HEXO Corp. and 48North Cannabis Corp. (Re), 2021 CanLII 80769

Ontario Commission des 22^nd Floor 22e étage

Securities v aleurs mobilières 20 Queen Street West 20, rue queen ouest

Commission de l’Ontario Toronto ON M5H 3S8 Toronto ON M5H 3S8

August 31, 2021

In the Matter of the Securities Legislation of Ontario (the Jurisdiction)

and

In the Matter of the Process for Exemptive Relief Applications in Multiple Jurisdictions

and

In the Matter of HEXO Corp. (HEXO) and 48North Cannabis Corp. (48North, and together with HEXO, the Filers)

DECISION

Background

The securities regulatory authority or regulator of the Jurisdiction (Decision Maker) has received an application from the Filers for a decision under the securities legislation of the Jurisdiction (the Legislation) that:

(a) the continuous disclosure requirements under the Legislation and the requirements of National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) (together, the Continuous Disclosure Requirements) do not apply to 48North;

(b) the requirements of National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109) (the Certification Requirements) do not apply to 48North; and

(c) the insider reporting requirements under the Legislation, the requirements of National Instrument 55-104 Insider Reporting Requirements and Exemptions and the requirement to file an insider profile under National Instrument 55-102 System for Electronic Disclosure by Insiders (together, the Insider Reporting Requirements) do not apply to any insider of 48North.

(collectively, the Exemption Sought)

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission is the principal regulator for this application;

(b) the Filers have provided notice that section 4.7(2) of Multilateral Instrument 11-102 Passport System (MI 11-102) is intended to be relied upon in British Columbia, Alberta, Saskatchewan, Manitoba, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador; and

(c) the decision is the decision of the principal regulator and evidences the decision of the securities regulatory authority or regulator in Ontario.

Interpretation

Terms defined in National Instrument 14-101 Definitions and MI 11-102 have the same meaning if used in this decision, unless otherwise defined.

Representations

1This decision is based on the following facts represented by the Filers:

48North

248North is a corporation existing under the Canada Business Corporations Act (CBCA);

3the authorized capital of 48North consists of an unlimited number of common shares of 48North (48North Shares);

4as of July 14, 2021, there were 225,312,227 48North Shares outstanding, such 48North Shares listed on the TSX Venture Exchange (the TSX‑V) under the trading symbol “NRTH”;

5as of July 14, 2021, 48North had outstanding 10,569,780 warrants to purchase 48North Shares at an exercise price of $1.72 with an expiry date of April 2, 2024 (the Listed 48North Warrants) issued pursuant to a warrant indenture between 48North and Computershare Trust Company of Canada (Computershare) dated April 2, 2019 (the Listed 48North Warrant Indenture). Each Listed 48North Warrant is exercisable for one (1) 48North Shares. The Listed 48North Warrants are listed on the TSX-V under the trading symbol “NRTH.WT”;

6as of July 14, 2021, 48North also had: (A) various unlisted warrants outstanding to purchase an aggregate of 55,614,552 48North Shares (collectively, the Unlisted 48North Warrants and, together with the Listed 48North Warrants, the 48North Warrants) issued pursuant to (x) compensation warrants to purchase units certificates issued by 48North to the holders thereof on April 2, 2019 according to which 48North issued compensation options each exercisable for one (1) compensation unit composed of one (1) 48North Share and one half (0.5) of a compensation warrant to purchase one (1) 48North Share, (y) various warrant certificates issued by 48North to the holders thereof on November 4, 2020 according to which 48North issued units each comprised of one (1) 48North Share and one (1) warrant to purchase one 48North Share, and (z) a warrant indenture (the Unlisted 48North Warrant Indenture) between 48North and Computershare dated April 16, 2021 according to which 48North issued units each comprised of one (1) 48North Share and one (1) warrant to purchase one (1) 48North Share (collectively, the 2021 48North Unlisted Warrants); (B) options outstanding to purchase an aggregate of 8,100,685 48North Shares (the 48North Options); (C) restricted share units to acquire an aggregate of 893,957 48North Shares (the 48North RSUs); and

7as of July 14, 2021, 48North was a reporting issuer in each of the provinces of Canada other than Québec.

Hexo

8HEXO is a corporation existing under the Business Corporations Act (Ontario);

9the authorized capital of HEXO consists of an unlimited number of common shares (HEXO Shares) and an unlimited number of special shares issuable in series;

10as of July 14, 2021, there were issued and outstanding: (A) 152,427,156 HEXO Shares; (B) options to purchase an aggregate of 9,008,948 HEXO Shares; (C) warrants to purchase an aggregate of 36,714,907 HEXO Shares; and (D) restricted share units to acquire an aggregate of 701,230 HEXO Shares;

11HEXO is a reporting issuer in each of the provinces and territories of Canada; and

12the HEXO Shares are listed on the Toronto Stock Exchange (TSX) and the New York Stock Exchange under the symbol “HEXO”.

The Plan of Arrangement

13HEXO and 48North entered into a definitive agreement (the Arrangement Agreement) on May 17, 2021, which provided the terms and conditions under which HEXO would acquire all of the issued and outstanding 48North Shares;

14the acquisition is being carried out by way of a court-approved plan of arrangement (the Plan of Arrangement) under the CBCA (the Arrangement). Under the Arrangement, in exchange for each 48North Share, HEXO will issue to shareholders of 48North (48North Shareholders) 0.02366 of a HEXO Share (the Share Consideration), subject to the terms of the Arrangement;

15as a result of the Arrangement, 48North will become a wholly-owned subsidiary of HEXO;

16on July 14, 2021, 48North obtained an interim order from the Ontario Superior Court of Justice, Commercial List (the Court) specifying certain requirements and procedures for a special meeting of the 48North Shareholders for the purpose of approving the Arrangement (48North Meeting);

17in connection with the Arrangement and the 48North Meeting and in accordance with the interim order of the Court, 48North mailed to the holders of 48North Shares, 48North Options and 48North RSUs a management information circular containing prospectus-level disclosure of the business and affairs of each of 48North and HEXO and information on the Arrangement, a copy of which has been filed on SEDAR under 48North’s profile;

18approval of the Plan of Arrangement required (A) at least 66⅔% of the votes cast by holders of 48North Shares virtually present or represented by proxy at the 48North Meeting, and (B) a majority of the votes cast by the holders of 48North Shares virtually present or represented by proxy at the 48North Meeting, excluding the votes of persons whose votes must be excluded in accordance with Multilateral Instrument 61-101 – Protection of Minority Security holders in Special Transactions, in each case, having voted in favour of the Arrangement;

1948North Shareholders approved the Arrangement at the 48North Meeting held on August 17, 2021 as 98.27% of 48North Shareholders virtually present or represented by proxy at the 48North Meeting voted in favour of the Arrangement;

20on August 26, 2021, 48North obtained a final court order from the Court approving the Arrangement;

21the completion date of the Arrangement is on or about September 1, 2021 (the Effective Time);

22the Plan of Arrangement contemplates the occurrence of the following:

(a) all 48North Shares, other than 48North Shares held by dissenting shareholders, being exchanged by the holders thereof, without any further act or formality, for the Share Consideration;

(b) 48North Shares held by dissenting shareholders in respect of which dissent rights that have been validly exercised and not withdrawn shall be deemed to have been transferred by such dissenting shareholders to HEXO;

(c) each 48North Option will be deemed to be exchanged for an option (each a HEXO Replacement Option) to acquire the number of HEXO Shares equal to: (A) the number of 48North Shares that were issuable upon exercise of such 48North Options immediately prior to the Effective Time, multiplied by (B) 0.02366, rounded down to the nearest whole number of HEXO Shares, at an exercise price per HEXO Share equal to the greater of (i) the quotient determined by dividing: (X) the exercise price per 48North Share at which such 48North Option was exercisable immediately prior to the Effective Time, by (Y) 0.02366, rounded up to the nearest whole cent, and (ii) such minimum amount that meets the requirements of paragraph 7(1.4) of the Income Tax Act (Canada). All terms and conditions of a HEXO Replacement Option, including the term to expiry, vesting, conditions to and manner of exercising, shall be the same as the 48North Option for which it was exchanged, and any certificate or option agreement previously evidencing the 48North Option shall thereafter evidence and be deemed to evidence such HEXO Replacement Option;

(d) immediately prior to the exchange of the 48North Shares for the Share Consideration, each 48North RSU outstanding prior to the Effective Time (whether vested or unvested) will be deemed to be fully vested, whereupon: (i) each holder of such 48North RSU will cease to be a holder thereof or to have any rights as a holder of a 48North RSU, (ii) the name of each such holder will be removed from the register of the holders of 48North RSUs maintained by or on behalf of 48North, and (iii) each such former holder of such 48North RSU will be deemed to be the holder of the corresponding number of 48North Shares (which 48North Shares will subsequently be exchanged for the Share Consideration pursuant to the Plan of Arrangement) and shall be entered in the register of shareholders of 48North maintained by or on behalf of 48North and entitled to receive the Share Consideration; and

23upon completion of the Arrangement, the 48North Warrants will remain, with the exception of any 48North Warrants that are exercised before the Effective Time outstanding as warrants of 48North that upon exercise entitle the holders thereof to receive in lieu of the number of 48North Shares to which such holders were theretofore entitled upon exercise of such 48North Warrants, the kind and aggregate number of HEXO Shares that such holders would have been entitled to be issued and receive if, immediately prior to the Effective Time, such holders had been the registered holder of the number of 48North Shares to which such holders were theretofore entitled upon exercise of such 48North Warrants.

24The TSX has conditionally approved the listing of the HEXO Shares to be issued as a result of the Arrangement and any HEXO Shares issuable upon exercise of 48North Warrants and HEXO Replacement Options. The TSX has also conditionally approved the supplemental listing of the Listed 48North Warrants upon the delisting of the Listed 48North Warrants from TSX-V following the Effective Time, however, the TSX has advised that it requires that the Listed 48North Warrants be re-designated as “HEXO Share purchase warrants”;

25following the Effective Time, the 48North Shares will be delisted from the TSX-V;

26the Listed 48North Warrants will, after the Effective Time, remain warrants issued by 48North and will be listed on the TSX but be re-designated as “HEXO Share purchase warrants” with a symbol identifying such warrants as being related to HEXO despite such warrants remaining issued by 48North;

27upon completion of the Arrangement, the only securities of 48North that will be held by persons other than HEXO are the outstanding 48North Warrants which will be ultimately exercisable for only the Share Consideration consisting of HEXO Shares;

28upon completion of the Arrangement, the only securities of 48North that will be traded on a marketplace (as defined in National Instrument 21-101 Marketplace Operation) will be the Listed 48North Warrants;

29pursuant to the terms of the Listed 48North Warrant Indenture and the Unlisted 48North Warrant Indenture, which shall both remain in force following completion of the Plan of Arrangement, HEXO and 48North shall enter into supplemental warrant indentures with Computershare with respect to the Listed 48North Warrants and the 2021 48North Warrants, respectively;

30pursuant to the terms of the Listed 48North Warrant Indenture, the Unlisted 48North Warrant Indenture, any supplemental indentures applicable thereto and/or any certificates representing certain Unlisted 48North Warrants, as applicable, HEXO is bound by the terms and covenants of the 48North Warrants and upon exercise of such 48North Warrants and the payment of the applicable aggregate exercise price, holders will be entitled to receive the Share Consideration such holders would have been entitled to be issued and receive if, immediately prior to the Effective Time, such holders had been the registered holders of the number of 48North Shares to which such holders were theretofore entitled upon exercise of such 48North Warrants;

3148North shall provide notice to Computershare and to the holders of the 48North Warrants, as applicable, with respect to the Arrangement containing details of the consideration to be received upon the exercise of the applicable 48North Warrants;

32the Listed 48North Warrant Indenture and the Unlisted 48North Warrant Indenture both include a covenant that 48North will make all requisite filings under applicable Canadian securities legislation including those necessary to remain a reporting issuer not in default in each of the provinces and other Canadian jurisdictions where it is or becomes a reporting issuer, while the certificates representing certain Unlisted 48North Warrants include a covenant that 48North will use its best efforts to remain a reporting issuer not in default in each of the Canadian jurisdictions in which it was a reporting issuer at the time of execution of such certificates;

33none of the warrant indentures nor any of the warrant certificates governing the 48North Warrants requires 48North to deliver to holders of 48North Warrants any continuous disclosure materials of 48North;

34neither of the Filers is in default of any of its respective obligations under securities legislation in the jurisdictions in which it is a reporting issuer;

3548North cannot rely on the exemption available in Section 13.3 of NI 51-102 for issuers of exchangeable securities because the 48North Warrants may not be “designated exchangeable securities” as defined in NI 51-102 as none of the holders of the 48North Warrants shall have voting rights in respect of HEXO in their capacity as warrantholders;

3648North has no intention of accessing the capital markets by issuing any further securities to the public and it has no intention of issuing securities to the public upon the completion of the Plan of Arrangement and at any time after the Effective Time;

37upon completion of the Plan of Arrangement, it is information relating to HEXO, and not to 48North, that will be of primary importance to holders of 48North Warrants as the 48North Warrants will be ultimately exercisable for only the Share Consideration consisting of Hexo Shares;

38upon completion of the Plan of Arrangement, as 48North will be a wholly-owned subsidiary of HEXO, HEXO will consolidate 48North with HEXO for the purposes of financial statement reporting; and

39as such, the disclosure required by the Continuous Disclosure Requirements and the Insider Reporting Requirements applicable to 48North would not be meaningful or of any significant benefit to the holders of the 48North Warrants and would impose a significant cost on 48North.

Decision

The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

1 The decision of the Decision Maker under the Legislation is that, following the Effective Time and the completion of the Plan of Arrangement, the Continuous Disclosure Requirements do not apply to 48North provided that:

(a) HEXO is the direct or indirect beneficial owner of all of the issued and outstanding voting securities of 48North;

(b) HEXO is a reporting issuer in a designated Canadian jurisdiction (as defined in NI 51-102) and has filed all documents it is required to file under NI 51-102;

(c) 48North does not issue any securities, and does not have any securities outstanding other than:

(i) the 48North Warrants;

(ii) securities issued to and held by HEXO or an affiliate of HEXO;

(iii) debt securities issued to and held by banks, loan corporations, loan and investment corporations, savings companies, trust corporations, treasury branches, savings or credit unions, financial services cooperatives, insurance companies or other financial institutions; or

(iv) securities issued under exemptions from the registration requirement and prospectus requirement in section 2.35 of National Instrument 45-106 Prospectus Exemptions (NI 45-106);

(d) 48North files in electronic format:

(i) if HEXO is a reporting issuer in the local jurisdiction, a notice indicating that it is relying on the continuous disclosure documents filed by HEXO and setting out where those documents can be found in electronic format; or

(ii) copies of all documents HEXO is required to file under securities legislation, other than in connection with a distribution, at the same time as the filing by HEXO of those documents with a securities regulatory authority or regulator;

(e) HEXO concurrently sends to all holders of any 48North Warrants all disclosure materials that would be required to be sent to holders of similar warrants of HEXO in the manner and at the time required by securities legislation;

(f) HEXO complies with securities legislation in respect of making public disclosure of material information on a timely basis;

(g) HEXO immediately issues in Canada and files any news release that discloses a material change in its affairs; and

(h) 48North issues in Canada a news release and files a material change report in accordance with Part 7 of NI 51-102 for all material changes in respect of the affairs of 48North that are not also material changes in the affairs of HEXO.

2 The further decision of the Decision Maker under the Legislation is that the Certification Requirements do not, following the Effective Time and the completion of the Plan of Arrangement, apply to 48North provided that:

(a) 48North is not required to, and does not, file its own Interim Filings and Annual Filings (as those terms are defined under NI 52-109);

(b) 48North files in electronic format under its SEDAR profile either: (i) copies of HEXO’s annual certificates and interim certificates at the same time as HEXO is required under NI 52-109 to file such documents; or (ii) a notice indicating that it is relying on HEXO’s annual certificates and interim certificates and setting out where those documents can be found for viewing on SEDAR; and

(c) 48North is exempt from or otherwise not subject to the Continuous Disclosure Requirements and 48North and HEXO are in compliance with the conditions set out in paragraph 1 above.

3 The further decision of the Decision Maker under the Legislation is that the Insider Reporting Requirements not apply, following the Effective Time and the completion of the Plan of Arrangement, to any insider of 48North in respect of securities of 48North provided that:

(a) if the insider is not HEXO:

(i) the insider does not receive, in the ordinary course, information as to material facts or material changes concerning 48North before the material facts or material changes are generally disclosed; and

(ii) the insider is not an insider of HEXO in any capacity other than by virtue of being an insider of 48North;

(b) HEXO is the beneficial owner of all of the issued and outstanding voting securities of 48North;

(c) if the insider is HEXO, the insider does not beneficially own any 48North Warrants other than securities acquired through the exercise of the 48North Warrants and not subsequently traded by the insider;

(d) HEXO is a reporting issuer in a designated Canadian jurisdiction;

(e) 48North has not issued any securities, and does not have any securities outstanding, other than:

(i) the 48North Warrants;

(ii) securities issued to and held by HEXO or an affiliate of HEXO;

(iii) debt securities issued to and held by banks, loan corporations, loan and investment corporations, savings companies, trust corporations, treasury branches, savings or credit unions, financial services cooperatives, insurance companies or other financial institutions; or

(iv) securities issued under exemptions from the registration requirement and prospectus requirement in section 2.35 of National Instrument 45-106 Prospectus Exemptions (NI 45-106); and

(f) 48North is exempt from or otherwise not subject to the Continuous Disclosure Requirements and 48North and HEXO are in compliance with the conditions set out in paragraph 1 above.

As to the Exemption Sought (other than from the statutory Insider Reporting Requirements):

“Marie-France Bourret”

Marie-France Bourret

Manager, Corporate Finance

As to the Exemption Sought from the statutory Insider Reporting Requirements:

“Cathy Singer” “Mary Anne De Monte-Whelan”

Commissioner Commissioner Ontario Securities Commission Ontario Securities Commission