Hierarchical PAM4 modulation in passive optical network downstream channels is experimentally demonstrated as a way to redistribute power margin between users with different path losses due to unequal fiber distribution and split losses. Using hierarchical PAM4 modulation the most-significant bit (MSB) and less-significant bit (LSB) can be assigned to two different optical network units (ONU) groups, whose receiver sensitivity can be optimized to increase the power budget of the ONUs with higher path losses, effectively redistributing power margin of the ONUs with lower losses. A single-threshold receiver is sufficient for the MSB ONU type and a dual-threshold receiver coupled with an and logic gate for the LSB ONU type, both of which are simpler than a full PAM4 receiver with three thresholds. Sensitivity improvement in a 25 Gb/s system is achieved using unequal signal level spacing and separate detection of the binary tributary streams of the PAM4 channel. Power budget increase of up to 3.5 dB is reported with respect to a standard PAM4 transmission. Higher chromatic dispersion tolerance is also measured for the higher sensitivity ONU group, enabling transmission over up to 40 km of single-mode fiber for the MSB ONUs with no chromatic dispersion compensation.