HEXO provides update on the acquisition of Redecan

OTTAWA, July 14 2021 (GLOBE NEWSWIRE) – HEXO Corp (“HEXO” or the “Company”) (TSX: HEXO; NYSE: HEXO) is pleased to announce that, in connection with the previously announced acquisition of the entities operating the business of Redecan, it has obtained and will shortly file the audited consolidated financial statements of Redecan for the year ended December 31, 2020 (“fiscal 2020”) and the unaudited interim financial statements for the first quarter ended March 31, 2021 (“1Q2021 ) Prepared in accordance with Accounting Standards for Private Enterprises (“ASPE”). The Company has already announced that it has entered into a definitive share purchase agreement to acquire Redecan, Canada’s largest private licensed producer.

“Redecan has the best customer retention rate in Canada, has an impressive market share and offers premium products in key categories,” said Sébastien St-Louis, CEO and co-founder of HEXO. Today we are pleased to provide additional financial data to HEXO shareholders. And Redecan’s past financial statements demonstrate exactly what we already knew: Among licensed producers, Redecan has one of the fastest growing rates in Canada, with positive operating income, excellent margins, lean operations. and excellent income. Once completed, the acquisition will strengthen our position as a leader in the cannabis industry in Canada, and it will encourage the Company in its efforts to become one of the world’s top three cannabis producers. In addition, it will put us on the right path to achieving a positive BPA. “

Main financial results (according to ASPE, unless otherwise indicated):

• Net excise tax revenue of $ 73.6 million for fiscal 2020 and $ 24.7 million for 1Q2021, an increase of 146% over 1Q2020.
• Unadjusted EBITDA of $ 28.9 million in fiscal 2020 and $ 12.4 million in 1Q2021, according to the following reconciliation:

• Operating income of $ 8.3 million and net income of $ 6.9 million in 1Q2021.
• Operating income of $ 16.7 million and net income of $ 11.6 million in fiscal 2020.
• Gross margins (gross margin divided by sales, net of excise duties) of 51% in fiscal 2020 and 58% in 1Q2021.
• Selling, general and administrative expenses (defined as general and administrative expenses, plus marketing and promotion, plus research and development) as a percentage of revenue of 27% in fiscal year 2020 and of 23% in 1Q2021.
• Depreciable capital, comprised of property, plant and equipment, was $ 84.1 million as of December 31, 2020, the lowest level among the six major licensed producers in Canada.

Pro forma highlights for the nine months ending April 30, 2021 for HEXO Corp and the nine months ending March 31, 2021 for Redecan, adjusted to International Financial Reporting Standards (IFRS) *:

• Net income of $ 155.6 million.
• Gross margin before fair value adjustments of $ 69.1 million, or 44.4%.
• Operating income of $ 38.6 million.

The acquisition of Redecan is expected to close in the third calendar quarter of 2021, subject to the satisfaction of customary closing conditions, including receipt of applicable regulatory approvals and shareholder assent, as described above. and in accordance with the rules of the TSX.

The historical financial statements of Redecan for the year ended December 31, 2020 and for the first quarter ended March 31, 2021, as well as certain pro forma financial statements taking into account the acquisition of Redecan by HEXO, have been filed or provided, as applicable, as an appendix to an amended and restated material change report dated July 14, 2021, respectively available under the Company’s profile on SEDAR at www.sedar.com and EDGAR at www.sec.gov.

About HEXO

HEXO is an award-winning licensed producer of innovative products for the global cannabis market. HEXO serves the Canadian recreational cannabis market with its portfolio of HEXO, UP Cannabis, Original Stash, Bake Sale, Namaste and REUP brands, as well as the medical market in Canada, Israel and Malta. The Company also serves the Colorado market through its Powered by HEXO strategy^® and Truss CBD USA, a joint venture with Molson Coors. In the event that the previously announced acquisitions of 48North and Redecan are completed, HEXO expects to lead the cannabis products industry in Canada in terms of recreational cannabis market share.

For more information, visit www.hexocorp.com.

* The unaudited pro forma condensed consolidated statement of the Company as at April 30, 2021 and the unaudited pro forma condensed consolidated statements of net income (loss) for the nine months ended April 30, 2021 and the year ended July 31, 2020 have been prepared by the management of HEXO in order to present the impact of the acquisition, as described therein. Although the acquisition has not been completed as of the date of the pro forma financial statements, the unaudited pro forma condensed consolidated statement of financial position includes the effect of the acquisition, as if it had occurred on the 30th April 2021. The unaudited pro forma condensed consolidated statement of net income (loss) for the nine months ended April 30, 2021 and the year ended July 31, 2020 gives effect to the acquisition as if it had taken place on 1^is August 2019.

The unaudited pro forma condensed consolidated financial statements, including the accompanying notes, should be read in conjunction with HEXO’s historical financial statements and the respective MD&A on the financial condition and results of operations as presented. been filed with or provided to Canadian and US securities regulatory authorities, as applicable, as well as with Redecan’s historical financial statements. The unaudited pro forma condensed consolidated financial statements are based on assumptions and adjustments which are described in the notes to such pro forma financial statements. The unaudited pro forma condensed consolidated financial statements do not take into account the potential impact of current financial conditions, regulatory matters, operational efficiency or other savings or expenses that may be associated with the integration of the company. ‘acquisition. The unaudited pro forma condensed consolidated financial statements have been prepared for illustration purposes only; they are not necessarily indicative of the financial position or operating results of future periods or of the results which would have actually been achieved if HEXO and the acquired company (namely Redecan Group) had been a consolidated company during the periods indicated. The application of the acquisition accounting method depends on certain evaluations and other studies that have yet to be completed. Accordingly, the pro forma adjustments are preliminary, subject to further revisions as additional information becomes available and additional analyzes are performed, and have been made solely for the purpose of providing pro forma condensed consolidated financial statements. audited. There will be differences between these preliminary estimates and the final acquisition accounting, and these differences could have a material impact on the accompanying unaudited pro forma condensed consolidated financial statements and on the Company’s future earnings and financial condition. consolidated. In addition, differences between preliminary and final amounts will likely occur due to changes in the fair value of HEXO common shares in determining the actual purchase price of the acquisition, as well as the actual amount of cash. used in Redecan’s operations; and other changes in assets and liabilities.

Measures other than IFRS or ASPE

In this press release, reference is made to unadjusted EBITDA, which is not a measure of financial performance under International Financial Reporting Standards (IFRS) or Accounting Standards for Private Enterprises (ASPE). . This measure does not constitute a measure recognized by IFRS or ASPE, does not have a meaning prescribed by IFRS or ASPE and is therefore unlikely to be comparable to similar measures presented by d ‘other companies. This measure is provided as a supplement to the measures in IFRS and ASPE, as it provides a better understanding of our results of operations from management’s perspective. Therefore, it should not be considered in isolation or in place of a review of the financial information of HEXO and Redecan, respectively presented under IFRS or under ASPE.

Forward-looking statements

This press release contains forward-looking information and forward-looking statements within the meaning of applicable securities laws (“forward-looking statements”). Forward-looking statements are based on certain expectations and assumptions and are subject to known and unknown risks and uncertainties and other factors that could cause actual events, results, performance and achievements to differ materially from those which are anticipated. These forward-looking statements should not be interpreted as guarantees of future performance or results. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company disclaims any intention or obligation, except to the extent required by law, to update or revise any forward-looking statements as a result of new information or future events, or for any other reason.

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