and medical products.

Original Stash

On October 16, 2019, the Company announced the launch of its
new value brand Original Stash which became publicly available in Quebec on
October 17, 2019. Original Stash is the Companys low-cost product line, which
the Company believes will attract new consumers who may otherwise purchase
cannabis from unlicensed black market participants. Original Stash is offered in
28 gram (1 oz) quantities.

16

---

Up

During the fourth quarter of fiscal 2019, the Company added the
Up brand to its suite of offerings through its acquisition of Newstrike. The Up
brand lives within HEXOs house of brands portfolio, and is rapidly establishing
itself as a prominent player in the adult-use cannabis market. With a strong
connection to music, its premium quality products are grown on tunes, a unique
growing methodology that runs through the entire plants lifecycle. That,
together with a strategic partnership with the Tragically Hip, provides a solid
foundation for market differentiation. Currently, Up Cannabis offers 12 dried
flower and pre-roll products across 8 provinces. Similar to the HEXO offerings,
the Up adult-use brand offers a spectrum of CBD and THC levels, through its
sativa, hybrid and indica plant strains. These products are offered in a range
of 1g, 3.5g and 7g formats.

Supply Channels

In Canada, HEXO has established supply channels for the
legalized adult-use market within nine provinces through supply agreements and
arrangements with the government-run and private retailers of Québec, Ontario,
Alberta, New Brunswick, Manitoba, British Columbia, Nova Scotia, Prince Edward
Island and Saskatchewan. The Company also has products present within 23 private
cannabis retailers across Ontario and has strategic investments in two of
Canadas premiere private cannabis retailers, Spirit Leaf and Fire and Flower,
in order to gain future access to certain private retail markets.

HEXO has expanded into Europe through HEXO MED, its joint
venture with QNBS, in which it holds a 51% interest. With HEXO MED, the Company
has established a Eurozone foothold in Greece which will result in processing,
production, and distribution capacity to serve the legal cannabis markets in
France, the United Kingdom and other European markets once regulations permit.
HEXO MEDs plans include the development of a 350,000 sq. ft. licenced facility
in Greece. HEXO looks to leverage HEXO MEDs operations to enter the Eurozone in
the near future.

As the U.S. market for CBD products continues to develop, HEXO
is pursuing plans to enter the CBD market in select states in 2020 using a
variety of distribution channels to offer a variety of products under the
Companys non-THC experiences. Any expansion into the U.S. CBD market will only
be conducted in compliance with all applicable U.S. federal and state laws and
U.S. Food and Drug Administration requirements.

The Company is currently not pursuing and will not pursue any
activity in any state in the United States involving products with 0.3% or more
THC content until fully legal under U.S. federal law and all applicable state
law requirements.

17

---

Adult-Use Market



QUEBEC

In Quebec, which has a population of 8.4 million, or
approximately 23% of the Canadian population, the SQDC operates the sale and
distribution of adult-use cannabis. The SQDC has established 21 retail locations
throughout the province, for in-store cannabis sales. It expects to increase
this number to 43 locations by March 2020. It also sells cannabis online.

We currently have a commercial agreement with the SAQ to be the
preferred supplier of cannabis products to the SQDC for the Québec market for
the first five years post-legalization, with an option to extend the term for an
additional year. Under the agreement, the Company was slated to supply 20,000 kg
of products in the first year of the agreement and is expected to supply 35,000
kg in the second year and 45,000 kg in the third. The volumes for the final two
years of the agreement will be established based on the sales generated in the
first three years. The supply arrangement covers the full range of the Companys
products and brands, from flowers to cannabis oil.

The SAQ is not required to purchase a minimum volume of
cannabis under this agreement other than in the first year. The SQDC originally
contracted approximately 60 tons for purchase in the first year from all
licensed producers. Initial sell-through was expected to be a little less than
half of that amount, however, as the retail store roll-out in Quebec has been
slow to develop. While the SAQ had committed to improving access to legalized
cannabis, this has been slower than HEXO had originally expected. During this
start-up phase, HEXO sold 10,250 kg, achieving approximately 33% market share
based on volume. While the Company did not achieve the expected sales during the
first year of the agreement, it remains a preferred supplier of the SQDC with
its approximately 33% market share based on volume and is working on expanding
its product offerings with the SQDC based on consumer demands and as the SQDC continues the roll-out of its retail distribution
channels, and it believes that any exercise of committed purchase features for a
larger amount during the first year of the agreement would be short sighted. The
Company does not believe the Canadian market will successfully penetrate the
black market and see meaningful sales numbers until it can address the issues
around access to legal cannabis and the instore experience. The Company believes
it will be able to meet the contracted estimate for year 2 on the basis of the
SQDCs publicly-announced retail store expansion program by increasing the
number of locations from 21 at present to 43 by March 2020.

18

---

We currently supply the SQDC with HEXOs Elixir, THC and CBD
formulas, and dried cannabis products. In addition, we hold a distribution
agreement with the SQDC, which provides the storage and distribution for all of
the SQDCs online product sales to end-users. This includes the product of all
licensed producers with established supply agreements held with the SQDC.
Operations of the distribution centre began in October 2018.

ONTARIO

In Ontario, which has a population of 14.4 million, or
approximately 39% of the Canadian population, the government currently offers
consumers a variety of cannabis products through online sales by the Ontario
Cannabis Store (OCS). The province also allows privately owned retail
including 23 initially licenced locations that serve the adult-use market.
Initial, products listings include dried cannabis, oil and capsule products,
pre-rolled, and clones and seeds.

We currently hold supply agreements with the OCS, in which we
supply the province with HEXOs Elixir, THC and CBD formulas and Fleur de Lune,
and dried cannabis products, as well as a variety of dried flower products under
the Up brand. HEXO and Up also are currently present within over 23 private
retailers throughout the province. This approach will allow us to serve the
diverse market demand of Ontario with a variety of combustible and smokeless
cannabis products.

BRITISH COLUMBIA

British Columbia, which has a population of 5.0 million, or
approximately 13% of the Canadian population, serves the adult-use cannabis
market through a dual privategovernment approach. The British Columbia Liquor
Distribution Branch (the BCLDB) manages the distribution of cannabis
and cannabis-based products. We hold supply agreements with the BCLDB, in which
we supply our HEXO THC and CBD oil-based Elixir and HEXO Fleur de Lune products
and Up brand products.

ALBERTA

The Company has received cannabis representative status with
the Alberta Gaming, Liquor and Cannabis Board to be supplied online and in
stores. This will allow HEXO to supply our award-winning THC and CBD oil-based
Elixir products as well as nine dried flower cannabis products. HEXO and Up
products will be made available to the 4.3 million residents or approximately
12% of the total Canadian population.

OTHER CANADIAN MARKETS

We currently have established distribution channels within 5
additional provincial markets including Saskatchewan, Nova Scotia, New
Brunswick, Manitoba and Prince Edward Island, which represent 12% of the
Canadian population. These channels include both supply agreements and supplier
arrangements with the provincial governments and private retailers.

Canadian Adult-Use Market 2.0

In October 2019, cannabis derivative products including edibles
and extracts were legalized in Canada. The Company is working to ensure it meets
expected market demands and continues to prepare for its edibles market product
offerings. The first shipment for distribution is expected during the first six
months of calendar 2020 with a focus firstly on our premium vapes and beverage
products. Thereafter, we intend to roll out of our gummies and chocolate product
offerings around the spring of 2020. Additional product offerings will be added
to the portfolio over time.

19

---

HEXOs innovation into cannabis derivative products offers us
the ability to target new adult-use clientele and seek to continue to attract
consumers who may otherwise purchase cannabis from unlicenced dispensaries and
black market participants. Having previously announced its intention to focus on
research, development and innovation, HEXO took another step towards this goal
in establishing two new laboratory and development centres in Montreal, Quebec
and Vaughan, Ontario. Once licensed and completed, these locations will serve as
global research and development hubs for the Companys Innovation, Development
and Engineering (IDE) department led by HEXOs Chief Innovation Officer,
Veronique Hamel. Veronique Hamel is joined by a team with extensive experience
in research and development, sensory science, clinical evaluation, biotechnology
and food engineering with accumulated career experience with Coca Cola, Altria
Group, Mondelez International, Kelloggs, Unilever, Church and Dwight, Shoppers
Drugmart, Loblaws, Kerrs Bros. and Campbells Soup Company. The team's Director
of Research & Development  Edibles, Trina Farr, has more than 20 years of
experience in food innovation and product development and was most recently the
Director of Research and Development at Smuckers Foods of Canada. In addition,
Canna Chocolatier Todd Neault is working on formulating fast-acting, consistent
and delectable chocolates. HEXO intends to make significant investments in
fine-tuning our technologies to enhance consistency, predictability, and safety
across our range of cannabis products and experiences.

To ensure it can meet market demands, the Company boasts a
multi-year extraction agreement with Valens GroWorks Corp., and mass-scale
extraction capabilities at its centre of excellence in Belleville, Ontario. HEXO
also recently announced the appointment of Donald Courtney as Chief Operating
Officer, who has extensive experience with several global food and beverage
organizations including Mars Inc., Pepsi Bottling Group and Vincor
International.

Medical Sales

Under the Cannabis Regulations, HEXO sells medical marijuana
under the HEXO brand (previously the Hydropothecary) solely to clients who have
obtained a valid medical document from a doctor or authorized health care
professional. All medical clients of HEXO are required to order their medical
marijuana through the Hydropothecary online store or over the phone, through one
of the Companys trained representatives. Once an order is placed, it is shipped
securely and discreetly to the client in accordance with the ACMPR, which
regulates the packaging, labelling and shipping requirements for dried
marijuana.

Licenced producers such as HEXO are restricted in the manner of
advertising their products directly to the general public. Licenced producers
are permitted to provide to the public representations of their brand name,
proper or common name of the strain, price, cannabinoid content and contact
information. Working in cooperation with Health Canadas Cannabis Regulations
compliance department, HEXOs patient-client acquisition strategy is focused on
building national brand awareness for HEXO, its products and the companys value
proposition among its target patient-markets.

For client acquisition, HEXO works closely with specialty
cannabinoid clinics to build product education and company awareness through
patients, clinic staff and health care practitioners.

Employees

HEXOs has expanded its operations considerably over the past
fiscal year and as a result increased headcount from 220 at the start of the
year to 1,260 as at fiscal year end July 31, 2019.

Proprietary Protection

HEXO protects its intellectual property by seeking and
obtaining registered protection (inclusive of patents) where possible. To the
date of this report, HEXO has filed to protect over 35 patents as part of its
intellectual property strategy and has further filed multiple patent
applications, in its continuing effort to protect and create value.

Corporate Social Responsibility

At HEXO, our goal is to be one of Canadas leading cannabis
producers and processors. We know that if we want to achieve our goal, we need to think about more than just our
products and prices. We must also examine the way our operations impact the
natural and social environment on a local, provincial and national level. HEXO
is monitoring and reporting on its greenhouse gas emissions, setting targets to
reduce them, and offsetting its footprint. As members of the Global Cannabis
Partnership, we will also be reporting on other Environment, Social and
Governance (ESG) impact areas based on Global Reporting Initiatives (GRI)
standards. Our Corporate Social Responsibility Charter focuses on four
priorities: People, Public, Products and Planet.

20

---

|PEOPLE   |  |                                                                                                                                                                                                   
|-------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  | Job creator award                                                                                                                                                                                 
|        |  | Significant contribution to the local economy of
      Masson-Angers, QC and Belleville, ON                                                                                                       
|        |  | Career development, profit sharing and shareholder
      programs for employees                                                                                                                   
|        |  | Volunteer and team building opportunities for employees                                                                                                                                           
|        |  | Reduced pricing on products for employee medical clients                                                                                                                                          
|         |  |                                                                                                                                                                                                   
|PUBLIC   |  |                                                                                                                                                                                                   
|        |  | Academic education and research investments                                                                                                                                                       
|        |  | Education programs for our retail partners                                                                                                                                                        
|        |  | Responsible use program investments                                                                                                                                                               
|        |  | Support to food security organizations                                                                                                                                                            
|        |  | Support to health organizations                                                                                                                                                                   
|        |  | Community emergency support via the Red Cross                                                                                                                                                     
|        |  | Support to social justice initiatives                                                                                                                                                             
|         |  |                                                                                                                                                                                                   
|PLANET   |  |                                                                                                                                                                                                   
|        |  | Use of solar energy to minimize electricity consumption                                                                                                                                           
|        |  | Recycling and composting programs                                                                                                                                                                 
|        |  | Greenhouse gas (GHG) Inventory and Reporting (based on
      ISO14064 standards)                                                                                                                  
|        |  | Water conservation (rainwater capture and water
      recycling)                                                                                                                                  
|        |  | Reforestation project with Tree Canada                                                                                                                                                            
|        |  | Solar energy project with Ottawa Food Bank                                                                                                                                                        
|        |  | Sustainability partner of Ottawa Riverkeeper                                                                                                                                                      
|         |  |                                                                                                                                                                                                   
|PRODUCTS |  |                                                                                                                                                                                                   
|        |  | Naturally grown and rigorously tested cannabis                                                                                                                                                    
|        |  | Innovative smoke-free options                                                                                                                                                                     
|        |  | Excise tax absorbed on products for medical clients                                                                                                                                               
|        |  | Cannabis product of the year at the 2018 Canadian
      Cannabis Awards for our Elixir CBD and 2019 OCannabiz award for best
      pre-rolls and the best dried flower  sativa award for Helios.

Code of Ethics

The Companys code of ethics is reviewed and approved annually
by the Human Resources and Corporate Governance Committee and is posted on our
website at www.hexocorp.com/governance.

Commitments

The Company does not have any off-balance sheet arrangements.

21

---

Industry Overview

Regulatory Framework of Medical and Consumer Cannabis in
Canada under the Cannabis Act

Up until the coming into force of the Cannabis Act and the
Cannabis Regulations, only the production and sale of cannabis for medical
purposes was permitted, with such production and sale being regulated by the
ACMPR made under the CDSA. On October 17, 2018, the Cannabis Act and Cannabis
Regulations came into effect, legalizing the sale of cannabis for adult
recreational use The Cannabis Act and Cannabis Regulations establish a framework
governing the production, importation, exportation, testing, packaging,
labelling, sending, delivery, transportation, sale, possession and disposal of
adult-use cannabis and medical-use cannabis. Among other things, the Cannabis
Regulations set out requirements relating to: (1) Licences; (2) Security
Clearances; (3) Cannabis Products; (4) Packaging, Labelling and Promotion; (5)
Health Products and Cosmetics Containing Cannabis; and (6) Cannabis for Medical
Purposes. The Cannabis Regulations establish six classes of licenses:
cultivation, processing, analytical testing, sales for medical purposes,
research, and cannabis drug licenses.

As discussed in greater detail below in the Risk Factors under
Regulatory Risks, Regulatory Developments, Reliance on Licence Renewal and
Amendment and Development of Canadian Adult-Use Recreational Market, because
the Cannabis Act and Cannabis Regulations have only been in force since October
17, 2018, the actual impact of the legislative and regulatory framework
established thereunder on the Companys business, financial condition, results
of operations and prospects remain unknown.

Licenses

The Cannabis Regulations establish six classes of licences
under the Cannabis Act: cultivation licences; processing licences; analytical
testing licences; sales for medical purposes licences; research licences; and
cannabis drug licences. The Cannabis Regulations have also establish sub-classes
for cultivation licenses (standard cultivation, micro cultivation, and nursery)
processing licenses (standard processing and micro-processing) and sale (sale
for medical purposes). Different license types carry different rules and
requirements that are intended to be proportionate to the public health and
safety risks posed by each license category and/or sub-class. Producers holding
production and sale licenses under the ACMPR will have been transitioned to sale
(for medical purposes) licenses under the Cannabis Act. The Cannabis Regulations
permit cultivation license holders to conduct both outdoor and indoor
cultivation of cannabis. A holder of a license must only conduct authorized
activities at the location set out in the license.

Security Clearances

Certain people associated with cannabis licensees must hold a
valid security clearance issued by the Minister. Those individuals include 1)
individuals occupying a key position within the corporate license holder (e.g.
the head of security, the master grower and the quality assurance person), 2)
directors, officers and individuals who exercise, or are in a position to
exercise, direct control over the corporate license holder, 3) directors and
officers of any corporation that exercises, or is in a position to exercise,
direct control over the corporate license holder and (iv) certain other
individuals identified by the Minister of Health. Under the Cannabis
Regulations, the Minister may refuse to grant security clearances to individuals
with organized crime associations or past convictions for, or in association
with, drug trafficking, corruption, or violent offences. This was largely the
approach in place previously under the ACMPR and other related regulations
governing the licensed production of cannabis for medical purposes. Individuals
who have a history of nonviolent, lower-risk criminal activity (for example,
simple possession of cannabis, or small-scale cultivation of cannabis plants)
are not precluded by legislation from participating in the legal cannabis
industry, and the granting of security clearance to such individuals is at the
discretion of the Minister of Health.

Cannabis Tracking and Licensing System

Under the Cannabis Act, the Minister is authorized to establish
and maintain a national cannabis tracking system. The purpose of the tracking
system is to enable the tracking of cannabis throughout the supply chain to help
prevent diversion of cannabis into and out of the legal market. The Cannabis
Regulations provide the Minister with the authority to make a ministerial order
that would require certain persons named in such order to report specific
information about their authorized activities with cannabis, in the form and
manner specified by the Minister.

22

---

Accordingly, the Minister has introduced the Cannabis Tracking
and Licensing System (the CTLS). In application of the Cannabis
Tracking System Order, SOR/2018-178, license-holders are required to use the
CTLS to submit monthly reports to the Minister.

Cannabis Products

As of October 17, 2019, the Cannabis Act and Regulations permit
the sale to the public of dried cannabis, cannabis oil, fresh cannabis, cannabis
plants, cannabis seeds, edible cannabis, cannabis extracts and cannabis topicals
by authorized license holders.

On June 14, 2019, Health Canada released the final, targeted
amendments to the Cannabis Regulations setting out the regulations governing the
legal production and sale of edible cannabis, cannabis extracts, and cannabis
topicals (New Products). The amended regulations came into force on
October 17, 2019. License holders are required to provide 60 days notice to
Health Canada of their intent to sell any new products. Assuming Health Canada
does not object to the New Products being listed for sale, sales will be
permitted to authorized retailers and medical patients at the expiry of the
60-day notice period.

Packaging and Labelling

The Cannabis Regulations impose strict requirements pertaining
to the packaging and labelling of cannabis products (including the New
Products). Those requirements include plain packaging restrictions for cannabis
products, and also impose strict limits on logos, colours, graphics and
branding. The Cannabis Regulations further impose requirements regarding
disclosure and labelling of product source information (e.g. class of cannabis
and prescribed information about the cultivator or processor), mandatory health
warnings, a standardized cannabis symbol and specific product information around
THC and CBD content. A cannabis products brand name may only be displayed once
on the principal display panel. If there are separate principal display panels
for English and French, it can be displayed only once on each principal display
panel. In addition to the brand name, only one other brand element (e.g. logo,
design or slogan) can be displayed. The same restrictions generally apply, with
limited changes, to the New Products.

Advertising

The promotion of Cannabis is generally restricted under the
Cannabis Act. Subject to a few exceptions, all promotions of cannabis are
prohibited unless authorized by the Cannabis Act.

Cannabis for Medical Purposes

The Cannabis Regulations set out the regulatory framework for
medical cannabis following legalization, which remains substantively consistent
with the previous regulatory regime set out by the ACMPR under the CDSA. Some
adjustments have been made to align with rules for non-medical consumer use,
improve patient access, and reduce the risk of abuse within the medical access
system. The sale of medical cannabis remains federally regulated and sales can
only be made by an entity that holds a licence for sale for medical purposes
under the Cannabis Regulations to patients who: (a) have a medical document
authorizing the use of medical cannabis and (b) have registered with the
licensed entity. Patients must obtain a medical document from their health care
provider and then register as a patient with a holder of a license for sale for
medical purposes, with the registration in each case valid for a maximum of one
year. The client can then order from the licensed seller online or via telephone
and the cannabis will be shipped directly to the client. The Federal government
intends to review the medical cannabis system five years from the date of
legalization to determine whether to implement any further changes to the
regulatory framework.

Provincial and Territorial Regulatory Regimes

While the Cannabis Act governs the production of cannabis for
adult-use (i.e. non-medical) purposes and related matters by the federal
government, the Cannabis Act has authorized the provinces and territories of
Canada to regulate other aspects of consumer cannabis, such as sale and
distribution, minimum age requirements, and consumption. The government of each
Canadian province and territory has regulatory regimes in place for the
distribution and sale of cannabis within those jurisdictions.

23

---

There are three general frameworks for brick-and-mortar retail:
(i) private cannabis retailers licensed by the province (ii) government-operated
retail stores or (iii) a combination of both frameworks. Regardless of the
framework, the recreational cannabis market is ultimately supplied by federally
licensed cultivators and processors. In addition, each of these Canadian
jurisdictions has established a minimum age of 19 years old, except for Québec
and Alberta, where the minimum age is 18.

The following outlines the current regimes in each province and
territory:

Province/Territory
    Where its SoldAlberta
    Private licensed stores or
      government-operated online storeBritish Columbia
    Government-operated stores,
      privately-licensed stores or onlineManitoba
    Private licensed stores or onlineNew Brunswick
    Government-operated stores or
      onlineNewfoundland and Labrador
    Private licensed stores or
      government-operated online storeNorthwest Territories
    Government-operated stores or
      onlineNova Scotia
    Government-operated stores or
      onlineNunavut
    Government-operated online store
      or by phoneOntario
    Private licensed stores or
      government-operated online storePrince Edward Island
    Government-operated stores or
      onlineQuebec
    Government-operated stores or
      onlineSaskatchewan
    Private licensed stores or onlineYukon
    Private licensed stores or
      government-operated online store


All provinces and territories have a public possession limit of
30 grams per individual.

Health Products and Cosmetics Containing Cannabis

Products that display health claims, including prescription and
non-prescription drugs, natural health products, veterinary drugs and veterinary
health products and medical devices must receive marketing authorization from
Health Canada prior to launch. Health Canada has taken a scientific,
evidence-based approach to the oversight of health products with cannabis that
are approved with health claims, including prescription and non-prescription
drugs, natural health products, veterinary drugs and veterinary health products,
and medical devices. Under the Cannabis Regulations, the use of cannabis-derived
ingredients (other than certain hemp seed derivatives containing no more than 10
parts per million THC) in cosmetics, are permitted, subject to provisions of the
Cannabis Act.

Status of Regulatory Framework in the United States

In the United States, despite cannabis having been legalized at
the state level for medical use in many states and for adult use in a number of
states, cannabis continues to be categorized as a Schedule I controlled
substance under the federal Controlled Substances Act (the CSA) and
subject to the Controlled Substances Import and Export Act (the CSIEA).
HEXO does not produce or distribute cannabis products in the United States. The
Company only intends to participate in federally-permissible activities, despite
cannabis being legal in certain individual states.

RISK FACTORS

There are a number of risk factors that could cause future
results to differ materially from those described herein. The risks and
uncertainties described herein are not the only ones the Company faces.
Additional risks and uncertainties, including those that the Company does not
know about now or that it currently deems immaterial, may also adversely affect
the Companys business. If any of the following risks actually occur, the
Companys business may be harmed, and its financial condition and results of
operations may suffer significantly.

24

---

Regulatory Risks

The adult-use and medical cannabis industries and markets are
subject to a variety of laws in Canada, the United States and elsewhere.

In Canada, the Cannabis Act came into force on October 17,
2018, legalizing the sale of cannabis for adult recreational use. Prior to the
Cannabis Act coming into force, only the sale of medical cannabis was legal. The
Cannabis Act and regulations thereunder provides a licensing and regulatory
scheme governing the production, importation, exportation, testing, packaging,
labelling, delivery, transportation, sale, possession and disposal of cannabis
for non-medical (i.e., adult use) use, and medical use. Further, on October 17,
2019, targeted amendments to the Cannabis Act and Cannabis Regulations came into
force, adding three new authorized classes of cannabis for sale: edibles,
extracts and topicals.

In the United States, despite cannabis having been
  legalized at the state level for medical use in many states and for adult use in
  a number of states, cannabis containing 0.3% or more THC continues to be
  categorized as a Schedule I controlled substance under the CSA and subject to
  the CSIEA. HEXO does not currently produce or distribute any cannabis products
  in the United States or accept payments from any party that does so. While HEXO
  is considering entering into the U.S. CBD market, it would only do so in full
  compliance with the CSA, the CSIEA and all other applicable federal and state
  laws. Therefore, HEXO believes that it is not and will not become subject to the
  CSA or CSIEA. Nonetheless, violations of any U.S. federal laws and regulations,
  such as the CSA and the CSIEA, could result in significant fines, penalties,
  administrative sanctions, convictions or settlements arising from civil
  proceedings initiated by either the U.S. federal government or private citizens
  or criminal charges, including, but not limited to, disgorgement of profits,
  cessation of business and activities or divestiture.

The business and activities of the Company are heavily
regulated in all jurisdictions where it carries on business. The Companys
operations are subject to various laws, regulations and guidelines by
governmental authorities, particularly Health Canada, relating to the
manufacture, marketing, management, transportation, storage, sale and disposal
of cannabis, and also including laws and regulations relating to health and
safety, the conduct of operations and the protection of the environment. Laws
and regulations, applied generally, grant government agencies and
self-regulatory bodies broad administrative discretion over the activities of
the Company, including the power to limit or restrict business activities as
well as impose additional disclosure requirements on the Companys products and
services. The Company is dependent upon regulatory approvals and licences for
its ability to grow, process, package, store and sell its products. Achievement
of the Companys business objectives are contingent, in part, upon ongoing
compliance with regulatory requirements implemented by these governmental
authorities and obtaining all regulatory approvals, where necessary, for the
production and sale of its products. The Company cannot predict the time
required to secure all appropriate regulatory approvals for its products, or the
extent of testing and documentation that may be required by governmental
authorities. Any delays in obtaining, or failure to obtain regulatory approvals
would significantly delay the development of markets and products and could have
a material adverse effect on the business, financial condition, results of
operations and prospects of the Company.

Further, HEXO is subject to ongoing inspections by Health
Canada to monitor HEXOs compliance with its licencing requirements. HEXOs
existing licences and any new licences that it may obtain in the future in
Canada or other jurisdictions may be revoked or restricted at any time in the
event that HEXO is found not to be in compliance. Should HEXO fail to comply
with the applicable regulatory requirements or with conditions set out under its
licences or should its licences be revoked, HEXO may not be able to continue
producing or distributing cannabis in Canada. Failure to comply with the laws
and regulations applicable to its operations may lead to possible sanctions
including the revocation or imposition of additional conditions on licences to
operate the Companys business; the suspension or expulsion from a particular
market or jurisdiction or of its key personnel; product recalls or seizures;
and, the imposition of fines and censures or criminal charges.

In addition, we may be subject to enforcement proceedings
resulting from a failure to comply with applicable regulatory requirements in
Canada or other jurisdictions, which could result in:

25

---

- damage awards;
- revocation of, suspension of or imposition of additional conditions on our
  licences;
- the denial of the renewal of our existing licences, authorizations or
  permits;
- the denial of the approval of any applications for future licences,
  authorizations or permits;
- recalls of products or product seizures;
- the suspension or expulsion from a particular market or jurisdiction or of
  our key personnel;
- the imposition of future operating restrictions on our business or
  operations; or
- the imposition of civil, regulatory or criminal fines or penalties against
  the Company, its officers and directors and other parties.

These enforcement actions could delay or entirely prevent the
Company from continuing the production, testing, marketing, sale or distribution
of its products and divert managements attention and resources away from its
business operations. In addition, changes in regulations, government or judicial
interpretation of regulations, or more vigorous enforcement thereof or other
unanticipated events could require extensive changes to our operations, increase
compliance costs or give rise to material liabilities or a revocation of our
licences and other permits. Furthermore, governmental authorities may change
their administration, application or enforcement procedures at any time, which
may adversely impact our ongoing regulatory compliance costs. There is no
assurance that we will be able to comply or continue to comply with applicable
regulations.

To the extent that there are changes to the existing or the
enactment of future laws and regulations that affect the sale or offering of the
Companys product or services in any way, the Companys revenues may be
adversely affected.

Regulatory Developments

The commercial adult-use and medical cannabis industry is a
relatively new industry in Canada. The effect of Health Canadas administration,
application and enforcement of the regime established by Health Canada on HEXO
and HEXOs business in Canada, or the administration, application and
enforcement of the laws of other countries by the appropriate regulators in
those countries, may significantly delay or impact HEXOs ability to participate
in the Canadian adult-use and medical cannabis markets or, potentially,
adult-use and medical cannabis markets outside Canada, to develop cannabis
products and produce and sell these cannabis products.

Further, Health Canada or the regulatory authorities may change
their administration, interpretation or application of the applicable
regulations or their compliance or enforcement procedures at any time. Any such
changes could require HEXO to revise its ongoing compliance procedures,
requiring it to incur increased compliance costs and expend additional
resources. There is no assurance that HEXO will be able to comply or continue to
comply with applicable regulations.

Reliance on Licence Renewal and Amendment

HEXOs business operations are dependent on being licenced
under the Cannabis Act. All licences must be renewed annually. HEXOs Gatineau
licence expires on April 15, 2021, the Brantford licence expires on December 19,
2019 and the Niagara licence expires on March 29, 2021. Prior to the expiry of
the licence, HEXO must submit to Health Canada an application for renewal of the
licence containing information prescribed by the Cannabis Act. Failure to comply
with the requirements of the licence or any failure to renew the licence would
have a material adverse impact on the business, financial condition, results of
operations and prospects of HEXO. The Company is not currently aware of any
circumstances that would impede the renewal of any of its licences.

HEXO believes it is complying in all material respects with the
terms of the licence and it is not aware of any reason why it would not be able
to renew the licence upon its expiry. However, there can be no guarantee that
Health Canada will renew the licence, or that such renewal will occur in a
timely fashion or on terms similar to HEXOs existing licence or otherwise
acceptable to HEXO and its business. Should Health Canada not renew HEXOs
licence, delay the renewal of the licence or renew the licence on different
terms, the business, financial condition, results of operations and prospects of
HEXO would be materially adversely affected.

26

---

In addition, HEXO is in the process of developing a facility in
Belleville, Ontario. In order for HEXO to obtain a licence issued by Health
Canada pursuant to the Cannabis Act it must submit an application to Health
Canada. The application has been submitted; however, the facility has not yet
received its Health Canada issued licence authorizing processing and ancillary
activities. HEXOs compliance team has been in communications with Health Canada
regarding its application. Health Canada has confirmed that all required
submissions have been made and that the file is ready to be submitted to their
internal board for final approval. This is the final step in the licence
issuance process and, should no follow-up questions arise at this step, HEXO
anticipates a licence be issued in the second quarter of fiscal year 2020.
However, if the licence is not approved by this time, in the near future or at
all, the business, financial condition, results of operations and prospects of
HEXO would be materially adversely affected.

Development of Canadian Adult-Use Recreational Market

The Cannabis Act and Cannabis Regulations came into effect on
October 17, 2018 and govern the federal legalization and regulation of adult-use
cannabis in Canada. The Cannabis Act sets out broad prohibitions on the
promotion of cannabis. Under the Cannabis Act, subject to certain limited
exceptions, it is prohibited to promote cannabis including by means of a
testimonial or endorsement, doing so in a manner that there are reasonable
grounds to believe could be appealing to young persons, and presenting it or any
of its brand elements in a manner that associates it or the brand element with
or evokes a positive or negative emotion about or image of, a way of life such
as one that includes glamour, recreation, excitement, vitality, risk or daring.
The Cannabis Act also sets out strict requirements for packaging.

Further, on October 17, 2019, targeted amendments to the
Cannabis Act and Cannabis Regulations came into force, adding three new
authorized classes of cannabis for sale: edibles, extracts and topicals for
sale. The amendments introduced new regulatory controls to address sale of the
new product classes, content and product specifications, packaging and licensing
requirements. The effect of Health Canadas administration, application and
enforcement of this new regulatory regime on the Company is unknown and the
interpretation and application of the regulations may change at any time, or
their implementation may be delayed. There is no assurance that the Company will
be able to comply with these new regulations.

In addition, the governments of every Canadian province and
territory have enacted and implemented their respective regulatory regimes for
the distribution and sale of cannabis for adult-use purposes within those
jurisdictions. Various different models for distribution and sale have been
implemented in each jurisdiction across Canada including government-operated
retail and/or distribution models, privately operated retail and/or distribution
models and hybrid approaches, These provincial or territorial legislation and
regulatory regimes may change in ways that impact our ability to continue our
business as currently conducted or proposed to be conducted. There is no
guarantee that provincial or territorial regulatory regimes governing the
distribution and sale of cannabis for adult-use purposes in each jurisdiction
will remain as currently enacted or that any such legislation and regulation
will create the growth opportunities that the Company currently anticipates. The
federal and provincial or territorial legislation and regulatory regimes for
cannabis products also include excise duties payable by licenced cannabis
producers on adult-use cannabis products, in addition to goods and services
tax/harmonized sales tax in certain provinces and territories. The rate of the
excise duties for cannabis products varies by province and territory. Any
significant increase in the rate of excise duties on cannabis products in the
future could reduce consumer demands for cannabis products and adversely impact
the adult-use cannabis industry and market in general. In addition, any increase
in the rate of excise duties on cannabis products in the future could reduce the
Companys margins and profitability in the event that the Company could not or
chose not to pass along such increases to consumers. Any of the foregoing could
result in a material adverse effect of the Companys business, financial
condition, results of operations and prospects.

The adult-use cannabis industry and market in Canada is also
subject to certain risks that are unique to this industry, as well as the risks
that are currently applicable to the medical cannabis market, which are
described elsewhere in this section, Risk Factors in the Shelf
Prospectus and the AIF. If any of these shared risks occur, HEXOs business,
financial condition, results of operations and prospects could be adversely
affected in a number of ways, including by not being able to successfully
compete in the adult-use cannabis industry and by being subject to fines, damage
awards and other penalties as a result of regulatory infractions or other claims
brought against HEXO.

27

---

Government Supply Agreements and Other Customer
Relationships

HEXO expects to derive a significant portion of its future
revenues from the recently legalized adult-use cannabis industry and market in
Canada, including through its agreements with the SQDC in Québec, the OCRC in
Ontario and the BCLDB in British Columbia. For additional information regarding
HEXOs supply agreements, see Description of the Business - Supply
Channels. The agreements with the SQDC, the OCRC and the BCLDB do not
contain purchase commitments or otherwise obligate the purchaser to buy a
minimum or fixed volume of products from HEXO. The amount of cannabis that the
SQDC, the OCRC and the BCLDB may purchase under HEXOs agreements with them may
therefore vary from what HEXO expects or has planned for. As a result, HEXOs
revenues could fluctuate materially in the future and could be materially and
disproportionately impacted by the purchasing decisions of the SQDC, the OCRC
and the BCLDB. If any of the SQDC, the OCRC or the BCLDB decides to purchase
lower volumes of products from HEXO than HEXO expects, alters its purchasing
patterns at any time with limited notice or decides not to continue to purchase
HEXOs cannabis products at all, HEXOs revenues could be materially adversely
affected, which could have a material adverse effect on HEXOs business,
financial condition, results of operations and prospects.

Government-run provincial and territorial distributors in
Canada require suppliers to meet certain service and business standards, and
routinely assess for compliance with such standards. Any failure by us to comply
with such standards could result in our being downgraded or disqualified as a
supplier and would severely impede or eliminate our ability to access certain
markets within Canada.

Reliance on Limited Cultivation and Production Facilities

At present, HEXOs production activities, including
cultivation, harvesting, drying and curing, processing and extraction and
packaging activities, are carried out at its facility in Gatineau, Québec.
Although the Company is in the process of developing a facility in Belleville,
Ontario to be used for processing and extraction and packaging activities, as
well as research and development and the manufacture of advanced cannabis
products, all of the Companys cultivation and harvesting, drying and curing
activities will continue to be carried out from our Gatineau facility for the
foreseeable future. Adverse changes or developments affecting the Gatineau
facility including but not limited to changes to municipal laws regarding
zoning, facility design errors, environmental pollution, non-performance by
third party contractors, increases in materials or labour costs, labour disputes
or disruptions, inability to attract sufficient numbers of qualified workers,
productivity inefficiencies, equipment or process failures, production errors,
disruption in the supply of energy and utilities and major incidents and/or
catastrophic events such as fires, explosions, earthquakes or storms, would have
a material and adverse effect on HEXOs business, financial condition, results
of operations and prospects. In addition, HEXO bears all of the costs of
maintenance and upkeep of the Gatineau facility. HEXOs operations and financial
performance may be adversely affected if it is unable to keep up with
maintenance requirements.

Because of the nature of HEXOs products and the limited legal
channels for distribution, as well as the concentration of inventory in the
Gatineau facility, HEXO is subject to the risk of theft of its product and other
security breaches. A security breach at the Gatineau facility could result in a
significant loss of available product, expose HEXO to additional liability under
applicable regulations and to potentially costly litigation or increase expenses
relating to the resolution and future prevention of similar thefts, any of which
could have an adverse effect on HEXOs business, financial condition, results of
operations and prospects.

Development of the Belleville, Ontario Facility

The development of the Companys facility in Belleville,
Ontario is subject to various potential risks and uncertainties, and may be
delayed or adversely affected by a number of factors beyond the Companys
control. These include the failure to obtain regulatory approvals, licensing,
legislative and regulatory changes, permits, delays in the delivery or
installation of fixtures and equipment, difficulties in integrating new fixtures
and equipment with an existing building, shortages in materials or labor,
defects in design or construction and diversion of management resources. The
actual cost of construction may exceed the amount anticipated. As a result of
potential construction delays, cost overruns, changes in market circumstances or
other factors, the Company may not be able to achieve the intended economic benefits from the development of the Belleville, Ontario
facility, which in turn may affect the Companys business, financial condition,
results of operations and prospects. The eventual operation of the Belleville,
Ontario facility is subject to obtaining licenses issued by Health Canada. The
denial or delay of such licensing would have a material adverse effect on HEXOs
business, financial condition, results of operations and prospects.

28

---

Development of Brands, Products and Technologies

HEXOs business depends significantly on successfully
developing and maintaining strong brands, products and technologies. In the
future, HEXO may also leverage the brands of third-parties through joint
ventures or partnerships. The cannabis industry is in its early stages of
development and building a strong brand image is an integral part of the growth
strategies for HEXO and its competitors. HEXO believes that the strength of its
brands and products has significantly contributed to the success of its
business. Developing and enhancing HEXOs brands may require HEXO to make
substantial investments in areas such as research and development, product
design, marketing, and employee training, and these investments are costly and
may not be successful. Leveraging others brands through joint ventures or
partnerships may result in the incurrence of additional debt, costs and
contingent liabilities, and there can be no assurance that such future joint
ventures or partnerships will be achieved on satisfactory terms, or at all, or
achieve the expected benefits to HEXOs business. Failure to develop or maintain
strong brands and products may materially and adversely affect HEXOs business,
financial condition, results of operations and prospects.

HEXO and its competitors are also actively seeking to develop
new products in order to keep pace with any new market developments and generate
revenue growth. HEXO may not be successful in developing effective and safe new
products, bringing such products to market in time to be effectively
commercialized, or obtaining any required regulatory approvals, which, together
with any capital expenditures made in the course of such product development and
regulatory approval processes, may have a material adverse effect on HEXOs
business, financial condition, results of operations and prospects.

The technologies, process and formulations HEXO uses may also
face competition or become obsolete. Rapidly changing markets, technology,
emerging industry standards and frequent introduction of new products
characterize the cannabis business. The introduction of new products embodying
new technologies, including new manufacturing processes or formulations, and the
emergence of new industry standards may render HEXOs products obsolete, less
competitive or less marketable. The process of developing new products is
complex and requires significant continuing costs, development efforts and
third-party commitments. HEXO may be unable to anticipate changes in customer
requirements that could make its existing technology, processes or formulations
obsolete. HEXOs success will depend on its ability to continue to enhance its
existing technologies, develop new technology that addresses the increasing
sophistication and varied needs of the market, and respond to technological
advances and emerging industry standards and practices on a timely and
cost-effective basis. Failure to develop new technologies and products and the
obsolescence of existing technologies or processes could adversely affect HEXOs
business, financial condition, results of operations and prospects.

Competition

HEXO faces intense competition from licenced producers and
other companies, some of which can be expected to have greater financial,
production, marketing, research and development and technical and human
resources and experience than the Company. Additionally, there is potential that
the industry will undergo consolidation, creating larger companies that may have
greater resources and experience in all of these areas as well as increased
geographic scope.

As a result, HEXOs competitors may be more successful than
HEXO in gaining market penetration and market share. HEXOs commercial
opportunity in the adult-use market could be reduced or eliminated if its
competitors produce and commercialize products for the adult-use market that,
among other things, are safer, more effective, more convenient or less expensive
than the products that we may produce, have greater sales, marketing and
distribution support than HEXOs products, enjoy enhanced timing of market
introduction and perceived effectiveness advantages over HEXOs products and
receive more favourable publicity than HEXOs products. If HEXOs adult-use
products do not achieve an adequate level of acceptance by the adult-use market,
HEXO may not generate sufficient revenue from these products, and HEXOs
adult-use business may not become profitable.

29

---

As a result of this competition, the Company may be unable to
maintain its operations or develop them as currently proposed, on terms it
considers acceptable or at all. Increased competition by larger, better-financed
competitors with geographic advantages could materially and adversely affect the
business, financial condition, results of operations and prospects of the
Company.

The number of licences granted and the number of licenced
producers ultimately authorized by Health Canada could have an impact on the
operations of the Company. HEXO expects to face additional competition from new
market entrants that are granted licences under the Cannabis Act or existing
licence holders which are not yet active in the industry. If a significant
number of new licences are granted by Health Canada in the near-term future,
HEXO may experience increased competition for market share.

If the national demand of adult-use cannabis in Canada
increases, along with an increased number of licenced producers, HEXO expects
that competition will become more intense, as current and future competitors
begin to offer an increasing number of diversified products. To remain
competitive, HEXO will require a continued high level of investment in joint
enterprises, research and development, marketing, sales and client support. HEXO
may not have sufficient resources to maintain and support these efforts on a
competitive basis which could materially and adversely affect the business,
financial condition, results of operations and prospects of the Company.

Moreover, the Cannabis Act and relevant provincial and
territorial legislation allows individuals in certain jurisdictions to
cultivate, propagate, harvest and distribute up to four cannabis plants per
household, provided that each plant meets certain requirements. If we are unable
to effectively compete with other suppliers to the adult-use cannabis market, or
a significant number of individuals take advantage of the ability to cultivate
and use their own cannabis, HEXOs success in the adult-use business may be
limited and may not fulfill the expectations of management.

Any or all of these events could materially and adversely
affect the business, financial condition, results of operations and prospects of
the Company.

Supply and Price Fluctuations

There has been a shortfall in supply in the Canadian adult-use
cannabis market since legalization. In response to the initial surge in demand
for cannabis as a result of the legalization of adult cannabis use in Canada,
licenced producers, including HEXO, and others licenced to produce cannabis
under the Cannabis Act, may not be able to produce enough cannabis to meet
adult-use demand. This may result in lower than expected sales and revenues and
increased competition for sales and sources of supply. In the future, cannabis
producers in Canada may produce more cannabis than is needed to satisfy the
collective demand of the Canadian adult-use and medical markets, and they may be
unable to export that oversupply into other markets where cannabis use is fully
legal under all federal and state or provincial laws. As a result, the available
supply of cannabis could exceed demand, resulting in a significant decline in
the market price for cannabis. If such supply or price fluctuations were to
occur, HEXOs revenue and profitability may fluctuate materially and its
business, financial condition, results of operations and prospects may be
adversely affected.

In addition, demand for cannabis and cannabis products is
dependent on a number of social, political and economic factors that are beyond
HEXOs control, including the novelty of legalization, which may wear off. A
material decline in the economic conditions affecting consumers can cause a
reduction in disposable income for the average consumer, change consumption
patterns and result in a reduction in spending on cannabis products or a switch
to other products obtained through illicit channels. There can be no assurance
that market demand for cannabis will continue to be sufficient to support HEXOs
current or future production levels or that HEXO will be able to generate
sufficient revenue to be profitable.

Reliance on Management and Key Persons

The Company is reliant on senior managements ability to
execute on strategy. This exposes the Company to managements ability to
perform, and as well the risk of management leaving the Company. To mitigate
this risk, HEXO has implemented incentive plans for all members of the
senior management team.

30

---

The success of the Company will be dependent upon the ability,
expertise, judgment, discretion and good faith of certain of its management team
and board of directors. While employment agreements and incentive programs are
designed for the retention of such key persons, these agreements and incentive
programs cannot assure the continued services of such persons. Any loss of key
persons could have a material adverse effect on the Companys business,
operating results and/or financial condition.

Scale of Operations

The Company now possesses supplier contracts across nine
provinces. As demand for HEXOs products increase there exists the risk of HEXO
being unable to fulfil demand. Although the Company is currently on track to
meet its intended capacity goals, delays in meeting its capacity goals could
result in unfulfilled purchase orders and HEXO may lose a significant amount of
sales. Any inability to secure the required supply of cannabis to meet the
demands of supplier agreements either by means of internal generation or through
acquisition could have a materially adverse impact on operating results of the
Company.

General Business Risk and Liability

Given the nature of Companys business, it may from time to
time be subject to claims or complaints from investors or others in the normal
course of business. The legal risks facing the Company, its directors, officers,
employees or agents in this respect include potential liability for violations
of securities laws, breach of fiduciary duty and misuse of investors funds.
Some violations of securities laws and breach of fiduciary duty could result in
civil liability, fines, sanctions, or the suspension or revocation of the
Companys right to carry on its existing business. The Company may incur
significant costs in connection with such potential liabilities.

Risks Inherent in an Agricultural Business

A key aspect of HEXOs business is growing cannabis, and as
such the Company is exposed to the risks inherent in any agriculture business,
such as disease spread, hazards, pests and similar agricultural risks that may
create crop failures and supply interruptions for the Companys customers. To
mitigate the risk, HEXO has trained personnel to carefully monitor the growing
conditions. Although HEXO grows its products indoors under climate controlled
conditions and carefully monitors the growing conditions with trained personnel,
there can be no assurance the natural elements will not have a material adverse
effect on the production of its products.

Limited Operating History

HEXO commenced operations in August 2013, and as such is an
early stage business and subject to the risks any early stage business faces.
HEXO has incurred operating losses since commencing operations. The success of
the Company is dependent on, among other things, eventual profitability of
operations, ability to raise funds when necessary in a timely manner, and senior
managements ability to execute on strategy. The Company may incur losses in the
future and may not achieve profitability.

Cash Flow from Operations and the Need for Additional
Financing

To date, the Company has had negative cash flow from operating
activities. Although the Company anticipates it will have positive cash flow
from operating activities in future periods, to the extent that the Company has
negative cash flow in any future period, certain of the proceeds from the
Offering may be used to fund such negative cash flow from operating activities.
If HEXO continues to have negative cash flow into the future, HEXO may need to
allocate additional financing proceeds to funding this negative cash flow in
addition to its operational expenses. HEXO may require additional financing to
fund its operations to the point where it is generating positive cash flows.
Continued negative cash flow may restrict HEXOs ability to pursue its business
objectives.

In addition, HEXOs continued development may require
additional financing. The failure to raise such capital could result in the
delay or indefinite postponement of current business objectives or HEXOs going
out of business. There can be no assurance that additional capital or other types of
financing will be available if needed or that, if available, the terms of such
financing will be favorable to HEXO. If additional funds are raised through
issuances of equity or convertible debt securities, existing shareholders could
suffer significant dilution, and any new equity securities issued could have
rights, preferences and privileges superior to those of holders of Common
Shares. In addition, from time to time, HEXO may enter into transactions to
acquire assets or the shares of other corporations. These transactions may be
financed wholly or partially with debt, which may temporarily increase HEXOs
debt levels above industry standards. Any debt financing secured in the future
could involve restrictive covenants relating to capital raising activities and
other financial and operational matters, which may make it more difficult for
HEXO to obtain additional capital and to pursue business opportunities,
including potential acquisitions.

31

---

Vulnerability to Rising Energy Costs

The Companys cannabis growing operations consume considerable
energy, making the Company vulnerable to rising energy costs. Although, the
cultivating facilities are located in Quebec, which has one of the lowest hydro
rates in the country. Rising or volatile energy costs may adversely impact the
business of the Company and its ability to operate profitably.

Going Concern

There can be no assurance that HEXO will always have sufficient
capital resources to continue as a going concern or that significant losses will
not occur in the near future or that HEXO will be profitable in the future.
There can be no assurance that HEXO will generate any revenues or achieve
profitability. Our continued operations are dependent ultimately on our ability
to achieve and maintain profitability and positive cash flow from our
operations.

Product Liability

As a manufacturer and distributor of products designed to be
ingested or inhaled by humans, HEXO faces an inherent risk of exposure to
product liability claims, regulatory action and litigation if its products are
alleged to have caused significant loss or injury. In addition, the manufacture
and sale of HEXOs products involve the risk of injury or loss to consumers due
to tampering by unauthorized third parties, product contamination, unauthorized
use by consumers or other third parties. Previously unknown adverse reactions
resulting from human consumption of HEXOs products alone or in combination with
other medications or substances could occur. HEXO may be subject to various
product liability claims, including, among others, that HEXOs products caused
injury, illness or loss, include inadequate instructions for use or include
inadequate warnings concerning possible side effects or interactions with other
substances. A product liability claim or regulatory action against HEXO could
result in increased costs, could adversely affect HEXOs reputation with its
clients and consumers generally, and could have a material adverse effect on the
results of operations and financial condition of HEXO. There can be no
assurances that HEXO will be able to obtain or maintain product liability
insurance on acceptable terms or with adequate coverage against potential
liabilities. Such insurance is expensive and may not be available in the future
on acceptable terms, or at all. The inability to obtain sufficient insurance
coverage on reasonable terms or to otherwise protect against potential product
liability claims could prevent or inhibit the commercialization of HEXOs
potential products.

Product Recalls or Returns

Manufacturers and distributors of products are sometimes
subject to the recall or return of their products for a variety of reasons,
including product defects, such as contamination, unintended harmful side
effects or interactions with other substances, packaging safety and inadequate
or inaccurate labeling disclosure. If any of HEXOs products are recalled or
returned due to an alleged product defect or for any other reason, HEXO could be
required to incur the unexpected expense of the recall or return and any legal
proceedings that might arise in connection with the recall. HEXO may lose a
significant amount of sales and may not be able to replace those sales at an
acceptable margin or at all. In addition, a product recall or return may require
significant management attention. Although HEXO has detailed procedures in place
for testing finished products, there can be no assurance that any quality,
potency or contamination problems will be detected in time to avoid unforeseen
product recalls or returns, regulatory action or lawsuits. Additionally, if one
of HEXOs significant brands were subject to recall or return, the image of that
brand and HEXO could be harmed. A recall or return for any of the foregoing
reasons could lead to decreased demand for HEXOs products and could have a material adverse effect on the
results of operations and financial condition of HEXO. Additionally, product
recalls or returns may lead to increased scrutiny of HEXOs operations by Health
Canada or other regulatory agencies, requiring further management attention and
potential legal fees and other expenses.

32

---

Sufficiency of Insurance

The Company maintains various types of insurance which may
include errors and omissions insurance; directors and officers insurance;
property coverage; and, general commercial insurance. There is no assurance that
claims will not exceed the limits of available coverage; that any insurer will
remain solvent or willing to continue providing insurance coverage with
sufficient limits or at a reasonable cost; or, that any insurer will not dispute
coverage of certain claims due to ambiguities in the policies. A judgment
against any member of the Company in excess of available coverage could have a
material adverse effect on the Company in terms of damages awarded and the
impact on the reputation of the Company.

Unfavourable Publicity or Consumer Perception and Changing
Consumer Preferences

The Company believes the cannabis industry is highly dependent
upon consumer perception regarding the safety, efficacy and quality of the
cannabis produced. Consumer perception of the Companys products can be
significantly influenced by scientific research or findings, regulatory
investigations, litigation, media attention and other publicity regarding the
consumption of cannabis products. There can be no assurance that future
scientific research, findings, regulatory proceedings, litigation, media
attention or other research findings or publicity will be favorable to the
cannabis market or any particular product, or consistent with earlier publicity.
Future research reports, findings, regulatory proceedings, litigation, media
attention or other publicity that are perceived as less favorable than, or that
question, earlier research reports, findings or publicity could have a material
adverse effect on the demand for the Companys products and the business,
results of operations, financial condition, cash flows and prospects of the
Company. The Companys dependence upon consumer perceptions means that adverse
scientific research reports, findings, regulatory proceedings, litigation, media
attention or other publicity, whether or not accurate or with merit, could have
a material adverse effect on the Company, the demand for the Companys products,
and the business, results of operations, financial condition, cash flows and
prospects of the Company. Further, adverse publicity reports or other media
attention regarding the safety, efficacy and quality of cannabis in general, or
the Companys products specifically, or associating the consumption of cannabis
with illness or other negative effects or events, could have such a material
adverse effect. Such adverse publicity reports or other media attention could
arise even if the adverse effects associated with such products resulted from
consumers failure to consume such products appropriately or as directed.

In addition, the patterns of cannabis consumption in Canada and
elsewhere in the world may shift over time due to a variety of factors,
including changes in demographics, social trends, public health polices and
other leisure or consumption behaviors. If consumer preferences were to move
away from HEXOs products or cannabis products in general, or HEXO is unable to
anticipate and respond effectively to shifts in consumer behaviors, HEXOs
revenue may decline and its business, financial condition, results of operations
and prospects may be adversely affected.

Impact of the Illicit Supply of Cannabis

In addition to competition from licenced producers and those
able to produce cannabis legally without a licence, we also face competition
from unlicenced and unregulated market participants, including illegal
dispensaries and black market suppliers selling cannabis and cannabis-based
products in Canada.

Despite the legalization of medical and adult-use cannabis in
Canada, black market operations remain and are a substantial competitor to our
business. In addition, illegal dispensaries and black market participants may be
able to (i) offer products with higher concentrations of active ingredients that
are either expressly prohibited or impracticable to produce under current
Canadian regulations, and (ii) use delivery methods, including edibles,
concentrates and extract vaporizers, that we are currently prohibited from
offering to individuals in Canada, (iii) use marketing and branding strategies
that are restricted under the Cannabis Act and Cannabis Regulations, and (iv)
make claims not permissible under the Cannabis Act and other regulatory regimes.
As these illicit market participants do not comply with the regulations
governing the medical and adult-use cannabis industry in Canada, their
operations may also have significantly lower costs.

33

---

As a result of the competition presented by the black market
for cannabis, any unwillingness by consumers currently utilizing these
unlicenced distribution channels to begin purchasing from licenced producers for
any reason or any inability or unwillingness of law enforcement authorities to
enforce laws prohibiting the unlicenced cultivation and sale of cannabis and
cannabis-based products could (i) result in the perpetuation of the black market
for cannabis, (ii) adversely affect our market share and (iii) adversely impact
the public perception of cannabis use and licenced cannabis producers and
dealers, all of which would have a materially adverse effect on our business,
operations and financial condition.

Dependence on Suppliers and Skilled Labour

HEXOs ability to compete and grow will be dependent on having
access, at a reasonable cost and in a timely manner, to skilled labor,
equipment, parts and components. No assurances can be given that HEXO will be
successful in maintaining its required supply of skilled labor, equipment, parts
and components. It is also possible that the final costs of the major equipment
contemplated by HEXOs capital expenditure program may be significantly greater
than anticipated by its management, and may be greater than funds available to
HEXO, in which circumstance HEXO may curtail, or extend the timeframes for
completing, its capital expenditure plans. Moreover, as HEXO scales back its
operations, HEXO may experience difficulties retaining its workforce. Failure in
retaining employees through the changing market and regulatory environment may
affect HEXOs growth plans.

Reliance on Third Party Distributors and Other Service or
Logistics Providers

HEXO relies on third-party distributors and other service or
logistics providers, including pharmaceutical distributors and other courier
services, and may in the future rely on other third parties, to distribute its
products or provide other services. The Company recently entered into a contract
with Metro Supply Chain Group Inc. pursuant to which Metro Supply Chain Group
Inc. provides the Company with certain distribution and e-commerce services in
support of the Companys contract to manage a warehouse and distribution center
for Québec adult-use webstore orders for the SQDC. If these distributors and
service providers do not successfully carry out their contractual duties, if
there is a delay or interruption in the distribution of HEXOs products or
provision of HEXOs services, or if these third parties damage HEXOs products
or reputation, it could have a material adverse effect on the Companys
business, financial condition, results of operations or prospects. Any damage to
HEXOs products, such as product spoilage, could expose HEXO to potential
product liability, damage its reputation and the reputation of its brands or
otherwise harm its business.

Reliance on Key Inputs

The Companys business is dependent on a number of key inputs
and their related costs including raw materials and supplies related to its
growing operations, as well as electricity, water and other local utilities. Any
significant interruption or negative change in the availability or economics of
the supply chain for key inputs could materially impact the business, financial
condition and operating results of the Company. Some of these inputs may only be
available from a single supplier or a limited group of suppliers. If a sole
source supplier was to go out of business, the Company might be unable to find a
replacement for such source in a timely manner or at all. If a sole source
supplier were to be acquired by a competitor, that competitor may elect not to
sell to the Company in the future. Any inability to secure required supplies and
services or to do so on appropriate terms could have a materially adverse impact
on the business, financial condition and operating results of the Company.

Unfavourable Research Results

Research in Canada, the U.S. and internationally regarding the
medical benefits, viability, safety, efficacy, dosing and social acceptance of
cannabis or isolated cannabinoids (such as CBD and THC) remains in early stages.
There have been relatively few clinical trials on the benefits of cannabis or
isolated cannabinoids. The potential medical benefits of cannabinoids are based
on published articles and reports but are subject to the experimental
parameters, qualifications and limitations in the studies that have been
completed. Although HEXO believes that the articles,
reports and studies support its beliefs regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise concerns
regarding, and perceptions relating to, cannabis. Given these risks, uncertainties and assumptions, undue reliance should not be placed on such articles and reports. Future research studies and clinical trials may draw opposing conclusions or reach
negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing, social acceptance or other facts and perceptions related to cannabis, which could have a material adverse effect on the demand for HEXO’s products with
the potential to lead to a material adverse effect on HEXO’s business, financial condition, results of operations and prospects.

34

---

Joint Venture and Strategic Alliance Risks

HEXO has entered into, and intends to enter into in the future, joint ventures and strategic alliances with third parties that it believes will complement or augment HEXO’s existing business. Joint ventures and strategic alliances could
present unforeseen obstacles or costs, may not enhance HEXO’s business and may involve risks that could adversely affect HEXO, including: (i) HEXO may not control the joint ventures or strategic alliances; (ii) where HEXO does not have
substantial decision-making authority, it may experience impasses or disputes with its joint venture or strategic alliance partners on certain decisions, which could require HEXO to expend additional resources to resolve such impasses or disputes,
including litigation or arbitration; (iii) joint venture or strategic alliance partners may become insolvent or bankrupt, fail to fund their share of required capital contributions or fail to fulfil their obligations as partners; (iv) joint venture
or strategic alliance partners may have business or economic interests that are inconsistent with HEXO’s and may take actions contrary to HEXO’s interests; (v) HEXO may suffer losses as a result of actions taken by its joint venture or
strategic alliance partners with respect to joint venture investments or strategic alliances; and (vi) it may be difficult for HEXO to exit a joint venture or strategic alliance if an impasse arises or if HEXO desires to sell its interest for any
reason. In addition, HEXO’s ability to enter into or complete future joint ventures or strategic alliances is dependent upon, and may be limited by, the availability of suitable candidates and capital and there can be no assurance that HEXO
will be able to consummate any future joint venture or strategic alliance on satisfactory terms, or at all, or such future joint venture or strategic alliance will achieve the desired benefits. In addition, strategic alliances could present
unforeseen integration obstacles or costs, may not enhance HEXO’s business and may involve risks that could adversely affect HEXO, including the investment of significant amounts of management time that may be diverted from operations in order
to pursue and complete such transactions or maintain such strategic alliances.  Future strategic alliances could result in the incurrence of debt, costs and contingent liabilities, and there can be no assurance that future strategic alliances will
achieve, or that HEXO’s existing strategic alliances will continue to achieve, the expected benefits to its business or that HEXO will be able to consummate future strategic alliances on satisfactory terms, or at all. Any of the foregoing
risks and uncertainties could have a material adverse effect on HEXO’s business, financial condition, results of operations and prospects.

International Expansion Risks

HEXO has announced plans to expand into Europe with the establishment of a Eurozone processing, production and distribution centre in Greece through a partnership with QNBS P.C. HEXO’s expansion into jurisdictions outside of Canada is subject
to additional business risks, including whether any market for our products will develop or be maintained. HEXO may face new or unexpected risks or significantly increase its exposure to one or more existing risk factors, including economic
instability, changes in laws and regulations, and the effects of competition. These factors may limit HEXO’s ability to successfully expand our operations into such jurisdictions and may have a material adverse effect on the Company’s
business, financial condition, results of operations and prospects.

Changes, if any, in the laws, regulations and policies relating to the advertising, production, sale and use of cannabis and cannabis-based products or in the general economic policies in these jurisdictions, or shifts in political attitude related
thereto, may adversely affect the operations or profitability of HEXO’s international operations outside of Canada. Specifically, HEXO’s operations may be affected in varying degrees by government regulations with respect to, but not
limited to, restrictions on advertising, production, price controls, export controls, controls on currency remittance, increased income taxes, restrictions on foreign investment, land and water use restrictions and government policies rewarding
contracts to local competitors or requiring domestic producers or vendors to purchase supplies from a particular jurisdiction. Failure to comply strictly with applicable laws, regulations and local practices could result in additional taxes, costs,
civil or criminal fines or penalties or other expenses being levied on HEXO’s international operations, as well as other potential adverse
consequences such as the loss of necessary permits or governmental
approvals.

35

---

The continuation or expansion of HEXOs international
operations depends on its ability to renew or secure necessary permits, licences
and other approvals. An agencys denial of or delay in issuing or renewing a
permit, licence or other approval, or revocation or substantial modification of
an existing permit, licence or approval, could prevent the Company from
continuing its operations in, marketing efforts in, or exports to countries
other than Canada. Further, the export and import of medical cannabis is subject
to United Nations treaties establishing country-by-country quotas and HEXOs
export and import permits are subject to these quotas which could limit the
amount of cannabis it can export to any particular country.

In addition, if HEXO expands into jurisdictions which are
emerging markets, it may encounter political and other risks in emerging
markets. Such operations would expose HEXO to the socioeconomic conditions as
well as the laws governing the cannabis industry in such countries. Inherent
risks with conducting foreign operations include, but are not limited to: high
rates of inflation; extreme fluctuations in currency exchange rates; military
repression war or civil war; social and labor unrest; organized crime; hostage
taking; terrorism; violent crime; expropriation and nationalization;
renegotiation or nullification of existing licences, approvals, permits and
contracts; changes in taxation policies; restrictions on foreign exchange and
repatriation; and changing political norms, currency controls and governmental
regulations that favor or require us to award contracts in, employ citizens of,
or purchase supplies from, the jurisdiction. Governments in certain foreign
jurisdictions intervene in their economies, sometimes frequently, and
occasionally make significant changes in policies and regulations. Changes, if
any, in cannabis industry or investment policies or shifts in political attitude
in the countries in which HEXO may expand may adversely affect its operations or
profitability. Operations may be affected in varying degrees by government
regulations with respect to, but not limited to, restrictions on production,
price controls, export controls, currency remittance, importation of product and
supplies, income and other taxes, royalties, the repatriation of profits,
expropriation of property, foreign investment, maintenance of licences,
approvals and permits, environmental matters, land use, land claims of local
people, water use and workplace safety. Failure to comply strictly with
applicable laws, regulations and local practices could result in loss, reduction
or expropriation of licences, or the imposition of additional local or foreign
parties as joint venture partners with carried or other interests.

HEXO continues to monitor developments and policies in the
emerging markets in which it may expand; however, such developments cannot be
accurately predicted and could have an adverse effect on our operations or
profitability. Any of the foregoing risks and uncertainties could have a
material adverse effect on HEXOs business, financial condition, results of
operations and prospects.

Ownership or Control Restrictions in Foreign Jurisdictions

Non-resident individuals and non-domiciled foreign legal
entities may be subject to restrictions on the acquisition or lease of
properties in certain emerging markets. Limitations also apply to legal entities
domiciled in such countries which are controlled by foreign investors, such as
the entities through which HEXO may operate in certain countries. Accordingly,
HEXOs current and future operations may be impaired as a result of such
restrictions on the acquisition or use of property, and our ownership or access
rights in respect of any property we own or lease in such jurisdictions may be
subject to legal challenges, all of which could result in a material adverse
effect on the Companys business, results of operations, financial condition and
cash flows.

TSX Restrictions on U.S. Business Activities

On October 16, 2017, the TSX provided clarity regarding the
application of certain of its listing requirements to TSX-listed issuers with
business activities in the cannabis sector. In TSX Staff Notice 2017-0009, the
TSX notes that issuers with ongoing business activities that violate U.S.
federal law regarding cannabis are not in compliance with these requirements.
The TSX reminded issuers that, among other things, should the TSX find that a
listed issuer is engaging in activities contrary to the requirements, the TSX
has the discretion to initiate a delisting review. Failure to comply with the
requirements could have an adverse effect on our business.

36

---

Intellectual Property

HEXOs continued success depends significantly on the
protection of its trademarks, patents and intellectual property rights. HEXO has
been granted numerous trademark registrations covering its brands and products
and has filed, and expects to continue to file, trademark and patent
applications seeking to protect newly developed intellectual property. With
respect to the trademark and patent applications that HEXO has filed, HEXO
cannot offer any assurances about whether such applications will be granted.
Even if trademark and patent applications are successfully approved, third
parties may challenge their validity, enforceability, or scope, which may result
in such trademarks or patents being narrowed, found unenforceable or
invalidated. Even if they are unchallenged, any trademark or patent applications
and future trademarks and patents may not adequately protect HEXOs intellectual
property, provide exclusivity for its products or processes, or prevent others
from designing around any issued patent claims. Any of these outcomes could
impair HEXOs ability to prevent competition from third parties, which may have
an adverse impact on HEXOs business.

Unauthorized parties may also attempt to replicate or otherwise
obtain and use HEXOs products and technology. Policing the unauthorized use of
HEXOs existing or future trademarks, patents or other intellectual property
rights could be difficult, expensive, time consuming and unpredictable, as may
be enforcing these rights. Identifying the unauthorized use of intellectual
property rights is difficult as HEXO may be unable to effectively monitor and
evaluate the products being distributed by its competitors, including parties
such as unlicenced dispensaries and black-market participants, and the processes
used to produce such products. In addition, in any infringement proceeding,
HEXOs existing or future trademarks, patents or other intellectual property
rights or other proprietary know-how may be found invalid, unenforceable,
anti-competitive or not infringed or may be interpreted narrowly and such
proceeding could put existing intellectual property applications at risk of not
being issued.

In addition, other parties may claim that HEXOs products
infringe on their proprietary or patent protected rights. Such claims, whether
or not meritorious, may result in the expenditure of significant financial and
managerial resources and legal fees, result in injunctions or temporary
restraining orders or require the payment of damages. HEXO also relies on
certain trade secrets, technical know-how and proprietary information that are
not protected by patents to maintain its competitive position. HEXOs trade
secrets, technical know-how and proprietary information, which are not protected
by patents, may become known to or be independently developed by competitors,
which could adversely affect HEXO.

Failure of Quality Control Systems

The quality and safety of HEXOs products are critical to the
success of HEXOs business and operations. As such, it is imperative that HEXOs
(and its service providers) quality control systems operate effectively and
successfully. Quality control systems can be negatively impacted by the design
of the quality control systems, the quality training program, and adherence by
employees to quality control guidelines. Although HEXO strives to ensure that
all of its service providers have implemented and adhere to high caliber quality
control systems, HEXO could experience a significant failure or deterioration of
such quality control systems. If, as a result of a failure in HEXO (or HEXOs
service providers) quality control systems, contamination of, or damage to,
HEXOs inventory or packaged products occurs, HEXO may incur significant costs
in replacing the inventory and recalling products. HEXO may be unable to meet
customer demand and may lose customers who have to purchase alternative brands
or products. In addition, consumers may lose confidence in the affected
products. A loss of sales volume from a contamination event may occur, and such
a loss may affect HEXOs ability to supply its current customers and to
recapture their business in the event they are forced to switch products or
brands, even if on a temporary basis. HEXO may also be subject to legal action
as a result of a contamination, which could result in negative publicity and
affect HEXOs sales During this time, HEXOs competitors may benefit form an
increased market share that could be difficult and costly to regain.

Banned Substances

HEXOs products are made from cannabis and contain varying
levels of THC and CBD. THC and CBD banned in many jurisdictions and heavily
regulated in many others. Moreover, regulatory frameworks for legal amounts of
consumed THC and CBD is evolving. Whether or not ingestion of THC or CBD (at low
levels or otherwise) is permitted in a particular jurisdiction, there may be adverse
consequences to end users who test positive for trace amounts of THC or CBD
attributed to use of HEXOs products. Positive tests may adversely affect the
end users reputation, ability to obtain or retain employment and participation
in certain athletic or other activities. A claim or regulatory action against
HEXO based on such positive test results could adversely affect HEXOs
reputation.

37

---

Transportation of Cannabis Products

Due to the direct-to-consumer shipping model for medical
cannabis in Canada, HEXO depends on fast and efficient third-party
transportation services to distribute its medical cannabis products. In
addition, Canadian adult-use distribution rules take various forms on a
jurisdiction-by-jurisdiction basis and often require HEXO to employ third
parties to deliver HEXOs products to central government sites. Any prolonged
disruption of third-party transportation services could have a material adverse
effect on HEXOs sales volumes or HEXOs end users satisfaction with its
products. Rising costs associated with third-party transportation services used
by HEXO to ship its products may also adversely impact its profitability.

The security of HEXOs products during transportation to and
from HEXOs facilities is of the utmost concern. A breach of security at one of
our facilities, or during transport or delivery, could result in the significant
loss of product as well as customers and may expose HEXO to additional
liability, including regulatory fines, litigation or increased expenses relating
to the resolution and future prevention of similar events. Any failure to take
steps necessary to ensure the safekeeping of HEXOs cannabis could also have an
impact on HEXOs ability to continue operating under its existing licences, to
renew or receiving amendments to HEXOs existing licences or to receive required
new licences.

Indebtedness and the Credit Facility

The Credit Facility is subject to risks typically associated
with debt financing. In addition, the degree to which HEXO may be leveraged
under the Credit Facility could have important consequences to HEXO and its
shareholders, including the portion of the Companys cash flow that would need
to be dedicated to the payment of principal and interest and potential
limitations on the Companys ability to obtain additional financing for working
capital or capital expenditures in the future.

Risks associated with the Credit Facility could include risks
that HEXOs cash flows could be insufficient to satisfy required payments of
principal and interest, exposure of HEXO to the risk of increased interest rates
as certain of the Companys borrowings would likely be at variable rates of
interest, and enforcement risk in the event of default. It is also expected that
the Credit Facility would contain covenants that would require HEXO to maintain
certain financial ratios. If the Company did not maintain such ratios, it could
have consequences for the availability of credit under the Credit Facility or
result in repayment requirements that the Company may not be able to satisfy. If
HEXO was unable to meet any required payments under the Credit Facility, the
lenders could foreclose upon the Companys facilities securing its obligations
under the Credit Facility, appoint a receiver and receive an assignment of
accounts or pursue other remedies generally available to secured creditors, all
of which could result in a material adverse effect on the Company. The Companys
ability to make scheduled payments of principal and interest on its indebtedness
would depend on its future cash flow, which is subject to the financial
performance of the Companys business, prevailing economic conditions,
prevailing interest rate levels, and financial, competitive, business and other
factors, many of which would be beyond the Companys control.

Constraints on Marketing Products

The development of the Companys business and operating results
may be hindered by applicable restriction on promotion , marketing and
advertising activities imposed by Health Canada. The regulatory environment in
Canada limits the Companys ability to compete for market share in a manner
similar to other industries. If HEXO is unable to effectively market its
products and compete for market share, or if the costs of compliance with
government legislation and regulation cannot be absorbed through the selling
price for its products, the Companys sales and operating results could be
adversely affected.

38

---

Litigation

The Company may become party to litigation from time to time in
the ordinary course of business which could adversely affect its business.
Should any litigation in which the Company becomes involved be determined
against the Company, such a decision could adversely affect the Companys
ability to continue operating and the market price for the Companys common
shares and could use significant resources. Even if the Company is involved in
litigation and wins, litigation can redirect significant company resources.

Realization of Growth Targets

The Companys growth strategy contemplates outfitting and
completing its facilities with additional production resources. There is a risk
that these additional resources will not be achieved on time, on budget, or at
all, as they can be adversely affected by a variety of factors, including some
that are discussed elsewhere in these risk factors and the following:

- delays in obtaining, or conditions imposed by, regulatory approvals;
- failure to obtain anticipated license capacity increases;
- plant design errors, non- performance by third party contractors,
  increases in materials or labour costs or construction performance falling
  below expected levels of output or efficiency;
- environmental pollution;
- contractor operator errors or breakdowns, aging or failure of equipment or
  processes;
- labour disputes, disruptions or declines in productivity or inability to
  attract sufficient numbers of qualified workers;
- disruption or delay in acquiring incremental supply of energy and
  utilities as needed; and
- incidents and/or extraordinary catastrophic events such as fires,
  explosions, earthquakes or storms.

As a result, there is a risk that the Company may not have
product, or sufficient product, available for shipment, to meet the expectations
of its potential customers or its business plan.

Environmental and Employee Health and Safety Regulations

The Companys operations are subject to environmental and
safety laws and regulations concerning, among other things, emissions and
discharges to water, air and land, the handling and disposal of hazardous and
non-hazardous materials and wastes, and employee health and safety. The Company
will incur ongoing costs and obligations related to compliance with
environmental and employee health and safety matters. Failure to comply with
environmental and safety laws and regulations may result in additional costs for
corrective measures, penalties or in restrictions on our manufacturing
operations. In addition, changes in environmental, employee health and safety or
other laws, more vigorous enforcement thereof or other unanticipated events
could require extensive changes to the Companys operations or give rise to
material liabilities, which could have a material adverse effect on the
business, results of operations and financial condition of the Company.

Price Volatility of the Common Shares

The outstanding Common Shares are listed on the TSX and the
NYSE, under the symbol HEXO. The market price of the Common Shares may be
volatile and subject to wide fluctuations in response to numerous factors, many
of which are beyond HEXOs control. Companies in the cannabis sector have also
been experiencing extreme volatility in their trading prices. This volatility
may affect the ability of holders of Common Shares to sell their securities at
an advantageous price. Market price fluctuations in the Common Shares may be due
to the Companys operating results failing to meet expectations of securities
analysts or investors in any period, downward revision in securities analysts
estimates, adverse changes in general market or industry conditions or economic
trends, acquisitions, dispositions or other material public announcements by the
Company or its competitors, along with a variety of additional factors. These
broad market fluctuations may adversely affect the trading price of the Common
Shares.

Financial markets historically at times experienced significant
price and volume fluctuations that have particularly affected the market prices
of equity securities of companies and that have often been unrelated to the
operating performance, underlying asset values or prospects of such
companies. Accordingly, the market price of the Common Shares may decline even
if the Companys operating results, underlying asset values or prospects have
not changed. Additionally, these factors, as well as other related factors, may
cause decreases in asset values that are deemed to be other than temporary,
which may result in impairment losses. There can be no assurance that continuing
fluctuations in price and volume will not occur. If such increased levels of
volatility and market turmoil continue, the Companys operations could be
adversely impacted, and the trading price of the Common Shares may be materially
and adversely affected.

39

---

Future Sales or Issuances of Securities

We may issue additional securities to finance future
activities. The Companys articles permit the issuance of an unlimited number of
Common Shares, and shareholders will have no pre-emptive rights in connection
with such further issuance. The directors of the Company have discretion to
determine the price and the terms of further issuances. Moreover, additional
Common Shares will be issued by the Company on the exercise of options under the
Companys stock option plan and upon the exercise of outstanding warrants. We
cannot predict the size of future issuances of securities or the effect, if any,
that future issuances and sales of securities will have on the market price of
the Common Shares. Sales or issuances of substantial numbers of Common Shares,
or the perception that such sales could occur, may adversely affect prevailing
market prices of the Common Shares. In connection with any issuance of Common
Shares, investors will suffer dilution to their voting power, and we may
experience dilution in our earnings per share.

Cybersecurity Risks

The information systems maintained by HEXO and any third-party
service providers and vendors, are vulnerable to an increasing threat of
continually evolving cybersecurity risks. These risks may take the form of
malware, computer viruses, cyber threats, extortion, employee error,
malfeasance, system errors or other types of risks, and may occur from inside or
outside of the respective organizations. Cybersecurity risk is increasingly
difficult to identify and quantify and cannot be fully mitigated because of the
rapid evolving nature of the threats, targets and consequences. Additionally,
unauthorized parties may attempt to gain access to these systems through fraud
or other means of deceiving third-party service providers, employees or vendors.
HEXOs operations depend, in part, on how well networks, equipment, IT systems
and software are protected against damage from a number of threats. These
operations also depend on the timely maintenance, upgrade and replacement of
networks, equipment, IT systems and software, as well as pre-emptive expenses to
mitigate the risks of failures. However, if HEXO is unable or delayed in
maintaining, upgrading or replacing IT systems and software, the risk of a
cybersecurity incident could materially increase. Any of these and other events
could result in information system failures, delays and/ or increases in capital
expenses. The failure of information systems or a component of information
systems could, depending on the nature of any such failure, adversely impact
HEXOs reputation and results of operations.

In addition, HEXO collects and stores certain personal
information about patients who purchase its medical cannabis and is responsible
for protecting that information from privacy breaches. A privacy breach may
occur through procedural or process failure, information technology malfunction,
or deliberate unauthorized intrusions. In addition, theft of data is an ongoing
risk whether perpetrated via employee collusion or negligence or through
deliberate cyber-attack. Any such privacy breach or theft could have a material
adverse effect on HEXOs business, financial condition, results of operations
and prospects.

In addition, there are a number of federal and provincial laws
protecting the confidentiality of certain patient health information, including
patient records, and restricting the use and disclosure of that protected
information. In particular, the privacy rules under the Personal Information
Protection and Electronics Documents Act (Canada) (PIPEDA) and
where applicable, provincial legislation governing personal health information,
protect medical records and other personal health information by limiting their
use and disclosure of health information to the minimum level reasonably
necessary to accomplish the intended purpose. If HEXO was found to be in
violation of the privacy or security rules under PIPEDA or other laws protecting
the confidentiality of medical cannabis patient health information, it could be
subject to sanctions and civil or criminal penalties, which could increase its
liabilities, harm its reputation and have a material adverse effect on the
business, results of operations, financial condition and prospects of HEXO.

40

---

Valuation of Biological Assets

Pursuant to IFRS, HEXO measures the value of its biological
assets consisting of cannabis plants using the income approach at fair value
less costs to sell up to the point of harvest. As market prices are generally
not available for biological assets while they are growing, HEXO is required to
make assumptions and estimates relating to, among other things, future
agricultural commodity yields, prices and production costs. The assumptions and
estimates used to determine the fair value of biological assets, and any changes
to such prior estimates, directly affect HEXOs reported results of operations.
If actual yields, prices, costs, market conditions or other results differ from
HEXOs estimates and assumptions, there could be material adjustments to HEXOs
results of operations. In addition, the use of these future estimated metrics
differs from generally accepted accounting principles in the United States
(U.S. GAAP). As a result, HEXOs financial statements and reported
earnings are not directly comparable to those of similar companies in the United
States reporting under U.S. GAAP.

Failure to Realize Benefits of Newstrike Acquisition

While we conducted substantial due diligence in connection with
the acquisition of Newstrike, there are risks inherent in any acquisition.
Specifically, there could be unknown or undisclosed risks or liabilities for
which we are not sufficiently indemnified. Any such unknown or undisclosed risks
or liabilities could materially and adversely affect HEXOs business and results
of operations.

The intended reasons for the acquisition of Newstrike may not
materialize or be realized. The acquisition of Newstrike involves the
integration of companies that previously operated independently. Achieving the
benefits of acquisitions depends in part on successfully consolidating
functions, retaining key employees and customer relationships, and continuing
operations and procedures in a timely and efficient manner. Such integration may
require substantial management effort, time and resources and may divert
managements focus from other strategic opportunities and operational matters.
The difficulties management encounters in the transition and integration process
could have an adverse effect on the revenues, level of expenses and operating
results of HEXO and, ultimately, HEXO may fail to realize the anticipated
benefits of the acquisition.

Acquisition and Development Risks

HEXO expects to selectively seek strategic acquisitions. HEXOs
ability to consummate and to integrate effectively any future acquisitions on
terms that are favourable to it may be limited by the number of attractive
acquisition targets, internal demands on HEXOs resources and, to the extent
necessary, HEXOs ability to obtain financing on satisfactory terms, if at all.
Acquisitions may expose HEXO to additional risks including difficulties in
integrating administrative, financial reporting, operational and information
systems and managing newly acquired operations and improving their operating
efficiency, difficulties in maintaining uniform standards, controls, procedures
and policies through all of the HEXOs operations, entry into markets in which
HEXO has little or no direct experience; difficulties in retaining key employees
of the acquired operations; and disruptions to HEXOs ongoing business. In
addition, future acquisitions could result in the incurrence of additional debt,
costs, and contingent liabilities to HEXO. HEXO may also incur costs for and
divert management attention to potential acquisitions that are never
consummated. For acquisitions that are consummated, expected synergies may not
materialize. HEXOs failure to effectively address any of these issues could
have a material adverse effect on HEXOs business, financial condition, results
of operations and cash flows in the future.

Material Weaknesses in Internal Controls Over Financial
Reporting

In accordance with National Instrument 52-109 Certification
of Disclosure in Issuers Annual and Interim Filings(NI
52-109),the establishment and maintenance of Disclosure Controls
and Procedures (DCP) and Internal Control Over Financial Reporting
(ICFR) is the responsibility of management. The DCP and ICFR have been
designed by management based on the 2013 Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) to provide reasonable assurance that the Companys financial
reporting is reliable and that its financial statements have been prepared in
accordance with IFRS.

41

---

Regardless of how well the DCP and ICFR are designed, internal
controls have inherent limitations and can only provide reasonable assurance
that the controls are meeting the Companys objectives in providing reliable
financial reporting information in accordance with IFRS. These inherent
limitations include, but are not limited to, human error and circumvention of
controls and as such, there can be no assurance that the controls will prevent
or detect all misstatements due to errors or fraud, if any.

The Company maintains a set of disclosure controls and
procedures designed to provide reasonable assurance that information required to
be publicly disclosed is recorded, processed, summarized and reported on a
timely basis. An evaluation of the design of Disclosure Controls was done under
the supervision and with the participation of management, including our Chief
Executive Officer and Chief Financial Officer. Based upon this evaluation, the
material changes to the control environment and the material weakness in our
internal control over financial reporting as at July 31, 2019, are set forth
below.

Business Acquisition

On May 24, 2019, the Company finalized the acquisition of
Newstrike. Under NI 52-109, the Company is permitted to limit the scope of its
design of DCP and ICFR for a business that was acquired not more than 365 days
before the end of the financial period to which the certificate relates.
Therefore, the Company will continue to assess the design of controls, evaluate
the controls and work to implement the established control structure within the
operations of Newstrike and certify such once in a position to do so.

The above acquisition contributed net revenue of $2,770 and a
net loss of $13,699 to the Companys consolidated results for the fiscal year
ended since the date of acquisition.

Material Changes to the Control Environment

During the period the Company continued to embark on a
transformation project, enabled by a new end to end Enterprise Resource Planning
(ERP) system. When completed, the project will provide an integrated
system for inventory tracking and valuation from seed to sale. The project was
launched in November 2017 to standardize and automate business processes and
controls across the organization. As at July 31, 2019, the systems Finance,
Sales and Procurement processes were functional. It will continue to be rolled
out for inventory tracking and processing throughout the fiscal year. The
project is a major initiative that is utilizing third party consultants, and a
solution designed specifically for the cannabis industry. The new ERP is
intended to facilitate improved reporting and oversight and enhance internal
controls over financial reporting.

Also, during the period were changes made to the Companys
inventory count process, procedures and estimate approach. Due to the
significant increase in volume as the Companys production levels rise, there
were additional complexities added to this process. Additional resources were
required to complete the inventory count including the reallocation of personnel
from other departments and the use of third-party services. This inherently
creates an increased risk environment in that less experienced personnel were
involved in the process.

Identified Material Weaknesses and Remediation
Plan

A material weakness in internal control over financial
reporting is a deficiency, or a combination of deficiencies, in internal control
over financial reporting, such that there is a reasonable possibility that a
material misstatement of a company's annual or interim financial statements will
not be prevented or detected on a timely basis by the company's internal
controls.

Management has performed a detailed risk assessment to identify
key account and business processes and related controls, which was informed by
process flow mapping with key control owners.

As of the fiscal year ended July 31, 2019, management has
identified the following material weaknesses in the Companys internal control
over financial reporting and implemented the associated remediation activity as
outlined below.

42

---

Complex Spreadsheet Controls

Management concluded that the Company did not implement and
maintain effective controls surrounding complex spreadsheets. Spreadsheets are
inherently prone to error due to the manual nature and increased risk of human
error. The Companys controls related to complex spreadsheets did not address
all identified material risks associated with manual data entry, documentation
of assumptions, completeness of data entry, and the accuracy of formulas.

The Company has engaged a third party to aid in the
identification, assessment and remediation over the design and implementation
effectiveness of complex spreadsheet internal controls over financial reporting.
The Company intends to move towards an ERP which possesses specific
functionality to remove the manual nature and usage of complex spreadsheets in
future periods.

Implementation of an ERP

The Company did not have effective information technology (IT)
general controls over all operating systems, databases, and IT applications
supporting financial reports. Accordingly, process-level automated controls and
manual controls that were dependent upon the information derived from IT systems
were also determined to be ineffective.

The Company has engaged a third party to aid in the
identification, assessment and remediation over the design and implementation
effectiveness of IT related internal controls over financial reporting. The
Company intends to fully implement the ERP during fiscal 2020 and will only take
reliance upon such controls once the appropriate level of testing is
reached.

Inventory Count

The Company did not have effective controls around its year-end
inventory count procedures, specifically with respect to its reconciliation of
the ERP system, due to the details outlined in the previous change to control
environment section.

To further strengthen controls surrounding inventory,
management has initiated or enhanced the following procedures:

- Segregation of duties to initiate work, production orders and inventory
  adjustments will be strengthened;
- Work, production orders and inventory adjustments will be reviewed and
  approved by the relevant supervisor;
- Further enhancements to the ERP inventory processing, tracking and
  reporting functionality and supporting work procedures in order to ensure
  their sustainability; and
- Additional training, guidance and communications to internal teams and
  third-party inventory count providers regarding inventory management and count
  procedures.

Procurement

The Company did not maintain effective controls over the
purchasing of capital goods and services, including the athorization of
purchases, processing and payment of vendor invoices, the classification of
various expenses and capitalization of assets.

To strengthen the controls surrounding the procurement process,
management has initiated or enhanced the following procedures;

- Enhancements to the ERPs purchasing functionality; including segregation
  of duties to initiate and release purchase orders; and
- Additional training, guidance and communications to internal teams
  regarding the Companys procurement policies and required adherence to the
  Governance Authority Matrix.

43

---

Financial Reporting

The Company did not maintain effective process level and
management review controls over manual financial reporting processes and the
application of IFRS and accounting measurements related to certain significant
accounts and non-routine transactions.

To strengthen the controls surrounding the financial reporting
process, management has initiated the following;

- Assessing the financial and accounting resources in order to identify the
  areas and functions that lack sufficient personnel and other resources;
- Hiring additional personnel, to be dedicated to the implementation,
  maintenance and monitoring of disclosure and financial controls, including our
  current efforts to recruit a Director of Finance; and
- Engaging third-party advisors with appropriate expertise to assist in the
  application of complex accounting measurements and non-routine transactions.
  Difficulties with Forecasts

The Company must rely largely on its own market research to
forecast sales as detailed forecasts are not generally obtainable from other
sources at this early stage of the medical cannabis industry in Canada. A
failure in the demand for its products to materialize as a result of
competition, technological change or other factors could have a material adverse
effect on the business, results of operations and financial condition of the
Company.

Management of Growth

The Company may be subject to growth-related risks including
capacity constraints and pressure on its internal systems and controls. The
ability of the Company to manage growth effectively will require it to continue
to implement and improve its operational and financial systems and to expand,
train and manage its employee base. If the Company is unable to deal with this
growth; that may have a material adverse effect on the Companys business,
financial condition, results of operations and prospects.

Macroeconomic and Other Geo-Political Risks

HEXOs business is subject to risks associated with adverse
economic conditions in Canada and globally, including economic slowdown,
inflation and the disruption, volatility and tightening of credit and capital
markets. Increases in unemployment rates, tax increases, governmental spending
cuts or a return of high levels of inflation could adversely affect consumer
spending patterns and result in a reduction in consumption of cannabis products
in Canada and elsewhere in the world, including HEXOs products. HEXOs
business, financial condition, results of operations and prospects may suffer as
a result. These conditions could also worsen cash flows, liquidity and access to
capital for HEXO and cause and other financial hardships for HEXO and its
suppliers, distributors, retailers and clients, thereby adversely impacting
HEXOs ability to produce and distribute its products.

In addition, natural disasters, pandemic outbreaks, boycotts,
civil unrest and other geo-political disruptions could adversely affect HEXO.
These events may damage HEXOs properties, deny HEXO access to an adequate
workforce, increase the cost of energy and other raw materials, temporarily or
permanently close HEXOs facilities, disrupt the production, supply and
distribution of HEXOs products and disrupt HEXOs information systems.

Fraudulent or Illegal Activities by Employees, Contractors
or Consultants

The Company is exposed to the risk that its employees,
independent contractors and consultants may engage in fraudulent or other
illegal activity. Misconduct by these parties could include intentional,
reckless and/or negligent conduct or disclosure of unauthorized activities to
the Company that violates: (i) government regulations; (ii) manufacturing
standards; (iii) federal and provincial healthcare fraud and abuse laws and
regulations; or (iv) laws that require the true, complete and accurate reporting
of financial information or data. It is not always possible for the Company to
identify and deter misconduct by its employees and other third parties, and the
precautions taken by the Company to detect and prevent this activity may not be
effective in controlling unknown or unmanaged risks or losses or in protecting
the Company from governmental investigations or other actions or lawsuits
stemming from a failure to be in compliance with such laws or regulations. If
any such actions are instituted against HEXO, and it is not successful in defending itself or asserting its rights, those
actions could have a significant impact on our business, including the
imposition of civil, criminal and administrative penalties, damages, monetary
fines, contractual damages, reputational harm, diminished profits and future
earnings, and curtailment of the Companys operations, any of which could have a
material adverse effect on the Companys business, financial condition and
results of operations.

44

---

Significant Obligations as a Public Company and Failure to
Maintain Effective Disclosure Controls or Internal Controls Over Financial
Reporting

The Company is subject to evolving corporate governance and
disclosure regulations that may from time to time increase HEXOs risk of
non-compliance, which could adversely impact the price of the Common Shares.

The Company is subject to changed rules and regulations as
implemented by a number of governmental and self-regulated bodies, including,
but not limited to, the Canadian Securities Administration, the TSX and the
International Accounting Standards Board. These rules and regulations continue
to evolve in scope and complexity creating many new requirements.

The Company is subject to National Instrument 52-109
Certifications for Disclosure in Issuers Annual and Interim Filings, to
file certifications related to establishing and maintaining adequate Disclosure
Controls and Procedures (DCP) and Internal Control Over Financial
Reporting (ICFR). In addition, starting with our next annual filing
with the SEC, our management will be required to file similar certifications
with the SEC and our management will be required to conclude as to the efficacy
of our DCP and ICFR. If we do not satisfy the DCP and ICFR requirements on an
ongoing and timely basis, investors could lose confidence in the reliability of
our financial statements, and this could harm our business and have a negative
effect on the trading price or market value of securities of the Corporation. We
have identified several material weaknesses in our ICFR. See Material
Weaknesses in Internal Controls Over Financial Reporting. If we do not
implement new or improved controls, or experience difficulties in implementing
them, it could harm our operating results, or we may not be able to meet our
reporting obligations. There is no assurance that we will be able to remediate
the material weaknesses we have identified or any additional material weaknesses
or significant deficiencies we may identify in future periods, or maintain all
of the necessary controls to ensure continued compliance. There is also no
assurance that we will be able to retain personnel who have the necessary
finance and accounting skills because of the increased demand for qualified
personnel among publicly traded companies. Although we intend to devote
substantial time to ongoing compliance with this, including incurring the
necessary costs associated with therewith, we cannot be certain that we will be
successful in complying with the aforementioned public governance requirements.

We do not expect that our DCP and ICFP will prevent all error
or fraud. A control system, no matter how well-designed and implemented, can
provide only reasonable, not absolute, assurance that the control systems
objectives will be met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Due to the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues within an organization are detected. The inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple errors or mistakes. Controls can also be
circumvented by individual acts of certain persons, by collusion of two or more
people or by management override of the controls. Due to the inherent
limitations in a cost-effective control system, misstatements due to error or
fraud may occur and may not be detected in a timely manner or at all. If we
cannot provide reliable financial reports or prevent fraud, our reputation and
operating results could be materially adversely affected, which could also cause
investors to lose confidence in our reported financial information, which in
turn could result in a reduction in the trading price of the common shares.

Industry Research

The trading market for HEXOs Common Shares depends, in part,
on the research and reports that securities or industry analysts publish about
HEXO and its business. If one or more of the analysts who cover HEXO downgrades
its Common Shares or publishes inaccurate or unfavorable research about HEXOs
business, the trading price of the Common Shares may decline. In addition, if
HEXOs results of operations fail to meet the forecasts of analysts, the trading
price of the Common Shares may also decline. If one or more of these analysts
cease coverage of HEXO or fail to publish reports on HEXO regularly, demand for
HEXOs Common Shares could decrease, which might cause the trading price and trading volume to decline.

45

---

Return on Investment Risk

There is no guarantee that an investment in the Offered Shares
will earn any positive return in the short or long term. No dividends on the
Common Shares have been paid to date. A purchase of Offered Shares under the
Offering involves a high degree of risk and should be undertaken only by
investors whose financial resources are sufficient to enable them to assume such
risks and who have no need for immediate liquidity in their investment.

Dividends

HEXO has never declared or paid any dividends on our Common
Shares. We intend, for the foreseeable future, to retain our future earnings, if
any, to finance our business activities. The payment of future dividends, if
any, will be reviewed periodically by our Board and will depend upon, among
other things, conditions then existing including earnings, financial conditions,
cash on hand, financial requirements to fund our business activities,
development and growth, and other factors that our Board may consider
appropriate in the circumstances.

Investment Company Status

The U.S. Investment Company Act of 1940, as amended (the
Investment Company Act), prohibits a non-U.S. issuer that is an
investment company as defined therein from making public offers or sales of
securities in the United States. An issuer generally will be deemed to be an
investment company for purposes of the Investment Company Act if it owns or
proposes to acquire investment securities having a value exceeding 40% of the
value of its total assets (exclusive of U.S. government securities and cash
items) on an unconsolidated basis.

While we do not currently believe we are an investment
company, we hold assets that are investment securities, including our interest
in Truss. We do not control the ability to restructure the Truss arrangement
such that it is not an investment security. We also intend to enter into other
joint ventures or similar arrangements, which may involve investment securities.
If the value of our interest in Truss, in other joint ventures or in other
investment securities relative to our total assets were to increase, we may be
deemed to be an investment company. In that case, we may not be able to raise
additional funds through public offers and sales of securities in the United
States. We would not be able to avoid this outcome by registering as an
investment company under the Investment Company Act because the Investment
Company Act generally prohibits non-U.S. entities from registering and also
imposes many restrictions on the capital structure, governance, and activities
of registered investment companies, which we would be unable to comply with.

PFIC Risks

If the Company is classified as a passive foreign investment
company (a PFIC) within the meaning of Section 1297 of the U.S.
Internal Revenue Code of 1986, as amended (the Code) in the current or
future tax years, a U.S. holder of Common Shares may suffer adverse U.S. federal
income tax consequences. The Company believes that it was not a PFIC for the
fiscal year ended July 31, 2019, and based on current business plans and
financial expectations, the Company expects that it should not be a PFIC for the
current fiscal year and expects that it should not be a PFIC for the foreseeable
future. However, the tests for determining PFIC status are based upon the
composition of the income and assets of the Company and its subsidiaries and
affiliates from time to time, and it is difficult to make accurate predictions
of future income and assets. Accordingly, there can be no assurance that the
Company will not become a PFIC in the future. A non-U.S. corporation generally
will be considered a PFIC for any taxable year if either: (i) at least 75% of
its gross income is passive income; or (ii) at least 50% of the value of its
assets is attributable to assets that produce or are held for the production of
passive income (which generally includes cash). See Certain U.S. Federal
Income Tax ConsiderationsPassive Foreign Investment Company Rules for a
discussion of such potential consequences.

Enforceability of Actions Under U.S. Federal Securities
Laws

Although the Company has appointed an agent for service of
process in the United States, it may be difficult for United States investors to effect services of process or enforcement
of actions against the Company or certain of its directors and officers under
U.S. federal securities laws. The Company is incorporated under the laws of the
Province of Ontario, Canada. All of its directors and officers reside in Canada.
Because the assets of the Company and these persons may be located outside the
United States, it may be difficult for United States investors to effect service
of process in the United States upon the Company or the directors or officers of
the Company, or to realize in the United States upon judgments of United States
courts predicated upon civil liabilities under U.S. federal securities laws or
other United States laws. There is substantial doubt as to whether an original
action could be brought successfully in Canada against any of such persons or
the Company predicated solely upon such civil liabilities and whether a judgment
of a United States court predicated solely upon such civil liabilities would be
enforceable in Canada by a Canadian court.

46

---

Entry into the United States

Requirements for international travelers wishing to enter the
United States are governed by and conducted in accordance with U.S. federal law.
Although medical and recreational cannabis may be legal in some U.S. states and
Canada, the sale, possession, production and distribution of cannabis containing
0.3% or more THC or the facilitation of the aforementioned remains illegal under
U.S. federal law, and significant regulation or the transportation of cannabis
across state and national borders continues to apply. Consequently, persons
seeking to enter the United States who are not U.S. citizens may be denied entry
if the purpose of their visit is related to cannabis or the cannabis industry,
and potentially also as a result of other connections to cannabis or the
cannabis industry, including investments in cannabis companies.

DIVIDENDS

As of the date of this Annual Information Form, the Company has
not paid any dividends and has no current intention to declare dividends on its
Common Shares in the foreseeable future. Any decision to pay dividends on its
Common Shares in the future will be at the discretion of the Companys board of
directors and will depend on, among other things, the Companys results of
operations, current and anticipated cash requirements and surplus, financial
condition, any future contractual restrictions and financing agreement
covenants, solvency tests imposed by corporate law and other factors that the
board of directors may deem relevant.

CAPITAL STRUCTURE

The Company is authorized to issue an unlimited number of
Common Shares and an unlimited number of special shares issuable in series. As
of the date of this Annual Information Form, there are 256,018,560 Common Shares
issued and outstanding.

The holders of the Common Shares are entitled to one vote per
share at all meetings of the shareholders of the Company either in person or by
proxy. The holders of Common Shares are also entitled to dividends, if and when
declared by the directors of the Company and the distribution of the residual
assets of the Company in the event of a liquidation, dissolution or winding up
of the Company. The Common Shares rank equally as to all benefits which might
accrue to the holders thereof, including the right to receive dividends, voting
powers, and participation in assets and in all other respects, on liquidation,
dissolution or winding-up of the Company, whether voluntary or involuntary, or
any other disposition of the assets of the Company among its shareholders for
the purpose of winding up its affairs after the Company has paid out its
liabilities. The Common Shares are not subject to call or assessment rights or
any preemptive or conversion rights. There are no provisions for redemption,
purchase for cancellation, surrender or purchase of funds.

The Company has adopted an omnibus long-term incentive plan
(the Omnibus Plan) under which it is authorized to grant stock options,
restricted shares, restricted share units, deferred share units, share
appreciation rights and retention awards (collectively, Awards) to
officers, directors, employees and consultants. The maximum number of Common
Shares reserved for issuance pursuant to Awards that may be granted under the
Omnibus Plan is 10% of the issued and outstanding Common Shares as at the date of the
grant. The Omnibus Plan is a rolling plan or evergreen plan under the rules
of the TSX. As of the date of this Annual Information Form, there are Awards
outstanding under the Omnibus Plan for stock options exercisable to purchase up
to 15,866,166 Common Shares. No other Awards have been made under the Omnibus
Plan as of the date of this Annual Information Form.

47

---

In addition, the Company has adopted a stock option plan (the
Option Plan) under which it was authorized to grant stock options to
officers, directors, employees, and consultants. The Omnibus Plan has replaced
the Option Plan and no additional stock options will be issued under the Option
Plan. At the time the Omnibus Plan was adopted on June 27, 2018, there were
stock options to acquire 9,323,396 Common Shares issued under the Option Plan,
which are in addition to any Awards which may be made under the Omnibus Plan. As
of the date of this Annual Information Form, there are options which remain
outstanding under the Option Plan exercisable to purchase up to 4,524,429 Common
Shares.

The Company inherited the underlying stock option plan of the
acquired company Newstrike (the Newstrike Option Plan) upon the close
of the transaction on May 24, 2019. The Newstrike Option Plan ceased to continue
to issue common share purchase stock options upon the close of the transaction.
The Company acquired a total of 2,011,863 stock options post conversion at the
fixed Exchange Ratio in accordance with the acquisition. As of the date of this
Annual Information Form, there are options which remain outstanding under the
Newstrike Option Plan exercisable to purchase up to 1,935,835 Common Shares.

In addition, as the date of this Annual Information Form, the
Company also has common share purchase warrants outstanding exercisable to
purchase up to 29,585,408 Common Shares at conversion prices ranging from $0.75
-$27.64.

MARKET FOR SECURITIES

Common Shares

The Common Shares are currently listed and posted for trading
on the TSX and the NYSE under the trading symbol HEXO. Prior to the Common
Shares being listed and posted for trading on the NYSE, the Common Shares were
also listed and posted for trading on the NYSE-A from January 23, 2019 until
July 15, 2019.

The following table sets forth the reported intraday high and
low prices and monthly trading volumes of the Common Shares on the TSX on a
monthly basis for the Companys fiscal year ended July 31, 2019.

|               |  | TSX Price Range |  |      
|-------------- |  | --------------- |  | -----
|Month          |  | High            |  | Low  
|               |  |                 |  |      
|July 2019      |  | $7.00           |  | $4.90
|June 2019      |  | $9.02           |  | $6.59
|May 2019       |  | $10.93          |  | $8.52
|April 2019     |  | $11.29          |  | $7.86
|March 2019     |  | $9.70           |  | $6.85
|February 2019  |  | $8.09           |  | $6.58
|January 2019   |  | $7.60           |  | $4.54
|December 2018  |  | $6.19           |  | $4.11
|November 2018  |  | $7.20           |  | $5.45
|October 2018   |  | $6.32           |  | $4.84
|September 2018 |  | $8.99           |  | $5.42
|August 2018    |  | $5.65           |  | $4.12

Notes:
(1) ****Source: TMX
Money.

48

---

The following tables set forth the reported intraday high and
low prices and monthly trading volumes of the Common Shares on the NYSE and the
NYSE-A on a monthly basis for the months or partial months in which the Common
Shares were listed and posted for trading on the NYSE or the NYSE-A for the
Companys fiscal year ended July 31, 2019.

|                   |  | **NYSE Price Range
($USD)** |  |      
|------------------ |  | --------------------------- |  | -----
|Month              |  | High                        |  | Low  
|July 16  31, 2019 |  | $5.15                       |  | $3.73

Notes:
(1) ****Source: TMX
Money.

|                      |  | **NYSE-A Price Range
    ($USD)** |  |      
|--------------------- |  | --------------------------------- |  | -----
|Month                 |  | High                              |  | Low  
|                      |  |                                   |  |      
|July 1  15, 2019     |  | $5.46                             |  | $4.79
|June 2019             |  | $6.80                             |  | $5.03
|May 2019              |  | $8.16                             |  | $6.28
|April 2019            |  | $8.40                             |  | $5.88
|March 2019            |  | $7.33                             |  | $5.10
|February 2019         |  | $4.98                             |  | $6.15
|January 23  31, 2019 |  | $4.91                             |  | $5.70

Notes:
(1) ****Source: TMX
Money.

Common Share Purchase Warrants

Certain common share purchase warrants of the Company which are
exercisable to acquire Common Shares at an exercise price of $5.60 per share
until January 30, 2020 are currently listed and posted for trading on the TSX
under the trading symbol HEXO.WT.

The following table sets forth the reported intraday high and
low prices and monthly trading volumes of the warrants on the TSX on a monthly
basis for the Companys fiscal year ended July 31, 2019.

|               |  | TSX Price Range |  |      
|-------------- |  | --------------- |  | -----
|Month          |  | High            |  | Low  
|               |  |                 |  |      
|July 2019      |  | $2.38           |  | $1.18
|June 2019      |  | $4.16           |  | $2.15
|May 2019       |  | $5.25           |  | $3.70
|April 2019     |  | $5.66           |  | $2.55
|March 2019     |  | $3.90           |  | $2.17
|February 2019  |  | $2.85           |  | $2.11
|January 2019   |  | $2.79           |  | $1.21
|December 2018  |  | $1.97           |  | $1.03
|November 2018  |  | $2.65           |  | $1.65
|October 2018   |  | $3.95           |  | $1.75
|September 2018 |  | $4.07           |  | $1.50
|August 2018    |  | $1.69           |  | $1.01

Notes:
(1)**** Source: TMX
Money.

49

---

PRIOR SALES

The following table summarizes details of the following
securities that are not listed or quoted on a marketplace issued by the Company
during the Companys fiscal year ended July 31, 2019:

Date
    Type of
      Security Issued
    Note
    Issuance/Exercise
      Price per Security
    IssuedSeptember 17, 2018
    Stock Options
    1
    $7.93
    1,173,500November 22, 2018
    Stock Options
    2
    $5.92
    440,000December 17, 2018
    Stock Options
    3
    $5.09
    301,500February 19, 2019
    Stock Options
    4
    $7.13
    1,241,000February 21, 2019
    Stock Options
    5
    $7.46
    3,333,333March 20, 2019
    Stock Options
    6
    $8.50
    1,402,500April 17, 2019
    Stock Options
    7
    $8.24
    1,132,500May 24, 2019
    Stock Options
    8
    Various
    2,011,863May 24, 2019
    Common Share Purchase Warrants
    8
    Various
    7,196,166July 18, 2019
    Stock Options
    9
    $6.54
    3,668,785July 26, 2019
    Stock Options
    10
    $5.88
    250,000


Notes:

|(1)  | The Company granted stock options under the Omnibus Plan
      to certain executive employees exercisable for a total of 650,000 Common
      Shares.                                                                                                                                                                               
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2)  | The Company granted stock options under the Omnibus Plan
      to certain non-executive employees exercisable for a total of 440,000
      Common Shares.                                                                                                                                                                           
|(3)  | The Company granted stock options under the Omnibus Plan
      to certain directors and executives exercisable for a total of 74,000
      Common Shares and to certain non-executive employees exercisable for a
      total of 227,500 Common Shares.                                                                             
|(4)  | The Company granted stock options under the Omnibus Plan
      to certain directors and executives exercisable for a total of 615,000
      Common Shares and to certain non-executive employees exercisable for a
      total of 626,000 Common Shares.                                                                            
|(5)  | The Company granted stock options under the Omnibus Plan
      to the President and CEO exercisable for a total of 3,333,333 Common
      Shares with the conditional vesting criteria of achieving a 20-day volume
      weighted average market price of great than $10 at any point during the 10
      year term of the options.
|(6)  | The Company granted stock options under the Omnibus Plan
      to certain directors and executives exercisable for a total of 325,000
      Common Shares and to certain non-executive employees exercisable for a
      total of 1,077,500 Common Shares.                                                                          
|(7)  | The Company granted stock options under the Omnibus Plan
      to certain non-executive employees exercisable for a total of 1,132,500
      Common Shares.                                                                                                                                                                         
|(8)  | The Company assumed certain obligations in respect of
      stock options and common share purchase warrants as a result of its
      acquisition of Newstrike. See General Development of the Business 
      Significant Acquisitions - Newstrike for details of the Newstrike
      acquisition.                              
|(9)  | The Company granted stock options under the Omnibus Plan
      to certain directors and executives exercisable for a total of 650,000
      Common Shares and to certain non-executive employees exercisable for a
      total of 3,018,785 Common Shares.                                                                          
|(10) | The Company granted stock options under the Omnibus Plan
      to certain directors exercisable for a total of 250,000 Common
    Shares.                                                                                                                                                                                           

ESCROWED SECURITIES AND SECURITIES SUBJECT TO RESTRICTION ON
TRANSFER

To the Companys knowledge, there exist no securities in escrow
or that are subject to a contractual restriction on transfer as of the date of
this Annual Information Form.

50

---

DIRECTORS AND OFFICERS

Name, Occupation and Security Holding

The table below sets out the names, provinces and country of
residence of the directors and executive officers of HEXO, their positions and
offices with HEXO, the dates since which they have served as a director or
executive officer of HEXO, their present principal occupations, and the number
and percentage of Common Shares which they beneficially own or over which they
have control or direction, directly or indirectly. Each director is elected
annually to serve until the earlier of his or her resignation or until his or
her successor is elected or appointed.

Name and Residence
    Position and Offices Heldwith the Company
    Director or OfficerSince(1)
    Principal
      Occupation(2)
    Number and %of CommonSharesBeneficiallyOwned orControlled orDirected,Directly orIndirectly(3)Sébastien St-Louis Ontario, Canada
    President and Chief Executive Officer and
      Director
    August 13, 2013(10)
    Co-founder and Chief Executive Officer of HEXO
    3,159,030(6)(1.23%)Dr. Michael Munzar Québec, Canada
    Director and Chair
    November 17, 2014(10)
    Medical doctor
    1,791,532(7)(0.70%)Adam Miron Ontario, Canada
    Director
    August 13, 2013(10)
    Co-founder and director of HEXO
    3,000,000 (8)(1. 17%)Jason Ewart(4),(5),(11)Ontario, Canada
    Director
    November 17, 2014(10)
    Director and Executive Vice- President, Capital
      Markets of Uptempo Inc.
    Nil (0.00%)Vincent Chiara(4),(5)Québec, Canada
    Director
    November 4, 2016 (10)
    President of Groupe Mach Inc.
    7,767,632(9)(3.02%)Nathalie Bourque(4),(5)Québec, Canada
    Director
    October 4, 2017
    Public relations, government relations and
      financial communications consultant
    84,413 (0.03%)Stephen Burwash Ontario, Canada
    Chief Financial Officer
    October 4, 2019
    Chief Financial Officer of HEXO
    Nil (0.00%)Donald Courtney Ontario, Canada
    Chief Operating Officer
    May 22, 2019
    Chief Operating Officer of HEXO
    Nil (0.00%)Roch Vaillancourt Quebec, Canada
    General Counsel
    March 12, 2018
    General Counsel of HEXO
    20 (0.00%)Dominique Jones,Ontario, Canada
    Chief People Officer
    September 17, 2018
    Chief People Officer of HEXO
    Nil (Nil%)Veronique Hamel Ontario, Canada
    Chief Innovation Officer
    January 14, 2019
    Chief Innovation Officer of HEXO
    Nil (Nil%)


51

---

Notes:

| | (1)  | The term of the current directors shall expire at the
      conclusion of the following annual meeting of the shareholders of the
      Company.                                                                                                                
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2)  | For details on the principal occupations of the directors
      and officers during the past five years, see Biographical
      Information.                                                                                                                  
| | (3)  | Percentage of securities is calculated from the total
      number of issued and outstanding shares as of October 23, 2019, being
      257,011,087 shares.                                                                                                     
| | (4)  | Member of the Audit Committee.                                                                                                                                                                                                                                  
| | (5)  | Member of the Human Resources and Corporate Governance
      Committee.                                                                                                                                                                                         
| | (6)  | Includes 3,139,530 Common Shares owned of record by
      8375739 Canada Inc., which is owned and controlled by Mr.
  St-Louis.                                                                                                                                 
| | (7)  | Includes 1,651,532 Common Shares owned of record by
      159927 Canada Inc., which is owned and controlled by Dr. Munzar.                                                                                                                                      
| | (8)  | These shares are owned of record by No. 2 Mission Row
      Inc., which is owned and controlled by Mr. Miron.                                                                                                                                                   
| | (9)  | Includes 6,171,432 Common Shares owned of record by
      Casale HC Limited Partnership and 1,491,500 shares owned of record by SMA
      Trust, which are owned and/or controlled by Mr. Chiara.                                                               
| | (10) | Reflects the date of appointment to Predecessor THCX
      otherwise, since March 15, 2017, the date the Qualifying Transaction was
      completed and the directors and officers of BFK were replaced by the
      directors and officers of Predecessor THCX.
| | (11) | Mr. Ewart serves as the Financial Expert of the Companys
      Audit Committee.                                                                                                                                                                                

As a group, the directors and executive officers of the Company
beneficially own, or control or direct, directly or indirectly, an aggregate of
15,802,627 Common Shares, representing 6.15% of the issued and outstanding
Common Shares as of the date of this Annual Information Form.

Biographical Information

Dr. Michael Munzar  Director & Chair of the Board

Dr. Munzar is a clinician and is currently serving as Medical
Director of Statcare medical clinic in Pointe Claire, Québec. In addition, Dr.
Munzar is on the board of directors of Osta Biotechnologies Inc., and has held
the position of Vice President of Medical and Regulatory Affairs at Osta since
2005. He served as Medical Director of Nymox Pharmaceutical Corporation
(NASDAQ:NYMX) from 1996 to 2004 and as the President of Serex Inc., a wholly
owned Subsidiary of Nymox, from 2000 to 2004. Dr. Munzar has experience in the
regulatory development of drugs and medical devices. He obtained his MDCM from
McGill University in 1979.

Jason Ewart Director

Mr. Ewart currently serves as a Director and Executive Vice
President, Capital Markets of Uptempo Inc. Mr. Ewart is the co-founder and
former CEO of the Canadian merchant bank, Fountain Asset Corp from 2003 to 2017.
Mr. Ewart was a market analyst with A&E Capital Funding Inc. and Bradstone
Equity Partners Inc. between 1998 and 2002 and Vice President of Quest
Investment Corporation between 2002 and 2003. He is a board member of Marathon
Mortgage Corp., Attorneys Title Guarantee Fund Inc., and the Northumberland
Community Futures Development Corp. Mr. Ewart is a member of the Institute of
Corporate Directors (ICD) in Canada. Mr. Ewart holds an economics degree from
McGill University.

Vincent Chiara  Director

Mr. Chiara is the President and sole owner of Groupe Mach Inc.
(Mach). He began his career in 1984 as a lawyer specializing in real
estate transactions and corporate litigation. In 1999 he ceased practicing law
and focused on real estate acquisitions and property development through Mach, a
private holding company. Mach and its affiliates hold significant investments
representing approximately 19 million square feet of real estate (office,
retail, residential, industrial and hotel) located primarily in Montreal and
Québec City, including the Stock Exchange Tower, the CIBC Tower, the Sun Life
Building, the CBC Tower and the University Complex. Mach continues to acquire
and redevelop properties across North America while maintaining its
institutional reputation within the market.

Nathalie Bourque  Director

Ms. Bourque does consulting work in public relations,
government relations and financial communications. She held the position of
Vice-President, Public Affairs and Global Communications at CAE Inc. from 2005
until her retirement in February 2015. Prior to joining CAE, Ms. Bourque was a
partner at NATIONAL Public Relations where she was responsible for numerous
clients in the financial, biopharmaceutical, retail and entertainment areas.
Previously, she worked for various communications companies and has also worked
for accounting firms in marketing. She was a member of the Board of Financial
Services of the Caisse de dépôt et placement du Québec and Horizon Science and
Technology. She also served as President of the MBA Association and Le Cercle
Finance et Placement du Québec. She is also a Governor of McGlll University and
she is on the board of Maison MarieVincent. Ms. Bourque has a BA from Laval
University and an MBA from McGill University.

52

---

Sébastien St-Louis  President and Chief Executive Officer
and Director

Mr. St-Louis has been the President and Chief Executive Officer
of HEXO since August 2013. Mr. St-Louis is also the President and founder of
Shield Real Estate Investments Inc., founded in 2012. Prior to that, he served
as a Senior Account Manager at the Business Development Bank of Canada from 2008
to 2011 and as Chief Financial Officer of Wholesale Autoparts Warehouses from
2011 to 2012. Mr. St-Louis holds an MBA, DESS, finance from the Université du
Québec à Montréal and a Bachelor of Arts from the University of Ottawa.

Adam Miron  Director

Mr. Miron previously served as the Chief Brand Officer of HEXO
from August 2013 to August 2019. Mr. Miron is the co-founder of iPolitics.ca and
was its Chief Information Officer from 2010 to 2013. He was also the National
Director of the Federal Liberal Commission from 2007 to 2009 and was responsible
for the Liberal Party of Canadas online election campaigns. He has experience
with online marketing and sales, and brand development. Mr. Miron has also run
political campaigns in Canada and abroad.

Stephen Burwash  Chief Financial Officer

Mr. Burwash brings a wealth of experience in global finance and
operations to his role of Chief Financial Officer. Steve has held senior
management positions in the aerospace and defense, telecommunications and
manufacturing industries. Most recently Steve held management positions at Mitel
Networks where he led financial planning and analysis for the Cloud division and
led the companys financial integration and business process optimization across
12 countries. Steve has an MBA from the University of Ottawa and boasts over 25
years of proven expertise in acquisitions, due diligence to integration,
financial governance and process optimization

Donald Courtney  Chief Operating Officer

Mr. Courtney has over 20 years of experience in senior
operations positions across several industries, including the cannabis industry.
He brings extensive experience with several global food and beverage
organizations including Marc Inc, Pepsi Bottling Group and Vincor International
and experience in the technology sector with Christie Digital and LG
Electronics. Most recently, Mr. Courtney served as the Chief Operating Officer
for MedReleaf.

Roch Vaillancourt  General Counsel

Mr. Vaillancourt has been HEXOs General Counsel since March
2018. Roch brings almost 25 years of business and legal experience to his role
as General Counsel and Corporate Secretary. Roch has been involved in several
successful business ventures, both as an executive and legal advisor which
earned him inclusion as one of Canadas top 100 General Counsels (Legal 500 GC
Powerlist -2016). As General Counsel, Roch plays an integral role in crafting
all aspects of the companys business and legal strategy, including contract
negotiations, ensuring regulatory compliance, managing legal and regulatory
issues, and supporting management and the Board of Directors in all legal
issues. Dominique Jones  Chief People Officer Ms. Jones offers more than
20 years experience in leading organizations through periods of exceptional
growth, with a career spanning six industries and three continents. Most
recently, Dominique served as Chief Operating Officer for an education software
company and before that as Chief People Officer of Halogen Software, where she
led the companys people through an IPO to sale. Of particular note, Dominique
led significant culture change initiatives and designed and implemented
award-winning leadership and high-potential development programs. She
brings to the team a passion for coaching and team-building.

53

---

Veronique Hamel  Chief Innovation Officer

Ms. Hamel brings more than 25 years of innovation expertise
through her leadership roles in research and development, new product
development, and in marketing and business development for global consumer goods
and pharmaceutical companies in Europe, the U.S. and Canada. Most recently, Ms.
Hamel has built strong innovative teams in Canada at Church & Dwight Co.,
Bausch & Lomb and Bausch Health Companies Inc. Ms. Hamel is a graduate from
EDHEC Business school in France. Ms. Hamel has a track record for building and
helping shape high growth and consumer-centric organizations through trusted and
award-winning innovations. She brings a strong business acumen to the process of
innovation as well as a passion for break-throughs and industry firsts.

Cease Trade Orders, Bankruptcies, Penalties or Sanctions

Other than as set out below, to the knowledge of the Company,
no director or executive officer of the Company, or shareholder holding a
sufficient number of securities of the Company to affect materially the control
of the Company:

|1. | is, as of the date of this Annual Information Form, or
      has been within the last ten (10) years of the date of this Annual
      Information Form, a director, chief executive officer or chief financial
      officer or any company that while acting in such capacity, the
    company:
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | was subject to a cease trade order, a similar order or an
      order that denied the relevant company access to any exemption under
      securities legislation that was in effect for a period of more than thirty
      (30) consecutive days; or,                                                                                                                                                                                                                                                                                                                           
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (b) | was subject to a cease trade order, a similar order or an
      order that denied the relevant company access to any exemption under
      securities legislation that was in effect for a period of more than thirty
      (30) consecutive days, that was issued after the director or executive
      officer ceased to be a director, chief executive officer or chief
      financial officer and which resulted from an event that occurred while
      that person was acting in the capacity as director, chief executive
      officer or chief financial officer; or   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | (c) | within a year of that person ceasing to act in that
      capacity, became bankrupt, made a proposal under any legislation relating
      to bankruptcy or insolvency or was subject to or instituted any
      proceedings, arrangement or compromise with creditors or had a receiver,
      receiver manager or trustee appointed to hold its assets; or become
      subject to or instituted any proceedings, arrangement or compromise with
      creditors, or had a receiver, receiver manager or trustee appointed to
      hold the assets of the proposed director, or

|2. | has, within the ten (10) years before the date of this
      Annual Information Form, become bankrupt, made a proposal under any
      legislation relating to bankruptcy or insolvency, or become subject to or
      instituted any proceedings, arrangement or compromise with creditors, or
      had a received, receiver manager or trustee appointed to hold the assets
      of the director, executive officer or shareholder.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

On October 28, 2015, Stephen Burwash filed a consumer proposal
with the official receiver. Under the terms of the proposal, Mr. Burwash made a
proposal to creditors. The consumer proposal will be completed on November 15,
2020.

To the knowledge of the Company, no director or executive
officer of the Company, or shareholder holding a sufficient number of securities
of the Company to affect materially the control of the Company, has been subject
to:

|1. | any penalties or sanctions imposed by a court relating to
      securities legislation or by a securities regulatory authority or has
      entered into a settlement agreement with a securities regulatory
      authority; or
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                 
|2. | any other penalties or sanctions imposed by a court or
      regulatory body that would likely be considered important to a reasonable
      investor in making an investment decision.                                         

54

---

Conflicts of Interest

The Company may from time to time become involved in
transactions which conflict with the interests of the directors and the officers
of the Company. The interest of these persons could conflict with those of the
Company. Conflicts of interest, if any, will be subject to the procedures and
remedies provided under applicable laws. In particular, in the event that such a
conflict of interest arises at a meeting of the directors of the Company, a
director who has such a conflict will abstain from voting for or against the
approval of such participation or such terms. In accordance with applicable
laws, the directors of the Company are required to act honestly, in good faith
and in the best interest of the Corporation.

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

There are no material legal proceedings that HEXO is or was a
party to, or that any of its property is or was the subject of, during the year
ended July 31, 2019, and no such proceedings are known by HEXO to be
contemplated.

The Company is not aware of any penalties or sanctions imposed
against the Company by a court relating to securities legislation or by a
securities regulatory authority, any other penalties or sanctions imposed by a
court or regulatory body against the Company that would likely be considered
important to a reasonable investor making an investment decision, or any
settlement agreements the Company has entered into before a court relating to
securities legislation or with a securities regulatory authority.

INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

Other than as disclosed elsewhere in this Annual Information
Form and in the consolidated financial statements of the Company for the fiscal
year ended July 31, 2019, no director or executive officer of HEXO, no
shareholder who beneficially owns, or controls or directs, directly or
indirectly, more than 10% of the outstanding Common Shares, nor any associate or
affiliate of such persons, has or has had any material interest, direct or
indirect, in any transaction within the three most recently completed financial
years of the Company or during the current financial year that has materially
affected or is reasonably expected to materially affect HEXO or any of its
subsidiaries.

TRANSFER AGENT AND REGISTAR

The transfer agent and registrar of the Company is TSX Trust
Company at its offices in Toronto, Ontario. The co-transfer agent for the
Company in the United States is Continental Stock Transfer & Trust Company
at its offices in New York, New York.

MATERIAL CONTRACTS

Except for the contracts noted below and contracts entered into
in the ordinary course of business, there are no material contracts entered into
by the Company during the Companys fiscal year ended July 31, 2019 or entered
into before the fiscal year ended July 31, 2019 and which are still in effect:

|1. | the credit agreement dated February 14, 2019 between the
      Company and the Lenders with respect to the credit facility the Lenders
      have provided to the Company;                            
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                       
|2. | the arrangement agreement dated March 12, 2019 between
      the Company and Newstrike;                                                                                                               
|   |                                                                                                                                                                                                       
|3. | the warrant indenture dated January 30, 2018 between the
      Company and TSX Trust Company with respect to the Common Share purchase
      warrants of the Company which expire on January 30,
2020;

55

---

|4. | the supplemental warrant indenture dated May 24, 2019
      among the Company, Newstrike (now HEXO Operations) and TSX Trust Company
      with respect to the common share purchase warrants of Newstrike which
      expire on June 19, 2023; and
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                    
|5. | the supplemental warrant indenture dated May 24, 2019
      among the Company, Newstrike (now HEXO Operations) and TSX Trust Company
      with respect to the common share purchase warrants of Newstrike which
      expire on February 16, 2020.

AUDIT COMMITTEE INFORMATION

The Audit Committee has the primary function of fulfilling its
responsibilities in relation to reviewing the integrity of the Companys
financial statements, financial disclosures and internal controls over financial
reporting; monitoring the system of internal control; monitoring the Companys
compliance with legal and regulatory requirements, selecting the external
auditor for shareholder approval; reviewing the qualifications, independence and
performance of the external auditor; and reviewing the qualifications,
independence and performance of the Companys internal auditors. The Audit
Committee has specific responsibilities relating to the Companys financial
reports; the external auditor; the internal audit function; internal controls;
regulatory reports and returns; legal or compliance matters that have a material
impact on the Company; and the Companys whistleblowing procedures. In
fulfilling its responsibilities, the Audit Committee meets regularly with the
internal and external auditor and key management members.

Composition and Relevant Education and Experience

As of the date hereof, the Audit Committee consists of Jason
Ewart (chairman), Vincent Chiara and Nathalie Bourque, all of whom are
independent, and all of whom are financially literate within the meaning of
National Instrument 52-110  Audit Committees. Each of the Audit
Committee members has an understanding of the accounting principles used to
prepare the Companys financial statements, experience preparing, auditing,
analyzing or evaluating comparable financial statements and experience as to the
general application of relevant accounting principles, as well as an
understanding of the internal controls and procedures necessary for financial
reporting. Information concerning the relevant education and experience of the
Audit Committee members can be found in Directors and Officers above.

Audit Committee Charter

The full text of the Audit Committees charter is disclosed in
Schedule A.

Pre-Approval Policies and Procedures

The Audit Committee will pre-approve all non-audit services to
be provided to the Company or any subsidiary entities by its external auditors
or by the external auditors of such subsidiary entities. The Audit Committee may
delegate to one or more of its members the authority to pre-approve non-audit
services but preapproval by such member or members so delegated shall be
presented to the full Audit Committee at its first scheduled meeting following
such pre-approval.

External Auditor Service Fees

The following table sets forth, by category, the fees for all
services rendered by the Companys current external auditor, MNP LLP, for the
financial year ended July 31, 2019 (including estimates) and the comparative
period fiscal year ended July 31, 2018. The table is inclusive of the relevant
fees for each service associated with the subsidiaries of Company.

56

---

July 31, 2018
    July 31, 2019Audit Fees(1)
    $236,590
    $949,933Audit Related Fees(2)
    $Nil
    $NilTax Fees(3)
    $22,475
    $19,795All Other Fees
    $Nil
    $Nil


Notes:
       (1)    Includes fees for
the performance of the annual audit and quarterly reviews of the financial
statements. ****(2)    Denotes fees related to assurance services not
included in (1), in regard to the performance of the annual audit and quarterly
reviews of the financial
statements. ****(3)    Includes fees for services related to assistance
with tax returns and amalgamation services.

INTERESTS OF EXPERTS

MNP LLP is the auditor of the Company and is independent within
the meaning of the Rules of Professional Conduct of the Chartered Professional
Accountants of Ontario.

ADDITIONAL INFORMATION

Additional information relating to the Company may be found
under its profile on SEDAR at www.sedar.com http://www.sedar.com/and on EGDAR
at www.sec.gov.

Additional information relating to HEXO, including with respect
to directors and officers remuneration and indebtedness, principal holders of
its securities, and securities authorized for issuance under equity compensation
plans, will be contained in the Companys information circular for its most
recent annual meeting of security holders that involves the election of
directors.

Additional financial information for HEXO is provided in the
audited annual consolidated financial statements and managements discussion and
analysis of HEXO for the year ended July 31, 2019, which are available for
viewing under the Companys profile on SEDAR at www.sedar.comand on EDGAR at www.sec.gov.

57

---

SCHEDULE A Audit Committee Charter

(See Attached)











58

---



Approved: June 28, 2017Reviewed and updated: June
12, 2019

AUDIT COMMITTEE CHARTER

1.Purpose

The Audit Committee (the Committee) is a standing
committee of the Board of Directors (the Board) of HEXO Corp. (the
Corporation) appointed for the purpose of assisting the Board in
fulfilling its oversight responsibilities for (i) the integrity of the
Corporations financial statements, (ii) the Corporations compliance with legal
and regulatory requirements, (iii) the qualifications and independence of the
auditor of the Corporation (the external auditor), and (iv) the
performance of the internal audit function and the external auditor.

The Committee has been established to comply and function in
accordance with applicable corporate and securities law requirements, including
Section 158 of the Business Corporations Act(Ontario), National
Instrument 52-110 - Audit Committeesof the Canadian Securities
Administrators and Rule 10A-3 under the United States Securities Exchange Act
of 1934, and the rules of the stock exchanges on which the Corporations
shares are listed (Applicable Laws and Rules).

2.Authority

The Committee has authority to conduct or authorize
investigations into any matter within its scope of responsibility. It is
empowered to:

| | a. | Recommend to the Board the public accounting firm to be
      nominated for appointment by the Corporations shareholders as the
      external auditor, including the external auditors compensation, and
      oversee the work of the external auditor. The external auditor will report
      directly to the Committee.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                              
| | b. | Resolve any disagreements between management and the
      external auditor regarding financial reporting.                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                              
| | c. | Pre-approve permitted non-audit services performed by the
      Corporations external auditor.                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                              
| | d. | Retain independent counsel, accountants, or others to
      advise the Committee or assist in its duties and to set and pay their
      applicable compensation.                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                              
| | e. | Meet and communicate with the Corporations officers,
      employees, external auditor or outside counsel, as necessary and
  communicate directly with the Corporations shareholders.                                                                                                                                     

- 1 -

---

| | f. | Delegate authority, to the extent permitted by Applicable
      Laws and Rules, to one or more designated members of the Committee,
      including the authority to pre- approve all permitted non-audit services,
      provided that such decisions are reported to the full Committee at its
      next scheduled meeting.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3.Composition

| | a. | The Committee shall consist of a minimum of three
      members, all of whom shall be directors of the Corporation.                                                                                                                                                                                                                                                                                                                                                                     
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | b. | Each Committee member shall be independent within the
      meaning of Applicable Laws and Rules.                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | c. | Each Committee member shall be financially literate
      within the meaning of Applicable Laws and Rules, such that he or she has
      the ability to read and understand a set of financial statements that
      present a breadth and level of complexity of accounting issues that are
      generally comparable to the breadth and complexity of the issues that can
      reasonably be expected to be raised by the issuers financial
      statements.                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | d. | At least one Committee member shall have accounting or
      related financial management expertise as interpreted by the Board in its
      business judgment.                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | e. | The Human Resource and Corporate Governance Committee
      will recommend to the Board applicable directors for appointment to the
      Committee and the Chair of the Committee.                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | f. | If and whenever a vacancy exists on the Committee, the
      remaining members may exercise all of its powers so long as there
      continues to be at least three members on the Committee. If at any time a
      vacancy exists on the Committee that the Board is required to fill, the
      Board may appoint a new member to fill such vacancy by ordinary resolution
      of the Board.                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | g. | The Board or the Committee may, from time to time,
      establish policies limiting the number of audit committees which Committee
      members may be appointed to. If a Committee member simultaneously serves
      on the audit committees of more than three public companies, the Board
      must determine that such simultaneous service would not impair the ability
      of such member to effectively serve on the Committee and shall disclose
      such determination.

4.Meetings

| | a. | The time and place of the meetings of the Committee, the
      calling of meetings and the procedure in all things at such meetings shall
      be determined by the [Chair of the Committee]
  [Committee].
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 2 -

---

| | b. | The Committee must meet at least four times per year, and
      at least annually with each of management and the external auditor
      privately and in executive session without the presence of
    management.                                                         
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                             
| | c. | A majority of the members of the Committee shall
      constitute a quorum for the transaction of business at a
meeting.                                                                                                                                                    
| |    |                                                                                                                                                                                                                                                                             
| | d. | At any meeting, each Committee member shall have one vote
      and any question shall be decided by a majority of the votes cast by the
      Committee members, except where only two members are present, in which
      case any question shall be decided unanimously. 
| |    |                                                                                                                                                                                                                                                                             
| | e. | Any decision or determination of the Committee reduced to
      writing and signed by all of the members of the Committee shall be fully
      as effective as if it had been made at a meeting duly called and
    held.                                                   
| |    |                                                                                                                                                                                                                                                                             
| | f. | The Chair, if present, will act as the chair of meetings
      of the Committee. For any meeting at which the Committee Chair is absent,
      the Chair of the meeting shall be the person present who shall be decided
      upon by all members present.                 
| |    |                                                                                                                                                                                                                                                                             
| | g. | The Committee may invite such officers, directors and
      employees of the Corporation as it deems necessary or advisable from time
      to time to attend meetings of the Committee and assist in the discussion
      and consideration of the duties of the Committee.
| |    |                                                                                                                                                                                                                                                                             
| | h. | The external auditor shall receive notice of and have the
      right to attend any meetings of the Committee, at the Corporations
      expense, except such part of the meeting, if any, which is a private
      session not involving the external auditor.            
| |    |                                                                                                                                                                                                                                                                             
| | i. | Following a Committee meeting, the Committee Chair shall
      report on the Committees activities to the Board at the next Board
      meeting.                                                                                                                           
| |    |                                                                                                                                                                                                                                                                             
| | j. | The Committee must keep and approve minutes of its
      meetings in which shall be recorded all decisions and actions taken by it,
      which minutes must be made available to the Board as soon as practicable
      after each meeting of the Committee.               

5.Chair

The Chair of the Committee has the powers and responsibilities
set forth in Schedule A hereto.

6.Responsibilities

The Committee must:

| | a. | Recommend to the Board the public accounting firm to be
      nominated for appointment by the Corporations shareholders as the
      external auditor, including the external auditors compensation, and
      oversee the work of the external auditor.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

- 3 -

---

| | b. | Review and discuss the annual audited financial
      statements and quarterly financial statements with management and the
      external auditor, including the Corporations disclosures under
      Managements Discussion and Analysis of Financial Condition and Results
      of Operations (MD&A), including the discussion of critical
      accounting estimates included therein.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                  
| | c. | Review and recommend to the Board for approval, prior to
      public disclosure, the annual and quarterly financial statements, MD&A
      and annual and interim financial results press releases.                                                                                                                                                                                             
| |    |                                                                                                                                                                                                                                                                                                                                                                                                  
| | d. | Review and recommend to the Board for approval, prior to
      public disclosure, any financial information and earnings guidance
      provided externally, including to analysts and rating agencies if
      applicable. This review may be general (i.e., the types of information to
      be disclosed and the type of presentations to be made).                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                  
| | e. | Review significant accounting and reporting issues and
      understand their impact on the financial statements, including but not
      limited to:                                                                                                                                                                                                                                            

| | (i)   | complex or unusual transactions and highly judgmental
      areas;                                                                                                                                                                           
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                              
| | (ii)  | major issues regarding accounting principles and
      financial statement presentation, including any significant changes in the
      Corporations selection or application of accounting principles;                                     
| |       |                                                                                                                                                                                                                                              
| | (iii) | unusual or sensitive matters such as disclosure of
      related party transactions, significant non- recurring events, significant
      risks and changes in provisions, estimates or provisions included in any
      financial statements
| |       |                                                                                                                                                                                                                                              
| | (iv)  | any significant variances with comparative reporting
      periods; and                                                                                                                                                                      
| |       |                                                                                                                                                                                                                                              
| | (v)   | the effect of regulatory and accounting initiatives, as
      well as off-balance sheet structures, on the financial statements of the
      Corporation.                                                                                    

| | f. | Review analyses prepared by management and/or the
      external auditor relating to significant financial reporting issues and
      judgments made in connection with the preparation of the financial
      statements, including analyses of the effects of the selection or
      application of the Corporations accounting principles.                                                                                                                                                                                                                                                            
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | g. | Review disclosures made by the Chief Executive Officer
      and the Chief Financial Officer during the certification process about
      significant deficiencies or material weakness in the design or operation
      of internal controls or any fraud that involves management or other
      employees who have a significant role in the Corporations internal
      controls and, if applicable, understand the basis upon which the
      certifying officers concluded that any particular deficiency or
      combination of deficiencies did or did not constitute a material
      weakness.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | h. | Review compliance with covenants under any loan
      agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

- 4 -

---

| | i. | Review disclosure requirements for commitments and
      contingencies.                                                                                                                                                                                                                                                                                                                                                                                                                                
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | j. | Review with management and the external auditor the
      results of the audit, including any problems or difficulties encountered.
      This review will include any restrictions on the scope of the external
      auditors activities or on access to requested information, managements
      response to the external auditor and any significant disagreements with
      management, and adjustments raised by the external auditor, whether or not
      included in the financial reports.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | k. | Satisfy itself that adequate procedures are in place, and
      periodically assess the adequacy of those procedures, for the review of
      any public disclosure of financial information extracted or derived from
      the financial statements, other than the statements themselves, the
      MD&A or the press releases referred to above.                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | l. | Annually review and assess the Corporations policies in
      effect from time to time, including its Disclosure and Confidentiality
      Policy, Disclosure Controls and Procedures, Disclosure Committee Charter
      and Whistleblower Policy and make recommendations to the
  Board.                                                                                                                                                                                                           

7.Internal Control

The Committee shall also:

| | a. | Consider the effectiveness of the Corporations system
      for internal control over financial reporting, including information
      technology security and control.                                                                                                                                                                                                                         
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                  
| | b. | Review the scope of the external auditors review of
      internal control over financial reporting, and obtain reports on
      significant findings and recommendations, together with managements
      responses and any special audit steps adopted in light of material control
      deficiencies.                                                                                      
| |    |                                                                                                                                                                                                                                                                                                                                                                                                  
| | c. | Review the external auditors management letters and
      managements responses to such letters.                                                                                                                                                                                                                                                                                               
| |    |                                                                                                                                                                                                                                                                                                                                                                                                  
| | d. | As requested by the Board, discuss with management and
      the external auditor the Corporations identifiable risks arising from any
      financial, operational or other deficiencies, the adequacy and
      effectiveness of the Corporations accounting and financial controls
      relating thereto, and the steps management has taken to monitor and
      control identified risks.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                  
| | e. | Quarterly review the Corporations disclosure controls
      and procedures, including any significant deficiencies in, or material
      non-compliance with same, and the steps management has taken to monitor
      and control such deficiencies or instances of non-
  compliance.                                                                                                         

- 5 -

---

8.External Audit

The Committee shall also:

| | a. | Review the external auditors proposed audit scope and
      approach.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | b. | Review the performance of the external auditor.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | c. | Annually obtain and review the report of the external
      auditor on matters required to be communicated to the Committee under
      Section 5135 (auditors responsibility to consider fraud) and Section 5751
      (communications with those having oversight responsibility for the
      financial reporting process - independence) of the Canadian Institute of
      Chartered Accountants handbook, and including: the external auditors
      internal quality-control procedures; any material issues raised by the
      most recent internal quality control review, or peer review, of the
      external auditor, or by any inquiry or investigation by governmental or
      professional authorities, within the preceding five years, respecting one
      or more independent audits carried out by the external auditor, and any
      steps taken to deal with any such issues; and (to assess the external
      auditors independence) all relationships between the external auditor and
      the Corporation.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | d. | Report any conclusions with respect to the external
      auditor to the Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | e. | Establish and periodically assess the Corporations
      hiring policies for partners, employees and former partners and employees
      of the current or prior external auditor.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | f. | At least once per year, meet privately with the external
      auditor to discuss any matters that the Committee or the external auditor
      believes should be discussed privately.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | g. | Resolve any disagreements between management and the
      external auditor regarding financial reporting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | h. | Review and pre-approve, in accordance with Applicable
      Laws and Rules, all non- audit services to be provided by the
      Corporations external auditor, taking into consideration whether the
      delivery of non-audit services will interfere with the independence of the
      external auditor. The Committee may from time to time establish specific
      pre- approval policies and procedures in accordance with Applicable Laws
      and Rules.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | i. | The pre-approval of non-audit services may be delegated
      to one or more independent members of the Committee, provided that such
      pre-approval is presented to the Committee at its first scheduled meeting
      following such approval. The pre-approval requirement is satisfied with
      respect to the provision of de minimisnon-audit services
  if:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

- 6 -

---

| | (i)   | the aggregate amount of all such non-audit services
      provided to the Corporation which were not pre-approved constitutes not
      more than 5% of the total amount of fees paid by the Corporation and its
      subsidiaries to the external auditor during the fiscal year in which the
      non-audit services are provided;
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                       
| | (ii)  | the services were not recognized by the Corporation or
      its subsidiaries, at the time of the engagement, to be non-audit services;
      and                                                                                                                                                                                     
| |       |                                                                                                                                                                                                                                                                                                                                       
| | (iii) | the services are promptly brought to the attention of the
      Committee and approved, prior to the completion of the audit, by the
      Committee or by one or more members of the Committee to whom authority to
      grant such approvals has been delegated by the
Committee.                                                  

9.Compliance

The Committee shall also:

| | a. | Annually review the effectiveness of the Corporations
      system of monitoring compliance with laws and regulations and the results
      of managements investigation and follow-up (including disciplinary
      action) of any instances of non- compliance.                                                                                                            
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                
| | b. | Establish and periodically assess the adequacy of
      procedures for: (i) the receipt, retention and treatment of complaints
      received by the Corporation regarding accounting, internal accounting
      controls, or auditing matters; and (ii) the confidential, anonymous
      submission by employees regarding questionable accounting or auditing
      matters.
| |    |                                                                                                                                                                                                                                                                                                                                                                                
| | c. | Review findings of any examinations by regulatory
      agencies, and any external auditors observations made regarding those
      findings.                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                
| | d. | Review the process for communicating the Code of Business
      Ethics to Corporation personnel, and for monitoring compliance
      therewith.                                                                                                                                                                                                                                

10.Reporting
Responsibilities

The Committee shall also:

| | a. | Report to the Board about Committee activities and issues
      that arise with respect to the quality or integrity of the Corporations
      financial statements, the Corporations compliance with legal or
      regulatory requirements, the performance and independence of the
      Corporations external auditor and internal controls over financial
      reporting.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                  
| | b. | Report to the Board, at least quarterly, on the
      implementation of internal controls systems and provide a periodic update
      on the status of the Corporations internal control
  systems.                                                                                                                                                                             

- 7 -

---

| | c. | Review any other reports the Corporation issues that
      relate to Committee responsibilities.                                                                                                                                                                                 
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                  
| | d. | Liaise with the external auditor and the Board to ensure
      that any material issues that have arisen related to compliance and
      governance have been addressed and that appropriate actions have been
      identified and undertaken to mitigate the issues identified.
| |    |                                                                                                                                                                                                                                                                                  
| | e. | The Committee shall at least annually evaluate its own
      performance and the contents of this Charter, including Schedule A
      attached hereto, and recommend to the Board such changes to the Charter as
      the Committee deems appropriate.                        

11.Other
responsibilities

The Committee shall also:

| | a. | Review and discuss with management the Corporations
      major policies with respect to risk assessment and risk
  management.   
| | -- | -----------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                    
| | b. | Perform other activities related to this Charter as
      requested by the Board.                                                  
| |    |                                                                                                                                    
| | c. | Institute and oversee special investigations as required
      with respect to the discharge of the Committees duties
  hereunder.
| |    |                                                                                                                                    
| | d. | Ensure appropriate disclosure of this Charter as may be
      required by Applicable Laws and Rules.                               

- 8 -

---

Schedule A

HEXO Corp.

Audit Committee Chair Person Description

In addition to the duties and responsibilities set out in the
by-laws and any other applicable charter, mandate or position description, the
chair (the Chair) of the Audit Committee (the Committee) of
HEXO Corp. shall be an independent director who has the duties and
responsibilities described below.

|1. | Provide overall leadership to enhance the effectiveness
      of the Committee, including:
|-- | ------------------------------------------------------------------------------------------

| | (a) | overseeing the structure, composition, membership and
      activities delegated to the Committee;                                                                                                                                    
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                       
| | (b) | chairing every meeting of the Committee and encouraging
      free and open discussion at the meeting of the Committee;                                                                                                               
| |     |                                                                                                                                                                                                                                       
| | (c) | scheduling and setting the agenda for Committee meetings
      with input from other Committee members, the Chair of the Board of
      Directors and management as appropriate;                                                      
| |     |                                                                                                                                                                                                                                       
| | (d) | facilitating the timely, accurate and proper flow of
      information to and from the Committee;                                                                                                                                     
| |     |                                                                                                                                                                                                                                       
| | (e) | arranging for management, internal personnel, external
      advisors and others to attend and present at Committee meetings as
      appropriate;                                                                                    
| |     |                                                                                                                                                                                                                                       
| | (f) | arranging sufficient time during Committee meetings to
      fully discuss agenda items;                                                                                                                                              
| |     |                                                                                                                                                                                                                                       
| | (g) | encouraging Committee members to ask questions and
      express viewpoints during meetings, and                                                                                                                                      
| |     |                                                                                                                                                                                                                                       
| | (h) | taking all other reasonable steps to ensure that the
      responsibilities and powers of the Committee, as outlined in its Charter,
      are well understood by the Committee members and executed as effectively
      as possible.

|2. | Foster ethical and responsible decision making by the
      Committee and its individual members.                                                                                                                                                        
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                          
|3. | Encourage the Committee members to meet separately from
      the scheduled Committee meetings to ensure that all members have an
      opportunity to be fully informed of information that will be addressed by
      the Committee during the meeting.
|   |                                                                                                                                                                                                                                                          
|4. | Following each meeting of the Committee, report to the
      Board of Directors on the activities, findings and any recommendations of
      the Committee.                                                                                              
|   |                                                                                                                                                                                                                                                          
|5. | Carry out such other duties as may reasonably be
      requested by the Board of Directors.                                                                                                                                                              

- 9 -

---