---



---

|FROM HEXO                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|CORPS CHIEF                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | 
|EXECUTIVE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | 
|OFFICER                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  | 
|HEXO Corps 2019 fiscal year was one of solid growth, achieving
      milestones and overcoming challenges. Our year began just before cannabis was
      legalized for adult use in Canada and, during the year, both the industry and
      our company grew together. It has been exciting and unpredictable, but our team
      has performed well, and we reflect on the past year with pride over what we have
      accomplished and with optimism for what is to come. We enter 2020 with new
      products, expanded distribution, global opportunities and excitement for the
      possibilities ahead.
      During 2019, we grew revenue from $4.9M to $59.3M an increase
        of 12.1x. Along the way, we achieved major milestones, including the
        construction of our latest greenhouse expansion project (B9) at our facility in
        Gatineau, Quebec. The project  which was completed on time and on budget  led
        to the first harvest of plants from the facility in March 2019 and significantly
        increased our production capacity. Today, the expansion is a keystone in our
        continuous harvest methodology and we now have over 100,000 kg of capacity
        compared to 25,000 kg at this time last year.
      In addition to capacity, we have also created a strong sales
        platform to increase our leadership position and to ensure that we are bringing
        our products to consumers around the globe. We are taking a multi-brand approach
        to the market, driven by consumer and market insight, and we are ensuring that
        we remain nimble to respond to changes in consumer demands.
      In the fourth quarter of 2019, we successfully completed the
        acquisition of Newstrike Brands Ltd., adding the brand UP Cannabis to our
        portfolio and, in the process, spreading our retail wings across the country to
        nine provinces. Weve since launched Original Stash, the industrys first true
        value brand, which we believe will not only compete directly with the illicit
        market but also contribute to a significant increase in sell-through. Our
        salesforce and approach have led to additional sales contract across Canada,
    offering retailers and Canadians more choice. |  | 



II

---

|As we develop and expand our operations and product offerings, we remain focused on containing costs and profitability. Our operations team is leveraging data and
analytical tracking to improve our yield per plant. We’ve linked sales and operations and are closely managing our production schedule with expected demand to drive efficiency. In order to ensure that we remain competitive, we will right size the organization to ensure that the appropriate amount of operating expense is in place for the business at this stage.                                                                                                                                                                                                                                                                                                                | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|We are making up for our changing environment by re-committing to the fundamentals: growing high-quality cannabis at a low cost, deploying capital responsibly, and innovation. Increasingly, cannabis is becoming a consumer offering that offers a broad spectrum of experiences to be savoured and enjoyed. As we continue to innovate and expand our product line, consumers will be met with a range of offerings to enhance their lifestyle. Whether
it’s rest and relaxation, increased fun, sleep support, pain
relief, or otherwise, we’ve built a world-class research and development team, composed of scientists and innovators from across the food, beverage, cosmetics and pharmaceutical sectors, and have amassed impressive intellectual property (patents pending) that puts us in a position to revolutionize how cannabis is consumed.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|Ultimately, while we are driving growth and value for our shareholders, we are also focused on the way our operations impact the natural and social environment on a local, provincial, national and global level. Consumers and investors expect more from the companies they support, and we expect to meet these demands.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

|At the very root, HEXO Corp is plant-based business. Our success is directly linked to the viability and sustainability of the astounding cannabis sativa plant. While we have a responsibility to ethically and cost-effectively produce quality cannabis and derivative products, we also have a responsibility towards our planet. Climate change is a real threat for all industries, sectors and jurisdictions. We benefit
– thanks to our success – from a public platform. We’ve chosen to leverage this platform for good, in the hopes of contributing to and maybe even leading a global movement of like-minded companies that are committed to having a positive impact on the world. In the last fiscal year, we completed our greenhouse gas inventory for 2018 and will
soon report the results and emission reduction targets we’ve set. But we are just getting started, and I look forward to sharing more about our plans to do more than our share to mitigate climate change.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|The cannabis industry is transformative, disruptive and exciting. Together with other industry leaders, we are shaping the future of cannabis in Canada and globally and
redefining hypergrowth in business. It i’s not for the faint of heart, and I am proud to have brought together the hard-working, highly skilled professionals that make HEXO Corp the company it is today. I am more confident than ever in our capacity to rise to the top.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Sébastien St-Louis                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|CEO and co-founder of HEXO Corp                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   



III

---

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


---

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.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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;                                                                    
|------------------------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                              |  |                                                                                                                                           
| 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

---

|COMPANY OVERVIEW                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|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.



---

|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.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

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



5MANAGEMENTS DISCUSSION &
  ANALYSIS

---

|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.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6MANAGEMENTS DISCUSSION &
  ANALYSIS

---



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

7MANAGEMENTS DISCUSSION &
  ANALYSIS

---

|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.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8MANAGEMENTS DISCUSSION &
  ANALYSIS

---

|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.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9MANAGEMENTS DISCUSSION &
  ANALYSIS

---

|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.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------



10MANAGEMENTS DISCUSSION &
  ANALYSIS

---



11MANAGEMENTS DISCUSSION &
  ANALYSIS

---



12MANAGEMENTS DISCUSSION &
  ANALYSIS

---

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.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



13MANAGEMENTS DISCUSSION &
  ANALYSIS

---

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

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 INDICATORS
  Summary 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

---

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

---

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

---

- 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

---

- 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

---

- 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

---

NOTICE TO READER

The annual financial statements of HEXO CORP (the Company) for the years
ended July 31, 2019 and 2018 (the Annual Financial Statements) are being
refiled to include a reclassification between operating activities and financing
activities within the Consolidated Statement of Cash Flows.

This correction to the Consolidated Statement of Cash Flows is the only
change from the materials originally filed by the Company on October 28, 2019.

---





---





---





---

Table of Contents

|Consolidated
      Statements of Financial Position               | 1          
|----------------------------------------------------------------- | -----------
|                                                                  |            
|Consolidated
      Statements of Loss and Comprehensive Loss      | 2          
|                                                                  |            
|Consolidated
      Statements of Changes in Shar eholders Equity | 3          
|                                                                  |            
|Consolidated
      Statements of Cash Flows                       | 4          
|                                                                  |            
|Notes
      to the Consolidated Financial Statements              | 6
      40

---

Consolidated Statements of
  Financial Position(Audited, expressed in CAD $000s)

|As at                                                   |  | Note   |  |   | July 31, 2019 |   |   | July 31, 2018 |  
|------------------------------------------------------- |  | ------ |  | - | ------------- | - | - | ------------- | -
|                                                        |  |        |  |   |               |   |   | (Restated    |  
|                                                        |  |        |  |   |               |   |   | see note 26   | )
|Assets                                                  |  |        |  |   |               |   |   |               |  
|Current assets                                          |  |        |  |   |               |   |   |               |  
|Cash and cash equivalents                               |  | 4      |  | $ | 113,568       |   | $ | 99,042        |  
|Restricted cash                                         |  | 5      |  |   | 22,350        |   |   |              |  
|Short-term investments                                  |  | 4      |  |   | 25,937        |   |   | 145,747       |  
|Trade receivables                                       |  | 17     |  |   | 19,693        |   |   | 644           |  
|Commodity taxes
      recoverable and other receivables |  | 6      |  |   | 15,247        |   |   | 4,237         |  
|Convertible debenture
      receivable                  |  | 15     |  |   | 13,354        |   |   | 10,000        |  
|Prepaid expenses                                        |  |        |  |   | 10,762        |   |   | 4,204         |  
|Inventory                                               |  | 7      |  |   | 86,271        |   |   | 10,415        |  
|Biological assets                                       |  | 8      |  |   | 7,371         |   |   | 2,332         |  
|                                                        |  |        |  | $ | 314,553       |   | $ | 276,621       |  
|                                                        |  |        |  |   |               |   |   |               |  
|Property, plant and equipment                           |  | 9      |  | $ | 258,793       |   | $ | 54,333        |  
|Intangible assets and other longer term
      assets    |  | 10     |  |   | 127,282       |   |   | 4,044         |  
|Investment in associate and joint
      ventures        |  | 19     |  |   | 52,849        |   |   |              |  
|License and prepaid royalty  HIP                       |  | 27     |  |   | 1,409         |   |   |              |  
|Long term investments                                   |  | 20     |  |   | 14,277        |   |   |              |  
|Goodwill                                                |  | 11     |  |   | 111,877       |   |   |              |  
|                                                        |  |        |  | $ | 881,040       |   | $ | 334,998       |  
|Liabilities                                             |  |        |  |   |               |   |   |               |  
|Current liabilities                                     |  |        |  |   |               |   |   |               |  
|Accounts payable and
      accrued liabilities          |  |        |  | $ | 45,581        |   | $ | 8,995         |  
|Excise taxes payable                                    |  |        |  |   | 3,494         |   |   |              |  
|Warrant liability                                       |  | 12, 13 |  |   | 493           |   |   | 3,130         |  
|Term loan  current                                     |  | 16     |  |   | 3,117         |   |   |              |  
|                                                        |  |        |  | $ | 52,685        |   | $ | 12,125        |  
|                                                        |  |        |  |   |               |   |   |               |  
|Term loan                                               |  | 16     |  |   | 30,257        |   |   |              |  
|Deferred rent liability                                 |  |        |  |   | 946           |   |   |              |  
|Deferred tax liability                                  |  | 29     |  |   | 20,396        |   |   |              |  
|                                                        |  |        |  | $ | 104,284       |   | $ | 12,125        |  
|Shareholders equity                                    |  |        |  |   |               |   |   |               |  
|Share capital                                           |  | 13     |  | $ | 799,706       |   | $ | 347,233       |  
|Share-based payment reserve                             |  | 13     |  |   | 40,315        |   |   | 6,139         |  
|Warrants                                                |  | 13     |  |   | 60,433        |   |   | 12,635        |  
|Deficit                                                 |  |        |  |   | (124,698      | ) |   | (43,134       | )
|Non-controlling interest                                |  | 28     |  |   | 1,000         |   |   |              |  
|                                                        |  |        |  | $ | 776,756       |   | $ | 322,873       |  
|                                                        |  |        |  | $ | 881,040       |   | $ | 334,998       |  
|Commitments and contingencies (Note 23)                 |  |        |  |   |               |   |   |               |  
|Subsequent events (Note 33)                             |  |        |  |   |               |   |   |               |  

Approved by the Board

/s/ Jason Ewart,
  Director                               
  /s/ Michael Munzar, Director

The accompanying notes are an integral part of these
  consolidated financial statements.

1

---

Consolidated Statements of
  Loss and Comprehensive Loss(Audited, expressed in CAD
    $000s except share amounts)

|For the fiscal years ended                                                                   |  | Note   |  |   | July 31, 2019 |   |   | July
      31, 2018 |  
|-------------------------------------------------------------------------------------------- |  | ------ |  | - | ------------- | - | - | ------------------- | -
|Gross revenue from sale of goods                                                             |  | 31     |  | $ | 59,256        |   | $ | 4,934               |  
|Excise taxes                                                                                 |  |        |  |   | (11,914       | ) |   |                    |  
|Net revenue from sale of goods                                                               |  |        |  |   | 47,342        |   |   | 4,934               |  
|Ancillary revenue                                                                            |  | 25     |  |   | 199           |   |   |                    |  
|Net revenue                                                                                  |  |        |  |   | 47,541        |   |   | 4,934               |  
|                                                                                             |  |        |  |   |               |   |   |                     |  
|Cost of goods sold                                                                           |  | 7, 18  |  |   | 26,197        |   |   | 2,093               |  
|Gross margin before fair value adjustments                                                   |  |        |  |   | 21,344        |   |   | 2,841               |  
|Fair value loss adjustment on sale of
      inventory                                        |  | 7      |  |   | 16,357        |   |   | 2,289               |  
|Fair value gain adjustment on
      biological assets                                        |  | 8      |  |   | (38,856       | ) |   | (7,340              | )
|Adjustment to net realizable value of
      inventory                                        |  | 7      |  |   |              |   |   | 1,491               |  
|Impairment loss on inventory                                                                 |  | 7      |  |   | 16,918        |   |   |                    |  
|Gross margin                                                                                 |  |        |  | $ | 26,925        |   | $ | 6,400               |  
|Operating Expenses                                                                           |  |        |  |   |               |   |   |                     |  
|General and administrative                                                                   |  |        |  |   | 45,947        |   |   | 9,374               |  
|Marketing and promotion                                                                      |  |        |  |   | 31,191        |   |   | 8,335               |  
|Stock-based compensation                                                                     |  | 13, 18 |  |   | 28,008        |   |   | 4,997               |  
|Research and development                                                                     |  |        |  |   | 2,822         |   |   |                    |  
|Depreciation of property, plant and
      equipment                                          |  | 9      |  |   | 1,747         |   |   | 896                 |  
|Amortization of intangible assets                                                            |  | 10     |  |   | 1,767         |   |   | 765                 |  
|                                                                                             |  | 18     |  | $ | 111,482       |   | $ | 24,367              |  
|Loss from operations                                                                         |  |        |  |   | (84,557       | ) |   | (17,966             | )
|                                                                                             |  |        |  |   |               |   |   |                     |  
|Revaluation of financial instruments loss                                                    |  | 12     |  |   | (3,730        | ) |   | (5,091              | )
|Share of loss from investment in associate
      and joint ventures                          |  | 19     |  |   | (2,964        | ) |   |                    |  
|Loss on investment                                                                           |  | 30     |  |   |              |   |   | (650                | )
|Unrealized gain on convertible debenture
      receivable                                    |  | 15     |  |   | 1,737         |   |   |                    |  
|Unrealized loss on investments                                                               |  | 20     |  |   | (315          | ) |   |                    |  
|Realized loss on investments                                                                 |  | 20     |  |   | (215          | ) |   |                    |  
|Foreign exchange loss                                                                        |  |        |  |   | (78           | ) |   | (229                | )
|Interest and financing expenses                                                              |  |        |  |   | (469          | ) |   | (1,529              | )
|Interest income                                                                              |  | 4      |  |   | 5,187         |   |   | 2,115               |  
|Net
      loss and comprehensive loss attributable to shareholders before tax
      recovery |  |        |  | $ | (85,404       | ) | $ | (23,350             | )
|                                                                                             |  |        |  |   |               |   |   |                     |  
|Income tax recovery                                                                          |  | 29     |  |   | 3,840         |   |   |                    |  
|Total net loss                                                                               |  |        |  | $ | (81,564       | ) | $ | (23,350             | )
|Net loss per share, basic and diluted                                                        |  |        |  | $ | (0. 38        | ) | $ | (0.17               | )
|Weighted average number of outstanding
      shares                                          |  |        |  |   |               |   |   |                     |  
|Basic and diluted                                                                            |  | 13     |  |   | 212,740,552   |   |   | 134,171,509         |  

The accompanying notes are an integral part of these
  consolidated financial statements.

2

---

Consolidated Statements of
  Changes in Shareholders Equity(Audited, expressed in
    CAD $000s except share amounts)

For the fiscal year ended
      Note
      
      Number 
        common 
        shares
      
      
      Share 
        capital
      
      
      Share-based 
        payment 
        reserve
      
      
      Warrants
      
      
      Contributed 
        surplus
      
      
      Non- 
        controlling 
        Interest
      
      
      Deficit
      
      
      Shareholders 
        equityBalance, August 1, 2018
      
      
      193,629,116
      
      $
      347,233
      
      $
      6,139
      
      $
      12,635
      
      $
      
      
      $
      
      
      $
      (43,134
      )
      $
      322,873Share issuance  January
        offering
      13
      
      8,855,000
      
      
      57,558
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      57,558Share issuance  Newstrike
        acquisition
      11
      
      35,394,041
      
      
      322,439
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      322,439Issuance fees
      13
      
      
      
      
      (3,827
      )
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (3,827
      )Replacement stock options
      11
      
      
      
      
      
      
      
      7,134
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      7,134Replacement warrants
      11
      
      
      
      
      
      
      
      
      
      
      12,229
      
      
      
      
      
      
      
      
      
      
      
      12,229Issuance of warrants
      19
      
      
      
      
      
      
      
      
      
      
      42,386
      
      
      
      
      
      
      
      
      
      
      
      42,386Exercise of stock options
      13
      
      3,567,867
      
      
      7,044
      
      
      (2,751
      )
      
      
      
      
      
      
      
      
      
      
      
      
      
      4,293Exercise of warrants
      12, 13
      
      13,619,202
      
      
      61,350
      
      
      
      
      
      (5,204
      )
      
      
      
      
      
      
      
      
      
      
      56,146Exercise of Broker/Finder
        warrants
      13
      
      1,916,527
      
      
      7,909
      
      
      
      
      
      (1,613
      )
      
      
      
      
      
      
      
      
      
      
      6,296Stock-based compensation
      13,18
      
      
      
      
      
      
      
      29,793
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      29,793Non-controlling interest
      28
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      1,000
      
      
      
      
      
      1,000Total net loss
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (81,564
      )
      
      (81,564
      )Balance at July 31, 2019
      
      
      256,981,753
      
      $
      799,706
      
      $
      40,315
      
      $
      60,433
      
      $
      
      
      $
      1,000
      
      $
      (124,698
      )
      $
      776,756Balance, August 1, 2017
      
      
      76,192,990
      
      $
      45,159
      
      $
      1,562
      
      $
      3,728
      
      $
      1,775
      
      
      
      
      $
      (19,785
      )
      $
      32,439Issuance of 7% unsecured
        convertible debentures
      12
      
      
      
      
      
      
      
      
      
      
      3,530
      
      
      7,283
      
      
      
      
      
      
      
      
      10,813Issuance of units
      13
      
      37,375,000
      
      
      139,029
      
      
      
      
      
      10,471
      
      
      
      
      
      
      
      
      
      
      
      149,500Issuance costs
      12
      
      
      
      
      (5,870
      )
      
      
      
      
      (768
      )
      
      (506
      )
      
      
      
      
      
      
      
      (7,144
      )Issuance of Broker/Finder
        warrants
      13
      
      
      
      
      (1,472
      )
      
      
      
      
      2,352
      
      
      
      
      
      
      
      
      
      
      
      880Conversion of 8% unsecured
        convertible debentures
      12
      
      15,853,887
      
      
      23,462
      
      
      
      
      
      
      
      
      (1,743
      )
      
      
      
      
      
      
      
      21,719Conversion of 7% unsecured
        convertible debentures
      12
      
      31,384,081
      
      
      61,555
      
      
      
      
      
      
      
      
      (6,809
      )
      
      
      
      
      
      
      
      54,746Exercise of stock options
      13
      
      907,273
      
      
      1,009
      
      
      (419
      )
      
      
      
      
      
      
      
      
      
      
      
      
      
      590Exercise of warrants
      12, 13
      
      27,897,087
      
      
      75,254
      
      
      
      
      
      (5,029
      )
      
      
      
      
      
      
      
      
      
      
      70,225Exercise of Broker/Finder
        warrants
      13
      
      4,018,798
      
      
      9,106
      
      
      
      
      
      (1,647
      )
      
      
      
      
      
      
      
      
      
      
      7,458Stock-based compensation
      13
      
      
      
      
      
      
      
      4,997
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      4,997Net loss
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      
      (23,350
      )
      
      (23,350
      )Balance at July 31, 2018
      
      
      193,629,116
      
      $
      347,233
      
      $
      6,139
      
      $
      12,635
      
      $
      
      
      
      
      
      $
      43,134
      )
      $
      322,873


The accompanying notes are an integral part of these
  consolidated financial statements.

3

---

Consolidated Statements of
  Cash Flows(Audited, expressed in CAD $000s)

|For the fiscal years ended                                   |  | Note  |  |   | July 31, 2019 |   |   | July 31, 2018 |  
|------------------------------------------------------------ |  | ----- |  | - | ------------- | - | - | ------------- | -
|                                                             |  |       |  |   |               |   |   | (Restated    |  
|                                                             |  |       |  |   |               |   |   | see note 26   | )
|Operating activities                                         |  |       |  |   |               |   |   |               |  
|Total net loss                                               |  |       |  | $ | (81,564       | ) | $ | (23,350       | )
|Items not affecting cash                                     |  |       |  |   |               |   |   |               |  
|Income tax recovery                                          |  | 29    |  |   | (3,840        | ) |   |              |  
|Depreciation of
      property, plant and equipment          |  | 9     |  |   | 1,747         |   |   | 896           |  
|Amortization of intangible assets                            |  | 10    |  |   | 1,767         |   |   | 765           |  
|Unrealized
      revaluation gain on convertible debenture   |  | 15    |  |   | (1,737        | ) |   |              |  
|Unrealized revaluation gain on biological assets             |  | 8     |  |   | (38,856       | ) |   | (7,340        | )
|Unrealized fair
      value adjustment on investments        |  | 20    |  |   | 315           |   |   |              |  
|Amortization of deferred financing costs                     |  | 16    |  |   | 596           |   |   |              |  
|Accrued interest
      income                                |  | 15    |  |   | (397          | ) |   |              |  
|License depreciation and prepaid royalty expenses  HIP      |  | 27    |  |   | 117           |   |   |              |  
|Impairment loss on
      inventory                           |  | 7     |  |   | 16,918        |   |   |              |  
|Share of loss on investment in joint venture                 |  | 19    |  |   | 2,964         |   |   |              |  
|Non-cash interest
      expense                              |  | 11    |  |   |              |   |   | 312           |  
|Fair value adjustment on inventory sold                      |  | 7     |  |   | 16,357        |   |   | 2,289         |  
|Stock-based
      compensation                               |  | 13,18 |  |   | 28,008        |   |   | 4,997         |  
|Stock-based compensation expensed through cost of sales      |  | 7     |  |   | 936           |   |   |              |  
|Accretion of
      convertible debt                          |  | 12    |  |   |              |   |   | 1,368         |  
|Revaluation of financial instruments loss                    |  | 12    |  |   | 3,730         |   |   | 5,091         |  
|Changes in non-cash operating working capital
      items    |  |       |  |   |               |   |   |               |  
|Trade receivables                                            |  | 17    |  |   | (17,845       | ) |   | (292          | )
|Commodity taxes
      recoverable                            |  |       |  |   | (6,425        | ) |   | (3,742        | )
|Prepaid expenses                                             |  |       |  |   | (4,927        | ) |   | (4,003        | )
|Inventory                                                    |  | 7     |  |   | (90,748       | ) |   | (2,503        | )
|Biological assets                                            |  | 8     |  |   | 37,108        |   |   |              |  
|Accounts payable
      and accrued liabilities               |  |       |  |   | 6,630         |   |   | 3,399         |  
|Interest payable                                             |  | 12    |  |   |              |   |   | (72           | )
|Excise taxes
      payable                                   |  |       |  |   | 3,494         |   |   |              |  
|Deferred rent
      liability                                |  |       |  |   | 946           |   |   |              |  
|Cash and cash
      equivalents used in operating activities |  |       |  |   | (124,706      | ) |   | (22,185       | )
|Financing activities                                         |  |       |  |   |               |   |   |               |  
|Share issuance  January offering                            |  | 13    |  |   | 57,558        |   |   |              |  
|Issuance fees                                                |  | 13    |  |   | (3,827        | ) |   | (10,306       | )
|Issuance of units                                            |  | 12    |  |   |              |   |   | 149,500       |  
|Issuance of secured
      convertible debentures             |  | 12    |  |   |              |   |   | 69,000        |  
|Exercise of stock options                                    |  | 13    |  |   | 4,293         |   |   | 590           |  
|Exercise of warrants                                         |  | 13    |  |   | 56,075        |   |   | 74,366        |  
|Proceeds from term loan, net of financing costs              |  | 16    |  |   | 32,778        |   |   |              |  
|Cash provided by financing activities                        |  |       |  |   | 146,877       |   |   | 283,150       |  
|Investing activities                                         |  |       |  |   |               |   |   |               |  
|Disposal/(Acquisition) of
      short-term investments       |  | 4     |  |   | 119,810       |   |   | (142,874      | )
|Restricted cash                                              |  | 5     |  |   | (22,350       | ) |   |              |  
|Acquisition of property, plant
      and equipment           |  | 9     |  |   | (138,034      | ) |   | (45,722       | )
|Purchase of intangible assets                                |  | 10    |  |   | (3,010        | ) |   | (1,780        | )
|Investment in associate and
      joint ventures             |  | 19    |  |   | (13,427       | ) |   |              |  

4

---

|Net cash acquired on business acquisition          |  | 11 |  |   | 49,366  |   |   |         |  
|-------------------------------------------------- |  | -- |  | - | ------- | - | - | -------- | -
|Acquired convertible debenture                     |  | 15 |  |   |        |   |   | (10,000  | )
|Cash used in
      investing activities            |  |    |  |   | (7,645  | ) |   | (200,376 | )
|Increase in cash and cash equivalents              |  |    |  |   | 14,526  |   |   | 60,589   |  
|Cash and cash
      equivalents, beginning of year |  |    |  |   | 99,042  |   |   | 38,453   |  
|Cash and cash
      equivalents, end of year       |  |    |  | $ | 113,568 |   | $ | 99,042   |  

The accompanying notes are an integral part of these
  consolidated financial statements.

5

---

Notes to the Consolidated
  Financial StatementsFor the fiscal years ended
    July 31, 2019 and 2018(Audited, expressed in CAD and in $000s
    except share amounts or where otherwise stated)

1. Description of
  Business

HEXO Corp. (formerly The Hydropothecary Corporation) (the
  Company), is a publicly traded corporation, incorporated in Canada. HEXO is a
  producer of cannabis and its sites are licensed by Health Canada for production
  and sale. Its head office is located at 240-490 Boulevard Saint-Joseph,
  Gatineau, Quebec, Canada. The Companys common shares are listed on the Toronto
  Stock Exchange (TSX) and the New York Stock Exchange (NYSE), both under the
  trading symbol HEXO.

Shareholder approval of the Companys name change to HEXO Corp.
  formerly The Hydropothecary Corporation occurred August 28, 2018.

2. Basis of
  Presentation

Statement of Compliance

The consolidated financial statements have been prepared in
  compliance with International Financial Reporting Standards as issued by the
  International Accounting Standards Board ("IFRS").

These consolidated financial statements were approved and
  authorized for issue by the Board of Directors on October 23, 2019.

Basis of Measurement and Consolidation

The consolidated financial statements have been prepared on an
  historical cost basis except for cash and cash equivalents, restricted cash,
  short term investments, biological assets, convertible debentures receivable,
  long term investments, and the warrant liability, which are measured at fair
  value on a recurring basis and include the accounts of the Company and entities
  controlled by the Company and its subsidiaries.

Historical cost is the fair value of the consideration given in
  exchange for goods and services based upon the fair value at the time of the
  transaction of the consideration provided.

Fair value is the price that would be received to sell an asset
  or paid to transfer a liability in an orderly transaction between market
  participants at the measurement date, regardless of whether that price is
  directly observable or estimated using another valuation technique. In
  estimating the fair value of an asset or a liability, the Company takes into
  account the characteristics of the asset or liability if market participants
  would take those characteristics into account when pricing the asset or
  liability at the measurement date. Fair value for measurement and/or disclosure
  purposes in these consolidated financial statements is determined on such a
  basis, except for share-based payment transactions that are within the scope of
  IFRS 2, Share-based paymentand measurements that have some similarities
  to fair value but are not fair value, such as net realizable value in IAS 2, Inventories.

In addition, for financial reporting purposes, fair value
  measurements are categorized into Level 1, 2 or 3 based on the degree to which
  the inputs to the fair value measurements are observable and the significance of
  the inputs to the fair value measurement in its entirety, which are described as
  follows: Level 1 - inputs are quoted prices (unadjusted) in active markets for
  identical assets or liabilities that the entity can access at the measurement
  date; Level 2 - inputs are inputs other than quoted prices included within Level
  1, that are observable for the asset or liability, either directly or
  indirectly; and Level 3 - inputs are unobservable inputs for the asset or
  liability.

(a) INVESTMENT IN ASSOCIATES AND JOINT VENTURES

When determining the appropriate basis of accounting for the
  Companys interests in affiliates, the Company makes judgments about the degree
  of influence that it exerts directly or through an arrangement over the
  investees relevant activities.

Judgment was used to determine whether the joint venture
  arrangements described in Note 19 should be accounted for as a joint operation
  or a joint venture. Given the Company has rights to the net assets of the
  separate legal entities, the Company has concluded they will be accounted for as
  joint ventures. The Company will recognize the initial investment at cost and
  the carrying amount is increased or decreased to recognize the Companys share
  of the profit or loss of the venture after the date of acquisition.

(b) FUNCTIONAL AND PRESENTATION CURRENCY

These consolidated financial statements are presented in
  Canadian dollars, the functional currency of the Company and its
  subsidiaries.

6

---

(c) BASIS OF CONSOLIDATION

Subsidiaries are entities controlled by the Company. Control
  exists when the Company has the power, directly and indirectly, to govern the
  financial and operating policies of an entity and be exposed to the variable
  returns from its activities. The financial statements of subsidiaries are
  included in the consolidated financial statements from the date that control
  commences until the date that control ceases.

|MAJOR SUBSIDIARIES                            | JURISDICTION    | INTEREST HELD
|--------------------------------------------- | --------------- | -------------
|HEXO Operations Inc.1                         | Ontario, Canada | 100%         
|Newstrike Brands Ltd.2                        | Ontario, Canada | 100%         
|HEXO USA Inc.                                 | Deleware, USA   | 100%         
|Keystone Isolation Technologies Inc. (KIT) | Ontario, Canada | 60%          

1Holds 100% interest in 8980268 Canada Inc., a
  company for which it holds a right to acquire the outstanding shares at any time
  for a nominal amount.

2Holds one wholly-owned subsidiary 1977121 Ontario
  Inc., which wholly-owns the subsidiary Up Cannabis Inc. and holds a 60% interest
  in the joint venture Neal Up Brands Inc.

3. Significant Accounting
  Policies, Accounting Standards and Interpretations

FOREIGN CURRENCY TRANSLATION

Foreign currency transactions are translated into Canadian
  dollars at exchange rates in effect on the date of the transactions. Monetary
  assets and liabilities denominated in foreign currencies at the consolidated
  statement of financial position date are translated to Canadian dollars at the
  foreign exchange rate applicable at that date. Realized and unrealized exchange
  gains and losses are recognized through profit or loss.

Non-monetary assets and liabilities that are measured in terms
  of historical cost in a foreign currency are translated using the exchange rate
  at the date of the transaction.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents are comprised of cash and highly
  liquid investments that are readily convertibles into known amounts of cash with
  original maturities of three months or less.

SHORT TERM INVESTMENTS

Short term investments are comprised of liquid investments with
  maturities between 3 and 12 months. Short term investments are recognized
  initially at fair value and subsequently adjusted to fair value through profit
  or loss.

BIOLOGICAL ASSETS

The Company measures biological assets consisting of cannabis
  plants using the income approach at fair value less costs to sell up to the
  point of harvest, which becomes the basis for the cost of finished goods
  inventories after harvest. The Company capitalizes all the direct and indirect
  costs as incurred related to the biological transformation of the biological
  assets between the point of initial recognition and the point of harvest
  including labour related costs, grow consumables, materials, utilities,
  facilities costs, depreciation, overhead, stock-based compensation of applicable
  employees, quality and testing costs. The identified capitalized direct and
  indirect costs of biological assets are subsequently recorded within the line
  item costs of goods sold on the statement of loss and comprehensive loss in
  the period that the related product is sold. Seeds are measured at fair value.
  Unrealized gains or losses arising from changes in fair value less cost to sell
  during the period are included in the results of operations and presented on a
  separate line of statement of comprehensive loss of the related period.

INVENTORY

Inventory is valued at the lower of cost and net realizable
  value. Cost is determined using the weighted average method. Inventories of
  harvested cannabis are transferred from biological assets at their fair value at
  harvest, which becomes the initial deemed cost of the inventory. Any subsequent
  post-harvest costs are capitalized to inventory to the extent that cost is less
  than net realizable value. Subsequent costs include materials, overhead,
  amortization, stock-based compensation of applicable employees and labour
  involved in packaging and quality assurance. The identified capitalized direct
  and indirect costs related to inventory are subsequently recorded within cost
  of goods sold on the statement of loss and comprehensive loss at the time the
  product is sold, with the exclusion of realized fair value amounts included in
  inventory sold which are recorded as a separate line within gross margin. Net
  realizable value is determined as the estimated selling price in the ordinary
  course of business less the estimated costs of completion and the estimated
  costs necessary to make the sale. Packaging and supplies are initially valued at
  cost and subsequently at the lower of cost and net realizable value.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is measured at cost less
  accumulated amortization and impairment losses. Amortization is provided using
  the following terms and method:

7

---

|Land                                 | Not amortized | No term      
|------------------------------------ | ------------- | -------------
|Buildings                            | Straight line | 5 to 20 years
|Leasehold improvements               | Straight line | lease term   
|Furniture and equipment              | Straight line | 5 years      
|Cultivation and production equipment | Straight line | 5 to 20 years
|Vehicles                             | Straight line | 5 years      
|Computers                            | Straight line | 3 years      
|Construction in progress             | Not amortized | No term      

An assets residual value, useful life and amortization method
  are reviewed at each financial year and adjusted if appropriate. When parts of
  an item of equipment have different useful lives, they are accounted for as
  separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of equipment are
  determined by comparing the proceeds from disposal with the carrying amount of
  the equipment and are recognized in profit or loss.

Construction in progress is transferred to property, plant and
  equipment when the assets are available for use and amortization of the assets
  commences at that point.

FINITE LIFE INTANGIBLE ASSETS

Finite life intangible assets are recorded at cost less
  accumulated amortization and accumulated impairment losses. Amortization is
  provided on a straight-line basis over the following terms:

|Domain names           | Straight line | 10 years    
|---------------------- | ------------- | ------------
|Health Canada licenses | Straight line | 20 years    
|Software               | Straight line | 3 to 5 years
|Patents                | Straight line | 20 years    

The estimated useful life and amortization method are reviewed
  at the end of each reporting period, with the effect of any changes in estimate
  being accounted for on a prospective basis.

INDEFINITE INTANGIBLE ASSETS

Indefinite intangible assets are deemed to have no foreseeable
  limit over which the asset is expected to generate net cash inflows. Following
  initial recognition, intangible assets with indefinite useful lives are carried
  at cost less any accumulated impairment losses and are tested annually for
  impairment, or more frequently if events or changes in circumstances indicate
  that they might be impaired. The Company intends to utilize the brand
  indefinitely.

|Brand | Not amortized | Indefinite
|----- | ------------- | ----------

INVESTMENT IN ASSOCIATE

Associates are entities over which the Company has significant
  influence and that is neither a subsidiary nor an interest in a joint venture.
  Significant influence represents the power to participate in the financial and
  operating policy decisions of the investee but does not represent the right to
  exercise control or joint control over those policies.

A joint venture is a contractual arrangement whereby the
  Company and other parties undertake an economic activity that is subject to
  joint control (i.e. when the strategic, financial and operating policy decisions
  relating to the activities of the joint venture require the unanimous consent of
  the parties sharing control).

Investments in associates and joint ventures are accounted for
  using the equity method and are initially recognized at cost inclusive of
  transaction costs.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets, including property, plant and equipment,
  goodwill and intangible assets are reviewed for impairment at the end of each
  financial reporting period or whenever events or changes in circumstances
  indicate that the carrying amount of an asset exceeds its recoverable amount.
  For the purpose of impairment testing, assets that cannot be tested individually
  are grouped together into the smallest group of assets that generates cash
  inflows from continuing use that are largely independent of the cash inflows of
  other assets or groups of assets (the cash-generating unit, or "CGU"). The
  recoverable amount of an asset or a CGU is the higher of its fair value, less
  costs of disposal, and its value in use. If the carrying amountof an
  asset exceeds its recoverable amount, an impairment charge is recognized
  immediately in profit or loss by the amount by which the carrying amount of the
  asset exceeds the recoverable amount. Where an impairment loss subsequently
  reverses, the carrying amount of the asset is increased to the lesser of the
  revised estimate of recoverable amount, and the carrying amount that would have
  been recorded had no impairment loss been recognized previously.

The Company assesses impairment of property, plant and
  equipment when an impairment indicator arises. When the asset does not generate
  cash inflows that are largely independent of those from other assets or group of
  assets, the asset is tested at the CGU level. In assessing an impairment, the
  Company compares the carrying amount of the asset or CGU to the recoverable
  amount, which is determined as the higher of the asset or CGUs fair value less
  costs of disposal and its value-in-use. Value-in-use is assessed based on the estimated future cash flows, discounted to their present
  value using a pre-tax discount rate that reflects applicable market and economic
  conditions, the time value of money and the risks specific to the asset.

8

---

Goodwill and indefinite life intangible assets are tested
  annually and the end of the fiscal year for impairment by comparing the carrying
  value of each CGU containing the assets to its recoverable amount. Goodwill is
  allocated to CGUs or groups of CGUs for impairment testing based on the level
  at which it is monitored by management, and not at a level higher than an
  operating segment. Operating segments are components of the Company that engage
  in business activities which generate revenues and incur expenses. Goodwill is
  allocated to those CGUs or groups of CGUs expected to benefit from the business
  combination from which the goodwill arose, which requires the use of judgment.
  The Company has determined that goodwill and indefinite life intangibles are
  tested at the adult-use cannabis level representing the primary operations of
  the Company as described in note 1.

An impairment loss is recognized for the amount by which the
  CGUs carrying amount exceeds its recoverable amount. The recoverable amounts of
  the CGUs assets have been determined based on its fair value less costs of
  disposal. Impairment losses recognized in respect of a CGU are first allocated
  to the carrying value of goodwill and any excess is allocated to the carrying
  value of assets in the CGU. In allocating a reversal of an impairment loss, the
  carrying amount of an asset shall not be increased above the lower of its
  recoverable amount and the carrying amount that would have been determined had
  no impairment loss been recognized for the asset in prior period. Impairment
  losses on goodwill are not subsequently reversed.

Impairment losses are recognized whenever the carrying amount
  of the asset or CGU exceeds its recoverable amount and is recorded in the
  consolidated statements of comprehensive (loss) income.

The Company estimated the recoverable amounts of goodwill and
  indefinite life intangible assets by estimating the higher of their fair value
  less costs of disposal and value in use, which are level 3 measurements within
  the fair value hierarchy. The key assumption that drove managements
  determination of the recoverable amounts of the CGUs were capacity multiples of
  comparable industry peers.

GOODWILL

Goodwill represents the excess of the purchase price paid for
  the acquisition of the Companys subsidiary Newstrike over the fair value of the
  net tangible and intangible assets acquired. Following initial recognition,
  goodwill is measured at cost less any accumulated impairment losses. Goodwill is
  tested for impairment annually, and whenever events or circumstances that make
  it more likely than not that an impairment may have occurred, such as a
  significant adverse change in the business climate or a decision to sell or
  dispose all or a portion of a reporting unit.

LEASED ASSETS

Leases are classified as an operating lease whenever the terms
  of the lease do not transfer substantially all of the risks and rewards of
  ownership to the lessee. Lease payments are recognized as an expense on a
  straight-line basis over the lease term, except where another systematic basis
  is more representative of the time pattern in which the economic benefits are
  consumed.

BUSINESS ACQUISITION

A business combination is a transaction or event in which an
  acquirer obtains control of one or more businesses and is accounted for using
  the acquisition method. The total consideration paid for the acquisition is the
  aggregate of the fair values of assets acquired, liabilities assumed, and equity
  instruments issued in exchange for control of the acquiree at the acquisition
  date. The acquisition date is the date when the Company obtains control of the
  acquiree. The identifiable assets acquired and liabilities assumed are
  recognized at their acquisition date fair values, except for deferred taxes and
  share-based payment awards where IFRS provides exceptions to recording the
  amounts at fair value. Goodwill represents the difference between total
  consideration paid and the fair value of the net-identifiable assets acquired.
  Acquisition costs incurred are expensed to profit or loss. Contingent
  consideration is measured at its acquisition date fair value and is included as
  part of the consideration transferred in a business combination, subject to the
  applicable terms and conditions. Contingent consideration that is classified as
  equity is not remeasured at subsequent reporting dates and its subsequent
  settlement is accounted for within equity. Contingent consideration that is
  classified as an asset or a liability is remeasured at subsequent reporting
  dates in accordance with IFRS 9 Financial Instruments with the corresponding
  gain or loss recognized in profit or loss.

Based on the facts and circumstances that existed at the
  acquisition date, management will perform a valuation analysis to allocate the
  purchase price based on the fair values of the identifiable assets acquired and
  liabilities assumed on the acquisition date. Management has one year from the
  acquisition date to confirm and finalize the facts and circumstances that
  support the finalized fair value analysis and related purchase price allocation.
  Until such time, these values are provisionally reported and are subject to
  change. Changes to fair values and allocations are retrospectively adjusted in
  subsequent periods.

REVENUE RECOGNITION

The Company has effectively applied the new IFRS 15 standard to
  the current fiscal year and retrospectively, seeNew IFRS Effective August
    1, 2018.

COST OF GOODS SOLD

Cost of goods sold includes cost of inventory expensed,
  packaging costs, shipping costs and related labour.

RESEARCH AND DEVELOPMENT

Research costs are expensed as incurred. Development
  expenditures are capitalized only if development costs can be measured reliably,
  the product or process is technically and commercially feasible, future economic
  benefits are probable, and the Company intends to and has sufficient resources to complete development to use or sell
  the asset. Other development expenditures are recognized in profit and loss as
  incurred.

9

---

INCOME TAXES

The Company uses the liability method to account for income
  taxes. Deferred income tax assets and liabilities are recognized for the future
  tax consequences attributable to differences between the carrying amounts of
  existing assets and liabilities for accounting purposes, and the irrespective
  tax bases. Deferred income tax assets and liabilities are measured using tax
  rates that have been enacted or substantively enacted applied to taxable income
  in the years in which those temporary differences are expected to be recovered
  or settled. The effect on deferred income tax assets and liabilities of a change
  in statutory tax rates is recognized in profit or loss in the year of change.
  Deferred income tax assets are recorded when their recoverability is considered
  probable and are reviewed at the end of each reporting period.

SHARE-BASED COMPENSATION

The Company has an employee stock option plan. The Company
  measures equity settled share-based payments based on their fair value at the
  grant date and recognizes compensation expense over the vesting period based on
  the Companys estimate of equity instruments that will eventually vest.
  Forfeitures are adjusted for on an actual basis. The impact of the revision of
  the original estimate is recognized in profit or loss such that the cumulative
  expense reflects the revised estimate. For stock options granted to
  non-employees the compensation expense is measured at the fair value of goods
  and services receivedexcept where the fair value cannot be estimated in
  which case it is measured at the fair value of the equity instruments granted.
  Consideration paid by employees or non-employees on the exercise of stock
  options is recorded as share capital and the related share-based compensation is
  transferred from share-based payment reserve to share capital.

NON-CONTROLLING INTEREST

Non-controlling interest (NCI) is recognized at the NCIs
  proportionate share of the net assets.

LOSS PER SHARE

Loss per common share represents loss for the period
  attributable to common shareholders divided by the weighted average number of
  common shares outstanding during the year. Diluted loss per common share is
  calculated by dividing the applicable loss for the year by the sum of the
  weighted average number of common shares outstanding and all additional common
  shares that would have been outstanding if potentially dilutive common shares
  had been issued during the year. The calculation of diluted loss per share
  excludes the effects of various conversions and exercise of options and warrants
  that would be anti-dilutive.

BORROWING COSTS

Borrowing costs directly attributable to the acquisition,
  construction or production of qualifying assets, which are assets that
  necessarily take a substantial period of time to get ready for their intended
  use or sale, are added to the cost of those assets, until such time as the
  assets are substantially ready for their intended use or sale.

All other borrowing costs are recognized in profit or loss in
  the period which they are incurred.

FINANCIAL INSTRUMENTS

Financial assets and liabilities are recognized when the
  Company becomes a party to the contractual provision of the respective
  instrument.

Fair value estimates are made at the consolidated statement of
  financial position date based upon the relevant market conditions and
  information about the financial instrument. The Company has made the following
  classifications:

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

10

---

Fair Value Through Profit or Loss (FVTPL) Financial Assets

Financial assets classified and measured at FVTPL are those
  assets that do not meet the criteria to be classified at amortized cost or at
  FVTOCI. This category includes debt instruments whose cash flow characteristics
  are not solely payments of principal and interest (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.

Amortized Cost Financial Assets

Financial assets at amortized cost are non-derivative financial
  assets which are held within a business model whose objective is to hold assets
  to collect contractual cash flows and its contractual terms give rise on
  specified dates to cash flows that are solely payments of principal and interest
  on the principal amount outstanding. A financial asset is initially measured at
  fair value, including transaction costs and subsequently at amortized cost.

Impairment of Financial Assets

Financial assets, other than those classified at fair value
  through profit and loss, are assessed for indicators of impairment at the end of
  the reporting period. Financial assets are considered to be impaired when there
  is objective evidence that, as a result of one or more events that occurred
  after the initial recognition of the financial asset, the estimated future cash
  flows of the investment have been affected.

Financial Liabilities and Other Financial Liabilities

Financial liabilities are classified as either financial
  liabilities at FVTPL or other financial liabilities. Financial liabilities at
  FVTPL are stated at fair value, with changes being recognized through the
  consolidated statements of income. Other financial liabilities are initially
  measured at fair value, net of transaction costs, and are subsequently measured
  at amortized cost using the effective interest method.

Embedded Derivatives

Derivatives are initially measured at fair value in conjunction
  with the host contract; no bifurcation is performed, and any directly
  attributable transaction costs are recognised in profit or loss as incurred.
  Subsequent to initial recognition, the entire instrument, including the embedded
  derivative is measured at fair value and changes therein are recognised in
  profit or loss. The Company has a convertible loan receivable whereby the
  balance can be converted into equity. See Note 15 for transaction and valuation
  details.

Compound Instruments

The component parts of compound instruments (convertible
  debentures) issued by the Company are classified separately as financial
  liabilities and equity in accordance with the substance of the contractual
  arrangements and the definitions of a financial liability and an equity
  instrument. A conversion option that will be settled by the exchange of a fixed
  amount of cash or another financial asset for a fixed number of the Companys
  own equity instruments is an equity instrument.

At the date of issue, the fair value of the liability component
  is estimated using the prevailing market interest rate for similar
  non-convertible instruments. This amount is recorded as a liability on an
  amortized cost basis using the effective interest rate method until extinguished
  upon conversion or at the instruments maturity date.

The conversion option classified as equity is determined by
  deducting the amount of the liability component from the fair value of the
  compound instrument as a whole. This is recognized and included in equity and is
  not subsequently remeasured. In addition, the conversion option classified as
  equity will remain in equity. No gain or loss is recognized in profit or loss
  upon conversion or expiration of the conversion option.

Transaction costs that relate to the issue of the convertible
  debentures are allocated to the liability and equity components in proportion to
  the allocation of the gross proceeds. Transaction costs relating to the equity
  component are recognized directly in equity. Transaction costs relating to the
  liability component are included in the carrying amount of the liability
  component and are amortized over the term of the convertible debentures using
  the effective interest method.

For compound instruments with non-equity derivatives, the fair
  value of the embedded derivative is determined first based on the contractual
  terms, and the initial carrying amount of the host instrument is the residual
  amount after separating the embedded derivative.

Transaction Costs

Transaction costs that are directly attributable to the
  acquisition or issue of financial assets and financial liabilities (other than
  financial assets and financial liabilities at fair value through profit or loss)
  are added to or deducted from the fair value of the financial assets or
  financial liabilities, as appropriate, on initial recognition. Transaction costs
  directly attributable to the acquisition of financial assets or financial
  liabilities at fair value through profit or loss are recognized immediately in
  profit or loss.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

The preparation of the consolidated financial statements in
  conformity with IFRS requires management to make judgments, estimates and
  assumptions that affect the application of accounting policies and the reported
  amounts of assets, liabilities, income and expenses. Actual results may differ
  from these estimates. Estimates and underlying assumptions are reviewed on an
  ongoing basis. Revisions to accounting estimates are recognized in the period in
  which the estimates are revised and in any future periods affected.

11

---

Valuation of Biological Assets and Inventory

In calculating the value of the biological assets and
  inventory, management is required to make a number of estimates, including
  estimating the stage of growth of the cannabis, harvesting costs, selling costs,
  sales price and expected yields for the cannabis plant. In calculating final
  inventory values, management is required to determine an estimate of spoiled or
  expired inventory and compares the inventory cost versus net realizable value.

Estimated Useful Lives, Amortization and Impairment of
  Property, Plant and Equipment and Intangible Assets

Amortization of property, plant and equipment and intangible
  assets are dependent upon estimates of useful lives, which are determined
  through the exercise of judgment. The assessment of any impairment of these
  assets is dependent upon estimates of recoverable amounts that take into account
  factors such as economic and market conditions and the useful lives of assets.
  The impairment is amount by which the carrying amount of the asset or CGU
  exceeds its recoverable amount. The recoverable amount is the higher of the fair
  value less costs of disposal and its value in use. Management exercises
  judgement in the determination of the Companys CGUs.Share-Based
    Compensation

In calculating the share-based compensation expense, key
  estimates such as the value of the common share, the rate of forfeiture of
  options granted, the expected life of the option, the volatility of the
  Companys stock price and the risk-free interest rate are used.Warrants

In calculating the value of the warrants, key estimates such as
  the value of the common share, the expected life of the warrant, the volatility
  of the Companys stock price and the risk free interest rate are used.

All broker/compensation warrants were measured at the fair
  value of the equity instruments granted, as the fair value of the related
  services cannot be reliably measured.

Provisions

Provisions are recognized when the Company has a present
  obligation, legal or constructive as a result of a previous event, if it is
  probable that the Company will be required to settle the obligation and a
  reliable estimate can be made of the obligation. The amount recognized is the
  best estimate of the expenditure required to settle the present obligation at
  the end of the reporting period, taking into account the risks and uncertainties
  surrounding the obligations. Provisions are reviewed at the end of each
  reporting period and adjusted to reflect the current best estimate of the
  expected future cash flows.

Allocation of Purchase Price

In determining the allocation of the purchase price, estimates
  are used based on market research and appraisal values.

Joint Ventures and Investments in Associates

Joint ventures are joint arrangements whereby the parties that
  have joint control of the arrangement have rights to the net assets of the
  arrangement. Investments in associates are arrangements whereby the Company
  exercises significant influence. Judgement is required in the assessment of
  these arrangements and has been determined as follows:

|Entity                  | Assessment                                                                                                                                                                                | Classification               
|----------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------
|(as defined in Note 19) |                                                                                                                                                                                           |                              
|                        |                                                                                                                                                                                           |                              
|Truss                   | Management has
      determined joint control is not present due to the inability to direct the
      day to day operations of the entity.                                                | Investment in
      associate
|Belleville Complex Inc. | Management has determined joint
      control is present based upon the board composition, decision making and
      the ability to direct the day to day operations of the entity.       | Joint venture                
|HEXO MED                | Management has
      determined joint control is present based upon the board composition,
      decision making and the ability to direct the day to day operations of the
      entity. | Joint venture                

Business Acquisitions

In determining the fair value of all identifiable assets
  acquired and liabilities assumed, the most significant estimates relate to
  private investments and intangible assets acquired. Management exercises
  judgment in estimating the probability and timing of when cash flows are
  expected to be achieved, which is used as the basis for estimating fair
  value.

Identified intangible assets are fair valued using appropriate
  valuation techniques which are generally based on a forecast of the total
  expected future net cash flows of the acquiree. Valuations are highly dependent
  on the inputs used and assumptions made by management regarding the future
  performance of these assets and any changes in the discount rate applied.

Acquisitions that do not meet the definition of a business
  combination are accounted for as asset acquisitions. Consideration paid for an
  asset acquisition is allocated to the individual identifiable assets acquired
  and liabilities assumed based on their relative fair values. Asset acquisitions
  do not give rise to goodwill.

12

---

Estimation on Revenue Recognition

The Companys revenue streams include variable consideration as
  a result of return provisions and price concessions which require estimation
  based on historical results and forward looking expectations.

Expected Credit Losses (ECL) on Trade Accounts
  Receivable

The Company applies the simplified approach, as defined in
  IFRS, to measure expected credit losses, which requires the use of the lifetime
  expected credit loss provision for all trade receivables. To measure lifetime
  expected credit losses, trade receivables are first classified into groups with
  shared credit characteristics and the age of days past due, followed by an
  assessment of the Companys historical experience of bad debts including the
  customers ability to pay and the impact of any relevant economic conditions
  which are expected during the life of the balance. The loss allowance is
  determined according to a provision matrix incorporating historical experiences
  adjusted for current and future conditions expected for the life of the
  balance.

Convertible debentures

The fair value of the convertible debentures is determined
  using the public market price. As the convertible debentures are classified as
  FVTPL, the subsequent interest as well as change in the fair value will flow
  through the consolidated statements of comprehensive income.

Deferred taxes

Significant estimates are required in determining the Companys
  income tax provision. Some estimates are based on interpretations of existing
  tax laws or regulations. Various internal and external factors may have
  favorable or unfavorable effects on the Companys future effective tax rate.
  These include, but are not limited to, changes in tax laws, regulations and/or
  rates, changing interpretations of existing tax laws or regulations, results of
  tax audits by tax authorities, changes in estimates of prior years items and
  changes in overall levels of pre-tax earnings.

Going Concern

Management has applied significant judgment in the assessment
  of the Company's ability to continue as a going concern when preparing its
  consolidated financial statements for the years ended July 31, 2019 and 2018.
  Management prepares the consolidated financial statements on a going concern
  basis unless management either intends to liquidate the entity or to cease
  trading or has no realistic alternative but to do so. The Company has considered
  the private placement subsequent to July 31, 2019 as disclosed in Note 33 in
  making this assessment.

New IFRS Effective August 1,
  2018IFRS 15, REVENUE 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. The Company recognizes revenue in an amount that reflects the
  consideration which the Company expects to receive taking into account the
  impact which may arise from any rights of return on sales, price concessions or
  similar obligations. Net revenue is presented net of taxes, estimated returns,
  allowances and discounts.

Effective October 17, 2018, Canada Revenue Agency (CRA) began
  levying an excise taxes on the sale of medical and adult-us cannabis products.
  The Company becomes liable for these excise duties when cannabis products are
  delivered to the customer. The excise taxes payable is the higher of (i) a
  flat-rate duty which is imposed when a cannabis product is packaged, and (ii) an
  advalorem duty that is imposed when a cannabis product is delivered to the
  customer.

Effective May 1, 2019, excise tax calculated on edible cannabis
  products, cannabis extracts and cannabis topicals will prospectively be
  calculated as a flat rate based on the quantity of total tetrahydrocannabinol
  (THC) contained in the final product. There were no changes in the legislation
  in calculating excise taxes for fresh cannabis, dried cannabis, seeds and
  plants. Net revenue from sale of goods, as presented on the consolidated statements of
  comprehensive (loss) income, represents revenue from the sale of goods less
  applicable excise taxes. Given that the excise tax payable/paid to CRA cannot be
  reclaimed and is not always billed to customers, the Company recognizes that the
  excise tax is an operating cost that affects gross margin to the extent that it
  is not recovered from its customers.

13

---

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.

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
  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 quantitative impact and
  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 statements of loss and comprehensive loss. 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. Evidence of impairment may
  include indications that a debtor or a group of debtors is experiencing
  significant financial difficulty, default or delinquency in interest or
  principal payments, the probability that they will enter bankruptcy or other
  financial reorganization and where observable data indicates that there is a
  measurable decrease in the estimated future cash flows, such as changes in
  arrears or economic conditions that correlate with defaults. Trade receivables
  are reviewed qualitatively on a case-by-case basis to determine whether they
  need to be 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.

14

---

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).

New and Revised IFRS in Issue but Not Yet Effective

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.

4. Cash, Cash Equivalents
  and Short-Term Investments

Cash and cash equivalents are highly liquid investments with a
  maturity of 3 months or less. Short term investments are comprised of liquid
  investments with maturities of less than 12 months. Short term investments are
  recognized initially at fair value and subsequently adjusted to fair value
  through profit or loss. The comparative period of July 31, 2018 has been
  restated  see note 26.

|                                     |               |                            |   | July 31, 2019 |  |   | July 31, 2018 |  
|------------------------------------ | ------------- | -------------------------- | - | ------------- |  | - | ------------- | -
|                                     |               |                            |   | Total         |  |   | Total         |  
|                                     | Interest rate |                            |   |               |  |   | (Restated    |  
|                                     |               |                            |   |               |  |   | see note 26   | )
|Operating cash                       |              |                            | $ | 5,993         |  | $ | 66,438        |  
|High interest
      savings accounts | 1.45%2.10%   |                            |   | 107,575       |  |   | 32,604        |  
|Total cash and cash equivalents      |               |                            | $ | 113,568       |  | $ | 99,042        |  
|                                     |               |                            |   |               |  |   |               |  
|Term deposits & GIC                  | 2.85%4.25%   | maturity of 3 to 12 months | $ | 25,937        |  | $ | 145,747       |  
|Total short-term
      investments   |               |                            | $ | 25,937        |  | $ | 145,747       |  

15

---

Interest income earned in the period amounted to $5,187 (July
  31, 2018 - $2,115).

5. Restricted Cash

As at July 31, 2019, the Company had $22,350 of restricted
  funds. Of this, $3,433 is currently in escrow to facilitate the purchase of
  supply agreements with vendors. The amount of $433 shall be drawn down on a
  pro-rata basis based upon the delivery of goods to the Company. The remaining
  balance of $3,000 may be contributed to or drawn upon, in order to retain 15% of
  the future expected purchases.

A balance of $3,141 has been restricted to secure the
  implementation of greenhouse infrastructure with a vendor (Note 23).
  Additionally, the Company had a capital contribution of $4,076 held in trust as
  at July 31, 2019.

The remaining balance of $9,200 has been restricted due to a
  minimum balance to be held in a debt service reserve account as required under
  the Companys term loan agreement (Note 23). A balance of $2,500 is held in
  trust related the Companys joint venture Neal Brothers Inc (Note 28).

6. Commodity Taxes
  Recoverable and Other Receivables

|                            |   | July 31, 2019 |  |   | July
      31, 2018 | 
|--------------------------- | - | ------------- |  | - | ------------------- | 
|Commodity taxes recoverable | $ | 14,415        |  | $ | 4,237               | 
|Accrued interest income     |   | 570           |  |   |                    | 
|Other receivables (Note 20) |   | 262           |  |   |                    | 
|                            | $ | 15,247        |  | $ | 4,237               | 

7.
  Inventory

|                         |   |             |  |   |                       |  |   | July 31, 2019 | 
|------------------------ | - | ----------- |  | - | --------------------- |  | - | ------------- | 
|                         |   | Capitalized |  |   | Biological asset fair |  |   |               | 
|                         |   | cost        |  |   | value adjustment      |  |   | Total         | 
|Dried cannabis           | $ | 28,996      |  | $ | 21,766                |  | $ | 50,762        | 
|Oils                     |   | 17,377      |  |   | 5,366                 |  |   | 22,743        | 
|Hemp derived distillate  |   | 1,523       |  |   |                      |  |   | 1,523         | 
|Purchased dried cannabis |   | 8,087       |  |   |                      |  |   | 8,087         | 
|Packaging and supplies   |   | 3,156       |  |   |                      |  |   | 3,156         | 
|                         | $ | 59,139      |  | $ | 27,132                |  | $ | 86,271        | 

The inventory expensed to cost of goods sold in the year ended
  July 31, 2019, was $18,565 (July 31, 2018  $965). Total stock-based
  compensation expensed to costs of sales in the period as $936. The fair value
  adjustment on the sale of inventory during the period was $16,357 (July 31, 2018
   $2,289). The Company recorded an impairment loss on inventory of $16,918,
  realized on cannabis purchased in which the cost exceeds its net realizable
  value.

During the year ended July 31, 2018, the Company recorded an
  adjustment to the net realizable value of inventories of $1,491. This was due to
  the decrease in the estimated market selling price input of the inventory
  valuation which was caused by the onset of the adult-use market and is
  reflective of competitive market prices.

|                       |   |             |  |   |                        |  |   | July
      31, 2018 | 
|---------------------- | - | ----------- |  | - | ---------------------- |  | - | ------------------- | 
|                       |   | Capitalized |  |   | Biological asset fair  |  |   |                     | 
|                       |   | Cost        |  |   | value
      adjustment |  |   | Total               | 
|Dried cannabis         | $ | 2,115       |  | $ | 4,440                  |  | $ | 6,555               | 
|Oils                   |   | 2,281       |  |   | 882                    |  |   | 3,163               | 
|Packaging and supplies |   | 697         |  |   |                       |  |   | 697                 | 
|                       | $ | 5,093       |  | $ | 5,322                  |  | $ | 10,415              | 

16

---

8. Biological Assets

The Companys biological assets consist of cannabis plants from
  seeds all the way through to mature plants. 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 acquisition1                                                       |   | 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 (see Note 11)

As at July 31, 2019, the fair value of biological assets
  included $2 in seeds and $7,369 in cannabis plants ($6 in seeds and $2,326 in
  cannabis plants as at July 31, 2018). The significant estimates used in
  determining the fair value of cannabis 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 fulfilment 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.                                                                                                                                                                                                                            
| | destruction/wastage of plants during the harvesting and
      processing process.                                                                                                                                                                                                                          

All biological assets are classified as current assets in the
  statement of financial position and are considered Level 3 fair value estimates.
  As at July 31, 2019, it is expected that the Companys biological assets will
  yield approximately 17,571 kilograms of cannabis (July 31, 2018  4,374
  kilograms of cannabis). The Companys 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 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 are presented in the tables below.

The following table summarizes the unobservable inputs for the
  period ended July 31, 2019:

|Unobservable
      inputs                          | Input
      values                    | Sensitivity analysis                                              
|-------------------------------------------------- | ------------------------------------- | ------------------------------------------------------------------
|                                                   |                                       |                                                                   
|Average selling price                              |                                       | An increase or decrease of 5% applied to the
      average        
|Obtained through actual retail prices on a per     | $4.23  $5.01 per dried gram.         | selling price would result in a change of
      approximately $480
|strain basis.                                      |                                       | to the
      valuation.                                           
|                                                   |                                       |                                                                   
|Yield per plant                                    |                                       | An increase or decrease of 5% applied to the
      average yield  
|Obtained through historical harvest cycle results  | 15  123 grams per plant.             | per plant would result in a change up to
      approximately $344 
|on a per strain
      basis.                       |                                       | in
      valuation.                                               
|                                                   |                                       |                                                                   
|Stage of growth                                    |                                       | An increase or decrease of 5% applied to the
      average stage  
|Obtained through the estimates of stage of         | Average of 29% completion.            | of growth per plant would result in a change of                   
|completion within
      the harvest cycle.         |                                       | approximately $1,148 in valuation.                                
|                                                   |                                       |                                                                   
|Wastage                                            |                                       | An increase or decrease of 5% applied to the
      wastage        
|Obtained through the estimates of wastage          | 0%30% dependent upon the             | expectation would result in a change of
      approximately $302  
|within the
      cultivation and production cycle. | stage
      within the harvest cycle. | in
      valuation.                                               

17

---

The following table summarizes the unobservable inputs for the
  period ended July 31, 2018:

|Unobservable
      inputs                          | Input
      values                    | Sensitivity analysis                                               
|-------------------------------------------------- | ------------------------------------- | -------------------------------------------------------------------
|                                                   |                                       |                                                                    
|Average selling price                              |                                       | An increase or decrease of 5% applied to the
      average         
|Obtained through actual retail prices on a per     | $4.66 per dried gram.                 | selling price would result in a change of
      approximately $329 
|strain basis.                                      |                                       | to the
      valuation.                                            
|                                                   |                                       |                                                                    
|Yield per plant                                    |                                       |                                                                    
|Obtained through historical harvest cycle results  | 50235 grams per plant.               | An increase of decrease of 5% applied to the
      average yield   
|on a per strain
      basis.                       |                                       | per
      plant would not result in a material change in valuation.
|                                                   |                                       |                                                                    
|Stage of growth                                    |                                       |                                                                    
|Obtained through the estimates of stage of         | Average of 32% completion.            | An increase or decrease of 5% applied to the
      average stage   
|completion within the harvest cycle.               |                                       | of growth per plant would result in a change of                    
|                                                   |                                       | approximately $320 in valuation.                                   
|                                                   |                                       |                                                                    
|Wastage                                            |                                       |                                                                    
|Obtained through the estimates of wastage          | 0%30% dependent upon the             | An increase of decrease of 5% applied to the
      average yield   
|within the
      cultivation and production cycle. | stage
      within the harvest cycle. | per
      plant would not result in a material change in valuation.

9. Property, Plant and
  Equipment

Balance at
      
      
      Additions from
      
      
      
      
      
      
      
      
      Balance atbusinessCost
      
      July
        31, 2018
      
      
      acquisitions
      
      
      Additions
      
      
      Adjustments
      
      
      July 31, 2019Land
      $
      1,038
      
      $
      4,301
      
      $
      
      
      $
      
      
      $
      5,339Buildings
      
      32,536
      
      
      18,855
      
      
      11,365
      
      
      88,078
      
      
      150,834Leasehold Improvements
      
      206
      
      
      
      
      
      421
      
      
      
      
      
      627Furniture and equipment
      
      1,661
      
      
      119
      
      
      4,576
      
      
      
      
      
      6,356Cultivation and production
        equipment
      
      4,031
      
      
      9,913
      
      
      28,085
      
      
      
      
      
      42,029Vehicles
      
      151
      
      
      
      
      
      880
      
      
      
      
      
      1,031Computers
      
      659
      
      
      529
      
      
      1,793
      
      
      
      
      
      2,981Construction in progress
      
      15,433
      
      
      12,286
      
      
      117,909
      
      
      (88,078
      )
      
      57,550$
      55,715
      
      $
      46,003
      
      $
      165,029
      
      $
      
      
      $
      266,747


Balance at
      
      
      Additions from
      
      
      
      
      
      
      
      
      Balance atbusinessAccumulated depreciation
      
      July
        31, 2018
      
      
      acquisitions
      
      
      Depreciation
      
      
      Adjustments
      
      
      July 31, 2019Land
      $
      
      
      $
      
      
      $
      
      
      $
      
      
      $
      Buildings
      
      533
      
      
      
      
      
      3,859
      
      
      
      
      
      4,392Leasehold Improvements
      
      9
      
      
      
      
      
      121
      
      
      
      
      
      130Furniture and equipment
      
      527
      
      
      
      
      
      585
      
      
      (650
      )
      
      462Cultivation and production
        equipment
      
      69
      
      
      
      
      
      1,497
      
      
      650
      
      
      2,216Vehicles
      
      56
      
      
      
      
      
      77
      
      
      
      
      
      133Computers
      
      188
      
      
      
      
      
      433
      
      
      
      
      
      621$
      1,382
      
      $
      
      
      $
      6,572
      
      $
      
      
      $
      7,954


18

---

Balance at
      
      
      Additions from
      
      
      
      
      
      
      
      
      Balance atbusiness
      
      
      Net Additions /Net Carrying Value
      
      July
        31, 2018
      
      
      acquisitions
      
      
      (Deductions)
      
      
      Adjustments
      
      
      July 31, 2019Land
      $
      1,038
      
      $
      4,301
      
      $
      
      
      $
      
      
      $
      5,339Buildings
      
      32,003
      
      
      18,855
      
      
      7,506
      
      
      88,078
      
      
      146,442Leasehold Improvements
      
      197
      
      
      
      
      
      300
      
      
      
      
      
      497Furniture and equipment
      
      1,134
      
      
      119
      
      
      3,991
      
      
      650
      
      
      5,894Cultivation and production
        equipment
      
      3,962
      
      
      9,913
      
      
      26,588
      
      
      (650
      )
      
      39,813Vehicles
      
      95
      
      
      
      
      
      803
      
      
      
      
      
      898Computers
      
      471
      
      
      529
      
      
      1,360
      
      
      
      
      
      2,360Construction in progress
      
      15,433
      
      
      12,286
      
      
      117,909
      
      
      (88,078
      )
      
      57,550$
      54,333
      
      $
      46,003
      
      $
      158,457
      
      $
      
      
      $
      258,793


As at July 31, 2019, there was $21,265 (July 31, 2018  $3,920)
  of property, plant and equipment in accounts payable and accrued liabilities.
  During the year ended July 31, 2019, the Company capitalized $4,825 of
  depreciation to inventory and capitalized borrowing costs to buildings in the
  amount of $511 (July 31, 2018  $994) at an average annual interest rate of 3.2%
  . During the period depreciation expensed to the statement of loss was $1,474
  (July 31, 2018 - $876).

Adjustments during the period, reflect the activation of an
  assets useful life, transitioning from construction in progress to the
  appropriate property, plant and equipment classification. The Company has
  contractual commitments for remaining leasehold improvements of $33,455 payable
  in fiscal year 2020 as at July 31, 2019 (July 31, 2018 - $40,471).

|                                           |   | Balance at          |  |   |           |  |   |             |   |   | Balance at    | 
|------------------------------------------ | - | ------------------- |  | - | --------- |  | - | ----------- | - | - | ------------- | 
|Cost                                       |   | July
      31, 2017 |  |   | Additions |  |   | Adjustments |   |   | July 31, 2018 | 
|Land                                       | $ | 358                 |  | $ | 680       |  | $ |            |   | $ | 1,038         | 
|Buildings                                  |   | 3,745               |  |   | 3,930     |  |   | 24,861      |   |   | 32,536        | 
|Leasehold Improvements                     |   |                    |  |   | 206       |  |   |            |   |   | 206           | 
|Furniture and equipment                    |   | 900                 |  |   | 1,233     |  |   | (472        | ) |   | 1,661         | 
|Cultivation and production
      equipment |   | 380                 |  |   | 3,165     |  |   | 486         |   |   | 4,031         | 
|Vehicles                                   |   | 114                 |  |   | 33        |  |   | 4           |   |   | 151           | 
|Computers                                  |   | 234                 |  |   | 425       |  |   |            |   |   | 659           | 
|Construction in progress                   |   | 605                 |  |   | 39,707    |  |   | (24,879     | ) |   | 15,433        | 
|                                           | $ | 6,336               |  | $ | 49,379    |  | $ |            |   | $ | 55,715        | 

|                                           |   | Balance at          |  |   |              |  |   |             |   |   | Balance at    | 
|------------------------------------------ | - | ------------------- |  | - | ------------ |  | - | ----------- | - | - | ------------- | 
|Accumulated depreciation                   |   | July
      31, 2017 |  |   | Depreciation |  |   | Adjustments |   |   | July 31, 2018 | 
|Land                                       | $ |                    |  | $ |             |  | $ |            |   | $ |              | 
|Buildings                                  |   | 194                 |  |   | 339          |  |   |            |   |   | 533           | 
|Leasehold Improvements                     |   |                    |  |   | 9            |  |   |            |   |   | 9             | 
|Furniture and equipment                    |   | 165                 |  |   | 195          |  |   | 167         |   |   | 527           | 
|Cultivation and production
      equipment |   | 23                  |  |   | 213          |  |   | (167        | ) |   | 69            | 
|Vehicles                                   |   | 26                  |  |   | 30           |  |   |            |   |   | 56            | 
|Computers                                  |   | 78                  |  |   | 110          |  |   |            |   |   | 188           | 
|                                           | $ | 486                 |  | $ | 896          |  | $ |            |   | $ | 1,382         | 

19

---

|                                     |   | Balance at          |  |   | Net Additions / |  |   |             |   |   | Balance at    | 
|------------------------------------ | - | ------------------- |  | - | --------------- |  | - | ----------- | - | - | ------------- | 
|Net Carrying Value                   |   |                     |  |   |                 |  |   | Adjustments |   |   |               | 
|                                     |   | July
      31, 2017 |  |   | (Deductions)    |  |   |             |   |   | July 31, 2018 | 
|Land                                 | $ | 358                 |  | $ | 680             |  | $ |            |   | $ | 1,038         | 
|Buildings                            |   | 3,551               |  |   | 3,591           |  |   | 24,861      |   |   | 32,003        | 
|Leasehold Improvements               |   |                    |  |   | 197             |  |   |            |   |   | 197           | 
|Furniture and equipment              |   | 735                 |  |   | 1,038           |  |   | (639        | ) |   | 1,134         | 
|Cultivation and production equipment |   | 357                 |  |   | 2,952           |  |   | 653         |   |   | 3,962         | 
|Vehicles                             |   | 88                  |  |   | 3               |  |   | 4           |   |   | 95            | 
|Computers                            |   | 156                 |  |   | 315             |  |   |            |   |   | 471           | 
|Construction in
      progress       |   | 605                 |  |   | 39,707          |  |   | (24,879     | ) |   | 15,433        | 
|                                     | $ | 5,850               |  | $ | 48,483          |  | $ |            |   | $ | 54,333        | 

10. Intangible Assets and
  Other Longer Term Assets

Balance at
      
      
      Additions from
      
      
      
      
      
      
      
      
      Balance atbusinessCost
      
      July
        31, 2018
      
      
      acquisitions
      
      
      Additions
      
      
      Adjustments
      
      
      July 31, 2019Cultivating and processing license
      $
      2,545
      
      $
      113,888
      
      $
      
      
      $
      
      
      $
      116,433Brand
      
      
      
      
      8,440
      
      
      
      
      
      
      
      
      8,440Software
      
      1,800
      
      
      12
      
      
      1,746
      
      
      
      
      
      3,558Domain names
      
      585
      
      
      
      
      
      
      
      
      
      
      
      585Patents
      
      
      
      
      
      
      
      1,231
      
      
      
      
      
      1,231Other longer term assets and capitalized
      
      312
      
      
      
      
      
      
      
      
      (312
      )
      
      transaction costs$
      5,242
      
      $
      122,340
      
      $
      2,977
      
      $
      (312
      )
      $
      130,247


Balance at
      
      
      Additions from
      
      
      
      
      
      
      
      
      Balance atbusinessAccumulated
        amortization
      
      July
        31, 2018
      
      
      acquisitions
      
      
      Amortization
      
      
      Adjustments
      
      
      July 31, 2019Cultivating and processing license
      $
      403
      
      $
      
      
      $
      1,198
      
      $
      
      
      $
      1,601Software
      
      786
      
      
      
      
      
      483
      
      
      
      
      
      1,269Domain name
      
      9
      
      
      
      
      
      57
      
      
      
      
      
      66Patents
      
      
      
      
      
      
      
      29
      
      
      
      
      
      29$
      1,198
      
      $
      
      
      $
      1,767
      
      $
      
      
      $
      2,965


Balance at
      
      
      Additions from
      
      
      
      
      
      
      
      
      Balance atbusiness
      
      
      Net Additions /Net Carrying
        Value
      
      July
        31, 2018
      
      
      acquisitions
      
      
      (Deductions)
      
      
      Adjustments
      
      
      July 31, 2019Cultivating and processing license
      $
      2,142
      
      $
      113,888
      
      $
      (1,198
      )
      $
      
      
      $
      114,832Brand
      
      
      
      
      8,440
      
      
      
      
      
      
      
      
      8,440Software
      
      1,014
      
      
      12
      
      
      1,263
      
      
      
      
      
      2,289Domain names
      
      576
      
      
      
      
      
      (57
      )
      
      
      
      
      519Patents
      
      
      
      
      
      
      
      1,202
      
      
      
      
      
      1,202Other longer term assets and capitalized
      
      312
      
      
      
      
      
      
      
      
      (312
      )
      
      transaction costs$
      4,044
      
      $
      122,340
      
      $
      1,210
      
      $
      (312
      )
      $
      127,282


Software includes $121 relating to managerial software (July
  31, 2018 - $258) not yet available for use. Accordingly, no amortization has
  been taken during the year ended July 31, 2019 on these inactive assets. As at
  July 31, 2019, there was $422 (July 31, 2018  $266) of intangible assets in
  accounts payable and accrued liabilities. The adjustment represents $212 of
  capitalized transaction costs being allocated to the Truss investment in
  associate (Note 19a) and $100 other longer term investment has been reclassified
  to long term investments.

Research and development expenses in the period amounted to
  $2,822 (July 31, 2018 - $Nil).

20

---

|                                         |   | Balance at          |  |   |           |  |   | Disposals/  |  |   | Balance at    | 
|---------------------------------------- | - | ------------------- |  | - | --------- |  | - | ----------- |  | - | ------------- | 
|Cost                                     |   | July
      31, 2017 |  |   | Additions |  |   | adjustments |  |   | July 31, 2018 | 
|Cultivating and processing license       | $ | 2,545               |  | $ |          |  | $ |            |  | $ | 2,545         | 
|Software                                 |   | 651                 |  |   | 1,149     |  |   |            |  |   | 1,800         | 
|Domain names                             |   |                    |  |   | 585       |  |   |            |  |   | 585           | 
|Other longer term assets and capitalized |   |                    |  |   | 312       |  |   |            |  |   | 312           | 
|transaction costs                        |   |                     |  |   |           |  |   |             |  |   |               | 
|                                         | $ | 3,196               |  | $ | 2,046     |  | $ |            |  | $ | 5,242         | 

|                                   |   | Balance at          |  |   |              |  |   | Disposals/  |  |   | Balance at    | 
|---------------------------------- | - | ------------------- |  | - | ------------ |  | - | ----------- |  | - | ------------- | 
|Accumulated
      amortization     |   | July
      31, 2017 |  |   | Amortization |  |   | adjustments |  |   | July 31, 2018 | 
|Cultivating and processing license | $ | 277                 |  | $ | 126          |  | $ |            |  | $ | 403           | 
|Software                           |   | 156                 |  |   | 630          |  |   |            |  |   | 786           | 
|Domain name                        |   |                    |  |   | 9            |  |   |            |  |   | 9             | 
|                                   | $ | 433                 |  | $ | 765          |  | $ |            |  | $ | 1,198         | 

|Net Carrying
      Value                 |   | Balance at 
      July 31, 2017 |  |   | Net
      Additions / 
      (Deductions) |   |   | Disposals/ 
      adjustments |  |   | Balance atJuly 31, 2018 | 
|---------------------------------------- | - | ------------------------------- |  | - | ----------------------------------------- | - | - | ----------------------------- |  | - | ----------------------- | 
|Cultivating and processing license       | $ | 2,268                           |  | $ | (126                                      | ) | $ |                              |  | $ | 2,142                   | 
|Software                                 |   | 495                             |  |   | 519                                       |   |   |                              |  |   | 1,014                   | 
|Domain names                             |   |                                |  |   | 576                                       |   |   |                              |  |   | 576                     | 
|Other longer term assets and capitalized |   |                                |  |   | 312                                       |   |   |                              |  |   | 312                     | 
|transaction costs                        |   |                                 |  |   |                                           |   |   |                               |  |   |                         | 
|                                         | $ | 2,763                           |  | $ | 1,281                                     |   | $ |                              |  | $ | 4,044                   | 

During the fiscal year ended July 31, 2018, the Company
  conducted a review of its intangible assets, which resulted in changes in the
  expected usage of its software. Certain assets, which management previously
  intended to use for 5 years from the date of purchase were replaced during the
  fiscal year as well as September 2018. As a result, the expected useful lives of
  these assets decreased. The effect of these changes on actual and expected
  depreciation expense, in current and future years respectively is as follows.

2019
      
      
      2020
      
      
      2021
      
      
      2022
      
      
      Later(Decrease) increase in amortization expense
      $
      (87
      )
      $
      (119
      )
      $
      (100
      )
      $
      (3
      )
      $
      Nil


11. Business Acquisition

Acquisition of Newstrike Brands Limited.

On May 24, 2019, the Company acquired 100% of the issued and
  outstanding common shares of Newstrike Brands Limited (Newstrike) pursuant to
  an arrangement agreement entered into on March 13, 2019. Newstrike is a licensed
  producer of cannabis operating in Ontario, Canada and was acquired for
  additional production capacity, established sales relationships and its brand.
  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.

The following table summarizes the preliminary values of the
  net assets acquired from Newstrike on the acquisition date. The fair values of
  the acquired property, plant and equipment, deferred tax liability, private
  investments and intangible assets are preliminary are subject to change within
  the one-year measurement.

21

---

Note
      
      
      Number of Shares,
      
      
      Share Price
      
      
      AmountWarrants and Options
      
      
      ($)
      
      
      ($)ConsiderationShares issued
      
      (i)
      
      
      35,394,041
      
      
      9.11
      
      
      322,439Warrants
        outstanding
      
      (ii)
      
      
      7,196,164
      
      
      
      
      
      12,229Replacement options issued
      
      (iii)
      
      
      2,002,365
      
      
      
      
      
      7,134Total fair value of consideration
      
      
      
      
      
      
      
      
      
      
      341,802Net assets acquiredCurrent assetsCash and cash
        equivalents
      
      
      
      
      
      
      
      
      
      
      49,366Accounts receivable
      
      
      
      
      
      
      
      
      
      
      1,204Other
        receivables
      
      
      
      
      
      
      
      
      
      
      4,585Inventory
      
      
      
      
      
      
      
      
      
      
      22,359Biological
        assets
      
      
      
      
      
      
      
      
      
      
      3,291Long-term assetsProperty, Plant and Equipment
      
      
      
      
      
      
      
      
      
      
      46,003Investments
      
      (iv)
      
      
      
      
      
      
      
      
      14,492Convertible debenture receivable
      
      
      
      
      
      
      
      
      
      
      1,220Prepaid expenses
      
      
      
      
      
      
      
      
      
      
      1,631Prepaid expense and license
      
      
      
      
      
      
      
      
      
      
      1,526Software
      
      
      
      
      
      
      
      
      
      
      10Cultivation and processing
        license
      
      
      
      
      
      
      
      
      
      
      113,888Brand
      
      
      
      
      
      
      
      
      
      
      8,440Goodwill
      
      
      
      
      
      
      
      
      
      
      111,877Total assets
      
      
      
      
      
      
      
      
      
      
      379,892Current liabilitiesAccounts payable and accrued
        liabilities
      
      
      
      
      
      
      
      
      
      
      12,849Payment received
        in advance
      
      
      
      
      
      
      
      
      
      
      5Long-term liabilitiesDeferred tax liabilities
      
      
      
      
      
      
      
      
      
      
      24,236Total liabilities
      
      
      
      
      
      
      
      
      
      
      37,090Non-controlling interest
      
      
      
      
      
      
      
      
      
      
      1,000Total net assets acquired
      
      
      
      
      
      
      
      
      
      
      341,802Net accounts receivables acquiredTotal accounts receivable
      
      
      
      
      
      
      
      
      
      
      5,789Expected uncollectible receivables
      
      
      
      
      
      
      
      
      
      
      Net accounts receivables acquired
      
      
      
      
      
      
      
      
      
      
      5,789


|(i)  | Share price based upon the TSX market price of common
      shares as at May 24, 2019.                                                                            
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | Warrants were valued using the Black-Scholes option
      pricing model as at the acquisition date May 24, 2019, using the following
      assumptions and inputs;


      Risk free rate of 1.48%  1.57%
      Expected life of 0.73  4.07
        years
      Volatility rate of 75%;
        determined using historical volatility data
      Exercise prices of $11.84 
        $27.64
      Stock price of $9.11


|(iii) | All replacement options were valued using the
      Black-Scholes option pricing model as at the acquisition date of May 24,
      2019, using the following assumptions and
      inputs;
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


      Risk free rate of 1.48%  1.57%
      Expected life of 1.2  4.7 years
      Volatility rate of 75%;
        determined using historical volatility data
      Exercise prices of $6.00  $17.37
      Stock price of $9.11


22

---

|     | The fair value of the vested options as at the
      acquisition date was deemed consideration paid in the transaction. The
      fair value of those options not yet vested at the acquisition date was
      added to the Companys share-based payment reserve to be expensed over the
      remaining vesting period of the options as permitted under IFRS 3 
        Business Combinations.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                                                                                                                                                                                                                                                                                   
|(iv) | Included in total investments were two level 3 private
      company investments (see Greentank Technologies and Neal
        Brothers Inc. in Note 20). There existed limited financial
      information over both investments at the acquisition date. The preliminary
      fair values have been determined using the best available
      information.                                  

The above acquisition contributed net revenue of $2,770 and a
  net loss of $13,699 to the Companys consolidated results since the date of
  acquisition. If each acquisition had occurred on August 1, 2018, management
  estimates that the Companys consolidated net revenue would have increased by
  $9,287 and the net loss would have increased by $19,096 for the year ended July
  31, 2019.

Goodwill arising from the acquisition represents the expected
  synergies, future income and growth, and other intangibles that do not qualify
  for separate recognition. None of the goodwill arising on these acquisitions are
  expected to be deductible for tax purposes. The NCI acquired at the acquisition
  date arises from Newstrike holding a 60% interest in Neal Brothers Inc. The net
  assets of Neal Brothers consist of cash only and the NCI was measured at its
  fair value (Note 28).

The NCI acquired at the acquisition date arises from
  Newstrike holding a 60% interest in Neal Brothers Inc. as the NCI relates to the
  joint venture Neal Up Brands Inc.

Total non-capitalized transaction expenses amounted to $3,958
  in the period.

12. Convertible
  Debentures

|                                                |  | 2017 unsecured |   |  | 2018 unsecured |   |  |         |  
|----------------------------------------------- |  | -------------- | - |  | -------------- | - |  | ------- | -
|                                                |  | convertible    |   |  | convertible    |   |  |         |  
|                                                |  | debentures 8%  |   |  | debentures 7%  |   |  | Total   |  
|Balance at July 31, 2017                        |  | 20,639         |   |  |               |   |  | 20,639  |  
|Gross proceeds                                  |  |               |   |  | 69,000         |   |  | 69,000  |  
|Issuance costs                                  |  |               |   |  | (4,792         | ) |  | (4,792  | )
|Warrants, net of issuance costs                 |  |               |   |  | (3,285         | ) |  | (3,285  | )
|Conversion
      feature, net of issuance costs |  |               |   |  | (6,777         | ) |  | (6,777  | )
|Accretion                                       |  | 814            |   |  | 554            |   |  | 1,368   |  
|Conversion of debenture                         |  | (21,453        | ) |  | (54,700        | ) |  | (76,153 | )
|Balance at July 31, 2018                        |  |               |   |  |               |   |  |        |  

2017 Secured Convertible Debentures

During the year ended July 31, 2019, 863,693, warrants were
  exercised for total proceeds of $863 (US$656, based on an exercise price of
  US$0.76) . On the various dates of exercise, the warrant liability was revalued
  using the Black-Scholes-Merton option pricing model. Overall, the liability
  value of the warrants exercised was $6,367 (US$4,819); using the following
  variables:


      stock prices ranging from $5.90
        to $10.36;
      expected life of 12 months;
      $Nil dividends;
      75% volatility based upon
        comparative market indicators and historical data;
      risk free interest rates of 1.55%
        to 2.35%;
      USD/CAD exchange rate of various.


The exercise of these warrants resulted in an increase to share
  capital of $6,367.

The remaining warrant liability was revalued on July 31, 2019
  using the Black-Scholes-Merton option pricing model (Level 2). The warrant
  liability was revalued to $493 (US$375); with a stock price of US$4.24; expected
  life of 12 months; $Nil dividends; 74% volatility based upon historical data;
  risk free interest rate of 1.61%; and USD/CAD exchange rate of 1.3148. The loss
  on the revaluation of the warrant liability for the year ended July 31, 2019 was
  ($3,730) (July 31, 2018  ($5,091)), which is recorded in the revaluation of
  financial instruments account on the statement of loss and comprehensive
  loss.

The following table summarizes warrant liability activity
  during the fiscal year ended July 31, 2019 and fiscal year ended July 31, 2018.

23

---

|                                    |   | July 31, 2019 |   |   | July
      31, 2018 |  
|----------------------------------- | - | ------------- | - | - | ------------------- | -
|Opening balance                     | $ | 3,130         |   | $ | 1,356               |  
|Granted                             |   |              |   |   |                    |  
|Expired                             |   |              |   |   |                    |  
|Exercised                           |   | (6,367        | ) |   | (3,317              | )
|Revaluation due to foreign exchange |   | 3,730         |   |   | 5,091               |  
|Closing balance                     | $ | 493           |   | $ | 3,130               |  

2017 Unsecured Convertible Debentures 8%

Interest related to the 2017 8% unsecured convertible
  debentures (which were converted during fiscal 2017) expensed to the statement
  of loss and comprehensive loss amounted to $Nil and interest capitalized to
  property, plant, and equipment was $Nil for the year ended July 31, 2019 (July
  31, 2018 $922 respectively). Accretion for the year ended July 31, 2019 was
  $Nil (July 31, 2018  $814).

2018 Unsecured Convertible Debentures 7%

On November 24, 2017, the Company issued $69,000 principal
  amount of unsecured debentures through a brokered private placement. The
  debentures bear interest at 7% per annum and mature on November 24, 2020.
  Interest will be accrued and paid semi-annually in arrears. The debentures were
  convertible into common shares of the Company at $2.20 at the option of the
  holder. The Company may force the conversion of the debentures on 30 days prior
  written notice should the daily weighted average trading price of the common
  shares of the Company be greater than $3.15 for any 10 consecutive trading days.
  The debenture holders received 15,663,000 warrants, 227 for every $1,000 unit.
  The warrants have a two-year term, expiring November 24, 2019, and have an
  exercise price of $3.00. The Company has the right to accelerate the expiry of
  the warrants should the closing trading price of the common shares of the
  Company be greater than $4.50 for any 10 consecutive trading days.

On initial recognition, the residual method was used to
  allocate the fair value of the warrants and conversion option. The fair value of
  the liability component was calculated as $58,187 using a discount rate of 14%.
  The residual proceeds of $10,813 were allocated between the warrants and
  conversion option on a pro-rata basis relative to their fair values. The fair
  values of the warrants and conversion option were determined using the
  Black-Scholes-Merton option pricing model.

The warrants were valued with a fair value $8,648 using the
  following assumptions:

- stock price of $2.62;
- expected life of one year;
- $Nil dividends; 65% volatility; based upon comparative market indicators
      and historical data
- risk free interest rate of 1.25%.

The conversion option was valued with a fair value of $17,843
  using the following assumptions:

- stock price of $2.62;
- expected life of three months;
- $Nil dividends; 65% volatility; based upon comparative market indicators
      and historical data
- risk free interest rate of 1.25%.

Based on the fair value of the warrants and conversion option,
  the residual proceeds of $10,813 were allocated as $3,530 to the warrants and
  $7,283 to the conversion option, less allocation of issuance costs.

In connection with the closing of the debentures, the Company
  paid a placement fee of $3,450 from the gross proceeds of the financing and
  incurred an additional $476 of issuance costs. The Company also issued broker
  warrants exercisable to acquire 1,568 common shares at an exercise price of
  $3.00 per share.

The broker warrants were attributed a fair value of $866 based
  on the Black-Scholes-Merton option pricing model with the following
  assumptions:

- stock price of $2.62;
- expected life of 1 year;
- $Nil dividends;
- 65% volatility; based upon comparative market indicators and historical
      data
- risk free interest rate of 1.25%.

The total issuance costs amounted to $4,792 and were allocated
  on pro-rata basis as follows: Debt  $4,041, Conversion option  $506, and the
  Warrants  $245.

24

---

On December 15, 2017 the Company announced that it had elected
  to exercise its right to convert all of the outstanding principal amount of the
  Companys 7.0% Debentures and unpaid accrued interest thereon into Common
  Shares. The Company became entitled to force the conversion of the 7.0%
  Debentures on December 13, 2017 on the basis that the VWAP of the Common Shares
  on the TSXV for 10 consecutive trading days was equal to or exceeded $3.15. For
  the 10 consecutive trading days preceding December 13, 2017, the VWAP of the
  Common Shares was $3.32. The Company provided the holders of the 7.0% Debentures
  with the required 30 days advance written notice of the conversion, and the
  effective date for the conversion was January 15, 2018.

Pursuant to the conversion of the 7.0% Debentures, holders of
  the 7.0% Debentures received 454.54 Common Shares for each $1,000 principal
  amount of 7.0% Debentures held. In addition, the accrued and unpaid interest on
  each $1,000 principal amount of the 7.0% Debentures for the period from December
  31, 2017 (the interest payment scheduled for December 31, 2017 was paid in cash)
  up to, but excluding the conversion date, was $2.92 and 7.0% Debenture holders
  received an additional 1.33 Common Shares for each $1,000 principal amount of
  7.0% Debentures held on account of accrued and unpaid interest, for a total of
  455.87 Common Shares for each $1,000 principal amount of 7.0% Debentures held.
  Accordingly, at the date of conversion the carrying value of the debentures of
  $54,700, interest payable paid through shares of $46 and the conversion feature
  of $6,809 resulted in the cumulative increase to share capital of $61,555.

There exists no convertible debt as at July 31, 2019.

13. Share Capital

(a) Authorized

An unlimited number of common shares and an unlimited number of
  special shares, issuable in series.

(b) Issued and Outstanding

During the first quarter of fiscal 2018, 481,896 warrants with
  exercise prices of $0.75 and US$0.70 were exercised for proceeds of $406,
  resulting in the issuance of 481,896 common shares.

During the second quarter of fiscal 2018, the Company issued
  15,687,500 common shares from the conversion of the 8% unsecured convertible
  debentures and 166,387 common shares in lieu of accrued interest, as described
  Note 10 Convertible debentures.

On January 2, 2018, the Company announced that it had elected
  to exercise its right to accelerate the expiry date of the common share purchase
  warrants issued under the 8% convertible debentures. The Company became entitled
  to accelerate the expiry date of the warrants on December 27, 2017 on the basis
  that the closing trading price of the Common Shares on the TSXV exceeded $3.00
  for 15 consecutive trading days. The expiry date for the warrants was
  accelerated from July 18, 2019 to February 1, 2018. During the second quarter of
  fiscal 2018, the Company issued 7,799,960 common shares related to the exercise
  of warrants associated with the 8% convertible debentures.

During the second quarter of fiscal 2018, the Company issued
  31,363,252 common shares from the conversion of the 7% unsecured convertible
  debentures and 20,829 common shares in lieu of accrued interest, as described
  Note 10 Convertible debentures. The Company issued 2,922,393 common shares
  related to the exercise of warrants from the 7% unsecured convertible
  debentures. During the second quarter of fiscal 2018, in addition to common
  shares issued related to the exercise of warrants associated with the
  convertible debentures, 5,025,627 warrants with exercise prices of $0.75 and
  US$0.70 were exercised, resulting in the issuance of 5,021,940 common shares.
  Total proceeds from the exercise of warrants were $30,937.

On January 30, 2018 the Company closed a bought deal public
  offering of 37,375,000 units at a price of $4.00 per unit for gross proceeds of
  $149,500. Each unit consisted one common share and one-half of one share
  purchase warrant of the Company. Each warrant is exercisable into one common
  share at a price of $5.60 per share for a period of two years. The fair value of
  the warrants at the date of grant was estimated at $0.56 per warrants based on
  the following weighted average assumptions:


      stock price of $3.93;
      expected life of 1 year;
      $Nil dividends;
      65% volatility based upon
        comparative market indicators and historical data;
      risk free interest rate of 1.25%.


Total cash share issue costs amounted to $6,380 which consisted
  of underwriters commissions of $5,980, underwriters expenses of $10,
  underwriters legal fees of $97 and incurred $311 of additional cash issuance
  costs. In addition, the Company issued an aggregate of 1,495 compensation
  warrants to the underwriters at a fair value of $1,486. The compensation
  warrants have an exercise price of $4.00 and expire January 30, 2020. The fair
  value of the compensation warrants at the date of grant was estimated at $0.99
  per warrant based on the following weighted average assumptions:


      stock price of $3.93;
      expected life of 1 year;
      $Nil dividends;


25

---


      65% volatility based upon
        comparative market indicators and historical data;
      risk free interest rate of 1.25%.


The Company allocated $7,342 of the issuance costs to the
  common shares and $523 to the warrants.

During the third quarter of fiscal 2018, 2,475 warrants with
  exercise prices ranging from $0.75 to $5.60 and US$0.76 were exercised for
  proceeds of $4,423, resulting in the issuance of 2,475 common shares.

On May 24, 2018, the Company announced that it had elected to
  exercise its right to accelerate the expiry date governing the common share
  purchase warrants issued November 24, 2017. Pursuant to the terms of the warrant
  indenture the Company elected its right to accelerate the expiry date of the
  remaining 5,261,043 warrants from November 24, 2019 to June 25, 2018. As at the
  date of expiry all warrants were exercised. The accelerated expiry date also
  applied to the remaining 1,568,181 compensation warrants originally issued to
  certain investment banks on November 24, 2017. As at the date of expiry
  1,505,453 compensation warrants were exercised and 62,728 warrants expired.

During the fourth quarter of fiscal 2018, 13,214,883 warrants
  with exercise prices ranging from $0.75 to $5.60 and US$0.76 were exercised for
  proceeds of $38,601, resulting in the issuance of 13,214,883 common shares.

On October 4, 2018 the Company closed its transaction with
  joint venture partner Molson Coors in which the Company granted 11,500,000
  warrants at a price of $6.00 per warrant. Each warrant is exercisable into one
  common share at a price of $6.00 per share for a period of three years. The fair
  value of the warrants at the date of grant was estimated at $3.69 per warrant
  based on the following weighted average assumptions:


      stock price of $8.45;
      expected life of 1.5 years;
      $Nil dividends;
      65% volatility based upon
        comparative market indicators and historical data;
      risk free interest rate of 0.75%.


During the first quarter of fiscal 2019, 3,137,746 warrants
  with exercise prices ranging from $0.75 to $5.60 and US$0.76 were exercised for
  proceeds of $5,589, resulting in the issuance of 3,137,746 common shares.

On January 30, 2019, the Company closed its offering of
  7,700,000 common shares at a price of $6.50 per share for gross proceeds of
  $50,050. Included in the offering was an 1,155,000 over-allotment option pool
  with a price of $6.50 per share which was exercised in full on the closing date
  for $7,508 and total gross proceeds of $57,558 for total common shares issued of
  8,855,000. Underwriting and legal fees accumulated to $3,827 for total net
  proceeds of $53,731.

During the second quarter of fiscal 2019, 682,678 warrants with
  exercise prices ranging from $0.75 to $5.60 and US$0.76 were exercised for
  proceeds of $1,307, which resulted in the issuance of 682,678 common shares.

During the third quarter of fiscal 2019, 3,661,761 warrants
  with exercise prices ranging from $0.75 to $5.60 and US$0.76 were exercised for
  proceeds of $8,425, resulting in the issuance of 3,661,761 common shares.

On May 24, 2019, the Company completed the acquisition of
  Newstrike Brands Ltd. (Note 11), resulting in the issuance of 35,394,041 common
  shares.

During the fourth quarter of fiscal 2019, 8,053,544 warrants
  with exercise prices ranging from $0.75 to $5.60 and US$0.76 were exercised for
  proceeds of $47,396, resulting in the issuance of 8,053,544 common shares.

In fiscal 2019 a total of 15,535,729 warrants with exercise
  prices ranging from $0.75 to $5.60 and US$0.76 were exercised for total proceeds
  of $69,259, resulting in the issuance of 15,535,729 common shares.

As at July 31, 2019, there were 256,981,753 common shares
  outstanding and 29,585,408 warrants outstanding.

26

---

The following is a consolidated summary of warrants on July 31,
  2019.

|                                                            |  | Number      |  |   |                  | 
|----------------------------------------------------------- |  | ----------- |  | - | ---------------- | 
|                                                            |  | outstanding |  |   | Book
      value | 
|Classified as Equity                                        |  |             |  |   |                  | 
|2018 Equity financing                                       |  |             |  |   |                  | 
|Exercise price of $5.60 expiring
      January 30, 2020     |  | 10,512,208  |  | $ | 5,673            | 
|February 2018 financing warrants                            |  |             |  |   |                  | 
|Exercise price of $27.64 expiring
      February 16, 2020   |  | 4,413,498   |  |   | 1,331            | 
|June 2019 financing warrants                                |  |             |  |   |                  | 
|Exercise price of $15.79 expiring
      June 19, 2023       |  | 2,184,540   |  |   | 9,998            | 
|Broker / Consultant warrants                                |  |             |  |   |                  | 
|Exercise price of $20.85 expiring
      February 16, 2020   |  | 264,809     |  |   | 160              | 
|Exercise price of $11.84 expiring June 19, 2020             |  | 262,021     |  |   | 610              | 
|Exercise price of $0.75 expiring
      November 3, 2021     |  | 175,618     |  |   | 78               | 
|Exercise price of $0.75 expiring March 14, 2022             |  | 94,282      |  |   | 66               | 
|Exercise price of $15.79 expiring
      June 19, 2023       |  | 61          |  |   | 1                | 
|Inner Spirit warrants                                       |  |             |  |   |                  | 
|Exercise price of $15.63 expiring
      July 21, 2020       |  | 71,235      |  |   | 129              | 
|Joint Venture Molson warrants                               |  |             |  |   |                  | 
|Exercise price of $6.00 expiring October 4, 2021            |  | 11,500,000  |  |   | 42,386           | 
|Classified as Liability                                     |  | 29,478,272  |  |   | 60,432           | 
|2017 secured convertible debenture warrants                 |  |             |  |   |                  | 
|Exercise
      price of USD$0.76 expiring November 14, 2019 |  | 107,136     |  |   | 493              | 
|                                                            |  | 29,585,408  |  | $ | 60,925           | 

The following table summarizes warrant activity during the
  years ended July 31, 2019 and 2018.

|                                                 |  |             |   |   | July 31, 2019    |  |  |             |   |   | July
      31, 2018 | 
|------------------------------------------------ |  | ----------- | - | - | ---------------- |  |  | ----------- | - | - | ------------------- | 
|                                                 |  | Number of   |   |   | Weighted average |  |  | Number of   |   |   | Weighted average    | 
|                                                 |  | warrants    |   |   | exercise price   |  |  | warrants    |   |   | exercise price      | 
|Outstanding, beginning of
      period           |  | 26,425,504  |   | $ | 4.35             |  |  | 20,994,123  |   | $ | 1.31                | 
|Expired during the period                        |  | (531        | ) |   |                 |  |  | (62,728     | ) |   | 3.00                | 
|Acquired and reissued through
      acquisition1 |  | 7,196,164   |   |   | 23.10            |  |  |            |   |   |                    | 
|Issued during the period                         |  | 11,500,000  |   |   | 6.00             |  |  | 37,413,681  |   |   | 4.34                | 
|Exercised during the period                      |  | (15,535,729 | ) |   | 3.61             |  |  | (31,919,572 | ) |   | 2.33                | 
|Outstanding, end of the period                   |  | 29,585,408  |   | $ | 9.95             |  |  | 26,425,504  |   | $ | 4.35                | 

1 Warrants acquired on May 24, 2019, via the
  acquisition of Newstrike.

Exercised during the period were 1,916,527 broker compensation
  warrants.

Stock Option Plan

The Company has a share option plan (the Plan) adopted in
  July 2018, that is administered by the Board of Directors who establish exercise
  prices and expiry dates, which are up to 10 years from issuance as determined by
  the Board at the time of issuance. Unless otherwise determined by the Board,
  options issued under the Plan vest over a three-year period except for options
  granted to consultants or persons employed in investor relations activities (as
  defined in the policies of the TSX) which vest in stages over 12 months with no
  more than 1⁄4 of the options vesting in any three-month period. The maximum number
  of common shares reserved for issuance for options that may be granted under the
  Plan is 25,698,175 common shares as at July 31, 2019. Options issued prior to
  July 2018 under the outgoing plan and the options assumed through the
  acquisition of Newstrike do not contribute to the available option pool reserved
  for issuance. As of July 31, 2019, the Company had 17,376,615 issued and
  outstanding under the Plan.

27

---

The following table summarizes the stock option grants during
  the years ended July 31, 2019 and 2018.

Options grantedExecutive and
      
      
      Non-executiveGrant date
      
      Exercise price
      
      
      directors
      
      
      employees
      
      
      Vesting terms
      
      
      Vesting periodSeptember 8, 2017
      $
      1.37
      
      
      650,000
      
      
      1,000
      
      
      Terms A
      
      
      10 yearsNovember 6, 2017
      $
      2.48
      
      
      125,000
      
      
      3,000
      
      
      Terms A
      
      
      10 yearsDecember 4, 2017
      $
      2.69
      
      
      1,750,000
      
      
      20,000
      
      
      Terms B
      
      
      10 yearsJanuary 29, 2018
      $
      4.24
      
      
      
      
      
      261,000
      
      
      Terms A, C
      
      
      10 yearsMarch 12, 2018
      $
      3.89
      
      
      325,000
      
      
      
      
      
      Terms A
      
      
      10 yearsApril 16, 2018
      $
      4.27
      
      
      845,000
      
      
      61,500
      
      
      Terms A
      
      
      10 yearsJune 8, 2018
      $
      5.14
      
      
      
      
      
      441,000
      
      
      Terms A
      
      
      10 yearsJuly 11, 2018
      $
      4.89
      
      
      4,325,000
      
      
      1,366,500
      
      
      Terms A
      
      
      10 yearsSeptember 17, 2018
      $
      7.93
      
      
      650,000
      
      
      523,500
      
      
      Terms A
      
      
      10 yearsNovember 22, 2018
      $
      5.92
      
      
      
      
      
      440,000
      
      
      Terms A
      
      
      10 yearsDecember 17, 2018
      $
      5.09
      
      
      74,000
      
      
      227,500
      
      
      Terms A, D
      
      
      10 yearsFebruary 19, 2019
      $
      7.13
      
      
      615,000
      
      
      626,000
      
      
      Terms A
      
      
      10 yearsFebruary 21, 2019
      $
      7.46
      
      
      3,333,333
      
      
      
      
      
      Terms E
      
      
      10 yearsMarch 20, 2019
      $
      8.50
      
      
      325,000
      
      
      1,077,500
      
      
      Terms A
      
      
      10 yearsApril 17, 2019
      $
      8.24
      
      
      
      
      
      1,132,500
      
      
      Terms A
      
      
      10 yearsJuly 18, 2019
      $
      6.54
      
      
      650,000
      
      
      2,768,785
      
      
      Terms A
      
      
      10 yearsJuly 26, 2019
      $
      5.88
      
      
      250,000
      
      
      
      
      
      Terms A
      
      
      10 years


|Vesting terms A  | One-third of the options will vest on the one-year
      anniversary of the date of grant and the balance will vest quarterly over
      two years thereafter.                                                                                                                                                                                                          
|----------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Vesting terms B  | Half of the options will vest immediately, and the
      balance will vest annually over three years thereafter.                                                                                                                                                                                                                                                        
|Vesting terms C  | Based upon organizational milestones.                                                                                                                                                                                                                                                                                                                                   
|Vesting terms D  | 54,000 of the options granted to a director will fully
      vest 6-months from the grant date.                                                                                                                                                                                                                                                                         
|Vesting terms E  | In addition to the standard vesting terms A, the grant
      defines 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.

The following table summarizes stock option activity during the
  fiscal years ended July 31, 2019 and 2018.

|                                                 |  |            |   |   | July 31, 2019    |  |  |            |   |   | July
      31, 2018 | 
|------------------------------------------------ |  | ---------- | - | - | ---------------- |  |  | ---------- | - | - | ------------------- | 
|                                                 |  | Options    |   |   | Weighted average |  |  | Options    |   |   | Weighted average    | 
|                                                 |  | issued     |   |   | exercise price   |  |  | issued     |   |   | exercise price      | 
|Opening balance                                  |  | 14,388,066 |   | $ | 3.02             |  |  | 5,748,169  |   | $ | 0.68                | 
|Granted                                          |  | 12,693,118 |   |   | 7.27             |  |  | 10,174,000 |   |   | 4.16                | 
|Acquired and reissued through
      acquisition1 |  | 2,002,365  |   |   | 9.49             |  |  |           |   |   |                    | 
|Forfeited                                        |  | (1,226,763 | ) |   | 6.33             |  |  | (626,830   | ) |   | 3.44                | 
|Exercised                                        |  | (3,567,867 | ) |   | 1.20             |  |  | (907,273   | ) |   | 0.65                | 
|Closing balance                                  |  | 24,288,919 |   | $ | 5.87             |  |  | 14,388,066 |   | $ | 3.02                | 

1 Stock options assumed on May 24, 2019, via the
  acquisition of Newstrike.

28

---

The following table summarizes information concerning stock
  options outstanding as at July 31, 2019.

Weighted average
      
      
      
      
      
      Weighted averageremaining contractual
      
      
      
      
      
      remaining contractualExercise price
      
      
      Number outstanding
      
      
      life
        (years)
      
      
      Number exercisable
      
      
      life
        (years)$
      0.58
      
      
      372,900
      
      
      0.08
      
      
      363,000
      
      
      0.300.75
      
      
      1,228,750
      
      
      0.34
      
      
      1,013,750
      
      
      1.071.27
      
      
      522,620
      
      
      0.16
      
      
      322,053
      
      
      0.373.15
      
      
      4,748
      
      
      0.00
      
      
      4,748
      
      
      0.006.00
      
      
      891,833
      
      
      0.04
      
      
      891,833
      
      
      0.141.37
      
      
      352,866
      
      
      0.12
      
      
      82,304
      
      
      0.102.48
      
      
      86,332
      
      
      0.03
      
      
      22,342
      
      
      0.032.69
      
      
      853,333
      
      
      0.29
      
      
      313,335
      
      
      0.414.24
      
      
      258,000
      
      
      0.09
      
      
      122,519
      
      
      0.1617.37
      
      
      253,270
      
      
      0.04
      
      
      253,270
      
      
      0.143.89
      
      
      325,000
      
      
      0.12
      
      
      135,418
      
      
      0.1816.58
      
      
      31,659
      
      
      0.00
      
      
      15,828
      
      
      0.0016.74
      
      
      56,985
      
      
      0.00
      
      
      28,488
      
      
      0.014.27
      
      
      879,002
      
      
      0.32
      
      
      366,852
      
      
      0.5016.10
      
      
      63,319
      
      
      0.00
      
      
      63,319
      
      
      0.004.89
      
      
      5,513,497
      
      
      2.03
      
      
      2,046,567
      
      
      2.875.14
      
      
      107,666
      
      
      0.04
      
      
      35,680
      
      
      0.0510.42
      
      
      162,295
      
      
      0.01
      
      
      138,549
      
      
      0.0410.42
      
      
      142,467
      
      
      0.01
      
      
      71,230
      
      
      0.0211.84
      
      
      44,322
      
      
      0.00
      
      
      11,079
      
      
      0.007.93
      
      
      1,058,500
      
      
      0.40
      
      
      
      
      
      8.21
      
      
      94,979
      
      
      0.01
      
      
      23,744
      
      
      0.015.92
      
      
      310,000
      
      
      0.12
      
      
      
      
      
      5.09
      
      
      276,500
      
      
      0.11
      
      
      54,000
      
      
      0.086.94
      
      
      94,979
      
      
      0.02
      
      
      
      
      
      8.84
      
      
      94,979
      
      
      0.02
      
      
      
      
      
      7.13
      
      
      1,136,000
      
      
      0.45
      
      
      
      
      
      7.46
      
      
      3,333,333
      
      
      1.31
      
      
      
      
      
      8.50
      
      
      1,222,500
      
      
      0.49
      
      
      
      
      
      8.24
      
      
      857,500
      
      
      0.34
      
      
      
      
      
      6.54
      
      
      3,408,785
      
      
      1.40
      
      
      
      
      
      $
      5.88
      
      
      250,000
      
      
      0.10
      
      
      
      
      
      24,288,919
      
      
      8.49
      
      
      6,379,908
      
      
      6.48


Stock-based Compensation

For the year ended July 31, 2019, the Company recorded $28,008
  (July 31, 2018  $4,997) in stock-based compensation expense related to employee
  options, which are measured at fair value at the date of grant and are expensed
  over the vesting period (See Note 18 for stock based compensation allocation by
  expense group). In determining the amount of stock-based compensation, the
  Company used the Black-Scholes-Merton option pricing model to establish the fair
  value of options granted by applying the following assumptions:

|                                 | July 31, 2019 | July
      31, 2018
|-------------------------------- | ------------- | -------------------
|Exercise price                   | $0.75$8.95   | $1.37$5.14        
|Stock price                      | $5.09$8.50   | $1.37$5.14        
|Risk-free interest rate          | 1.54%2.42%   | 2.06%-2.37%        
|Expected life of options (years) | 5-7           | 7                  
|Expected annualized volatility   | 64%76%       | 65%                

29

---

Volatility was estimated using the average historical
  volatility of the Company and comparable companies in the industry that have
  trading history and volatility history.

For the year ended July 31, 2019, the Company allocated to
  inventory $1,724 (July 31, 2018  $Nil) of stock-based compensation applicable
  to direct and indirect labour in the selling and production process.

14. Net Loss per Share

The following securities could potentially dilute basic net
  loss per share in the future but have not been included in diluted loss per
  share because their effect was anti-dilutive:

|                                                     |  | July 31, 2019 |  |  | July
      31, 2018 | 
|---------------------------------------------------- |  | ------------- |  |  | ------------------- | 
|Options                                              |  | 24,288,919    |  |  | 14,388,066          | 
|Warrants issued with $0.75 units                     |  |              |  |  | 3,234,960           | 
|2015 Secured convertible debentures
      warrants   |  |              |  |  | 1,318,332           | 
|2016 Unsecured convertible debenture warrants        |  |              |  |  | 100,002             | 
|2017 Secured convertible debenture warrants          |  | 107,136       |  |  | 928,542             | 
|2018 Equity warrants                                 |  | 10,512,208    |  |  | 18,570,500          | 
|2018 February 2018 financing warrants                |  | 4,413,498     |  |  |                    | 
|2019 June financing warrants                         |  | 2,184,540     |  |  |                    | 
|Joint venture and Inner Spirit issued
      warrants |  | 11,571,235    |  |  |                    | 
|Convertible
      debenture broker/finder warrants   |  | 796,791       |  |  | 2,273,168           | 
|                                                     |  | 53,874,327    |  |  | 40,813,570          | 

15. Convertible Debentures
  Receivable

12% CONVERTIBLE DEBENTURE

On July 26, 2018, the Company purchased $10,000 in the form of
  unsecured and subordinated convertible debentures to an unrelated entity, Fire
  and Flower (F&F). The convertible debenture bears interest at 8%, paid
  semi-annually, matures July 31, 2020 and includes a conversion feature to
  convert the debenture into common shares of F&F at the lower of $1.15 and
  the share price as defined within the agreement. The Company obtained the
  debenture as a part of a strategic investment into the private retail cannabis
  market. The debentures may be converted into common shares or a loan on July 31,
  2020, which bears interest at 12%, at the holders option.

For the year ended July 31, 2019, the Companys debenture
  increased by $1,627 (July 31, 2018  $Nil) due to fair value adjustments. At
  period end, the level 2 instrument convertible debenture receivable was fair
  valued using the F&F July 31, 2019 public market rate of $1.33 and totalled
  $12,024 (July 31, 2018  $10,000). Accrued unpaid interest and the unrealized
  gain amounted to $397 and $1,627 respectively.

ZERO INTEREST CONVERTIBLE DEBENTURE

On February 13, 2019, the Company purchased $800 in the form of
  unsecured and subordinated convertible debentures to F&F. The convertible
  debenture bears zero interest and matures November 30, 2019 and includes a
  conversion feature to convert the debenture into common shares of F&F at
  $0.80 as defined within the agreement. The debentures may be partially or
  converted in-full into common shares at the maturity date at the holders
  option.

The Company acquired the zero interest convertible debenture
  through the acquisition of Newstrike on May 24, 2019 which carried a fair value
  of $1,220. Since acquisition, for the stub period ended July 31, 2019, the
  Companys zero interest debenture increased by $110 (July 31, 2018  $Nil) due
  to fair value adjustments. At period end, the level 2 instrument convertible
  debenture receivable was fair valued using the F&F July 31, 2019 public
  market rate of $1.33 and totalled $1,330 (July 31, 2018  $Nil).

16. Term Loan

Term Loan

On February 15, 2019, the Company entered into a syndicated
  credit facility with Canadian Imperial Bank of Commerce (CIBC) as Sole
  Bookrunner, Co-Lead Arranger and Administrative Agent and Bank of Montreal as
  Co-Lead Arranger and Syndication Agent (together the Lenders). The Lenders
  will provide the Company up to $65 million in secured debt financing at a rate
  of interest that is expected to average in the mid-to-high 5% per annum range.
  The credit facility consists of a $50 million term loan and a $15 million
  revolving loan with an uncommitted option to increase the facility up to $135
  million. Both loans mature in 2022. The Company may repay the loan without
  penalty, at any time and contains customary financial and restrictive covenants.
  The Company shall repay at minimum 2.5% of the outstanding balance each quarter
  per the terms of the credit facility agreement. The term loan possess several
  covenants which the Company has met as of July 31, 2019.

On February 14, 2019, the Company received $35,000 and incurred
  financing costs to secure the loan of $1,347.

30

---

As of July 31, 2019, the Company has drawn a total of $35,000
  on the term loan, of which $3,500 is due within 12 months in according with the
  terms of the credit facility. Carrying value net of deferred financing costs of
  total term loan is $33,374.

The total interest expense and total interest capitalized was
  $252 and $511, respectively. The total accretion of deferred financing costs was
  $387 for the year ended July 31, 2019.

The following table illustrates the continuity schedule of the
  term loan:

|Term Loan                |   | Current |   |   | Long term |  
|------------------------ | - | ------- | - | - | --------- | -
|July 31, 2018            | $ |        |   | $ |          |  
|Term loan                |   |         |   |   |           |  
|Additions                |   |        |   |   | 35,000    |  
|Adjustments              |   | 3,500   |   |   | (3,500    | )
|Repayments               |   | (87     | ) |   | (788      | )
|                         | $ | 3,413   |   | $ | 30,712    |  
|Deferred financing costs |   |         |   |   |           |  
|Additions                |   | (296    | ) |   | (1,347    | )
|Adjustments              |   |        |   |   | 296       |  
|Realized expense         |   |        |   |   | 596       |  
|July 31, 2019            | $ | 3,117   |   | $ | 30,257    |  

17. Financial
  Instruments

Market Risk

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 to net loss.

Price Risk

Price risk is the risk of variability in fair value due to
  movements in equity or market prices. The Companys level 1 and 2 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 $340 (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).

31

---

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 trade receivables as at July 31, 2019 and 2018:

|             |  | July 31, |  |  | July 31, | 
|------------ |  | -------- |  |  | -------- | 
|             |  | 2019     |  |  | 2018     | 
|             |  | $        |  |  | $        | 
|030 days    |  | 14,102   |  |  | 262      | 
|31 60 days  |  | 1,826    |  |  | 188      | 
|61 90 days  |  | 166      |  |  | 91       | 
|Over 90 days |  | 3,599    |  |  | 103      | 
|Total        |  | 19,693   |  |  | 644      | 

The following table summarizes the Companys ECL by aging group
  as at July 31, 2019 and 2018:

|             |  | July 31, |  |  | July 31, | 
|------------ |  | -------- |  |  | -------- | 
|             |  | 2019     |  |  | 2018     | 
|             |  | $        |  |  | $        | 
|030 days    |  | 3        |  |  | -        | 
|31 60 days  |  | 7        |  |  | -        | 
|61 90 days  |  | 3        |  |  | -        | 
|Over 90 days |  | 24       |  |  | 94       | 
|Total        |  | 37       |  |  | 94       | 

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 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 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. The carrying value of the term loan approximates its fair value as
  there has been no change the Companys risk profile and no changes to the market
  interest rate.

32

---

18. Operating Expenses by
  Nature

|For the years
      ended                           |   | July 31, 2019 |  |   | July
      31, 2018 | 
|--------------------------------------------------- | - | ------------- |  | - | ------------------- | 
|Stock based compensation                            | $ | 28,008        |  | $ | 4,997               | 
|Marketing and promotion                             |   | 22,308        |  |   | 2,447               | 
|Salaries and benefits                               |   | 25,349        |  |   | 6,992               | 
|Consulting                                          |   | 11,176        |  |   | 3,659               | 
|Professional fees                                   |   | 8,258         |  |   | 1,761               | 
|Facilities                                          |   | 5,697         |  |   | 919                 | 
|General and administrative                          |   | 4,462         |  |   | 1,442               | 
|Travel                                              |   | 2,710         |  |   | 488                 | 
|Amortization of intangible assets                   |   | 1,767         |  |   | 765                 | 
|Depreciation of
      property, plant and equipment |   | 1,747         |  |   | 896                 | 
|Total                                               | $ | 111,482       |  | $ | 24,367              | 

The following table summarizes the nature of stock based
  compensation in the period:

|For the year
      ended                                           |   | July 31, 2019 | 
|------------------------------------------------------------------ | - | ------------- | 
|General and administrative related stock
      -based compensation | $ | 26,322        | 
|Marketing and
      promotion related stock -based compensation    |   | 1,686         | 
|Total operating expense related stock-based
      compensation     |   | 28,008        | 
|Stock based
      compensation capitalized to inventory            |   | 1,724         | 
|Total stock-based compensation                                     | $ | 29,732        | 

The following table summarizes the total payroll related wages
  and benefits by nature in the period:

|For the year
      ended                                    |   | July 31, 2019 | 
|----------------------------------------------------------- | - | ------------- | 
|General and administrative related wages
      and benefits | $ | 17,975        | 
|Marketing and promotion related wages and benefits          |   | 6,162         | 
|Research and development related wages and benefits         |   | 1,212         | 
|Total operating expense related wages and benefits          |   | 25,349        | 
|Wages and benefits expensed through cost of sales           |   | 10,905        | 
|Total wages and
      benefits expensed in the period       | $ | 36,254        | 

19. Investment in Associate
  and Joint Ventures

The following is a summary of financial information for the
  Companys joint ventures for the periods presented based on the latest publicly
  available information. Note that the numbers have not been pro-rated for the
  Companys ownership interest.

|                                |  | Truss         |  |  | Belleville Complex Inc |  |  | HEXO
      MED | 
|------------------------------- |  | ------------- |  |  | ---------------------- |  |  | -------------- | 
|Period                          |  | July 31, 2019 |  |  | July 31, 2019          |  |  | July 31, 2019  | 
|Statement of Financial Position |  | $             |  |  | $                      |  |  | $              | 
|Cash and cash equivalents       |  | 14,318        |  |  | 278                    |  |  | 542            | 
|Current assets                  |  | 5,701         |  |  | 2,604                  |  |  | 59             | 
|Non- current assets             |  | 7,880         |  |  | 19,906                 |  |  | 22             | 
|                                |  |               |  |  |                        |  |  |                | 
|Current liabilities             |  | 7,477         |  |  | 1,155                  |  |  | 26             | 
|Non-current labilities          |  |              |  |  | 21,909                 |  |  |               | 
|                                |  |               |  |  |                        |  |  |                | 

33

---

|*Period*                                  |  | 11 months ended July 31, 2019 |   |  | August 21, 2018 to July 31, 2019 |   |  | December 22, 2018 to July 31,
          2019 |  
|----------------------------------------- |  | ----------------------------- | - |  | -------------------------------- | - |  | -------------------------------------------- | -
|                                          |  |                               |   |  |                                  |   |  |                                              |  
|Statement of Comprehensive
      Loss     |  |                               |   |  |                                  |   |  |                                              |  
|Revenue                                   |  |                              |   |  | 4,018                            |   |  |                                             |  
|                                          |  |                               |   |  |                                  |   |  |                                              |  
|Operating expenses excluding depreciation |  |                               |   |  |                                  |   |  |                                              |  
|and amortization                          |  | (6,579                        | ) |  | (3,716                           | ) |  |                                             |  
|Depreciation and amortization             |  |                              |   |  | (578                             | ) |  |                                             |  
|Other expenses                            |  |                              |   |  |                                 |   |  | (503                                         | )
|                                          |  |                               |   |  |                                  |   |  |                                              |  
|Loss from operations                      |  | (6,579                        | ) |  | (276                             | ) |  | (503                                         | )
|Income tax expenses                       |  |                              |   |  |                                 |   |  |                                             |  
|Total comprehensive loss                  |  | (6,579                        | ) |  | (276                             | ) |  | (503                                         | )

(a) Truss  Investment in Associate

|                                    |   | July 31, 2019 |   |   | July
      31, 2018 | 
|----------------------------------- | - | ------------- | - | - | ------------------- | 
|Opening Balance                     | $ |              |   | $ |                    | 
|Cash consideration of investment    |   | 11,476        |   |   |                    | 
|Fair value of warrant consideration |   | 42,386        |   |   |                    | 
|Capitalized transaction costs       |   | 721           |   |   |                    | 
|Share of net loss                   |   | (2,796        | ) |   |                    | 
|Ending Balance                      | $ | 51,786        |   | $ |                    | 

On October 4, 2018, the formation of the entity Truss between
  the Company and Molson Coors Canada (the Partner) was finalized. Truss is a
  standalone start-up company with its own board of directors and an independent
  management team and is incorporated in Canada. Truss is private company and its
  principle activities consist of pursuing opportunities to develop non-alcoholic,
  cannabis-infused beverages and is currently operating in Gatineau, Quebec.

The Partner holds 57,500 common shares representing 57.5%
  controlling interest in Truss with the Company holding 42,500 common shares and
  controlling the remaining 42.5% . In connection with the transaction the Company
  has granted the Partner 11,500,000 common share warrants at an exercise price of
  $6.00 for a period of 3 years.

Included in the initial investment cost is the capitalized fair
  value $42,386 of warrant consideration (see Note 11 for fair value inputs and
  assumptions).

Transaction costs of $721 in respect to the definitive
  agreement to form the joint venture were capitalized.

The joint venture is accounted for using the equity method.
  During the year ended July 31, 2019, the Companys share in the net loss of
  Truss was ($2,796) (July 31, 2018  $Nil).

(b)Belleville Complex Inc - Joint
  Venture

On October 31, 2018, the Company acquired a 25% interest in the
  joint venture Belleville Complex Inc. (BCI) with a related party Olegna
  Holdings Inc., owned and controlled by a director of the Company, holding the
  remaining 75% in BCI. The joint venture purchased a configured 1.5 million sq.
  ft. facility through a $20,279 loan issued by the Company on September 7, 2018,
  bearing an annual 4% interest rate and interest payable monthly. The loan and
  all remaining accrued interest were repaid in full during the period and
  interest income of $454 was realized.

As a part of the agreement, the Company will be the anchor
  tenant for a period of 20 years. Consideration for the 25% interest on the joint
  venture is deemed $Nil. The carrying value of BCI as at July 31, 2019 is $Nil
  (July 31, 2018 - $Nil).

34

---

(c) HEXO MED - Joint Venture

|                                 |   | July 31, 2019 |   |   | July
      31, 2018 | 
|-------------------------------- | - | ------------- | - | - | ------------------- | 
|Opening Balance                  | $ |              |   | $ |                    | 
|Cash consideration of investment |   | 1,106         |   |   |                    | 
|Capitalized transaction costs    |   | 125           |   |   |                     | 
|Share of net loss                |   | (168          | ) |   |                    | 
|Ending Balance                   | $ | 1,063         |   | $ |                    | 

HEXO MED is a Greece based joint venture established with
  partner QNBS P.C. (formerly Qannabos) and will serve as the Companys entry
  point into the European medical cannabis markets. During the fiscal year 2019,
  the Company contributed a total of EUR$250 for a 33.34% interest in HEXO MED in
  cash. As of July 31, 2019, the Company has also accrued an additional EUR$500
  per the terms of the shareholders agreement. Once remitted, the Companys
  interest will increase to 51% (see Note 32). The carrying value of HEXO MED as
  at July 31, 2019 is $1,063 (July 31, 2018 - $Nil).

20. Long-term Investments

Cost July 31, 2018
      
      
      Fair value July 31, 2018
      
      
      Investment
      
      
      Divesture/ Transfer
      
      
      Subtotal July 31, 2019
      
      
      Change in fair value
      
      
      Fair value July 31, 2019$
      
      
      $
      
      
      $
      
      
      $
      
      
      $
      
      
      $
      
      
      $Level 1 InvestmentsFire & Flower Inc. common shares
      
      
      
      
      
      
      
      2,970
      
      
      (2,493
      )
      
      477
      
      
      (477
      )
      
      Fire & Flower Inc. common share
        purchase warrants1
      
      
      
      
      
      
      
      505
      
      
      (262
      )
      
      243
      
      
      (243
      )
      
      Inner Spirit common shares1
      
      
      
      
      
      
      
      2,850
      
      
      
      
      
      2,850
      
      
      150
      
      
      3,000Level 2 InvestmentsInner Spirit common share purchase warrants1
      
      
      
      
      
      
      
      414
      
      
      
      
      
      414
      
      
      (11
      )
      
      403Level 3 InvestmentsGreentank Technologies1
      
      
      
      
      
      
      
      6,723
      
      
      
      
      
      6,723
      
      
      (149
      )
      
      6,574Neal Brothers Inc. 1
      
      
      
      
      
      
      
      4,000
      
      
      
      
      
      4,000
      
      
      
      
      
      4,000Segra
        International Corp.
      
      
      
      
      100
      
      
      
      
      
      
      
      
      100
      
      
      200
      
      
      300Total
      
      
      
      
      100
      
      
      17,462
      
      
      2,755
      
      
      14,807
      
      
      (530
      )
      
      14,277


1Acquired in the Newstrike acquisition on May 24,
  2019 at fair market value

Fire & Flower Inc.

Common Shares

On November 1, 2018, the Company obtained 1,980,000
  subscription receipts in the entity F&F for proceeds of $2,970. The
  subscription receipts converted to common shares of F&F at a 1:1 ratio on
  February 19, 2019 upon the commencement of trading on the TSX Venture and held
  an initial fair value of $2,970. On July 25, 2019, the Company liquidated the
  investment in full resulting in a cash injection net of fees of $2,493. The
  Level 1 long term investment and associated realized loss as at July 30, 2019,
  were $Nil and ($477), respectively.

Common Share Purchase Warrants

On May 24, 2019, through the acquisition of Newstrike, the
  Company obtained 1,000,000 common share purchase warrants in the entity F&F.
  Each warrant entitles the Company to a common share at a ratio of 1:1. The
  warrants held an initial fair value of $505. The investment was fair valued
  through the Black Scholes-Merton model at $243 and disposed of as at July 30,
  2019. The Company realized a loss of ($243) as at July 30, 2019 based upon the
  following assumptions and inputs:

| | market price of $1.33;                                                             
|- | -----------------------------------------------------------------------------------
| | expected life of 0.70 year;                                                        
| | $Nil dividends;                                                                    
| | 100% volatility based upon
      comparative market indicators and historical data;
| | risk free interest rate of 1.46%.                                                  

35

---

Inner Spirit Holding Inc.

Common Shares

On May 24, 2019, through the acquisition of Newstrike, the
  Company obtained 15,000,000 common shares in the entity Inner Spirit Holdings
  Inc. which held a fair value of $2,850. The investment held an unrealized gain
  of $150 as at July 31, 2019 based upon the market price of $0.20 per common
  share.

Common Share Purchase Warrants

On May 24, 2019, through the acquisition of Newstrike, the
  Company obtained 7,500,000 common share purchase warrants in the entity Inner
  Spirit Holdings Inc. Each warrant entitles the Company to a common share at a
  ratio of 1:1. The warrants held an initial fair value of $414. The investment
  was fair valued through the Black Scholes-Merton model and held an unrealized
  loss of ($11) as at July 31, 2019 based upon the following assumptions and
  inputs:

| | market price of $0.20;                                                             
|- | -----------------------------------------------------------------------------------
| | expected life of 1.00 year;                                                        
| | $Nil dividends;                                                                    
| | 100% volatility based upon
      comparative market indicators and historical data;
| | risk free interest rate of 1.48%.                                                  

Greentank Technologies.

On February 22, 2019, Newstrike acquired 1,953,125 preferred
  shares of Greentank Technologies for cash consideration of $6,622 (USD$5,000).
  The investment is strategic and long term in nature. The investments initial
  fair value upon the acquisition of Newstrike was $6,723 and is measured through
  fair value through profit and loss. The fair value was established using the
  information from a recent financing which demonstrates the same underlying
  preferred share value as the original investment consideration. During the stub
  period ended July 31, 2019, there was a decrease in fair value of $149 due to a
  reduction of CAD/USD rate (July 31, 2018 - $Nil). A variance of 5% to the
  underlying preferred share price would result in a change of $331 to the
  investments fair value.

Neal Brothers Inc.

The Company also acquired 19.9% of the shares of Neal Brothers
  Inc. through the acquisition of Newstrike on May 24, 2019. The Company holds no
  board seat. The initial investment was for cash consideration of $5,604. The
  Company has measured these investments at fair value upon the date of
  acquisition which was determined to be $4,000. During the stub period ended July
  31, 2019, there was no change in fair value (July 31, 2018 - $Nil). A variance
  of 5% to the underlying investment would result in a change of $200 to the
  investments fair value.

Segra International Corp.

The Company holds 400,000 shares in the private entity Segra
  International Corp. The investment represents a strategic long term investment
  in the cannabis micropropogation entity. The initial investment was made for
  $0.25 per share. The Company has measured this investment to its fair value of
  $0.75 per share which totalled $300 as at July 31, 2019 (July 31, 2018  $100).
  The fair value measurement was based upon the most recent financing information
  and the associated unrealized gain of $200 (July 31, 2018 - $Nil) was recorded
  through profit and loss. A variance of 5% to the underlying share price would
  result in a nominal change to the investments fair value.

21. Related Party
  Disclosure

Key Management Personnel Compensation

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

Compensation provided to key management during the period was
  as follows:

|For the years 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         | 

36

---

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.

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 executives
  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 in
  Note 11, 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 which, 54,000 stock options
  will fully vest at the 6-month anniversary of the grant date.

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

On July 11, 2018, the Company granted certain directors and
  executives of the Company 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 directors and
  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 directors and
  executives of the Company a total of 325,000 stock options with an exercise
  price of $3.89.

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

On November 6, 2017, the Company granted certain directors of
  the Company a total of 125,000 stock options with an exercise price of
  $2.48.

On September 8, 2017, the Company granted certain executives of
  the Company 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.

22. Capital Management

The Companys objective is to maintain sufficient capital so as
  to maintain investor, creditor and customer confidence and to sustain future
  development of the business and provide the ability to continue as a going
  concern. Management defines capital as the Companys shareholders equity. The
  Board of Directors does not establish quantitative return on capital criteria
  for management. The Company has not paid any dividends to its shareholders. The
  Company is not subject to any externally imposed capital requirements.

As at
  July 31, 2019 total managed capital was comprised of shareholders equity of
  $776,756 (July 31, 2018  $322,873). There were no changes in the Companys
  approach to capital management during the period.

23. Commitments and
  Contingencies

COMMITMENTS

The Company has certain contractual financial obligations
  related to service agreements, purchase agreements, rental agreements and
  construction contracts.

Some of these contracts have optional renewal terms that the
  Company may exercise at its option. The annual minimum payments payable under
  these obligations over the next five years is as follows:

37

---

|2020       | $ | 93,647  | 
|---------- | - | ------- | 
|2021       |   | 7,332   | 
|2022       |   | 5,804   | 
|2023       |   | 5,259   | 
|2024       |   | 4,970   | 
|Thereafter |   | 75,218  | 
|           | $ | 192,230 | 

Inclusive of the commitments balance is $99,652 related to the
  Belleville Complex Inc 20-year anchor tenant agreement ending September 7, 2038
  (Note 17) and additional lease commitments amounting to $2,089.

The following table summarizes the Companys proportionate
  share of the annual minimum payments and commitments held by its investment in
  associate and joint ventures.

|2020 | $ | 26,962 | 
|---- | - | ------ | 
|2021 |   | 1,794  | 
|2022 |   | 26     | 
|2023 |   | 26     | 
|2024 |   | 27     | 
|     | $ | 28,835 | 

Letter of Credit

On June 28, 2018, the Company executed a letter of credit with
  a Canadian credit union as required under an agreement with a public utility
  provider entitling the Company up to a maximum limit of $3,141 subject to
  certain operational requirements. The letter of credit has a one-year expiry
  from the date of issuance with an autorenewal feature and was still in effect as
  at July 31, 2019. The credit facility is secured by a guaranteed investment
  certificate (GIC). As at July 31, 2019, the letter of credit has not been
  drawn upon (July 31, 2018  $Nil) and is in compliance with the specified
  requirements.

Surety Bond

On June 28, 2018, the Company entered into an indemnity
  agreement to obtain a commercial surety bond with a North American insurance
  provider entitling the Company up to a maximum of $2,000. The bond bears a
  premium at 0.1% annually. The Company obtained the surety bond as required under
  the Canada Revenue Agencys excise tax laws for the transporting of commercial
  goods throughout Canada.

CONTINGENCIES

The Company may be, from time to time, subject to various
  administrative and other legal proceedings arising in the ordinary course of
  business. Contingent liabilities associated with legal proceedings are recorded
  when a liability is probable, and the contingent liability can be reasonably
  estimated.

24. Fair Value of Financial
  Instruments

The carrying values of the financial instruments as at July 31,
  2019 are summarized in the following table:

38

---

Financial assets
      
      
      Financial liabilitiesAmortized
      
      
      designated as
      
      
      designatedNote
      
      
      costs
      
      
      FVTPL
      
      
      as
        FVTPL
      
      
      TotalAssets
      
      
      
      
      $
      
      
      $
      
      
      $
      
      
      $Cash and cash equivalents
      
      4
      
      
      
      
      
      113,568
      
      
      
      
      
      113,568Restricted cash
      
      5
      
      
      
      
      
      22,350
      
      
      
      
      
      22,350Short-term investments
      
      4
      
      
      
      
      
      25,937
      
      
      
      
      
      25,937Trade receivables
      
      
      
      
      19,693
      
      
      
      
      
      
      
      
      19,693Commodity taxes recoverable and other
        receivables
      
      6
      
      
      15,247
      
      
      
      
      
      
      
      
      15,247Convertible debenture
        receivable
      
      15
      
      
      
      
      
      13,354
      
      
      
      
      
      13,354Long
        term investments
      
      20
      
      
      
      
      
      14,277
      
      
      
      
      
      14,277Liabilities
      
      
      
      
      $
      
      
      $
      
      
      $
      
      
      $Accounts payable and accrued liabilities
      
      
      
      
      45,581
      
      
      
      
      
      
      
      
      45,581Warrant liability
      
      12
      
      
      
      
      
      
      
      
      493
      
      
      493Deferred rent liability
      
      
      
      
      946
      
      
      
      
      
      
      
      
      946Term loan
      
      16
      
      
      33,374
      
      
      
      
      
      
      
      
      33,374


The carrying values of trade receivables, accounts payable,
  accrued liabilities and the term loan approximate their fair values due to their
  relatively short periods to maturity.

The carrying values of the financial instruments as at July 31,
  2018 are summarized in the following table:

Financial assets
      
      
      Financial liabilitiesAmortized
      
      
      designated as
      
      
      designatedNote
      
      
      costs
      
      
      FVTPL
      
      
      as
        FVTPL
      
      
      TotalAssets
      
      
      
      
      $
      
      
      $
      
      
      $
      
      
      $Cash and cash equivalents (Restated)
      
      4, 26
      
      
      
      
      
      99,042
      
      
      
      
      
      99,042Short-term investments (Restated)
      
      4, 26
      
      
      
      
      
      145,747
      
      
      
      
      
      145,747Trade receivables
      
      
      
      
      644
      
      
      
      
      
      
      
      
      644Commodity taxes recoverable
        and
      
      6
      
      
      4,237
      
      
      
      
      
      
      
      
      4,237other receivablesConvertible debenture receivable
      
      15
      
      
      
      
      
      10,000
      
      
      
      
      
      10,000Liabilities
      
      
      
      
      $
      
      
      $
      
      
      $
      
      
      $Accounts payable and accrued
        liabilities
      
      
      
      
      8,995
      
      
      
      
      
      
      
      
      8,995Warrant liability
      
      12
      
      
      
      
      
      
      
      
      3,130
      
      
      3,130


25. Ancillary Revenue

Ancillary revenues are those sales outside of the primary
  business of the Company as outlined in Note 1. During the year ended July 31,
  2019 the Company realized net revenues of $199 (July 31, 2018  $Nil) related to
  management fees.

26. Comparative Amounts

The Company identified an error in relation to the
  classification of cash and cash equivalents and short-term investments for the
  year ended July 31, 2018. The Company has identified $98,209 of high
  interest-bearing cash accounts previously classified as short-term investments
  as well as $38,509 of term deposits, previously classified as cash and cash
  equivalents. Accordingly, the Company has increased cash and cash equivalents
  and decreased short term investments by the net amount of $59,700 in the
  consolidated statements of financial position as at July 31, 2018. The Company
  has increased cash and cash equivalents and reduced disposal/(acquisition) of
  short-term investments by $59,700 in the consolidated statements of cash flows
  for the year ended July 31, 2018.

39

---

27. License and Prepaid Royalty  HIP

On May 24, 2019, through the acquisition of Newstrike, the
  Company inherited a royalty agreement with the Tragically Hip (the Hip
  Agreement) with an effective date of January 12, 2017, expiring after five
  years with an option of renewal for a two-year period. Newstrikes initial
  consideration was 3,000,000 common shares with an initial fair value of $2,655
  and an ongoing royalty of 2.5% of revenues of cannabis products sold by the
  Company inspired by the Tragically Hip. The issuance of the 3,000,000 common
  shares includes a payment of 1,000,000 common shares that will be applied
  against future royalties payable. The fair value of the license and prepaid
  asset as at the acquisition date of May 24, 2019 was $926 and $600,
  respectively.

During the stub period ended July 31, 2019, the Company
  recorded amortization of $59 using the straight-line method over a five-year
  term from the effective date of the License, and $58 was drawn down on the
  prepaid royalty.

|                                   |   | July 31, 2019 |  |   | July
      31, 2018 | 
|---------------------------------- | - | ------------- |  | - | ------------------- | 
|License  HIP, net of amortization | $ | 867           |  | $ |                    | 
|Prepaid Royalty 
      HIP        |   | 542           |  |   |                    | 
|License and prepaid royalty  HIP  | $ | 1,409         |  | $ |                    | 

28. Non-Controlling Interest

The following table summarizes the information relating to the
  Companys subsidiary Neal Up Brands Inc., before intercompany eliminations.

|                                   |   | July 31, 2019 |  |   | July
      31, 2018 | 
|---------------------------------- | - | ------------- |  | - | ------------------- | 
|Current assets                     | $ | 2,500         |  | $ |                    | 
|Non-current assets                 |   |              |  |   |                    | 
|Current liabilities                |   |              |  |   |                    | 
|Non-current
      liabilities      |   |              |  |   |                    | 
|Net assets                         |   | 2,500         |  |   |                    | 
|Non-controlling
      interest (%) |   | 40%           |  |   |                     | 
|Non-controlling interest           | $ | 1,000         |  | $ |                    | 

29. Income Taxes

Income tax expense recognized in comprehensive loss consists of
  the following components:

|                                    |   | July 31, 2019 |  |   | July
      31, 2018 | 
|----------------------------------- | - | ------------- |  | - | ------------------- | 
|Current tax for the year            | $ |              |  | $ |                    | 
|Adjustments of
      previous years |   |              |  |   |                    | 
|Total                               | $ |              |  | $ |                    | 

Components of deferred income tax expense (recovery):

|                                                                                   |   | July 31, 2019 |   |   | July
      31, 2018 |  
|---------------------------------------------------------------------------------- | - | ------------- | - | - | ------------------- | -
|Origination and reversal of temporary
      differences                            | $ | (12,988       | ) | $ | (6,780              | )
|Difference between statutory tax rate and deferred tax rate                        |   | 152           |   |   | (7                  | )
|Change in temporary difference for which no deferred tax
      assets are recorded |   | 6,996         |   |   | 6,787               |  
|Deferred income
      tax recovery                                                 | $ | (3,840        | ) | $ |                    |  

40

---

The Company's expected tax rate is different from the combined
  federal and provincial income tax rate in Canada. These differences result from
  the following elements:

|                                                                           |   | July 31, 2019 |   |   | July
      31, 2018 |  
|-------------------------------------------------------------------------- | - | ------------- | - | - | ------------------- | -
|Expected tax rate                                                          |   | 26.64%        |   |   | 26.9%               |  
|Earnings before income taxes                                               | $ | (85,404       | ) | $ | (23,350             | )
|                                                                           |   |               |   |   |                     |  
|Expected tax benefit resulting from loss                                   |   | (22,732       | ) |   | (6,281              | )
|                                                                           |   |               |   |   |                     |  
|Adjustments for the following items:                                       |   |               |   |   |                     |  
|Tax rate differences                                                       |   | 152           |   |   | (7                  | )
|Permanent differences                                                      |   | 9,454         |   |   | 3,095               |  
|Change in temporary
      differences for which no tax assets are recorded |   | 6,622         |   |   | 2,401               |  
|True up and other                                                          |   | 664           |   |   | 792                 |  
|                                                                           | $ | (3,840        | ) | $ |                    |  

The following is a reconciliation of the deferred tax assets
  and liabilities recognized by the Company:

|                                       |  | Opening        |   |  | Recognized in |   |  | Recognized in |   |  | Ending              |  
|-------------------------------------- |  | -------------- | - |  | ------------- | - |  | ------------- | - |  | ------------------- | -
|                                       |  | August 1, 2018 |   |  | income        |   |  | goodwill      |   |  | July
      31, 2019 |  
|                                       |  | $              |   |  | $             |   |  | $             |   |  | $                   |  
|Deductible temporary
      differences |  |               |   |  | 119           |   |  | (220          | ) |  | 101                 |  
|Taxable temporary differences          |  | (117           | ) |  |              |   |  |              |   |  | (117                | )
|Biological assets                      |  | (458           | ) |  | 81            |   |  | (292          | ) |  | (669                | )
|Inventory                              |  | (1,432         | ) |  | 1,560         |   |  | (559          | ) |  | (431                | )
|Loss carryforward                      |  | 2,007          |   |  | 1,886         |   |  | 7,303         |   |  | 11,196              |  
|Share issue costs                      |  |               |   |  | (89           | ) |  | 1,724         |   |  | 1,635               |  
|Intangible assets                      |  |               |   |  | 284           |   |  | (32,193       | ) |  | (31,909             | )
|                                       |  |               |   |  | 3,840         |   |  | (24,236       | ) |  | (20,396             | )

|                                              |  | Opening |   |  | Recognized in |   |  | Recognized in |   |  | Ending              |  
|--------------------------------------------- |  | ------- | - |  | ------------- | - |  | ------------- | - |  | ------------------- | -
|                                              |  | August  |   |  | Income        |   |  | Equity/OCI    |   |  | July
      31, 2018 |  
|                                              |  | $       |   |  | $             |   |  | $             |   |  | $                   |  
|Deferred tax assets                           |  | 813     |   |  |              |   |  | (813          | ) |  |                    |  
|Taxable temporary differences                 |  |        |   |  | (117          | ) |  |              |   |  | (117                | )
|Biological assets                             |  |        |   |  | (458          | ) |  |              |   |  | (458                | )
|Inventory                                     |  |        |   |  | (1,432        | ) |  |              |   |  | (1,432              | )
|Loss carryforward                             |  |        |   |  | 2,007         |   |  |              |   |  | 2,007               |  
|Revaluation of financial instruments - Equity |  | (813    | ) |  |              |   |  | 813           |   |  |                    |  
|                                              |  |        |   |  |              |   |  |              |   |  |                    |  

Deferred income taxes reflect the impact of loss carryforwards
  and of temporary differences between amounts of assets and liabilities for
  financial reporting purposes and such amounts as measured by tax laws. At July
  31, 2019 deductible temporary differences and unused tax losses for which no
  deferred tax assets have been recognized are attributable to the following:

|                                      |  | July 31, 2019 |  |  | July
      31, 2018 | 
|------------------------------------- |  | ------------- |  |  | ------------------- | 
|                                      |  | $             |  |  | $                   | 
|Losses carried forward                |  | 52,554        |  |  | 20,672              | 
|Research and development expenditures |  | 266           |  |  | 266                 | 
|Fixed Assets                          |  | 6,021         |  |  |                    | 
|Share issue costs                     |  | 10,089        |  |  | 13,352              | 
|                                      |  | 68,929        |  |  | 34,289              | 

41

---

The Company has approximated non-capital losses available to
  reduce future years' federal and provincial taxable income which expires as
  follows:

$2031
      
      1182032
      
      5622033
      
      2812034
      
      1,4202035
      
      3,5102036
      
      6,0302037
      
      10,6692038
      
      33,3952039
      
      52,909108,510


30. Loss on Investment

During the fiscal year ended July 31, 2018, the Company
  realized a loss on investment activities in the amount of $650. The Company
  continues to take legal action to recover the loss.

31. Gross Revenue

|Year ended                                   |  | July 31, 2019 |  |  | July
      31, 2018 | 
|-------------------------------------------- |  | ------------- |  |  | ------------------- | 
|Gross Cannabis Revenue                       |  | $             |  |  | $                   | 
|Retail                                       |  | 53,590        |  |  |                    | 
|Medical                                      |  | 5,288         |  |  | 4,934               | 
|Wholesale                                    |  | 378           |  |  |                    | 
|Total gross
      revenue from sale of goods |  | 59,256        |  |  | 4,934               | 

Gross revenue is inclusive of sales returns and recoveries.
  During the fiscal year ended July 31, 2019, the Company incurred $6,718 (July
  31, 2018 - $Nil) of sales provisions.

32. Segmented Information

The Company operates in one operating segment. All property,
  plant and equipment and intangible assets are located in Canada.

33. Subsequent
  Events

Amalgamation of Subsidiaries

On August 1, 2019, the Company completed the amalgamation of
  the subsidiaries 8980268 Canada Inc and Newstrike Brands Ltd into HEXO
  Operations Inc. The resulting entity retained the name HEXO Corp.

Letter of Credit

On August 2, 2019, the Company amendedthe letter of credit
  (Note 23) that was issued in favor of a public utility provider. The amount of
  the letter was reduced to $2,581 from $3,142. This amended letter is secured
  against the companys revolving loan and no longer secured by a GIC.

Increased Ownership in HEXO MED

On September 24, 2019, the Company increased its ownership in
  its European based joint venture HEXO MED from 33.3% to 51% which an additional
  capital injection of $729.

$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
  principal amount of 8.0% unsecured debentures of the Company (the
  Debentures).

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

42

---

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

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

Upon any repayment of the principal amount of the Debentures,
  the Company shall have the right to satisfy the repayment of the principal
  amount, together with all accrued and unpaid interest thereon, through the
  conversion of such amounts into common shares of the Company at the Conversion
  Price.

Upon a change of control of the Company, holders of the
  Debentures will have the right to require the Company to repurchase their
  Debentures, in whole or in part, on the date that is 30 days following the
  giving of notice of the change of control, at a price equal to 115% of the
  principal amount of the Convertible Debentures then outstanding plus accrued and
  unpaid interest thereon (the Offer Price). If 90% or more of the principal
  amount of the Convertible Debentures outstanding on the date of the notice of
  the change of control have been tendered for redemption, the Company will have
  the right to redeem all of the remaining Debentures at the Offer Price.

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.

43

---