UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
Form 10-Q
_______________
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended SeptemberJune 30, 20202021
or
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .
Commission File No. 001-38403
__________________________
CRONOS GROUP INC.
(Exact name of registrant as specified in its charter)
__________________________
British Columbia, CanadaN/A
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
111 Peter St. Suite 300
Toronto, OntarioM5V 2G92H1
(Address of principal executive offices)(Zip Code)
416-504-0004
(Registrant’s telephone number, including area code)
____________________________
N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares, no par valueCRONThe Nasdaq Stock Market LLC


Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer☐
Non-accelerated fileroSmaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrantregistrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐ No x

As of November 4, 2020,August 5, 2021, there were 356,186,817371,805,547 common shares of the registrant issued and outstanding.






1


Table of Contents
PART I
FINANCIAL INFORMATION
Item 1.3
Item 2.29
Item 3.43
Item 4.44
PART II
OTHER INFORMATION
Item 1.
Item 1A.45
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
45
Item 3.45
Item 4.45
Item 5.45
Item 6.46
Signatures.47

Unless otherwise noted or the context indicates otherwise, references in this Quarterly Report on Form 10-Q (the(this “Quarterly Report”) to the “Company”, “Cronos Group”, “we”, “us” and “our” refer to Cronos Group Inc., its direct and indirect wholly owned subsidiaries and, if applicable, its joint ventures and investments accounted for by the equity method; the term “cannabis” means the plant of any species or subspecies of genus Cannabis and any part of that plant, including all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers; and the term “U.S. hemp” has the meaning given to term “hemp” in the U.S. Agricultural Improvement Act of 2018 (the “2018 Farm Bill”), including hemp-derived cannabidiol (“CBD”).; and the term “U.S. Schedule I cannabis” means cannabis excluding U.S. hemp.
This Quarterly Report contains references to our trademarks and trade names and to trademarks and trade names belonging to other entities. Solely for convenience, trademarks and trade names referred to in this reportQuarterly Report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trademarks or trade names to imply a relationship with, or endorsement or sponsorship of us or our business by, any other companies. In addition, this Quarterly Report includes website addresses. These website addresses are intended to provide inactive, textual references only. The information on or referred to on these websites is not part of or incorporated into this Quarterly Report.
All currency amounts in this Quarterly Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars; all references to “C$” are to Canadian dollars; all references to “A$” are to Australian dollarsdollars; and all references to “ILS” are to New Israeli New Shekels.
(Exchange rates are shown as C$ per $)As of
June 30, 2021June 30, 2020December 31, 2020
Average rate1.22931.38561.3036
Spot rate1.23951.35761.2751
Year-to-date average rate1.24811.36461.3411
All summaries of agreements described herein are qualified by the full text of such agreements (certain of which have been filed as exhibits with the U.S. Securities and Exchange Commission).


2

PART I
FINANCIAL INFORMATION

Table of Contents
Item 1. Financial Statements (Unaudited)
Table of Contents
4
5
8
Notes to Condensed Consolidated Financial Statements (Unaudited)
9

3

Cronos Group Inc.
Condensed Consolidated Balance Sheets
As of September 30, 2020 and December 31, 2019
(In thousands of U.S. dollars, except share amounts, unaudited)amounts)
Table of Contents


As of
September 30, 2020December 31, 2019As of June 30, 2021As of December 31, 2020
AssetsAssetsAssets(Unaudited)(Audited)
Current assetsCurrent assetsCurrent assets
Cash and cash equivalentsCash and cash equivalents$1,097,846 $1,199,693 Cash and cash equivalents$895,181 $1,078,023 
Short-term investmentsShort-term investments202,883 306,347 Short-term investments201,699 211,766 
Accounts receivable(i)
6,086 4,638 
Accounts receivable, netAccounts receivable, net11,299 8,928 
Other receivablesOther receivables10,401 7,232 Other receivables2,468 10,033 
Current portion of loans receivable7,781 4,664 
Prepaids and other assets10,532 9,395 
Current portion of loans receivable, netCurrent portion of loans receivable, net5,028 7,083 
Prepaids and other current assetsPrepaids and other current assets10,153 11,161 
Inventory, netInventory, net56,359 38,043 Inventory, net35,605 44,002 
Held-for-sale assetsHeld-for-sale assets2,066 3,248 Held-for-sale assets645 1,176 
Total current assetsTotal current assets1,393,954 1,573,260 Total current assets1,162,078 1,372,172 
Investments in equity accounted investees19,059 557 
Advances to joint venturesAdvances to joint ventures461 19,437 Advances to joint ventures499 467 
Investments in equity accounted investees, netInvestments in equity accounted investees, net20,970 19,235 
Other investmentsOther investments110,392 0 
Loan receivable, netLoan receivable, net76,148 44,967 Loan receivable, net94,113 87,191 
Property, plant and equipment171,404 159,948 
Property, plant and equipment, netProperty, plant and equipment, net193,920 187,599 
Right-of-use assetsRight-of-use assets9,840 6,546 Right-of-use assets6,687 9,776 
Intangible assets68,604 71,235 
Intangible assets, netIntangible assets, net70,409 69,720 
GoodwillGoodwill179,459 214,492 Goodwill179,543 179,522 
Total assetsTotal assets$1,918,929 $2,090,442 Total assets$1,838,611 $1,925,682 
LiabilitiesLiabilitiesLiabilities
Current liabilitiesCurrent liabilitiesCurrent liabilities
Accounts payable and other liabilitiesAccounts payable and other liabilities$39,012 $35,301 Accounts payable and other liabilities$29,829 $42,102 
Current portion of lease obligationCurrent portion of lease obligation1,274 427 Current portion of lease obligation1,206 1,322 
Derivative liabilitiesDerivative liabilities102,655 297,160 Derivative liabilities169,563 163,410 
Total current liabilitiesTotal current liabilities142,941 332,888 Total current liabilities200,598 206,834 
Due to non-controlling interestsDue to non-controlling interests2,889 1,844 Due to non-controlling interests1,768 2,188 
Lease obligationLease obligation8,612 6,680 Lease obligation6,333 8,492 
Total liabilitiesTotal liabilities$154,442 $341,412 Total liabilities208,699 217,514 
Commitments and contingencies(ii)
Commitments and contingencies (see Note 9)Commitments and contingencies (see Note 9)00
Shareholders’ equityShareholders’ equityShareholders’ equity
Share capital(iii,iv)
$566,577 $561,165 
Share capital (i, ii)
Share capital (i, ii)
572,858 569,260 
Additional paid-in capitalAdditional paid-in capital32,491 23,234 Additional paid-in capital32,368 34,596 
Retained earningsRetained earnings1,175,742 1,137,646 Retained earnings955,721 1,064,509 
Accumulated other comprehensive income (loss)(7,820)27,838 
Accumulated other comprehensive incomeAccumulated other comprehensive income71,729 42,999 
Total equity attributable to shareholders of Cronos GroupTotal equity attributable to shareholders of Cronos Group1,766,990 1,749,883 Total equity attributable to shareholders of Cronos Group1,632,676 1,711,364 
Non-controlling interestsNon-controlling interests(2,503)(853)Non-controlling interests(2,764)(3,196)
Total shareholders’ equityTotal shareholders’ equity1,764,487 1,749,030 Total shareholders’ equity1,629,912 1,708,168 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$1,918,929 $2,090,442 Total liabilities and shareholders’ equity$1,838,611 $1,925,682 
(i)Net of current expected credit loss allowance of $64 as of September 30, 2020 (December 31, 2019 – $136)
(ii)Refer to Note 19 and Note 20 in the notes to condensed consolidated financial statements.
(iii)Authorized for issuance as of SeptemberJune 30, 2021: unlimited and December 31, 2020: unlimited (December 31, 2019 – unlimited).unlimited.
(iv)(ii)Shares issued as of SeptemberJune 30, 2020: 355,733,914 (as of2021: 371,805,547 and December 31, 2019: 348,817,472)2020: 360,253,332.

See notes to condensed consolidated financial statements.
4

Cronos Group Inc.
Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)
For the three and nine months ended September 30, 2020 and 2019
(In thousands of U.S dollars, except share and per share amounts, unaudited)
Table of Contents


Three months ended September 30,Nine months ended September 30,Three months ended June 30,Six months ended June 30,
20202019202020192021202020212020
Net revenue, before excise taxesNet revenue, before excise taxes$13,621 $6,269 $34,397 $17,724 Net revenue, before excise taxes$18,848 $11,432 $33,502 $20,776 
Excise taxesExcise taxes(2,263)(484)(4,724)(1,282)Excise taxes(3,226)(1,549)(5,269)(2,461)
Net revenueNet revenue11,358 5,785 29,673 16,442 Net revenue15,622 9,883 28,233 18,315 
Cost of salesCost of sales12,895 3,498 29,584 8,507 Cost of sales19,445 9,743 35,019 16,689 
Inventory write-downInventory write-down0 5,424 11,024 5,424 Inventory write-down11,961 3,062 11,961 11,024 
Gross profit (loss)(1,537)(3,137)(10,935)2,511 
Gross lossGross loss(15,784)(2,922)(18,747)(9,398)
Operating expensesOperating expensesOperating expenses
Sales and marketingSales and marketing7,236 4,591 20,849 9,723 Sales and marketing13,209 6,501 23,463 13,613 
Research and development (“R&D”)Research and development (“R&D”)4,734 2,605 12,955 6,076 Research and development (“R&D”)5,199 3,631 10,301 8,221 
General and administrativeGeneral and administrative18,860 16,202 61,048 34,987 General and administrative22,417 18,429 44,323 42,188 
Share-based paymentsShare-based payments7,916 3,531 12,898 7,949 Share-based payments2,565 2,546 5,064 4,982 
Depreciation and amortizationDepreciation and amortization886 632 2,252 1,315 Depreciation and amortization1,043 679 1,778 1,366 
Total operating expensesTotal operating expenses39,632 27,561 110,002 60,050 Total operating expenses44,433 31,786 84,929 70,370 
Operating lossOperating loss(41,169)(30,698)(120,937)(57,539)Operating loss(60,217)(34,708)(103,676)(79,768)
Other income (expense)
Other income (loss)Other income (loss)
Interest income, netInterest income, net3,781 8,939 15,266 20,455 Interest income, net2,293 3,734 4,622 11,485 
Share of loss from investments in equity accounted investees(1,327)(565)(3,293)(1,504)
Gain on revaluation of derivative liabilities105,307 632,482 182,795 1,158,008 
Financing and transaction costs(40)(6,083)(40)(31,684)
Impairment loss on goodwill and intangible assets0 0 (40,000)0 
Gain on disposal of other investments3,974 0 4,743 16,242 
Loss on reclassification of held-for-sale assets(919)0 (919)0 
Other income (loss)318 147 334 147 
Gain (loss) on revaluation of derivative liabilitiesGain (loss) on revaluation of derivative liabilities115,248 (35,880)(1,626)77,488 
Impairment loss on long-lived assetsImpairment loss on long-lived assets0 (40,000)(1,741)(40,000)
Share of loss from equity accounted investmentsShare of loss from equity accounted investments(1,115)(794)(2,758)(1,966)
Other, netOther, net1,127 (9)911 785 
Total other income (loss)Total other income (loss)111,094 634,920 158,886 1,161,664 Total other income (loss)117,553 (72,949)(592)47,792 
Income (loss) before income taxes69,925 604,222 37,949 1,104,125 
Income tax expense988 58 988 58 
Income from continuing operations$68,937 $604,164 $36,961 $1,104,067 
Income (loss) from discontinued operations(473)(36)(519)(63)
Income (loss) from continuing operationsIncome (loss) from continuing operations57,336 (107,657)(104,268)(31,976)
Loss from discontinued operationsLoss from discontinued operations(561)(46)(582)(46)
Net income (loss)Net income (loss)$68,464 $604,128 $36,442 $1,104,004 Net income (loss)56,775 (107,703)(104,850)(32,022)
Net income (loss) attributable to:
Cronos Group$69,033 $604,410 $38,096 $1,104,501 
Non-controlling interests(569)(282)(1,654)(497)
Net loss attributable to non-controlling interestNet loss attributable to non-controlling interest(279)(726)(592)(1,085)
Net income (loss) attributable to Cronos GroupNet income (loss) attributable to Cronos Group$57,054 $(106,977)$(104,258)$(30,937)
$68,464 $604,128 $36,442 $1,104,004 
Other comprehensive income (loss)Other comprehensive income (loss)Other comprehensive income (loss)
Net income (loss)Net income (loss)$56,775 $(107,703)$(104,850)$(32,022)
Other comprehensive income (loss):Other comprehensive income (loss):
Foreign exchange gain (loss) on translationForeign exchange gain (loss) on translation$26,167 $(12,422)$(35,654)$9,424 Foreign exchange gain (loss) on translation13,470 51,871 29,754 (61,821)
Total other comprehensive income (loss)Total other comprehensive income (loss)26,167 (12,422)(35,654)9,424 Total other comprehensive income (loss)13,470 51,871 29,754 (61,821)
Comprehensive income (loss)Comprehensive income (loss)$94,631 $591,706 $788 $1,113,428 Comprehensive income (loss)70,245 (55,832)(75,096)(93,843)
Comprehensive income (loss) attributable to:
Cronos Group$95,183 $591,996 $2,438 $1,113,929 
Non-controlling interests(552)(290)(1,650)(501)
Less: comprehensive income (loss) attributable to non-controlling interestsLess: comprehensive income (loss) attributable to non-controlling interests(394)(762)432 (1,098)
Comprehensive income (loss) attributable to Cronos GroupComprehensive income (loss) attributable to Cronos Group$70,639 $(55,070)$(75,528)$(92,745)
$94,631 $591,706 $788 $1,113,428 
Net income (loss) per shareNet income (loss) per shareNet income (loss) per share
Basic - continuing operations$0.20 $1.78 $0.11 $3.71 
Basic - discontinued operations0.000.000.000.00
Diluted - continuing operations(i)
0.19 1.62 0.10 0.92 
Diluted - discontinued operations(i)
0.000.000.000.00
Basic and diluted - continuing operationsBasic and diluted - continuing operations$0.15 $(0.31)$(0.28)$(0.09)
Weighted average number of outstanding sharesWeighted average number of outstanding sharesWeighted average number of outstanding shares
BasicBasic350,288,783 338,957,949 349,397,156 297,964,058 Basic371,721,382 349,075,408 367,391,118 348,946,439 
Diluted(i)
Diluted(i)
369,619,020 369,268,672 374,731,451 333,618,691 
Diluted(i)
375,349,856 349,075,408 367,391,118 348,946,439 
(i) In computing diluted earnings per share, incremental common shares are not considered in periods in which a net loss is reported, as the inclusion of the common share equivalents would be anti-dilutive.
See notes to condensed consolidated financial statements.
5

Cronos Group Inc.
Condensed Consolidated Statements of Changes in Equity (Deficit)
For the three months ended SeptemberJune 30, 20202021 and 20192020
(In thousands of U.S. dollars, except share amounts, unaudited)


Number of sharesShare capitalAdditional paid-in capitalRetained earningsAccumulated other comprehensive incomeNon-controlling interestsTotal shareholders’ equity
Balance at April 1, 2021371,656,590 $584,912 $32,090 $895,503 $58,144 $(2,370)$1,568,279 
Warrants exercised10,000 4 (2)— — — 2 
Vesting of options— — 1,864 — — — 1,864 
Options exercised80,603 102 (102)— — — 0 
Restricted share units settled58,354 345 (345)— — — 0 
Withholding taxes paid on share-based awards— — (183)(63)— — (246)
Vesting of restricted share units— — 701 — — — 701 
Vesting of common shares issued in connection with the use of certain publicity rights in brand development— 2,000 (1,655)— — — 345 
Top-up rights out-of-period adjustment— (14,505)— 3,227 — — (11,278)
Net income (loss)— — — 57,054 — (279)56,775 
Foreign exchange gain (loss) on translation— — — — 13,585 (115)13,470 
Balance at June 30, 2021371,805,547 $572,858 $32,368 $955,721 $71,729 $(2,764)$1,629,912 
Number of sharesShare capitalAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Non-controlling interestsTotal shareholders' equity (deficit)
Balance at July 1, 2020349,886,402 $565,221 $27,046 $1,106,709 $(33,970)$(1,951)$1,663,055 
Warrants exercised5,407,890 619 (619)— — — 0 
Vesting of options— — 1,551 — — — 1,551 
Options exercised25,534 57 (53)— — — 4 
Vesting of restricted share units, net of withholding taxes414,088 — 4,217 — — — 4,217 
Vesting of common shares issued in connection with the use of certain publicity rights in brand development— — 349 — — — 349 
Top-up Rights exercised— 680 0 — — — 680 
Net income (loss)— — — 69,033 — (569)68,464 
Other comprehensive income— — — — 26,150 17 26,167 
Balance at September 30, 2020355,733,914 $566,577 $32,491 $1,175,742 $(7,820)$(2,503)$1,764,487 
Number of sharesShare capitalAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Non-controlling interestsTotal shareholders' equity (deficit)
Balance at July 1, 2019336,144,543 $423,108 $14,779 $471,310 $11,973 $(112)$921,058 
Shares issued5,086,586 56,109 — — — — 56,109 
Share issuance costs— (4)— — — — (4)
Vesting of options— — 2,891 — — — 2,891 
Options exercised18,619 38 (33)(25)— — (20)
Vesting of restricted share units— — 186 — — — 186 
Top-up Rights exercised2,514,459 45,338 — — — — 45,338 
Net income (loss)— — — 604,410 — (282)604,128 
Other comprehensive loss— — — — (12,414)(8)(12,422)
Balance at September 30, 2019343,764,207 $524,589 $17,823 $1,075,695 $(441)$(402)$1,617,264 
Number of sharesShare capitalAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Non-controlling interestsTotal shareholders’ equity
Balance at April 1, 2020348,817,472 $563,165 $25,483 $1,213,686 $(85,877)$(1,189)$1,715,268 
Vesting of options— — 1,770 — — — 1,770 
Options exercised1,068,930 1,329 (1,328)— — — 1 
Vesting of restricted share units— — 776 — — — 776 
Vesting of common shares issued in connection with the use of certain publicity rights in brand development— — 345 — — — 345 
Top-up rights exercised— 717 — — — — 717 
Net loss— — — (106,977)— (726)(107,703)
Foreign exchange gain (loss) on translation— — — — 51,907 (36)51,871 
Balance at June 30, 2020349,886,402 $565,211 $27,046 $1,106,709 $(33,970)$(1,951)$1,663,045 

See notes to condensed consolidated financial statements.
6

Cronos Group Inc.
Condensed Consolidated Statements of Changes in Equity (Deficit)
For the ninesix months ended SeptemberJune 30, 20202021 and 20192020
(In thousands of U.S. dollars, except share amounts, unaudited)
Table of Contents


Number of sharesShare capitalAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Non-controlling interestsTotal shareholders’ equity (deficit)
Balance as of January 1, 2020348,817,472 $561,165 $23,234 $1,137,646 $27,838 $(853)$1,749,030 
Warrants exercised5,407,890 619 (619)— — — 0 
Vesting of options— — 5,051 — — — 5,051 
Options exercised1,094,464 1,386 (1,381)— — — 5 
Vesting of restricted share units, net of withholding taxes414,088 — 5,699 — — — 5,699 
Vesting of common shares issued in connection with the use of certain publicity rights in brand development— 2,000 507 — — — 2,507 
Top-up Rights exercised— 1,407 — — — — 1,407 
Net income (loss)— — — 38,096 — (1,654)36,442 
Other comprehensive income (loss)— — — — (35,658)4 (35,654)
Balance at September 30, 2020355,733,914 $566,577 $32,491 $1,175,742 $(7,820)$(2,503)$1,764,487 
Number of sharesShare capitalAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Non-controlling interestsTotal shareholders’ equity (deficit)
Balance as of January 1, 2019178,720,022 $175,001 $11,263 $(27,945)$(9,870)$100 $148,549 
Shares issued154,917,740 304,411 — — — — 304,411 
Share issuance costs— (3,722)— — — — (3,722)
Warrants exercised7,390,961 2,034 (596)— — — 1,438 
Vesting of options— — 7,309 — — — 7,309 
Options exercised170,087 356 (339)(861)— — (844)
Vesting of restricted share units— — 186 0 — — 186 
Top-up Rights exercised2,565,397 46,509 — — — — 46,509 
Net income (loss)— — — 1,104,501 — (497)1,104,004 
Other comprehensive income (loss)— — — — 9,429 (5)9,424 
Balance at September 30, 2019343,764,207 $524,589 $17,823 $1,075,695 $(441)$(402)$1,617,264 
Number of sharesShare capitalAdditional paid-in capitalRetained earningsAccumulated other comprehensive incomeNon-controlling interestsTotal shareholders’ equity
Balance as of January 1, 2021360,253,332 $569,260 $34,596 $1,064,509 $42,999 $(3,196)$1,708,168 
Warrants exercised7,842,859 1,165 (1,163)— — — 2 
Vesting of options— — 3,928 — — — 3,928 
Options exercised3,651,002 3,315 (3,305)— — — 10 
Restricted share units settled58,354 345 (345)— — — 0 
Withholding taxes paid on share-based awards— — (1,162)(7,757)— — (8,919)
Vesting of restricted share units— — 1,136 — — — 1,136 
Vesting of common shares issued in connection with the use of certain publicity rights in brand development— 2,000 (1,317)— — — 683 
Top-up rights out-of-period adjustment— (3,227)— 3,227 — — 0 
Net loss— — — (104,258)— (592)(104,850)
Foreign exchange gain on translation— — — — 28,730 1,024 29,754 
Balance at June 30, 2021371,805,547 $572,858 $32,368 $955,721 $71,729 $(2,764)$1,629,912 
Number of sharesShare capitalAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Non-controlling interestsTotal shareholders’ equity
Balance as of January 1, 2020348,817,472 $561,165 $23,234 $1,137,646 $27,838 $(853)$1,749,030 
Vesting of options— — 3,500 — — — 3,500 
Options exercised1,068,930 1,329 (1,328)— — — 1 
Vesting of restricted share units— — 1,482 — — — 1,482 
Vesting of common shares issued in connection with the use of certain publicity rights in brand development— 2,000 158 — — — 2,158 
Top-up rights exercised— 717 — — — — 717 
Net loss— — — (30,937)— (1,085)(32,022)
Foreign exchange loss on translation—— — — (61,808)(13)(61,821)
Balance at June 30, 2020349,886,402 $565,211 $27,046 $1,106,709 $(33,970)$(1,951)$1,663,045 

See notes to condensed consolidated financial statements.
7

Cronos Group Inc.
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2020 and 2019
(In thousands of U.S. dollars, except share amounts, unaudited)
Table of Contents


Nine months ended September 30,
20202019
Operating activities
Net income (loss)$36,442 $1,104,004 
Items not affecting cash:
Inventory write-down11,024 5,424 
Share-based payments12,898 7,949 
Depreciation and amortization5,095 2,956 
Share of loss from investments in equity accounted investees3,293 1,504 
Gain on revaluation of derivative liabilities(182,795)(1,158,008)
Gain on disposal of other investments(4,743)(16,242)
Impairment loss on goodwill and intangible assets40,000 0 
Loss (gain) on unrealized foreign exchange(3,020)807 
Provision for inventory and doubtful accounts3,119 0 
Non-cash sales and marketing2,505 0 
Loss on reclassification of held-for-sale assets919 0 
Other, net(298)(89)
Net changes in non-cash working capital(29,123)(25,098)
Cash flows used in operating activities(104,684)(76,793)
Investing activities
Purchase of short-term investments(125,562)(384,288)
Proceeds from disposal of short-term investments220,058 0 
Investments in equity accounted investees0 (1,658)
Proceeds from sale of other investments4,743 19,614 
Advances to joint ventures0 (15,951)
Purchase of property, plant and equipment(21,334)(37,622)
Payment of accrued interest on construction loan payable0 (89)
Purchase of intangible assets(3,094)(574)
Acquisition of Redwood0 (227,224)
Advances on loans receivable(37,000)(33,012)
Proceeds from repayment of loans receivable0 238 
Cash assumed on acquisition0 2,957 
Cash flows provided by (used in) investing activities37,811 (677,609)
Financing activities
Advance from non-controlling interests(187)183 
Repayment of lease obligations(1,859)(414)
Proceeds from Altria Investment0 1,809,556 
Proceeds from exercise of Top-up Rights0 31,566 
Proceeds from exercise of warrants and options5 1,455 
Withholding taxes paid on equity awards(2,148)(861)
Share issuance costs0 (3,722)
Advance of loans payable0 48,715 
Repayment of loans payable0 (48,309)
Transaction costs paid on construction loan payable0 (15,971)
Cash flows provided by (used in) financing activities(4,189)1,822,198 
Effect of foreign currency translation on cash and cash equivalents(30,785)22,691 
Net change in cash and cash equivalents(101,847)1,090,487 
Cash and cash equivalents, beginning of period1,199,693 23,927 
Cash and cash equivalents, end of period$1,097,846 $1,114,414 
Supplemental cash flow information
Interest paid156 647 
Interest received13,473 9,690 
Six months ended June 30,
20212020
Operating activities
Net loss$(104,850)$(32,022)
 Adjustments to reconcile net loss to cash provided by operating activities:
Share-based payments5,064 4,982 
Depreciation and amortization5,083 2,879 
Share of loss from investments in equity accounted investees2,758 1,966 
Gain (loss) on revaluation of derivative liabilities1,626 (77,488)
Impairment loss on long-lived assets1,741 40,000 
Expected credit losses on long-term financial assets0 1,357 
Other non-cash operating activities, net(1,192)599 
Changes in operating assets and liabilities:
Accounts receivable, net(2,194)2,895 
Other receivables6,960 (3,047)
Prepaids and other current assets1,268 1,187 
Inventory, net(1,010)(24,292)
Inventory write-down11,961 11,024 
Accounts payable and other liabilities(13,412)(8,417)
Cash flows used in operating activities(86,197)(78,377)
Investing activities
Purchase of short-term investments(120,180)(200,173)
Proceeds from short-term investments136,204 279,275 
Purchase of other investments(110,392)0 
Purchase of property, plant and equipment(8,347)(13,344)
Purchase of intangible assets(843)(2,754)
Proceeds from sale of held-for-sale assets2,059 0 
Advances on loans receivable(5,064)(23,974)
Proceeds from sale of other investments0 769 
Cash flows provided by (used in) investing activities(106,563)39,799 
Financing activities
Withholding taxes paid on share-based awards(8,919)0 
Proceeds from exercise of warrants and options12 1 
Cash flows provided by (used in) financing activities(8,907)1 
Effect of foreign currency translation on cash and cash equivalents18,825 (51,416)
Net change in cash and cash equivalents(182,842)(89,993)
Cash and cash equivalents, beginning of period1,078,023 1,199,693 
Cash and cash equivalents, end of period$895,181 $1,109,700 
Supplemental cash flow information
Interest paid$0 $90 
Interest received2,961 11,575 
Income taxes paid858 0 
See notes to condensed consolidated financial statements.



8
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars,$, except for gram and share amounts, unaudited)amounts)
Table of Contents
1. Background, Basis of Presentation and Accounting Policies
(a)Background
Cronos Group Inc. (“Cronos Group” or the “Company”) wasis incorporated on August 21, 2012 under the Business Corporations Act (Ontario). Effective July 9, 2020, the Company’s legal existence was continued toin the Province of British Columbia and under the British Columbia Business Corporations Act.Act (British Columbia) with principal executive offices at 111 Peter Street, Suite 300, Toronto, Ontario, M5V 2H1. The Company’s common shares are currently listed on the Toronto Stock Exchange (“TSX”) and Nasdaq Global Market (“Nasdaq”) under the ticker symbol “CRON.”
Cronos Group is an innovative global cannabinoid company, with international production and distribution across 5 continents. The Company is committed to building disruptive intellectual property by advancing cannabis research, technology and product development and is buildingseeking to build an iconic brand portfolio. Cronos Group’s brand portfolio includes PEACE NATURALS™, a global wellness platform; 2 adult-use brands, COVE™ and Spinach™; and 3 U.S. hemp-derived consumer products brands, Lord Jones™, Happy Dance™ and PEACE+™.
Cronos Group has established 4 strategic joint ventures in Canada, Israel, and Colombia. One“Cronos Israel” consists of these strategic joint ventures, Cronosa cultivation company (Cronos Israel (as defined herein)G.S. Cultivation Ltd.), a manufacturing company (Cronos Israel G.S. Manufacturing Ltd.), a distribution company (Cronos Israel G.S. Store Ltd.) and a pharmacy company (Cronos Israel G.S. Pharmacy Ltd.) and is consolidated for financial reporting purposes. The Company also holds approximately 31% of the issued capital of Cronos Australia Limited (“Cronos Australia”) and accounts for its investment in Cronos Australia under the equity method of accounting. For additional discussion regarding the joint ventures and strategic investment, see Note 6.3. Investments.

(b)Out-of-period adjustments
During the three months ended March 31, 2021, the Company identified an error in the accounting related to the withholding taxes on the net exercise of stock options, which resulted in an understatement of accounts payable and other liabilities of $966 and overstatements of other receivables, retained earnings and share capital of $3,202, $3,838 and $330, respectively, as of December 31, 2020. The error was deemed immaterial, and thus the Company has recorded an out-of-period adjustment to the condensed consolidated balance sheet and the condensed consolidated statement of changes in equity during the first quarter of 2021 to correct the error. This error had no impact to the condensed consolidated statement of net income (loss) and comprehensive income (loss). The impact of the out-of-period adjustments are included within the changes in operating assets and liabilities and withholding taxes paid on share-based awards lines in the Company’s condensed consolidated statements of cash flows.
2. SummaryDuring the three months ended June 30, 2021, the Company identified an error in the accounting related to the exercise of Significant Accounting PoliciesTop-up Rights (as defined herein), which resulted in an overstatement of share capital and Changesan understatement of gain on revaluation of derivative liabilities of $3,227 as of December 31, 2020, and overstatements of share capital and loss on revaluation of derivative liabilities and an understatement of retained earnings of $14,505, $11,278 and $3,227, respectively, as of March 31, 2021. The error was deemed immaterial, and thus the Company has recorded an out-of-period adjustment to the condensed consolidated balance sheet, the condensed consolidated statement of net income (loss) and comprehensive income (loss) and the condensed consolidated statement of changes in Accounting Policyequity during the second quarter of 2021 to correct the error. The impact of the out-of-period adjustments are included within the adjustments to net loss in the Company’s condensed consolidated statements of cash flows.
(a)(c)Basis of presentation
The interim condensed consolidated financial statements of Cronos Group are unaudited. They have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”) for interim financial information and with applicable rules and regulations of the U.S. Securities and Exchange Commission relating to interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and ninesix months ended SeptemberJune 30, 20202021 are not necessarily indicative of the results that may be expected for any other reporting period.
These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K/A10-K for the year ended December 31, 20192020 (the “Annual Financial Statements”).
(b)BasisCertain prior year amounts have been reclassified to conform to the current year presentation of consolidation
The accompanyingour condensed consolidated financial statements includestatements. These reclassifications had no effect on the accounts of the Company, and all entities in which the Company has a controlling voting interest and/or is the primary beneficiary of a variable interest as of and for the period presented. The Company consolidates the financialreported results of the following entities, which the Company controls:operations and ending shareholders’ equity.
9
Cronos Group Inc.
SubsidiariesJurisdiction of incorporationIncorporation date
Ownership interest (ii)
Cronos Israel G.S. Cultivation Ltd. (i)
IsraelFebruary 4, 201870%
Cronos Israel G.S. Manufacturing Ltd. (i)
IsraelSeptember 4, 201890%
Cronos Israel G.S. Store Ltd. (i)
IsraelJune 28, 201890%
Cronos Israel G.S. Pharmacy Ltd. (i)
IsraelFebruary 15, 201890%
(i)    These Israeli entities are collectively referred to as “Cronos Israel.”
(ii)    “Ownership interest” is defined as the proportionate share of net income to which the Company is entitled; equity interest may differ from ownership interest.
In the condensed consolidated statements of net income (loss) and comprehensive income (loss), the net income (loss) and comprehensive income (loss) are attributed to the equity holders of the Company and to the non-controlling interests. Non-controlling interests in the equity of Cronos Israel are presented separately in the shareholders’ equity (deficit) section of the condensed consolidated balance sheets and condensed consolidated statements of changes in equity (deficit). All intercompany transactions and balances are eliminated upon consolidation.
9
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
(c) (Unaudited)Goodwill and indefinite life intangible assets
Goodwill and indefinite life intangible assets are reviewed for impairment annually or more frequently when events or changes in circumstances indicate that fair value of the reporting unit has been reduced to less than its carrying value. The Company performs an impairment test annually in the fourth quarter by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered to be impaired. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company determined that it has 2 reporting units: the U.S. reporting unit and the Rest of World reporting unit.
During the second quarter of 2020, the Company concluded that the projected impact of the COVID-19 pandemic on its sales and revenues in the near term, together with the volatility in the market conditions during the period represented potential indicators of impairment for the U.S. reporting unit. Accordingly, the Company performed an interim impairment analysis during the second quarter of 2020. No triggering events were identified during the three months ended September 30, 2020. See Note 13 for more information regarding intangibles assets and goodwill.
(d)Definite life intangible assets
On July 1, 2020, the Company changed its method of amortization for the computer software asset class from an accelerated 50% double declining method to the straight-line method of five years. The Company determined that the change in estimate to the straight-line method is more appropriate based on the usage of the assets in the asset class. The change in estimate is applied prospectively as of July 1, 2020.
Intangible assets with finite useful lives are recorded at cost less any accumulated amortization and accumulated impairment losses. Intangible assets acquired through a business combination are measured at fair value at the acquisition date.
The Company capitalizes certain costs incurred in connection with its enterprise resource planning software, which include external direct costs of materials and services consumed in developing or obtaining internal-use software, payroll and payroll-related costs for employees who are directly associated with and who devote time to the development of the software for the function intended. All other costs are expensed as incurred.
Intangible assets with finite useful lives are amortized over their estimated useful lives using the following methods and rates:
MethodRate
SoftwareStraight-line5 years
Enterprise resource planning (“ERP”) systemStraight-line5 years
Health Canada licensesStraight-lineUseful life of corresponding facilities
Israeli codes(i)
Straight-lineUseful life of corresponding facilities
(i)    The preliminary licenses granted to Kibbutz Gan Shmuel (the Cronos Israel joint venture partner) by the Medical Cannabis Unit of the Israeli Ministry of Health in early 2017 (the “Israeli codes”) were transferred by non-controlling interests to Cronos Israel in exchange for equity interests in the Cronos Israel entities specified above. 
Amortization begins when assets become available for use. The estimated useful life, amortization method, and rate are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
(e)Assets held for sale and discontinued operations
In accordance with Accounting Standards Codification (“ASC”) 205-20 Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meet the criteria in paragraph 205-20-45-10. In the period in which the component meets held-for-sale or discontinued operations criteria the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations.
During the three months ended September 30, 2020, Original B.C. Ltd. (“OGBC”) met the criteria for “held-for-sale”. As a result, the Company has reflected amounts relating to OGBC as a disposal group classified as held-for-sale on the consolidated balance sheet and included as part of discontinued operations on the consolidated statement of net income (loss) and comprehensive income (loss) for all
10
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars,$, except for gram and share amounts, unaudited)amounts)
Table of Contents
periods presented in this Quarterly Report. OGBC is no longer included in the segment reporting following the reclassification to discontinued operations. The discontinued operations of OGBC are described further in Note 24.
The following table presents a reconciliation of the carrying amounts of major classes of assets and liabilities of the discontinued operations to total assets and liabilities of the disposal group classified as held-for-sale in the consolidated balance sheet of December 31, 2019:
As of December 31, 2019
As previously disclosedHeld-for-sale adjustmentAdjusted balance
Property, plant and equipment$161,809 $(1,861)$159,948 
Intangible assets72,320 (1,085)71,235 
Goodwill214,794 (302)214,492 

The following table presents a reconciliation of the major classes of line items constituting reported operating loss of discontinued operations to net loss of discontinued operations for the three and nine months ended September 30, 2019:

Three months ended September 30, 2019Nine months ended September 30, 2019
As previously disclosedHeld-for-sale adjustmentAdjusted balanceAs previously disclosedHeld-for-sale adjustmentAdjusted balance
Operating expenses$27,597 $(36)$27,561 $60,126 $(76)$60,050 
Other income (loss)634,920 0 634,920 1,161,677 (13)1,161,664 
Net income (loss) from continuing operations604,128 36 604,164 1,104,004 63 1,104,067 

(f)Reclassifications
Certain reclassifications have been made to the prior period financial information to conform to the presentation used in the financial statements for the three and nine months ended September 30, 2020. These reclassifications have no effect on the results of reported operating loss, net income, shareholders’ equity or cash flows. See Note 2(e) and Note 24.
Corporate expense reclassifications within segment disclosures:
In the three months ended September 30, 2020, the Company recorded a reclassification related to the allocation of operating expenses that was determined to be corporate expenses in nature to its segments, which decreased its Rest of World segment net loss by $4,626 and increased net loss attributable to corporate expenses by the same amount. This reclassification had no effect on the Company's consolidated statement of net income (loss). See Note 18.
Had all these amounts been classified in this manner for the three-month periods ended March 31, 2020 and June 30, 2020, net income (loss) attributable to the Rest of World segment would have increased by $2,899 and $1,727, respectively, and increased net loss attributable to corporate expenses by the same amounts. The Company does not consider the effect on year-to-date 2020 results or the effect on comparable quarterly periods to be material, and there was no impact on 2019 full year results.
After evaluating the quantitative and qualitative aspects of these reclassifications, the Company concluded that its prior period financial statements were not materially misstated, and, therefore, no restatement was required.
Revision of previously issued financial statements:
During the three months ended September 30, 2020, the Company identified an error in the manner in which it calculated diluted earnings (loss) per share for the three months ended September 30, 2019. The error had no impact on diluted earnings (loss) per share for the nine months ended September 30, 2019. See Note 16.
While the Company had excluded the anti-dilutive effect of the 1 warrant of the Company (the “Altria Warrant”), refer to Note 15(a) in the calculation of weighted average number of common shares for computation of diluted income (loss) per share, the gain on revaluation of derivative liabilities attributable to the Altria Warrant was incorrectly included in the calculation of diluted earnings (loss) per share, which resulted in an error in the previously reported amount for the three months ended September 30, 2019. Because the average market price of the Company’s common stock remained above the strike price of the Altria Warrant for the nine months ended September 30, 2019, there was no impact on the reported amount for the nine months ended September 30, 2019, and there was no impact in prior or subsequent quarterly periods.
11
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
After evaluating the quantitative and qualitative aspects of this error, the Company concluded that its prior period financial statements were not materially misstated, and, therefore, no restatement was required. However, the Company is revising the previously presented September 30, 2019 diluted earnings (loss) per share and adjustment for gain (loss) on revaluation of derivative liabilities, as follows:
Three months ended September 30, 2019
As previously disclosedAdjusted
Diluted earnings (loss) per share$0.42 $1.62 
Adjustment for gain (loss) on revaluation of derivative liabilities(488,041)(6,952)

3. New Accounting Pronouncements
(a)(d)Adoption of new accounting pronouncements
On January 1, 2020,2021, the Company adopted ASU No. 2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) (“ASU No. 2018-13”). ASU No. 2018-13 adds, modifies, and removes certain fair value measurement disclosure requirements. The adoption of this standard was applied prospectively and did not have a material impact on the Company’s condensed consolidated financial statements.
On January 1, 2020, the Company adopted ASU No. 2018-15, Intangibles – Goodwill and Other Internal-use-software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU No. 2018-15”). ASU No. 2018-15 amends current guidance to align the accounting for costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs associated with developing or obtaining internal-use software. The guidance in ASU No. 2018-15 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The adoption of this standard was applied prospectively and did not have a material impact on the Company’s condensed consolidated financial statements.
On January 1, 2020, the Company adopted ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment (“ASU No. 2017-04”). ASU No. 2017-04 eliminates step 2 from the goodwill impairment test and instead requires an entity to measure the impairment of goodwill assigned to a reporting unit if the carrying value of assets and liabilities assigned to the reporting unit, including goodwill, exceeds the reporting unit’s fair value. The guidance in ASU No. 2017-04 is effective for annual and interim goodwill tests completed by the Company beginning on January 1, 2020. The adoption of this standard was applied prospectively and the Company follows a one-step model for goodwill impairment.
(b)New accounting pronouncements not yet adopted
In January 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU No. 2020-01”). ASU No. 2020-01 clarifies the interaction of accounting for the transition into and out of the equity method. The new standard also clarifies the accounting formethod as well as measuring certain purchased options and forward contracts to acquire investments. The guidance in ASU No. 2020-01 is effective for annual and interim periods beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the effect of the adoption of ASU No. 2020-01 but anticipates that the adoption willdid not have a materialan impact on itsthe Company’s interim condensed consolidated financial statements.
In December 2019,On January 1, 2021, the FASB issuedCompany adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”). ASU No. 2019-12 eliminates certain exceptions and simplifies the application of U.S. GAAP-related changes in enacted tax laws or rates and employee stock option plans. ASU No. 2019-12 is effective for annual and interim periods beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the effect of the adoption of ASU No. 2019-12 but anticipates that the adoption willdid not have a materialan impact on itsthe Company’s interim condensed consolidated financial statements.
(e)New accounting pronouncements not yet adopted
In August 2020, the FASB issued ASU 2020-06, Debt –Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging –ContractsHedging—Contracts in Entity’s Own Equity (Subtopic 815–40) (“ASU No. 2020-06”). ASU No. 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU NoNo. 2020-06 is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. ASU No. 2020-62020-06 is effective for fiscal years beginning after December 15, 2021, and interim
12
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
periods within those fiscal years. The Company is currently evaluating the impact ASU No. 2020-06 will have on its condensed consolidated financial statements.

4. Revenues from Contracts with Customers
Cronos Group disaggregates net revenues based on product type. For further discussion, see Note 18. Receivables were $6,086 as of September 30, 2020 (December 31, 2019 – $4,638). The Company recorded a current expected credit loss allowance on receivables of $64 as of September 30, 2020 (December 31, 2019 – $136).
The Company offers discounts to customers for prompt payment and calculates cash discounts as a percentage of the list price based on historical experience and agreed-upon payment terms. The Company records an allowance for cash discounts, which is included as a contra-asset against receivables on the Company’s condensed consolidated balance sheets.
Revenue is measured net of returns. As a result, the Company is required to estimate the amount of returns based on the historical data by customer and product type, adjusted for forward-looking information. This is recorded as a provision against accounts receivable on the Company’s consolidated balance sheets. The Company estimates sales returns based principally on historical volume and return rates, as a reduction to revenues. The difference between actual sales and estimated sales returns is recorded in the period in which the actual amounts become known. These differences, if any, have not had a material impact on the Company’s condensed consolidated financial statements.
Upon return, products can be extracted from dried cannabis, resold, or destroyed depending on the nature of the product. The Company has assessed that the amount recoverable from returned products for the nine months ended September 30, 2020 is not material.

5.2. Inventory, net
Inventory, net is comprised of the following items:
As of
September 30, 2020December 31, 2019
Raw materials$10,214 $2,469 
Work-in-progress – dry cannabis25,799 11,538 
Work-in-progress – cannabis extracts13,436 17,975 
Finished goods – dry cannabis4,514 1,798 
Finished goods – cannabis extracts2,067 2,624 
Supplies and consumables329 1,639 
Total$56,359 $38,043 
As of June 30, 2021As of December 31, 2020
Raw materials$7,471 $11,489 
Work-in-progress17,291 26,278 
Finished goods10,247 5,905 
Supplies and consumables596 330 
Total$35,605 $44,002 
Inventory is written down for any obsolescence such as slow-moving or non-marketable products, or when the net realizable value of inventory is less than the carrying value. ForDuring the ninethree months ended SeptemberJune 30, 2021 and 2020, the Company recorded write-downs related to inventory of $11,024 (for$11,961 and $3,062, respectively. During the three and ninesix months ended SeptemberJune 30, 2019 – $5,424). NaN2021 and 2020, the Company recorded write-downs related to inventory write-downs were recorded during the three months ended September 30, 2020. As of September 30, 2020, an inventory reserve of $1,403 was recorded (September 30, 2019 – $nil)$11,961 and $11,024, respectively.

13
3. Investments
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
6. Investments and Advances to Joint Ventures
(a)Variable interest entities and investments in equity accounted investees, net
The Company holds variable interests in Cronos Growing Company Inc. (“Cronos GrowCo”), Natuera S.à.r.l (“Natuera”), MedMen Canada Inc. (“MedMen Canada”) and Cannasoul Lab Services Ltd. (“CLS”). The Company’s investments in Cronos GrowCo, Natuera and MedMen Canada are exposed to economic variability from each entity’s performance; however, the Company does not consolidate the entities as it does not have the power to direct the activities that most significantly impact each entity’s economic performance. Thus, Cronos Group is not considered the primary beneficiary of each entity. These investments are accounted for as equity method investments classified as “Investments in equity accounted investees, net” in the consolidated balance sheets.
Cronos GrowCo is a joint venture incorporated under the Canada Business Corporations Act (“CBCA”) on June 14, 2018 with the objective of building acultivating and commercializing cannabis production greenhouse, applying forand cannabis licenses under the Cannabis Act (Canada), and growing, cultivating, extracting, producing and selling cannabis in accordance with such licenses.products. Cronos Group holds variable interests in Cronos GrowCo through its ownership of 50% of Cronos GrowCo’s common shares and senior secured debt in Cronos GrowCo.debt. Cronos GrowCo’s economic performance is driven by the quantity and strains of cannabis grown. The joint venture partners mutually determine the quantity and strains of cannabis grown.
Natuera is a joint venture registered in Luxembourg with the objective of cultivating and commercializing hemp and cannabis products to serve the export market. Cronos holds variable interests in Natuera through its ownership of 50% of Natuera’s common shares and other debt in the entity. Natuera’s economic performance is driven by the quantity and strains of cannabis to be grown. The joint venture partners mutually determine the quantity and strains of cannabis grown.
10
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of $, except share amounts)
Table of Contents
MedMen Canada is a joint venture incorporated under the CBCA on March 13, 2018, with the objective of the retail sale and marketing of cannabis products in Canada. MedMen Canada holds the exclusive license to the MedMen brand in Canada for a minimum term of 20 years. CronosThe Company holds variable interests in MedMen Canada through its ownership of 50% of MedMen Canada’s common shares and other subordinated debt in the entity.debt. MedMen Canada’s economic performance is driven by the quantity and strains of cannabis sold. Subject to applicable law, the joint venture partners mutually determine the quantity and strains of cannabis to be sold in MedMen Canada’s retail stores, if and when stores are opened.
Natuera is a joint venture registered in Luxembourg with the objective of cultivating and commercializing hemp and cannabis products. The Company’s investmentsCompany holds variable interests in Cronos GrowCo, Natuera through its ownership of 50% of Natuera’s common shares. Natuera’s economic performance is driven by the quantity and MedMen Canada are exposed to economic variability from each entity’s performance; however,strains of cannabis grown, which is mutually determined by the Company does not consolidate the entities as it does not have the power to direct the activities that most significantly impact each entities’ economic performance. Thus, Cronos Group is not considered the primary beneficiary of each entity. These investments are accounted for as equity method investments classified as “Investments in equity accounted investees” in the consolidated balance sheets.joint venture partners.
CLS is a wholly owned subsidiary of Cannasoul Analytics Ltd., incorporated with the purpose of establishing a commercial cannabis analytical testing laboratory located on the premises of Cronos Israel (the “Cannasoul Collaboration”). Cronos Israel willagreed to advance up to ILS 8,297 (approximately $2,446)($2,511) by a non-recourse loan (the “Cannasoul Collaboration Loan”) to CLS over a period of two years from April 1, 2020 for the capital and operating expenditures of the laboratory. The loan will bearbears interest at 3.5% annually. Cronos Israel will receive 70% of the profits of the laboratory until such time as it has recovered 150% of the amounts advanced to CLS, after which time it will receive 50% of the laboratory profits. As a result, the Company is exposed to economic variability from CLS’s performance. The Company does not consolidate CLS as it does not have the power to direct the activities that most significantly impact the entity’s economic performance; thus, the Company is not considered the primary beneficiary of the entity. The carrying amount of the non-recourse loan is recorded under loans receivable and the full loan amount, ILS 8,297, represents the Company’s maximum potential exposure to losses through the Cannasoul Collaboration. See Note 104. Loans Receivable, net for further information regarding loans receivable.

14
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
(a)Net investment in equity accounted investees
A reconciliation of the carrying amount of the investments in associates and joint ventures is as follows:
Carrying Amount
Ownership %September 30, 2020December 31, 2019
Cronos Australia(i)
31%$0 $(346)
Cronos GrowCo(ii)
50%19,059 1,501 
MedMen Canada50%0 0 
Natuera50%0 (598)
$19,059 $557 
Ownership interestAs of June 30, 2021As of December 31, 2020
Cronos Australia31%$0 $0 
Cronos GrowCo50%19,022 19,235 
Natuera(i)
50%1,948 0 
$20,970 $19,235 
(i)On October 25, 2019, Cronos Australia issued 40 million new shares in an initial public offering at an offering price of A$0.50 per share. The Company’s ownership in Cronos Australia decreased from 50% to 31% on November 7, 2019 when Cronos Australia began trading on the Australian Securities Exchange. This resulted in a reconsideration event, which required the reassessment of the Company’s variable interest entity conclusion. Upon reconsideration, the Company determined that the entity was no longer a variable interest entity as of December 31, 2019 and is now reported under the equity method.
(ii)    On September 25, 2020,April 1, 2021, the Company and 2645485 Ontario Inc.an affiliate of Agroidea (“Mucci”AGI”), the other joint venture partner of Cronos GrowCo, agreed to capitalize certain historicalNatuera, converted all advances made by each shareholder to Cronos GrowCo.Natuera under the master loan agreement entered into with Natuera on September 27, 2019 (the “Natuera Series A Loan”), plus accrued interest, into equity of Natuera. Total aggregate gross advances to Cronos GrowCo, excluding any amounts advanced by the Company to Cronos GrowCoNatuera under the GrowCo Credit Facility,Natuera Series A Loan were C$49,300 ($37,932),$15,500, of which the Company advanced 50% and MucciAGI advanced the remaining 50% for an amount of C$24,650 ($18,505), or $7,750 each. As a result, the Company transferred the advancescarrying value of C$24,650 ($18,505)the Natuera Series A Loan of approximately $2,013 plus accrued interest of $540, for a total investment value of $2,553, which approximates fair value, to investments in equity accounted investees in respect of Cronos GrowCo..Natuera. See Note 4. Loans Receivable, net.
The Company’s share of net earnings (losses)losses from equity investments accounted for under the equity method of accounting:
For the three months ended September 30,For the nine months ended September 30,
2020201920202019
Whistler Medicinal Marijuana Company (“Whistler”)$0 $0 $0 $29 
Cronos Australia(i)
(57)(251)(292)(892)
Cronos GrowCo(401)(60)(902)(87)
MedMen Canada0 32 0 36 
Natuera(ii)
(869)(286)(2,099)(590)
$(1,327)$(565)$(3,293)$(1,504)
(i)    The Company’s share of accumulated net losses in excess of its equity investment and advances in Cronos Australia was $512 for the nine months ended September 30, 2020 (September 30, 2019 – $NaN).
(ii)    The Company’s share of accumulated net losses in excess of its equity investment in Natuera has been applied as a loss allowance on the loan receivable. See Note 6(b) and Note 10.

For the three months ended June 30,For the six months ended June 30,
2021202020212020
Cronos Australia$0 $(235)$0 $(235)
Cronos GrowCo(459)(190)(758)(501)
Natuera(656)(369)(2,000)(1,230)
$(1,115)$(794)$(2,758)$(1,966)
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Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars,$, except for gram and share amounts, unaudited)amounts)
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The Company determined that the maximum exposure of loss on investments in non-consolidated investments is limited to the Company’s initial investment, advances and/or loans for each variable interest entity. The following is a summary of the maximum exposure to loss as of June 30, 2021 and December 31, 2020:
Ownership interestAs of June 30, 2021As of December 31, 2020
Cronos Australia31%$1,573 $1,530 
Cronos GrowCo50%21,723 21,125 
MedMen Canada50%494 467 
Natuera50%8,047 8,154 
Total$31,837 $31,276 
(b)AdvancesOther investments
Other investments consist of investments in options of companies in the cannabis industry.
On June 14, 2021, the Company purchased an option to joint venture
MedMen Canada(i)
Cronos GrowCo(ii)
Cronos Australia(iii)
NatueraTotal
As of January 1, 2020$471 $18,966 $0 $0 $19,437 
Transfer to investments in equity accounted investees(ii)
0 (18,505)0 0 (18,505)
Interest on advances0 0 35 0 35 
Advances to joint ventures recovered from (applied to) carrying amount of investments0 0 (36)0 (36)
Effect from foreign exchange(10)(461)1 0 (470)
As of September 30, 2020$461 $0 $0 $0 $461 
MedMen Canada(i)
Cronos GrowCo(ii)
Cronos Australia(iii)
NatueraTotal
As of January 1, 2019$1,244 $2,970 $475 $0 $4,689 
Advances (repayment)(852)15,494 274 219 15,135 
Advances to joint ventures recovered from (applied to) carrying amount of investments35 22 (779)(224)(946)
Effect from foreign exchange44 480 30 5 559 
As of December 31, 2019$471 $18,966 $0 $0 $19,437 
(i)    Advanceacquire 473,787 shares of Class A Common Stock of PharmaCann, Inc. (“PharmaCann”), a vertically integrated cannabis company in the United States, at an exercise price of $0.0001 per share, representing approximately 10.5% of PharmaCann’s issued and outstanding capital stock on a fully diluted basis, for an aggregate purchase price of approximately $110,392. The option exercise will be based upon various factors, including the status of U.S. federal cannabis legalization, as well as regulatory approvals, including in the states where PharmaCann operates that may be required upon exercise. This option is unsecured, non-interest bearing,classified as an equity security without a readily determinable fair value. The Company has elected to measure the fair value of the option at cost less impairment, if any, and there are no termssubsequently adjusted for observable price changes in orderly transactions for the identical or a similar investment of repayment.
(ii)    On September 25,the same issuer. The option is reported as other investments on the condensed consolidated balance sheet for the period ended June 30, 2021. As of June 30, 2021 and December 31, 2020, the Company did not hold any additional other investments.

4. Loans Receivable, net
As of June 30, 2021As of December 31, 2020
Natuera Series A Loan(i)
$0 $3,518 
GrowCo Facility(ii)
1,614 3,137 
Add: Accrued interest3,414 428 
Total current portion of loans receivable5,028 7,083 
GrowCo Facility(ii)
77,474 69,939 
Mucci Promissory Note(iii)
13,969 13,324 
Cannasoul Collaboration Loan(iv)
1,870 1,261 
Add: Accrued interest800 2,667 
Total long-term portion of loans receivable94,113 87,191 
Total loans receivable, net$99,141 $94,274 
(i)On April 1, 2021, the Company and Mucci agreed to capitalize historicalAGI converted all advances made by each shareholder to Cronos GrowCo. The Company capitalized C$24,650 ($18,505) through a transferNatuera under the Series A Loan, plus accrued interest, into equity of Natuera. Total aggregate gross advances from advances to joint venturesNatuera under the Natuera Series A Loan were $15,500, of which the Company advanced 50% and AGI advanced the remaining 50%, or $7,750 each. As a result, the Company transferred the carrying value of the Natuera Series A Loan of approximately $2,013 plus accrued interest of $540, for a total investment value of $2,553, which approximates fair value, to investments in equity accounted investees in respect of Natuera. See Note 3. Investments.
(ii)As of June 30, 2021 and December 31, 2020, Cronos GrowCo. Refer to Note 6(a)(ii)GrowCo had drawn C$100,000 ($80,678) and C$95,150 ($74,626), respectively, from a credit agreement it entered into with the Company in August 2019 (the “GrowCo Facility”). As of June 30, 2021 and December 31, 2020, the Company had an allowance for credit losses of $1,590 and $1,470, respectively, recorded against the GrowCo Facility.
(iii)As of June 30, 2021 and December 31, 2020, the Company had an allowance for credit losses of $278 and$259, respectively, recorded against the promissory note receivable agreement entered into with Mucci on June 28, 2019 (the “Mucci Promissory Note”).
(iii)    (iv)A$1,500 is governed by an unsecured loan bearing interest at a rateAs of 12% per annum, calculatedJune 30, 2021 and compounded daily, in arrears, on the amounts advancedDecember 31, 2020 CLS has received ILS 6,223 and ILS 4,149 (approximately $1,909 and $1,287 respectively) from the dateCannasoul Collaboration Loan. As of each advance. The loan is due on January 1, 2022. IfJune 30, 2021 and December 31, 2020, the loan is overdue,Company had an allowance for credit losses of $39 and $25, respectively, recorded against the outstanding amount bears interest at an additional 2% per annum.Cannasoul Collaboration Loan.

7. Other Investments
Other investments consist of investments in common shares and warrants of several companies in the cannabis industry. As of September 30, 2020, the Company did not hold any other investments. The gain and losses on sale of other investments are classified as fair value through net income.
During the three months ended September 30, 2020, in connection with the achievement of the final milestone related to the Whistler Transaction (defined below), the Company received 402,561 shares of Aurora Cannabis Inc. (“Aurora”). The Company subsequently sold all 402,561 of the Aurora shares during the three months ended September 30, 2020 for gross proceeds of approximately $3,974 (C$5,354) recorded as a gain on disposal of other investments in other income (expense).
During the nine months ended September 30, 2020, in connection with the achievement of certain milestones related to the Whistler Transaction, the Company received 980,662 shares of Aurora. The Company sold all 980,662 of the Aurora shares during the nine months ended September 30, 2020 for gross proceeds of approximately $4,743 (C$6,404) recorded as a gain on disposal of other investments in other income (expense).
On March 4, 2019, the Company sold all 2,563 shares of Whistler, representing approximately 19.0% of Whistler’s issued and outstanding common shares, to Aurora, in connection with Aurora's acquisition of Whistler (the “Whistler Transaction”). As a result of the closing of the Whistler Transaction, the Company received 2,524,341 Aurora common shares. During the nine months ended September 30, 2019, the Company sold all 2,524,341 common shares of Aurora, for gross proceeds of $19,259 recorded as a gain on disposal of other investments in other income (expense). No transactions occurred during the three months ended September 30, 2019.
During the nine months ended September 30, 2019, the Company sold all remaining 11,062 common shares of Canopy Growth Corporation (“Canopy”) for net proceeds of $355 recorded as an other item in the other income (expense).
1612
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars,$, except for gram and share amounts, unaudited)amounts)
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8. Accumulated Other Comprehensive Income (Loss)
The following are continuity schedules of accumulated other comprehensive income (loss):

Three months ended September 30,Nine months ended September 30,
2020201920202019
Net unrealized gain (loss) on revaluation and disposal of other investments
Balance beginning of period$5 $5 $5 $5 
Balance as of September 30$5 $5 $5 $5 
Net foreign exchange gain (loss) on translation
Balance beginning of period$(33,975)$11,968 $27,833 $(9,875)
Net unrealized (loss) gain26,150 (12,414)(35,658)9,429 
Balance as of September 30(7,825)(446)(7,825)(446)
Total accumulated other comprehensive income (loss)$(7,820)$(441)$(7,820)$(441)

9. Leases
The Company has entered into leases primarily for land-use rights, office premises and equipment used in the production of cannabis and related products. The Company’s leases have terms which range from three years to six years, excluding land use rights, which generally extend to 15 years. These leases often include options to extend the term of the lease for up to 10 years. When it is reasonably certain that an option will be exercised, the impact of such option is included in the lease term for purposes of determining total future lease payments.
Operating leases greater than one year are included in right-of-use assets and operating lease liabilities. Finance leases are included in property, plant and equipment on the Company’s consolidated balance sheet.
During the nine months ended September 30, 2020, the Company recognized 2 new operating leases for office premises which are included within the lease obligation and right-of-use lines in the condensed consolidated balance sheet. In June 2020, the Company terminated an operating lease for an office premise. The lease was removed from the lease obligation and right-of-use balances in the condensed consolidated balance sheet.
The Company’s finance leases were not material as of September 30, 2020 and December 31, 2019.

17
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
10. Loans Receivable, net
As of
September 30, 2020December 31, 2019
Current portion
Natuera Series A loan(i)
$5,210 $4,575 
GrowCo Credit Facility(ii)
2,254 0 
Add: Accrued interest317 89 
Total current portion of loans receivable7,781 4,664 
Long term portion
GrowCo Credit Facility(ii)
60,408 31,678 
Mucci Promissory Note(iii)
12,648 12,587 
Cannasoul Collaboration loan(iv)
1,187 0 
Add: Accrued interest1,905 702 
Total long-term portion of loans receivable76,148 44,967 
Total loans receivable$83,929 $49,631 
(i)On July 24, 2020, the Company and its joint venture partner entered into an amendment to the Series A Loan with Natuera to increase the principal amount of the Series A Loan by $6,350, to an aggregate principal amount of $15,500, of which the Company has committed to fund 50% and its joint venture partner has committed to fund the remaining 50%. Outstanding principal amounts continue to bear interest at a fixed annual rate of 5.67% and the maturity date of the Series A Loan has been extended to March 1, 2021.
For the nine months ended September 30, 2020, a loss allowance of $2,552 was recorded against the Natuera Series A Loan related to the Company’s share of net loss from Natuera in excess of the carrying value of the equity method investment. Refer to Note 6.
(ii)On August 23, 2019, the Company entered into a credit agreement with Cronos GrowCo in respect of a C$100,000 ($75,140) secured non-revolving term loan credit facility (the “GrowCo Credit Facility”). The GrowCo Credit Facility will mature on March 31, 2031 and will bear interest at varying rates based on the Canadian prime rate as announced by the Bank of Montreal. Interest began to accrue as of the closing date of the GrowCo Credit Facility and is payable on a quarterly basis until maturity, except that any interest accrued prior to March 31, 2021 will be payable no later than December 31, 2021. Repayment of principal will be made on a quarterly basis commencing on March 31, 2021. The credit facility is secured by substantially all present and after acquired property of Cronos GrowCo and its subsidiaries. Mucci, the other 50% shareholder of Cronos GrowCo, has provided a limited recourse guarantee in favor of Cronos GrowCo, secured by Mucci’s shares in Cronos GrowCo. As of September 30, 2020, Cronos GrowCo had drawn C$85,150 ($63,981) from the Cronos GrowCo Credit Facility.
For the nine months ended September 30, 2020, a current expected credit loss allowance of $1,317 was recorded against the GrowCo Facility.
(iii)On June 28, 2019, the Company entered into a promissory note receivable agreement (the “Mucci Promissory Note”) for C$16,350 ($12,285) with Mucci. The outstanding principal amount of the Mucci Promissory Note bears interest at 3.95% annually and is due within 90 days of demand. The Company does not intend to demand the loan within 12 months. Interest accrued under the Mucci Promissory Note until July 1, 2021 is payable by way of capitalization on the principal amount and interest thereafter must be paid in cash on a quarterly basis. The Mucci Promissory Note is secured by a general security agreement covering all the assets of Mucci.
For the nine months ended September 30, 2020, a current expected credit loss allowance of $258 has been recorded against the Mucci loan.
(iv)On April 1, 2020, Cronos Israel entered into the Cannasoul Collaboration. Cronos Israel has agreed to advance approximately ILS 8,297 (approximately $2,495) by a non-recourse loan to CLS over a period of two years for the capital and operating expenditures of the laboratory. The outstanding principal on the loan bears interest at 3.5% annually and will be repaid through the profits generated from the Cannasoul Collaboration. As of September 30, 2020, CLS has received ILS 4,149 (approximately $1,198).
For the nine months ended September 30, 2020, a current expected credit loss allowance of $25 has been recorded against the Cannasoul Collaboration loan.

18
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
11.5. Derivative Liabilities
On March 8, 2019, the Company closed the previously announced investment in the Company (the “Altria Investment”) by Altria Group, Inc. (“Altria”), pursuant to a subscription agreement dated December 7, 2018. As of the closing date of the Altria Investment, the Altria Investment consisted of 149,831,154 common shares of the Company asand 1 warrant of the closing date, issued to a wholly owned subsidiaryCompany (the “Altria Warrant”), all of Altria and the Altria Warrant,which were issued to a wholly owned subsidiary of Altria. As of the closing date of the Altria Investment, Altria beneficially held an approximately 45% ownership interest in the Company (calculated on a non-diluted basis). As summarized in this note, if exercised in full on such date, the exercise of the Altria Warrant would have resulted in Altria holding a total ownership interest in the Company of approximately 55% (calculated on a non-diluted basis). As of June 30, 2021, Altria beneficially held an approximately 42% ownership interest in the Company (calculated on a non-diluted basis). As summarized in this note, if exercised in full on such date, the exercise of the Altria Warrant would have resulted in Altria holding a total ownership interest in the Company of approximately 53% (calculated on a non-diluted basis). Pursuant to the investor rights agreement between the Company and Altria, entered into in connection with the closing of the Altria Investment (the “Investor Rights Agreement”), the Company granted Altria certain rights, among others, summarized in this note.
The summaries below are qualified entirely by the terms and conditions fully set out in the Investor Rights Agreement and the Altria Warrant, as applicable.
a.The Altria Warrant entitles the holder, subject to certain qualifications and limitations, to subscribe for and purchase up to an additional approximate 10% of the common shares of Cronos (approximately 79.183 million common shares at SeptemberJune 30, 2020)2021) at a per share exercise price of C$19.00, which expires on March 8, 2023.
b.The Company granted to Altria, subject to certain qualifications and limitations, upon the occurrence of certain issuances of common shares of the Company executed by the Company (including issuances pursuant to the R&D partnership with Ginkgo Bioworks Inc. (“Ginkgo”) (the “Ginkgo Strategic Partnership”)), which is discussed in Note 19(a)(i) below, the right to purchase up to such number of common shares of the Company in order to maintain their ownership percentage of issued and outstanding common shares of the Company immediately preceding any issuance of shares by the Company (“Pre-emptive Rights”), at the same price per common share of the Company at which the common shares are sold in the relevant issuance. The price per common share of the Company to be paid by Altria pursuant to its exercise of its Pre-emptive Rights related to the Ginkgo Strategic Partnership will be C$16.25 per common share. These rights may not be exercised if Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20%.
c.In addition to (and without duplication of) the Pre-emptive Rights, the Company granted to Altria, subject to certain qualifications and limitations, the right to subscribe for common shares of the Company issuable in connection with the exercise, conversion or exchange of convertible securities of the Company issued prior to March 8, 2019 or thereafter (excluding any convertible securities of the Company owned by Altria or any of its subsidiaries), a share incentive plan of the Company, the exercise of any right granted by the Company pro rata to all shareholders of the Company to purchase additional common shares and/or securities of the Company, bona fide bank debt, equipment financing or non-equity interim financing transactions that contemplate an equity component or bona fide acquisitions (including acquisitions of assets or rights under a license or otherwise), mergers or similar business combination transactions or joint ventures involving the Company in order to maintain their ownership percentage of issued and outstanding common shares of the Company immediately preceding any such transactions (“Top-up Rights”).
The price per common share to be paid by Altria pursuant to the exercise of its Top-up Rights will be, subject to certain limited exceptions, the 10-day volume-weighted average price of the common shares of the Company on the TSX for the 10 full days preceding such exercise by Altria, provided that the price per common share of the Company to be paid by Altria pursuant to the exercise of its Top-up Rights in connection with the issuance of common shares of the Company pursuant to the exercise of options or warrants that were outstanding as of March 8, 2019 will be C$16.25 per common share without any set off, counterclaim, deduction, or withholding. These rights may not be exercised if Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20%. The Altria Warrant, Pre-emptive Rights, and fixed price Top-up Rights have been classified as derivative liabilities; related transaction costs of $22,355 were expensed as financing costs during the year ended December 31, 2019.liabilities.
1913
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars,$, except for gram and share amounts, unaudited)amounts)
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A reconciliation of the carrying amounts of the derivative liability is presented below:for the three months ended June 30, 2021 and 2020:
As of July 1, 2020(Gain) / loss on revaluationExercise of rightsEffect from foreign exchangeAs of September 30, 2020As of April 1, 2021Revaluation gainOut-of-period adjustmentForeign exchange effectAs of June 30, 2021
(a) Altria Warrant(a) Altria Warrant$165,958 $(82,495)$0 $2,374 $85,837 (a) Altria Warrant$234,656 $(85,778)$0 $1,205 $150,083 
(b) Pre-emptive Rights(b) Pre-emptive Rights16,180 (8,702)0 143 7,621 (b) Pre-emptive Rights20,173 (6,360)0 113 13,926 
(c) Top-up Rights(c) Top-up Rights23,576 (14,110)(680)411 9,197 (c) Top-up Rights17,471 (23,110)11,278 (85)5,554 
$205,714 $(105,307)$(680)$2,928 $102,655 $272,300 $(115,248)$11,278 $1,233 $169,563 

As of April 1, 2020Revaluation lossExercise of rightsForeign exchange effectAs of June 30, 2020
(a) Altria Warrant$132,366 $30,052 $0 $3,540 $165,958 
(b) Pre-emptive Rights13,070 2,610 0 500 16,180 
(c) Top-up Rights20,013 3,218 (727)1,072 23,576 
$165,449 $35,880 $(727)$5,112 $205,714 
As of January 1, 2020(Gain) / loss on revaluationExercise of rightsEffect from foreign exchangeAs of September 30, 2020
(a) Altria Warrant$234,428 $(140,547)$0 $(8,044)$85,837 
(b) Pre-emptive Rights12,787 (4,777)0 (389)7,621 
(c) Top-up Rights49,945 (37,471)(1,407)(1,870)9,197 
$297,160 $(182,795)$(1,407)$(10,303)$102,655 
A reconciliation of the carrying amounts of the derivative liability for the six months ended June 30, 2021 and 2020:

As of January 1, 2021Revaluation loss/(gain)Exercise of rightsForeign exchange effectAs of June 30, 2021
(a) Altria Warrant$138,858 $7,186 $0 $4,039 $150,083 
(b) Pre-emptive Rights12,095 1,473 0 358 13,926 
(c) Top-up Rights12,457 (7,033)0 130 5,554 
$163,410 $1,626 $0 $4,527 $169,563 
As of January 1, 2020Revaluation loss/(gain)Exercise of rightsForeign exchange effectAs of June 30, 2020
(a) Altria Warrant$234,428 $(58,052)$0 $(10,418)$165,958 
(b) Pre-emptive Rights12,787 3,925 0 (532)16,180 
(c) Top-up Rights49,945 (23,361)(727)(2,281)23,576 
$297,160 $(77,488)$(727)$(13,231)$205,714 
Fluctuations in the Company’s share price are a primary driver for the changes in the derivative valuations during each reporting period. As the share price decreases for each of the related derivative instruments, the liability of the instrument generally decreases. Share price is one of the significant observable inputs used in the fair value measurement of each of the Company’s derivative instruments. During the ninethree months ended SeptemberJune 30, 2020,2021, the Company’s share price decreased from December 31, 2019 resulting in a gainApril 1, 2021 and we recorded an out-of-period adjustment of $11,278. See Note 1. Background, Basis of Presentation and Accounting Policies for more information on revaluation of $182,795.the out-of-period adjustment.
14
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of $, except share amounts)
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The fair values of the derivative liabilities were determined using the Black-Scholes pricing model as of SeptemberJune 30, 20202021 and December 31, 20192020 applying the following inputs:
As of September 30, 2020As of December 31, 2019
Altria WarrantPre-emptive RightsTop-up RightsAltria WarrantPre-emptive RightsTop-up Rights
Share price at valuation date (per share in C$)$6.69$6.69$6.69$9.97$9.97$9.97
Subscription price (per share in C$)$19.00$16.25$16.25$19.00$16.25$16.25
Weighted average risk-free interest rate (i)
0.25%0.24%0.20%1.69%1.73%1.71%
Weighted average expected life (in years) (ii)
2.431.751.133.181.251.66
Expected annualized volatility (iii)
81%81%81%82%82%82%
Expected dividend yield0%0%0%0%0%0%
As of June 30, 2021As of December 31, 2020
Altria WarrantPre-emptive RightsTop-up RightsAltria WarrantPre-emptive RightsTop-up Rights
Share price at valuation date (i)
$10.68$10.68$10.68$8.84$8.84$8.84
Subscription price (i)
$19.00$16.25$16.25$19.00$16.25$16.25
Weighted average risk-free interest rate (ii)
0.38%0.28%0.31%0.21%0.17%0.13%
Weighted average expected life (iii)
1.681.251.312.181.500.98
Expected annualized volatility (iv)
75%75%75%81%81%81%
Expected dividend yield0%0%0%0%0%0%
(i)Per share in C$.
(ii)The risk-free interest rate was based on Bank of Canada government treasury bills and bonds with a remaining term equal to the expected life of the derivative liabilities. TheAs of June 30, 2021 and December 31, 2020, the risk-free interest rate uses a range of approximately 0.12%0.15% to 0.36% as of September 30, 2020 (December 31, 2019 – 1.66%0.85% and 0.10% to 1.73%)0.39%, respectively, for the Pre-emptive Rights and Top-up Rights.
(ii)(iii)The expected life in years represents the period of time, in years, that the derivative liabilities are expected to be outstanding. The expected life of the Pre-emptive Rights and Top-up Rights is determined based on the expected term of the underlying options, warrants, and shares, to which the Pre-emptive Rights and Top-up Rights are linked. TheAs of June 30, 2021 and December 31, 2020, the expected life uses a range of approximately 0.25 year to 5.254.25 years as of September 30, 2020 (December 31, 2019 – 0.25and 0.50 year to 6 years).5.00 years, respectively.
(iii)(iv)Volatility was based on an equally weighted blended historical and implied volatility level of the underlying equity securities of the Company as of June 30, 2021. As of December 31, 2020, volatility was based on the blended historical volatility levels of the Company and peer companies.
20
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
The following table quantifies each of the significant inputs described above and provides a sensitivity analysis of the impact on the reported values of the derivative liabilities. The sensitivity analysis for each significant input is performed by assuming a 10% decrease in the input while other significant inputs remain constant at management’s best estimate as of the respective dates. AWhile a decrease in the inputs noted below would cause a decrease in the carrying value of the derivative liability, and as of September 30, 2020, there would also be an equal but opposite impact on net income (loss).
Decrease as of September 30, 2020Decrease as of December 31, 2019Decrease as of June 30, 2021Decrease as of December 31, 2020
Altria WarrantPre-emptive RightsTop-up RightsAltria WarrantPre-emptive RightsTop-up RightsAltria WarrantPre-emptive RightsTop-up RightsAltria WarrantPre-emptive RightsTop-up Rights
Share priceShare price$16,133 $1,598 $2,196 $36,436 $2,743 $9,577 Share price$31,375 $3,146 $1,302 $25,819 $2,527 $2,989 
Weighted average expected lifeWeighted average expected life9,996 1,304 1,999 17,471 2,366 2,178 Weighted average expected life14,220 5,266 502 13,541 1,988 2,121 
Expected annualized volatilityExpected annualized volatility19,188 1,737 2,347 33,343 2,180 7,714 Expected annualized volatility27,375 2,348 968 26,183 2,269 2,602 
These inputs are classified in Level 3 on the fair value hierarchy and are subject to volatility and several factors outside of the Company’s control, which could significantly affect the fair value of these derivative liabilities in future periods.

15
12. Property, Plant and Equipment
Property, plant and equipment, net consisted of the following:
As of
September 30, 2020December 31, 2019
Cost
Land$3,037 $3,071 
Building148,112 149,690 
Furniture and equipment17,161 10,079 
Computer equipment669 526 
Leasehold improvements3,400 1,758 
Construction in progress14,267 3,569 
Less: accumulated depreciation(15,242)(8,745)
Total$171,404 $159,948 
Depreciation expense included in cost of sales relating to manufacturing equipment and production facilities for the nine months ended September 30, 2020 was $1,935 (September 30, 2019 – $1,628). Depreciation expense included in operating expenses related to general office space and equipment for the nine months ended September 30, 2020 was $1,682 (September 30, 2019 – $577). The remaining depreciation is included in inventory.
For the nine months ended September 30, 2020, there was 0 capitalized interest included in construction in progress (September 30, 2019 – $367).


21
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars,$, except for gram and share amounts, unaudited)amounts)
Table of Contents
6. Share-based Payments
13. Intangible Assets and Goodwill
The ongoing restrictions and closures experienced by retail stores in the U.S. as a result of the COVID-19 pandemic have negatively impacted sales and demand which has resulted in slower than expected revenue growth in the U.S. reporting unit. The Company expects the revenue growth and operating results in the U.S. reporting unit to continue to be negatively impacted as the decrease in customer demand and retail closures are expected to continue as a result of the pandemic. The Company performed an interim impairment test as of June 30, 2020 on the U.S. reporting unit, which holds the Redwood goodwill, as well as the indefinite-lived intangible asset (Lord Jones™ brand) to determine whether the carrying amount of the reporting unit and intangible asset exceeded their respective fair values. The Company reassessed its estimates and forecasts during the second quarter of 2020 to determine the fair values of the reporting unit and intangible asset. The fair values were determined using a discounted cash flow method on the reporting unit and the relief-from-royalty method on the Lord Jones™ brand. Based on these valuations, the carrying value exceeded the fair value resulting in an impairment on both the reporting unit as well as the Lord Jones™ brand. The Company does not believe the declines in fair values are temporary.(a)Share-based award plans
The Company recorded $35,000 of impairment charges onhas granted stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”) to employees and non-employee directors under the U.S. reporting unitStock Option Plan dated May 26, 2015 (the “2015 Stock Option Plan”), the 2018 Stock Option Plan dated June 28, 2018 (the “2018 Stock Option Plan” and, $5,000 ontogether with the Lord Jones™ brand2015 Stock Option Plan, the “Prior Option Plans”), the 2020 Omnibus Equity Incentive Plan dated March 29, 2020 (the “2020 Omnibus Plan”) and the DSU plan dated August 10, 2019 (the “DSU Plan”). The Company can no longer make grants under the Prior Option Plans.
The following table summarizes the total share-based payments associated with the Company’s stock options and RSUs for the nine months ended September 30, 2020. NaN impairment loss was recorded for either goodwill or intangible assets during the three months ended September 30, 2020 or during the three and ninesix months ended SeptemberJune 30, 2019.2021 and 2020:
(a)Intangible assets
Intangible assets are comprised of the following items:

Weighted average amortization period (in years)As of September 30, 2020
CostAccumulated amortizationImpairment chargesNet
Software5$575 $(234)$— $341 
ERP system52,851 (130)— 2,721 
Health Canada licenses177,211 (1,102)6,109 
Lord Jones™ brand
N/A64,000 — (5,000)59,000 
TrademarksN/A146 — — 146 
Israeli codes(i)
25300 (13)— 287 
$75,083 $(1,479)$(5,000)$68,604 
(i)The Israeli codes were transferred by non-controlling interests to Cronos Israel in exchange for their equity interests in the Cronos Israel entities specified above.

Weighted average amortization period (in years)As of December 31, 2019
CostAccumulated amortizationNet
Software5$541 $(202)$339 
Health Canada licenses177,387 (821)6,566 
Lord Jones™ brand
N/A64,000 — 64,000 
TrademarksN/A36 — 36 
Israeli codes(i)
25298 (4)294 
$72,262 $(1,027)$71,235 
(i)The Israeli codes were transferred by non-controlling interests to Cronos Israel in exchange for their equity interests in the Cronos Israel entities specified above.

The aggregate amortization for the nine months ended September 30, 2020 was $570 (September 30, 2019 – $480). There were 0 disposals of software during the three months ended September 30, 2020 and 2019.
The amortization expense for the next five years on intangible assets in use is estimated to be as follows: 2021 – $573; 2022 – $562; 2023: $529; 2024 – $524; 2025 – $509.
22
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
For the three months ended June 30,For the six months ended June 30,
2021202020212020
Stock options$1,864 $1,770 $3,928 $3,500 
RSUs701 776 1,136 1,482 
Total share-based payments$2,565 $2,546 $5,064 $4,982 
(b)GoodwillStock options
As of December 31, 2019AdditionsImpairment chargesEffect of foreign exchangeAs of September 30, 2020
Peace Naturals1,078 0 0 (33)1,045 
Redwood213,414 0 (35,000)0 178,414 
$214,492 $0 $(35,000)$(33)$179,459 

14. General and Administrative Expenses
General and administrative expenseVesting conditions for grants of options are comprised ofdetermined by the following items:
Three months ended September 30,Nine months ended September 30,
2020201920202019
Salaries and wages$4,611 $7,789 $18,412 $13,137 
Professional and consulting4,295 4,694 13,144 11,948 
Office and general4,449 1,643 11,064 7,166 
Review costs related to restatement of 2019 interim financial statements(i)
958 0 8,824 0 
Other4,547 2,076 9,604 2,736 
Total$18,860 $16,202 $61,048 $34,987 
(i)These financial statement review costs include costs related to the restatementCompensation Committee of the Company’s 2019 interim financial statements, costs relatedBoard of Directors. The typical vesting for stock option grants made under the 2020 Omnibus Plan is annual vesting over three to five years with a maximum term of ten years. The typical vesting for stock option grants made under the Company’s responsesPrior Option Plans is quarterly vesting over three to requests for information from various regulatory authorities relating to such restatementfive years with a maximum term of seven years. The Prior Option Plans did not, and legal costs defending shareholder class action complaints brought against the Company as a result2020 Omnibus Plan does not, authorize grants of the restatement.

15. Share-based Payments
(a)Warrantsoptions with an exercise price below fair market value.
The following is a summary of the changes in warrantsstock options during the ninesix months ended SeptemberJune 30, 20202021 and 2019:2020:
Weighted average exercise price (C$)Number of warrants
Balance as of January 1, 2020$0.26 18,066,662 
Exercise of warrants0.27 (5,626,410)
Balance as of September 30, 2020$0.25 12,440,252 
Balance as of January 1, 2019$0.26 25,457,623 
Exercise of warrants0.26 (7,390,961)
Balance as of September 30, 2019$0.26 18,066,662 
Weighted average exercise price (C$) (i)
Number of optionsWeighted average remaining contractual term (years)
Balance as of January 1, 2021$5.40 13,755,148 2.30
Exercise of options2.14 (5,349,818)
Cancellation, forfeiture and expiry of options14.86 (33,699)
Balance as of June 30, 2021$7.45 8,371,631 2.66
Exercisable as of June 30, 2021$6.49 4,679,240 1.43

(i)
AsThe weighted average exercise price reflects the conversion of September 30, 2020,foreign currency-denominated stock options translated into C$ using the Company had outstanding warrantsaverage foreign exchange rate as follows. For a description of the Altria Warrant, see Note 11.date of issuance.
Grant dateExpiry dateWeighted average exercise price (C$)Number of warrants
October 8 – 28, 2015October 8 – 28, 2020$0.31 452,903 
May 13 – 27, 2016May 13 – 27, 20210.25 11,987,349 
As of September 30, 2020$0.25 12,440,252 
Weighted average exercise price (C$)Number of optionsWeighted average remaining contractual term (years)
Balance as of January 1, 2020$4.84 14,149,502 2.56
Exercise of options2.05 (1,807,909)
Cancellation, forfeiture and expiry of options15.78 (127,045)
Balance as of June 30, 2020$5.13 12,214,548 2.05
Exercisable as of June 30, 2020$3.42 8,688,645 1.78
NaN stock options were granted during the six months ended June 30, 2021 and 2020.
2316
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars,$, except for gram and share amounts, unaudited)amounts)
Table of Contents
(b)Stock options
(i)Stock option plans
The Company adopted an amended and restatedfollowing table summarizes stock option plan dated May 26, 2015 (the “2015 Stock Option Plan”) which was approved by shareholders ofoptions outstanding for the Company at2020 Omnibus Plan, the annual general meeting of shareholders held on June 28, 2017. The 20152018 Stock Option Plan, allowed the Company’s Board of Directors (the “Board”) to award options to purchase shares to directors, officers, key employees and service providers of the Company. As of June 28, 2018, 0 further awards will be granted under the 2015 Stock Option Plan; however, shares may be purchased via option exercise by the holders of any outstanding options previously issued under the 2015 Stock Option Plan. As of September 30, 2020, options to purchase 10,443,447 Company common shares were outstanding under the 2015 Stock Option Plan.Plan:
On June 28, 2018, the shareholders of the Company approved a stock option plan (the “2018 Stock Option Plan”), which replaced the 2015 Stock Option Plan. As of June 25, 2020, the date on which the 2020 Omnibus Plan (as defined below) was approved by the shareholders of the Company, 0 further awards will be granted under the 2018 Stock Option Plan; however, shares may be purchased via option exercise by the holders of any outstanding options previously issued under the 2018 Stock Option Plan. As of September 30, 2020, options to purchase 1,641,759 Company common shares were outstanding under the 2018 Stock Option Plan.
On March 29, 2020, the Board adopted a new omnibus equity incentive plan (the “2020 Omnibus Plan”), which was approved by the shareholders of the Company at the annual and special meeting of shareholders held on June 25, 2020. The 2020 Omnibus Plan provides for grants of stock options, share appreciation rights, restricted shares, restricted share units (“RSUs”) and other share-based or cash-based awards, which are subject to terms as determined by the Compensation Committee of the Board, and awards may be granted to eligible employees, non-employee directors and consultants. As of September 30, 2020, options to purchase 2,000,000 Company common shares were outstanding under the 2020 Omnibus Plan.
For the three and nine months ended September 30, 2020, the total stock-based compensation expense associated with the stock options was $1,551 and $5,051 respectively (September 30, 2019 – $3,531 and $7,949, respectively).
(ii) Summary of changes
The following is a summary of the changes during the nine months ended September 30, 2020 and 2019:
Weighted average exercise price (C$)Number of optionsWeighted average remaining contractual term (years)
Balance as of January 1, 2020$4.84 14,149,502 2.56
Issuance of options(i)
6.96 2,000,000 
Exercise of options2.04 (1,841,863)
Cancellation, forfeiture and expiry of options15.06 (222,433)
Balance as of September 30, 2020$5.34 14,085,206 2.54
Exercisable as of September 30, 2020$3.56 9,381,601 1.57
Balance as of January 1, 2019$2.99 12,902,995 3.35
Issuance of options20.08 1,534,162 
Exercise of options3.72 (254,199)
Cancellation, forfeiture and expiry of options0 (5,083)
Balance as of September 30, 2019$4.83 14,177,875 2.81
Exercisable as of September 30, 2019$2.66 7,442,390 2.47
(i)On September 9, 2020, options to purchase 2,000,000 Company common shares were granted to Kurt Schmidt in connection with his appointment as President and Chief Executive Officer of the Company under the 2020 Omnibus Plan.
24
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
(iii)Fair value of options issued
The fair value of the options issued was determined using the Black-Scholes option pricing model, using the following inputs:
For the nine months ended September 30,
20202019
Share price at grant date (per share)C$6.96C$15.34 - C$24.75
Exercise price (per option)C$6.96C$15.34 - C$24.75
Risk-free interest rate0.43%1.39% - 1.62%
Expected life of options (in years)(i)
55
Expected annualized volatility91%89%
Expected dividend yield0%0%
Weighted average Black-Scholes value at grant date (per option)C$4.84C$10.6 - C$15.91
Forfeiture rate0%0%
(i)The expected life of the awards represents the period of time stock options are expected to be outstanding and is estimated considering vesting terms and employees’ and non-employees’ historical exercise and post-vesting employment termination behavior. Volatility was based on an equally weighted blended historical volatility level of the underlying equity securities of the Company and peer companies. The risk-free interest rate was based on the Bank of Canada government bonds with a remaining term equal to the expected life of the options at the grant date.
During the nine months ended September 30, 2020, the weighted average fair value per share at grant date of options was C$4.84 (nine months ended September 30, 2019 - C$13.32).
Stock options outstanding as of
June 30, 2021December 31, 2020
2020 Omnibus Plan2,000,000 2,000,000 
2018 Stock Option Plan1,586,7251,627,715 
2015 Stock Option Plan4,784,906 10,127,433 
Total stock options outstanding8,371,63113,755,148 
(c)Restricted share units
For the three and nine months ended September 30, 2020, the Company recorded $6,365 and $7,847, respectively (for three and nine months ended September 30, 2019 – $186) in share-based compensation expense related to the issuance of RSUs during such periods.

The following is a summary of the changes in RSUs from January 1, 2020 to Septemberfor the six months ended June 30, 2021 and 2020:
Number of RSUsWeighted average grant date fair value (C$)
Balance as of January 1, 2020732,972 $15.34 
Granted(i)
814,874 7.32 
Vested and issued(ii)
(732,972)15.34 
Cancellation and forfeitures(9,497)7.52 
Balance as of September 30, 2020805,377 $7.32 
Number of RSUs (i)
Weighted average grant date fair value (C$)(ii)
Balance as of January 1, 2021948,357 $7.66 
Granted(i)
515,433 11.29 
Vested and issued(89,912)7.52 
Balance as of June 30, 20211,373,878 $9.03 
Number of RSUs (i)
Weighted average grant date fair value (C$)(ii)
Balance as of January 1, 2020732,972 $15.34 
Granted(i)
279,277 7.52 
Balance as of June 30, 20201,012,249 $13.18 
(i)On September 9, 2020,RSUs granted in the Company issued 450,000 RSUs to Mr. Schmidt in connection with his appointment as President and Chief Executive Officer of the Company under the 2020 Omnibus Plan. The RSUs vest on September 10, 2023, subject to Mr. Schmidt’s continued employment through such date. The vesting of such RSUs is not subject to the achievement of any performance criteria.
In August 2020 and May 2020, the Company issued an aggregate of 85,597 and 279,277 RSUs, respectively, to certain employees under the 2020 Omnibus Plan. Each RSU entitles the holder thereof to receive upon vesting one common share of the Company. The RSUsperiod vest annually in equal installments over a three-year period following the grant date, subject to such holder’s continued employment through each vesting date. The vesting of such RSUs is not subject to the achievement of any performance criteria.
(ii)On July 20, 2020,The weighted average grant date fair value reflects the Company enteredconversion of foreign currency-denominated RSUs translated into separation agreements with Robert Rosenheck and another Redwood Wellness, LLC (“Redwood”) employee pursuant to which they resigned from their employment with Redwood. In connection with such separation agreements, 732,972 outstanding and unvested RSUs were accelerated and vested duringC$ using the three months ended September 30, 2020.

25
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
The following is a summaryforeign exchange rate as of the changes in RSUs from January 1, 2019 to September 30, 2019:
Number of RSUsWeighted average grant date fair value (C$)
Balance as of January 1, 20190 $0 
Granted(i)
732,972 15.34 
Balance as of September 30, 2019732,972 $15.34 
(i)During the three months ended September 30, 2019, the Company issued an aggregatedate of 732,972 RSUs to Mr. Rosenheck and another Redwood employee in connection with the acquisition of 4 Redwood Holding Group, LLC subsidiaries. These RSUs were accelerated and vested during the three months ended September 30, 2020.issuance.
(d)Deferred share units
On August 10, 2019, the Company established a cash-settled deferred share unit plan (“DSU Plan”) pursuant to which its non-executive directors receive deferred share units (“DSUs”). The DSU Plan is designed to promote a greater alignment of long-term interests between non-executive directors and shareholders. The number of DSUs granted under the DSU Plan (including fractional DSUs) is determined by dividing the amount of remuneration payable by the closing price as reported by the TSX on the trading day immediately preceding the day of grant. DSUs are payable at the time a non-executive director ceases to hold the office of director for any reason and are settled by a lump-sum cash payment, in accordance with the terms of the DSU Plan, based on the fair value of the DSUs at such time. The fair value of the cash payout is determined by multiplying the number of DSUs vested at the payout date by the closing price as reported by the TSX on the trading day immediately preceding the payout date. The fair value of the cash payout is determined at each reporting date based on the fair value of the Company’s common shares at the reporting date and is recorded within other liabilities.
The following is a summary of the changes in DSUs from January 1, 2020 to Septemberduring the six months ended June 30, 2021 and 2020:
Number of DSUsFinancial liability
Balance as of January 1, 202033,397 $255 
Granting and vesting of DSUs58,380 338 
Liabilities settled(8,484)(46)
Loss (gain) on revaluation— (128)
Balance as of September 30, 202083,293 $419 
Number of DSUsFinancial liability
Balance as of January 1, 202183,293 $577 
Loss on revaluation— 141 
Balance as of June 30, 202183,293 $718 
Number of DSUsFinancial liability
Balance as of January 1, 202033,397 $255 
DSU liabilities settled(8,484)(46)
Gain on revaluation— (56)
Balance as of June 30, 202024,913 $153 

17
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of $, except share amounts)
Table of Contents
(e)Warrants
The following is a summary of the changes in DSUs from January 1, 2019 to Septemberwarrants during the six months ended June 30, 2019:2021 and 2020:
Number of DSUsFinancial liability
Balance as of January 1, 20190 $0 
Granting and vesting of DSUs33,937 454 
Loss (gain) on revaluation— (147)
Balance as of September 30, 201933,937 $307 
Weighted average exercise price (C$)Number of warrants
Balance as of January 1, 2021$0.25 7,987,349 
Exercise of warrants0.25 (7,987,349)
Balance as of June 30, 2021$0 0 
Weighted average exercise price (C$)Number of warrants
Balance as of January 1, 2020 and June 30, 2020$0.26 18,066,662 

As of June 30, 2021, there are 0 warrants outstanding other than the Altria Warrant. See Note 5. Derivative Liabilities for further description on the Altria Warrant.

2618
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars,$, except for gram and share amounts, unaudited)amounts)
Table of Contents
16.7. Earnings (Loss) Perper Share
Basic and diluted earnings (loss) per share from continuing operations are calculated using the following numerators and denominators:
For the three months ended September 30,For the nine months ended September 30,
2020201920202019
Basic earnings per share computation
Net income (loss) attributable to common shareholders of Cronos Group$69,506 $604,446 $38,615 $1,104,564 
Weighted average number of common shares outstanding350,288,783 338,957,949 349,397,156 297,964,058 
 Basic earnings per share(i)
$0.20 $1.78 $0.11 $3.71 
Diluted earnings per share computation
Net income (loss) used in the computation of basic earnings per share$69,506 $604,446 $38,615 $1,104,564 
Adjustment for gain (loss) on revaluation of derivative liabilities(680)(6,952)(1,407)(798,799)
Net income (loss) used in the computation of diluted income per share$68,826 $597,494 $37,208 $305,765 
Weighted average number of common shares outstanding used in the computation of basic earnings per share350,288,783 338,957,949 349,397,156297,964,058
Dilutive effect of warrants12,514,864 17,792,227 17,126,222 20,080,244
Dilutive effect of stock options6,688,620 10,435,804 7,992,139 11,030,736
Dilutive effect of RSUs126,753 732,972 215,934 732,972 
Dilutive effect of Altria Warrant0 0 0 1,833,853
Dilutive effect of Top-up Rights – exercised and exercisable fixed price0 1,349,720 0 1,976,828
Weighted average number of common shares for computation of diluted income (loss) per share369,619,020 369,268,672 374,731.451 333,618,691 
Diluted earnings per share(i)
$0.19 $1.62 $0.10 $0.92 
For the three months ended June 30,For the six months ended June 30,
2021202020212020
Basic earnings (loss) per share computation
Net income (loss) from continuing operations attributable to the shareholders of Cronos Group$57,615 $(106,931)$(103,676)$(30,891)
Weighted average number of common shares outstanding371,721,382 349,075,408 367,391,118 348,946,439 
 Basic earnings (loss) from continuing operations per share(i)
$0.15 $(0.31)$(0.28)$(0.09)
Loss from discontinued operations attributable to the shareholders of Cronos Group$(561)$(46)$(582)$(46)
Weighted average number of common shares outstanding371,721,382 349,075,408 367,391,118 348,946,439 
Basic earnings from discontinued operations per share$0.00 $0.00 $0.00 $0.00 
Diluted earnings (loss) per share computation
Net income (loss) used in the computation of basic earnings (loss) from continuing operations per share$57,615 $(106,931)$(103,676)$(30,891)
Adjustment for gain (loss) on revaluation of derivative liabilities0 (729)0 (729)
Net income (loss) used in the computation of diluted earnings (loss) from continuing operations per share$57,615 $(107,660)$(103,676)$(31,620)
Weighted average number of common shares outstanding used in the computation of basic earnings (loss) per share371,721,382 349,075,408 367,391,118348,946,439
Dilutive effect of warrants5,577 0 0 0 
Dilutive effect of stock options3,027,518 0 0 0 
Dilutive effect of RSUs595,379 0 0 0 
Weighted average number of common shares for computation of diluted earnings (loss) from continuing operations per share(i)
375,349,856 349,075,408 367,391,118348,946,439
Diluted earnings (loss) from continuing operations per share$0.15 $(0.31)$(0.28)$(0.09)
Loss from discontinued operations attributable to the shareholders of Cronos Group$(561)$(46)$(582)$(46)
Weighted average number of common shares for computation of diluted loss from discontinued operations per share375,349,856 349,075,408 367,391,118 348,946,439 
Diluted earnings from discontinued operations per share$0.00 $0.00 $0.00 $0.00 
(i)Basic and dilutiveIn computing diluted earnings per share, from discontinued operations were $0.00 forincremental common shares are not considered in periods in which a net loss is reported as the three and nine months ended September 30, 2020 and 2019.inclusion of the common share equivalents would be anti-dilutive.
19
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of $, except share amounts)
Table of Contents
The following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive or because conditions for contingently issuable shares were not satisfied at the end of the reporting periods.
Three months ended September 30,Nine months ended September 30,
2020201920202019
Ginkgo equity milestones14,674,904 14,674,904 14,674,904 14,674,904 
Pre-emptive Rights12,006,740 12,006,740 12,006,740 12,006,740 
Top-up Rights – fixed price22,551,531 25,126,670 22,551,531 25,126,670 
Top-up Rights – market price3,065,570 1,255,223 3,065,570 1,255,223 
Altria Warrant79,051,981 76,392,046 79,051,981 0 
Stock options2,017,176 1,346,902 1,571,134 51,830 
Total anti-dilutive securities133,367,902 130,802,485 132,921,860 53,115,367 

27
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
17. Related Party Transactions and Balances
On March 8, 2019, in connection with the Altria Investment, Altria, through certain of its wholly owned subsidiaries, purchased a 45% equity interest in the Company.
The Company incurred the following expenses for consulting services from Altria Pinnacle LLC, a subsidiary of Altria (“Altria Pinnacle”):
Three months ended September 30,Nine months ended September 30,
2020201920202019
Altria Pinnacle – expense$160 $1,772 $1,113 $1,772 
Total$160 $1,772 $1,113 $1,772 

The following is a summary of amounts payable related to the consulting services with Altria Pinnacle:
As of
September 30, 2020December 31, 2019
Altria Pinnacle – payable$5 $1,152 
Total$5 $1,152 

During 2019, the Company purchased machinery and equipment amounting to $1,258 from a subsidiary of Altria. Refer to Note 19 for additional information.
Refer to Note 11 for further information on the derivative liabilities related to the Altria Investment.
There were no other material related party transactions for the three and nine months ended September 30, 2020 and 2019.
Three months ended June 30,Six months ended June 30,
2021202020212020
Ginkgo equity milestones14,674,904 14,674,904 14,674,904 14,674,904 
Pre-emptive Rights10,683,330 12,006,740 10,984,166 12,006,740 
Top-up Rights – fixed price3,698,611 26,686,413 7,406,031 26,686,413 
Top-up Rights – market price3,504,561 1,941,349 3,063,822 1,941,349 
Altria Warrant82,623,455 77,752,533 82,606,904 77,752,533 
Stock options1,411,944 10,495,235 6,136,113 10,547,256 
Warrants0 17,521,903 2,784,377 17,536,558 
Restricted share units265,904 1,012,249 717,127 1,012,249 
Total anti-dilutive securities116,862,709 162,091,326 128,373,444 162,158,002 

18.8. Segment Information
Segment reporting is prepared on the same basis that the Company’s chief operating decision makers (the “CODMs”) manage the business, make operating decisions and assess the Company’s performance. The Company determined that it has the following 2 reportable segments: United States and Rest of World. The United States operating segment consists of the manufacture and distribution of hemp-derived CBD infused products. The Rest of World operating segment is involved in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets. These 2 segments represent the geographic regions in which the Company operates and the different product offerings within each geographic region. The results of each segment are regularly reviewed by the CODMs to assess the performance of the segment and make decisions regarding the allocation of resources. The CODMs review operating incomeadjusted earnings (loss) before interest, tax, depreciation and amortization (“Adjusted EBITDA”) as the measure of segment profit or loss to evaluate performance of and allocate resources for its reportable segments. Operating income (loss)Adjusted EBITDA is defined as net revenue less costearnings before interest, tax, depreciation, non-cash items and items that do not reflect management’s assessment of sales and operating expenses. Corporate expenseson-going business performance.
The tables below set forth our condensed consolidated results of operations, expressed in thousands of U.S. dollars for the periods presented. Our condensed consolidated financial results for these periods are expenses that relate to the consolidated business and not to an individual operating segment. The Company’s methodnecessarily indicative of allocating corporate costs is refined periodically.
Reporting by operating segments follows the same accounting policies as those used to prepare the consolidated financial statements. The operating segments are presentedresults that we will achieve in accordance with the same criteria used for internal reporting prepared for the CODMs. Intersegment transactions are recorded at the stated values as agreed to by the segments.
future periods
.
2820
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars,$, except for gram and share amounts, unaudited)amounts)
Table of Contents
Segment data was as follows for the three and six months ended SeptemberJune 30, 2021 and 2020:
Three months ended September 30, 2020Three months ended June 30, 2021
United StatesRest of WorldCorporate expensesTotalUnited StatesRest of WorldCorporate ExpensesTotal
Consolidated statements of net income (loss) and comprehensive income (loss)
Net revenue
Cannabis flowerCannabis flower$0 $7,958 $0 $7,958 Cannabis flower$0 $11,597 $0 $11,597 
Cannabis extractsCannabis extracts1,639 1,504 0 3,143 Cannabis extracts2,227 1,531 0 3,758 
OtherOther0 257 0 257 Other0 267 0 267 
Net revenueNet revenue$1,639 $9,719 $0 $11,358 Net revenue$2,227 $13,395 $0 $15,622 
Share of loss from investments in equity accounted investees$0 $1,327 $0 $1,327 
Share of loss from equity accounted investmentsShare of loss from equity accounted investments$0 $1,115 $0 $1,115 
Interest incomeInterest income3 3,844 0 3,847 Interest income$20 $2,280 $0 $2,300 
Interest expenseInterest expense0 (66)0 (66)Interest expense0 (7)0 (7)
Interest income, netInterest income, net$3 $3,778 $0 $3,781 Interest income, net$20 $2,273 $0 $2,293 
Impairment loss on goodwill and intangible assets$0 $0 $0 $0 
Total assetsTotal assets$709,956 $386,805 $741,850 $1,838,611 
Depreciation and amortizationDepreciation and amortization35 851 0 886 Depreciation and amortization68 975 0 1,043 
Income tax expense143 845 0 988 
Income (loss) from discontinued operations0 (473)0 (473)
Net income (loss)(14,004)93,447 (10,979)68,464 
Adjusted EBITDAAdjusted EBITDA(10,711)(32,605)(6,443)(49,759)
Purchase of property, plant and equipment, netPurchase of property, plant and equipment, net239 1,428 0 1,667 
Three months ended June 30, 2020
United StatesRest of WorldCorporate ExpensesTotal
Cannabis flower$0 $5,674 $0 $5,674 
Cannabis extracts2,174 1,917 0 4,091 
Other0 118 0 118 
Net revenue$2,174 $7,709 $0 $9,883 
Share of loss from equity accounted investments$0 $794 $0 $794 
Interest income9 3,808 0 3,817 
Interest expense0 (83)0 (83)
Interest income, net$9 $3,725 $0 $3,734 
Total assets$250,470 $348,569 $1,311,248 $1,910,287 
Depreciation and amortization36 643 0 679 
Impairment loss on long-lived assets40,000 0 0 40,000 
Adjusted EBITDA(4,785)(18,618)(3,583)(26,986)
Purchase of property, plant and equipment, net39 6,894 0 6,933 

Segment data was as follows for the nine months ended September 30, 2020:
Nine months ended September 30, 2020
United StatesRest of WorldCorporate expensesTotal
Consolidated statements of net income (loss) and comprehensive income (loss)
Net revenue
Cannabis flower$0 $16,373 $0 $16,373 
Cannabis extracts5,989 6,821 0 12,810 
Other0 490 0 490 
Net revenue$5,989 $23,684 $0 $29,673 
Share of loss from investments in equity accounted investees$0 $3,293 $0 $3,293 
Interest income16 15,406 0 15,422 
Interest expense0 (156)0 (156)
Interest income, net$16 $15,250 $0 $15,266 
Impairment loss on goodwill and intangible assets$40,000 $0 $0 $40,000 
Depreciation and amortization104 2,148 0 2,252 
Income tax expense143 845 0 988 
Income (loss) from discontinued operations0 (519)0 (519)
Net income (loss)(71,571)132,704 (24,691)36,442 
Consolidated balance sheets
Total assets$251,835 $369,621 $1,297,473 $1,918,929 
Investments in equity accounted investees0 19,059 0 19,059 
Goodwill178,414 1,045 0 179,459 
Purchase of property, plant and equipment, net294 21,040 0 21,334 
2921
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars,$, except for gram and share amounts, unaudited)amounts)
Table of Contents
Six months ended June 30, 2021
United StatesRest of WorldCorporate ExpensesTotal
Cannabis flower$0 $21,031 $0 $21,031 
Cannabis extracts4,668 2,234 0 6,902 
Other0 300 0 300 
Net revenue$4,668 $23,565 $0 $28,233 
Share of loss from equity accounted investments$0 $2,758 $0 $2,758 
Interest income$23 $4,612 $0 $4,635 
Interest expense0 (13)0 (13)
Interest income, net$23 $4,599 $0 $4,622 
Total assets$709,956 $386,805 $741,850 $1,838,611 
Depreciation and amortization$139 $1,639 $0 $1,778 
Impairment loss on long-lived assets1,741 0 0 1,741 
Adjusted EBITDA(20,221)(54,789)(11,323)(86,333)
Purchase of property, plant and equipment, net319 8,028 0 8,347 
Sources
Six months ended June 30, 2020
United StatesRest of WorldCorporate ExpensesTotal
Cannabis flower$0 $8,415 $0 $8,415 
Cannabis extracts4,350 5,317 0 9,667 
Other0 233 0 233 
Net revenue$4,350 $13,965 $0 $18,315 
Share of loss from equity accounted investments$0 $1,966 $0 $1,966 
Interest income16 11,559 0 11,575 
Interest expense0 (90)0 (90)
Interest income, net$16 $11,469 $0 $11,485 
Total assets$250,470 $348,569 $1,311,248 $1,910,287 
Depreciation and amortization69 1,297 0 1,366 
Impairment loss on long-lived assets40,000 0 0 40,000 
Adjusted EBITDA(10,567)(47,628)(5,846)(64,041)
Purchase of property, plant and equipment, net219 13,125 0 13,344 

22
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of $, except share amounts)
Table of Contents
The following tables set forth a reconciliation of net revenueincome (loss) as determined in accordance with U.S. GAAP to Adjusted EBITDA for the periods indicated:
Three months ended June 30, 2021
United StatesRest of WorldCorporate ExpensesTotal
Net income (loss)$(11,719)$79,627 $(11,133)$56,775
Interest income, net(20)(2,273)0 (2,293)
Share of loss from equity accounted investments0 1,115 0 1,115
Gain on revaluation of derivative liabilities(ii)
0 (115,248)0 (115,248)
Transaction costs(iii)
0 0 2,758 2,758
Other, net(iv)
0 (1,127)0 (1,127)
Loss from discontinued operations(v)
0 561 0 561
Share-based payments(vi)
822 1,743 0 2,565
Review costs related to restatement of 2019 interim financial statements(vii)
0 0 1,932 1,932
Depreciation and amortization206 2,997 0 3,203
Adjusted EBITDA$(10,711)$(32,605)$(6,443)$(49,759)
Three months ended June 30, 2020
United StatesRest of WorldCorporate
Expenses		Total
Net loss$(45,566)$(55,095)$(7,042)$(107,703)
Interest income, net(9)(3,725)0 (3,734)
Share of loss from equity accounted investments0 794 0 794
Impairment loss on long-lived assets(i)
40,000 0 0 40,000
Loss on revaluation of derivative liabilities(ii)
0 35,880 0 35,880
Other, net(iv)
0 9 0 9
Loss from discontinued operations(v)
0 46 0 46
Share-based payments(vi)
756 1,790 0 2,546
Review costs related to restatement of 2019 interim financial statements(vii)
0 0 3,459 3,459
Depreciation and amortization34 1,683 0 1,717
Adjusted EBITDA$(4,785)$(18,618)$(3,583)$(26,986)
Six months ended June 30, 2021
United StatesRest of WorldCorporate ExpensesTotal
Net loss$(23,811)$(62,520)$(18,519)$(104,850)
Interest income, net(23)(4,599)0 (4,622)
Share of loss from equity accounted investments0 2,758 0 2,758
Impairment loss on long-lived assets(i)
1,741 0 0 1,741
Loss on revaluation of derivative liabilities(ii)
0 1,626 0 1,626
Transaction costs(iii)
0 0 3,259 3,259
Other, net(iv)
0 (911)0 (911)
Loss from discontinued operations(v)
0 582 0 582
Share-based payments(vi)
1,567 3,497 0 5,064
Review costs related to restatement of 2019 interim financial statements(vii)
0 0 3,937 3,937
Depreciation and amortization305 4,778 0 5,083
Adjusted EBITDA$(20,221)$(54,789)$(11,323)$(86,333)
23
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of $, except share amounts)
Table of Contents
Six months ended June 30, 2020
United StatesRest of WorldCorporate ExpensesTotal
Net income (loss)$(52,082)$33,772 $(13,712)$(32,022)
Interest income, net(16)(11,469)0 (11,485)
Share of loss from equity accounted investments0 1,966 0 1,966
Impairment loss on long-lived assets(i)
40,000 0 0 40,000
Loss on revaluation of derivative liabilities(ii)
0 (77,488)0 (77,488)
Other, net(iv)
0 (785)0 (785)
Loss from discontinued operations(v)
0 46 0 46
Share-based payments(vi)
1,462 3,520 0 4,982
Review costs related to restatement of 2019 interim financial statements(vii)
0 0 7,866 7,866
Depreciation and amortization69 2,810 0 2,879
Adjusted EBITDA$(10,567)$(47,628)$(5,846)$(64,041)
(i)For the six months ended June 30, 2021, impairment loss on long-lived assets relates to impairment on a leased premise in the U.S. segment, and for the three and ninesix months ended SeptemberJune 30, 2020, impairment loss on long-lived assets relates to impairment on goodwill and intangibles related to our U.S. segment in 2020. See Note 12. Impairment Loss on Long-Lived Assets.
(ii)For the three and six months ended June 30, 2021 and 2020, gain/loss on revaluation of derivative liabilities represents the fair value changes on the derivative liabilities. See Note 5. Derivative Liabilities.
(iii)For the three and six months ended June 30, 2021, transaction costs represents legal, financial and other advisory fees and expenses incurred in connection with various strategic investments. These costs are included in general and administrative expenses on the condensed consolidated statements of net income (loss) and comprehensive income (loss).
(iv)For the three and six months ended June 30, 2021, other, net is related to gain recorded on sale of the Company’s Winnipeg facility previously designated as held-for-sale in the first quarter of 2021, For the three and six months ended June 30, 2020, other, net is primarily comprised of the gain recorded related to the sale of common shares of Aurora Cannabis, Inc. (“Aurora”), which were received in connection with the achievement of a milestone related to Aurora’s acquisition of Whistler Medical Marijuana Corporation.
(v)For the three and six months ended June 30, 2020, loss from discontinued operations relates to the discontinuance of Original B.C. Ltd. (“OGBC”). See Note 11. Held-For-Sale Assets and Discontinued Operations.
(vi)For the three and six months ended June 30, 2021 and 2020, share-based payments relates to the vesting expenses of share-based compensation awarded to employees under the Company’s share-based award plans as described in Note 6. Share-based Payments.
(vii)For the three and six months ended June 30, 2021 and 2020, the financial statement review costs include costs related to the restatement of the Company’s 2019 wereinterim financial statements, costs related to the Company’s responses to requests for information from various regulatory authorities relating to such restatement and legal costs defending shareholder class action complaints brought against the Company as follows:
Three months ended September 30,Nine months ended September 30,
2020201920202019
Cannabis flower$7,958 $4,266 $16,373 $12,187 
Cannabis extracts3,143 1,500 12,810 4,138 
Other257 19 490 117 
Net revenue$11,358 $5,785 $29,673 $16,442 
a result of the restatement.
Net revenue attributed to a geographic region based on the location of the customer were as follows:
Three months ended September 31,Nine months ended September 31,Three months ended June 30,Six months ended June 30,
20202019202020192021202020212020
CanadaCanada$9,205 $5,093 $22,712 $15,416 Canada$10,664 $7,416 $18,246 $13,507 
IsraelIsrael2,310 293 4,828 293 
United StatesUnited States1,639 675 5,989 675 United States2,227 2,174 4,668 4,350 
Other countriesOther countries514 17 972 351 Other countries421 0 491 165 
Net revenueNet revenue$11,358 $5,785 $29,673 $16,442 Net revenue$15,622 $9,883 $28,233 $18,315 
Property, plant and equipment assets were physically located in the following geographic regions:
As of September 30, 2020As of December 31, 2019As of June 30, 2021As of December 31, 2020
CanadaCanada$146,292 $139,160 Canada$168,462 $162,163 
IsraelIsrael23,936 23,143 
United StatesUnited States2,302 2,103 United States1,522 2,293 
Other countries22,810 18,685 
TotalTotal$171,404 $159,948 Total$193,920 $187,599 
The Company sells products through a limited number of major customers. Major customers are defined as customers that each individually accounted for greater than 10% of the Company’s revenues and greater than 10% of accounts receivable.revenues.
24
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of $, except share amounts)
Table of Contents
United States
During the three and ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, the U.S. segment had no major customers.
As of SeptemberJune 30, 2021 and December 31, 2020, $41 (December 31, 2019 – $12)the Company had $106 and $65, respectively, in expected credit losses hasthat have been recognized on receivables from contracts with customers.
There was 0 loss from discontinued operations from the U.S. Segment for the three and six months ended June 30, 2021 and 2020.
Rest of World
During the three months ended SeptemberJune 30, 2021, the Rest of World segment earned a total net revenue before excise taxes of $8,497 from three major customers, Ontario Cannabis Retail Corporation, Alberta Gaming, Liquor and Cannabis Commission and Société Québécoise du Cannabis, accounting for 19%, 14% and 12%, respectively, of the Company’s total net revenue before excise taxes. During the three months ended June 30, 2020, the Rest of World segment earned a total net revenue before excise taxes of $9,790$7,040 from four major customers, together accounting for 71% of the Company’s total net revenues before excise taxes.
During the six months ended June 30, 2021, the Rest of World segment earned a total net revenue before excise taxes of $18,250 from four major customers, Ontario Cannabis Retail Corporation, Novolog Group, Société Québécoise du Cannabis and Alberta Gaming, Liquor and Cannabis Commission, Ontario Cannabis Retail Corporation, and BC Liquor Distribution Branch accounting for 26%15%, 22%14%, 20%13%, and 14%,12% respectively, of the Company’s total net revenue (threebefore excise taxes. During the six months ended September 30, 2019 – $3,351 from two major customers, together accounting for 58% of the Company’s total revenues).
During the nine months ended SeptemberJune 30, 2020, the Rest of World segment earned a total net revenue before excise taxes of $22,142$11,819 from the same four major customers as mentioned above, accounting for 18%, 23%, 16%, and 17%, respectively, of the Company’s total revenue (nine months ended September 30, 2019 – $7,101 from two major customers, together accounting for 43%65% of the Company’s total revenues).net revenues before excise taxes.
As of SeptemberJune 30, 2021 and December 31, 2020, $23 (December 31, 2019 – $124)the Company had $158 and $9, respectively, in expected credit losses hasthat have been recognized on receivables from contracts with customers.
During the three months ended September 30, 2020, the Company classified OGBC as held-for-sale. The loss from discontinued operations from the Rest of World segment for the three and nine months ended SeptemberJune 30, 2021 and 2020 was $473$561 and $519,$46, respectively. The loss from discontinued operations from the Rest of World segment for the three and ninesix months ended SeptemberJune 30, 20192021 and 2020 was $36$582 and $63,$46, respectively.

30
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
19.9. Commitments and Contingencies
(a)R&D commitmentsCommitments
(i)    Ginkgo. On September 4, 2018,There have been no material changes in the Company announced an R&D partnership with Ginkgo to develop scalable and consistent production of 8 target cannabinoids, including THC, CBD and a variety of other lesser known and rarer cannabinoids. As part of this partnership, Cronos Group has agreed to issue up to 14,674,903 common shares ofinformation regarding commitments as disclosed in the Company (aggregate value of approximately $100,000 as of July 17, 2018 assuming all milestones are met) (collectively the “Ginkgo Equity Milestones”) in tranches and $22,000 in cash subject to Ginkgo’s achievement of certain milestones and to fund certain R&D expenses, including foundry access fees.
(ii)    Technion. On October 15, 2018, the Company entered into a sponsored research agreement with the Technion Research and Development Foundation of the Technion – Israel Institute of Technology (“Technion”). Research will be focused on the use of cannabinoids and their role in regulating skin health and skin disorders. The Company has committed to $1,784 of research funding over a period of three years. An additional $4,900 of cash payments will be paid to Technion upon the achievement of certain milestones.Company’s Annual Financial Statements.
(b)Altria consulting servicesContingencies
On February 18, 2019, the Company entered into an agreement with a wholly owned subsidiary of Altria (which agreement was subsequently amended and restated to substitute Altria Pinnacle as a party thereto), to receive strategic advisory and project management services from Altria Pinnacle (the “Services Agreement”). Pursuant to the Services Agreement, the Company will pay Altria Pinnacle a monthly fee equal to the product of 105% and the sum of: (i) all costs directly associated with the services incurred during the monthly period, and (ii) a reasonable and appropriate allocation of indirect costs incurred during the monthly period. The Company will also pay all third-party direct charges incurred during the monthly period in connection with the services, including any reasonable and documented costs, fees and expenses associated with obtaining any consent, license or permit. The Services Agreement will remain in effect until terminated by either party.
(c)Use of publicity rights in brand development
On December 23, 2019, the Company issued 856,017 restricted common shares to Kristen Bell, an accredited investor, in a private placement (“Private Placement – 2019”) in reliance on Section 4(a)(2) of the Securities Act of 1933 in connection with the use of certain publicity rights in the brand development of Happy Dance™. One-third of such common shares vested on January 31, 2020 with the remaining shares vesting in two equal installments on June 23, 2021, and December 23, 2022. The issuance did not involve a public offering and was made without general solicitation or advertising. The total fair value of the consideration paid for the issuance of such common shares was approximately $6,000. The fair value of the shares was calculated using the 10-day volume weighted average price per share of the Company’s common shares on Nasdaq.
Additional restricted common shares are issued when certain performance milestones are achieved:
(i)    First Performance Issuance: if, prior to December 23, 2022, the product line generates at least $50,000 in net revenue, additional common shares with an aggregate value of $1,000 will be issued.
(ii)    Second Performance Issuance: if, prior to December 23, 2022, the product line generates at least $100,000 in net revenue, additional common shares with an aggregate value of $1,000 will be issued (together with the First Performance Issuance noted above).
The number of common shares that would be issued upon achieving the foregoing milestones will be determined based on the 10-day volume weighted average price per share of the Company’s common shares on Nasdaq as of the trading day immediately prior to the date of filing with the SEC of the Company’s audited year-end financial statements for the first fiscal year during which such milestones are achieved.

31
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
20. Contingencies
The Company is subject to various legal proceedings in the ordinary course of its business and in connection with its marketing, distribution and sale of its products. Many of these legal proceedings are in the early stages of litigation and seek damages that are unspecified or not quantified. Although the outcome of these matters cannot be predicted with certainty, the Company does not believe these legal proceedings, individually or in the aggregate, will have a material adverse effect on the its financial condition but could be material to the its results of operations for a quarterly period depending, in part, on its results for that quarter.
(a)(i)Class action complaints relating to restatement
On March 11 and 12, 2020, 2 alleged shareholders of the Company separately filed 2 putative class action complaints in the U.S. District Court for the Eastern District of New York against the Company and its former Chief Executive Officer (now Executive Chairman) and Chief Financial Officer allegingOfficer. The court has consolidated the cases, and the consolidated amended complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder against all defendants, and Section 20(a) of the Exchange Act against the individual defendants. The complaintsconsolidated amended complaint generally allegealleges that certain of the Company’s prior public statements about revenues and internal controls were incorrect based on the Company’s March 2, 2020, disclosure thatdisclosures relating to the Audit Committee of itsthe Board of Directors was conducting aDirectors’ review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel. The complaints doconsolidated amended complaint does not quantify a damage request. Defendants have not yet respondedmoved to the complaints.dismiss on February 8, 2021.
25
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of $, except share amounts)
Table of Contents
On June 3, 2020, an alleged shareholder filed a Statement of Claim, as amended on August 12, 2020, in the Ontario Superior Court of Justice in Toronto, Ontario, Canada, seeking, among other things, an order certifying the action as a class action on behalf of a putative class of shareholders and damages of an unspecified amount. The Amended Statement of Claim names the Company, its former Chief Executive Officer (now Executive Chairman), Chief Financial Officer, former Chief Financial Officer and Chief Commercial Officer, and current and former members of itsthe Board of Directors as defendants and alleges breaches of the Ontario Securities Act, oppression under the Ontario Business Corporations Act and common law misrepresentation. The Amended Statement of Claim generally alleges that certain of the Company’s prior public statements about revenues and internal controls were misrepresentations based on the Company’s March 2, 2020 disclosure that the Audit Committee of itsthe Board of Directors was conducting a review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel, and the Company’s subsequent restatement. The Amended Statement of Claim does not quantify itsa damage request. On June 28, 2021, the Ontario Court dismissed motions brought by the plaintiff for leave to commence a claim for misrepresentation under the Ontario Securities Act and for certification of the action as a class action. The Company andplaintiff appealed the other named defendants have not yet filed a responseCourt’s dismissal of the motions, except with respect to the Statementformer Chief Financial Officer and Chief Commercial Officer, who agreed not to seek costs from plaintiff in connection with the dismissal of Claim.the motions
(b)(ii)Regulatory reviews relating to restatement
The Company has been responding to requests for information from various regulatory authorities relating to its previously disclosed restatement of its financial statements for the first three quarters of 2019. The Company is responding to all such requests for information and cooperating with all regulatory authorities. The Company cannot predict the outcome of any such regulatory review or investigation and it is possible that additional investigations or one or more formal proceedings may be commenced against the Company and its current and former officers and directors in connection with these regulatory reviews and investigations.
(c)(iii)Litigation relating to marketing, distribution and sale of products
On June 16, 2020, an alleged consumer filed a Statement of Claim on behalf of a class in the Court of Queen’s Bench of Alberta in Alberta, Canada, against the Company and other Canadian cannabis manufacturers and/or distributors. On December 4, 2020, a Third Amended Statement of Claim was filed, which added a second alleged consumer. The Third Amended Statement of Claim alleges claims related to the defendants’ advertised content of cannabinoids in cannabis products for medicinal use on or after June 16, 2010 and cannabis products for adult use on or after October 17, 2018. The Third Amended Statement of Claim seeks a total of C$500 million for breach of contract, compensatory damages, and unjust enrichment or such other amount as may be proven in trial and C$5 million in punitive damages against each defendant, including the Company. The Third Amended Statement of Claim also seeks interest and costs associated with the action. The Company has not responded to the Third Amended Statement of the Claim.
A number of claims, including purported class actions, have been brought in the U.S. against companies engaged in the U.S. hemp business alleging, among other things, violations of state consumer protection, health and advertising laws. On April 8, 2020, a putative class action complaint was filed in the U.S. District Court for the Central District of California against Redwood Holding Group, LLC (“Redwood”), alleging violations of California’s Unfair Competition Law, False Advertising Law, Consumers Legal Remedies Act, and breaches of the California Commercial Code for breach of express warranties and implied warranty of merchantability with respect to Redwood’s marketing and sale of U.S. hemp products. The complaint doesdid not quantify a damage request. On April 10, 2020, the class action complaint was dismissed for certain pleading deficiencies and the plaintiff was granted leave until April 24, 2020 to amend the complaint to establish federal subject matter jurisdiction. On April 28, 2020, the action was dismissed without prejudice for failure to prosecute and for failure to comply with a court order. As of the date of this Quarterly Report, the plaintiff has not refiled the complaint.
32
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
The Company expects litigation and regulatory proceedings relating to the marketing, distribution and sale of its products to increase.

21.10. Financial Instruments
(a)Fair value measurement
The Company complies with ASC 820, Fair Value Measurements, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. In general, fair values are determined by:
•Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves.
•Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability.
26
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of $, except share amounts)
Table of Contents
The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
June 30, 2021
Level 1Level 2Level 3Total
Cash and cash equivalents$895,181 $0 $0 $895,181 
Short-term investments201,699 0 0 201,699 
Derivative liabilities0 0 169,563 169,563 
December 31, 2020
Level 1Level 2Level 3Total
Cash and cash equivalents$1,078,023 $0 $0 $1,078,023 
Short-term investments211,766 0 0 211,766 
Derivative liabilities0 0 163,410 163,410 
There were no transfers between categories during the periods presented.
(b)Financial risks
The Company’s activities expose it to a variety of financial risks, including credit risk, market risk, interest rate risk, liquidity risk, and market risk (including interest rate risk) and foreign currency rate risk.
(a)(i)Credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk from its operating activities, primarily accounts receivable and other receivables, and its investing activities, including cash held with banks and financial institutions, short-term investments, loanloans receivable, and advances to joint ventures. The Company’s maximum exposure to this risk is equal to the carrying amount of these financial assets, which amounted to $1,401,606$1,210,287 and $1,403,491 as of SeptemberJune 30, 2021 and December 31, 2020, (December 31, 2019 – $1,586,978).respectively.
(i)(a)Cash and cash equivalents, short-term investments, and other receivables
The Company held cash and cash equivalents and short-term investments and related interest receivable. Short-term investments and related interest receivable represents short-term investments with a maturity of less than a year and accrued interest as of period end. The cash and cash equivalents and short-term investments, including guaranteed investment certificates and bankers’ acceptances, are held with central banks and financial institutions that are highly rated. In addition to interest receivable, other receivables include sales taxes receivable from the government. As such, the Company has assessed an insignificant loss allowance on these financial instruments.
(b)Accounts receivable
An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on the days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Accounts receivable are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, among others, the failure of a debtor to engage in a repayment plan and a failure to make contractual payments for a period of greater than 120 days past due. For the three months ended SeptemberAs of June 30, 2021 and December 31, 2020, the Company recorded a current expectedhad an allowance for credit loss allowancelosses of $64 (December 31, 2019 – $136). The$264 and $74, respectively.
As of June 30, 2021, the Company has assessed that there is a concentration of credit risk, as 59%74% of the Company’s accounts receivable were due from four customers aswith an established credit history with the Company. As of September 30,December 31, 2020, (December 31, 2019 – 56%78% of the Company’s accounts receivable were due from two customers)four customers with an established credit history with the Company.
(ii)Cash and cash equivalents, short-term investments, and other receivables
The Company held cash and cash equivalents of $1,097,846 as of September 30, 2020 (December 31, 2019 – $1,199,693). The short-term investments and related interest receivable of $202,883 as of September 30, 2020 (December 31, 2019 – $306,347) represents short-term investments with a maturity of less than a year and accrued interest as of period end. The cash and cash equivalents and short-term investments, including guaranteed investment certificates and bankers’ acceptances, are held with central banks and financial institutions that are highly rated. In addition to interest receivable, other receivables include sales taxes receivable from the government. As such, the Company has assessed an insignificant loss allowance on these financial instruments.
(iii)Advances to joint ventures
The Company has assessed the credit risk of advances to joint ventures based on the financial position of the borrowers, and the regulatory and economic environment of the borrowers. The expected loss rates are based on the historical credit losses experienced. Where appropriate, the historical loss rates are adjusted to reflect current and forward-looking information. The Company has assessed an expected credit loss allowance on these advances as of September 30, 2020 to be $NaN (December 31, 2019 – $NaN).
(b) Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due and arises principally from the Company’s accounts payable and other liabilities. The Company’s policy is to review liquidity resources and ensure that sufficient funds are available to meet financial obligations as they become due. Further, the Company’s management is responsible for ensuring funds exist and are readily accessible to support business opportunities as they arise. The Company’s funding is primarily provided in the form of capital raised through the issuance of common shares and warrants. As of September 30, 2020, the Company had no concentration risk of vendors (December 31, 2019 – 42% due to three vendors).
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Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars,$, except for gram and share amounts, unaudited)amounts)
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(c)(ii)Market risk
Market risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will significantly fluctuate due to changes in market prices. The value of financial instruments can be affected by changes in interest rates, market and economic conditions, and equity and commodity prices. The Company is exposed to market risk in divesting its investments, such that unfavorable market conditions could result in dispositions of investments at less than their carrying values. Further, the revaluation of securities classified as fair value through net income could result in significant write-downs of the Company’s investments, which would have an adverse impact on the Company’s financial position, unless these would flow through other comprehensive income.
The Company manages market risk by having a portfolio of securities from multiple issuers so that the Company is not materially exposed to any one issuer.
(d)    (iii)Interest rate risk
Interest rate risk is the risk that the value or yield of fixed-income investments may decline if interest rates change. Fluctuations in interest rates may impact the level of income and expense recorded on the cash equivalents and short-term investments, and the market value of all interest-earning assets, other than those which possess a short-term to maturity. A 10% change in the interest rate in effect on SeptemberJune 30, 20202021 and December 31, 2019,2020 would not have a material effect on (i) fair value of the cash equivalents and short-term investments as the majority of the portfolio has a maturity date of three months or less or (ii) interest income. Management continues to monitor external interest rates and revise the Company’s investment strategy as a result.
During the ninethree months ended SeptemberJune 30, 2021 and 2020, the Company recorded net interest income of $2,293 and $3,734, respectively. During the six months ended June 30, 2021 and 2020, the Company recorded net interest income of $4,622 and $11,485, respectively.
(iv)Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due and arises principally from the Company’s accounts payable and other liabilities. The Company’s policy is to review liquidity resources and ensure that sufficient funds are available to meet financial obligations as they become due. Further, the Company’s management is responsible for ensuring funds exist and are readily accessible to support business opportunities as they arise. The Company’s funding was primarily provided in the form of capital raised through the issuance of common shares and warrants. As of June 30, 2021, the Company had assessed a concentration risk of vendors as 32% of accounts payables were due to one vendor. As of December 31, 2020, the Company had net interest incomeassessed a concentration risk of $15,266 (September 30, 2019 – $20,455). During the three and nine months ended September 30, 2020, the Company’s average variable interest rate fell 0.03% and 1.44%, respectively. Had the interest rates been consistent, net interest income would have increased by $303 and $15,214, respectively for the three and nine months ended September 30, 2020.vendors as 64% due to four vendors.
(e)    Currency rate(v)Foreign currency risk
Currency rate risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will significantly fluctuate due to changes in foreign exchange rates. The Company is exposed to this risk on advances to joint venturesinvestments in equity investees denominated in dollars, A$ and C$, and other assets and liabilities denominated in A$ and C$. The Company is further exposed to this risk through subsidiaries operating in Israel and the U.S. as the Company’s functional currency is in Canadian dollars. The Company does not currently use foreign exchange contracts to hedge its exposure to currency rate risk. As such, the Company’s financial position and financial results may be adversely affected by the unfavorable fluctuations in currency exchange rates.
AsDuring the three months ended June 30, 2021 and 2020, the Company had foreign currency gain on translation of September$13,470 and $51,871, respectively. During the six months ended June 30, 2021 and 2020, the Company had foreign currency gain (loss) on translation of $(35,654) (September 30, 2019 – $9,424).$29,754 and $(61,821), respectively. A 10% change in the exchange rates for the U.S. dollar would affect the carrying value of net assets by approximately $176,449$162,991 and $170,817 as of SeptemberJune 30, 2020 (December 31, 2019 –$174,902).

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Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
22. Fair Value Measurement
The Company complies with ASC 820, Fair Value Measurements, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. In general, fair values are determined by:
•Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves.
•Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability.
The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of September 30, 20202021 and December 31, 2019 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.
September 30, 2020Level 1Level 2Level 3Total
Cash and cash equivalents$1,097,846 $0 $0 $1,097,846 
Short-term investments202,883 0 0 202,883 
Derivative liabilities0 0 102,655 102,655 

December 31, 2019Level 1Level 2Level 3Total
Cash and cash equivalents$1,199,693 $0 $0 $1,199,693 
Short-term investments306,347 0 0 306,347 
Derivative liabilities0 0 297,160 297,160 
There were no transfers between categories during the periods presented.2020, respectively.

23. Supplementary Cash Flow Information
The net changes in non-cash working capital items are as follows:
For the nine months ended September 30,
20202019
Accounts receivable$(1,448)$(1,991)
Other receivables(3,169)(3,315)
Prepaids and other assets(1,137)(5,930)
Current portion of loans receivable0 (4,607)
Inventory, net(18,316)(33,903)
Accounts payable and other liabilities3,711 23,676 
Cumulative effect from foreign exchange(8,764)0 
Add back: net working capital assumed on acquisition0 972 
Total$(29,123)$(25,098)

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Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements
For the three and nine months ended September 30, 2020
(In thousands of U.S. dollars, except for gram and share amounts, unaudited)
24.11. Held-For-Sale Assets and Discontinued Operations
During the three monthsyear ended September 30,December 31, 2020, the Company advanced its plans for the sale and disposal of substantially all of the assets of OGBC.
AsOGBC and as a result, OGBC’s results of operations have beenwere reclassified as discontinued operations in the accompanying condensed consolidated financial statements. Accordingly,statements for all periods presented. During the quarter ended June 30, 2021, the Company determined that the fair value of OGBC was lower than the carrying value of the assets. As such, a write-down to these held-for-sale assets of $561 was recorded in the second quarter of 2021. As of June 30, 2021, the assets and liabilities of OGBC continue to meet the definition of discontinued operations and are separately reportedincluded as “held-for-sale” assets and liabilities “held-for-sale”on the condensed consolidated balance sheet as of SeptemberJune 30, 2021 and December 31, 2020, and loss from discontinued operations on the condensed consolidated balance sheet. For comparative purposes, amounts in the prior periods have been reclassified to conform to current year presentation, as disclosed in Note 2(e). The Company recorded $919 as a valuation allowance upon reclassificationstatements of assets as held-for-sale on OGBCnet income and comprehensive income for the three and ninesix months ended SeptemberJune 30, 2021 and 2020.
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Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of $, except share amounts)
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On June 10, 2021, the land and office building located in Winnipeg, Manitoba Canada, previously designated as held-for-sale in the first quarter of 2021, was sold for $2,059, net of costs to sell. As a result, the Company recorded a gain on the sale of $1,279 in other, net in its condensed consolidated income statement for the three and six months ended June 30, 2021.
The following table summarizes the financial information for discontinued operations:
Three months ended June 30,Six months ended June 30,
2021202020212020
Loss from discontinued operations, net of income taxes$(561)$(46)$(582)$(46)
Three months ended September 30,Nine months ended September 30,
2020201920202019
Consolidated statements of net income (loss) and comprehensive income (loss)
OGBC income from discontinued operations, net of income taxes$(473)$(36)$(519)$(63)

As of
September 30, 2020December 31, 2019
Consolidated balance sheets
Long-term assets classified as discontinued operations2,066 3,248 

As of June 30, 2021As of December 31, 2020
OGBC assets classified as held-for-sale$645 $1,176 

12. Impairment Loss on Long-Lived Assets
25(a). Non-monetary TransactionsProperty, plant, and equipment, net and right-of-use assets
During the ninesix months ended SeptemberJune 30, 2021, the Company recognized an impairment charge of $1,039 related to leasehold improvements located within leased premises, encompassing approximately 6,000 square feet, in Los Angeles, California, which the Company determined it no longer had plans to use. The significant change in the extent and manner in which the leasehold improvements are being used and the expectation that, more likely than not, the leasehold improvements will be disposed of before the end of their useful life triggered an impairment. The right-of-use lease asset associated with the leasehold improvements was also written down as a result of our decision to no longer use the leased premises. The Company recognized an impairment charge on the de-recognition of the right-of-use asset of $702 during the six months ended June 30, 2021. Both of the impairment charges are recognized in the statement of net income (loss) as impairment loss on property, plant and equipment and right-of-use assets. No impairment charges were recorded during the three months ended June 30, 2021 and the three and six months ended June 30, 2020 on property, plant and equipment and right-of-use assets.
(b)Intangible assets, net and goodwill
Goodwill and indefinite life intangible assets are reviewed for impairment annually or more frequently when events or changes in circumstances indicate that fair value of the reporting unit has been reduced to less than its carrying value. During the three months ended June 30, 2020, the Company had 0 non-monetary transactions.
On March 28, 2019,concluded that the projected impact of the COVID-19 pandemic on its sales and revenues in the near term, together with the volatility in the market conditions during the quarter, represented potential indicators of impairment for the Company’s U.S. reporting unit as well as its Lord Jones brand acquired in September 2019. Accordingly, the Company entered into 2 transactions to simultaneously purchaseperformed an interim impairment analysis during the second quarter of 2020. As a result of this analysis, the Company recorded impairment charges of $35,000 on its U.S. reporting unit and sell inventory to a third party. The Company purchased cannabis resin from$5,000 on its Lord Jones™ brand for the third partythree and in turn sold cannabis dry flower to the third party. The transactions involved the exchange of work in progress inventory and were accounted for atsix months ended June 30, 2020, when the carrying value of inventory transferred bythese assets exceeded their fair value. No triggering events were identified or impairment charges recorded during the Company, which equaled the value of the cannabis resin received. NaN revenue was recognized as a result of this transactionthree and 0 gain or loss was recognized in the condensed consolidated statements of net income (loss)six months ended June 30, 2021 on intangible assets and comprehensive income (loss).goodwill.
In September 2019, the Company entered into 3 transactions to simultaneously purchase and sell inventory to a third party. The Company purchased cannabis resin and cannabis tincture oil and in turn sold cannabis dry flower to the third party. The transactions involved the exchange of work in progress inventory and were accounted for in accordance with ASC 845 Non-monetary transactions at the carrying value of inventory transferred by the Company. $2,300 was recognized in revenue as a result of this transaction and 0 gain or loss was recognized in the consolidated statements of net income (loss) and comprehensive income (loss).
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read together with other information, including Cronos Group’s condensed consolidated financial statements and the related notes to those statements, included in Part I, Item 11. of this Quarterly Report on Form 10-Q for the quarterly period ended SeptemberJune 30, 20202021 (this “Quarterly Report”), consolidated financial statements appearing in the Company’s Annual Report on Form 10-K/A10-K for the year ended December 31, 2019 (as amended, the2020 (the “Annual Report”), and Part I, Item 1A, Risk Factors, of the Annual Report and Part 2, Item 1A, Risk Factors, of this Quarterly Report.
Forward-Looking Statements
This Quarterly Report, the documents incorporated into this Quarterly Report by reference, other reports we file with, or furnish to, the U.S. Securities and Exchange Commission (“SEC”) and other regulatory agencies, and statements by our directors, officers, other employees and other persons authorized to speak on our behalf contain information that may constitute forward-looking information and forward-looking statements within the meaning of applicable securities laws (collectively, “Forward-Looking Statements”), which are based upon our current internal expectations, estimates, projections, assumptions and beliefs. All information that is not clearly historical in nature may constitute Forward-Looking Statements. In some cases, Forward-Looking Statements can be identified by the use of forward-looking terminology, such as “expect”, “likely”, “may”, “will”, “should”, “intend”, “anticipate”, “potential”, “proposed”, “estimate” and other similar words, expressions and phrases, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussion of strategy. Forward-Looking Statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of historical fact.
Forward-Looking Statements include, but are not limited to, statements with respect to:
•the uncertainties associated with the COVID-19 pandemic, including our ability, and the abilities of our joint ventures and our suppliers and distributors, to effectively deal with the restrictions, limitations and health issues presented by the COVID-19 pandemic, the ability to continue our production, distribution and sale of our products, and demand for and the use of our products by consumers;
•laws and regulations and any amendments thereto applicable to our business and the impact thereof, including uncertainty regarding the application of United States (“U.S.”) state and federal law to U.S. hemp (including CBD) products and the scope of any regulations by the U.S. FederalFood and Drug Administration (the “FDA”), the U.S. Drug Enforcement Administration (the “DEA”), the U.S. Federal Trade Commission (the “FTC”), the U.S. Patent and Trademark Office (the “PTO”) and any state equivalent regulatory agencies over U.S. hemp (including CBD) products;
•expectations regarding the regulation oflaws and regulations and any amendments thereto relating to the U.S. hemp industry in the U.S., including the promulgation of regulations for the U.S. hemp industry by the U.S. Department of Agriculture;Agriculture (the “USDA”) and relevant state regulatory authorities;
•the grant, renewal and impact of any license or supplemental license to conduct activities with cannabis or any amendments thereof;
•our international activities and joint venture interests, including required regulatory approvals and licensing, anticipated costs and timing, and expected impact;
•theour ability to successfully create and launch brands and further create, launch and scale U.S. hemp-derived consumer products including through the Redwood Acquisition (as defined herein), and cannabis products in jurisdictions where such products are legal and that we currently operate in;products;
•the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, including CBD and other cannabinoids;
•expectations regarding the implementation and effectiveness of key personnel changes;
•the anticipated benefits and impact of Altria Group, Inc.’s investment in the Altria Investment (as defined herein);Company (the “Altria Investment”), pursuant to a subscription agreement dated December 7, 2018;
•the potential exercise of one warrant of the Company included as part of the Altria Warrant (as defined herein),Investment, pre-emptive rights and/or top-up rights in connection with the Altria Investment, including proceeds to us that may result therefrom;
•expectations regarding the use of proceeds of equity financings, including the proceeds from the Altria Investment;
•the legalization of the use of cannabis for medical or adult-use in jurisdictions outside of Canada, the related timing and impact thereof and our intentions to participate in such markets, if and when such use is legalized;
•expectations regarding the potential success of, and the costs and benefits associated with, our joint ventures, strategic alliances and equity investments, including the strategic partnership (the “Ginkgo Strategic Partnership”) with Ginkgo Bioworks, Inc. (“Ginkgo”);
•our ability to execute on our strategy and the anticipated benefits of such strategy;
•expectations of the amount or frequency of impairment losses, including as a result of the write-down of intangible assets, including goodwill;
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•the ongoing impact of the legalization of additional cannabis product types and forms for adult-use in Canada, including federal, provincial, territorial and municipal regulations pertaining thereto, the related timing and impact thereof and our intentions to participate in such markets;
•the future performance of our business and operations;
•our competitive advantages and business strategies;
•the competitive conditions of the industry;
•the expected growth in the number of customers using our products;
•our ability or plans to identify, develop, commercialize or expand our technology and research and development (“R&D&D”) initiatives in cannabinoids, or the success thereof;
•expectations regarding acquisitions and dispositions and the anticipated benefits therefrom, including the Redwood Acquisition and the acquisition of certain assets from Apotex Fermentation Inc., including a GMP-compliant fermentation and manufacturing facility in Winnipeg, Manitoba (operating as “Cronos Fermentation”), and the proposed sale of our Original B.C. Ltd. (“OGBC”) production facility;
•uncertainties as to our ability to exercise the PharmaCann Option (as defined herein) in the near term or the future or in full or in part, including the uncertainties as to the status and future development of federal legalization of cannabis in the U.S. and our ability to realize the anticipated benefits of the transaction with PharmaCann (as defined herein);
•expectations regarding revenues, expenses and anticipated cash needs;
•expectations regarding cash flow, liquidity and sources of funding;
•expectations regarding capital expenditures;
•the expansion of our production and manufacturing, the costs and timing associated therewith and the receipt of applicable production and sale licenses;
•the expected growth in our growing, production and supply chain capacities;
•expectations regarding the resolution of litigation and other legal and regulatory proceedings, reviews and investigations;
•expectations with respect to future production costs;
•expectations with respect to future sales and distribution channels;channels and networks;
•the expected methods to be used to distribute and sell our products;
•our future product offerings;
•the anticipated future gross margins of our operations;
•accounting standards and estimates;
•our ability to timely and effectively remediate any material weaknesses in our internal control over financial reporting;
•expectations regarding our distribution network; and
•expectations regarding the costs and benefits associated with our contracts and agreements with third parties, including under our third-party supply and manufacturing agreements.
Certain of the Forward-Looking Statements contained herein concerning the industries in which we conduct our business are based on estimates prepared by us using data from publicly available governmental sources, market research, industry analysis and on assumptions based on data and knowledge of these industries, which we believe to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. The industries in which we conduct our business involve risks and uncertainties that are subject to change based on various factors, which are described further below.
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The Forward-Looking Statements contained herein are based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including: (i) our ability, and the abilities of our joint ventures and our suppliers and distributors, to effectively deal with the restrictions, limitations and health issues presented by the COVID-19 pandemic and the ability to continue our production, distribution and sale of our products and customer demand for and use of our products; (ii) management’s perceptions of historical trends, current conditions and expected future developments; (iii) our ability to generate cash flow from operations; (iv) general economic, financial market, regulatory and political conditions in which we operate; (v) the production and manufacturing capabilities and output from our facilities and our joint ventures, strategic alliances and equity investments; (vi) consumer interest in our products; (vii) competition; (viii) anticipated and unanticipated costs; (ix) government regulation of our activities and products including, but not limited to, the areas of taxation and environmental protection; (x) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (xi) our ability to obtain qualified staff, equipment and services in a timely and cost-efficient manner; (xii) our ability to conduct operations in a safe, efficient and effective manner; (xiii) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our recent acquisitions into our existing operations; (xiv) our ability to complete planned dispositions, including the sale of OGBC, and, if completed, obtain our anticipated sales price; (xv) our ability to exercise the PharmaCann Option and (xv)realize the anticipated benefits of the transaction with PharmaCann; and (xvi) other considerations that management believes to be appropriate in the circumstances. While our management considers these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct.
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By their nature, Forward-Looking Statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the Forward-Looking Statements in this Quarterly Report and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf. Such factors include, without limitation, the risk that the COVID-19 pandemic may disrupt our operations and those of our suppliers and distribution channels and negatively impact the demand for and use of our products; the risk that cost savings and any other synergies from the Altria Investment may not be fully realized or may take longer to realize than expected; the risk that we will not complete planned dispositions, including the sale of OGBC, or, if completed, obtain our anticipated sales price; disruption of production, distribution and sales as a result of the COVID-19 pandemic and any adverse effects the COVID-19 pandemic has on the demand for and use of our products; the implementation and effectiveness of key personnel changes; disruption from the Altria Investment making it more difficult to maintain relationships with customers, employees or suppliers; future levels of revenues; consumer demand for cannabis and U.S. hemp products; our ability to manage disruptions in credit markets or changes to our credit rating;ratings; future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; the success or timing of completion of ongoing or anticipated capital or maintenance projects; business strategies, growth opportunities and expected investment; the adequacy of our capital resources and liquidity, including but not limited to, availability of sufficient cash flow to execute our business plan (either within the expected timeframe or at all); the potential effects of judicial, regulatory or other proceedings, or threatened litigation or proceedings, on our business, financial condition, results of operations and cash flows; volatility in and/or degradation of general economic, market, industry or business conditions; compliance with applicable environmental, economic, health and safety, energy and other policies and regulations and in particular health concerns with respect to vaping and the use of cannabis and U.S. hemp products in vaping devices; the anticipated effects of actions of third parties such as competitors, activist investors or federal (including U.S. federal), state, provincial, territorial or local regulatory authorities or self-regulatory organizations, plaintiffs in litigation or persons threatening litigation;organizations; changes in regulatory requirements in relation to our business and products; legal or regulatory obstacles that could prevent us from being able to exercise the PharmaCann Option and thereby realizing the anticipated benefits of the transaction with PharmaCann; and the factors discussed under Part I, Item 1A, Risk Factors,“Risk Factors” of the Annual Report and Item 1A, Risk Factors in Part II of this Quarterly Report. Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on Forward-Looking Statements.
Forward-Looking Statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as of and for periods ended on certain dates and to present information about management’s current expectations and plans relating to the future, and the reader is cautioned that the Forward-Looking Statements may not be appropriate for any other purpose. While we believe that the assumptions and expectations reflected in the Forward-Looking Statements are reasonable based on information currently available to management, there is no assurance that such assumptions and expectations will prove to have been correct. Forward-Looking Statements are made as of the date they are made and are based on the beliefs, estimates, expectations and opinions of management on that date. We undertake no obligation to update or revise any Forward-Looking Statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such Forward-Looking Statements. The Forward-Looking Statements contained in this Quarterly Report and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf are expressly qualified in their entirety by these cautionary statements.
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Foreign currency exchange rates
All currency amounts in this Quarterly Report are stated in U.S. dollars, which is the Company’sour reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars. The assets and liabilities of the Company’s foreign operations are translated into dollars at the exchange rate in effect as of SeptemberJune 30, 2021, June 30, 2020 and December 31, 2019.2020. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates. The condensed consolidated statements of net income (loss) and comprehensive income (loss) and condensed consolidated statements of cash flows of the Company’s foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period using Bloomberg.
The exchange rates used to translate from Canadian dollars (“C$”) to dollars is shown below:
(Exchange rates are shown as C$ per $)As of
September 30, 2020June 30, 2020March 31, 2020December 31, 2019
Average rate(i)
1.33231.38561.34371.3268
Spot rate1.33081.35761.40621.2990
(Exchange rates are shown as C$ per $)As of
June 30, 2021June 30, 2020December 31, 2020
Average rate1.22931.38561.3036
Spot rate1.23951.35761.2751
Year-to-date average rate1.24811.36461.3411

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(i)    Average rates are three months ended. The year-to-date average rate used for the nine months ended September 30, 2020 was 1.3539.Table of Contents


(Exchange rates are shown as C$ per $)As of
September 30, 2019June 30, 2019March 31, 2019December 31, 2018
Average rate(i)
1.32041.33771.32961.2955
Spot rate1.32411.30951.33491.3639
(i)    Average rates are three months ended. The year-to-date average rate used for the nine months ended September 30, 2019 was 1.3292.

Business Overview
We areCronos Group is an innovative global cannabinoid company with international production and distribution across five continents. We areCronos Group is committed to building disruptive intellectual property by advancing cannabis research, technology and product development and areis building an iconic brand portfolio. Cronos Group’s brand portfolio includes PEACE NATURALS™, a global wellness platform; two adult-use brands, COVE™ and Spinach™; and three U.S. hemp-derived consumer products brands, Lord Jones™, Happy Dance™ and PEACE+™. Cronos Group reports through two primary business segments: “United States” and “Rest of World.”
Strategy
We seekCronos Group seeks to create value for shareholders by focusing on four core strategic priorities:
•growing a portfolio of iconic brands that resonate with consumers;responsibly elevate the consumer experience;
•developing a diversified global sales and distribution network;
•establishing an efficient global supply chain; and
•creating and monetizing disruptive intellectual property in the industries in which we operate.property.
Business segments
Cronos Group reports through two primary business segments: “United States” (“U.S.”) and “Rest of World.”World” (“ROW”). These two segments represent the geographic regions in which the Company operates and the different product offerings within each geographic region. On September 5, 2019, as a result of the acquisition (the “Redwood Acquisition”) of four Redwood Holding Group, LLC subsidiaries (collectively, “Redwood”), the Company established the
The United States business segment which includes only the results of Redwood since the date of acquisition. Redwood manufactures, markets and distributes U.S. hemp-derived supplements and cosmetic products through e-commerce, retail and hospitality partner channels in the United States under the brands Lord Jones™, Happy Dance™ and Happy DancePEACE+™.
The Rest of World operatingROW segment is involved in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets. In Canada, Cronos Group operates atwo wholly owned license holderholders under the Cannabis Act (Canada), Peace Naturals Project Inc. (“Peace Naturals”), which has production facilities near Stayner, Ontario (the “Peace Naturals Campus”)., and Cronos Fermentation, which has fermentation and manufacturing facilities in Winnipeg, Manitoba. In Israel, the Company operates under the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production and marketing of dried flower, pre-rolls and cannabis oils in the Israeli medical market. Cronos Group has established four strategic joint ventures in Canada, Israel and Colombia. Cronos Group additionally holds approximately 31% of the issued capital of Cronos Australia Limited, which is listed on the Australian Securities Exchange under the trading symbol “CAU.” Cronos Group currently exports cannabis products to countries that permit the import of such products, such as Australia, Germany and Israel.

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Recent Developments
COVID-19 pandemicupdate
In December 2019, an outbreak of a novel strain of coronavirus,The COVID-19 was identified in Wuhan, China. Since then, COVID-19 has spread acrosspandemic continues to impact the globe, includingglobal economy and, specifically, the U.S., Canada, Israel, and the other countries in which the Company or its affiliates operate (including Australia Colombia, and Israel)Colombia). Cronos Group continues to closely monitor and has subsequently been recognizedrespond, where possible, to the ongoing COVID-19 pandemic. As the global situation continues to change rapidly, ensuring the health and safety of our employees remains one of our top priorities.
In the U.S., numerous states have continued to remove their COVID-19 related restrictions as a pandemic by the World Health Organization. The COVID-19 pandemicrollout of vaccines continues. This has resulted in a sharp contraction in many areasthe re-opening of, the global economy and increased volatility and uncertaintyoccupancy capacities in, retail outlets, including those that sell the Company’s products. Any reinstatement of restrictions on the operations of retail outlets could negatively impact the Company’s short-term results of operations in the capital markets. In response toU.S. Recently in the pandemic, the governments of many countries, states, cities, and other geographic regions took preventative or protective actions, including closures of certain businesses, mandatory quarantines, limits on individuals’ time outside of their homes, travel restrictions and social distancing or other preventative measures. Such measuresU.S., there have been eased or lifteda number of supply chain challenges, such as container ships facing delays due to congestion in varying degrees by different governments of various countries, states and cities during the three months ended September 30, 2020, but remain largely unpredictable. The continued spread of COVID-19 and increased infection rates has caused, and may continue to cause, some jurisdictions to roll back reopening plans that had been underway. For example, following an increase in cases during September 2020, Israel entered a mandatory three-week full lockdown with restrictionsports, impacting many industries, including the closure of non-essential businesses and limits on public movement. It is possible that other jurisdictionsindustries in which the Company operates may reintroduce more stringent preventative or protective actions which could result in further closuresoperates. Although we have not yet seen a significant impact, we continue to monitor our supply chain closely.
In Canada, COVID-19 restrictions began gradually easing at the end of businesses. Governments in certain countries suchJune 2021 as the U.S., Canada,vaccination rate increases. Each province is responsible for implementing re-opening plans and those in Europe have respondedcertain provinces, including Ontario, are progressing through phases of re-opening which may permit continued increases to the acute economic and market consequences with certain monetary and fiscal policy actions.
Impact on operating results
Duringallowance of in-person shopping, typically in the secondform of percentage of store capacity. All provinces have some form of cannabis retail open to consumers, whether it be restricted in-person shopping, curb-side pickup or delivery. The lockdown measures taken in the first six months of 2021 to slow infection rates negatively impacted the Company’s short-term revenue growth in Canada. However, if provincial reopening plans are effective across some provinces in the third quarter of 2020,2021, we expect to partially mitigate this negative impact.
In Israel, most COVID-19 restrictions have been removed as vaccination rates have increased. Occupancy limitations in retail outlets have been removed, including those that sell the effects ofCompany’s products. The Company does not expect the remaining COVID-19 pandemic on retail stores and increase of costs in production and sales in the U.S. hadrestrictions to have a material impact on the rateCompany’s short-term revenue growth in Israel.
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Table of growth of revenue inContents
In both the U.S. segment, with revenue for the segment remaining flat from the first quarter of 2020. As a result of these impacts and expectation of future impacts, for the three months ended June 30, 2020, the Company recorded $35 million of impairment charges on its U.S. reporting unit and $5 million on the Lord Jones™ brand during the second quarter of 2020 (refer to Note 13 to the Company’s condensed consolidated financial statements for more information regarding intangibles assets and goodwill).
During the three months ended September 30, 2020, as a result of the COVID-19 pandemic in the U.S., a significant number of the Company’s retail customers’ stores continued to be challenged by remaining temporarily closed or closing permanently. Those stores that are open are also faced with operating at reduced staff levels, at reduced opening hours, and controlling cash flows more closely, which has continued to negatively impact sales and demand for our products in the U.S. segment. The continued negative impact on the Company’s results has been as expected during the three months ended September 30, 2020 and no further impairment charges were recorded to the U.S. reporting unit or brand as a result. The Company expects revenue growth and operating results in the U.S. segment to continue to be negatively impacted as retail closures are expected to continue as a result of the pandemic.
Revenue and the growth in revenue in the Rest of World segment was not materially impacted by the effects of COVID-19 during the three and nine months ended September 30, 2020.
In bothROW segments, there were no material increases in the current expected credit loss as of September 30, 2020 in connection with COVID-19. The Company will continuecontinues to closely monitor the effects of COVID-19 on its operating results.
Production and supply chain
The Company’s global production facilities currently remain operational. To comply with governmental orders or other health and safety requirements,Collectively, the Company has: (i) reduced the number of personnel working on-site at its production facilities to only the roles that are necessary to be performed on site, (ii) implemented work-from-home policies for other employees whose work can be performed off-site, and (iii) implemented other additional health and safety measures such as, among other things, enhanced hygiene and sanitation procedures, modified work schedules and social distancing protocols at its production facilities. The Company will continue to act in accordance with guidance from local, federal, and international health and governmental authorities, such as any government-mandated requirements for people to wear facemasks in all indoor communal spaces or at businesses, and is prepared to make additional operational adjustments, as necessary. Although the Company’s production facilities currently remain operational, governmental requirements, guidance and health and safety requirements continue to evolve as governmental and health authorities respond to the spread of the virus, reopening plans in certain jurisdictions have been and may be further reversed, suspended, delayed or quarantines re-imposed and production facilities may experience further temporary closures or quarantines if governmental or health authorities make changes to the businesses and workforces allowed to remain operational, which would result in reduced production or suspension of production if such closures are mandated. In addition, if the Company’s employees contract the disease and test positive for COVID-19, depending on the employee’s job duties and access to facilities, this may impact the Company’s ability to keep production and manufacturing facilities open for health and safety reasons.
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The impacts of certain closures of the facilities of suppliers and other vendors or these preventative and protective measures in the Company’s supply chain have not been significant to date but remain uncertain. Earlier closures at manufacturers in China have resulted in delays of deliveries of batteries and cartridges for cannabis vaporizers and personal protective equipment such as masks and gowns used in Cronos Group’s manufacturing facilities certified in accordance with Good Manufacturing Practices (“GMP”), from such manufacturers in China. Most delays have been ameliorated as manufacturers are now operational in China but other vendors or suppliers along the Company’s supply chain could be potentially impacted. Closures or other restrictions on the conduct of business operations on third-party manufacturers, suppliers or vendors may cause disruption in Cronos Group’s supply chain. The Company has experienced some minor delays in shipping and expects that the increased global demand on shipping and transport services, in addition to customs and border control policies put in place in response to the COVID-19 pandemic that require shipments to undergo a quarantine period may cause the Company to experience further delays in the future which could impact the Company’s ability to obtain materials or deliver products in a timely manner. In addition, work-from-home policies for certain employees and the effects of the Company’s work-from-home policies may negatively impact productivity, disrupt access to books and records and disrupt the Company’s business. Even if the Company’s production facilities continue to remain open, mandatory or voluntary self-quarantines and travel restrictions may limit the Company’s employees’ ability to access facilities, and this, together with impacts on the Company’s supply chain and the uncertainty produced by the rapidly evolving nature of the COVID-19 pandemic, may result in reduced or suspended production.
Customers
Retailers in the U.S. and Canada have been required to close at times or have curtailed their operations (such as reduced opening hours, reduced staff, limiting brand partner visits, and reduced traffic in stores) due to the implementation of health and safety measures. The slowdown or disruption faced by retailers, in addition to quarantine measures and travel restrictions, impacts the ability of customers to be able to access Cronos Group’s products. These restrictions on retail stores are mandated by, and differ across, each state or province and continue to change and evolve, which creates uncertainty in forecasting customer demand and sales velocity. In the U.S., while online sales have continued despite facing pressure, certain beauty and other retailers have temporarily closed physical boutiques, some for at least the duration of 2020. State specific limitations on retail capacity has also reduced the ability of larger retailers to offer in-store brand education for the Company’s products. In Canada, retailers have implemented a combination of measures from closing stores, offering curbside delivery (to the extent permitted by a province) and online sales only, reduced store opening hours and reduced number of customers in stores in light of social distancing measures. Suspensions of the ability of private retailers to offer click-and-collect or curbside delivery in certain provinces in Canada may further impact customer demand for products. Provincial purchasers have also similarly, among other things, reduced staff on-site leading to a decrease in delivery time slots for producers to deliver products or reduced frequency or size of their purchase orders. In addition, while various provinces in Canada have continued to increase the number of retail stores during the COVID-19 pandemic, we expect that the expansion of retail stores in various provinces in Canada will be delayed or slowed down in the current circumstances. We anticipate that uncertainty created by these measures on forecasting customer demand and sales will continue as long as such measures are in place. Demand for the Company’s products could also be negatively impacted should the effects of COVID-19 lead to changes in consumer behavior, including as a result of a potential decline in the level of demand for vaporizer products or in discretionary spending as result of a general economic slowdown.
Macroeconomic impacts
The impacts of these current restrictions and measures on certain strategic projects continue to be uncertain. Existing R&D initiatives continue to proceed, with activity at Ginkgo returning to normal from reductions in the second quarter of 2020 after slight delays which extended into the early weeks of the three months ended September 30, 2020. The Company still anticipates being able to meet its previously disclosed expected timing for the successful completion of the equity milestones set out in the Ginkgo Strategic Partnership. Other facility design, expansion projects and product development are currently expected to proceed as planned. However, requirements and restrictions on the operation of businesses and workforces continue to evolve as governmental and health authorities respond to the spread of the virus and changes may result in delays or suspensions if authorities require such activities to be suspended.
In addition, a recession or market correction resulting from the spread of COVID-19 would likely materially affect the Company’s business and the value of its common shares. Collectively, effects of the COVID-19 pandemic have adversely affected the Company’s results of operations and, if the effects continue unabated, could continue to do so as long as these measures to combat the COVID-19 pandemic stayremain in effect. At this time, neither the duration nor scope of the disruption can be predicted,predicted; therefore, the ultimate impact to the Company’s business cannot be reasonably estimated but such impact could materially adversely affect the Company’s business and financial results.

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Liquidity and capital resource impact
Despite the impacts of the COVID-19 pandemic, the Company believes that theits significant cash on hand and short-term investments will be adequate to meet liquidity and capital requirements for at least the next twelve months. The impact of reduced interest rates has inhibited the Company’s ability to generate interest income, in the short-term but this has not had, and is not expected to have, a material impact on the liquidity or capital resources of the Company.
Transaction
In June 2021, Cronos Group announced a strategic investment (the “PharmaCann Investment”) in PharmaCann Inc. (“PharmaCann”), a leading vertically integrated U.S. cannabis company. A wholly owned subsidiary of Cronos Group purchased an option (the “PharmaCann Option”) to acquire an approximately 10.5% ownership stake in PharmaCann on a fully-diluted basis for a total consideration of approximately $110.4 million. PharmaCann has a broad geographic footprint in the U.S. and has built an efficient, effective and scalable operating model, including six production facilities and 24 dispensaries operating under the Verilife™ brand across the following six limited license states: New York, Illinois, Ohio, Maryland, Pennsylvania and Massachusetts. PharmaCann continues to invest in its manufacturing infrastructure and brand development to capitalize on the significant consumer retail and business-to-business wholesale opportunities. Following the exercise of the PharmaCann Option (which will be based upon various factors, including the status of U.S. federal cannabis legalization), Cronos Group and PharmaCann will enter into commercial agreements that would permit each party to offer its products through either party’s distribution channels.
Brand and product portfolio
In June 2021, Cronos Group launched SOURZ by Spinach™, an exciting new line of cannabis gummies with bold and unique dual flavor combinations, into the Canadian adult-use market. SOURZ by Spinach™ delivers bold fruit flavors in a distinctive “S” shape with a proprietary coating designed to provide a sour and sweet flavor profile, differentiating the product and elevating the consumer experience. SOURZ by Spinach™ has quickly risen to being one of the top performing brands in the edibles category.
In June 2021, Cronos Group launched Spinach™ DABZ, a new line of cannabis concentrates, into the Canadian adult-use market. Spinach™ DABZ are 100% cannabis-derived with no color remediation or additives to preserve terpenes and full spectrum cannabinoids. Broadening the reach of Cronos Group’s Spinach™ brand into new and emerging categories with differentiated products will continue to be the key driver of innovation initiatives.
During the second quarter of 2021, the Spinach™ brand also launched a 28-gram format for Spinach™ flower, Spinach™ Nuggetz, and a new flower SKU, Spinach™ GMO Cookies, in select markets in Canada.
In June 2021, the Company officially re-launched PEACE+™, Cronos Group’s U.S. hemp-derived CBD offering that is positioned in the mainstream market through its direct-to-consumer website, peaceplus.com. PEACE+™’s initial product portfolio consists of four tinctures. The Company intends to expand the product portfolio over time with innovative U.S. hemp-derived CBD products.
Subsequent to the end of the thirdsecond quarter of 2020, Cronos Group’s U.S. segment2021, in July 2021, Happy Dance™ launched a new facial skin care product, Look Alive CBD Face Moisturizer. This moisturizer has a whipped, light texture and is packed with hydrating ingredients such as avocado oil, hyaluronic acid and high-quality U.S. hemp-derived CBD skincare and personal care brand called Happy Dance™, in partnership with Kristen Bell. Happy Dance™ products are made with CBD from premium full-spectrum hemp extract and provide consumers with high quality skincare at an accessible price point. Happy Dance™ launched with threeCBD. The product offerings: All-Over Whipped Body Butter +CBD, Head-To-Toe Coconut Melt +CBD and Stress Away Bath Bomb +CBD, all of which are currentlyis now available online with intentions to enterU.S. consumers through the brickbrand’s direct-to-consumer website, doahappydance.com, and mortar channel in the future. Through the partnership with Ms. Bell, Cronos Group looks forward to future introductions of innovative products to the hemp-derived CBD market.
In October 2020, the U.S. segment launched new full-spectrum tinctures under its hemp-derived CBD brand, Lord Jones™. The full-spectrum tinctures are available in two flavors, peppermintonline at ULTA.com and orange. The U.S. segment anticipates launching a Lord Jones™ branded hemp-derived CBD infused Lip Balm in November 2020. The Whole Plant Formula CBD Lip Balm is expected to contain 25mg ofbecome available in ULTA Beauty™ stores throughout the U.S. hemp-derived CBD from full-spectrum hemp extract and other premium ingredients including shea butter, mimosa wax, beeswax, and an oil blend to provide additional hydration.
Global sales and distribution
Cronos Israel has now received the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production and marketing of dried flower, pre-rolls and oils in Israel. Subsequent to the end of the third quarter of 2020, in addition to the PEACE NATURALS™ branded dried flower currently sold in the Israel medical market, Cronos Israel began selling PEACE NATURALS™ branded oils into the Israeli medical market.
As part of a regular evaluation of Cronos Group’s global business, the Company intends to move forward with the sale of our OGBC production facility in Armstrong, British Columbia to focus on more efficient assets that better align with our long-term plans. The OGBC assets are now being carried as held for sale until the disposition of the assets is completed.
Global supply chain
In the third quarter of 2020, Natuera continued to successfully complete imports of hemp-derived CBD extract to the U.S. for business development and R&D purposes. Natuera also completed its first export of hemp-derived CBD distillate to the United Kingdom for R&D purposes. Moreover, Natuera’s wholly-owned subsidiary in Colombia was awarded four quotas by the Colombian government for psychoactive cannabis R&D production: (i) one cultivation quota to conduct field trials and characterize cultivars; (ii) one cultivation quota to conduct R&D related to the manufacture of derivatives; and (iii) two R&D manufacturing quotas to analyze and characterize THC products.coming weeks.
Intellectual property initiatives
In the third quarter of 2020, Cronos Device Labs expanded its scope for cannabinoid research and the R&D center was renamed to Cronos Research Labs.June 2021, Cronos Group engages in both understandingand Ginkgo Bioworks, Inc. (“Ginkgo”) announced an amended collaboration and license agreement that will enable the fundamental science behind the interactions of cannabinoids with each other and how those interactions can be leveragedcompanies to best deliver on the consumer’s needs. Additionally, the Company partners with leading scientific institutions engaged in fundamental cannabis science to augment and accelerate the internal efforts.commercialization of cultured cannabinoids at scale. The amended agreement follows the receipt of Cronos Group’s work spans many aspectsFermentation’s processing license in April 2021, and most recently the receipt of cannabis research from strain development to growing conditions to extraction technology to biosynthesis to product development, all supportedits license issued by advancesthe Canada Revenue Agency. With the amended agreement and both licenses in analytical sciences.
Enterprise initiatives
In the third quarterhand, Cronos Fermentation commenced commercial-scale production of 2020, the Company implemented a new enterprise resource planningcannabigerol (“ERP”CBG”) system across the Canadian business.in June 2021. Cronos Group has also commenced workis prioritizing rare cannabinoids, such as CBG, and plans to broadensequence commercial production and subsequent product launches based on this approach. Cronos Group expects that the reach of our ERP system to the U.S. business, which is currently expected to be launched in the first half of 2021. The new ERP systemfinal productivity target for CBG will be a meaningful component of the Company's internal control over financial reporting and is expectedachieved prior to enable us to realize efficiencies throughout our supply chain and operations.September 2021, as previously announced.
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Appointments
On September 9, 2020,Kendrick Ashton Jr. was elected to Cronos Group’s Board of Directors at the Annual Meeting of Shareholders held on June 25, 2021. Mr. Ashton is the Co-Founder and Co-Chief Executive Officer of The St. James, a leading developer and operator of performance, wellness and lifestyle brands, experiences and destinations. Prior to founding The St. James in 2014, Mr. Ashton was a founding member and Managing Director of Perella Weinberg Partners, a boutique financial services firm founded in 2006. Prior to joining Perella Weinberg Partners, Mr. Ashton was an investment banker at Goldman, Sachs & Co. and gained legal experience at Cravath, Swaine & Moore LLP and Wachtell, Lipton, Rosen & Katz. Mr. Ashton is a member of the Board of Trustees of the Colonial Williamsburg Foundation, the Board of Trustees of the National Urban League, the Board of Directors of Archbishop John Carroll High School and the Board of Directors of Bellwether Education Partners and is an emeritus member of the Board of Visitors and Foundation Board of the College of William & Mary.
In April 2021, Thomas Cohn joined Cronos Group expanded its leadership structureas Head of Regulatory and Product. Mr. Cohn joined Cronos Group from The Avon Company, where he served as General Counsel and Corporate Secretary. Mr. Cohn also served as Deputy General Counsel, Regulatory at NBTY, Inc., a leading vertically integrated manufacturer, marketer and distributor of nutritional supplements with global operations. Prior to drive its next phase of growth by appointing Kurt Schmidt as President and Chief Executive Officer. This move coincides with Mike Gorenstein’s appointmenthis time at NBTY, Inc., Mr. Cohn served in various roles at the Federal Trade Commission (“FTC”) from 1991 to Executive Chairman. Mr. Schmidt brings deep experience in consumer products with decades of leadership experience in the U.S. and overseas. Mr. Schmidt previously served2008, including as Director and Chief Executive OfficerAssistant Director of Blue Buffalo Company, Ltd. from 2012 through 2016. Prior to joining Blue Buffalo, Mr. Schmidt was Deputy Executive Vice President at Nestlé S.A.,its Northeast Region, where he was responsible for Nestlé Nutrition, including several science-orientedmanaging antitrust and heavily regulated businesses. He also servedconsumer protection investigations and law enforcement actions, as a member of Nestlé’s Executive Committee. Mr. Schmidt joined Nestlé in 2007well as part of Nestlé’s acquisition of Gerber Products Company, where he waslocal and regional outreach efforts to educate consumers, businesses, and law enforcement agencies on fraud identification and avoidance, and how to comply with antitrust and consumer protection laws enforced by the President and Chief Executive Officer from 2004 to 2007. Prior to Gerber, Mr. Schmidt held a variety of leadership roles at Kraft Foods, Inc.FTC.
In addition, the Company further bolstered its senior leadership team by adding Shannon BuggyJuly 2021, Anthony Parisi joined Cronos Group as Senior Vice President, Global Head of People. Prior to joiningAudit, a newly formed role for the Company. Mr. Parisi joins Cronos Group Ms. Buggy was the Seniorwith over 20 years of audit experience, most recently serving as Vice President of Global Human ResourcesAudit and Risk Management for Nielsen where she led HR strategy for Nielsen Media. WithReliance Worldwide Corporation, an ASX listed company.
In June 2021, Carlos Cortez joined Cronos Group as Vice President & Controller, a role which includes serving as the Company’s principal accounting officer. Mr. Cortez joins Cronos Group with over 2518 years of experience, Ms. Buggy hasmost recently serving as Corporate Controller of SharpSpring, Inc., a proven track recordpublicly traded cloud-based marketing technology company. Prior to his time at SharpSpring, Inc., Mr. Cortez was the Senior Finance Director – Record to Report for Discovery, Inc., a publicly traded global media company, from August 2019 until December 2020. Prior to his time at Discovery, Inc., Mr. Cortez spent five years as Corporate Controller for Malibu Boats, Inc., a publicly traded manufacturer of leading and managing global human resources teams and driving excellence in talent acquisition, development, retention, employee relations, compensation, benefits, talent management and labor relations.recreational powerboats.
Additionally during the quarter, as previously disclosed, following the resignation of Robert Rosenheck on July 20, 2020, Summer Frein was named General Manager USA. Ms. Frein joined Cronos Group in January of this year; however, she has worked with Cronos Group in various capacities since 2018. Previously, Ms. Frein was employed with Altria, where she led the Strategy and Business Development team’s due diligence in the cannabis space which culminated in Cronos Group’s strategic investment from Altria. Most recently, she was responsible for leading the Company’s U.S. sales efforts, including managing brand and retail partnerships for Lord Jones™. Under Ms. Frein’s leadership, the Company plans to further expand its U.S. hemp-derived business, including introducing new product formats under Lord Jones™ and Happy Dance™, that will target different retail channels and consumers.
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Consolidated Results of Operations: Q3 2020 compared with Q3 2019Operations
SummaryThe tables below sets forth our condensed consolidated results of operations, expressed in thousands of U.S. dollars for the periods presented. Our condensed consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods– consolidated.
(In thousands of U.S. dollars)For the three months ended September 30,ChangeFor the nine months ended September 30,Change
20202019$%20202019$%
Net revenue$11,358 $5,785 $5,573 96 %$29,673 $16,442 $13,231 80 %
Gross profit (loss)(1,537)(3,137)1,600 (51)%(10,935)2,511 (13,446)(535)%
Gross margin(14)%(54)%N/A40 pp(37)%15 %N/A(52)pp
Reported operating loss$(41,169)$(30,698)$(10,471)34 %$(120,937)$(57,539)$(63,398)110 %
Adjusted operating loss (i)
(40,211)(30,698)(9,513)31 %(112,113)(57,539)(54,574)95 %
For the three months ended June 30,For the six months ended June 30,
2021202020212020
Net revenue before excise taxes$18,848$11,432$33,502$20,776
Excise taxes(3,226)(1,549)(5,269)(2,461)
Net revenue15,6229,88328,23318,315
Cost of sales19,4459,74335,01916,689
Inventory write-down11,9613,06211,96111,024
Gross loss(15,784)(2,922)(18,747)(9,398)
Operating expenses:
Sales and marketing13,2096,50123,46313,613
Research and development5,1993,63110,3018,221
General and administrative22,41718,42944,32342,188
Share-based payments2,5652,5465,0644,982
Depreciation and amortization1,0436791,7781,366
Total operating expenses44,43331,78684,92970,370
Operating loss(60,217)(34,708)(103,676)(79,768)
Other income (loss)117,553(72,949)(592)47,792
Loss from discontinued operations(561)(46)(582)(46)
Net income (loss)56,775(107,703)(104,850)(32,022)
Net loss attributable to non-controlling interests(279)(726)(592)(1,085)
Net income (loss) attributable to Cronos Group$57,054$(106,977)$(104,258)$(30,937)
35
(i)Table of Contents    See “Non-GAAP measures” for information related to Non-GAAP measures.

Summary of select financial results
For the three months ended June 30,ChangeFor the six months ended June 30,Change
20212020$%20212020$%
Net revenue$15,622 $9,883 $5,739 58 %$28,233 $18,315 $9,918 54 %
Cost of sales19,445 9,743 9,702 100 %35,019 16,689 18,330 110 %
Inventory write-down11,961 3,062 8,899 291 %11,961 11,024 937 8 %
Gross loss(15,784)(2,922)(12,862)440 %(18,747)(9,398)(9,349)99 %
Gross margin(101)%(30)%N/A(71)pp(66)%(51)%N/A(15)pp

Net revenue– consolidated
(In thousands of U.S. dollars)For the three months ended September 30,ChangeFor the nine months ended September 30,Change
20202019$%20202019$%
Net revenue, before excise taxes (i)
$13,621 $6,269 $7,352 117 %$34,397 $17,724 $16,673 94 %
Excise taxes(2,263)(484)(1,779)368 %(4,724)(1,282)(3,442)268 %
Net revenue$11,358 $5,785 $5,573 96 %$29,673 $16,442 $13,231 80 %
(i)    Net revenue, before excise taxes, is calculated net of sales returns and discounts as described under Note 4 to the condensed consolidated financial statements.
For the three months ended SeptemberJune 30, 2020 (“Q3 2020”),2021, we reported consolidated net revenue of $11.4$15.6 million, representing an increase of $5.6$5.7 million from the three months ended SeptemberJune 30, 2019 (“Q3 2019”). This change2020. For the six months ended June 30, 2021 we reported consolidated net revenue of $28.2 million, representing an increase of $9.9 million from the six months ended June 30, 2020.
For both the three and six month comparative periods, the increase was primarily due to:
•An increase in sales in the Rest of World segment in Q3 2020 compared to Q3 2019 due to the continued growth of the adult-use market in Canada and the sale of PEACE NATURALS™ branded cannabis toincreased sales in the Israeli medical market, partially offset by non-recurring wholesale revenuemarket.
Cost of sales
For the three months ended June 30, 2021, we reported consolidated cost of sales of$19.4 million, representing an increase of approximately $9.7 million from the three months ended June 30, 2020. For the six months ended June 30, 2021, we reported consolidated cost of sales of $35.0 million, representing an increase of approximately $18.3 million from the six months ended June 30, 2020.
For both the three and six month comparative periods, the increase was primarily due to the increase in sales volume noted above as well as start-up costs associated with new product development in the ROW segment.
Inventory write-downs
For the three months ended June 30, 2021, we reported consolidated inventory write-downs of $12.0 million, representing an increase of approximately $8.9 million from the three months ended June 30, 2020. For the six months ended June 30, 2021, we reported consolidated inventory write-downs of $12.0 million, representing an increase of approximately $0.9 million from the six months ended June 30, 2020.
For both the three and six month comparative periods, the increases in inventory-write downs were primarily related to cannabis strains and potency levels that are no longer in-line with consumer preferences in the Canadian market and adjustments for obsolete inventory in Q3 2019Canada.
Gross loss
For the three months ended June 30, 2021, we reported consolidated gross loss of $15.8 million, representing an increase in losses of $12.9 million from the three months ended June 30, 2020. For the six months ended June 30, 2021, we reported gross loss of $18.7 million, representing an increase in losses of $9.3 million from the six months ended June 30, 2020.
For the three month comparative periods, the changes in gross loss and gross margin percentage were primarily due to inventory write-downs in the ROW segment, the impact of strategic price reductions on various adult-use cannabis products in certain Canadian provinces in Q3 2020.
•An increase in net revenueCanada in the U.S. segmentsecond half of $1.0 million2020 as well as start up costs associated with new product development in the ROW segment. For the six month comparative periods, the changes in gross loss and gross margin percentage were primarily due to Q3the impact of strategic price reductions on various adult-use cannabis products in Canada in the second half of 2020 results including a full quarteras well as start up costs associated with new product development in the ROW segment.
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Table of Redwood business as opposed to 25 days in Q3 2019.Contents

Operating expenses
For the three months ended June 30,ChangeFor the six months ended June 30,Change
20212020$%20212020$%
Sales and marketing$13,209$6,501$6,708 103 %$23,463$13,613$9,850 72 %
Research and development5,1993,6311,568 43 %10,3018,2212,080 25 %
General and administrative22,41718,4293,988 22 %44,32342,1882,135 5 %
Share-based payments2,5652,54619 1 %5,0644,98282 2 %
Depreciation and amortization1,043679364 54 %1,7781,366412 30 %
Total operating expenses$44,433$31,786$12,64740 %$84,929$70,370$14,55921 %
Sales and marketing
For the ninethree months ended SeptemberJune 30, 2020 (“YTD 2020”), we reported consolidated net revenues of $29.72021, sales and marketing expenses were $13.2 million, representing an increase of $13.2$6.7 million from the ninethree months ended SeptemberJune 30, 2019 (“YTD 2019”). This change was primarily due to:
•An increase in sales in2020. For the Rest of World segment in YTD 2020 compared to YTD 2019 due to the continued growth of the adult-use market in Canada, inclusive of the launch of cannabis vaporizer devices in December 2019, partially offset by non-recurring wholesale revenue in the Canadian market in 2019.
•The Redwood Acquisition in Q3 2019, which resulted in an increase in net revenue of $5.3 million in YTD 2020 due to a full ninesix months of revenue in 2020 versus 25 days in 2019.
45

Cost ofended June 30, 2021, sales and gross profit (loss) - consolidated
(In thousands of U.S. dollars)For the three months ended September 30,ChangeFor the nine months ended September 30,Change
20202019$%20202019$%
Cost of sales$12,895 $3,498 $9,397 269 %$29,584 $8,507 $21,077 248 %
Inventory write-down— 5,424 (5,424)N/A11,024 5,424 5,600 N/A
Gross profit (loss)(1,537)(3,137)1,600 (51)%(10,935)2,511 (13,446)(535)%
Gross margin(14)%(54)%N/A40 pp(37)%15 %N/A(52)pp
For Q3 2020, we reported a consolidated gross loss of $1.5 million, representing a decrease in losses of $1.6 million from Q3 2019. This change was primarily due to:
•The increase in net revenue from Q3 2019, as described above.
•The impact of the Redwood Acquisition in Q3 2019, which contributed $0.2 million of incremental gross profit in Q3 2020.
•An offsetting increase in cost of sales primarily driven by a higher volume of adult-use sales and the associated third party purchased flower and a decline in wholesale sales in Q3 2020.

For YTD 2020, we reported a consolidated gross loss of $10.9marketing expenses were $23.5 million, representing an increase in losses of $13.4$9.9 million from YTD 2019. This changethe six months ended June 30, 2020.
For both the three and six month comparative periods, the increase was primarily due to:
•Anto an increase in cost of sales primarily driven by a higher volume of adult-use salesongoing advertising and the associated third party purchased flower and a decline in wholesale sales in 2020.
•An incremental inventory write-down of $5.6 million in 2020 on dried cannabis and cannabis extracts, primarily driven by fixed-price supply contracts negotiated priormarketing campaigns related to cannabis product price compression due to broader trends of oversupplyour brands in the Canadian market and the impact of the Company’s operational repurposing of the Peace Naturals Campus. If not for the inventory write-down, gross profit (loss) would have been $0.1 million, representing a gross margin of 0.3%. We may incur further inventory write-downs due to pricing pressuresU.S. segment, which began in the marketplace,second half of 2020 as well as increased marginal productionheadcount and related costs attied to these marketing efforts. During the Peace Naturals Campus.
•The offsettingfirst half of 2020, new hiring and spending on sales and marketing were delayed in the U.S. segment due to the impact of the Redwood Acquisition in Q3 2020, which contributed $1.9 million of incremental gross profit in YTD 2020.COVID-19.
46

Operating loss – consolidated
(In thousands of U.S. dollars)For the three months ended September 30,ChangeFor the nine months ended September 30,Change
20202019$%20202019$%
Sales and marketing$7,236 $4,591 $2,645 58 %$20,849 $9,723$11,126 114 %
Research and development4,734 2,605 2,129 82 %12,955 6,0766,879 113 %
General and administrative18,860 16,202 2,658 16 %61,048 34,98726,061 74 %
Share-based payments7,916 3,531 4,385 124 %12,898 7,9494,949 62 %
Depreciation and amortization886 632 254 40 %2,252 1,315937 71 %
Operating expenses39,632 27,561 12,071 44 %110,002 60,05049,952 83 %
Reported operating loss(41,169)(30,698)(10,471)34 %(120,937)(57,539)(63,398)110 %
Adjusted operating loss (i)
(40,211)(30,698)(9,513)31 %(112,113)(57,539)(54,574)95 %
(i)See “Non-GAAP measures” for information related to Non-GAAP measures.Research and development
For Q3 2020, we reported a consolidated operating loss of $41.2the three months ended June 30, 2021, research and development expenses were $5.2 million, representing an increase in losses of $10.5$1.6 million from Q3 2019. This change was primarily due to:
•Anthe three months ended June 30, 2020. For the six months ended June 30, 2021, research and development expenses were $10.3 million, representing an increase in share-based payment costs of $4.4 million primarily related to the acceleration of restricted share units pursuant to separation agreements with certain employees in the U.S. segment.
•An increase in general and administrative costs of $2.7 million related to review costs and costs related to the previously disclosed restatement of the Company’s 2019 interim financial statements of $1.0 million as well as a full quarter of U.S. segment results versus 25 days in Q3 2019.
•An increase in sales and marketing costs of $2.6 million, primarily related to our ongoing efforts in brand development as well as increased costs due to a full quarter of U.S segment results versus 25 days in Q3 2019.
•An increase in R&D costs of $2.1 million related tofrom the six months ended June 30, 2020.
For both the three and six month comparative periods, this increase was primarily driven by increased spending on product development and developing cannabinoid intellectual property.property in the ROW segment.
•Partially offset by the decrease in gross loss from Q3 2019, as described above.

General and administrative
For YTD 2020, we reported a consolidated operating loss of $120.9the three months ended June 30, 2021, general and administrative expenses were $22.4 million, representing an increase in losses of $63.4$4.0 million from YTD 2019.the three months ended June 30, 2020. For the six months ended June 30, 2021, general and administrative expenses were $44.3 million, representing an increase of $2.1 million from the six months ended June 30, 2020.
For both the three and six month comparative periods, this change was primarily due to increased advisory fees associated with strategic initiatives including the PharmaCann investment, which did not take place during the comparable periods in 2020.
Depreciation and amortization
For the three months ended June 30, 2021, depreciation and amortization expenses were $1.0 million, representing an increase of $0.4 million from the three months ended June 30, 2020. For the six months ended June 30, 2021, depreciation and amortization expenses were $1.8 million, representing an increase of $0.4 million from the six months ended June 30, 2020.
For both the three and six month comparative periods, the change was primarily due to the increased capital expenditures in the ROW segment in the second half of 2020.
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Other income (loss) & discontinued operations
For the three months ended June 30,ChangeFor the six months ended June 30,Change
20212020$%20212020$%
Interest income, net$2,293 $3,734 $(1,441)(39)%$4,622$11,485$(6,863)(60)%
Gain (loss) on revaluation of derivative liabilities115,248 (35,880)151,128 421 %(1,626)77,488(79,114)(102)%
Impairment on long-lived assets— (40,000)40,000 100 %(1,741)(40,000)38,259 96 %
Share of loss from equity accounted investments(1,115)(794)(321)(40)%(2,758)(1,966)(792)(40)%
Other, net1,127 (9)1,136 12622 %911785126 16 %
Total other income (loss)117,553 (72,949)190,502 261 %(592)47,792(48,384)(101)%
Loss from discontinued operations(561)(46)(515)(1120)%(582)(46)(536)(1165)%
Net income (loss)$56,775 $(107,703)$164,478 153 %$(104,850)$(32,022)$(72,828)(227)%
Interest income
For the three months ended June 30, 2021, net interest income was $2.3 million, representing a decrease of $1.4 million from the three months ended June 30, 2020. For the six months ended June 30, 2021, net interest income was $4.6 million, representing a decrease of $6.9 million from the six months ended June 30, 2020.
For both the three and six month comparative periods, the decrease in net interest income was primarily due to reduced interest rates on interest earning accounts as well as a decrease in interest earning assets during the three and six months ended June 30, 2021 compared to the same periods in 2020.
Gain/loss on revaluation of derivative liabilities
For the three months ended June 30, 2021, gain on revaluation on derivatives was $115.2 million, including an out-of-period adjustment of $11.3 million, representing an increase of $151.1 million from the three months ended June 30, 2020. For the six months ended June 30, 2021, loss on revaluation on derivatives was $1.6 million, representing a decrease of $79.1 million from the six months ended June 30, 2020.
The valuation of derivative liabilities is based on inputs such as the Company’s share price and volatility, expected term and expected risk-free interest rate which have in the past, and may in the future, fluctuate significantly period-to-period. The Company expects continued fluctuations in derivative valuations. For further information, see Note 5. Derivative Liabilities to the Company’s condensed consolidated financial statements under Item 1. “Financial Statements” of this Quarterly Report.
Impairment loss on long-lived assets
For the three months ended June 30, 2021, there were no impairments on long lived assets. For the six months ended June 30, 2021, impairment on long lived assets was $1.7 million, representing a decrease of $38.3 million from the six months ended June 30, 2020.
For both the three and six month comparative periods, the decrease in impairment loss on long-lived assets was due to $40.0 million in impairment charges recorded on the U.S. reporting unit and the Lord Jones™ brand recorded in the first half of 2020.
Share of loss from equity accounted investments
For the three months ended June 30, 2021, share of loss from equity accounted investments was $1.1 million, representing an increase of $0.3 million from the three months ended June 30, 2020. For the six months ended June 30, 2021, share of loss from equity accounted investments was $2.8 million, representing an increase of $0.8 million from the six months ended June 30, 2020.
For both the three and six month comparative periods, the change was due to recurring losses from the Company’s equity accounted investments. For further information, see Note 3. Investments to the Company’s condensed consolidated financial statements under Item 1. “Financial Statements” of this Quarterly Report.
Other, net
For the three months ended June 30, 2021, other income was $1.1 million, representing an increase of $1.1 million from the three months ended June 30, 2020. This change was primarily due to:
•Increase in gross loss in YTD 2020 compared to gross profit in YTD 2019, as described above.
•An increase in general and administrative costs driven primarily by an increase in salaries and wages of $8.5 million as a result of increased headcount in order to support the Company’s growth strategy, increased office and general expenses primarily related to the new office premises, review costs and costs related to the previously disclosed restatement of the Company’s 2019 interim financial statements of $8.8 million as well as increased costs due to a full three quarters of U.S. segment results versus 25 days in 2019gain on held-for-sale assets in the same period.
•An increase in sales and marketing coststhree months ended June 30, 2021 compared with a small gain on disposal of $11.1 million, primarily related to brand development as well as increased costs due to a full three quarters of U.S. segment results versus 25 daysother assets in the same period in 2019.
•An increase in R&D costs of $6.9three months ended June 30, 2020. For the six months ended June 30, 2021, other income was $0.9 million, primarily related toessentially unchanged from the Ginkgo Strategic Partnership and increased spending on product development and cannabinoid intellectual property.
•An increase in share-based payment costs of $4.9 million primarily related to the acceleration of restricted share units pursuant to separation agreements with certain employees in the U.S. segment.

six months ended June 30, 2020.

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Results of Operations by Business Segment: Q3 2020 compared with Q3 2019
The tables below sets forth our condensed consolidated results of operations by our two business segments: ROW and U.S., expressed in U.S. dollars and in thousands for the periods presented. Our condensed consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods. Certain totals in the tables below will not sum to exactly 100% due to rounding.
Summary of select financial results – Rest of World (“ROW”)ROW
(In thousands of U.S. dollars)For the three months ended September 30,ChangeFor the nine months ended September 30,Change
20202019$%20202019$%
Net revenue$9,719$5,110$4,609 90 %$23,684 $15,767 $7,917 50 %
Gross profit (loss)(2,203)(3,580)1,377 (38)%(13,270)2,068 (15,338)(742)%
Gross margin(23)%(70)%N/A47 pp(56)%13 %N/A(69)pp
Reported and adjusted operating loss (i)
$(17,999)$(21,228)$3,229 (15)%$(71,957)$(48,069)$(23,888)50 %
(i)See “Non-GAAP measures” for information related to Non-GAAP measures.

For the three months ended June 30,ChangeFor the six months ended June 30,Change
20212020$%20212020$%
Net revenue$13,395 $7,709 $5,686 74 %$23,565 $13,965 $9,600 69 %
Cost of sales17,862 8,156 9,706 119 %32,171 14,008 18,163 130 %
Inventory write-down11,961 3,062 8,899 291 %11,961 11,024 937 8 %
Gross loss(16,428)(3,509)(12,919)368 %(20,567)(11,067)(9,500)86 %
Gross margin(123)%(46)%N/A(77)pp(87)%(79)%N/A(8)pp
Net revenue – Rest of WorldROW
(In thousands of U.S. dollars)For the three months ended September 30,ChangeFor the nine months ended September 30,Change
For the three months ended June 30,ChangeFor the six months ended June 30,Change
20202019$%20202019$%20212020$%20212020$%
Cannabis flowerCannabis flower$7,958 $4,266 $3,692 87 %$16,373 $12,187 $4,186 34 %Cannabis flower$11,597 $5,674 $5,923 104 %$21,031 $8,415 $12,616 150 %
Cannabis extractsCannabis extracts1,504 825 679 82 %6,821 3,463 3,358 97 %Cannabis extracts1,531 1,917 (386)(20)%2,234 5,317 (3,083)(58)%
OtherOther257 19 238 1,253 %490 117 373 319 %Other267 118 149 126 %300 233 67 29 %
Net revenueNet revenue$9,719 $5,110 $4,609 90 %$23,684 $15,767 $7,917 50 %Net revenue$13,395 $7,709 $5,686 74 %$23,565 $13,965 $9,600 69 %
For Q3 2020,the three months ended June 30, 2021, the ROW segment reported net revenue of $9.7$13.4 million, representing an increase of $4.6$5.7 million from Q3 2019. This change was primarily due to:
•An increase in sales due to the continued growth ofthree months ended June 30, 2020. For the adult-use market in Canada and the sale of PEACE NATURALS™ branded cannabis to the Israeli medical market, partially offset by non-recurring wholesale revenue in the Canadian market in Q3 2019 and strategic pricing reductions on various adult-use cannabis products in certain Canadian provinces in Q3 2020.

For YTD 2020six months ended June 30, 2021, the ROW segment reported net revenue of $23.7$23.6 million, representing an increase of $7.9$9.6 million from YTD 2019. Thisthe six months ended June 30, 2020.
For both the three and six month comparative periods, the change was primarily due to:
•An increase in sales due to the continued growth of the adult-use cannabis flower market in Canada inclusiveand sales in the Israeli medical cannabis market.
Cost of sales – ROW
For the launchthree months ended June 30, 2021, the ROW segment reported cost of sales of $17.9 million, representing an increase of $9.7 million from the three months ended June 30, 2020. For the six months ended June 30, 2021, the ROW segment reported cost of sales of $32.2 million, representing an increase of $18.2 million from the six months ended June 30, 2020.
For both the three and six month comparative periods, the increase was primarily due to an increase in sales volume as well as start-up costs associated with new product development in Canada.
Inventory write-downs – ROW
For the three months ended June 30, 2021, the ROW segment reported inventory write-downs of $12.0 million, representing an increase of approximately $8.9 million from the three months ended June 30, 2020. For the six months ended June 30, 2021, the ROW segment reported inventory write-downs of $12.0 million, representing an increase of approximately $0.9 million from the six months ended June 30, 2020.
For both the three and six month comparative periods, the increase in inventory-write downs primarily relates to cannabis vaporizer devices in December 2019, partially offset by non-recurring wholesale revenuestrains and potency levels that are no longer in-line with consumer preferences in the Canadian market and adjustments for obsolete inventory in 2019.Canada.
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Cost of sales and gross profit (loss)Gross loss – Rest of WorldROW
(In thousands of U.S. dollars)For the three months ended September 30,ChangeFor the nine months ended September 30,Change
20202019$%20202019$%
Cost of sales$11,922$3,266$8,656 265 %$25,930$8,275$17,655 213 %
Inventory write-down—5,424(5,424)N/A11,0245,4245,600 N/A
Gross profit (loss)(2,203)(3,580)1,377 (38)%(13,270)2,068(15,338)(742)%
Gross margin(23)%(70)%N/A47 pp(56)%13 %N/A(69)pp
For Q3 2020,the three months ended June 30, 2021, the ROW segment reported a gross loss of $2.2$16.4 million, representing a decreasean increase in losses of $1.4$12.9 million from Q3 2019. This change was primarily due to:
•An increase in net revenue from Q3 2019, as described above.
•A partially offsetting increase in cost of sales primarily driven by a higher volume of adult-use sales and the associated third-party purchased flower and a decline in wholesale sales in Q3three months ended June 30, 2020. The Company anticipates that gross margin will continue to fluctuate as price and mix change from quarter-to-quarter.
For YTD 2020,the six months ended June 30, 2021, the ROW segment reported a gross loss of $13.3$20.6 million, representing an increase in losses of $15.3$9.5 million from YTD 2019. This change wasthe six months ended June 30, 2020.
For the three month comparative periods, the changes in gross loss and gross margin percentage were primarily due to:
•An increase in cost of sales primarily driven by a higher volume of adult-use sales and the associated third-party purchased flower and a decline in wholesale sales in YTD 2020. The Company anticipates that gross margin will continue to fluctuate as price and mix change from quarter-to-quarter.
•An additional inventory write-down of $5.6 million in 2020 on dried cannabis and cannabis extracts, primarily driven by fixed-price supply contracts negotiated prior to cannabis product price compression due to broader trends of oversupply in the Canadian market andwrite-downs, the impact of the Company’s operational repurposing of the Peace Naturals Campus. If not for the inventory write-down, segment gross profit (loss) would have been $(2.2) million, representing a gross margin of (9)%. We may incur further inventory write-downs due to pricing pressuresstrategic price reductions on various adult-use cannabis products in Canada in the marketplace,second half of 2020, as well as increased marginal productionstart-up costs atassociated with new product development. For the Peace Naturals Campus.
•Partially offsetting increase in net revenue from YTD 2019, as described above.
49

Operating loss – Rest of World
(In thousands of U.S. dollars)For the three months ended September 30,ChangeFor the nine months ended September 30,Change
20202019$%20202019$%
Reported and adjusted operating loss (i)
$(17,999)$(21,228)$3,229 (15)%$(71,957)$(48,069)$(23,888)50 %
(i)See “Non-GAAP measures” for information related to Non-GAAP measures.
For Q3 2020,six month comparative periods, the ROW segment reported an operating loss of $18.0 million, representing a decrease in losses of $3.2 million from Q3 2019. This change was primarily due to:
•A decreasechanges in gross loss from Q3 2019, as described above.
•A decrease in general and administrative costs from Q3 2019 driven by a reclassification of $4.6 million to corporate expenses in Q3 2020, which had no effect on the Company’s consolidated statement of net income (loss).
•A partially offsetting increase in R&D costs related to increased spending on product development and cannabinoid intellectual property.
For YTD 2020, the ROW segment reported an operating loss of $72.0 million, representing an increase in losses of $23.9 million from YTD 2019. This change wasgross margin percentage were primarily due to:
•An increase in gross loss from YTD 2019, as described above.
•An increase in R&D costs primarily related to the Ginkgo Strategic Partnership and costs related to increased spendingimpact of strategic price reductions on product development and cannabinoid intellectual property.
•An increasevarious adult-use cannabis products in general and administrative costs from YTD 2019 driven by an increase in salaries and wages as a result of increased headcount to support the Company’s growth strategy and increased office and general expenses primarily related to the new office premises.
•An increase in sales and marketing costs primarily related to building and developing our brands and productsCanada in the Canadian adult-use market.second half of 2020, as well as start-up costs associated with new product development.
50

Summary of select financial results – United StatesU.S.

(In thousands of U.S. dollars)For the three months ended September 30,ChangeFor the nine months ended September 30,Change
20202019$%20202019$%
Net revenue$1,639 $675 $964 143 %$5,989 $675 $5,314 787 %
Gross profit666 443 223 50 %2,335 443 1,892 427 %
Gross margin41 %66 %N/A(25)pp39 %66 %N/A(27)pp
Reported and adjusted operating loss (i)
$(12,191)$(830)(11,361)1,369 %$(24,289)$(830)(23,459)2,826 %
(i)See “Non-GAAP measures” for information related to Non-GAAP measures.

For the three months ended June 30,ChangeFor the six months ended June 30,Change
20212020$%20212020$%
Net revenue$2,227$2,174$53 2 %$4,668$4,350$318 7 %
Cost of sales1,5831,587(4)— %2,8482,681167 6 %
Gross profit64458757 10 %1,8201,669151 9 %
Gross margin29 %27 %N/A2 pp39 %38 %N/A1 pp
Net revenue – United StatesU.S.
(In thousands of U.S. dollars)For the three months ended September 30,ChangeFor the nine months ended September 30,Change
20202019$%20202019$%
Net revenue$1,639 $675 $964 143 %$5,989 $675 $5,314 787 %
For Q3 2020,the three months ended June 30, 2021, the U.S. segment reported net revenue of $1.6$2.2 million, representing an increase of $1.0 millionessentially unchanged from Q3 2019. This change was primarily due to:
•An increase in sales primarily driven by a full quarter of results in Q3 2020 as opposed to 25 days in Q3 2019.
the three months ended June 30, 2020. For YTD 2020,the six months ended June 30, 2021, the U.S. segment reported net revenue of $6.0$4.7 million, representing an increase of $5.3$0.3 million from YTD 2019. This changethe six months ended June 30, 2020.
For the six month comparative period, the increase was primarily due to:
•An increase indriven by sales primarily due to a full three quarters of U.S. segment results in 2020 as opposed to 25 dayshemp-derived CBD products introduced in the same period in 2019.

second half of 2020.
Cost of sales and gross profit (loss) – United StatesU.S.
(In thousands of U.S. dollars)For the three months ended September 30,ChangeFor the nine months ended September 30,Change
20202019$%20202019$%
Cost of sales$973 $232 $741 319 %$3,654 $232 $3,422 1,475 %
Gross profit666 443 223 50 %2,335 443 1,892 427 %
Gross margin41 %66 %N/A(25)pp39 %66 %N/A(27)pp
For Q3 2020,the three months ended June 30, 2021, the U.S. segment reported cost of sales of $1.6 million, essentially unchanged from the three months ended June 30, 2020. For the six months ended June 30, 2021, the U.S. segment reported cost of sales of $2.8 million, representing an increase of $0.2 million from the six months ended June 30, 2020.
For the six months ended June 30, 2021, the increase was primarily due to an increase in sales volumes.
Gross profit – U.S.
For the three months ended June 30, 2021, the U.S. segment reported gross profit of $0.6 million, essentially unchanged from the three months ended June 30, 2020. For the six months ended June 30, 2021, the U.S. segment reported gross profits of $0.7$1.8 million, with gross profit margins of 41%, representing an increase ofa $0.2 million increase from Q3 2019. This changethe six months ended June 30, 2020.
For the six month comparative period, the increase was primarily due to anthe increase in net revenue, from Q3 2019, as described above,partially offset by:
•An increase inby higher cost of sales primarily driven by a full quarter of results in Q3 2020 as opposed to 25 days in the same period in 2019.
•A decrease in gross margin of (25)pp for Q3 2020 compared to Q3 2019 primarily due to increased discounts, sales and other promotions and new product introductions.
For YTD 2020, the U.S. segment reported gross profits of $2.3 million, with gross profit margins of 39%, representing an increase of $1.9 million from YTD 2019. This change was primarily due to an increase in net revenue from YTD 2019, as described above, offset by:
•An increase in cost of sales primarily driven by a full three quarters of U.S. segment results in Q3 2020 as opposed to 25 days in the same period in 2019.
•A decrease in gross margin of (27)pp YTD 2020 compared to YTD 2019 primarily due to increased discounts, sales and other promotions and new product introductions.
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Operating loss – United States
(In thousands of U.S. dollars)For the three months ended September 30,ChangeFor the nine months ended September 30,Change
20202019$%20202019$%
Reported and adjusted operating loss (i)
$(12,191)$(830)$(11,361)1,369 %$(24,289)$(830)$(23,459)2,826 %
(i)See “Non-GAAP measures” for information related to Non-GAAP measures.
For Q3 2020, the U.S. segment reported an operating loss of $12.2 million, representing an increase in losses of $11.4 million. These results were primarily due to:
•An increase in share-based payment costs related to the acceleration of restricted share units pursuant to separation agreements with certain employees in the U.S. segment in Q3 2020.
•Sales and marketing costs incurred in relation to the new U.S. hemp-derived CBD products under the Lord Jones™ and Happy Dance™ brands.
•Increased general and administration costs in Q3 2020 driven by salaries and wages costs incurred to support the Company’s growth strategy across a variety of functions.
•Partially offset by increased gross profit for Q3 2020, as describedstated above.

For YTD 2020, the U.S. segment reported an operating loss of $24.3 million, representing an increase in losses of $23.5 million. These results were primarily due to:
•A full three quarters of U.S. segment results in Q3 2020 as opposed to 25 days in the same period in 2019.
•An increase in share-based payment costs of $6.7 million primarily related to the acceleration of restricted share units pursuant to separation agreements with certain employees in the U.S. segment.
•Sales and marketing costs incurred in relation to the continued roll-out of new U.S. hemp-derived CBD products under the Lord Jones™ and Happy Dance™ brands.
•Increased general and administration costs in YTD 2020 driven by salaries and wages costs incurred to support the Company’s growth strategy across a variety of functions.
•Partially offset by increased gross profit for YTD 2020, as described above.


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Non-GAAP Measures
Cronos Group reports its financial results in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). This Quarterly Report refers to measures not recognized under U.S. GAAP (“non-GAAP measures”). These non-GAAP measures do not have a standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these non-GAAP measures are provided as a supplement to corresponding U.S. GAAP measures to provide additional information regarding the results of operations from management’s perspective. Accordingly, non-GAAP measures should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. All non-GAAP measures presented in this Quarterly Report are reconciled to their closest reported U.S. GAAP measure. Reconciliations of historical adjusted financial measures to corresponding U.S. GAAP measures are provided below.
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Adjusted operating lossEBITDA
Management reviews Adjusted EBITDA, a non-GAAP measure which excludes non-cash items and items that do not reflect management’s assessment of on-going business performance of our operating segments. Management defines Adjusted EBITDA as net income (loss) before interest, tax expense, depreciation and amortization adjusted for: share of loss from equity accounted investments, impairment loss on an adjusted basis, which excludes certain incomelong-lived assets, loss (gain) on revaluation of derivative liabilities, transaction costs related to strategic projects, other, net, loss from discontinued operations, share-based payments and expense items that management believes are not part of underlying operations. These items typically include non-recurring charges such as the financial statement review costs related to the restatement of the Company’s 2019 interim financial statements, the Company’s responses to the reviews of such interim financial statements by various regulatory authorities and legal costs defending shareholder class action complaints brought against the Company as a result of the restatement (see Part II, Item 1, Legal Proceedings,1. “Legal Proceedings” of this Quarterly Report for a discussion of the regulatory reviews and shareholder class action complaints relating to the restatement of the 2019 interim financial statements). Management does not view either of these items to be part of underlying results as they may be highly variable, may be unusual or infrequent, are difficult to predict or can distort underlying business trends and results.
Management believes that adjusted operating lossAdjusted EBITDA provides the most useful insight into underlying business trends and results and provides a more meaningful comparison of year-over-yearperiod-over-period results. Management uses adjusted operating lossAdjusted EBITDA for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets.
(In thousands of U.S. dollars)For the three months ended September 30,For the nine months ended September 30,
2020201920202019
Reported operating loss$(41,169)$(30,698)$(120,937)$(57,539)
Adjustments
Review and defense costs related to restatement of 2019 interim financial statements958 — 8,824 — 
Adjusted operating loss$(40,211)$(30,698)$(112,113)$(57,539)
The following table sets forth a reconciliation of net loss as determined in accordance with GAAP to Adjusted EBITDA for the periods indicated (dollars in thousands):
Three months ended June 30, 2021
United StatesRest of WorldCorporate
Expenses		Total
Net income (loss)$(11,719)$79,627 $(11,133)$56,775
Interest income, net(20)(2,273)— (2,293)
Share of loss from equity accounted investments— 1,115 — 1,115
Gain on revaluation of derivative liabilities(ii)
— (115,248)— (115,248)
Transaction costs(iii)
— — 2,758 2,758
Other, net(iv)
— (1,127)— (1,127)
Loss from discontinued operations(v)
— 561 — 561
Share-based payments(vi)
822 1,743 — 2,565
Review costs related to restatement of 2019 interim financial statements(vii)
— — 1,932 1,932
Depreciation and amortization206 2,997 — 3,203
Adjusted EBITDA$(10,711)$(32,605)$(6,443)$(49,759)
Three months ended June 30, 2020
United StatesRest of WorldCorporate
Expenses		Total
Net loss$(45,566)$(55,095)$(7,042)$(107,703)
Interest income, net(9)(3,725)— (3,734)
Share of loss from equity accounted investments— 794 — 794 
Impairment loss on long-lived assets(i)
40,000 — — 40,000 
Loss on revaluation of derivative liabilities(ii)
— 35,880 — 35,880 
Other, net(iv)
— 9 — 9 
Loss from discontinued operations(v)
— 46 — 46 
Share-based payments(vi)
756 1,790 — 2,546 
Review costs related to restatement of 2019 interim financial statements(vii)
— — 3,459 3,459 
Depreciation and amortization34 1,683 — 1,717 
Adjusted EBITDA$(4,785)$(18,618)$(3,583)$(26,986)
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Six months ended June 30, 2021
United StatesRest of WorldCorporate
Expenses		Total
Net loss$(23,811)$(62,520)$(18,519)$(104,850)
Interest income, net(23)(4,599)— (4,622)
Share of loss from equity accounted investments— 2,758 — 2,758 
Impairment loss on long-lived assets(i)
1,741 — — 1,741 
Loss on revaluation of derivative liabilities(ii)
— 1,626 — 1,626 
Transaction costs(iii)
— — 3,259 3,259 
Other, net(iv)
— (911)— (911)
Loss from discontinued operations(v)
— 582 — 582 
Share-based payments(vi)
1,567 3,497 — 5,064 
Review costs related to restatement of 2019 interim financial statements(vii)
— — 3,937 3,937 
Depreciation and amortization305 4,778 — 5,083 
Adjusted EBITDA$(20,221)$(54,789)$(11,323)$(86,333)
Six months ended June 30, 2020
United StatesRest of WorldCorporate
Expenses		Total
Net income (loss)$(52,082)$33,772 $(13,712)$(32,022)
Interest income, net(16)(11,469)— (11,485)
Share of loss from equity accounted investments— 1,966 — 1,966
Impairment loss on long-lived assets(i)
40,000 — — 40,000
Gain on revaluation of derivative liabilities(ii)
— (77,488)— (77,488)
Other, net(iv)
— (785)— (785)
Loss from discontinued operations(v)
— 46 — 46
Share-based payments(vi)
1,462 3,520 — 4,982
Review costs related to restatement of 2019 interim financial statements(vii)
— — 7,866 7,866
Depreciation and amortization69 2,810 — 2,879
Adjusted EBITDA$(10,567)$(47,628)$(5,846)$(64,041)

(i)For the six months ended June 30, 2021, impairment loss on long-lived assets relates to impairment on a leased premise in the U.S. segment, and for the three and six months ended June 30, 2020, impairment loss on long-lived assets relates to impairment on goodwill and intangibles related to our U.S. segment in 2020. See Note 12. Impairment Loss on Long-Lived Assets to the Company’s condensed consolidated financial statements under Item 1. “Financial Statements” of this Quarterly Report.
Adjusted operating (ii)For the three and six months ended June 30, 2021 and 2020, gain/loss by business segmenton revaluation of derivative liabilities represents the fair value changes on the derivative liabilities. See Note 5. Derivative Liabilities to the Company’s condensed consolidated financial statements under Item 1. “Financial Statements” of this Quarterly Report.
Management reviews operating loss by business segment, which excludes corporate(iii)For the three and six months ended June 30, 2021, transaction costs represents legal, financial and other advisory fees and expenses incurred in connection with various strategic investments. These costs are included in general and adjusted operating loss by business segment, which further excludes certainadministrative expenses on the condensed consolidated statements of net income (loss) and expense items that management believes are not partcomprehensive income (loss) under Item 1. “Financial Statements” of this Quarterly Report.
(iv)For the three and six months ended June 30, 2021, other, net, primarily related to gain recorded on sale of the underlying segment’s operations. Corporate expenses are expenses that relateCompany’s Winnipeg facility previously designated as held-for-sale in the first quarter of 2021, For the three and six months ended June 30, 2020, other, net is primarily comprised of the gain recorded related to the sale of common shares of Aurora Cannabis Inc. (“Aurora”), which were received in connection with the achievement of a milestone related to Aurora’s acquisition of Whistler Medical Marijuana Corporation.
(v)For the three and six months ended June 30, 2020, loss from discontinued operations relates to the discontinuance of OGBC. See Note 11. Held-For-Sale Assets and Discontinued Operations to the Company’s condensed consolidated businessfinancial statements under Item 1. “Financial Statements” of this Quarterly Report.
(vi)For the three and notsix months ended June 30, 2021 and 2020, share-based payments relates to an individual operating segment while the incomevesting expenses of share-based compensation awarded to employees under the Company’s share-based award plans as described in Note 6. Share-based Payments to the Company’s condensed consolidated financial statements under Item 1. “Financial Statements” of this Quarterly Report.
(vii)For the three and expense items typically include non-recurring charges such assix months ended June 30, 2021 and 2020, the financial statement review costs include costs related to the restatement of the Company’s 2019 interim financial statements, costs related to the Company’s responses to the reviews of such interim financial statements byrequests for information from various regulatory authorities relating to such restatement and legal costs defending shareholder class action complaints brought against the Company as a result of the restatement (see Part II, Item 1,restatement. Legal Proceedings, of this Quarterly Report for a discussion of the regulatory reviews and shareholder class action complaints relating to the restatement of the 2019 interim financial statements). Management does not view the income and expense items above to be part of underlying results of the segment as they may be highly variable, may be unusual or infrequent, are difficult to predict and can distort underlying business trends and results.The Company’s method of allocating corporate costs is refined periodically.
Management believes that adjusted operating loss by business segment provides useful insight into underlying segment trends and results and will provide a more meaningful comparison of year-over-year results going forward. Management uses adjusted operating loss by business segment for planning, forecasting and evaluating segment performance, including allocating resources and evaluating results relative to employee compensation targets.
(In thousands of U.S. dollars)For the three months ended September 30, 2020
U.S.Rest of WorldTotal SegmentsCorporate ExpensesTotal
Reported operating loss$(12,191)$(17,999)$(30,190)$(10,979)$(41,169)
Adjustments
Review and defense costs related to restatement of 2019 interim financial statements— — — 958 958 
Adjusted operating loss$(12,191)$(17,999)$(30,190)$(10,021)$(40,211)

(In thousands of U.S. dollars)For the nine months ended September 30, 2020
U.S.Rest of WorldTotal SegmentsCorporate ExpensesTotal
Reported operating loss$(24,289)$(71,957)$(96,246)$(24,691)$(120,937)
Adjustments
Review and defense costs related to restatement of 2019 interim financial statements— — — 8,824 8,824 
Adjusted operating loss$(24,289)$(71,957)$(96,246)$(15,867)$(112,113)

(In thousands of U.S. dollars)For the three months ended September 30, 2019
U.S.Rest of WorldTotal SegmentsCorporate ExpensesTotal
Reported and adjusted operating loss$(830)$(21,228)$(22,058)$(8,640)$(30,698)

(In thousands of U.S. dollars)For the nine months ended September 30, 2019
U.S.Rest of WorldTotal SegmentsCorporate ExpensesTotal
Reported and adjusted operating loss$(830)$(48,069)$(48,899)$(8,640)$(57,539)

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Liquidity and Capital Resources
As of SeptemberJune 30, 2020,2021, we had $1,097.8$895.2 million in cash and cash equivalents and $202.9$201.7 million in short-term investments, which comprise the majority of the Company’s cash position. Cronos Group believes that the existing cash and cash equivalents and the short-term investments will be sufficient to fund the business operations and capital expenditures over the next twelve months.
Summary ofThe following table summarizes the cash flows from operating, investing and financing activities (dollars in thousands):
(In thousands of U.S. dollars)For the nine months ended September 30,
20202019
Cash provided/(used) in operating activities$(104,684)$(76,793)
Cash provided/(used) in investing activities37,811 (677,609)
Cash provided/(used) by financing activities(4,189)1,822,198 
Effect of foreign currency translation on cash and cash equivalents(30,785)22,691 
Net change in cash$(101,847)$1,090,487 

YTD
For the six months ended June 30,
20212020
Cash used in operating activities$(86,197)$(78,377)
Cash provided/(used) in investing activities(106,563)39,799 
Cash provided/(used) in financing activities(8,907)1 
Effect of foreign currency translation on cash and cash equivalents18,825 (51,416)
Net change in cash$(182,842)$(89,993)
Comparison of the six months ended June 30, 2021 to the six months ended June 30, 2020 cash flows vs YTD 2019 cash flows
Operating activities
During the ninesix months ended SeptemberJune 30, 2020,2021, we used $104.7$86.2 million of cash in operating activities as compared to cash used of $76.8$78.4 million in the ninesix months ended SeptemberJune 30, 2019,2020, representing an increase in cash used of $27.9$7.8 million. This change is primarily driven by a $32.0 million decrease in net income after adjusting for non-cash items, partially offset by an increase of $24.2 million in operating assets and liabilities during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.
Investing activities
During the six months ended June 30, 2021, we used $106.6 million of cash in investing activities, compared to $39.8 million of cash provided by investing activities during the six months ended June 30, 2020, representing an increase of $146.4 million in cash used by investing activities. This change is primarily driven by the Company’s investment in PharmaCann of approximately $110.4 million, a $63.1 million, net, decrease in proceeds from short-term investments and a $1.3 million increase in proceeds from the sale of other assets, partially offset by a $18.9 million decrease in loans receivables from joint ventures and a $6.9 million decrease in capital expenditures compared to the six months ended June 30, 2020. The decrease in capital expenditures is primarily due to a reduction in construction costs in the ROW segment and a decrease in costs related to the implementation of the Company’s enterprise resource planning system compared to the six months ended June 30, 2020.
Financing activities
During the six months ended June 30, 2021, cash used in financing activities was $8.9 million higher than six months ended June 30, 2020. This change is primarily driven by an increase of $8.9 million in operating expenses fromwithholding taxes paid on share-based awards during the ninesix months ended SeptemberJune 30, 2019.
Investing activities
During2021 compared to the ninesix months ended September 30, 2020, we generated $37.8 million of cash through investing activities, as compared to $677.6 million of cash used in investing activities in the nine months ended September 30, 2019, representing an increase of $715.4 million in cash provided. This change is primarily driven by the Redwood Acquisition resulting in the payment of cash consideration of $227.2 million during the nine months ended September 30, 2019 as well as cash received from proceeds from the disposal of short-term investments of $220.1 million (2019 – $nil), partially offset by purchases of short-term investments of $125.6 million (2019 – $384.3 million). Additionally, during the nine months ended September 30, 2020, purchases of property, plant and equipment were $21.3 million compared to $37.6 million in the nine months ended September 30, 2019. The increase was partially offset by advances on loans receivable of $37.0 million (2019 – $33.0 million) primarily related to an increase in draw-downs on the GrowCo Credit Facility.
Financing activities
During the nine months ended September 30, 2020, cash used in financing activities was $4.2 million, as compared to $1,822.2 million of cash provided by financing activities in the nine months ended September 30, 2019, representing a decrease of $1,826.4 million in cash provided. This change is primarily driven by proceeds from the strategic investment from Altria of $1,809.6 million that was partially offset by the transaction costs paid on the construction loan payable of $16.0 million in the nine months ended September 30, 2019, which were not present in the nine months ended SeptemberJune 30, 2020.

Critical Accounting Policies and Estimates
The Company’s critical accounting policies and estimates are discussed in the 2020 Annual Report on Form 10-K/A for the year ended December 31, 2019.Report. There have been no material changes to these critical accounting policies and estimates.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest rate risk
Interest rate risk is the risk that the value or yield of fixed-income investments may decline if interest rates change. Fluctuations in interest rates may impact the level of income and expense recorded on the cash equivalents and short-term investments, and the market value of all interest-earning assets, other than those which possess a short-term to maturity. A 10% change in the interest rate in effect on SeptemberJune 30, 20202021 and December 31, 2019,2020, would not have a material effect on (i) fair value of the cash equivalents and short-term investments as the majority of the portfolio has a maturity date of three months or less or (ii) interest income. Management continues to monitor external interest rates and revise the Company’s investment strategy as a result.
During the ninethree months ended SeptemberJune 30, 2021 and 2020, the Company hadrecorded net interest income of $15.3$2.3 million (September 30, 2019 – $20.5 million).and $3.7 million, respectively. During the three and ninesix months ended SeptemberJune 30, 2021 and 2020, the Company’s average variable interest rate fell 0.03% and 1.44%, respectively. Had the interest rates been consistent,Company recorded net interest income would have increased by $0.3of $4.6 million and $15.2$11.5 million, respectively forrespectively. Net interest income in the three and ninefirst half of 2021 decreased compared to the first half of 2020 primarily due to lower interest earning assets during the six months ended SeptemberJune 30, 2021 compared to the interest earning assets during the six months ended June 30, 2020.
Foreign currency risk
The Company’s consolidated financial statements included in Part I, Item 11. of this Quarterly Report are expressed in U.S. dollars. In additionaddition. the Company has net assets, liabilities and revenues denominated in foreign currencies, including Canadian dollars and Israeli new shekels. As a result, we are exposed to foreign currency translation gains and losses. Revenue and expenses of all foreign operations are translated into U.S. dollars at the foreign currency exchange rates that approximate the rates in effect during the period when such items are recognized. Appreciating foreign currencies relative to the U.S. dollar will adversely impact operating income and net earnings, while depreciating foreign currencies relative to the U.S. dollar will have a positive impact.
A 10% change in the exchange rates for the Canadian dollar would affect the carrying value of net assets by approximately $166.3$163.0 million and $170.8 million as of SeptemberJune 30, 2020. The same change to exchange rates for the Canadian dollar as of2021 and December 31, 2019 would affect the carrying value of net assets by approximately $174.9 million.2020, respectively. The corresponding impact would be recorded in accumulated other comprehensive income. We have not historically engaged in hedging transactions and do not currently contemplate engaging in hedging transactions to mitigate foreign exchange risks. As we continue to recognize gains and losses in foreign currency transactions, depending upon changes in future currency rates, such gains or losses could have a significant, and potentially adverse, effect on the Company’s results of operations.

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Item 4. Controls and Procedures.
(a)Evaluation of Disclosure Controls and Procedures.
The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, performed an evaluation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of SeptemberJune 30, 2020.2021. Based on that evaluation, management has concluded that, as of SeptemberJune 30, 2020,2021, due to the existence of thea material weaknessesweakness in the Company’s internal control over financial reporting described below, the disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed by us in reports we file or submit under the Exchange Act were recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act, is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Material WeaknessesWeakness in Internal Controls Over Financial Reporting
A material weakness is a deficiency, or combination of deficiencies in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. As previously disclosed in the Company’s Annual Report on Form 10-K/A10-K for the year ended December 31, 2019,2020 (the “Annual Report”), we have identified the following material weaknesses in the following areas:weakness:
•Risk AssessmentInventory Verification:: The Company failed to properly design and execute sufficient procedures to verify inventory quantities. Specifically, while inventory counts were performed in the fourth quarter, (i) the aggregate value of items excluded from the count exceeded the Company’s materiality threshold, and (ii) human error in count execution, data transposition and reconciliation analysis resulted in inaccurate adjustments.
This deficiency did not appropriately design controls to monitor and respond to changesresult in business in relation to transactions inerrors that were quantitatively material. Nevertheless, the wholesale market.
•Segregation of Duties: The Company did not maintain adequately designed controls on segregation of purchase and sale responsibilities to ensure accurate recognition of revenue in accordance with GAAP.
•Non-Routine Transactions: The Company’s controls were not effective to ensure that non-routine transactions, including deviations from contractually established sales terms, were authorized, communicated, identified and evaluated for their potential effect on revenue recognition.
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These deficiencies createdeficiency creates a reasonable possibility that a material misstatement to the consolidated financial statements will not be prevented or detected on a timely basis.
Remediation Plan and Status
The Company’s management, with oversight from the Audit Committee of the Board of Directors, has initiated a plan to remediate the material weaknesses,weakness, previously disclosed in the Annual Report on Form 10-K/A for the period ended December 31, 2019.Report. During the first half of 2020,six months ended June 30, 2021, the Company implementedstarted the implementation process on all remediation controls identified in its remediation plan as disclosed in the table below. During the nine months ended September 30, 2020, the Company enhanced its quarterly review risk assessment model and its risk control matrices, established a risk committee, which reviews the risk assessment for changes in the business, enhanced its delegation of authority policy, conducted revenue recognition training, created and implemented a non-routine transaction policy, established a review process for and reviewed its vendor and customer transactions to identify potential related transactions, implemented procedures for the preparation of business cases for all non-routine business-to-business unbranded sales and purchases, and enhanced its sub-certification processes to identify non-routine transactions. The Company has completed internal testing on all of the eight controls identified in its remediation plan. However, the Company does not expect full remediation until year end 2020.2021.
The plan and progress to date is described below:
Material WeaknessControl, Control Enhancement or MitigantImplementation StatusManagement Testing StatusRemediation Status
Risk AssessmentInventory Verification
•Enhance quarterly reviewcount procedures to ensure appropriate consideration and coverage of risk assessment model and risk control matricestheir total inventory balance
ImplementedIn ProgressNot Tested
•Not RemediatedEstablish a risk committee which reviews the risk assessment for changes in the business on a quarterly basis
ImplementedTested
Segregation of Duties
•Enhance Delegation of Authority matrix to further limit groups that may authorize sales or purchases of inventory
ImplementedTested
•Establish review process and internal database to identify entities that are both vendors and customers of the Company
ImplementedTested
•Create and implement revenue recognition training
ImplementedTested
Non-Routine Transactions
•Create and implement a Non-Routine Transactions Policy to include:
ImplementedTested
◦Definition of Non-Routine Transactions
◦Accounting memorandum completion
◦CEO/CFO approval
•Formalization of business cases for all non-routine business to business unbranded sales and purchases to be reviewed on a quarterly basis to ensure alignment with the objectives of the business
ImplementedTested
•Expand the sub-certification process to additional members of management to ensure that non routine transactions are identified
ImplementedTested
•Implement cycle counts as a redundant control to supplement the annual physical count
CompletedNot TestedNot Remediated
•Provide training to inventory teams on count procedures and inventory management control expectations
In ProgressNot TestedNot Remediated


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Cronos Group will continue to review, optimize, and enhance its financial reporting controls and procedures. As the Company continues to evaluate and work to improve its internal control over financial reporting, the Company may implement additional measures to address the material weaknessesweakness or certain of the remediation measures described above may be enhanced or modified. TheseThe material weaknessesweakness will not be considered remediated until the applicable remediated controls operate for a sufficient period of time and management has concluded, through further testing, that these controls are operating effectively.
(b)Changes in Internal Control over Financial Reporting
During the third quarter of 2020, the Company successfully implemented a new ERP system across the Canadian business. The new ERP system will be a meaningful component of our internal control over financial reporting and is expected to enable us to realize efficiencies throughout our finance, supply chain and operations processes. In connection with the ERP implementation, we updated the processes and controls that constitute our internal control over financial reporting, as necessary, to accommodate related changes to our accounting procedures and business processes. The Company is currently in the process of updating its processes and internal control over financial reporting in the U.S. segment for the year ended December 31, 2020. In 2019, the U.S. segment was excluded from management’s assessment of the effectiveness of the Company’s internal control over financial reporting as it was the first year of the Redwood Acquisition.
Other than the ERP system, the updates of processes and internal control over financial reporting for the U.S. segment and those measures described above to remediate the material weaknesses, there were no further changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), that occurred during the quarter ended SeptemberJune 30, 2020,2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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Table of Contents
PART II
OTHER INFORMATION

Item 1: Legal Proceedings.
The Company is subjectinformation set forth under Note 9(b), Contingencies, to various legal proceedings in the ordinary course of its business and in connection with its marketing, distribution and sale of its products. Many of these legal proceedings are in the early stages of litigation and seek damages that are unspecified or not quantified. Although the outcome of these matters cannot be predicted with certainty, the Company does not believe these legal proceedings, individually or in the aggregate, will have a material adverse effect on its financial condition but could be material to its results of operations for a quarterly period depending, in part, on its results for that quarter. 
Class action complaints relating to restatement
On March 11 and 12, 2020, two alleged shareholders of the Company separately filed two putative class action complaints in the U.S. District Court for the Eastern District of New York against the Company and its former Chief Executive Officer (now Executive Chairman) and Chief Financial Officer alleging violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder against all defendants, and Section 20(a) of the Exchange Act against the individual defendants. The complaints generally allege that certain of the Company’s prior public statements about revenues and internal controls were incorrect based on the Company’s March 2, 2020, disclosure that the Audit Committee of its Board of Directors was conducting a review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel. The complaints do not quantify a damage request. Defendants have not yet responded to the complaints.
On June 3, 2020, an alleged shareholder filed a Statement of Claim in the Ontario Superior Court of Justice in Toronto, Ontario, Canada, seeking, among other things, an order certifying the action as a class action on behalf of a putative class of shareholders and damages of an unspecified amount. The Statement of Claim names the Company, its former Chief Executive Officer (now Executive Chairman), Chief Financial Officer, former Chief Financial Officer and Chief Commercial Officer, and current and former members of its Board of Directors as defendants and alleges breaches of the Ontario Securities Act, oppression under the Ontario Business Corporations Act and common law misrepresentation. The Statement of Claim generally alleges that certain of the Company’s prior public statements about revenues and internal controls were misrepresentations based on the Company’s March 2, 2020 disclosure that the Audit Committee of its Board of Directors was conducting a review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel, and the Company’s subsequent restatement. The Statement of Claim does not quantify its damage request. The Company and the other named defendants have not yet filed a response to the Statement of Claim.
Regulatory reviews relating to restatement
The Company has been responding to requests for information from various regulatory authorities relating to its previously disclosed restatement of itscondensed consolidated financial statements for the first three quarters of 2019. The Company is responding to all such requests for information and cooperating with all regulatory authorities. The Company cannot predict the outcome of any such regulatory review or investigation and it is possible that additional investigations or one or more formal proceedings may be commenced against the Company and its current and former officers and directorsincluded in connection with these regulatory reviews and investigations.
Litigation relating to marketing, distribution and sale of products
On June 16, 2020, an alleged consumer filed a Statement of Claim on behalf of a class in the Court of Queen’s Bench of Alberta in Alberta, Canada, against the Company and other Canadian cannabis manufacturers and/or distributors. The Statement of Claim alleges claims related to the defendants’ advertised content of cannabinoids in cannabis products for medicinal use on or after June 16, 2010 and cannabis products for adult use on or after October 17, 2018. The Statement of Claim seeks a total of C$500 million for breach of contract, compensatory damages, and unjust enrichment or such other amount as may be proven in trial and C$5 million in punitive damages against each defendant, including the Company. The Statement of Claim also seeks interest and costs associated with the action. The Company has not responded to the Statement of the Claim.
A number of claims, including purported class actions, have been brought in the U.S. against companies engaged in the U.S. hemp business alleging, among other things, violations of state consumer protection, health and advertising laws. On April 8, 2020, a putative class action complaint was filed in the U.S. District Court for the Central District of California against Redwood, alleging violations of California’s Unfair Competition Law, False Advertising Law, Consumers Legal Remedies Act, and breaches of the California Commercial Code for breach of express warranties and implied warranty of merchantability with respect to Redwood’s marketing and sale of U.S. hemp products. The complaint does not quantify a damage request. On April 10, 2020, the class action complaint was dismissed for certain pleading deficiencies and the plaintiff was granted leave until April 24, 2020 to amend the complaint to establish federal subject matter jurisdiction. On April 28, 2020, the action was dismissed without prejudice for failure to prosecute and for failure to comply with a court order. As of the datePart I, Item 1. “Financial Statements” of this Quarterly Report the plaintiff has not refiled the complaint.
We expect litigation and regulatory proceedings relating to the marketing, distribution and sale of our products to increase.
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is incorporated herein by reference.

Item 1A.1 A: Risk Factors.
An investment in us involves a number of risks. A detailed discussion of our risk factors appears in Part I, Item 1A. Risk Factors of the Annual Report. Any of the matters highlighted in the risk factors described in the Annual Report and the risk factorsfactor below could adversely affect our business, results of operations and financial condition, causing an investor to lose all, or part of, its, his or her investment. The risks and uncertainties described in the Annual Report and below are those we currently believe to be material, but they are not the only ones we face. If any of the risks described in the Annual Report, the following risks,risk factor, or any other risks and uncertainties that we have not yet identified or that we currently consider not to be material, actually occur or become material risks, our business, prospects, financial condition, results of operations and cash flows and consequently the price of our securities could be materially and adversely affected.

Our businessU.S. strategy in part depends on the success of the PharmaCann Investment and resultsthere is no guarantee that we will exercise the PharmaCann Option in the near term, or at all, and, even if exercised, that the PharmaCann Investment will achieve the expected benefits of operations have been adversely affected andthe transaction.

Our ability to exercise the PharmaCann Option will likely continuedepend on the satisfaction of several conditions, including U.S. federal cannabis legalization. In addition, our ability to be materially adversely impacted byexercise the coronavirus pandemic (COVID-19).
The COVID-19 pandemic has severely restricted the level of economic activity around the world and in all countries in which we or our affiliates operate (including the U.S., Canada, Australia, Colombia, and Israel). In responsePharmaCann Option is subject to the COVID-19 pandemicreceipt of any required regulatory approvals, including in the governments of many countries, states cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations, ordering temporary closures of businesses and advising or requiring individuals to limit or forego their time outside of their homes. Numerous businesses have temporarily closed voluntarily or closed permanently. Although some preventative or protective actions have been eased or lifted in varying degrees by different governments of various countries, states and cities, the continued spread of COVID-19 and increase in infection rates have caused, andwhere PharmaCann operates that may continue to cause, some jurisdictions to reinstitute such actions, including rolling back reopening plans. The duration and ultimate impact of the COVID-19 pandemic, including the extent to which the virus may re-emerge following the current outbreak, are highly uncertain.
The effects of the COVID-19 pandemic had a material impact on the growth of revenues and sales during the nine months ended September 30, 2020 related to the Company’s U.S. segment. With segments of the U.S. economy currently in an economic contraction, and a significant number of the Company’s customers’ stores continuing to be challenged by remaining temporarily closed or closing permanently, the U.S. segment is experiencing slower than expected revenue growth. The prolonged closures of retail storesrequired upon exercise, as well as Altria’s approval under the changes in consumer purchasing during the COVID-19 pandemic have adversely affected our financial results. We anticipate further adverse effects on our financial results so long as the measures implemented to combat the COVID-19 pandemic stay in effect.
The effect of the COVID-19 pandemic could include closuresInvestor Rights Agreement. These conditions are outside of our facilities or the facilities of our supplierscontrol and other vendors in our supply chain and other preventive and protective measures in our supply chain. For example, as a result of the COVID-19 pandemic, earlier closures of manufacturers in China resulted in delays of deliveries of batteries and cartridges for our cannabis vaporizers and personal protective equipment, such as masks and gowns used in our GMP manufacturing processes, from such manufacturers in China. If the pandemic persists, closures or other restrictions on the conduct of business operations of our third-party manufacturers, suppliers or vendors could disrupt our supply chain. We have experienced minor delays in shipping and the increased global demand on shipping and transport services, in addition to customs and border control policies put in place in response to COVID-19 that require shipments to undergo quarantine periods, may cause us to experience delays or increased costs in the future which could impact our ability to obtain materials or deliver our products in a timely manner, could otherwise disrupt our operations and could have an adverse effect on our business, financial condition and results of operations. In various provinces in Canada, cannabis retailers have been reducing opening hours, staff onsite and the number of customers allowed in-store for cannabis retailers that continue to be open. Further, retailers of our products in the U.S. and Canada have in some cases determined to, and may in other cases be required to close or choose to suspend or significantly curtail their operations due to health and safety concerns for their employees. Even if our production facilities remain open, mandatory or voluntary self-quarantines and travel restrictions may limit our employees’ ability to get to our facilities, and this, together with impacts on our supply chain and the uncertainty produced by the rapidly evolving nature of the COVID-19 pandemic, may result in reduced or suspended production. Those type of restrictions could also impact the abilities of customers in the U.S. or certain Canadian provinces to continue to have access to our products. Quarantines, shelter-in-place and similar government orders, or the perception that such orders, shutdowns or other restrictions on the conduct of business operations could occur could impact personnel at third-party manufacturing facilities in the U.S. and Canada and other countries, or the availability or cost of materials, which would disrupt our supply chain, in particular in relation to our supply of masks, gowns and other protective equipment used at our GMP facilities due to the global shortage of such protective equipment and materials. As a result of COVID-19, we have implemented work-from-home policies for certain employees and the effects of our work-from-home policies may negatively impact productivity, disrupt access to books and records, increase cybersecurity risks and disrupt our business. In addition, the effects of the COVID-19 pandemic may delay our R&D programs and our ability to execute on certain of our strategic plans involving construction.
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The global impact of the COVID-19 pandemic continues to evolve rapidly, and the extent of its effect on our operational and financial performance will depend on future developments, which are highly uncertain, including the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, and the direct and indirect economic effects of the pandemic and related containment measures, among others. Even after the COVID-19 pandemic subsides, our businesses could also be negatively impacted should the effects of the COVID-19 pandemic lead to changes in consumer behavior, including as a result of a decline in the level of vaping or demand for inhalable products in light of certain recent published articles and studies on the potential increased susceptibility of individuals who smoke or vaporize nicotine or cannabis to COVID-19, in light of changes in consumer behavior such as reduced spending on certain product formats historically used in shared experiences such as pre-rolls or in reductions in discretionary spending. In addition, a severe or prolonged recession resulting from the COVID-19 pandemic would likely materially affect our business and the value of our common shares.
We have been and may in the future be required to write down intangible assets, including goodwill, due to impairment, which could have a material adverse effect on our results of operations or financial position.
The Company has been and may in the future be required to write down intangible assets, including goodwill, due to impairment, which would reduce earnings. We periodically calculate the fair value of our reporting units and intangible assets to test for impairment. This calculation may be affected by several factors, including general economic conditions, regulatory developments, changes in category growth rates as a result of changing adult consumer preferences, success of planned new product introductions, and competitive activity. Certain events can also trigger an immediate review of goodwill and intangible assets. If the carrying value of our reporting unit and other intangible assets exceed their fair value and the loss in value is other than temporary, the goodwill and other intangible assets are considered impaired, which would result in impairment losses and could have a material adverse effect on our consolidated financial position or results of operations. We cannot provide any assurance that the U.S. segment will successfully execute its business plans and strategies.
The ongoing impact of the COVID-19 pandemic on the Company’s operating results for the U.S. segment has been difficult, if not impossible to predict. The longer than anticipated closures of retail stores have resulted in slower than anticipated revenue growth. As a result, the Company reassessed its estimates and forecasts using a discounted cash flow during the second quarter to determine the fair value of the goodwill and intangible asset relating to the U.S. segment. Based on the forecast of the U.S. segment at that time, there was an indication that fair value of the goodwill and intangible asset may not exceed carrying value. In the second quarter of 2020, we performed an interim impairment test due to the triggering events noted above. The Company incurred $35 million of impairment charges on the U.S. reporting unit and $5 million on the Lord Jones™ brand during the second quarter of 2020.
It is possible that estimates in the Company’s financial statements will continue to change in the near-term as a result of the COVID-19 pandemic and the effect of any such changes could be material, which could result in, among other things, further impairment of goodwill and intangible assets.
We have been and may in the future be required to write down inventory due to downward pressure on market prices, which could have a material adverse effect on our results of operations or financial position.
At the end of each reporting period, management performs an assessment of inventory obsolescence, prices and demand to measure inventory at the lower of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We also consider factors such as slow-moving or non-marketable products in our determination of obsolescence. As a result of this assessment, inventory write-downs may occur from period to period. Due to continued pricing pressures in the Canadian marketplace, we may incur further inventory write-downs in the future. We have had a series of inventory write-downs due to price compression in the cannabis market. We expect these write-downs to continue as pricing pressures remain elevated. These inventory write-downs have in the past and may in the future materially adversely affect our results of operations and financial position.
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We identified material weaknesses in our internal control over financial reporting. If we are unable to remediate the material weaknesses, or if we experience additional material weaknesses in the future, our business may be harmed.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) and for evaluating and reporting on the effectiveness of our system of internal control. Effective internal controls are necessary for us to provide timely, reliable and accurate financial reports, identify and proactively correct any deficiencies, material weaknesses or fraud and meet our reporting obligations. As disclosed in Part I, Item 4, we have been conducting remediation efforts to improve our internal control over financial reporting. Remediation efforts place a significant burden on management and add increased pressure on our financial reporting resources and processes. If we are unable to successfully remediate our existing material weaknesses in a timely manner, or any additional material weaknesses in our internal control over financial reporting are identified, the accuracy of our financial reporting and our ability to timely file with the SEC may be adversely impacted. In addition, if our remedial efforts are insufficient, or if additional material weaknesses or significant deficiencies in our internal controls occur in the future, we could be required to further restate our financial results, which could materially and adversely affect our business, results of operations and financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the material weaknesses or deficiencies, subject us to regulatory investigations and penalties, harm our reputation, cause a decline in investor confidence or otherwise cause a decline in our stock price.
If we are a passive foreign investment company for U.S. federal income tax purposes in any year, certain adverse tax rules could apply to U.S. Holders of our common shares
As previously disclosed, we will be classified as a passive foreign investment company (“PFIC”) for any taxable year for U.S. federal income tax purposes if for a taxable year, (i) 75% or more of our gross income is passive income, or (ii) 50% or more of the value of our assets either produce passive income or are held for the production of passive income, based on the quarterly average of the fair market value of such assets. The determination of PFIC status depends on interpretive rules and computational conventions that are often unclear. In particular, in making our determination, we are relying on the application of certain “look-through” rules, taking into account certain intercompany items. There is, however, no direct legal authority applying these look-through rules to our particular situation (including whether they apply and, if so, to what extent, and how they apply to intercompany items). Likewise, in light of the volatility of our common share price, we intend to take the position that the spot trading price of our stock at each quarter end, as adjusted by liabilities, does not dictate the determination of the fair market value of our assets. Based on current business plans and financial expectations, an independent valuation report in respect of our assets, and the application of certain look-through rules (including the taking into account of certain intercompany items), we do not expect to be a PFIC for the current taxable year ending December 31, 2020 and do not expect to become a PFIC in the foreseeable future. However, PFIC status is determined annually and depends upon the composition of our gross income and assets, both of which are subject to change. Moreover,therefore there can be no assurancecertainty that the IRSPharmaCann Option will be exercised in the near term, or a courtat all. If the PharmaCann Option is not exercised, we will agree with our interpretation of fair market value or its computation, or with our interpretationnot receive the benefits of the PFIC rules (including the “look-through” rulescontemplated commercial arrangements between us and the scope of their application, including in respect of intercompany items). Therefore, there can be no assurance as to our PFIC status for the current taxable year or for future taxable years, nor any assurance that the IRS or a court will agree with our determination of our PFIC status.PharmaCann.

In addition, the regulatory approval processes in connection with the exercise of any PharmaCann Option may take a prolonged period of time to complete, which could significantly delay our ability to exercise the PharmaCann Option and realize the benefits of the PharmaCann Investment, or result in our not being able to exercise all or part of the PharmaCann Option. Furthermore, in connection with obtaining approvals from or otherwise satisfying the requests of the state regulators or applicable laws, we may be required to divest all or a portion of the PharmaCann Option, or if after the exercise of the PharmaCann Option, our shares of PharmaCann.
Even if we are able to and do exercise the PharmaCann Option, the intended benefits of the PharmaCann Investment may not be realized. We cannot assure you that the PharmaCann Investment will be accretive to us in the near term or at all. For example, if entered into, the commercial arrangements between us and PharmaCann may not be successful or beneficial to us. Furthermore, if we fail to realize the intended benefits of the PharmaCann Investment, our stock price could decline to the extent that the market price anticipates those benefits.

We are entitled to certain limited governance rights with respect to PharmaCann, including limited information rights and board observer rights. Therefore, we will have little to no ability to influence the strategy and material decisions of PharmaCann’s business. Furthermore, until such time as we exercise the PharmaCann Option, we will not have the ability to vote on matters requiring the vote of PharmaCann’s shareholders and, until the exercise of the PharmaCann Option, will not have the right to appoint directors to the PharmaCann board of directors. Even after exercising the PharmaCann Option, we are entitled to appoint a director of PharmaCann’s board only if we continue to own at least 10% of the outstanding capital stock of PharmaCann, and in any event may appoint no more than two directors. In addition, we are subject to certain standstill restrictions, both prior to and after the exercise of the PharmaCann Option, which restrictions further limit our ability to influence decisions of PharmaCann.

Although we are entitled to certain anti-dilution protections with respect to our investment in PharmaCann, such protections are subject to various conditions, and our potential ownership in PharmaCann may be significantly diluted by, among other things, future issuances of PharmaCann securities or bona fide acquisition activity in which PharmaCann uses its equity as consideration. Any such activity could be significantly dilutive to our ownership in PharmaCann and may adversely impact the potential benefits we may realize from the PharmaCann Investment.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.

Item 3. Defaults Upon Senior Securities.
None.

Item 4. Mine Safety Disclosures.
Not applicable.


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Item 5. Other Information.
Compensatory Arrangements of Certain Officers
On November 3, 2020, the Compensation Committee ofAugust 5, 2021, the Board of Directors (the “Board”) approved aof Cronos Group Inc. (“Cronos Group”) appointed Robert Madore (age 56) as Chief Financial Officer of Cronos Group, effective as of August 9, 2021 (the “Effective Date”). As of August 9, 2021, Jerry Barbato will transition from the position of Chief Financial Officer of Cronos Group.

Madore Agreement

In connection with Mr. Madore’s appointment, Cronos USA Client Services LLC (“Cronos USA”), Cronos Group and Mr. Madore entered into an executive employment agreement (the “Madore Agreement”) setting forth the terms and conditions of Mr. Madore’s employment. The Madore Agreement provides for annual base salary increase for Xiuming Shum from C$300,000 ($226,920)of $450,000, annual target bonus opportunity of 125% of base salary starting in the 2022 fiscal year, an initial annual long-term target incentive opportunity of $787,500 starting in the 2022 fiscal year, and participation in the employee benefit programs of Cronos USA or Cronos Group, as applicable. In addition, Mr. Madore will receive a sign-on bonus in the form of a one-time lump sum cash payment of $372,000, which will be earned, subject to C$375,000 ($283,650) (basedthe terms of the Madore Agreement, on the first anniversary of the Effective Date, and a one-time sign-on grant of equity-based awards, comprised of (a) 900,000 non-qualified stock options that vest ratably on a conversion from C$quarterly basis over a four-year period following the date of grant and have an exercise price equal to dollars using the Bloomberg spot exchange rate as of November 3, 2020 of 0.7564), effective November 7, 2020.
The Compensation Committeefair market value of the Board also determinedcommon shares of Cronos Group (the “Common Shares”) on the 2019 short-term incentive payouttrading day prior to the grant date and (b) 50,000 restricted share units that vest on the third anniversary of the grant date and settle in Common Shares on a one for Ms. Shum, which had not been determinedone basis.

In the event Mr. Madore’s employment is terminated by Cronos USA without Just Cause or he resigns for Good Reason (each, as defined in the timeMadore Agreement), he would be entitled to a severance payment in the Company filed its Proxy Statementamount equal to one year of his annual base salary, employee benefit continuation for the 2020 Annualup to one year following termination and Special Meeting of Shareholdersa pro-rated annual bonus for the year ended December 31, 2019, filedof termination, in each case subject to Mr. Madore entering into a customary release of claims in favor of Cronos Group and its affiliates and related entities. Upon termination of Mr. Madore’s employment, treatment of any outstanding equity-based awards will be governed by the terms and conditions of any applicable plan and award agreement.

Mr. Madore is subject to ongoing confidentiality and mutual non-disparagement provisions, non-competition and customer non-solicitation covenants during his employment and upon termination of his employment for any reason for the one-year period following termination and an employee non-solicitation covenant for the two-year period following termination, subject to customary exceptions.

Mr. Madore most recently served as Chief Financial Officer of MacAndrews & Forbes Incorporated, an operator of a diverse range of businesses, from January 2021 until March 2021. Prior to MacAndrews & Forbes Incorporated, Mr. Madore served as Executive Vice President and Chief Financial Officer of American Eagle Outfitters Inc. from 2016 through 2020. Prior to joining American Eagle Outfitters Inc., Mr. Madore served in a number of key financial and operational roles at Ralph Lauren Corporation beginning in 2004 through 2016, most recently as Senior Vice President and Chief Financial Officer from April 2015 to September 2016. Before joining Ralph Lauren Corporation, Mr. Madore was Executive Vice President and Chief Financial Officer for New York & Company from 2003 to 2004, and served as Chief Operating Officer and Chief Financial Officer of FutureBrand, a division of McCann Erickson, from 2001 to 2003. Before that, he held various executive management positions at Nine West Group, Inc. from 1995 through 2000. Mr. Madore began his career in 1987 at Deloitte & Touche LLP in audit services and worked in the firm’s mergers and acquisitions practice from 1993 until 1995. Mr. Madore received a Bachelor of Science from the Southern Connecticut State University, New Haven. Mr. Madore does not have any family relationships with any of Cronos Group’s directors or executive officers, and is not a party to any transactions listed in Item 404(a) of Regulation S-K.


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Barbato Agreement

In connection with Mr. Barbato’s transition from his role as Chief Financial Officer of Cronos Group, Hortican Inc. (“Hortican”) and Cronos Group entered into a letter agreement with Mr. Barbato (the “Barbato Agreement”). Under the Barbato Agreement, Mr. Barbato will cease serving as Chief Financial Officer of Cronos Group on August 9, 2021 and will continue to be employed by the Company and assist with the SECtransition of his duties and responsibilities to Mr. Madore as successor Chief Financial Officer of Cronos Group until September 9, 2021 (the “Separation Date”, and the period from the August 9, 2021 to the Separation Date, the “Transition Period”). During the Transition Period, Mr. Barbato will be entitled to receive the same base salary as applicable under Mr. Barbato’s prior employment agreement with Cronos Group and Hortican. Mr. Barbato will generally remain eligible to receive (a) annual bonuses of $155,762 for Cronos Group’s 2019 fiscal year, $201,411 for Cronos Group’s 2020 fiscal year and $130,585 for Cronos Group’s 2021 fiscal year (based on April 28, 2020 (the “Proxy”). Ms. Shum will receive a 2019 short-term incentive payout of C$208,800 ($157,373),target performance and prorated based on the number of complete months of such fiscal year of employment prior to the Separation Date) and (b) annual grants of restricted share units equal to $298,480 for Cronos Group’s 2020 fiscal year and $298,480 for Cronos Group’s 2021 fiscal year (each, an “LTI Grant”). Any annual bonus and LTI Grant awards Mr. Barbato is eligible to receive under the Barbato Agreement are contingent on the conclusion of the currently pending investigations (the “Investigations”) by the U.S. Securities and Exchange Commission (“SEC”) and Ontario Securities Commission (“OSC”) into Cronos Group, and the Investigations not resulting in a conversion from C$penalty being levied by the SEC and/or the OSC against Mr. Barbato personally or against Cronos on account of any misconduct, mismanagement or failure to dollars usingsupervise by Mr. Barbato (the “Payment Condition”). The LTI Grants will vest on what would have been their original vesting schedules, based on the Bloomberg average exchange rate forvesting dates applicable to grants in respect of the 12-month period ended December 31, 20192020 and 2021 fiscal years made to other Cronos Group named executive officers; provided that any portion of 0.7537. This bonus amount shouldthe awards that would have vested prior to the date of grant will be reflecteddeemed to vest on the date of grant. Any outstanding equity-based awards that are held by Mr. Barbato as of the Separation Date will remain outstanding and will vest and be settled on the times set forth in the Non-Equity Incentive Plan Compensation columnapplicable award agreements, subject to the Payment Condition and Mr. Barbato’s compliance with his post-employment obligations. Subject to the Payment Condition, any unvested or unpaid amounts of the Summary Compensation TableLTI Grants will vest and be settled immediately upon a Change of Control of Cronos Group (as defined in the Cronos Group Inc. Amended and Restated 2018 Stock Option Plan).

Following the Separation Date, Mr. Barbato will be entitled to severance equal to 6 months’ base salary and benefit continuation for Ms. Shum6 months, subject to Mr. Barbato’s entering into a release of claims in favor of Cronos Group and its affiliates and related entities. Mr. Barbato will also be reimbursed for expenses incurred for annual tax return services for the 2019, fiscal year.2020 and 2021 tax years in an amount not to exceed $15,000 per tax year and relocation expenses in an amount not to exceed $20,000. Pursuant to the Barbato Agreement, Mr. Barbato is subject to the ongoing non-disparagement provision. In addition,connection with the Total compensation figure includedBarbato Agreement, Mr. Barbato reaffirmed the ongoing confidentiality and intellectual property provisions, and non-competition, which will not apply to Mr. Barbato obtaining employment with Altria Group, and non-solicitation requirements contained in the Summary Compensation Table for Ms. Shum has increased to $648,943 for theExecutive Employment Agreement, effective as of April 15, 2019, fiscal year.by and among Hortican, Mr. Barbato and Cronos Group.

The foregoing descriptions of the Madore Agreement and Barbato Agreement do not purport to be complete and are qualified in its entirety by reference to the full text of the Madore Agreement and Barbato Agreement, which are attached hereto as Exhibits 10.3 and 10.4, respectively, and incorporated herein by reference.
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Item 6. Exhibits
The exhibits listed in the Exhibit Index immediately below are filed as part of this Quarterly Report, which Exhibit Index is corporate by reference herein.
Exhibit NumberExhibit Index
2.1+
2.2
3.1
10.1†10.1++
10.2†*
10.3†*
10.4†*
31.1*
31.2*
32.1**
32.2**
101.INS*XBRL Instance Document
101.SCH*XBRL Taxonomy Extension Schema Document.
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document.

+    Certain schedules (or similar attachments) have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The registrant agrees to furnish supplementally a copy of any such omitted schedule or other attachment to the SEC upon its request.
++    Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. The registrant agrees to furnish supplementally an unredacted copy of the exhibit to the SEC upon its request.
†    Management contract or compensatory plan or arrangement.
*    Filed herewith.
**    Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CRONOS GROUP INC.
By:/s/ Kurt SchmidtJerry Barbato
Kurt SchmidtJerry Barbato
President and Chief ExecutiveFinancial Officer
Date: November 5, 2020August 6, 2021


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