Return on Investment Risk
There is no guarantee that an investment in the Offered Securities will earn any positive return in the short or long term. No dividends on the
Common Shares have been paid to date. A purchase of Offered Securities under the Offering involves a high degree of risk and should be undertaken only by investors whose financial resources are sufficient to enable them to assume such risks and who
have no need for immediate liquidity in their investment.
Legal Age Limit for Cannabis Consumption
The adult-use and medical cannabis industries and markets are subject to a variety of laws at the
federal, provincial and municipal levels in Canada. In October 2019, the Québec government adopted Bill 2, raising the legal age for cannabis consumption from 18 to 21 as of January 1, 2020. This increase in the legal age limit in
Québec, a province where the Company expects to derive significant revenues, could result in an increase in black market sales and a decrease in the sale of legal adult-use cannabis in Québec.
While there are currently no known plans in other jurisdictions across Canada to change the legal age of consumption, there is no guarantee that other provinces or territories will not similarly raise their legal age of consumption. HEXOs
revenues could be materially adversely affected by the increase in the legal age for consumption of cannabis in Québec or other provinces or territories, which could have a material adverse effect on the Companys business, financial
condition, results of operations and prospects. See Risk Factors Impact of the Illicit Supply of Cannabis in the AIF.
Securities Class Action Litigation Risks
The Company is currently subject to securities class action litigation and we may be subject to similar or other litigation in the future.
The Company and its Chief Executive Officer are defendants in a purported class-action lawsuit pending in the Québec Superior Court,
brought on behalf of shareholders of the Company. The lawsuit alleges violations of the Securities Act (Québec) in connection with allegedly making materially false and/or misleading statements and failure to disclose material adverse
facts by the defendants between April 11, 2018 and October 28, 2019, regarding the Companys business, operations, and prospects relating to, among other things, the Companys financial outlook and its supply agreement with the
Province of Québec. The plaintiff seeks to represent a class comprised of purchasers of our Common Shares during such period and seeks damages, costs and expenses and such other relief as may be determined by the Court.
The Company and certain of its current and former officers are defendants in two distinct purported class-action lawsuits pending in the U.S.
District Court for the Southern District of New York, brought on behalf of shareholders of the Company. The lawsuits allege violations of the Exchange Act in connection with allegedly making materially false and/or misleading statements and failure
to disclose material adverse facts by the defendants between January 25, 2019 and November 15, 2019, regarding the Companys business, operations, and prospects relating to, among other things, the Companys financial outlook, misstatement
of its inventory, the synergies and revenues to be derived from the acquisition of Newstrike, its supply agreement with the Province of Québec and the proper licensing of cultivation operations at its facility in Niagara, Ontario. The
plaintiffs seek to represent a class comprised of purchasers of our Common Shares during such period and seek damages, costs and expenses and such other relief as may be determined by the Court.
The Company, its Chief Executive Officer and certain former underwriters are defendants in a purported class-action lawsuit pending in the
Ontario Superior Court of Justice, brought on behalf of shareholders of the Company. The lawsuit alleges violations of the Securities Act (Ontario) in connection with allegedly making materially false and/or misleading statements and failure
to disclose material adverse facts by the defendants between April 11, 2018 and October 28, 2019 and between March 13, 2019 and November 15, 2019, and in the Companys prospectus supplement dated January 24, 2019 pursuant to
which the Company conducted a public offering of Common Shares, regarding the Companys business, operations, and prospects relating to, among other things, the Companys financial outlook, the synergies and revenues to be derived from the
acquisition of Newstrike and its supply agreement with the Province of Québec. The plaintiff seeks to represent a class comprised of purchasers of our Common Shares during such period and seek damages, costs and expenses and such other relief
as may be determined by the Court.
The Company, its directors, certain of its current and former officers and certain former underwriters
are defendants in two distinct purported class-action lawsuits pending in the Supreme Court of the State of New York, County of New York, brought on behalf of shareholders of the Company. The lawsuits allege violations of the Securities Act in
connection with allegedly making materially false and/or misleading statements and failure to disclose material adverse facts by the defendants in the Companys registration statement on Form F-10 filed with the SEC on December 12, 2018, its
registration statement on Form 8-A filed on January 17, 2019 and the prospectus supplement filed on January 25, 2019 pursuant to which the Company conducted a public offering of Common Shares, regarding the Companys business, operations, and
prospects relating to, among other things, the Companys supply agreement with the Province of Québec. The plaintiffs seek to represent a class comprised of purchasers of our Common Shares in or traceable to the registration statements.
While we believe we have meritorious defenses and intend to continue to defend these lawsuits vigorously, we cannot predict the outcome.
Furthermore, we may, from time to time, be a party to other litigation in the normal course of business. For example, in connection with the December 2019 Offering, we entered into the purchase agreement to sell the Common Shares and the December
2019 Warrants thereunder at a time when the Restatement Issue had been disclosed and quantified by management, but the Restatement had not been filed, which could create exposure to the purchasers under the December 2019 Offering. In addition,
securities class action litigation has often been brought against companies that have restated previously filed financial statements. Monitoring and defending against legal actions, whether or not meritorious, is time-consuming for our management
and detracts from our ability to fully focus our internal resources on our business activities. In addition, legal fees and costs incurred in connection with such activities may be significant and we could, in the future, be subject to judgments or
enter into settlements of claims for significant monetary damages. A decision adverse to our interests could result in the payment of substantial damages and could have a material adverse effect on our cash flow, results of operations and financial
position. With respect to any litigation, our insurance may not reimburse us or may not be sufficient to reimburse us for the expenses or losses we may suffer in contesting and concluding such lawsuit. Substantial litigation costs, including the
substantial self-insured retention that we were required to satisfy before any insurance applied to the claim, or an adverse result in any litigation may adversely impact our business, operating results or financial condition. We believe that our
directors and officers liability insurance will cover our potential liability with respect to the securities class-action lawsuit described above; however, the insurer has reserved its rights to contest the applicability of the insurance
to such claim, and the limits of the insurance may be insufficient to cover our eventual liability.
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