Good morning, everyone, and thank you for joining us today. Late last night, we released our Q2 2022 results for the quarter ended January 31, 2022.

Before I jump into the results of this quarter, I wanted to provide an update on a couple of key developments that occurred over the course of the last couple of months. When I joined HEXO in November last year, I was immediately tasked with preparing a very challenged balance sheet as a result of the Redecan acquisition and the related convertible debenture that was put in place at that time last summer.

The proposed agreements we've announced at Tilray will restructure and reduce our significant debt burden and provide ample liquidity cushion while minimizing dilution to existing HEXO shareholders. A key pillar underpinning our Path Forward strategy.

This was indeed a transformational quarter for the company. While the convertible note with a significant inhibitor to HEXO's growth prospects, I am pleased that we can now, as a result of our recently announced proposed strategic alliance with Tilray, put that behind us and continue to position ourselves to retain and grow our significant market share while we become a cash flow positive business within the next 4 quarters.

Let me begin by reviewing the proposed strategic partnership with Tilray before providing an update on our Path Forward strategy. On March 2nd, HEXO entered into a proposed strategic alliance with Tilray brands in which Tilray will acquire USD 211 million of senior secured convertible notes that were originally issued to HEXO -- originally issued by HEXO to High Trail Investments.

This proposed alliance between HEXO and Tilray achieved several goals, including: it deleverages the balance sheet to a more manageable level; it raises sufficient liquidity to fund The Path Forward, including unlocking of USD 80 million of restricted cash; it preserves value and minimizes dilution to existing shareholders; and it offers significant commercial benefits to HEXO representing upsize to The Path Forward. Further, the separate 3-year CAD 180 million equity backstop commitment demonstrates the support and belief of our existing shareholders.

The Tilray agreement is expected to deliver up to $50 million combined cost synergies within 2 years of the completion of the transaction and will leverage both companies' commitments to innovation and brand building, strengthen market position and capitalize on opportunities for growth. Most importantly, the terms of the agreement provide HEXO with the financial flexibility to execute on The Path Forward with runway and strong liquidity profile enhanced by the standard commitments to be used monthly as needed.

I'm pleased to report that this proposed transformative strategic alliance is on track and is expected to close in May. As you may recall, last quarter, we introduced The Path Forward, a strategic plan that utilizes HEXO's current assets and our capabilities to drive accelerated organic growth, build market share and become operationally cash flow positive within the next 4 quarters.

The Path Forward is made up of 5 priorities: continue to reduce manufacturing and production costs; streamline and simplify the organizational structure; realize cost synergies from acquisitions and recent plant closures; focus on revenue management, including more disciplined pricing; and five, accelerate organic growth by building market share, capturing market share gains and capturing missed revenue opportunities. This plan is underpinned by specific actions to fortify our balance sheet, strengthen the leadership team and enhance our corporate governance, which have already been successfully executed.

The plan is expected to generate incremental run rate cash flow of $37.5 million in fiscal 2022 and an additional $135 million in fiscal 2023 for a total of $172.5 million over the next 2 years from a combination of cost reductions and anticipated revenue growth. I would now like to provide a brief update on each of the core pillars of the strategy.

Reducing manufacturing and production costs. The company expects to reduce manufacturing and production costs by leveraging existing capabilities across facilities.

We are actively applying best practice and learning from our highest-margin categories and top facilities across the entire operation to improve and optimize productivity. To date, we've identified approximately $30 million in savings from optimizing HEXO's production network and leveraging the capacities of recent acquisitions.

Specifically, this includes transition from co-packing agreements towards in-house production, leveraging HEXO's scale to deliver on procurement savings and reconfiguring the company's production network to achieve greater efficiencies, for example, moving vape production and distillate production to the Redecan facility. Two, the company expects to streamline and simplify its organizational structure and more closely align operating costs with overall revenue.

We announced that these cost reductions will be achieved through a combination of reduced reliance on outside consultants, streamlining the organization as a new IT platform is implemented, rightsizing the organization and realizing the synergistic benefits of previous acquisitions. These initiatives are expected to represent a 30% reduction in the company's SG&A by fiscal year-end 2023.

As part of these initiatives, subsequent to the quarter end, the company announced the reduction of 180 positions resulting in savings of approximately $15 million on an annualized basis. Half of these positions are related to previously announced closure of Stellarton facility, and the remaining reductions were related to reducing back-office positions where there is significant overlap as a result of the recent acquisitions simplifying HEXO's operating model to drive clear accountability and delayering management.

Third, the company expects to continue to deliver on synergies as a result of the recent acquisitions. Fourth, HEXO will continue to focus on revenue management, including more disciplined pricing across our entire range.

By leveraging our brand continuum, we are well positioned to differentiate ourselves across features and price balancing our approach to both volume and profit. HEXO will offer great value to consumers, strong margin for customers and grow our own margins.

And fifth, to increase revenue, the company plans on accelerating growth through organic market share gains and capturing revenue opportunities through better demand planning, acting on proprietary consumer insights and building strong customer relationships. For example, in the past, the company was delivering only 65% to 70% of its demand to customers.

The company has now connected its demand forecast to what it intends to harvest. We're taking learnings from the legacy Redecan and applying them across the entire organization.

Earlier this year, we executed a proprietary quantitative consumer survey with thousands of consumers that identified usage occasions and demand spaces in the cannabis category, and this will use this to drive unique innovation and brand building and our new marketing leadership. The company will also put a focus back on medical and consolidate our medical efforts with Redecan given their strength in this category.

We are making substantial progress on our plan in only 1 quarter, and it is yielding results. With that, I would like to now turn the call over to Curt.

Thank you, Scott, and good morning, everyone. This is my first time in the CFO chair at HEXO, and I look forward to working with you.

Before drilling into the details, let me recap a couple of Scott's points and give you a high-level summary of the quarter. Our biggest financial challenge has been to fix the balance sheet, to relieve the drain of the senior secured convertible note and established liquidity.

With Scott's leadership, we've made enormous progress on both of those objectives in Q2. Once we close the Tilray transaction, the monthly redemptions will end, the maturity is pushed out for 3 years, and we free up USD 80 million in restricted cash.

Once we close on the equity backstop, we'll have another $60 million of cash per year, if necessary, through the sale of equity. As the new management team sells in and we dive deeper into the business, we're seeing what I call a target-rich environment.

We're continuing to improve our profitability through cost savings, revenue enhancement, improved capacity utilization and operational efficiency and better inventory turns. We remain confident in our ability to capture the run rate cash flow improvements previously outlined in The Path Forward of $37 million by the end of fiscal '22 and an additional $135 million by the end of fiscal '23.

At a high level, this quarter operationally, on a quarter-to-quarter basis, we raised unadjusted gross margins from 25% to 36% and added $5 million to EBITDA. In this quarter, we also reexamined the valuations of our business and concluded that we had to recognize substantial impairments.

We took $100 million in fixed asset impairments, $141 million in intangibles and wrote off the entire balance of goodwill of $375 million. Finally, despite improving EBITDA by $5 million quarter-on-quarter, we didn't reach EBITDA breakeven.

And as a result, we've breached the covenant on the senior secured convertible note. The noteholder subsequently waived enforcement of the default through the earlier of May 17th, or closure of the Tilray deal.

Nevertheless, under accounting rules, we revalued the senior secured convertible note to the default rate of 115% of face, triggering a fair value loss of $50 million. Once the Tilray transaction closes, that note will be revalued to actual face value at the time of that transaction.

Now I'll discuss the results in more detail. First, with respect to revenue.

Total revenues were $52.7 million and were our second consecutive quarterly high, representing a 60% increase over Q2 the prior year. International sales were a particular bright spot, growing 36% quarter-on-quarter.

Zenabis international sales nearly doubled quarter-on-quarter and accounted for 54% of our total international volume. Medical revenues had a healthy quarter-on-quarter, 21% growth reflecting a reinvigorated product innovation pipeline and renewed focus on deployment of our commercial capabilities.

We continue to be optimistic about HEXO's ability to capture revenue and market growth. We're overcoming the operational challenges that left as much as 70% of our orders unfilled.

For example, we are aligning our cultivation with market demand through weekly meetings between the markets and operational sites of the business. We've also made great strides in debottlenecking key parts of the production process, increasing throughput and reducing unit costs at the same time.

Turning to gross margin. Our adjusted gross margin improved quarter-over-quarter from 25% to 36%.

This was a function of multiple factors: strong performance in general at Redecan, favorable product mix within adult-use, successful introduction of several new products and growth in medical as we noted above. Also, HEXO's total non-beverage gross margin before adjustments increased by 15% from the previous quarter.

While this is a striking improvement, it is not out of line with our larger industry peers. Turning to SG&A.

Those expenses remained flat from our prior quarter and have decreased on a prorated basis from expenses realized after the acquisition dates of Redecan and 48North in the first quarter. Impairments to PP&E, intangible assets and goodwill were taken after the cannabis -- the Canadian cannabis market experienced adverse changes, as I noted.

These impairments have been reflected in significant adjustments to management's forecasts of future net cash inflows and earnings from previous budgets and forecasts. As noted, our adjusted EBITDA increased by $5.6 million from a negative $11.2 million to a negative $5.6 million.

This increase was driven by increased gross margins and flat SG&A expenses. In addition to the previously mentioned restructuring of the secured note, HEXO is also in negotiations with KAOS Capital and partners to finalize a standby equity purchase agreement.

It's expected that the standby agreement will permit HEXO to demand that KAOS and its partners subscribe for an aggregate of CAD 5 million of common shares per month over a period of 36 months with a maximum standby commitment to be $180 million over the term of the agreement. A 5% standby commitment fee, table and common shares will be due upon execution of this agreement.

The proceeds from the standby commitment are expected to be used to fund interest payments under the notes and general corporate purposes. The standby agreement remains subject to negotiation and completion and among other things, receipt of necessary regulatory and TSX approvals.

Looking forward, as we've made real progress in our capital structure and balance sheet, we continue to focus on The Path Forward. And I'll just remind you of those 5 priorities: continue to reduce manufacturing and production costs; streamline and simplify the organization; realize cost synergies from acquisitions and recent plant closures; focus on revenue management, including more disciplined pricing; accelerate growth through organic market share gains and capture missed revenue opportunities.

We've already been successful in building a strong foundation for this plan by fortifying the balance sheet, strengthening the leadership team and enhancing corporate governance. On a final note, I would also like to thank everyone at HEXO for their commitment and effort over the last year.

We recognize the resilience and positive outlook for the whole team in a challenging period. We've now turned the corner, and I look forward to leveraging this team's expertise to build a robust future for HEXO.

Thank you for your continued support. Operator, we would now be happy to take questions from the participants.

Congrats on the products you get made on The Path Forward. So talking about the bright spot, you said in international, you said Zenabis build Q-over-Q.

Just any incremental color you could provide there, maybe in terms of the markets you're selling to? And also going forward, whether or not there was kind of some onetime calendar expect that level of sales to continue going forward?

Aaron, thanks for the question. Val, could I ask you to take that one?

Yes, for sure. Yes.

So markets that we continue to sell into as we work with Zenabis are, of course, Israel, Malta and into Europe. We have strong relationships within the international domain and expect to see continued growth.

And, Aaron, we're also looking at South Africa and Australia as markets as well.

Okay. Great.

Glad to hear that continue to see growth there. And the second question for me, Scott, you talked about some survey work you guys are doing right now on the consumer front, just keep understanding, obviously, aligning better with demand and cultivation and it seems like teams are communicating more now.

Talk about maybe some of the insights that you're continuing to see unfold. Obviously, a lot of moving parts in the marketplace in terms of consumer demand, whether it be price or TAC levels.

So maybe some high level views in terms of how you view the marketplace today from your studies and what you believe consumers are going to look for demand going forward?

Yes. Great question.

Thanks, Aaron. Again, Valerie, I'll turn that one over to you.

No problem. Yes.

So we were, again, extremely fortunate to conduct a national study of over 3,000 Canadian consumers. And within that, we were able to identify over 6 unique demand spaces, which really coined the understanding of usage occasions and consumption habits.

And we're uniquely tailoring our overall offering to consumers to align with that. I will suggest some key findings that we have found is the importance of sleep to the Canadian consumers and how cannabis plays an important role within that.

I would also suggest that your question around potency is important to Canadian consumers overall in this top of mind as we are outlining and building our product road map moving forward.

Can you just give us an update, if it's possible, in terms of your regional coverage within Canada. I mean, the company started very strong in Quebec, right?

Then it seemed to lose share there and gaining in Ontario and Alberta. But just an update in terms of where you are, especially with Redecan and the assets you acquired in terms of regional scope, if you can break it?

And then an update in terms of how much share you've lost in Quebec. And I'll have a follow-up.

Right. So we are -- Marketing President Valerie, I can turn it over to you again just around the market positions in each of the provinces and the Redecan rollout as well.

No problem. We continue to maintain the #1 share position in [adult recreational] in Canada, a rolling 3-month share of 10.3% overall.

We continue within large markets to continue to leverage our partners as it relates to Quebec, Ontario, Alberta and British Columbia. I'm really excited to announce that we have seen the expansion of Redecan on the national level.

We've introduced Redecan into Manitoba, Saskatchewan, Newfoundland, New Brunswick and Nova Scotia and PEI. In addition, in February, we saw the introduction of Redecan into the Quebec market.

So continued efforts as we build out our product pipeline and continue to grow our market share with our key board partners.

Just a follow-up, Scott. Maybe focusing on -- it's a 2-part question, one, an update in terms of the JV with Molson Coors and the relationship there?

How much progress are you making in Canada and in the U.S. with the JV?

And the second part of the question is more about your U.S. plans.

I understand you were hamstrung with a convertible debt. Now you have the agreement with Tilray.

In the past, prior CEO had talked about buying land and cultivation in California. I just want to see an update in as to how you're thinking about the U.S.

opportunity, or you have too much to fix right now that you're going to be buying assets in the U.S.

Yes. Thank you for the question.

So first, on the joint venture with Molson and Truss Beverages, I continue to be very pleased with the progress that Truss Beverages is making. It was recently announced as a result of the efforts of Truss Beverages in a number of companies in collaboration with the government that one of the kind of restrictions around the beverage category was you can only purchase 5 beverages within your limit, and that's been increased to 48.

So we anticipate continued progress. The innovation funnel that Truss has for 2022 is second to none, and they continue to be very consumer-focused and have very strong customer partnerships.

So very pleased with that. In the U.S., we continue to roll out CBD beverages and continue to have a strong commitments to that business as well and in a number of new states, both in direct-to-consumer and with distributors.

And on your second question around the U.S. expansion plans, we continue to absolutely look at the U.S.

market with interest around operating within kind of the legal framework. In the short-term, we continue to progress the action plan around extracts of hemp drive CBD and other minor cannabinoids as an ingredient.

And as we get through the balance sheet transformation, free up cash within that framework, we will absolutely be looking to the U.S. in the right kind of sequencing and time frame for growth and expansion.

I wanted to start on the cost cutting. It's a lot of moving parts.

So I just want to better understand it. I think it's $50 million in synergies from M&A last year.

There's another $30 million in savings from the production network that you've identified subsequent to that. There was around $35 million savings on SG&A, if you referenced the 30% cut and now $25 million savings for your portion of the Tilray deal.

So roll all that together, you get to around $140 million. I'm trying to get a sense of ultimately how much of that falls into COGS versus SG&A?

Yes, thanks for the question, John. Curt, can I turn that one over to you?

Yes. John, you're right.

It is a complicated set of numbers. And we have been trying to isolate those numbers ourselves.

Just in the last few weeks, we've set up a special team in a value creation office to be tracking all of those initiatives separately. And I anticipate that as we get better at tracking those things, we'll be able to offer specific details.

You touched on the $35 million from SG&A. That's pretty well isolated in SG&A.

But the balance of it is going to be a combination of both COGS and SG&A, and we'll be sharpening that up and sharing it with you in the future.

Okay. Understood.

And just a clarifying question on that. Was there any progress made on the $37.5 million in targeted F '22 savings in F Q2?

Or is that all targeted for F Q3 and Q4?

Yes. So we did do a significant headcount reduction in February, which will certainly show up in Q3.

There were some ongoing cost reductions in Q2, but I think the bulk of the $37.5 million we're going to capture in fiscal '22 is going to be in the second half of the year.

Okay. Got it.

And then on the revenue side, you did endure some significant organic declines, and you referenced some meaningful missed opportunities. But can you add more color on some of the other initiatives you have to retake share?

It does seem like some of your competitors have caught up to some of the products that HEXO does well in. So I'm curious what you're working on innovation or what other initiatives you have to take back share?

Yes. Great question.

Thanks for the question, John. Val, I'm going to turn that one over to you.

You bet. So once again, I just want to reiterate that we remain the #1 LP in the adult recreational market with 10.3% market share on a rolling 3-month basis.

We are, again, working hard to launch plans to allow us to grow organically and there's tremendous opportunities with our breadth of assets that we have in the fastest-growing categories overall. Over the course of the last quarter, we very much focused on mix and driving sustainable growth for our shareholders in a day-in and day-out basis.

And we're building -- we've been building our product pipeline, an innovation pipeline as it relates to Canadian consumers referencing once again the national UNA study that we conducted, which allowed us to identify unique use cases and consumption habits of Canadian consumers. You will start to see the effects of this work hit the market in early spring of this year when you start to see some of those products hitting the market.

And one that I'm most excited about that I want to make sure that I highlight is the launch of our Redees Plus, which is an infused pre-roll Redecan style, so the straight edge style that will launch into the marketplace with higher THC. Again, capitalizing on the overall market moment and the key indicators from consumers in terms of their needs for potency.

We leverage this information. And again, the really, really strong Redecan brand to deliver this to Canadian consumers, and you can look forward to seeing that hitting shelves like I said, in early spring.

More to come on this front as we're rolling out our innovation pipeline over the next 12 to 24 months. But this is what you can expect from HEXO on a go-forward basis, insightful innovation that are meeting the needs of Canadian consumers.

Yes. Val had add, the Redees Plus, we're very excited about that as well.

And it took a lot of technical know-how to bring that to market. It's launched the premium price.

And as you say, that's what can be expected as we continue to leverage those consumer insights and our capability to bring unique and compelling products to market.

Maybe could you give more color on the issues you're seeing with Redecan? I know you mentioned competition in the pre-roll market, specifically in Ontario.

So just curious on what you're seeing in other provinces as well as other product categories in terms of competition and potentially pricing pressure?

Thanks, Frederico. Valerie, over to you.

Yes. Sure.

I would suggest that we have a unique opportunity as it relates to our breadth of brands, including Redecan and are in a unique position to leverage our value continuum allows us to address price points and specific needs of consumers across the spectrum of cannabis needs and allows us to balance both our overall volume and our profitability for our business overall. For sure, there's a lot of competition as it relates to the pre-roll category.

But again, we are in a good position from our productive capabilities, our strong brand positions as it relates to Redecan and the deep innovation pipeline that we're building. So we're feeling very, very confident in our position as it relates to the market across all categories and all markets.

Scott, is there anything else you'd like to add there?

No. Great answer, thanks, Val.

Okay. And then just on your capital position right now, you still have some months into the deal with Tilray closes.

So I know that you have some assets for sale on the balance sheet. How are you seeing that really need to raise any more capital?

Or are you going to rely on those asset sales? How comfortable are you with your cash position right now?

Curt, do you want to speak to that?

Yes, sure, Frederico. The cash position is something that we track very, very closely.

And we do a rolling received some disbursements forecast going out 13 weeks, conclusion of the Tilray deal in the middle of May.

I just wanted to get back on the Redecan revenues. So you noted in the MD&A that there was a 29% quarter-on-quarter decline on a prorated basis, and it was due to logistical issues and competition.

Could you please split the proportion from both of these? And finally, I wanted to confirm that the logistical issues are now resolved?

Thanks for the question. Valerie?

Yes. As it relates to Redecan in the last quarter, there were a number of administrative and logistics issues, but were unique events that we entered in within the quarter, and it was around amalgamation and relisting with provinces.

In addition to that, we shifted our overall 0 product as the Redees from 0.35 grams to 0.4, which enables us to actually sell through all of the inventory before restocking in the marketplace, overall. So there were some integration challenges that we had to overcome over the time period of the second quarter.

However, demand remains strong, and we're seeing that rebound now.

Thank you, everyone, once again, for joining us this morning. I am pleased that we can now as a result of our recently announced proposed strategic partnership with Tilray continue to position ourselves to retain and grow our significant market share and will become a cash flow positive business for the next 4 quarters.

I have full confidence in The Path Forward. And again, I appreciate everyone joining us this morning.

Thank you.