by provincial governments, with retailers continuing to operate with a mix of online and in-store sales and curbside
pick-up and/or delivery services, and while licenced producers can continue production, the situation is uncertain. Moreover, sales volumes of cannabis may be adversely impacted by consumer social
distancing behaviours. What further impact, if any, the COVID-19 pandemic may have on cannabis retail markets is unpredictable. The COVID-19 pandemic may also
negatively impact service levels with Health Canada, which licences and regulates the Companys operations. The continued spread of COVID-19 nationally and globally could also lead to a deterioration of
general economic conditions including a possible national or global recession.
Due to the speed with which the COVID-19 situation is developing and the uncertainty of its magnitude, outcome and duration, it is not possible to estimate its impact on our business, operations or financial results; however, the impact could be
material. The Company continues to monitor the situation and work with its stakeholders, including employees, customers and suppliers, in order to assess further possible implications to its business, supply chain and customers, and, where
practicable, mitigate adverse consequences and responsibly address this global pandemic.
Reliance on Licences and Licence Renewals
HEXOs business operations are dependent on being licenced 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
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