For three and six months ended January 31, 2019 and 2018

For three and six months ended January 31, 2019 and 2018

Table of Contents

Condensed Interim Consolidated Statements of Financial Position ...............................................................................1 Condensed Interim Consolidated Statements of Loss and Comprehensive Loss ..........................................................2 Condensed Interim Consolidated Statements of Changes in Shareholders' Equity .......................................................3 Condensed Interim Consolidated Statements of Cash Flows.........................................................................................4 Notes to the Condensed Interim Consolidated Financial Statements.......................................................................6?26

Condensed Interim Consolidated

Statements of Financial Position

(Unaudited, expressed in CAD $000's)

As at

Assets Current assets

Cash and cash equivalents Restricted cash Short-term investments Trade receivables Commodity taxes recoverable Promissory note receivable Prepaid expenses Inventory Biological assets

Note

January 31, 2019

4

$

5

4

15

17(b)

6 7

$

165,044 $ 8,117 527

10,193 7,721

20,347 10,427 21,112

4,202 247,690 $

Property, plant and equipment Intangible assets and other longer term assets Investment in joint ventures Convertible debenture receivable Long term investment

Liabilities Current liabilities

Accounts payable and accrued liabilities Excise taxes payable Warrant liability

Shareholders' equity Share capital Share-based payment reserve Warrants Deficit

Commitments and contingencies (Note 21) Subsequent events (Note 25)

Approved by the Board

/s/ Jason Ewart, Director

/s/ Michael Munzar, Director

8

$

9

17

13

18

$

$

10, 11 $

11

$

11

11

$ $

125,601 $ 4,858

49,039 16,395

2,970 446,553 $

18,879 $ 1,244 3,235

23,358 $

414,405 $ 15,623 53,430 (60,263)

423,195 $ 446,553 $

July 31, 2018

131,626 ?

113,163 644

4,237 ?

4,204 10,415

2,332 266,621

54,333 4,044 ?

10,000 ?

334,998

8,995 ?

3,130 12,125

347,233 6,139

12,635 (43,134) 322,873 334,998

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

1

Condensed Interim Consolidated Statements of Loss and Comprehensive Loss

(Unaudited, expressed in CAD $000's except share amounts)

Gross revenue from sale of goods Excise taxes Net revenue from sale of goods Ancillary revenue Net revenue Cost of goods sold Gross margin before fair value adjustments

Fair value adjustment on sale of inventory Fair value adjustment on biological assets Gross margin Operating Expenses General and administrative Marketing and promotion Stock-based compensation Amortization of property, plant and equipment Amortization of intangible assets

Loss from operations

Revaluation of financial instruments loss Share of loss from investment in joint venture Unrealized gain on convertible debenture receivable Foreign exchange gain/(loss) Interest expense Interest income Net loss and comprehensive loss attributable to shareholders Net loss per share, basic and diluted Weighted average number of outstanding shares

Basic and diluted

For the three months ended

For the six months ended

January 31,

Note

2019

$

16,179 $

January 31, 2018

1,182 $

January 31, 2019

22,809

January 31,

2018

$

2,283

(2,803)

?

(3,817)

?

13,376

1,182

18,992

2,283

23

62

?

109

?

13,438

1,182

19,101

2,283

6, 16

6,499 6,939

451

9,329

914

731

9,772

1,369

6 7

$

3,690 (8,354) 11,603 $

1,032 (1,053)

752 $

4,407 (13,477) 18,842 $

1,846 (3,692) 3,215

11, 16

8

9

16

$

10 17 13

10 4, 13, 17

$ $

8,161 4,839 4,960

452 74

18,486 $ (6,883)

(815) (483) 2,545

15 (8) 1,304 (4,325) $ (0.02) $

1,770 1,358 1,968

188 207 5,491 $ (4,739)

(3,330) ? ?

(108) (1,094)

319 (8,952) $

(0.10) $

13,076 16,550

9,649 1,025

224 40,524 $ (21,682)

(3,152) (645) 5,978 18 (16) 2,370

(17,129) $ (0.09) $

3,046 2,426 2,281

312 270 8,335 (5,120)

(4,613) ? ?

(23) (1,527)

413 (10,870)

(0.13)

12

198,323,003

93,202,241

196,777,997

84,841,163

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

2

Condensed Interim Consolidated Statements

of Changes in Shareholders' Equity

(Unaudited, expressed in CAD $000's except share amounts)

For the six months ended Balance, August 1, 2018 Issuance of common shares Issuance fees Issuance of warrants Exercise of stock options Exercise of warrants Exercise of Broker/Finder

warrants Stock-based compensation Net loss Balance at January 31, 2019

Note

11 11 11 11 10, 11

Number common

shares 193,629,116 $

8,855,000 ? ?

1,349,070 2,327,647

11

1,492,777

11

?

?

207,653,610 $

Share capital

Share-based payment reserve

347,233 $

6,139 $

57,558

?

(3,332)

?

?

?

1,412

(550)

5,540

?

Warrants

Contributed surplus

12,635 $

? $

?

?

?

?

42,386

?

?

?

(361)

?

5,994 ? ?

414,405 $

? 10,034

? 15,623 $

(1,230) ? ?

53,430 $

? ? ? ? $

Deficit

Shareholders' equity

(43,134) $

322,873

?

57,558

?

(3,332)

?

42,386

?

862

?

5,179

? ? (17,129) (60,263) $

4,764 10,034 (17,129) 423,195

Balance, August 1, 2017 Issuance of 7% unsecured

convertible debentures Issuance of units

Issuance costs Issuance of Broker/Finder

warrants Conversion of 8% unsecured

convertible debentures Conversion of 7% unsecured

convertible debentures Exercise of stock options

Exercise of warrants

Exercise of Broker/Finder warrants

Stock-based compensation

Net loss

Balance at January 31, 2018

10 11 11 11

10

10 11 10, 11 11 11

76,192,990 $ ?

37,375,000 ? ?

15,853,887

31,384,081 285,829

13,103,115 3,123,074 ? ?

177,317,976 $

45,159 $ ?

139,029 (5,726) (1,486)

23,462

61,555 335

30,154 6,787 ? ?

299,269 $

1,562 $ ? ? ? ?

?

? (117)

? ? 2,281 ? 3,726 $

3,728 $ 3,530 10,471 (768) 2,352

?

? ? (1,996) (1,195) ? ? 16,122 $

1,775 $ 7,283

? (506)

?

(1,743)

(6,809) ? ? ? ? ? ? $

(19,785) $ ? ? ? ?

32,439 10,813 149,500 (7,000)

866

?

21,719

? ? ? ? ? (10,870) (30,655)

54,746 218

28,158 5,592 2,281

(10,870) $ 288,462

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

3

Condensed Interim Consolidated Statements of Cash Flows

(Unaudited, expressed in CAD $000's)

For the six months ended Operating activities

Net loss and comprehensive loss Items not affecting cash

Amortization of property, plant and equipment Amortization of intangible assets Unrealized revaluation gain on convertible debenture Unrealized revaluation gain on biological assets Accrued interest income Share of loss on investment in joint venture Non-cash interest expense Fair value adjustment on inventory sold Stock-based compensation Accretion of convertible debt Revaluation of financial instruments Liability value of foreign currency denominated warrants exercised Changes in non-cash operating working capital items Trade receivables Commodity taxes recoverable Prepaid expenses Inventory Accounts payable and accrued liabilities Interest payable Excise taxes payable Cash and cash equivalents used in operating activities Financing activities Issuance of common shares Issuance fees Issuance of units Issuance of secured convertible debentures Financing fees Exercise of stock options Exercise of warrants Cash provided by financing activities Investing activities Disposal of short-term investments Issuance of promissory note receivable Restricted cash Acquisition of property, plant and equipment Purchase of intangible assets Investment in joint ventures Acquisition of long term investments Cash used in investing activities

Note

8 9 13 7 13 17

6 11,16

10 10 10

15

6

10

11 11 10 10 11 11 11

4 17 5 8 9 17 18

January 31, 2019

January 31, 2018

$

(17,129) $

(10,870)

1,025 224

(5,978) (13,477)

(417) 645

? 4,407 10,034

? 3,152 (3,047)

312 270

? (3,692)

(70) ?

312 1,846 2,281 1,438 4,613

?

(9,549) (3,484) (6,223) (3,497) 3,564

? 1,244 (38,506)

27 (1,193) (1,714) (1,733) 1,436

(73) ?

(6,810)

57,558 (3,332)

? ? ? 862 9,943 65,031

? (6,087) 149,500 69,000 (3,926)

218 31,969 240,674

112,636 (20,347)

(8,117) (66,127)

(884) (7,298) (2,970) 6,893

(115,796) ? ?

(10,118) (410) ? ?

(126,324)

4

Decrease in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year

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

33,418

107,540

131,626

38,453

$

165,044 $

145,993

5

Notes to the Condensed Interim Consolidated Financial Statements

For the three and six months ended January 31, 2019 and 2018 (Unaudited, 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. The Company has one wholly-owned subsidiary, HEXO Operations Inc. (formerly 10074241 Canada Inc. and 167151 Canada Inc.) ("HOI"). HOI has one wholly-owned subsidiary Coral Health Group (together "HEXO"). HEXO is a producer of cannabis and its site is 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 ? American ("NYSE-A), 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 These condensed interim consolidated financial statements have been prepared in compliance with International Accounting Standard 34, Interim Financial Reporting ("IAS 34"). These condensed interim consolidated financial statements should be read in conjunction with the annual consolidated financial statements of the Company for the fiscal year ended July 31, 2018, which have been prepared in accordance with International Financial Reporting Standards ("IFRS"). These condensed interim consolidated financial statements were approved and authorized for issue by the Board of Directors on March 13, 2019. Basis of Measurement and Consolidation The condensed interim 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 debenture receivable, 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. They include its wholly-owned subsidiary, HOI (formerly 10074241 Canada Inc and 167151 Canada Inc.). They also include Coral Health Group, a wholly-owned subsidiary of HOI. They also include the accounts of 8980268 Canada Inc., a company for which HOI holds a right to acquire the outstanding shares at any time for a nominal amount. All subsidiaries are located in Canada. 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.

6

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