Corporate Presentation - September 14, 2018 - Seeking Alpha
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Corporate Presentation September 14, 2018
FORWARD-LOOKING STATEMENTS
Certain statements contained in this presentation, as well as any from those expressed or implied by such forward-looking
amendments or supplements and any other information that may statements.
be furnished by the Corporation, may include forward-looking
The Corporation cannot assure you that such statements will
information. To the extent any forward-looking information in this
prove to be accurate, as actual results and future events could
presentation constitutes “future-oriented financial information”
differ materially from those anticipated in such statements. Readers
or “financial outlooks” within the meaning of applicable Canadian
are cautioned that forward-looking statements are not guarantees
securities laws, such information has been prepared by the
of future performance and accordingly readers are cautioned not
Corporation to provide a reasonable estimate of potential
to put undue reliance on forward-looking statements due to the
revenue and profit margins and the reader is cautioned that this
inherent uncertainty therein.
information may not be appropriate for any other purpose and the
reader should not place undue reliance on such future-oriented All forward-looking statements included in this presentation
financial information and financial outlooks. Within the meaning are qualified by these cautionary statements. Unless otherwise
of applicable securities laws, forward-looking information may indicated, these forward-looking statements are made as at
relate to the future outlook and anticipated events or results of the September 14, 2018, and the Corporation does not intend, and
Corporation and may include statements regarding the regulatory does not assume any obligation, to update these forward-looking
environment (including anticipated changes) that the Corporation statements, except as expressly required by law.
operates in, and the financial position, business strategy, budgets,
projected costs, capital expenditures, financial results, plans and
objectives of or involving the Corporation. In particular, statements Disclaimer
regarding future results, performance, achievements, prospects or
September 14, 2018 - The information contained in this presentation is provided for
opportunities for the Corporation or the medical marijuana industry informational purposes only and does not constitute an offer to issue or arrange
are forward-looking statements. The Corporation has based these to issue, or the solicitation of an offer to issue, securities of the Corporation or other
forward-looking statements on factors and assumptions about financial products. The information contained herein is not investment or financial
future events and financial trends that it believes may affect the product advice and is not intended to be used as the basis for making an investment
decision.
financial condition, results of operations, business strategy and
financial needs of the Corporation. In this presentation, all amounts are in Canadian dollars, unless otherwise indicated.
Any graphs, tables or other information in this presentation demonstrating the
Although the forward-looking statements contained in this historical performance of the Corporation or any other entity contained in this
presentation are based upon assumptions that management of presentation are intended only to illustrate past performance of such entities
and are not necessarily indicative of future results.
the Corporation believes are reasonable based on information
currently available to it, there can be no assurance that actual An investment in the Corporation’s securities is subject to a number of risks that
should be considered by a prospective investor. Prospective investors should
results will be consistent with these forward-looking statements.
carefully consider the risk factors described under “Risk Factors” in the preliminary
By their nature, forward-looking statements are inherently prospectus, final prospectus and any amendment before purchasing securities
uncertain, are subject to risk and are based on assumptions, many of the Corporation.
of which are beyond the control of the Corporation and may cause
their or the industry’s actual results, performance, achievements,
prospects and opportunities in future periods to differ materially
THE CANADIAN LANDSCAPE
JUNE
2013
MMPR is RETAIL BREAKDOWN BY PROVINCE
enacted
2014
AUGUST
ACMPR
enacted 2015
JUNE 12TH
JUNE 21ST
Bill 157
Bill C-45
2016 becomes law
becomes in Québec
law
2017
OCTOBER 17TH
Expected 2018 OCTOBER 17TH
legalization Legalization Government-owned stores
of edibles of adult-use
Privately-owned stores
recreational
2019 cannabis Both
ABOUT HEXO
December 2016
August 2013 Complete 35,000 sq. ft. July 2017
The Hydropothecary greenhouse Launch Elixir -
Corp. is incorporated Canada’s first and
Launch H2 line and
Decarb only cannabis oil
November 2014 sublingual spray
First crop harvested
March 2017
May 2015
Listed on the TSX-V
First sales to medical
patients from Time of
Day product line
2013 2014 2015 2016 2017
June 2018
March 2018
First plants in new
Announces Segra 250,000 sq. ft.
partnership greenhouse
for plant tissue
Listed on the TSX
cultures
July 2018
April 2018
Launch Fleur de Lune - intimate oil
Signed 5 year
Complete 10,000 sq. ft. advanced
supply deal with
automated manufacturing facility
the province of
Québec Made $10M investment in Fire and Flower,
premier western Canadian retail cannabis
operation
May 2018
September 2017 Launch HEXO August 2018
- a new brand
Obtains Kosher for adult-use Announce Joint
certification (First recreational Venture with Molson
for a Canadian LP) market Coors Canada
(CONT’) 2017 2018
INVESTMENT HIGHLIGHTS • Market Share leader in Québec - 35% of sales for Year 1 of recreational legalization • Innovative, diversified and expanding production portfolio currently with 15 dried flower and 9 smoke free products. • Revenue per gram of $9.24 due to value added products • Weighted average cash cost per gram of dried inventory sold of $0.88 • Well capitalized to pursue growth ambitions, no debt • Experienced management team focused on execution and creation of shareholder value
STRATEGIC PRIORITIES
Top 2 in Canada Brand Leadership
Our top priority is to execute on We further develop our house of brands
the SAQ contract with excellence using data driven, in-depth knowledge of
and to serve and expand across our customers and their preferences, to
Canada from a strong regional base. ensure that we are creating products and
Becoming one of the top 2 licensed brands that provide the full range of options
producers by market share in Canada. catering to their needs. Putting our brand
at the top of mind in the markets we serve.
Operational Scaleability New Product Innovation
We invest in people, processes, Become exceptional at identifying,
and systems to deliver the highest quality developing, and launching new products.
product at sustainable operating costs.
HUB AND SPOKE MODEL
Building value for
TRIBUTION PL
AL DIS ATF
LOB OR
G M
Food shareholders
Cosmetics
Confectionary, • Building a house of brands to
baked goods,
dairy
include cosmetics, edibles,
non-alcoholic beverages,
vapes, and more.
Non-
alcoholic • Partnering with Fortune 500
Vapes
beverages companies to establish joint
ventures, leveraging capacity
to scale up to distribute and
occupy shelf space quickly
• Broad range of potential exits
• First example is joint venture
with Molson Coors Canada
Brand for the development and
Products production of non-alcoholic,
Technology cannabis-infused beverages for
Distribution
the Canadian adult-use market
Infrastructure
CANADIAN MARKET OVERVIEW
Supply channels obtained
Supply channels expected
Fire & Flower
Retail store
locations
expected
Fire & Flower
2 retail store
licenses
Fire & Flower
2018 – Web sales obtained 2018 – 14 store locations
Retail store
licenses 2019 – Retail stores expected and web sales
expected 2019 – 50 stores expected
YEAR 1 MARKET SHARE LEADER
IN QUÉBEC
VOLUME AND MARKET SHARE % Landmark agreement
Year 4 and Year 5 • SAQ* supply contract
supply volumes to announced on April 11, 2018
be determined
• $1B in potential revenue
for HEXO over 5 years
• Option to extend agreement
for an additional year
35% • Largest forward supply
market contract in the history of
share the cannabis industry
• Provides business certainty
45,000 kg
20,000 kg
35,000 kg
and clear path to profitability
*S
AQ (Société des alcools du Québec) is a government
corporation responsible for the sale of alcoholic
beverages in Québec.
Year 1 Year 2 Year 3 Year 4 Year 5OPERATIONAL SCALEABILITY
EXISITING FOOTPRINT
• Annual production EXISTING
capacity 25,000 kg/year FACILITIES
• 10,000 sq. ft. of advanced
automated manufactring 310,000 sq. ft.
facility for dewaxing,
distillation, milling,
and extraction
• Ready for Year 1 of
cannabis legalization
EXPANSION
1,000,000 sq. ft.
EXPANSION
• Construction underway
• Annual production capacity will increase to
108,000 kg/year
• Completion date December 2018
• Preparing for upcoming edible and beverage marketsEXISTING GATINEAU FACILITY
Photo taken August 16th, 2018EXISTING ONTARIO FACILTIY
• Centre of excellence for joint 2,004,000 sq. ft
ventures HEXO Corp. has announced the acquisition of an interest
in a 2,004,000 sq. ft. facility in Belleville, Ontario.
• Licensed infrastructure for joint
venture partners Right of first refusal for future
• Capacity for manufacturing joint ventures
advanced cannabis products
(cosmetics, vapes, non-alcoholic
beverages, edibles, etc.) HEXO
• First footprint outside of Québec
580,000 sq. ft
Technology, R&D, existing products
• 2,004,000 sq. ft. available; central
location ideal for processing
and distribution, and to fulfill
commitments across Canada
• Available workforce and entralized
location, conveniently located along
primary shipping routes in Ontario
• Target installation Spring 2019RECOGNIZED PRODUCT INNOVATOR
Elixir is Canada’s first and only The first licensed producer to offer
line of cannabis peppermint oil Decarb, activated marijuana powder
sublingual sprays. designed for oral consumption.OUR 24 MEDICAL PRODUCTS: DIVERSIFIED AND EXPANDING BRANDED PRODUCT LINES Sublingual Intimate Edible Dried Premium Sprays Oil Powders Flowers Dried 2 Products 1 Product 6 Products 11 Products Flowers $69 - $89 $59/bottle $3 - $15/g $6 - $10/g 4 Products /bottle $15/g
INNOVATING NOW TO BE READY
FOR THE FUTURE
An unwaivering commitment to product innovation is a core pillar
in our long-term plan to thrive in the upcoming recreational market.
TODAY WHAT’S TO COME...
Flower Sublingual Soft gel Vapes
sprays capsules
Beverages
Intimate oil Decarboxylated Topicals Edibles
powdersCANNABIS INFUSED BEVERAGE
PARTNERSHIP
+
• Entered into definitive agreement to form a joint venture We look forward to
to develop a full line of non-alcoholic, cannabis-infused partnering with HEXO,
beverages for the upcoming Canadian edibles market
a recognized leader in
beginning in October 2019.
the medical cannabis
• Ownership structure is 57.5% Molson Coors Canada, space in Canada that will
42.5% HEXO.
bring robust production
• Molson Coors Canada is a recognized industry leader capacity, a track record
in product distribution, branding and deep customer
understanding, together we have the expertise, values of innovation, and, most
and capabilities to build a market-leading offering in importantly, shared values
the cannabis industry. when it comes to doing
• This joint venture will be the exclusive platform through business the right way
which both HEXO and Molson Coors Canada enter and earning the trust of
the cannabis beverage market in Canada.
consumers.
• HEXO was selected during this competitive process Frederic Landtmeters, President and
based on their product innovation, consistent strategic CEO of Molson Coors Canada
execution, and shared values.FOCUSED DISTRIBUTION STRATEGY
2018 2019 2020
Deliver to Québec Roll-out new Enter the US
with positioning cannabis beverage market, subject to
through strategic products nationally expected approvals
product offerings, via joint venture and regulatory
such as Elixir, to with Molson Coors change
90% of the markets Canada
across Canada
Full product roll out
across Canada
International
expansion in Latin
America and
EuropeINTERNATIONAL MARKETS
POTENTIAL
MARKET
Canada
• Therapeutic market
• Legalization of adult-use Oct. 17 $10B
• Preferred supplier in Québec; agreements with Ontario and BC
• Retail investments (Fire & Flower)
United States of America
• States Act: expect THC legalization in three to 18 months
• Farm Act: expect CBD legalization in six weeks to one year $115B
• Nine states and Washington DC have legalized cannabis for adult use
• Medical cannabis is legal in 30 states
Latin America
• Cultivation legal in Chile, Colombia and Uruguay
• Medical use legal in Argentina, Chile, Colombia, Mexico; CBD only, THC contentSOLID FINANCIAL POSITION
Cash and Potential
short term proceeds from
Debt-free investments of warrant exercise of
balance $249 million
sheet $226.7M
as at April 30, 2018
Capital allocation priorities:
• 1,000,000 sq. ft. • Product innovation
expansion • Brand building
• Distribution/shelf • Cannabis- infused
space and retail beverage JV with
partners Molson Coors CanadaFINANCIAL SNAPSHOT
Financial Statements
Cash & Short Term Investments $249M Weighted
average cash Revenue
Total Assets $302M cost per per gram
$9.24
gram
Total Liabilities $10M
$0.88
Equity $292M
EPS ($0.01)
Valuation Metrics
Trading Data
Market Cap $1.5B
Stock Price $7.70
Enterprise Value (EV) $772M
52 week range $1.37 to $8.95
Price to Book 4.75
Average Daily Volume 3.653M
Outstanding shares 195,511,130
Fully diluted 245,942,160 Industry Average Price to Book 12.70
Note: Trading data figures as of September 14, 2018. Financial highlights and KPI’s as of Q3 2018: April 30, 2018. Valuation
metrics calculated using the September 14, 2018 share price and April 30, 2018 financial statement data. Industry average
derived from the Canadian Marijuana Index.COMPETITOR COMPARISON
52,000 kg
30,000 kg
FORWARD SALES 20,000 kg
CONTRACT RANK
Based on quantities announced in
provincial supply agreements
Canopy Aurora HEXO
PRODUCTION CAPACITY MARKET CAPITALIZATION
Expected at December 2018 As at September 14, 2018
600,000+ kg
$14.1B
$13.2B
$8.1B
175,000 kg
115,000 kg
$4.5B
108,000 kg
40,000 kg
85,000 kg 36,000 kg $2.4B
$1.8B $1.5B
50,000 kg $1.1B $878M
14,000 kg
CannTrust
Tilray
CannTrust
Tilray
Aurora
Canopy
Aurora
Aphria
Cronos
TGOD
HEXO
Canopy
Aphria
HEXO
Cronos
TGOD
Organigram
Organigram
Source: TMXMoneyCORPORATE SOCIAL
RESPONSIBILITY CHARTER
At HEXO, our goal is to be one of Canada’s leading cannabis producers and
processors. We know that if we want to achieve our goal, we need to think about more
than just our products and prices. We must also examine the way our operations
impact the natural and social environment on a local, provincial, and national level.
Our Corporate Social Responsibility Charter focuses on four priorities to meet these
goals: People, Public, Products, and Planet.
PEOPLE PUBLIC
• Significant contributor to the local • Serving thousands of patients across Canada
economy of Masson-Angers.
• HEXO Academy providing informative materials
• Investing in our employees for the public through retailers.
• Supporting local non-profits like • Online and telephone support about responsible
Fondation Santé de Papineau and informed consumption.
• Assisting in the first Cannabis Processing • Knowledge transfer with the Gastrointestinal
certification at the CEGEP d’Outaouais Society about cannabis in the treatment of
Crohn’s Disease and Colitis (Badgut.org)PRODUCTS PLANET
• Providing naturally grown and • Minimizing electricity consumption
rigorously tested medical cannabis of by utilizing the power of solar energy
uncompromising quality
• Implementing recycling programs
• Offering innovative smoke-free options
• Measure, monitor, and report on our
Carbon Footprint
• Supporting Ottawa Riverkeeper as
a sustainability partnerSTRONG GOVERNANCE/BOARD
OF DIRECTORS
DR. MICHAEL MUNZAR JASON EWART
Chairman of the Board & Independent Independent Director
Director
• Co-founder and Former Chief Executive
• Over 30 years as a licensed physician Officer of Fountain Asset Corp., a Canadian
• Published in numerous peer-reviewed merchant bank providing debt and equity
journals, managed medical facilities and financings to private and public companies
designed and conducted preclinical studies across various industries
and clinical trials • Economics degree from McGill University
VINCENT CHIARA NATHALIE BOURQUE
Independent Director Independent Director
• President and sole owner of Group Mach, a • Member of the boards of directors at
private holding company which holds significant Alimentation Couche-Tard, Héroux-Devtek
investments representing more than 19 million and HEXO
square feet of real estate in Montreal, Québec
• Former VP, Public Affairs and Global
Communications with CAE
• Former partner at NATIONAL Public Relations
ADAM MIRON SÉBASTIEN ST-LOUIS
Co-Founder & Chief Brand Officer Co-Founder & Chief Executive Officer
• Co-founder of iPolitics.ca • Former CFO of a manufacturing firm
• Formerly National Director for Federal • MBA (Finance) from Université du Québec
Commissions of the Liberal Party of Canada à Montréal
• Closed over $200M commercial banking and
trade finance transactions at EDC and BDCEXPERIENCED MANAGEMENT TEAM
ED CHAPLIN ROCH VAILLANCOURT JOCELYN RACINE TERRY LAKE,dvm JAMES MCMILLAN
Chief Financial Officer General Counsel VP, Finance VP, Corporate Social VP, Business
• 20 years experience with high • 25 years experience in business • Chartered Professional Responsibility Development
growth company and legal practice Accountant • Former Minister of Health • 20+ years of experience
• Chartered Professional • Named one of Canada’s top • 3 decades of progressive and Minister of the Environment in sales, marketing and
Accountant 100 General Counsels (Legal financial management for British Columbia business development
• Held senior financial in software 500 GC Powerlist – 2016) and experience • Winner of the 2017 Canadian • Background in market
and telecommunications included in Legal Era Magazine’s • Has held senior executive Public Health Association’s development and OEM
industries London book release, “World’s and finance positions National Public Health Hero engagement
Leading General Counsels - in the construction and Award
• Involved in acquisitions totalling
2017-2018”. telecommunications industries
approximately $600 million • Veterinarian and former animal
• Graduate of the University of health instructor at Thompson
• Helped raise over $480M in debt
Ottawa (biomechanics and civil Rivers University
and equity
law)
• Member of the Barreau du
Québec as well as the Ontario
and Canadian Bar Associations
PIERRE KILLEEN SONIA ISABEL ARNO GROLL AGNES MAX CYR
VP, Government Relations VP, Sales VP, Operations KWASNIEWSKA Director of Customer
• Former VP and Deputy Audience • 20 years of experience managing • Former Director of Global Master Grower Experience and
Leader at Hill & Knowlton large sales and marketing teams Business Operations at Lam
• Master of Science from McGill Compliance
Strategies Research Corporation
• Experience includes more than University • Former Supervisor for the
• Former VP and cofounder a decade in various senior roles • Former Quality and Process MMAR Police and Client
• 10 years progressive experience
of Public Consultation with the Société des alcools du Excellence Manager at GEA Services at Health Canada
in agriculture, environment and
at Nannos Research Québec (SAQ) Refrigeration Canada
research roles
• Lawyer (ll.b, ll.l) • Graduate of the Université du
Québec à Montréal and the
Université de Sherbrooke (MBA)SHARE CAPITALIZATION
Common Shares issued
and outstanding 195,511,130
(as at September 14, 2018)
WARRANTS
Warrants @ $0.75 2,051,357 Mar'19 to Mar'22
Warrants @ $0.83 2,697,288 Apr'19 to Oct'19
Warrants @ $4.00 866,143 Jan'20
Warrants @ $5.60 18,570,500 Jan'20
Warrants @ $$6.00* 11,500,000 est Sept'20
Warrants @ US$0.70 42,287 Nov'19
Warrants @ US$0.76 857,118 Nov'19
STOCK OPTIONS
$0.16 strike price 345,000 May'19
$0.58 strike price 1,226,900 Nov'24 to July'25
$0.75 strike price 2,061,496 Nov'24 to Jan'27
$1.27 strike price 600,991 July'27
$1.37 strike price 542,450 Sept'27
$2.48 strike price 128,000 Nov'27
$2.69 strike price 1,695,000 Dec'27
$3.89 strike price 325,000 Mar'28
$4.24 strike price 258,000 Jan'28
$4.27 strike price 885,000 Apr'28
$4.89 strike price 5,667,500 July'28
$5.15 strike price 111,000 June'28
FULLY DILUTED SHARES 245,942,160
MANAGEMENT AND BOARD OWNERSHIP
(as at Apr. 30, 2018)
9.44%
* Expected to be issued September 2018INVESTOR RELATIONS
HEXO Corp.
120, Chemin de la Rive
Gatineau, QC, Canada J8M 1V2
CONTACT
1-866-438-8429
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