Reliance on Licences and Licence Renewals
HEXOs business operations are dependent on being licensed under the Cannabis Act. All licences must be renewed annually or as otherwise
provided in each licence. HEXO currently holds four licences having expiry dates ranging between December 6, 2022 and October 25, 2024. Prior to the expiry of each licence, HEXO must submit to Health Canada an application for renewal of
the licence containing information prescribed by the Cannabis Act. Failure to comply with the requirements of the licences or any failure to renew all or any of the licences would have a material adverse impact on the business, financial condition,
results of operations and prospects of HEXO.
HEXO believes it is complying in all material respects with the terms of its licences
and it is not aware of any reason why it would not be able to renew its licences upon their expiry. However, there can be no guarantee that Health Canada will renew all or any of the licences, or that any renewals will occur in a timely fashion or
on terms similar to HEXOs existing licences or otherwise acceptable to HEXO and its business. Should Health Canada not renew HEXOs licences, delay the renewal of the licences or renew the licences on different terms, the business,
financial condition, results of operations and prospects of HEXO would be materially adversely affected.
Regulatory Risks
The adult-use and medical cannabis industries and markets are subject to a variety of laws in Canada,
the United States and elsewhere.
In Canada, the Cannabis Act came into force on October 17, 2018, legalizing the sale of cannabis
for adult recreational use. Prior to the Cannabis Act coming into force, only the sale of medical cannabis was legal. The Cannabis Act and regulations thereunder provides a licensing and regulatory scheme governing the production, importation,
exportation, testing, packaging, labelling, delivery, transportation, sale, possession and disposal of cannabis for non-medical (i.e., adult use) use, and medical use. Further, on October 17, 2019,
targeted amendments to the Cannabis Act and Cannabis Regulations came into force, adding three new authorized classes of cannabis for sale: edibles, extracts and topicals.
In the United States, despite cannabis having been legalized at the state level for medical use in many states and for adult use in a number
of states, cannabis containing 0.3% or more THC continues to be categorized as a Schedule I controlled substance under the Controlled Substances Act (the CSA) and subject to the Controlled Substances Import and Export Act (the
CSIEA). HEXO does not currently produce or distribute any cannabis products in the United States or accept payments from any party that does so. While HEXO is entering into the U.S. CBD market, it will only do so in full
compliance with the CSA, the CSIEA and all other applicable federal and state laws. Therefore, HEXO believes that it is not and will not become subject to the CSA or CSIEA. Nonetheless, violations of any U.S. federal laws and regulations, such as
the CSA and the CSIEA, could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings initiated by either the U.S. federal government or private citizens or criminal charges,
including, but not limited to, disgorgement of profits, cessation of business and activities or divestiture.
The business and activities
of the Company are heavily regulated in all jurisdictions where it carries on business. The Companys operations are subject to various laws, regulations and guidelines by governmental authorities, particularly Health Canada, relating to the
manufacture, marketing, management, transportation, storage, sale and disposal of cannabis, and also including laws and regulations relating to health and safety, the conduct of operations and the protection of the environment. Laws and regulations,
applied generally, grant government agencies and self-regulatory bodies broad administrative discretion over the activities of the Company, including the power to limit or restrict business activities as well as impose additional disclosure
requirements on the Companys products and services.
The Company is dependent upon regulatory approvals and licences for its ability
to grow, process, package, store and sell its products. Achievement of the Companys business objectives are contingent, in part, upon ongoing
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