HEXO: The Road to Marijuana Legalization

In June 2018, the co-founder and chief brand officer of HEXO Corp. (HEXO), a medical cannabis company in Gatineau, Quebec, Canada, needed to prepare his company for the legalization of Canada’s recreational marijuana market. HEXO already provided a range of innovative, smoke-free, and traditional marijuana products to customers across Canada. The chief brand officer planned to analyze the inflows and outflows associated with two options for entering the recreational cannabis market: constructing a new greenhouse and acquiring one of the company's competitors in eastern Canada. Because HEXO could pursue only one option, he would need to assess each option carefully, both qualitatively and quantitatively; develop short-term and long-term action plans; and project an income statement and balance sheet for the next fiscal year. The chief brand officer wanted to ensure that HEXO was in the best position to achieve economies of scale by increasing production capabilities, establishing a widespread distribution network, and developing a strong brand through high-quality customer experiences.

This case is best suited for a managerial accounting, finance, or strategy course at the undergraduate level. Students should understand and be able to use fundamental business analysis tools before completing this case. After working through the case and assignment questions, students will be able to do the following:<ul><li>Complete an external (industry, competitive, and customer) analysis.</li><li>Complete an internal (corporate capability, cash flow statement, ratio, and contribution) analysis.</li><li>Qualitatively assess an opportunity for future expansion into the recreational cannabis market.</li><li>Analyze and compare two different expansion options.</li><li>Create an action plan outlining short-term and long-term steps for a company undergoing expansion.</li><li>Prepare a projected income statement and balance sheet for a company undergoing expansion.</li></ul>

• marijuana legalization
• cannabis
• external analysis
• qualitative assessment
• differential analysis