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MANAGEMENTSDISCUSSION &
ANALYSIS For the three and twelve months ended July
31, 2019


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Managements Discussion &
    Analysis

For the year ended July 31, 2019(In thousands of
      Canadian dollars, except share and per share amounts, and where otherwise noted)

This managements discussion and analysis (MD&A) of the
      financial condition and results of operations of HEXO Corp (formerly The
      Hydropothecary Corporation) and our wholly owned subsidiaries (collectively,
      we or us or our or Company or HEXO) is for the year ended July 31,
      2019 and 2018. HEXO is a publicly traded corporation, incorporated in Ontario,
      Canada. The common shares of HEXO trade under the symbol HEXO on both the
      Toronto Stock Exchange (TSX) and the New York Stock Exchange (NYSE). This
      MD&A is supplemental to, and should be read in conjunction with, our audited
      annual financial statements for the fiscal years ended July 31, 2019 and 2018.
      Our consolidated financial statements are prepared in accordance with
      International Financial Reporting Standards (IFRS) as issued by the
      International Accounting Standards Board. All amounts presented herein are
    stated in Canadian dollars, unless otherwise indicated.

This MD&A has been prepared by reference to the MD&A
      disclosure requirements established under National Instrument 51-102, Continuous
      Disclosure Obligations, of the Canadian Securities Administrators. Additional
      information regarding the Company is available on our websites at
      hexocorp.com/investors or through the SEDAR website at sedar.com or the EDGAR
    website at www.sec.gov/edgar.

Certain information in this MD&A contains or incorporates
      comments that constitute forward-looking information within the meaning of
      applicable securities legislation. Forward-looking information, in general, can
      be identified by the use of forward-looking terminology such as may, expect,
      intend, estimate, anticipate, believe, should, plans, continue,
      objective, or similar expressions suggesting future outcomes or events. They
      include, but are not limited to, statements with respect to expectations,
      projections or other characterizations of future events or circumstances; our
      objectives, goals, strategies, beliefs, intentions, plans, estimates,
      projections and outlook, including statements relating to our plans and
      objectives; estimates or predictions of actions of customers, suppliers,
      competitors or regulatory authorities; and statements regarding our future
    economic performance.

| 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 and extracts (cannabis derivatives);
           the competitive conditions of the industry, including the Companys
        ability to maintain or grow its market share; |  |  the establishment of the Companys investment in association with
            Molson Coors Canada and the future impact thereof;  the
            establishment of the Companys 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;
           the grant, renewal and impact of any licence or supplemental licence
          to conduct activities with cannabis or any amendments thereof;
           the anticipated future gross margins of the Companys operations; and
           the performance of the Companys business and operations.
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Such statements are not historical facts but instead represent
      management beliefs regarding future events, many of which, by their nature, are
      inherently uncertain and beyond management control. We have based these
      forward-looking statements on our current expectations about future events and
    certain assumptions including, but not limited to:

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

Although the forward-looking statements contained in this
      MD&A are based on what we believe are reasonable assumptions, these
      assumptions are subject to a number of risks beyond our control, and there can
      be no assurance that actual results will be consistent with these
      forward-looking statements. Factors that could cause actual results to differ
      materially from those set forth in the forward-looking statements and
      information include, but are not limited to, financial risks; industry
      competition; general economic conditions and global events; product development,
      facility and technological risks; changes to government laws, regulations or
      policies, including tax; agricultural risks; supply risks; product risks;
      dependence on senior management; sufficiency of insurance; and other risks and
      factors described from time to time in the documents filed by us with securities
      regulators. For more information on the risk factors that could cause our actual
      results to differ from current expectations, see Risk Factors. All
      forward-looking information is provided as of the date of this MD&A. We do
      not undertake to update any such forward-looking information whether as a result
    of new information, future events or otherwise, except as required by law.

This MD&A is dated October 28, 2019.

2MANAGEMENTS DISCUSSION &
ANALYSIS

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|COMPANY OVERVIEW                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
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|HEXO Corp is helping shape an entirely new legal cannabis
        market  in Canada and abroad. We are working to change the world; and we are
        just getting started.
          Just six years ago, two entrepreneurs set out to corner the
            cannabis market in Canada. Laying roots in the province of Quebec, the Company
            was influential in stimulating market acceptance and support, raising
            significant capital in the public markets since the beginning of fiscal year
            2018. We have agreements and arrangements in place to supply cannabis in nine
            provinces, including a five-year supply contract with Quebecs Société
            québécoise du cannabis (SQDC). In total, we have governmental or private
            retail distribution agreements covering most major Canadian markets, reaching
            over 95% of the Canadian population. Our brands  HEXO and Up  are available to
            Canadians across the country.
        Today, HEXO is a consumer-packaged goods (CPG) cannabis
          technology company that has increased its focus globally. We believe that
          building a brand comes primarily from a strong distribution system and product
          quality, and from making a meaningful commitment to sustainability. Through our
          Hub and Spoke strategy, we are centralizing our intellectual property and
          branding it powered by HEXO and as we have done with Molson Coors Canada
          (Molson) we plan to partner with Fortune 500 companies in different facets of
          the CPG market, to participate in the cannabis market beginning in Canada and
          around the world. Fundamentally, we bring our brand value, cannabinoid
          isolation, formulation and delivery technology, licensed infrastructure and
          regulatory expertise to established companies, and in turn, we plan to leverage
          their international distribution, base products and their deep understanding of
      consumer markets.



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|Our goal is to become a top global cannabis company with top
        market share in Canada. After establishing a strong presence within our home
        market of Quebec, we are expanding nationally on a larger scale. Our objective
        is to execute on our existing supply agreements and arrangements with entities
        across nine provinces, and to successfully manage our distribution centre
        responsible for all SQDC online sale cannabis distribution. We also possess a
        strategic relationship with the private cannabis retailer Spirit Leaf. This
        private retail presence will allow us to expand our expected distribution
        presence within these provinces.
        During the period we completed the acquisition of Newstrike
            Brands Ltd (Newstrike). This acquisition further strengthens HEXOs presence
            within Canada by adding Up, a reputable brand already established within the
            cannabis adult-use market, to HEXOs house of brands. Along with the brand, HEXO
            acquired several supply agreements and an additional private retail partnership
            to its national distribution network.
        Ultimately, we know that if we want to achieve our goals, 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.
        The global cannabis market is estimated to reach $250 billion
          in the next ten years. HEXO believes that in a few years, a handful of companies
          will control 70% of global market share and we believe HEXO is poised to be one
      of those companies. |  | To date, we have sold over 10.8 million grams of adult-use and
        medical cannabis to thousands of Canadians who count on us for safe and
        reputable, high-quality products. We have developed an extensive and
        award-winning product range, and gained valuable experience and knowledge, while
        serving our customers.
          We currently hold approximately 1.3 million sq. ft. of
            operating space at our home base Gatineau campus. In addition, we have leased
            579,000 sq. ft. of industrial real estate for manufacturing, distribution and
            product research and development needs in Belleville, Ontario, with rights of
            first offer and first refusal to lease the remaining space in the 1.5 million
            sq. ft. facility; another 58,000 sq. ft. of leased distribution space in
            Montreal, Quebec, and an additional 469,000 sq. ft. in Brantford and Niagara
            once fully retrofitted. Once licensed, 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, Quebec.
        We are currently dual listed on the TSX and the NYSE and in
          doing so have increased HEXOs access to the United States and global
          investors.
        We do not, and do not intend to, engage in direct or indirect
          business with any business that derives revenue, directly or indirectly, from
          the sale of cannabis, cannabis products or cannabinoid-containing products in
          any jurisdiction where the sale of cannabis is unlawful under applicable laws.
          HEXO does not currently engage in any unlawful U.S. marijuana-related activities
          as defined in Canadian Securities Administrators Staff Notice 51-352, and will
          only do so in the future to the extent fully legal under all applicable U.S.
      federal and state laws.
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STRATEGIC PRIORITIES

|Since inception, we have laid the foundation to be a world leader that
      serves both adult-use and medical cannabis markets. In everything we do 
      innovation, cultivation, production, product development, distribution 
      we exercise rigor in order to offer adult-use consumers and medical
      cannabis patients uncompromising quality and safety. We believe that we
      can leverage our demonstrated success in Canada as we expand to global
      cannabis markets.
      Our strategy sees us becoming part of the top three global cannabis
      companies, with a top two market share in Canada. Our strategy is built on
      three pillars: operational scalability,innovative products and
      brand leadership. To achieve brand leadership, we will set up the
      legal, physical, and human capital infrastructure to participate in legal
      markets across the globe. We plan to invest in even better, science-
      backed cannabis experiences, and we look to partner with Fortune 500
      companies to leverage their base products, international distribution
      platforms and deep understanding of the consumer occasion in their
      respective verticals.
      Given the different regulations governing the sale of adult-use
      cannabis across Canada, the number of large- scale licensed producers and
      todays limited but growing cultivation capacity, among other factors, we
      believe the initial years following legalization will be the most |  | critical in determining the future shape of the cannabis industry in
      Canada, and that early distribution and financial performance will be
      critical to securing a market leader position.
      For this and other reasons, we have deliberately set out to build a
      strong position in our initial jurisdiction, Quebec, while making
      strategic inroads in select other markets across the country through
      provincial supply agreements and private retail partnerships. Now having
      entered the adult- use market as one of the largest producers and
      suppliers by market capitalization, we are looking beyond the Canadian
      border to take HEXO international, where regulations permit. We are making
      continuous efforts to assess global opportunities in current and future
      medical and adult-use markets.
      We have positioned ourselves to meet the smokeless cannabis demand
      through our venture with Molson, our first partner within our Hub and
      Spoke business model. We expect to launch a full line of beverage products
      in partnership with Molson through our venture, Truss. We currently expect
      regulations to allow these products to be made available for consumption
      during the first six months of calendar 2020. We continue to explore other
    opportunities for analogous ventures to introduce into the
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5MANAGEMENTS DISCUSSION &
ANALYSIS

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|cannabis market. Even as we continue to execute on our business plans
      in Quebec, Ontario and across the country, we believe we have established
      ourself as a desirable business partner for cannabis control authorities,
      private retail, and potential Fortune 500 joint-arrangement partners in
      Canada.
      As the cannabis and cannabis derivative markets evolve, we are
      constantly assessing and implementing ways to integrate our quality
      products with the product offerings of Fortune 500 companies and become a
      premium branded partner for CPG companies. We will seek to accomplish this
      through several means: by providing our prospective partners regulatory
      access to legal markets as well as distribution infrastructure and
      delivery systems across most provinces; by offering best in class
      technology through innovative product development and a strong IP
      portfolio.
      We have taken significant steps to ensure that we are prepared to meet
      the future demand of the CBD derivative product markets within Canada and
      globally. This includes having secured a large and steady supply of
      quality hemp for product transformation at our Belleville Centre of
      Excellence, once the facility is licensed and completed. |  | During the period, we established the joint entity Keystone Isolation
      Technologies Inc. (KIT) of which HEXO holds a 60% interest. Through KIT
      we have obtained high capacity, top echelon technology for cleaning
      outdoor field hemp of harmful pesticides, which we believe gives us an
      edge in bringing quality extracts to the U.S. We believe KIT will provide
      the Company with high quality extraction technology to facilitate an
      efficiently processed and consistent supply of CBD and THC to supply the
      Canadian and U.S. markets for cannabis derivatives.
      We have eight high CBD hemp strains in tissue culture in partnership
      with the University of Guelph as we are preparing the groundwork to evolve
      to a field sourced, forward contract supply model in the U.S., applying
      our strong quality assurance, control protocols, and hemp genetics to our
      farming partnerships.
      Our commitment to quality and safety is supported by our compliance
      with Health Canadas stringent quality control requirements, our top of
      the line production system, full seed-to-sale traceability, third party
      independent testing and an online system to post our product testing
      results.
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6MANAGEMENTS DISCUSSION &
ANALYSIS

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|Our commitment to quality and safety is supported by our compliance
      with Health Canadas stringent quality control requirements, our top of
      the line production system, full seed-to-sale traceability, third party
      independent testing and an online system to post our product testing
      results.
      HEXO U.S.
      The U.S. cannabis market represents the Companys nextsignificant growth opportunity.
      During the period the Company established its wholly owned U.S. based
      entity HEXO USA Inc on May 19, 2019, to be a leading partner for CPG
      expansion.
      KIT will allow HEXO to supply future American CPG partners with
      powered by HEXO hemp-derived cannabidiol (CBD) experiences and enter
      the market in a strategic position to begin generating revenues by
      leveraging the Companys experience in cannabis. KITs purpose is to
      provide a scalable, efficient, cost effective and reliable extraction and
      isolation of CBD from hemp to fulfil demand for our powered by HEXO
      emulsifications.
      We believe that strategic partners will be able to benefit from HEXOs
      innovative product development, advanced research and development,
      intellectual property portfolio (pending patent approvals), low production
      cost, licensed infrastructure and regulatory know-how. These same
      strategic partnerships will provide the Company with established global
      distribution platforms and product expertise.
      The Company is aiming to enter select U.S. states over the course of
      the next fiscal year and is taking important strides to offer its powered
      by HEXO products through KIT and our future partners, to the U.S. CBD
      markets, to the extent that such activities fully comply with applicable
      U.S. federal and state laws, including U.S. Food and Drug Administration
      requirements. |  | Scalability
      We have been cultivating cannabis for five years under the Cannabis Act
      of 2018 regulatory regime and its predecessor (Cannabis Regulations),
      growing and producing high- quality cannabis with consistent yields. We
      are constantly evaluating and updating our cultivating practices and
      technology to further drive efficiencies.
      We chose to initially locate in Gatineau, Quebec, because we believe
      the province offers the ideal conditions for cannabis production: is an
      abundant supply of renewable electricity at competitive rates, combined
      with abundant water resources and the availability of skilled people. We
      have expanded our cultivation footprint into Ontario through the
      acquisition of Newstrike.
      On the border of Canadas two largest consumer markets, Quebec and
      Ontario, our main campus in Gatineau positions us in close proximity to
      two of the countrys major urban areas, Greater Montreal and the National
      Capital Region. Furthermore, our 579,000 sq. ft. Centre of Excellence in
      Belleville, Ontario which is currently undergoing leasehold retrofitting
      and Health Canada licensing, is ideally situated between the National
      Capital Region and Toronto.
      Our Gatineau campus includes several facilities representing a total of
      1,310,000 sq. ft. The Gatineau campus includes 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 all
      located on our 143-acre land parcel.
      Our Newstrike campuses located in Brantford and Niagara Ontario
      contribute 14,000 sq. ft. and 455,000 sq. ft. (once fully retrofitted)
      respectively, across 17.6 acres of land.
      We have expanded into Europe through HEXO MED S.A. (HEXO MED), a
      venture with our partner QNBS P.C. HEXO MED will result in potential
      additional production
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7MANAGEMENTS DISCUSSION &
ANALYSIS

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|capacity and a Eurozone foothold to serve the legal
      cannabis markets in the United Kingdom, France and other jurisdictions
      where regulations permit. HEXO MEDs plans include the development of a
      350,000 sq. ft. licensed facility in Greece. HEXO Corp currently holds a
      51% interest in the venture. |  | We have accumulated a strong and skillful
      workforce, as well as a top management group which provides cannabis-
      specific industry expertise and other relevant business knowledge derived
      from a variety of industries and markets.
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8MANAGEMENTS DISCUSSION &
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|Product Innovation
      Empowering the world to have safe and pleasurable cannabis experiences
      powered by HEXO technology.
      Our strategic priorities reflect our belief that companies that achieve
      large-scale distribution and high brand awareness will drive long-term
      shareholder value in our industry. We aim to be the best partner for
      provincial cannabis distribution and retail authorities, while being
      recognized for delivering our powered by HEXO experiences across the
      full spectrum of products, price points and delivery methods.
      As we develop our consumer-focused product innovation plan, we continue
      to build on our cannabis experience concepts such as sleep, sport, focus,
      diet, sex and fun, which will deliver fast on-set response and reliable
      off-set timing. These experience concepts will provide a valuable resource
      for consumers selecting appropriate products for their respective needs.
      Sleep to relax and quiet the mind Sport to be
      active and energetic, recover quicker and reduce inflammation
 Focus to be alert, concentrated and more productive Diet to
      help curb desire for food
      Sex to bring intimacy and arousal Fun to enjoy social gatherings |  | During the period, we acquired two new research facilities to further
      strengthen our IP portfolio and produce unique value-added products to the
      cannabis derivative market. Once licensed and completed, the new 14,200
      sq. ft facility in Vaughan, Ontario will serve as the Companys food
      laboratory in which confectionary and edible product research and
      development will take place. The second additional facility in Montreal,
      Quebec will also house general research and development activity in the
      19,600 sq. ft. space when licensed and completed.
      The cannabis industry has already recognized us as an innovative
      leader, as demonstrated by our award-winning products Elixir and decarb.
      We also offer Fleur de Lune, one of Canadas first intimate-use cannabis
      oils.
      Beyond the funds required for our currently planned investments in
      cultivation, distribution and processing capacity, we expect to allocate
      the majority of our capital to branding, product innovation, international
      expansion and production, while remaining alert for strategic transactions
      that create shareholder value. An element of this focus is the development
      of our Belleville, Ontario facility, which, once licensed and completed
      will house manufacturing, distribution and product research and
      development activities for the Company and its future products, as well as
      the operations of our Truss venture. This approach will directly support
      our continued leadership position in the Canadian cannabis market  as
    both a distributor and a product innovator.
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|We continue to prepare to take advantage of opportunities in the
      edibles market, which is expected to launch in Canada in late calendar
      2019 or early 2020. Products that we intend to introduce include, but are
      not limited to vapes, edibles such as confectionary and baked goods,
      cosmetics, and non-alcoholic beverages through our venture with Molson
      Coors Canada.
      Our focus on research, innovation and product development also reflects
      our strategic priorities. Our Chief Innovation Officer who benefits from
      25 years of experience in CPG innovation and her team are actively
      exploring ways to increase our expertise related to cannabis applications
      and forms of delivery, and to expand our product range and brand
      portfolio. Activities include current and potential partnerships, ventures
      and strategic acquisitions of intellectual property and related
      transactions.
      To date the Company has filed 38 patent applications related to various
      formulations, vape devices, beverages, cultivation and extraction
      technologies as well as other areas. |  | Brand Leadership
      Striving to create a sustainable, notable and beloved brand.
      HEXO shares the broad industry view that brands will win long term;
      however, we have a controversial view that brands dont exist today in the
      cannabis industry. Our companies have logos but little brand recognition
      in our markets, due in great part to highly restrictive marketing rules as
      set out by our regulators. The best brands have achieved less than 10%
      spontaneous awareness, based on the Companys analysis of third-party
      research data. HEXO tracks consumer awareness of all the major cannabis
      brands and, although we believe HEXO is in the top tiers of awareness
      compared to peers, all cannabis companies are completely underrecognized
      relative to large CPG global brands. We believe that HEXO can build a
      global house of brands, but we will only declare success once we have 80%
    spontaneous awareness in select markets.
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9MANAGEMENTS DISCUSSION &
ANALYSIS

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|The goal of HEXO Corp is to continue to offer a diverse
      house of brands, representing innovation, quality and consistency of
      experience, and become a top two Canadian market share brand with a top
      three global market share |  | position. We believe that the key to doing this
      is by creating brands that resonate with consumers across market segments.
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10MANAGEMENTS DISCUSSION &
ANALYSIS

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11MANAGEMENTS DISCUSSION &
ANALYSIS

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12MANAGEMENTS DISCUSSION &
ANALYSIS

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DISTRIBUTION

|Processing and distribution capacity has significantly increased over
      the past fiscal year, with the activation and full licensing of our
      250,000 sq. ft. greenhouse and a new 1 million sq. ft. greenhouse, each at
      our Gatineau campus. Additionally, through our acquisition of Newstrike,
      we acquired a state-of-the-art greenhouse and an indoor production
      facility with production and distribution capabilities currently being
      retrofitted and estimated to be completed for the end of Q1 to early Q2 of
      fiscal 2020.
      The Company has acquired an interest in a 1.5 million sq. ft. facility
      in Belleville, Ontario, through the venture Belleville Complex Inc.
      established with a related party. The Company received the renewal of its
      Health Canada licensing for the Gatineau facilities on October 16, 2019
      and continues to retrofit the Belleville Centre of Excellence ahead of
      licensing for the purposes of manufacturing value-added cannabis products,
      increasing capacity for distribution and storage and research and
      development activities. The Company currently holds a lease to 579,000 sq.
      ft. of the Belleville facility and has rights of first offer and first
      refusal to lease the remaining space in the building. Once licensed and
      completed, the Belleville Centre of Excellence will act as the main
      research, development and processing facility for HEXOs cannabis
      derivative products.
      The process of licensing the full 1.5 million sq. ft Belleville Centre
      of Excellence in phases and ensuring it meets the requirements of the
      Cannabis Regulations may impact the initial operational timeline of the
      facility. However, this will provide the Company with the opportunity to |  | offer its prospective partners with turn-key access to a cannabis
      sector ready facility. The centralized location of the facility, the
      Companys first outside of Quebec is ideally situated along primary
      shipping routes to distribute our products and fulfill commitments across
      Canada. This facility further delivers on our national expansion strategy
      and ensures necessary capacity for the manufacture of advanced cannabis
      products, including vapes, non-alcoholic beverages, other edible cannabis
      products and cosmetics.
      The Company has also bolstered its distribution capacity with the
      establishment of a distribution and storage centre in Montreal, Quebec
      formed with Metro Supply Chain Inc. This 58,000 sq. ft. facility was
      strategically acquired for logistical purposes. Through it, we supply
      cannabis for all direct-to-customer sales placed in Quebec through the
      SQDCs online store. Additionally, we house, supply and distribute
      direct-to-customers the cannabis products of all licensed producers who
      have contracts with the SQDC through this distribution centre.
      The Company now holds supply agreements and arrangements with entities
      across nine provinces. The Company is present within 23 private cannabis
      retailers across Ontario and has a strategic alliance agreement with the
      cannabis retailer Spirit Leaf.
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13MANAGEMENTS DISCUSSION &
ANALYSIS

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CANADIAN CANNABIS MARKET

|On October 17, 2018, Canada became the largest nation in
      the world to offer medical and non-medical, adult- use cannabis
      nationally. The legalization of the adult-use market on this date resulted
      in $43 million of sales within the first two weeks according to Statistics
      Canada. In the 10 weeks between October 17th and December 31, 2018,
      Canadians purchased more than 20,650 kg of dried cannabis and 20,096
      liters of cannabis oil according to Statistics Canada. As demand continues
      to grow, public and private distribution channels become fully established
      and with the legalization of the edibles market on the horizon, HEXO
      believes it is strategically positioned to serve these markets through our
      partnerships, production capacity and supply contracts. |  | All provinces and territories have established
      their respective cannabis market retail approach, ranging from private
      entities to government-owned retail, as well as a combined approach in
      several jurisdictions. We have positioned ourselves through supply
      agreements and arrangements for distribution within Ontario, Alberta,
      British Columbia, Nova Scotia, New Brunswick, Prince Edward Island,
      Manitoba, Saskatchewan and Quebec, where we hold Canadas largest single
      supply agreement. We have also made strategic investments in the private
      cannabis retail sector. The result: our award-winning and innovative
      products are available in nine provinces in Canada.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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.
      The SQDC originally contracted 58 tons for Year 1 purchases from all
      licensed producers of cannabis. Due to supply shortages, initial
      sell-through is expected to be a little less than half of that amount.
      During this start-up phase, HEXO sold in 10 tons, achieving approximately
      33% market share based on volume, and that is line with our goal.
      Our contract required SQDC to purchase 20 tons in the first year, while
      we did not achieve these quantities during this |  | period, we believe that exercising the committed 20 feature under the
      contract would be short sighted. We are, and will remain, a preferred
      supplier of the SQDC as we continue to expand our product offerings based
      on the demands of consumers.
      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 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.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14MANAGEMENTS DISCUSSION &
ANALYSIS

---

|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 licensed locations that serve the
      adult-use market. Initial product 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 (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 supply it with
      products offered 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 Obtained 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 provincial governments and
    private retailers.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CANADIAN ADULT-USE MARKET 2.0

|Canadian legalization of additional cannabis derivative
      product categories occurred in October 2019, and distribution is expected
      to commence during the first six months of calendar 2020. The Company is
      working to ensure it meets expected market demands and continues to
      prepare for its edibles market product offerings. Initially, HEXO intends
      to meet the cannabis derivative market with our premium vapes and beverage
      products, followed by the roll out of our gummies and chocolate product
      offerings. We plan to add product offerings to the portfolio over time.
      Through HEXOs proven innovation capability and quality cannabis that the
      current adult-use market has come to expect, this new platform for
      cannabis derivative products offers us the ability to target curious new
      adult- use clientele and attract consumers who may otherwise purchase
      cannabis from unlicenced dispensaries and black market participants. We
      will do this by offering legal, safe, consistent, tested and appealing new
      product options. |  | 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 complete, the locations
      will serve as global research and development hubs for the Companys
      Innovation, Development and Engineering (IDE) led by HEXOs Chief
      Innovation Officer, Veronique Hamel. The team brings together extensive
      experience in research and development, sensory science, clinical
      evaluation, biotechnology and food engineering.
      The HEXO IDE team has sweeping experience in the food, pharma and CPG
      industries 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. For
      example, the teams Director of
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15MANAGEMENTS DISCUSSION & ANALYSIS

---

|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. HEXO is also proud to have its own in-house cannabis- infused
      chocolates expert. Focused on creating a cannabis chocolates experience,
      Canna Chocolatier Todd Neault is working on formulating fast-acting,
      consistent and delectable chocolates.
      HEXO is focused on developing a product portfolio that is guided by a
      deep understanding of consumer needs. To better understand these needs, a
      variety of research methodologies have been deployed by a third-party
      research provider in select markets in Canada and the U.S. These
      methodologies include, but are not limited to:
           Segmentation: A way of viewing the
      market as a series of sub-groups rather than a whole. Members of each
      sub-group had similar traits but were distinct from other sub-groups.
           Qualitative Research &
      Ethnographies: A methodology of collecting consumer insights which
      involves face- to- |  | face interaction and the observation (and questioning) of behaviours to
      better understand the person.
      Leveraging the insights weve collected  and will continue to collect
       HEXO is committed to developing products and formulations that not only
      meet, but exceed, the evolving needs of consumers.
      Recognizing that innovation is always evolving, HEXO will 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 bring an expanded offering to market, the Company
      boasts a multi-year extraction agreement with Valens GroWorks Corp. Once
      licensed and completed, the Company will also have 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.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



16MANAGEMENTS DISCUSSION &
ANALYSIS

---

ACQUISITION OF NEWSTRIKE BRANDS
LTD.

|The Transaction
      On May 24, 2019, the Company acquired all of the issued and outstanding
      common shares of Newstrike through a plan of arrangement. 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.
      Following the acquisition, the Newstrike shares were delisted from the
      TSX Venture Exchange (TSXV) as at the close of trading on May 29, 2019.
      Certain classes of Newstrike warrants which were listed for trading on the
      TSXV under the symbol HIP.WT and HIP.WT.A will continue to trade on the
      TSXV until the earliest to occur of their exercise, expiry or delisting.
      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 1,935,881 and 7,196,166 common shares for issuance
      to the former holders of the Newstrike options and the holders of the
      Newstrike warrants, respectively.
      Introduction
      Newstrike is the parent company of Up Cannabis Inc (Up), a licensed
      producer of cannabis based out of Ontario that is licensed under the
      Cannabis Regulations to both cultivate and sell cannabis in all acceptable
      forms. Newstrike, through Up and together with select strategic partners,
      including Canadas iconic musicians The Tragically Hip, has established of
      a diverse network of high-quality cannabis brands.
      Acquisition Highlights
      Facilities & Cultivation Boost
      The acquisition of Newstrike added two additional facilities to the
      HEXO group, one in Niagara, Ontario and the other in Brantford, Ontario. |  | The Niagara facility is a 240,000 sq. ft fully automated, modern
      Dutch-Tray facility, consisting of 186,400 sq. ft licensed for
      production and cultivation, with the remaining space allocated to
      administration, packaging and shipping/ receiving areas. The facility is
      currently capable of producing up to 20,000 kg of dried cannabis annually.
      This facility is situated on approximately 16.6 acre of land and received
      its cultivation licence under the Cannabis Act on March 29, 2018.The
      Niagara facility is currently undergoing a retrofit which is expected to
      be completed during the end of Q1 to early Q2, fiscal 2020. Once
      completed, the retrofit will add approximately 215,000 sq. ft. of
      additional space and will bring the total Niagara campus to approximately
      455,000 sq. ft. of cultivation, production, packaging, shipping and
      administrative space.
      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
      rightsize the organization to the revenue the Company expects to achieve
      in fiscal 2020. As part of the changes to its operations, 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.
      The Brantford facility is fully operational and licensed with an annual
      estimated production capacity of 2,000 kg of dried cannabis. It was
      designed and engineered to permit the application of the same
      pharmaceutical-quality management-standards utilized by Canadas
      pharmaceutical manufacturers, to the production of cannabis in all
      acceptable forms. The Brantford facility has one mothering room; five
      grow-rooms used for propagation, vegetation and flowering; one trimming
      room; one drying room; one packaging room; one extraction room and two
      discrete shipping rooms, a level-8 vault for the storage of dried and
      finished product and, if required, an aggregate of approximately 1,800 sq.
      ft. that can be repurposed for manufacturing, packaging and/or additional
      production facilities, all of which are supported and monitored by
      state-of-the-art automated hydroponic cultivation, climate, security and
      control systems with additional layers of redundancy and back-up to
      mitigate the impact of systems
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17MANAGEMENTS DISCUSSION &
ANALYSIS

---

|or power failure. Each area within the Brantford facility is
      independently controlled and monitored, and each strain of cannabis
      produced in the Brantford Facility is subjected to rigorous and ongoing
      analytical testing.
      Once retrofitting is completed and efficiencies of scale are reached
      across both of the Newstrike facilities, the total boost to HEXOs
      production is estimated at 42,000 kg of annual dried cannabis, bringing
      HEXOs total anticipated annual production capacity to 150,000 kg. Total
      consolidated facility space across HEXOs five campuses will amount to
      approximately 2.4 million sq. ft. following licensing and completion.
      Domestic Distribution Channels
      Newstrike has secured supply agreements with entities in Alberta,
      British Columbia, Manitoba, New Brunswick and Ontario. Saskatchewan
      selected Newstrike to be a registered cannabis supplier for the province
      and Newstrike has received orders for products from the Nova Scotia Liquor
      Corporation and the Prince Edward Island Cannabis |  | Management Corporation. In addition, Newstrike has entered into a
      strategic alliance agreement with Spirit Leaf, a private cannabis
      retailer.
      These additional established distribution channels provide HEXO with
      domestic market penetration within nine provinces.
      UP Brand
      Within the Canadian cannabis market, Newstrike has developed a unique
      platform through its Up suite of products and partnership with the iconic
      band The Tragically Hip. This has been instrumental to its growth to date
      as an independent company. The Up brand has proven its concept through its
      presence across nine provincial markets in both public and private
      retailers. The acquisition of Newstrike provides HEXO the opportunity to
      implement Up brand products within its branding strategy and product
      offerings hierarchy as well as the flexibility to increase the variety of
      products it offers to the adult-use market.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

CORPORATE SOCIAL 
RESPONSIBILITY

At HEXO Corp, 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.

|                                                                                                                                                                                                                                                                                                                                                                  |  |                                                                                                                                                                                                                                                                             
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 |  | 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

18MANAGEMENTS DISCUSSION &
ANALYSIS

---



|                                                  |  |                                                                                     
|------------------------------------------------- |  | ------------------------------------------------------------------------------------
|Public                                            |  | Planet                                                                              
|   Academic education and research investments   |  |    Use of solar energy to minimize
      electricity consumption                   
|   Education programs for our retail partners    |  |    Recycling and composting programs                                               
|   Responsible use program investments           |  |    Greenhouse gas (GHG) Inventory
      and Reporting (based on ISO14064 standards)
|   Support to food security organizations        |  |    Water conservation (rainwater
      capture and water recycling)                
|   Support to health organizations               |  |    Reforestation project with Tree
      Canada                                    
|   Community emergency support via the Red Cross |  |   Solar energy project with Ottawa Food
      Bank                                 
|   Support to social justice initiatives         |  |    Sustainability partner of Ottawa
      Riverkeeper                              

OTHER CORPORATE HIGHLIGHTS

|Supply Agreements of Hemp Secured for CBD
      Extraction
      During the quarter, the Company entered into several hemp supply
      agreements/arrangements which are expected to provide a sufficient supply
      of hemp to meet the Companys needs during fiscal 2020. These arrangements
      were established to facilitate a consistent and reliable supply of
      top-quality hemp for CBD extraction purposes. We believe such a supply
    will become increasingly important as the |  | CPG industry trends towards hemp-derived CBD infused products. This
      positions the Company to help meet the expected demand of the edibles and
      concentrates market.
      Executive Appointments
      On May 22, 2019, the Company further strengthened its leadership team
      by appointing Donald Courtney as its Chief Operating Officer. Mr. Courtney
      has over 20 years of experience in senior operations positions across
    several industries, including the cannabis industry. He brings
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

19MANAGEMENTS DISCUSSION &
ANALYSIS

---

|extensive experience with several global food and beverage
      organizations including Mars Incorporated, 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.
      HEXO MED Secures Medical Cannabis License in
      Europe
      On June 12, 2019, the Companys European subsidiary HEXO MED received
      its medical cannabis installation license. The license, issued by the
      Greek government, will allow HEXO MED to establish cultivation, processing
      and manufacturing facilities in the region of Thessaly, Greece. The future
      world-class facilities will be based on a 67,000 square meter (or 721,182
      sq. ft.) plot in Larissa, Greece. On August 22, 2019, HEXOs ownership in
      HEXO MED was increased to 51%, through an additional investment by HEXO in
      HEXO MED of €500, completed on September 27, 2019. HEXO MEDs board of
      directors comprises 5 members, 2 of which are appointed by HEXO and the
      remaining 3 are appointed by QNBS. Opportunities for HEXO MED are being
      considered and discussions between HEXO and its Greek partner, QNBS,
      remain ongoing. Going forward, HEXO and QNBS have agreed to fund its
      operations through third party debt or capital participation. |  | Transfer of NYSE-A listing to NYSE
      Effective July 16, 2019, the Company began trading on the NYSE after
      receiving approval to transfer the listing of the common shares from the
      NYSE-A on July 10, 2019. Concurrently, the Company voluntarily delisted
      its shares from the NYSE-A. HEXOs common shares continue to trade under
      the symbol HEXO on both the TSX and the NYSE.
      HEXO launches new cannabis value brand, Original Stash,
      with 1 oz product
      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, aiming to
      attract consumers who may otherwise purchase cannabis from unlicenced
      dispensaries and black market participants. Original stash will be offered
      in 28 gram (1 oz) quantities at black market prices.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20MANAGEMENTS DISCUSSION &
ANALYSIS

---

|Truss announces first product offering  Flow
      Glow
      On October 17, 2019, Truss announced its first partnership with Flow
      Glow Beverages Inc.  the team behind Flow Alkaline Spring Water  to
      manufacture and distribute a CBD-infused spring water. Flow Glow
      Beverages flavoured CBD-infused spring water will be one of six cannabis
      beverage brands within the Truss product portfolio. Expected to be
      launched during the first six months of calendar 2020, Flow Glow will be
      available in two flavours: Goji+Grapefruit and Raspberry+Lemon. Each unit
      will contain 10mg of CBD. Flow Glow is sourced from natural spring water
      and natural ingredients and is packaged in nearly 70%
      renewable-resource-based, 100% recyclable paperboard containers. Flow Glow
      will be manufactured and distributed at HEXOs Centre of Excellence in
      Belleville, Ontario.
      $70 Million Private Placement
      On October 23, 2019, the Company announced 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, $70,001
      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, subject to adjustment in certain events.
      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. |  | Reduction of Cost Structure
      On October 24, 2019, the Company announced 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
      rightsize the organization to the revenue 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.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21MANAGEMENTS DISCUSSION &
ANALYSIS

---

Non-IFRS Measures

We have included certain non-IFRS performance measures in this
MD&A, including adjusted gross margin, as defined in this section.

We employ these measures internally to measure our operating
and financial performance.

We believe that these non-IFRS financial measures, in addition
to conventional measures prepared in accordance with IFRS, enable investors to
evaluate our operating results, underlying performance and future prospects in a
manner similar to management.

As there are no standardized methods of calculating these
non-IFRS measures, our methods may differ from those used by others, and
accordingly, these measures may not be directly comparable to similarly titled
measures used by others. Accordingly, these non-IFRS measures are intended to
provide additional information and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with IFRS.

GROSS SALES

Gross sales are the revenues derived from the sale of
adult-use, medical and whole sale cannabis under the normal course of business
and are inclusive of sales return provisions and exclusive of excise taxes.

ADJUSTED GROSS MARGIN

We use adjusted gross margin to provide a better representation
of performance in the period by excluding non-cash fair value measurements as
required by IFRS. We believe this measure provides useful information as it
represents the gross margin for management purposes based on cost to produce,
package and ship inventory sold, exclusive of any fair value measurements as
required by IFRS. The metric is calculated by removing all amounts related to
biological asset fair value accounting under IFRS, including gains on
transformation of biological assets and the cost of finished harvest inventory
sold, which represents the fair value measured portion of inventory cost (fair
value cost adjustment) recognized as cost of goods sold.

EXPECTED PLANT YIELD

The expected plant yield is utilized in the valuation of
biological assets on hand as at the period end. This represents an unobservable
input to a level 3 fair value estimate and is derived from the Companys
historical harvests as well as the expertise of the appropriate personnel. A
sensitivity analysis over this input was performed and included in the
Biological Assets  Fair Value Measurement section below.

PRODUCTION CAPACITY

The production capacity disclosed throughout this report
represents managements best estimate and is derived from the historical actual
output of production as well as the use of cultivation expertise existing within
the Company.

KILOGRAMS PRODUCED

The kilograms harvested during the period representing the
amount of dried gram and dried gram equivalents harvested and produced from
biological assets but not necessarily sold during the period.

22MANAGEMENTS DISCUSSION
& ANALYSIS

---

Operational and Financial HighlightsKEY FINANCIAL PERFORMANCE INDICATORSSummary of results for the three and twelve months period
ended July 31, 2019 and July 31, 2018:

For the three months ended
    For the twelve months endedIncome Statement Snapshot
    July 31, 2019
    July 31, 2018
    July
      31, 2019
    July 31, 2018$
    $
    $
    $Gross cannabis revenue
    20,517
    1,410
    59,256
    4,934Excise taxes
    (5,122)
    
    (11,914)
    Net revenue from sale of goods
    15,395
    1,410
    47,342
    4,934Ancillary revenue
    29
    
    199
    Gross margin before fair value adjustments
    5,133
    711
    21,344
    2,841Gross margin
    (13,748)
    519
    26,925
    6,400Operating expenses
    46,902
    10,713
    111,482
    24,367Loss from operations
    (60,650)
    (10,194)
    (84,557)
    (17,967)Other income/(expenses)
    125
    (315)
    (847)
    (5,383)Net loss before tax recovery
    (60,525)
    (10,509)
    (85,404)
    (23,350)Tax recovery
    3,840
    
    3,840
    Total net loss
    (56,685)
    (10,509)
    (81,564)
    (23,350)


For the three months ended

July 31,
    April 30,
    January 31,
    October 31,Operational Results
    2019
    2019
    2019
    2018Avg. gross selling price of adult-use dried gram & gram
      equivalents ($)
    4.74
    5.29
    5.83
    5.45Kilograms sold of
      adult-use dried gram & gram equivalents (kg)
    4,009
    2,759
    2,537
    952Avg. gross selling price of medical dried gram & gram
      equivalents ($)
    8.34
    9.11
    9.15
    9.12Kilograms sold of
      medical dried gram & gram equivalents (kg)
    137
    145
    152
    158Avg. gross selling price of wholesale gram & gram
      equivalents ($)
    0.56
    
    
    Kilograms sold of
      wholesale gram & gram equivalents (kg)
    672
    
    
    Total kilograms
      produced of dried gram equivalents (kg)
    16,824
    9,804
    4,938
    3,550


Q4 PERIOD HIGHLIGHTS

| | Total gross revenue in the
      quarter increased approximately of 13x to $20,517 when compared to the
      same quarter of fiscal 2018.                                                                                                                                                                                                                                     
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                
| | Adult -use grams and gram
      equivalents sold increased 45% to 4,009 kg from the previous quarter as
      the Company continues to deliver on its existing supply agreements.                                                                                                                                                                                              
|  |                                                                                                                                                                                                                                                                                                                                                                                
| | During the quarter ended July 31,
      2019, the Company produced approximately 16,824 kg of dried cannabis, an
      72% increase from the previous quarter. This is attributable to higher
      yields in the 250,000 sq. ft. B6 facility, the additional harvests of the
      1 million sq. ft. B9 greenhouse and the contribution of the acquired Newstrike greenhouses.

FINANCIAL POSITION

| | As at July 31, 2019, the Company
      held cash, cash equivalents and short -term investments of $139,505 and
      working capital of $261,868.                                                                                                                                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                             
| | The Company obtained a $65,000
      credit facility with a syndicate of Canadian chartered banks. This
      consists of $50,000 available term credit and a $15,000 revolving line of
      credit which will be used in part to finance the continuing expansion of
      the Gatineau campus as well as the leasehold improvements at the
    Belleville Centre of Excellence without diluting the shareholders of HEXO.

23MANAGEMENTS DISCUSSION
& ANALYSIS

---

Summary of ResultsRevenue

Q4 19
    
    
    Q3
      19
    
    
    Q2
      19
    
    
    Q1
      19
    
    
    Q4
      18ADULT-USEAdult-use cannabis gross revenue
    $
    18,997
    
    $
    14,607
    
    $
    14,792
    
    $
    5,194
    
    $
    Adult-use
      excise taxes
    
    (4,937
    )
    
    (2,741
    )
    
    (2,587
    )
    
    (970
    )
    
    Adult-use cannabis net revenue
    
    14,060
    
    
    11,866
    
    
    12,205
    
    
    4,224
    
    
    Dried grams
      and gram equivalents sold (kg)
    
    4,009
    
    
    2,759
    
    
    2,537
    
    
    952
    
    
    Adult-use gross revenue/gram equivalent
    $
    4.74
    
    $
    5.29
    
    $
    5.83
    
    $
    5.45
    
    $
    Adult-use
      net revenue/gram equivalent
    $
    3.51
    
    $
    4.30
    
    $
    4.81
    
    $
    4.44
    
    $
    MEDICALMedical cannabis gross revenue
    $
    1,142
    
    $
    1,323
    
    $
    1,387
    
    $
    1,436
    
    $
    1,410Medical
      cannabis excise taxes
    
    (185
    )
    
    (233
    )
    
    (216
    )
    
    (44
    )
    
    Medical cannabis net revenue
    
    957
    
    
    1,090
    
    
    1,171
    
    
    1,392
    
    
    1,410Dried grams
      and gram equivalents sold (kg)
    
    137
    
    
    145
    
    
    152
    
    
    158
    
    
    152Medical gross revenue/gram equivalent
    $
    8.34
    
    $
    9.11
    
    $
    9.15
    
    $
    9.12
    
    $
    9.26Medical net
      revenue/gram equivalent
    $
    6.99
    
    $
    7.52
    
    $
    7.73
    
    $
    8.84
    
    $
    WHOLESALEWholesale cannabis gross revenue
    $
    378
    
    $
    
    
    $
    
    
    $
    
    
    $
    Wholesale
      cannabis excise taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    Wholesale cannabis net revenue
    
    378
    
    
    
    
    
    
    
    
    
    
    
    Dried grams
      and gram equivalents sold (kg)
    
    672
    
    
    
    
    
    
    
    
    
    
    
    Wholesale gross revenue/gram equivalent
    $
    0.56
    
    $
    
    
    $
    
    
    $
    
    
    $
    Wholesale
      net revenue/gram equivalent
    $
    0.56
    
    $
    
    
    $
    
    
    $
    
    
    $
    ANCILLARY
      REVENUE1
    $
    29
    
    $
    61
    
    $
    62
    
    $
    47
    
    $
    Total net sales
    $
    15,424
    
    $
    13,017
    
    $
    13,438
    
    $
    5,663
    
    $
    1,4101Revenue outside of the primary
      operations of the Company.


Total net revenue in the fourth quarter of fiscal 2019
increased to $15,424 from $1,410 in the same period of fiscal 2018. The main
contributor is the addition of adult-use sales which the Company is realizing in
its first fiscal year of legalization in Canada. Adult-use sales in the quarter
accounted for 91% of total revenue. Adult-use and wholesale revenues were
reduced by sales provisions incurred in the quarter. These provisions are
derived from managements estimates based upon price concessions and expected
returns (see Note 3 of the audited annual financial statements for the fiscal
years ended July 31, 2019 and 2018).

Non-cannabis ancillary sales which began in the first quarter
of fiscal 2019 decrease to $29 from $61 in the previous quarter. This revenue is
derived from a management agreement held by the Company with arms-length
partners.

OUTLOOK

The Company expects net revenue for the first quarter to fiscal
year 2020 to be $14,000 to $18,000, subject to retroactive adjustments required
on inventory held by provinces, which is subject to price adjustments as the
result of a re-evaluating of pricing strategy. Furthermore, the Company expects
to be EBITDA positive in calendar 2020, subject to certain assumptions regarding
store count, operational improvements and cost saving initiatives.

ADULT-USE SALES

During the period, adult-use gross sales increased to $18,997
in the three months ended July 31, 2019. Contributing to the increase is the
additional sales for the stub period of May 24, 2019 to July 31, 2019 from the
acquired Newstrike during the period. This contributed $2,770 in additional
gross cannabis sales in the period. HEXO also began to realize sales to the AGLC
in the quarter which contributed $4,828. Quarterly sales increased 30% when
compared to the prior quarter and increased $17,587 relative to the same period
of fiscal 2018, (which included medical sales only during that period).

24MANAGEMENTS DISCUSSION
& ANALYSIS

---

The Companys gross adult-use sales for the year ended July 31,
2019 totaled $53,590, an increase of $48,656 as compared to the total (medical
only) sales of $4,934 in fiscal 2018. The increase is due to fiscal 2018
containing medical sales only.

Sales volume in the fourth quarter of 2019 increased 45% to
4,009 kg from 2,759 kg equivalents sold in the previous quarter of fiscal 2019.
New in the quarter was the contribution of 971 kg sold to the AGLC and the 396
kg sold through Newstrike. Dried flower and milled products represented 89% of
gram equivalents sold during the period, a 4% increase from the third quarter of
fiscal 2019 and oil product sales comprising the balance of the quantity
sold.

During the quarter, gross adult-use revenue per gram equivalent
decreased to $4.74 from $5.29 reflective of the price concessions and provision
for sales returns recorded in the period. The provision is reflective of a
general best estimate provision for returns and price adjustments based on the
Companys assessment of sell-through and slow moving inventory. This was
partially countered by the addition of the premium brand Up which commands
revenue of $6.80 per gram on dried flower. The adult-use net revenue per gram
equivalent decreased to $3.51 from $4.30 in the previous quarter reflecting the
impact the provision above as well as the 971 kg of sales in Alberta which
imposes on average a 16% higher exercise tax rate than Ontario and Quebec. In
future periods as the sales mix shifts towards oil and other value-added
products from lower valued dry flower products the impact of these excise taxes
on revenue per gram is expected to decrease.

MEDICAL SALES

Gross medical revenue in the three months ended July 31, 2019
decreased 19% to $1,142 compared to $1,410 in the same period in fiscal 2018.
Grams and gram equivalents sold decreased marginally to 137 kg from 152 kg in
the fourth quarter of 2018. The relative stability in gram and gram equivalents
sold with a corresponding decrease in sales is due to increased sales of oil
products with sales prices, as well as the decrease to medical sales prices per
gram incurred after legalization occurred in Q1 of the fiscal year. Compared to
the prior quarter, the sequential revenue decreased by 14% from $1,323,
reflecting lower total dried grams sales, offset by a marginal increase to oil
based gram equivalents sold.

The Company realized $5,288 of gross medical sales during the
fiscal year ended July 31, 2019 which is an increase of 7% from the $4,934 of
gross medical sales during the comparative fiscal year 2018. This increase is
due to 54 kg of additional gram and gram equivalents sold, offset by on average
lower dried gram sales prices.

Net medical revenues decreased during the quarter by 12% to
$957 as compared to the third quarter of fiscal 2019, due to the reasons
described above.

WHOLESALE SALES

New in the fiscal year are the introduction of wholesale
revenues realized in the quarter. These sales pertain to transactions held
between the Company and other licensed producers. The characteristics of such
sales are generally large quantities at reduced prices per gram and gram
equivalent. These sales are also free of excise taxes as this burden belongs to
the acquirer and ultimately the seller of the cannabis products.

Wholesale revenues in the quarter contributed $378 to the
Companys net revenues. A total of 672 kg of dried cannabis was sold through the
wholesale channel at an average net revenue per gram of $0.56. Prior to the
provision for sales returns, the average contribution of wholesale revenue per
gram was $4.36.

Cost of Sales, Excise Taxes and Fair Value
Adjustments

Cost of goods sold includes the direct and indirect costs of
materials and labour related to inventory sold, and includes harvesting,
processing, packaging, shipping costs, depreciation and applicable stock-based
compensation and direct and indirect overhead.

Fair value adjustment on sale of inventory includes the fair
value of biological assets included in the value of inventory transferred to
cost of sales.

Fair value of biological assets represents the increase or
decrease in fair value of plants during the growing process less expected cost
to complete and selling costs and includes certain management estimates.

25MANAGEMENTS DISCUSSION
& ANALYSIS

---

For the three months ended
    
    
    For the twelve months endedJuly 31, 2019
    
    
    July 31, 2018
    
    
    July 31, 2019
    
    
    July 31, 2018$
    
    
    **$**
    
    
    $
    
    
    **$**Excise taxes
    
    5,122
    
    
    
    
    
    11,914
    
    
    Cost of sales
    
    10,291
    
    
    700
    
    
    26,197
    
    
    2,093Fair value adjustment on sale of inventory
    
    7,285
    
    
    455
    
    
    16,357
    
    
    2,289Fair value adjustment on biological assets
    
    (5,322
    )
    
    (1,171
    )
    
    (38,856
    )
    
    (7,340
    )Adjustment to net realizable value of inventory
    
    
    
    
    906
    
    
    
    
    
    1,491Impairment loss on
      inventory
    
    16,918
    
    
    
    
    
    16,918
    
    
    


Cost of sales for the quarter ended July 31, 2019 were $10,291,
compared to $700 for the same quarter ended in fiscal 2018. The increase in cost
of sales is the result of increased sales volumes due to the legalized adult-use
market not present in the comparative period. Also impacting the cost of sales
were higher overhead allocated costs to inventory and increases to
transformation costs were incurred as oil and other value-added products
production mix has increased from the same quarter of fiscal 2018.

For the fiscal year ended July 31, 2019, cost of sales
increased to $26,197 from $2,093 from the comparable period of fiscal 2018 for
the reasons as noted above.

The fair value adjustment on the sale of inventory for the
fourth quarter ended July 31, 2019 was $7,285 compared to $455 for the same
quarter ended July 31, 2018. This variance is due to increased sales volume of
inventory sold when compared to the same quarter in fiscal year 2018. Which was
offset by the introduction of the adult-use market which commands a lower fair
value per gram when compared to the exclusively medical market-based sales in
the three months ended July 31, 2018.

Fair value adjustment on biological assets for the current
quarter was ($5,322) compared to ($1,171) for the same quarter ended in fiscal
2018. This variance is due to the increase in the total number of plants on hand
as well as increased yields when compared to the comparative period. The
increase in plants is due to the fully licensed 250,000 sq. ft. greenhouse which
began harvests in Q1 of fiscal 2019 as well as the activation of the 1 million
sq. ft. greenhouse during the second and third quarter of fiscal 2019. This
results in significantly increased expected gram yields in the quarter and
increased production costs of operating newly in-use facilities. The increase in
scale and total plants on hand is the result of meeting the demand of the
adult-use market.

For the year ended, the fair value adjustments on the sale of
inventory and biological assets increased to $16,357 and ($38,856) respectively
from $2,289 and ($7,340) respectively in the comparative period of fiscal 2018
for those reasons as noted above.

The Company incurred an impairment loss on inventory of $16,918
during the three months ended July 31, 2019, due to price compression in the
market. The impairment loss was realized on cannabis purchased in fiscal 2019 to
help meet the demands of the adult-use market in which the cost is now exceeding
its net realizable value.

New in fiscal 2019 are excise taxes associated with the new
adult-use revenues and medical sales incurred after October 17, 2018. These
taxes totaled $5,122 an increase of 72% from the prior quarter which in part, is
consistent with the increase to underlying gross revenues and gram and gram
equivalents sold in the quarter. Further adding to the increase were the
approximate $6,871 sales incurred in Alberta which drives on average 16% higher
excise tax burden than Quebec and Ontario. Excise taxes are a function of fixed
provincial and territorial rates based upon the gram equivalents sold as well as
a variable ad valorem component which is dependent upon the selling price of the
products.

Operating Expenses

For the three months ended
    
    
    For the twelve months endedJuly 31, 2019
    
    
    July 31, 2018
    
    
    July 31, 2019
    
    
    July 31, 2018General and administration
    $
    22,950
    
    $
    4,300
    
    $
    45,947
    
    $
    9,374Marketing and promotion
    
    9,520
    
    
    3,807
    
    
    31,191
    
    
    8,335Stock-based compensation
    
    10,197
    
    
    1,933
    
    
    28,008
    
    
    4,997Research and development
    
    2,247
    
    
    
    
    
    2,822
    
    
    Amortization of intangible assets
    
    1,407
    
    
    252
    
    
    1,767
    
    
    765Depreciation of
      property, plant and equipment
    
    581
    
    
    421
    
    
    1,747
    
    
    896Total
    $
    46,902
    
    $
    10,713
    
    $
    111,482
    
    $
    24,367


Operating expenses include general and administrative expenses,
marketing and promotion, stock-based compensation, research and development, and
depreciation/amortization expenses. Marketing and promotion expenses include
customer acquisition costs, customer experience costs, salaries for marketing
and promotion staff, and general corporate communications expenses. General and
administrative expenses include salaries for administrative staff and executive
salaries as well as general corporate expenditures including legal, insurance
and professional fees.

26MANAGEMENTS DISCUSSION
& ANALYSIS

---

GENERAL AND ADMINISTRATIVE

General and administrative expenses increased to $22,950 in the
fourth quarter of fiscal 2019, compared to $4,300 for the same period in fiscal
2018. This increase reflects the significant increase to the scale of our
operations, including an increase in management, general, finance and
administrative staff which lead to an increase of $3,149 to wages and payroll
related expenses. Total professional and legal expenses increased by $7,557, as
a result of merger and acquisition activity, additional corporate development
initiatives and the increased financial reporting and control-based regulatory
requirements accompanying public company status and listing on the TSX and NYSE.
Increased insurance pertaining to commercial property and directors and officers
increased in total by $3,577 due to increased property, plant and equipment
balances and the listing on the NYSE, respectively.

Total general and administrative expenses for the fiscal year
ended July 31, 2019 increased to $45,947 from $9,374 in the same period of
fiscal 2018 due to the general growth of the operational scale of the
corporation for the same reasons as outlined above.

MARKETING AND PROMOTION

Marketing and promotion expenses increased to $9,520 in the
current quarter, compared to $3,807 for the same period in fiscal 2018. The
increase reflects the expenses incurred from our adult-use marketing and
promotional events undertaken in the quarter as we build brand recognition and
establish HEXO in the adult-use cannabis market. This is inclusive of higher
staff and travel-related expenses, increases to printing and promotional
materials, market research efforts as well as advertisement costs.

Total marketing and promotion expenses for the fiscal year
ended July 31, 2019 significantly increased to $31,191 from $8,335 as compared
to the same period of fiscal 2018. This significant increase reflects the
Companys marketing and branding campaign which began in the first quarter of
fiscal 2019 as we prepared for the launch of the adult-use brand HEXO into the
legalized Canadian market.

RESEARCH AND DEVELOPMENT (R&D)

The Company realized its first significant quarter of R&D
expenses during the fourth quarter of fiscal 2019. The increased R&D is
correlated to the cannabis 2.0 edible cannabis market preparation, including
vape formulas, confectionary prototypes and sensory testing. The Company also
incurred expenses of $575 in market research and product studies. Additionally,
expenses related to the establishment of the recently announced brand, Original
Stash were realized.

STOCK-BASED COMPENSATION

Stock-based compensation increased to $10,197 when compared to
$1,933 for the same period in fiscal 2018. The increase is a function of the
increased number of outstanding stock options which has a direct correlation to
the increased headcount of the Company. Underlying market prices of those
options granted subsequent the third quarter of fiscal 2018 were significantly
higher, resulting in an increase to the expensed value on a per stock option
basis during the period. On May 24, 2019, the Company added the unvested
outstanding stock options of Newstrike to its outstanding balance. This
contributed $981 of additional expenses in the period.

Total stock-based compensation for the year ended July 31, 2019
increased to $28,008 from $4,997 as compared to the same period of fiscal 2018
for those reasons as outlined above.

DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT

Amortization of property, plant and equipment increased to $581
in the quarter, compared with $421 for the same period in fiscal 2018. The
increase is due to the additions to office furniture, vehicles and other
equipment in which the associated depreciation is not capitalized to inventory.
These additions represent the Companys general growth and increase to the scale
of the operations.

Total depreciation of property, plant and equipment for the
year ended July 31, 2019 increased to $1,747 from $896 as compared to the same
period of fiscal 2018 for those reasons as outlined above.

AMORTIZATION OF INTANGIBLE ASSETS

Amortization of intangible assets increased significantly to
$1,407 in the quarter, compared with $252 for the same period in fiscal 2018.
The increase is the result of amortization incurred on the identified $113,888
cultivation and license intangible asset acquired through the acquisition of
Newstrike on May 24, 2019.

Total amortization of intangible assets for the year ended July
31, 2019 increased to $1,767 from $765 as compared to the same period of fiscal
2018 for those reasons as outlined above.

Loss from Operations

Loss from operations for the fourth quarter was ($60,650),
compared to ($10,194) for the same period in fiscal 2018. The increased
operating expenses due to the expanding scale of operations of the Company and
increased stock-based compensation expense due to higher cannabis market value.
The Company also incurred increased R&D expenditures and an impairment loss
on inventory. The higher expenses were offset by higher revenues and increased
biological fair value adjustments as our production capacity continues to
increase.

27MANAGEMENTS DISCUSSION
& ANALYSIS

---

Other Income/Expenses

Other income/(expense) was $125 for the three months ended July
31, 2019 compared to ($315) in the same period of fiscal 2018. Revaluation of
financial instruments of $543 in the latest quarter reflects the revaluation of
an embedded derivative related to USD denominated warrants issued in the prior
year. During the period we earned $1,575 of interest and other income on our
various highly liquid interest generating assets as well as the interest earning
convertible debenture. Additionally, we incurred ($1,252) of unrealized of
equity loss pickups on the ventures HEXO MED and Truss. The unrealized losses on
the convertible debenture revaluation and other investments were ($124) and
($315), respectively. Interest expenses amounted to ($305) in the period.

Total other income/(expense) was ($847) for the year ended July
31, 2019 compared to ($5,383) of the same period of fiscal 2018. The decrease in
expenses is primarily due to the Interest income of $5,187 due to increased cash
holdings, convertible note interest and interest earned on a public security
investment. The cumulative gain on convertible debenture amounted to $1,737 for
the year ended. This was offset by the loss on revaluation of the USD
denominated warrant liability of ($3,730) and the cumulative equity pick up
losses from ventures of ($2,964).

Biological Assets  Fair Value Measurements

As at July 31, 2019, the changes in the carrying value of
biological assets are as follows:

|                                                                                    |   | July 31, 2019 |   |   | July 31, 2018 |  
|----------------------------------------------------------------------------------- | - | ------------- | - | - | ------------- | -
|Carrying amount, beginning of period                                                | $ | 2,332         |   | $ | 1,504         |  
|Acquired through acquisition                                                        |   | 3,291         |   |   |               |  
|Production costs capitalized                                                        |   | 19,215        |   |   | 993           |  
|Net increase in fair value due to biological
      transformation less cost to sell |   | 38,856        |   |   | 7,340         |  
|Transferred to inventory upon harvest                                               |   | (56,323       | ) |   | (7,505        | )
|Carrying amount, end of period                                                      | $ | 7,371         |   | $ | 2,332         |  
|1Acquired through the Newstrike
      acquisition on May 24, 2019                   |   |               |   |   |               |  

Our biological assets consist of cannabis plants, from seeds
all the way through to mature plants. As at July 31, 2019, the carrying amount
of biological assets consisted of $2 in seeds and $7,369 in cannabis plants ($6
in seeds and $2,326 in cannabis plants as at July 31, 2018). The increase in the
carrying amount of biological assets is attributable to an increase in
production costs and offset by the market selling price decrease as a result of
the adult-use market. The significant estimates used in determining the fair
value of cannabis on plants are as follows:

| | yield by plant;                                                                                                                                                                                                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                            
| | stage of growth estimated as the
      percentage of costs incurred as a percentage of total cost as applied to
      the estimated total fair value per gram (less fulfillment costs) to arrive
      at an in-process fair value for estimated biological assets which have not
      yet been harvested;
|  |                                                                                                                                                                                                                                                                                                            
| | percentage of costs incurred for
      each stage of plant growth;                                                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                            
| | fair value selling price per gram
      less cost to complete and cost to sell; and                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                            
| | destruction/wastage of plants
      during the harvesting and processing process.                                                                                                                                                                                                                          

We view our biological assets as Level 3 fair value estimates
and estimate the probability of certain harvest rates at various stages of
growth. As at July 31, 2019, it is expected that our biological assets will
yield approximately 17,571 kilograms (July 31, 2018  4,374 kilograms). Our
estimates are, by their nature, subject to change. Changes in the anticipated
yield will be reflected in future changes in the fair values of biological
assets.

The valuation of biological assets is based on an income
approach in which the fair value at the point of harvesting is estimated based
on selling prices less the costs to sell. For in-process biological assets, the
fair value at point of harvest is adjusted based on the stage of growth at
period end. Stage of growth is determined by reference to the plants life
relative to the cost incurred as a percentage of total cost as applied to
estimated total fair value per gram (less fulfilment costs) to arrive at an
in-process fair value for estimated biological assets, which have not yet been
harvested.

Managements identified significant unobservable inputs, their
range of values and sensitivity analysis for the period ended July 31, 2019 are
presented in the table below:

|Unobservable
      inputs                                         | Input values                 | Sensitivity analysis                                                                                                                     
|----------------------------------------------------------------- | ---------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------
|                                                                  |                              |                                                                                                                                          
|Average selling price                                             |                              |                                                                                                                                          
|Obtained through actual retail prices on a per strain
      basis | $4.23  $5.01 per dried gram | An increase or decrease of 5% applied to the average selling price would result in a change
      of approximately $480 to the valuation.

28MANAGEMENTS DISCUSSION
& ANALYSIS

---

|Yield per plant                                                                                    |                                                              |                                                                                                                                                    
|-------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Obtained through historical harvest cycle results on a
      per strain basis                      | 15  123 grams per plant                                     | An increase or decrease of 5% applied to the average yield per plant would result in a change
      up to approximately $344 in valuation.         
|                                                                                                   |                                                              |                                                                                                                                                    
|Stage of growth                                                                                    |                                                              |                                                                                                                                                    
|Obtained through the estimates of stage of completion
    within the harvest cycle                 | Average of 29% completion                                    | An increase or decrease of 5% applied to the average stage of growth per plant would result
      in a change of approximately $1,148 in valuation.
|                                                                                                   |                                                              |                                                                                                                                                    
|Wastage                                                                                            |                                                              |                                                                                                                                                    
|Obtained through the estimates of stage of wastage within
    the cultivation and production cycle | 0%30% dependent upon the stage within the
    harvest cycle | An increase or decrease of 5% applied to the wastage expectation would result in a change
    of approximately $302 in valuation.                  

Quarterly Results

The following table presents certain unaudited financial
information for each of the eight fiscal quarters up to and including the
quarter ended July 31, 2019. The information has been derived from our audited
consolidated financial statements, which in managements opinion have been
prepared on a basis consistent with the consolidated financial statements for
the fiscal year ended July 31, 2019. Past performance is not a guarantee of
future performance, and this information is not necessarily indicative of
results for any future period.

Q4 19
    
    
    Q3 19
    
    
    Q2 19
    
    
    Q1 19July 31, 2019
    
    
    April 30, 2019
    
    
    January 31, 2019
    
    
    October 31, 2018Net revenue
    $
    15,424
    
    $
    13,017
    
    $
    13,438
    
    $
    5,663Total Net loss
    
    (56,685
    )
    
    (7,751
    )
    
    (4,325
    )
    
    (12,803
    )Loss per share  basic
    
    (0.28
    )
    
    (0.04
    )
    
    (0.02
    )
    
    (0.07
    )Loss per share 
      fully diluted
    
    (0.28
    )
    
    (0.04
    )
    
    (0.02
    )
    
    (0.07
    )


Q4 18
    
    
    Q3 18
    
    
    Q2 18
    
    
    Q1 18July 31, 2018
    
    
    April 30, 2018
    
    
    January 31, 2018
    
    
    October 31, 2017Net revenue
    $
    1,410
    
    $
    1,240
    
    $
    1,182
    
    $
    1,102Total Net loss
    
    (10,509
    )
    
    (1,971
    )
    
    (8,952
    )
    
    (1,918
    )Loss per share  basic
    
    (0 .05
    )
    
    (0. 01
    )
    
    (0.10
    )
    
    (0.03
    )Loss per share 
      fully diluted
    
    (0.05
    )
    
    (0.01
    )
    
    (0.10
    )
    
    (0.03
    )


The Companys net revenues have increased considerably during
the current fiscal year when compared to the previous fiscal year. This is due
to the legalization of adult-use cannabis in Canada and the Companys
introduction into this market. As a result, the net loss in the three months
ended July 31, 2019 increased primarily due to approximately $23 million in
additional operating expenses as discussed in Operating Expenses and
the $16,918 impairment loss on inventory discussed in Cost of Sales, Excise
Taxes and Fair Market Value Adjustments. The third quarter of fiscal 19 saw
increased general, administrative and stock based compensation expenses due to
the growth of scale in the Companys operations. In the second quarter of fiscal
19 a stabilization in marketing/branding expenses occurred from the previous
quarter thus reducing the net loss, offset by increased gross margin due to the
Companys first full quarter of adult-use sales. The Company experienced a ramp
up of expenses to prepare for the legalized adult-use market primarily in the
first quarter of fiscal 2019 and quarter four of fiscal 2018 resulting in
increased net losses. The four quarters of fiscal year 2018 ended July 31, 2018
pertain to the Companys operations within the medical market only and included
in the first quarter of fiscal 18 were tremendous scaling efforts to meet the
coming demand of the adult-use market which was legalized October 17, 2018.

Financial Position

The following table provides a summary of our interim condensed
financial position as at July 31, 2019 and July 31, 2018:

July 31, 2019
    
    
    July 31, 2018Total assets
    $
    881,040
    
    $
    334,998Total liabilities
    
    104,284
    
    
    12,125Share capital
    
    799,706
    
    
    347,233Share-based payment reserve
    
    40,315
    
    
    6,139Warrants
    
    60,433
    
    
    12,635Non-controlling interest
    
    1,000
    
    
    -Deficit
    ****$****
    (124,698)
    
    **$**
    (43,134)


29MANAGEMENTS DISCUSSION
& ANALYSIS

---

Total Assets

Total assets increased to $881,040 as at July 31, 2019 from
$334,998 as at July 31, 2018. The Company raised $53,791 in net proceeds from
the January 30, 2019 marketed public offering. Property plant and equipment
increased by $204,460 due to the construction of the 1 million sq. ft B9
facility, leasehold improvements to the Belleville Centre of Excellence and the
associated required additional production equipment required within those
facilities. The Company also acquired $46,003 of property, plant and equipment
through the Newstrike acquisition. Also due to the aforementioned addition
production facilities, there has been a significant increase in scale of
operations. Inventory and biological assets increased $75,856 and $5,039,
respectively. New in the fiscal year, also contributing to the variance is the
addition of the investment in associate Truss and joint venture HEXO MED which
increased total assets by $52,849. Intangible assets increased by $123,237
primarily due to the acquisition of the Newstrike Up brand and cultivation
licenses. Also generated through the acquisition of Newstrike was goodwill of
$111,877.

Total Liabilities

Total liabilities increased to $104,284 as at July 31, 2019
from $12,125 as at July 31, 2018. During the current fiscal year, the Company
entered into a term loan with CIBC which contributed $33,374 in net outstanding
debt as at July 31, 2019. An increase in trade accounts payable and accruals of
$36,585 due to continued growth in operations and scalability, specifically the
retrofitting and leasehold improvement activity underway at the Centre of
Excellence in Belleville, Ontario. There exists $3,494 of excise taxes payable
due to the onset of the new taxation policy instituted at the legalization date
October 17, 2018.

Share Capital

Share capital increased to $799,706 as at July 31, 2019 from
$347,233 at July 31, 2018, due to the marketed equity financing which
contributed $53,791 in net proceeds to share capital. The acquisition of
Newstrike added an additional $322,439 and the remaining balance of the increase
was realized from the exercising of warrants, broker warrants and stock options
during the fiscal year.

Share-Based Payment Reserve

The share-based
  payment reserve increased to $40,315 as at year end from $6,139 as at July 31,
  2018. This increase is due to a full fiscal year of stock-based compensation
  resulting in an increase of $11,768, as a result from the 5.7 million issued
  employee stock options in July 2018. A total of 12,693,118 employee stock
  options were granted during the 12 months ended July 31, 2019, inclusive of
  3,668,785 which were granted during the fourth quarter of fiscal 2019. The
  acquisition of Newstrike on May 24, 2019 increased the share-based payment
  reserve by $7,134.

Warrants Reserve

The warrant reserve increased significantly to $60,433 as at
July 31, 2019 from $12,635 as at July 31, 2018, primarily due to the $42,386
addition of the fair valued Molson warrants reserve established for the
11,500,000 share purchase warrants issued to an affiliate of Molson Coors Canada
as consideration in the Truss venture in early October 2018. The warrants
possess a strike price of $6.00 and a term of 3 years. This is offset by warrant
exercise activity during the three quarters to date of fiscal 2019. The
acquisition of Newstrike on May 24, 2019 increased the warrants reserve by
$12,229.

Liquidity and Capital ResourcesLiquidity

Our objectives when managing our liquidity and capital
structure are to maintain sufficient cash to fund international growth
initiatives, innovation strategies and to meet contractual obligations. Our
ability to reach profitability is dependent on successful implementation of our
business strategy. While management is confident in the future success of the
business, there can be no assurance that our products will gain adequate market
penetration or acceptance or generate sufficient revenue to reach
profitability.

|                           | For the twelve months ended
|-------------------------- | ---------------------------
|Liquidity                  | July 31, 2019              
|                           | $                          
|Operating activities       | (124,706)                  
|Financing activities       | 146,877                    
|Investing
      activities | (7,645)                    

Operating Activities

Net cash used in operating activities for the twelve months
ended July 31, 2019 was $124,706 as a result of the net loss for the period
ended of $81,564, and a decrease in non-cash working capital of $71,767, as well
as net non-cash expenses of $28,625. In the same prior year period, cash used in operating activities was
($22,185), reflecting the net loss of ($23,350), net non-cash expenses add back
of $8,378, and a decrease in working capital of ($7,213). The change in cash
flow reflects ($38,856) of an unrealized change in the fair value of biological
assets. Increases to inventory and biological assets of ($53,640) and an
increase to trade receivables of ($17,845). These increases to operating cashflows were offset by the stock-based compensation add back of $28,944.
Operating activities reflect the general increased size and scale of the
Companys operations when compared to the same fiscal period of the fiscal year
2018, as well as the additional operations obtained through the acquisition of
Newstrike.

30MANAGEMENTS DISCUSSION
& ANALYSIS

---

Financing Activities

Net cash received from financing activities for the fiscal year
ended July 31, 2019 was $146,877. On January 30, 2019, the Company closed the
marketed equity financing in which a total of 8,855,000 common shares were
issued for net proceeds of $53,731. The additional cash generated from the
exercised warrants in the amount of $62,442 and exercised stock options of $4,293
incurred during the period. The warrant activity was significantly higher in the
fourth quarter due to all time high market prices. The Company's term loan
forming part of its syndicated credit facility contributed net $32,778.

Investing Activities

For the twelve months ended July 31, 2019, $7,645 was used for
investing activities. The Company gained net cash of $49,366 through its
business acquisition. Contributing to the increase is cash was the transfer of
short-term investments of $119,810 and its reinvestment into high interest
generating vehicles. This is offset by the cash consideration and capitalized
transaction costs of ($13,427) of the investment in associate and joint
ventures. During the period, we continued additions of ($138,034) to our
property, plant and equipment as scalability increases as the new 1 million sq.
ft. greenhouse was completed and significant leasehold improvements continue to
be made at the Belleville facility. Cash in the amount of ($22,350) was
restricted for the purposes of satisfying supply and debt service agreements or
held in escrow.

Capital Resources

As at July 31, 2019, working capital totaled $261,868. The
exercise of all the issued and outstanding warrants, as at July 31, 2019, would
result in an increase in cash of approximately $225,394, and the exercise of all
stock options would increase cash by approximately $142,491. During the quarter,
the Company realized an increase in cash of $39,932 due to the exercise of
7,130,782 January 2018 warrants which contribute $5.60 per warrant. An
additional $3,386 was generated due to the exercise of 2,122,689 options during
the quarter end.

On October 23, 2019, the Company announced 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 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, subject to adjustment in certain events.

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.

The Debentures and any common shares of the Company issuable
upon conversion thereof will be subject to a statutory hold period lasting four
months and one day following the closing date.

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.

On February 15, 2019, the Company entered into a syndicated
credit facility with Canadian chartered banks for a total of $65,000. This
access to capital will provide the Company with additional capital to fund
future growth and expansion as well as its strategic initiates without the
dilution of current and future shareholders.

On January 30, 2019, the Company closed the marketed public
offering which generated gross proceeds of $57,500 for the issuance of 8,855,000
common shares at a price of $6.50 per share. The Company intends to use the net
proceeds from the offering to fund general corporate operations, global growth
initiatives and research and development activity to further advance the
Companys innovation strategies.

As of the date of this MD&A, the Company sits on a
consolidated cash position of approximately $64,000, exclusive of the expected
cash from the debentures of the recently announced private placement. The
primary cash burn activities since the fiscal year ended July 31, 2019 relate to
capital expenditures, capital contributions to our joint arrangement partners
and standard operating activities such as payroll.

31MANAGEMENTS DISCUSSION
& ANALYSIS

---

Management believes that current working capital along with the
recently completed financings, sufficiently provides the level of funding
required for current expansion projects and meet contractual obligations for the
next 12 months. We periodically evaluate the opportunity to raise additional
funds through the public or private placement of equity capital to strengthen
our financial position and to provide sufficient cash reserves for growth and
development of the business.

Our authorized share capital is comprised of an unlimited
number of common shares. The table below outlines the number of issued and
outstanding common shares, warrants and options as at July 31, 2018, July 31,
2019 and October 24, 2019.

|              | October 23, 2019 | July 31, 2019 | July 31, 2018
|------------- | ---------------- | ------------- | -------------
|Common shares | 257,018,560      | 256,981,753   | 193,629,116  
|Warrants      | 24,016,422       | 29,585,408    | 26,425,504   
|Options       | 22,326,430       | 24,288,919    | 14,388,066   
|Total         | 303,361,412      | 310,856,080   | 234,442,686  

As a result of the Newstrike acquisition the following balances
were contributed the Companys common shares, warrants and stock option balances
as at the closing date May 24, 2019.

May 24, 2019Common shares
    35,394,041Warrants
    7,196,166Options
    2,011,863Total
    44,602,070


Off-Balance Sheet Arrangements and Contractual
ObligationsThe Company does not have any off-balance sheet
arrangements.

As of the date of this MD&A, the Company has a $65,000
credit facility in place with a syndicate of Canadian chartered banks of which
$35,000 has been drawn upon and is outstanding.

We have certain contractual financial obligations related to
service agreements and construction contracts for the construction in progress
shown in Note 9 of the audited financial statements and the accompanying notes
for the fiscal year ended July 31, 2019. Commitments are inclusive of $99,652
related to the 20-year anchor rental commitment regarding the Belleville
facility.

These contracts have optional renewal terms that we may
exercise at our option. The annual minimum payments payable under these
contracts over the next five years are as follows:

$2020
    93,6472021
    7,3322022
    5,8042023
    5,2592024
    4,970Thereafter
    75,218192,230


Financial Risk Management

We are exposed to risks of varying degrees of significance
which could affect our ability to achieve our strategic objectives for growth.
The main objectives of our risk management process are to ensure that risks are
properly identified and that the capital base is adequate in relation to these
risks. The principal financial risks to which we are exposed are described
below.

32MANAGEMENTS DISCUSSION
& ANALYSIS

---

Interest Risk

The Company has exposure to interest rate risk related to any
investments of surplus cash. The Company may invest surplus cash in highly
liquid investments with short terms to maturity that would accumulate interest
at prevailing rates for such investments. The Company also has exposure to
interest rate risk related to the outstanding balance of the term loan. The
fluctuation of the interest rate may result in a material increase to the
associated interest. As at July 31, 2019, the Company had short term investments
and a convertible debenture of $517 and a long term loan of $33,374. All
interest rates are fixed. An increase or decrease of 5% to the applicable
interest rates would not result in a material variance.

Price Risk

Price risk is the risk of variability in fair value due to
movements in equity or market prices. The Companys investments are susceptible
to price risk arising from uncertainties about their future outlook, future
values and the impact of market conditions. The fair value of marketable
securities and derivatives held in publicly traded entities are based on quoted
market prices which the shares of the investments can be exchanged for.

If the fair value of these financial assets were to increase or
decrease by 10% as of July 31, 2019, the Company would incur an associated
increase or decrease in comprehensive loss of approximately $188 (2018 - $Nil).
The price risk exposure as at July 31, 2019 is presented in the
table below.

**$**Financial assets
    16,756Financial
      liabilities
    (493)Total exposure
    16,263


Credit Risk

Credit risk is the risk of financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet its contractual
obligations and arises principally from the Companys trade receivables,
promissory note receivable and convertible debenture receivable. As at July 31,
2019, the Company was exposed to credit related losses in the event of
non-performance by the counterparties.

The Company provides credit to its customers in the normal
course of business and has established credit evaluation and monitoring
processes to mitigate credit risk. Since the majority of the medical sales are
transacted with clients that are covered under various insurance programs, the
Company has limited credit risk.

Cash, cash equivalents and short-term investments are held by
some of the largest cooperative financial groups in Canada. Since the inception
of the Company, no losses have been incurred in relation to cash held by the
financial institution. The majority of the trade receivables balance are held
with crown corporations of Quebec, Ontario and Alberta as well as one of the
largest medical insurance companies in Canada. Credit worthiness of a
counterparty is evaluated prior to the granting of credit. The Company has
estimated the expected credit loss using a lifetime credit loss approach. The
current expected credit loss for the year ended July 31, 2019 is $37 (July 31,
2018 - $94).

In measuring the expected credit losses, the adult-use cannabis
trade receivables have been assessed on a per customer basis as they consist of
a low number of material contracts. Medical trade receivables have been assessed
collectively as they possess share credit risk characteristics. They have been
grouped based on the days past due.

Credit risk from the convertible debenture receivable arises
from the possibility that principal and/or interest due may become
uncollectible. The Company mitigates this risk by managing and monitoring the
underlying business relationship.

The carrying amount of cash and cash equivalents, restricted
cash, short-term investments, trade receivables and convertible debentures
receivable represents the maximum exposure to credit risk and as at July 31,
2019; this amounted to $194,902.

The following table summarizes the Companys aging of
receivables as at July 31, 2019 and July 31, 2018:

July 31, 2019
    July 31, 2018030 days
    $
    $030 days
    20,469
    2623160 days
    1,826
    1886190 days
    166
    91Over 90 days
    3,599
    103Total
    26,060
    644


33MANAGEMENTS DISCUSSION
& ANALYSIS

---

Economic Dependence Risk

Economic dependence risk is the risk of reliance upon a select
number of customers which significantly impact the financial performance of the
Company. The Company recorded sales from three crown corporations representing
81% (July 31, 2018  Nil%) of total sales in the fiscal year ended July 31,
2019.

The Company holds trade receivables from three crown
corporations representing 79% of total trade receivables as of July 31, 2019
(July 31, 2018  Nil%).

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they become due. The Company manages its
liquidity risk by reviewing on an ongoing basis its capital requirements. As at
July 31, 2019, the Company had $139,505 of cash and cash equivalents and
short-term investments.

The Company is obligated to pay accounts payable and accrued
liabilities, excise taxes payable and current portions of the term loan and
other liabilities with total carrying amounts and contractual cash flows
amounting to $52,685 due in the next 12 months.

The carrying values of cash, trade receivable, accounts payable
and accrued liabilities approximate their fair values due to their short term to
maturity.

Critical Accounting Assumptions

Our financial statements are prepared in accordance with IFRS.
Management makes estimates and assumptions and uses judgment in applying these
accounting policies and reporting the amounts of assets and liabilities, revenue
and expenses, and the related disclosure of contingent assets and liabilities.
Significant estimates in the accompanying financial statements relate to the
valuation of biological assets and inventory, stock-based compensation,
warrants, the estimated useful lives of property, plant and equipment, and
intangible assets. Actual results could differ from these estimates. Our
critical accounting assumptions are presented in Note 3 of the Companys annual
audited consolidated financial statements for the fiscal year ended July 31,
2019, which is available under HEXOs profile on SEDAR and EDGAR.

Adopted and Upcoming Changes in Accounting
StandardsIFRS 15, Revenues from Contracts
with Customers

IFRS 15 was issued by the IASB in May 2014 and specifies how
and when revenue should be recognized based on a five-step model, which is
applied to all contracts with customers. On April 12, 2016, the IASB published
final clarifications to IFRS 15 with respect to identifying performance
obligations, principal versus agent considerations, and licensing.

The Company has applied IFRS 15 retrospectively and determined
that there is no change to the comparative period or transitional adjustments
required as a result of the adoption. The Companys accounting policy for
revenue recognition under IFRS 15 is as follows:

|1. | Identifying the contract with a customer;                                                   
|-- | --------------------------------------------------------------------------------------------
|   |                                                                                             
|2. | Identifying the performance obligation(s) in the
      contract;                            
|   |                                                                                             
|3. | Determining the transaction price;                                                          
|   |                                                                                             
|4. | Allocating the transaction price to the performance
      obligation(s) in the contract; and
|   |                                                                                             
|5. | Recognizing revenue when or as the Company satisfies the
      performance obligation(s).   

Revenue from the direct sale of cannabis to customers for a
fixed price is recognized when the Company transfers the control of the good(s)
to the customer upon delivery and acceptance by the customer, the timing of
which is consistent with the Companys previous revenue recognition policy under
IAS 18.

IFRS 9, Financial
Instruments

The Company adopted IFRS 9 retroactively and determined that
there is no change to the comparative period or transitional adjustments
required as a result of the adoption.

IFRS 9 was issued by the International Accounting Standards
Board ("IASB") in November 2009 and October 2010 and will replace IAS 39. IFRS 9
uses a single approach to determine whether a financial asset is classified and
measured at amortized cost or at fair value. The classification and measurement
of financial assets is based on the Companys business models for managing its
financial assets and whether the contractual cash flows represent solely
payments of principal and interest (SPPI). Financial assets under IFRS 9 are
initially measured at fair value and are subsequently measured at either
amortized cost; fair value through other comprehensive income (FVTOCI) or;
fair value through profit or loss (FVTPL).

AMORTIZED COST

Financial assets classified and measured at amortized cost are
those assets that are held within a business model whose objective is to hold
financial assets in order to collect contractual cash flows, and the contractual
terms of the financial asset give rise to cash flows that are SPPI. Financial
assets classified at amortized cost are measured using the effective interest
method.

34MANAGEMENTS DISCUSSION
& ANALYSIS

---

FVTOCI

Financial assets classified and measured at FVTOCI are those
assets that are held within a business model whose objective is achieved by both
collecting contractual cash flows and selling financial assets, and the
contractual terms of the financial asset give rise to cash flows that are
SPPI.

This classification includes certain equity instruments where
IFRS 9 allows an entity to make an irrevocable election to classify the equity
instruments, on an instrument-by-instrument basis, that would otherwise be
measured at FVTPL to present subsequent changes in FVTOCI.

FVTPL

Financial assets classified and measured at FVTPL are those
assets that do not meet the criteria to be classified at amortized cost or at
Fair Value through Other Comprehensive Income (FVTOCI). This category includes
debt instruments whose cash flow characteristics are not SPPI or are not held
within a business model whose objective is either to collect contractual cash
flows, or to both collect contractual cash flows and sell the financial asset.

The following table summarizes the Companys financial
instruments under IAS 39 and IFRS 9:

|                                         | IAS 39 Classification       | IFRS 9 Classification
|---------------------------------------- | --------------------------- | ---------------------
|Financial assets                         |                             |                      
|Cash and cash equivalents                | FVTPL                       | FVTPL                
|Restricted cash                          | FVTPL                       | FVTPL                
|Short-term investments                   | FVTPL                       | FVTPL                
|Trade receivables                        | Loans and receivables       | Amortized cost       
|Convertible debenture receivable         | FVTPL                       | FVTPL                
|Long term investment                     | N/A                         | FVTPL                
|Financial liabilities                    |                             |                      
|Accounts payable and accrued liabilities | Other financial liabilities | Amortized cost       
|Warrant liability                        | FVTPL                       | FVTPL                
|Deferred rent liability                  | N/A                         | Amortized cost       
|Term loan                                | N/A                         | Amortized cost       

The adoption of IFRS 9 did not have a material impact to the
Companys classification and measurement of financial assets and
liabilities.

IFRS 9 uses an expected credit loss impairment model as opposed
to an incurred credit loss model under IAS 39. The impairment model is
applicable to financial assets measured at amortized cost where any expected
future credit losses are provided for, irrespective of whether a loss event has
occurred as at the reporting date. For trade receivables, the Company has
measured the expected credit losses based on lifetime expected credit losses
taking into consideration historical credit loss experience and financial
factors specific to the debtors and other factors. The carrying amount of trade
receivables is reduced for any expected credit losses through the use of an
allowance account. Changes in the carrying amount of the allowance account are
recognized in the statement of comprehensive income. At the point when the
Company is satisfied that no recovery of the amount owing is possible, the
amount is considered not recoverable and the financial asset is written off. The
adoption of the new expected credit loss impairment model had a negligible
impact on the carrying amounts of financial assets at amortized cost.

CLASSIFICATION AND MEASUREMENT OF FINANCIAL LIABILITIES

Accounting for financial liabilities remains largely the same
under IFRS 9 and subsequently the Companys liabilities were not significantly
impacted by the adoption.

Financial liabilities are initially measured at fair value,
and, where applicable, adjusted for transaction costs unless the Company
designates a financial liability at fair value through profit or loss.
Subsequently, financial liabilities are measured at amortized cost using the
effective interest method except for derivatives and financial liabilities
designated at FVTPL, which are carried subsequently at fair value with gains or
losses recognised in profit or loss (other than derivative financial instruments
that are designated and effective as hedging instruments).

35MANAGEMENTS DISCUSSION
& ANALYSIS

---

IFRS 16, Leases

In January 2016, the IASB issued IFRS 16 Leases, which will
replace IAS 17 Leases. This standard introduces a single lessee accounting model
and requires a lessee to recognize assets and liabilities for all leases with a
term greater than twelve months, unless the underlying assets value is
insignificant. A lessee is required to recognize a right-of-use asset
representing its right to use the underlying asset and a lease liability
representing its obligation to make lease payments. Lessors will continue to
classify leases as operating or finance, with lessor accounting remaining
substantially unchanged from the preceding guidance under IAS 17, Leases.

The Company is currently executing its implementation plan and
has completed the initial scoping phase to identify material lease contracts.
The analysis of such contracts to quantify the transitional impact is ongoing.
The most significant impact of IFRS 16 will be our initial recognition of the
present value of future lease payments as right-of-use assets under property,
plant and equipment and the corresponding recognition of a lease liability on
the consolidated statement of financial position. All material, long-term
property leases, which are currently treated as operating leases, are expected
to be impacted by the new standard which will result in lower rent expense,
higher depreciation expense and higher finance costs related to accretion and
interest expense of the lease liability.

IFRS 16 will also impact the presentation of the consolidated
statement of cash flows by decreasing operating cash flows and increasing
financing cash flows. The standard will be effective for the Company for the
fiscal year commencing August 1, 2019. The Company will be adopting the standard
using the modified approach by recognizing the cumulative impact of initial
adoption in opening retained earnings (i.e. the difference between the
right-of-use asset and the lease liability). The Company will measure the
right-of-use asset at an amount equal to the lease liability on the commencement
date, apply a single discount rate to leases with similar remaining lease terms
for similar classes of underlying assets and will not separate non-lease
components from lease components for certain classes of underlying assets.
Consistent with the guidance, the Company will not apply this standard to
short-term leases and leases for which the underlying asset is of low value.

Related Party TransactionsKey Management Personnel Compensation

Key management personnel are those persons having the authority
and responsibility for planning, directing and controlling our operations,
directly or indirectly. Our key management personnel are the members of the
executive management team and Board of Directors, who collectively control
approximately 6.15% of the outstanding common shares as at July 31, 2019 (July
31, 2018  8.77%) .

Compensation provided to key management for the fiscal years
ended July 31, 2019 and 2018 was as follows:

|For the fiscal year ended     |   | July 31, 2019 |  |   | July 31, 2018 | 
|----------------------------- | - | ------------- |  | - | ------------- | 
|Salary and/or consulting fees | $ | 3,550         |  | $ | 1,969         | 
|Bonus compensation            |   | 481           |  |   | 275           | 
|Stock-based compensation      |   | 16,235        |  |   | 3,836         | 
|Total                         | $ | 20,266        |  | $ | 6,080         | 

Unless otherwise stated, the below granted stock options will
vest on the one-year anniversary of the date of grant and the balance will vest
quarterly over two years thereafter.

On July 26, 2019, the Company granted certain of its directors
a total 250,000 stock options with an exercise price of $5.88.

On July 18, 2019, the Company granted certain of its executives
a total 650,000 stock options with an exercise price of $6.54.

On March 20, 2019, the Company granted certain of its
executives a total 325,000 stock options with an exercise price of $8.50.

On February 21, 2019, the Company granted the CEO 3,333,333
stock options with an exercise price of $7.46. Additional to the standard
vesting terms as defined above, is an achievement condition in which vesting may
only occur once a volume weighted average trading price of $10 or greater is
achieved for a 20-day period prior to a vesting date. All unvested options will
carry over and vest if the condition is met at a future vesting date.

On February 19, 2019, the Company granted certain of its
executives a total 615,000 stock options with an exercise price of $7.13.

On December 17, 2018, the Company granted certain of its
executives a total 74,000 stock options with an exercise price of $5.09. Of
this, 54,000 stock options will fully vest at the 6-month anniversary of the
grant date.

On September 17, 2018, the Company granted certain of its
executives a total of 650,000 stock options with an exercise price of $7.93.

On July 11, 2018, the Company granted certain of its directors
and officers a total of 4,325,000 stock options with an exercise price of $4.89.
Within the grant there exist 350,000 stock option which fully vest on April 30,
2019.

On April 16, 2018, the Company granted certain executives of
the Company a total of 845,000 stock options with an exercise price of
$4.27.

On March 12, 2018, the Company granted certain executives of
the Company a total of 325,000 stock options with an exercise price of
$3.89.

36MANAGEMENTS DISCUSSION
& ANALYSIS

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On December 4, 2017, the Company granted certain directors and
executives a total of 1,750,000 stock options with an exercise price of $2.69,
half of which vested immediately and the balance over a three-year period with
the exception of 75,000 stock options which vest in full by April 30, 2019.

On November 6, 2017, the Company granted certain of our
executives a total of 125,000 stock options with an exercise price of $2.48.
On September 8, 2017, the Company granted certain of our executives a
total of 650,000 stock options with an exercise price of $1.37.

The Company loaned $20,279 on September 7, 2018, to the related
party BCI to be used in the purchase of a facility in Belleville, Ontario and
was repaid in full during the third quarter of fiscal 2019.

These transactions are in the normal course of operations and
are measured at the exchange amount, which is the amount of consideration
established and agreed by the related parties.

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.

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.

37MANAGEMENTS DISCUSSION
& ANALYSIS

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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.

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
and review of assumptions, processes and estimate methodology, 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;
- Additional training, guidance and communications to internal teams and
  third-party inventory count providers regarding inventory management, count
and reconciliation procedures.

PROCUREMENT

The Company did not maintain effective controls over the
purchasing of capital goods and services, including the authorization 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;
- Additional training, guidance and communications to internal teams
  regarding the Companys procurement policies and required adherence to the
Governance Authority Matrix.

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.

38MANAGEMENTS DISCUSSION
& ANALYSIS

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- 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.

Risk Factors

Our overall performance and results of operations are subject
to various risks and uncertainties which could cause actual performance, results
and achievements to differ materially from those expressed or implied by
forward-looking statements and forward-looking information, including, without
limitation, the following factors, some of which, as well as other factors, are
discussed in our Annual Information Form dated October 28, 2019 available under
our profile on www.sedar.com, which risk factors should be reviewed in detail by
all readers:

- Our business operations are dependent on our licence under the Cannabis
  Regulations. The license must be renewed by Health Canada. Our current license
  expires on April 15, 2021. Failure to comply with the requirements of the
  license or any failure to renew the license would have a material adverse
  impact on our business, financial condition and operating results.
- Achievement of our business objectives is contingent, in part, upon
  compliance with regulatory requirements enacted by these governmental
  authorities and obtaining all regulatory approvals, where necessary, for the
  production and sale of our products. We cannot predict the time required to
  secure all appropriate regulatory approvals for our products, or the extent of
  testing and documentation that may be required by governmental authorities.
- While to the knowledge of our management, the Company is currently in
  compliance with all laws, regulations and guidelines relating to the
  marketing, acquisition, manufacture, management, transportation, storage, sale
  and disposal of cannabis as well as including laws and regulations relating to
  health and safety, the conduct of operations and the protection of the
  environment, changes to such laws, regulations and guidelines due to matters
  beyond our control may cause adverse effects to our operations.
- We operate in a dynamic, rapidly changing environment that involves risks
  and uncertainties, and as a result, management expectations may not be
  realized for a number of reasons.
- Reliance on managements and key persons ability to execute on strategy.
  This exposes us to managements ability to perform, as well as the risk of
  management leaving the Company.
- We face intense competition from licensed producers and other companies,
  some of which may have greater financial resources and more industry,
  manufacturing and marketing experience than we do.
- The number of licenses granted, and the number of licensed producers
  ultimately authorized by Health Canada could have an impact on our operations.
  We expect to face additional competition from new market entrants that are
  granted licences under the Cannabis Regulations or existing license holders
  which are not yet active in the industry.
- We may be subject to growth-related risks including capacity constraints
  and pressure on our internal systems and controls. Our ability to manage
  growth effectively will require it to continue to implement and improve our
  operational and financial systems and to expand, train and manage our employee
  base.
- Given the nature of our business, we may from time to time be subject to
  claims or complaints from investors or others in the normal course of business
  which could adversely affect the publics perception of the Company.
- We may become party to litigation from time to time in the ordinary course
  of business which could adversely affect our business.
- Failure to adhere to laws and regulations may result in possible sanctions
  including the revocation or imposition of conditions on licenses to operate
  our business; the suspension or expulsion from a particular market or
  jurisdiction or of our key personnel; and the imposition of fines and
  censures.
- International operations will result in increased operational, regulatory
  and other risks.
- There may be a risk of corruption and fraud in the emerging markets in
  which the Company operates.
- The Companys operations in emerging markets international markets may
  pose an increased inflation risk on the business.
- The development of our business and operating results may be hindered by
  applicable restrictions on sales and marketing activities imposed by Health
  Canada.
- Our activities and resources are currently primarily focused on our
  facilities on the Gatineau, Belleville and Newstrike campuses, and we will
  continue to be focused on this facility for the foreseeable future. Adverse
  changes or developments affecting the Gatineau campus would have a material
  and adverse effect on our business, financial condition and prospects.
- We expect to derive a significant portion of our future revenues from the
  legalized adult-use cannabis industry and recently legalized edible cannabis
  2.0 market in Canada, including through our agreements various provincial
  governing bodies do not contain purchase commitments or otherwise obligate the
  purchaser to buy a minimum or fixed volume of products from HEXO.

39MANAGEMENTS DISCUSSION
& ANALYSIS

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- We expect to derive a significant portion of our future revenues from the
  sale of future products of which are still being actively developed and put
  into production. Failure to adequately meet market demand for edible product
  in a timely fashion may adversely impact the Companys profitability.
- We have incurred operating losses since commencing operations and may
  incur losses in the future and may not achieve profitability.
- Our growth strategy contemplates outfitting the Companys multiple
  facilities with additional production resources. There is a risk that these
  additional resources will not be completed on time, on budget, or at all.
- A key aspect of our business is growing cannabis, and as such we are
  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 our customers.
- Our cannabis growing operations consume considerable energy, making us
  vulnerable to rising energy costs. Volatility of energy costs and the loss of
  preferred rate status may adversely impact our business and our ability to
  operate profitably.
- We believe the cannabis industry is highly dependent upon consumer
  perception regarding the safety, efficacy and quality of the cannabis
  produced. Consumer perception of our 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 favourable to the cannabis market or any particular
  product, or consistent with earlier publicity.
- As a manufacturer and distributor of products designed to be ingested or
  inhaled by humans, we face an inherent risk of exposure to product liability
  claims, regulatory action and litigation if our products are alleged to have
  caused significant loss or injury. In addition, the manufacture and sale of
  our 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.
- 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 labelling disclosure.
- Our business is dependent on a number of key inputs and their related
  costs including raw materials and supplies related to our 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 our business, financial condition
  and operating results.
- We must rely largely on our own market research to forecast sales as
  detailed forecasts are not generally obtainable from other sources at this
  early stage of the medical marijuana industry in Canada.
- Conflicts of interest may arise between the Company and its directors.
- We may not pay any dividends on our common shares in the foreseeable
  future.
- Our common shares are listed on the TSX and NYSE; however, there can be no
  assurance that an active and liquid market for the common shares will be
  maintained, and an investor may find it difficult to resell such shares.
- There is no assurance the Company will continue to meet the listing
  requirements of the TSX and the NYSE.
- The Company is subject to restrictions from the TSX and NYSE which may
  constrain the Companys ability to expand its business internationally.
- The market price for our common shares may be volatile and subject to wide
  fluctuations in response to numerous factors, including governmental and
  regulatory regimes, community support for the cannabis industry, variations in
  our operating results, changes in our business prospects, as well as many
  other factors that are beyond our control.
- An investment in our securities is speculative and involves a high degree
  of risk and uncertainty.
- We may issue additional common shares in the future, which may dilute a
  shareholders holdings in the Company.
- The Company may not be successful in the integration of the acquired
  Company into our business.
- The Company may be unable to successfully achieve the objectives of our
  strategic alliances.
- The Companys operations are subject to increased risk as a result of
  international expansion.
- We maintain various types of insurance such as, but not limited to, errors
  and omissions insurance; directors and officers insurance; property
  coverage; and general commercial insurance, recall insurance, cyber security
  insurance, warehouseman insurance and cargo insurance. A judgment against any
  member of the Company in excess of available coverage could have a material
  adverse effect on us in terms of damages awarded and the impact on our
  reputation.
- Based upon the nature of the Companys current business activities, the
  Company does not believe it is currently an investment company (IC) under
  the United States (U. S.) Investment Company Act of 1940. However, the tests
  for determining IC status are

40MANAGEMENTS DISCUSSION
& ANALYSIS

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- Our 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. We 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,
  in penalties or in restrictions on our manufacturing operations.
- In the fiscal year 2018, the Company initiated the implementation of new
  ERP systems. The implementation is expected to be completed in the fiscal year
  ended July 31, 2020. Upon full commencement of the implementation, the
  scoping, requirements definition, business process definition, design and
  testing of the integrated ERP system could result in problems which could, in
  turn, result in disruption, delays and errors to the operations and processes
  within the business and/or inaccurate information for management and financial
  reporting.
- We are exposed to the risk that our 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.
- The Company is subject to continuous evolving corporate governance,
  internal controls and disclosure regulations that may increase the risk of
  non-compliance, which could adversely impact the Company, its market
  perception and valuation.
- With the recently acquired credit facility, which could include risks that
  the Companys cash flows could be insufficient to satisfy required payments of
  principal and interest, exposure of the Company 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.
- The credit facility contains covenants that will require the Company to
  maintain certain financial ratios. If the Company does 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.

41MANAGEMENTS DISCUSSION
& ANALYSIS

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