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 September 30, ~~2022~~2023

☐ 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, Canada						N/A
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

111 Peter St. Suite 300
Toronto, Ontario						M5V 2H1
(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 class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, no par value

CRON

The 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 filer

Accelerated filer

☐

Non-accelerated filer

Smaller 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 registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of November 3, ~~2022,~~2023, there were ~~378,467,867~~381,113,564 common shares of the registrant issued and outstanding.

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

3028

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

4846

Item 4.

Controls and Procedures.

4947

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings.

5148

Item 1A.

Risk ~~Factors~~Factors.

5148

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

5248

Item 3.

Defaults upon Senior Securities.

5249

Item 4.

Mine Safety Disclosures.

Item 5.

Item 6.

Unless otherwise noted or the context indicates otherwise, references in this Quarterly Report on Form 10-Q (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; the term “U.S. hemp” has the meaning given to term “hemp” in the United States (“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 Quarterly 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 dollars; and all references to “ILS” are to New Israeli Shekels.

(Exchange rates are shown as C$ per $)

As of

(Exchange rates are shown as C$ per $)

As of

September 30, 2022

September 30, 2021

December 31, 2021

September 30, 2023

September 30, 2022

December 31, 2022

Quarter-to-date average rate

1.3053

1.2593

N/A

Spot rate

1.3829

1.2680

1.2746

Spot rate

1.3577

1.3829

1.3554

Year-to-date average rate

1.2829

1.2519

1.2541

Year-to-date average rate

1.3455

1.2829

N/A

(Exchange rates are shown as ILS per $)

As of

September 30, 2023

September 30, 2022

December 31, 2022

Spot rate

3.8138

3.5660

3.5178

Year-to-date average rate

3.6385

3.3107

N/A

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).

PART I
FINANCIAL INFORMATION

Table of Contents


Cronos Group Inc.
Condensed Consolidated Balance Sheets

(In thousands of U.S. dollars, except share amounts)			Table of Contents


		As of September 30, 2022		As of December 31, 2021			As of September 30, 2023		As of December 31, 2022
Assets	Assets	(Unaudited)		(Audited)		Assets
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	633,296	$	886,973	Cash and cash equivalents	$	571,656	$	764,644
Short-term investments	Short-term investments	255,452		117,684		Short-term investments	267,905		113,077
Accounts receivable, net	Accounts receivable, net	19,092		22,067		Accounts receivable, net	15,730		23,113
Interest receivable						Interest receivable	11,723		2,469
Other receivables	Other receivables	3,742		5,765		Other receivables	4,707		3,298
Current portion of loans receivable, net	Current portion of loans receivable, net	8,739		5,460		Current portion of loans receivable, net	5,157		8,890
Inventory, net	Inventory, net	34,094		32,802		Inventory, net	35,847		37,559
Prepaids and other current assets	Prepaids and other current assets	8,896		8,967		Prepaids and other current assets	5,656		7,106

Total current assets	Total current assets	963,311		1,079,718		Total current assets	918,381		960,156
Equity method investments, net	Equity method investments, net	19,234		16,764		Equity method investments, net	18,258		18,755
Other investments	Other investments	94,557		118,392		Other investments	62,143		70,993
Non-current portion of loans receivable, net	Non-current portion of loans receivable, net	72,064		80,635		Non-current portion of loans receivable, net	68,301		72,345
Property, plant and equipment, net	Property, plant and equipment, net	60,582		74,070		Property, plant and equipment, net	55,604		60,557
Right-of-use assets	Right-of-use assets	5,103		8,882		Right-of-use assets	1,417		2,273
Goodwill	Goodwill	1,012		1,098		Goodwill	1,031		1,033
Intangible assets, net	Intangible assets, net	21,428		18,079		Intangible assets, net	24,236		26,704
Other		168		100
Deferred tax asset						Deferred tax asset	741		$	193
Total assets	Total assets	$	1,237,459	$	1,397,738	Total assets	$	1,150,112	$	1,213,009

Liabilities	Liabilities					Liabilities
Current liabilities	Current liabilities					Current liabilities
Accounts payable	Accounts payable	$	9,989	$	11,218	Accounts payable	$	4,749	$	11,163
Income taxes payable						Income taxes payable	635		32,956
Accrued liabilities	Accrued liabilities	25,629		26,069		Accrued liabilities	23,868		22,268
Current portion of lease obligation	Current portion of lease obligation	1,900		2,278		Current portion of lease obligation	949		1,330
Derivative liabilities	Derivative liabilities	73		14,375		Derivative liabilities	29		15
Current portion due to non-controlling interests	Current portion due to non-controlling interests	379		433		Current portion due to non-controlling interests	354		384
Total current liabilities	Total current liabilities	37,970		54,373		Total current liabilities	30,584		68,116
Non-current portion due to non-controlling interests	Non-current portion due to non-controlling interests	1,346		1,913		Non-current portion due to non-controlling interests	1,009		1,383
Non-current portion of lease obligation	Non-current portion of lease obligation	4,994		7,095		Non-current portion of lease obligation	1,754		2,546
Deferred income tax liability		1,917		81

Total liabilities	Total liabilities	46,227		63,462		Total liabilities	33,347		72,045

Shareholders’ equity	Shareholders’ equity					Shareholders’ equity
Share capital (authorized for issue as of September 30, 2022 and December 31, 2021: unlimited; shares outstanding as of September 30, 2022 and December 31, 2021: 378,346,260 and 374,952,693, respectively)		605,229		595,497
Share capital (authorized for issue as of September 30, 2023 and December 31, 2022: unlimited; shares outstanding as of September 30, 2023 and December 31, 2022: 381,113,564 and 380,575,403, respectively)						Share capital (authorized for issue as of September 30, 2023 and December 31, 2022: unlimited; shares outstanding as of September 30, 2023 and December 31, 2022: 381,113,564 and 380,575,403, respectively)	613,290		611,318
Additional paid-in capital	Additional paid-in capital	38,322		32,465		Additional paid-in capital	47,133		42,682
Retained earnings	Retained earnings	569,566		659,416		Retained earnings	461,509		490,682
Accumulated other comprehensive income (loss)		(18,980)		49,865
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(2,110)		(797)
Total equity attributable to shareholders of Cronos Group	Total equity attributable to shareholders of Cronos Group	1,194,137		1,337,243		Total equity attributable to shareholders of Cronos Group	1,119,822		1,143,885
Non-controlling interests	Non-controlling interests	(2,905)		(2,967)		Non-controlling interests	(3,057)		(2,921)
Total shareholders’ equity	Total shareholders’ equity	1,191,232		1,334,276		Total shareholders’ equity	1,116,765		1,140,964
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	1,237,459	$	1,397,738	Total liabilities and shareholders’ equity	$	1,150,112	$	1,213,009

See notes to condensed consolidated interim financial statements.


Cronos Group Inc.
Condensed Consolidated Statements of Net ~~Income (Loss)~~Loss and Comprehensive ~~Income (Loss)~~Loss

(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 September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Net revenue, before excise taxes	Net revenue, before excise taxes	$	26,584	$	24,590	$	84,544	$	58,092	Net revenue, before excise taxes	$	33,912	$	26,070	$	86,264	$	80,243
Excise taxes	Excise taxes	(5,661)		(4,183)		(15,527)		(9,452)		Excise taxes	(9,102)		(5,661)		(22,938)		(15,527)
Net revenue	Net revenue	20,923		20,407		69,017		48,640		Net revenue	24,810		20,409		63,326		64,716
Cost of sales	Cost of sales	19,766		21,137		56,814		56,156		Cost of sales	20,124		17,265		52,614		50,540
Inventory write-down	Inventory write-down	—		—		—		11,961		Inventory write-down	716		—		716		—
Gross profit	Gross profit	1,157		(730)		12,203		(19,477)		Gross profit	3,970		3,144		9,996		14,176
Operating expenses	Operating expenses									Operating expenses
Sales and marketing	Sales and marketing	5,923		10,821		16,517		34,284		Sales and marketing	5,296		5,247		16,334		12,442
Research and development	Research and development	2,569		6,473		10,910		16,774		Research and development	1,246		2,541		4,392		10,656
General and administrative	General and administrative	17,167		32,546		56,540		76,869		General and administrative	14,366		16,354		39,673		53,771
Restructuring costs	Restructuring costs	524		—		4,878		—		Restructuring costs	1,423		387		1,423		3,396
Share-based compensation	Share-based compensation	4,265		2,667		10,567		7,731		Share-based compensation	1,957		4,247		6,823		10,446
Depreciation and amortization	Depreciation and amortization	1,713		1,251		4,417		3,029		Depreciation and amortization	1,457		1,702		4,515		4,368
Impairment loss on goodwill and indefinite-lived intangible assets		—		142		—		235,056

Impairment loss on long-lived assets	Impairment loss on long-lived assets	—		1,784		3,493		4,739		Impairment loss on long-lived assets	—		—		—		3,493
Total operating expenses	Total operating expenses	32,161		55,684		107,322		378,482		Total operating expenses	25,745		30,478		73,160		98,572
Operating loss	Operating loss	(31,004)		(56,414)		(95,119)		(397,959)		Operating loss	(21,775)		(27,334)		(63,164)		(84,396)
Other income (expense)	Other income (expense)									Other income (expense)
Interest income, net	Interest income, net	7,209		2,064		13,030		6,686		Interest income, net	13,375		7,208		37,021		13,028
Gain on revaluation of derivative liabilities		375		132,916		14,204		131,290
Gain (loss) on revaluation of derivative liabilities										Gain (loss) on revaluation of derivative liabilities	8		375		(14)		14,204
Share of income (loss) from equity method investments	Share of income (loss) from equity method investments	(1,119)		(1,414)		4,078		(4,172)		Share of income (loss) from equity method investments	1,057		(1,119)		831		4,078
Gain on revaluation of financial instruments		17,049		266		19,205		143
Gain (loss) on revaluation of financial instruments										Gain (loss) on revaluation of financial instruments	(5,291)		17,049		(7,856)		19,205
Impairment loss on other investments	Impairment loss on other investments	(28,972)		—		(40,210)		—		Impairment loss on other investments	—		(28,972)		—		(40,210)
Foreign currency transaction gain (loss)	Foreign currency transaction gain (loss)	2,387		—		(2,337)		—		Foreign currency transaction gain (loss)	8,816		2,387		3,999		(2,337)
Other, net	Other, net	(693)		7		(556)		1,041		Other, net	966		(581)		1,025		(397)
Total other income (expense)	Total other income (expense)	(3,764)		133,839		7,414		134,988		Total other income (expense)	18,931		(3,653)		35,006		7,571
Income (loss) before income taxes		(34,768)		77,425		(87,705)		(262,971)
Loss before income taxes										Loss before income taxes	(2,844)		(30,987)		(28,158)		(76,825)
Income tax expense (benefit)	Income tax expense (benefit)	2,118		(159)		2,172		(159)		Income tax expense (benefit)	(1,254)		2,118		(2,870)		2,172
Income (loss) from continuing operations		(36,886)		77,584		(89,877)		(262,812)
Income (loss) from discontinued operations		—		82		—		(500)
Net income (loss)		(36,886)		77,666		(89,877)		(263,312)
Loss from continuing operations										Loss from continuing operations	(1,590)		(33,105)		(25,288)		(78,997)
Loss from discontinued operations										Loss from discontinued operations	(182)		(3,781)		(4,238)		(10,880)
Net loss										Net loss	(1,772)		(36,886)		(29,526)		(89,877)
Net income (loss) attributable to non-controlling interest	Net income (loss) attributable to non-controlling interest	105		(250)		(27)		(842)		Net income (loss) attributable to non-controlling interest	(128)		105		(353)		(27)
Net income (loss) attributable to Cronos Group		$	(36,991)	$	77,916	$	(89,850)	$	(262,470)
Net loss attributable to Cronos Group										Net loss attributable to Cronos Group	$	(1,644)	$	(36,991)	$	(29,173)	$	(89,850)

Comprehensive income (loss)
Net income (loss)		$	(36,886)	$	77,666	$	(89,877)	$	(263,312)
Comprehensive loss										Comprehensive loss
Net loss										Net loss	$	(1,772)	$	(36,886)	$	(29,526)	$	(89,877)
Other comprehensive income (loss)	Other comprehensive income (loss)									Other comprehensive income (loss)
Foreign exchange gain (loss) on translation		(60,572)		(22,818)		(68,756)		6,936
Comprehensive income (loss)		(97,458)		54,848		(158,633)		(256,376)
Foreign exchange loss on translation										Foreign exchange loss on translation	(20,090)		(60,572)		(1,096)		(68,756)
Comprehensive loss										Comprehensive loss	(21,862)		(97,458)		(30,622)		(158,633)
Comprehensive income (loss) attributable to non-controlling interests	Comprehensive income (loss) attributable to non-controlling interests	201		(265)		62		167		Comprehensive income (loss) attributable to non-controlling interests	(41)		201		(136)		62
Comprehensive income (loss) attributable to Cronos Group		$	(97,659)	$	55,113	$	(158,695)	$	(256,543)
Comprehensive loss attributable to Cronos Group										Comprehensive loss attributable to Cronos Group	$	(21,821)	$	(97,659)	$	(30,486)	$	(158,695)

Net income (loss) from continuing operations per share
Basic - continuing operations		$	(0.10)	$	0.21	$	(0.24)	$	(0.71)
Diluted - continuing operations		$	(0.10)	$	0.21	$	(0.24)	$	(0.71)

Net loss per share										Net loss per share
Basic and diluted - continuing operations										Basic and diluted - continuing operations	$	(0.00)	$	(0.09)	$	(0.07)	$	(0.21)
Basic and diluted - discontinued operations										Basic and diluted - discontinued operations	(0.00)		(0.01)		(0.01)		(0.03)
Basic and diluted - total										Basic and diluted - total	$	(0.00)	$	(0.10)	$	(0.08)	$	(0.24)

See notes to condensed consolidated interim financial statements.


Cronos Group Inc.
Condensed Consolidated Statements of Changes in Equity
For the ~~three and~~ nine months ended September 30, ~~2022~~2023 and ~~2021~~2022
(In thousands of U.S. dollars, except share amounts, unaudited)


		Number of shares	Share capital		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Non-controlling interests		Total shareholders’ equity			Number of shares	Share capital		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Non-controlling interests		Total shareholders’ equity
Balance as of January 1, 2022		374,952,693	$	595,497	$	32,465	$	659,416	$	49,865	$	(2,967)	$	1,334,276
Balance as of January 1, 2023															Balance as of January 1, 2023	380,575,403	$	611,318	$	42,682	$	490,682	$	(797)	$	(2,921)	$	1,140,964

Activities relating to share-based compensation	Activities relating to share-based compensation	347,287	871		2,900		—		—		—		3,771		Activities relating to share-based compensation	240,518	917		1,362		—		—		—		2,279
Net loss	Net loss	—	—		—		(32,638)		—		(15)		(32,653)		Net loss	—	—		—		(19,169)		—		(88)		(19,257)
Foreign exchange gain on translation															Foreign exchange gain on translation	—	—		—		—		2,334		80		2,414
Balance as of March 31, 2023															Balance as of March 31, 2023	380,815,921	$	612,235	$	44,044	$	471,513	$	1,537	$	(2,929)	$	1,126,400
Activities relating to share-based compensation															Activities relating to share-based compensation	273,436	917		1,273		—		—		—		2,190
Net loss															Net loss	—	—		—		(8,360)		—		(137)		(8,497)
Foreign exchange gain on translation															Foreign exchange gain on translation	—	—		—		—		16,530		50		16,580
Balance as of June 30, 2023															Balance as of June 30, 2023	381,089,357	$	613,152	$	45,317	$	463,153	$	18,067	$	(3,016)	$	1,136,673
Activities relating to share-based compensation															Activities relating to share-based compensation	24,207	138		1,816		—		—		—		1,954
Net loss															Net loss	—	—		—		(1,644)		—		(128)		(1,772)
Foreign exchange gain (loss) on translation	Foreign exchange gain (loss) on translation	—	—		—		—		16,223		(246)		15,977		Foreign exchange gain (loss) on translation	—	—		—		—		(20,177)		87		(20,090)
Balance as of March 31, 2022		375,299,980	$	596,368	$	35,365	$	626,778	$	66,088	$	(3,228)	$	1,321,371
Balance as of September 30, 2023															Balance as of September 30, 2023	381,113,564	$	613,290	$	47,133	$	461,509	$	(2,110)	$	(3,057)	$	1,116,765

Activities relating to share-based compensation		395,156	2,251		(167)		—		—		—		2,084
Share issuance pursuant to research and development milestones		2,201,235	6,007		—		—		—		—		6,007
Net loss		—	—		—		(20,221)		—		(117)		(20,338)
Foreign exchange gain (loss) on translation		—	—		—		—		(24,400)		239		(24,161)
Balance as of June 30, 2022		377,896,371	$	604,626	$	35,198	$	606,557	$	41,688	$	(3,106)	$	1,284,963

Activities relating to share-based compensation		449,889	603		3,124		—		—		—		3,727
Net income (loss)		—	—		—		(36,991)		—		105		(36,886)
Foreign exchange gain (loss) on translation		—	—		—		—		(60,668)		96		(60,572)
Balance as of September 30, 2022		378,346,260	$	605,229	$	38,322	$	569,566	$	(18,980)	$	(2,905)	$	1,191,232

~~See notes to condensed consolidated interim financial statements.~~


Cronos Group Inc.
Condensed Consolidated Statements of Changes in Equity
For the ~~three and~~ nine months ended September 30, ~~2022~~2023 and ~~2021~~2022
(In thousands of U.S. dollars, except share amounts, unaudited)


		Number of shares	Share capital		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Non-controlling interests		Total shareholders’ equity					Number of shares		Share capital		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Non-controlling interests		Total shareholders’ equity
Balance as of January 1, 2021		360,253,332	$	569,260	$	34,596	$	1,064,509	$	42,999	$	(3,196)	$	1,708,168
Balance as of January 1, 2022															Balance as of January 1, 2022		374,952,693		$	595,497	$	32,465	$	659,416	$	49,865	$	(2,967)	$	1,334,276

Activities relating to share-based compensation	Activities relating to share-based compensation	11,403,258	15,652		(2,506)		(7,694)		—		—		5,452			Activities relating to share-based compensation		347,287		871		2,900		—		—		—		3,771
Net loss	Net loss	—	—		—		(161,312)		—		(313)		(161,625)			Net loss		—		—		—		(32,638)		—		(15)		(32,653)
Foreign exchange gain on translation		—	—		—		—		15,145		1,139		16,284
Balance as of March 31, 2021		371,656,590	$	584,912	$	32,090	$	895,503	$	58,144	$	(2,370)	$	1,568,279
Foreign exchange gain (loss) on translation															Foreign exchange gain (loss) on translation		—		—		—		—		16,223		(246)		15,977
Balance as of March 31, 2022															Balance as of March 31, 2022		375,299,980		$	596,368	$	35,365	$	626,778	$	66,088	$	(3,228)	$	1,321,371
Activities relating to share-based compensation															Activities relating to share-based compensation		395,156		2,251		(167)		—		—		—		2,084
Share issuance pursuant to research and development milestones															Share issuance pursuant to research and development milestones		2,201,235		6,007		—		—		—		—		6,007
Net loss															Net loss		—		—		—		(20,221)		—		(117)		(20,338)
Foreign exchange gain (loss) on translation															Foreign exchange gain (loss) on translation		—		—		—		—		(24,400)		239		(24,161)
Balance as of June 30, 2022															Balance as of June 30, 2022		377,896,371		$	604,626	$	35,198	$	606,557	$	41,688	$	(3,106)	$	1,284,963
Activities relating to share-based compensation															Activities relating to share-based compensation		449,889		603		3,124		—		—		—		3,727
Net income (loss)															Net income (loss)		—		—		—		(36,991)		—		105		(36,886)
Foreign exchange gain (loss) on translation															Foreign exchange gain (loss) on translation		—		—		—		—		(60,668)		96		(60,572)
Balance as of September 30, 2022															Balance as of September 30, 2022		378,346,260		$	605,229	38,322		569,566		(18,980)		(2,905)		1,191,232

Activities relating to share-based compensation		148,957	2,451		278		(63)		—		—		2,666
Top-up rights out-of-period adjustment		—	(14,505)		—		3,227		—		—		(11,278)
Net loss		—	—		—		(179,074)		—		(279)		(179,353)
Foreign exchange gain (loss) on translation		—	—		—		—		13,585		(115)		13,470
Balance as of June 30, 2021		371,805,547	$	572,858	$	32,368	$	719,593	$	71,729	$	(2,764)	$	1,393,784

Activities relating to share-based compensation		1,497,314	14,020		(1,995)		(4,232)		—		—		7,793
Net income (loss)		—	—		—		77,916		—		(250)		77,666
Foreign exchange loss on translation		—	—		—		—		(22,803)		(15)		(22,818)
Balance as of September 30, 2021		373,302,861	$	586,878	$	30,373	$	793,277	$	48,926	$	(3,029)	$	1,456,425

See notes to condensed consolidated interim financial statements.


Cronos Group Inc.
Condensed Consolidated Statements of Cash Flows

(In thousands of U.S. dollars, except share amounts, unaudited)			Table of Contents


		Nine months ended September 30,					Nine months ended September 30,
		2022		2021			2023		2022
Operating activities	Operating activities					Operating activities
Net loss	Net loss	$	(89,877)	$	(263,312)	Net loss	$	(29,526)	$	(89,877)
Adjustments to reconcile net loss to cash used in operating activities:	Adjustments to reconcile net loss to cash used in operating activities:					Adjustments to reconcile net loss to cash used in operating activities:
Share-based compensation	Share-based compensation	10,567		7,731		Share-based compensation	6,840		10,567
Depreciation and amortization	Depreciation and amortization	10,499		8,911		Depreciation and amortization	6,933		10,499
Impairment loss on goodwill and indefinite-lived intangible assets		—		235,056

Impairment loss on long-lived assets	Impairment loss on long-lived assets	3,493		4,739		Impairment loss on long-lived assets	205		3,493
Impairment loss on other investments	Impairment loss on other investments	40,210		—		Impairment loss on other investments	—		40,210
(Income) loss from investments		(23,283)		4,172
Gain on revaluation of derivative liabilities		(14,204)		(131,290)
Loss (gain) from investments						Loss (gain) from investments	7,103		(23,283)
Loss (gain) on revaluation of derivative liabilities						Loss (gain) on revaluation of derivative liabilities	14		(14,204)

Changes in expected credit losses on long-term financial assets	Changes in expected credit losses on long-term financial assets	(577)		13,162		Changes in expected credit losses on long-term financial assets	(1,339)		(577)
Foreign currency transaction loss		2,337		—
Foreign currency transaction (gain) loss						Foreign currency transaction (gain) loss	(3,999)		2,337
Other non-cash operating activities, net	Other non-cash operating activities, net	233		(2,831)		Other non-cash operating activities, net	(1,918)		3,680
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable, net	Accounts receivable, net	1,172		(5,747)		Accounts receivable, net	6,976		1,172
Interest receivable						Interest receivable	(14,601)		(5,332)
Other receivables	Other receivables	1,716		7,431		Other receivables	25		3,601
Prepaids and other current assets	Prepaids and other current assets	(904)		1,054		Prepaids and other current assets	1,074		(904)
Inventory	Inventory	(4,241)		14,335		Inventory	976		(4,241)
Accounts payable and accrued liabilities		(1,717)		(11,089)

Accounts payable						Accounts payable	(7,595)		(1,627)
Income taxes payable						Income taxes payable	(32,728)		—
Accrued liabilities						Accrued liabilities	1,910		(90)
Cash flows used in operating activities	Cash flows used in operating activities	(64,576)		(117,678)		Cash flows used in operating activities	(59,650)		(64,576)
Investing activities	Investing activities					Investing activities
Purchase of short-term investments	Purchase of short-term investments	(275,370)		(119,820)		Purchase of short-term investments	(537,186)		(275,370)
Proceeds from short-term investments	Proceeds from short-term investments	116,925		135,801		Proceeds from short-term investments	380,765		116,925
Purchase of other investments		—		(110,392)

(Advances) repayments on loan receivables		2,339		(6,905)

Dividends received from equity method investment						Dividends received from equity method investment	1,301		—
Dividend proceeds						Dividend proceeds	346		—
Proceeds from repayment on loan receivables						Proceeds from repayment on loan receivables	14,151		2,339
Purchase of property, plant and equipment	Purchase of property, plant and equipment	(3,087)		(10,651)		Purchase of property, plant and equipment	(1,287)		(3,087)
Purchase of intangible assets	Purchase of intangible assets	(1,177)		(1,044)		Purchase of intangible assets	(344)		(1,177)
Other investing activities	Other investing activities	70		2,775		Other investing activities	862		70
Cash flows used in investing activities	Cash flows used in investing activities	(160,300)		(110,236)		Cash flows used in investing activities	(141,392)		(160,300)
Financing activities	Financing activities					Financing activities
Withholding taxes paid on share-based awards	Withholding taxes paid on share-based awards	(2,208)		(13,182)		Withholding taxes paid on share-based awards	(812)		(2,208)
Other financing activities, net	Other financing activities, net	(69)		18		Other financing activities, net	—		(69)
Cash flows used in financing activities	Cash flows used in financing activities	(2,277)		(13,164)		Cash flows used in financing activities	(812)		(2,277)
Effect of foreign currency translation on cash and cash equivalents	Effect of foreign currency translation on cash and cash equivalents	(26,524)		5,622		Effect of foreign currency translation on cash and cash equivalents	8,866		(26,524)
Net change in cash and cash equivalents	Net change in cash and cash equivalents	(253,677)		(235,456)		Net change in cash and cash equivalents	(192,988)		(253,677)
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	886,973		1,078,023		Cash and cash equivalents, beginning of period	764,644		886,973
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	633,296	$	842,567	Cash and cash equivalents, end of period	$	571,656	$	633,296
Supplemental cash flow information	Supplemental cash flow information					Supplemental cash flow information
Interest paid	Interest paid	$	—	$	—	Interest paid	$	—	$	—
Interest received	Interest received	7,734		4,025		Interest received	$	22,203	$	7,734
Income taxes paid	Income taxes paid	158		873		Income taxes paid	$	33,013	$	158

See notes to condensed consolidated interim financial statements.


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

1. Background, Basis of Presentation, and Summary of Significant Accounting Policies

(a)Background

Cronos Group Inc. (“~~Cronos Group”~~Cronos” or the “Company”) is incorporated in the province of British Columbia ~~and~~ under the Business Corporations Act ~~(British~~(British Columbia) with principal executive offices at 111 Peter St., 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 committed to building disruptive intellectual property by advancing cannabis research, technology and product ~~development and~~development. With a passion to responsibly elevate the consumer experience, Cronos is ~~seeking to build~~building an iconic brand portfolio. ~~Cronos Group’s~~Cronos’ diverse international brand portfolio includes Spinach®, PEACE NATURALS®, and Lord Jones®~~, Happy Dance~~.®

The Company continues to monitor the conflict in Israel and ~~PEACE+~~®.potential impacts the conflict could have on the Company’s personnel and business in Israel and the recorded amounts of assets and liabilities related to the Company’s operations in Israel. The extent to which the conflict may impact the Company’s personnel, business and activities will depend on future developments which remain highly uncertain and cannot be predicted. It is possible that the recorded amounts of assets and liabilities related to the Company’s operations in Israel could change materially in the near term.

(b)Basis of presentation

~~The~~These condensed consolidated interim 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)~~adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, ~~2022~~2023 are not necessarily indicative of the results that may be expected for any other reporting period.

These condensed consolidated interim 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 for the year ended December 31, ~~2021~~2022 (the “Annual Report”).

Certain prior ~~year~~period amounts have been reclassified to conform to the current year presentation of our condensed consolidated interim financial statements. These reclassifications had no effect on the reported results of operations and ending shareholders’ equity.

(c)Discontinued Operations

In the second quarter of 2023, the Company exited its U.S. hemp-derived cannabinoid product operations. The exit of the U.S. operations represented a strategic shift that has a major effect on the Company’s operations and financial results, and as such, qualifies for reporting as discontinued operations in our condensed consolidated statements of net loss and comprehensive loss. Prior period amounts have been reclassified to reflect the discontinued operations classification of the U.S. operations. For more information, see Note 2 “Discontinued Operations”.

(d)Segment information

Segment reporting is prepared on the same basis that the Company’s chief operating decision maker (the “CODM”) manages the business, makes operating decisions and assesses the Company’s performance. ~~The~~Historically, the Company has reported results for two reportable segments, the U.S. and Rest of World. In the second quarter of 2023, as a result of the Company’s exit of its then-existing U.S. operations, the Company determined that it has ~~the following two reportable segments: U.S. (the “U.S. segment”) and ROW (the “ROW segment”).~~ ~~The U.S.~~one operating segment ~~consists~~and therefore one reportable segment, which is comprised of ~~the~~operations ~~manufacture~~in Canada and ~~distribution of U.S. hemp-derived cannabinoid infused products.~~ ~~The ROW operating segment~~Israel and is involved in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets. All prior period segment disclosure information has been reclassified to conform to the current reporting structure in this Form 10-Q. These ~~two segments represent~~reclassifications had no effect on our consolidated financial statements in any period presented.

(e)Revenue recognition

The following tables present the Company's revenue by major product category for continuing operations:


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents


	Three months ended September 30,
	2023		2022
Cannabis flower	$	17,414	$	13,674
Cannabis extracts	7,268		6,627
Other	128		108
Net revenue	$	24,810	$	20,409


	Nine months ended September 30,
	2023		2022
Cannabis flower	$	44,556	$	48,038
Cannabis extracts	18,495		16,197
Other	275		481
Net revenue	$	63,326	$	64,716

Net revenue attributed to a geographic ~~regions in which~~region based on the ~~Company operates and the different product offerings within each geographic region. The results of each segment are regularly reviewed by the CODM to assess the performance~~location of the ~~segment and make decisions regarding the allocation of resources using Adjusted EBITDA (as defined below)~~customer were as the measure of segment profit or loss. Adjusted EBITDA is defined as earnings before interest, tax, depreciation, non-cash items and items that do not reflect management’s assessment of ongoing business performance.follows for continuing operations:


	Three months ended September 30,
	2023		2022
Canada	$	18,738	$	13,370
Israel	5,673		7,039

Other countries	399		—
Net revenue	$	24,810	$	20,409


	Nine months ended September 30,
	2023		2022
Canada	$	46,767	$	41,335
Israel	16,160		23,381

Other countries	399		—
Net revenue	$	63,326	$	64,716

~~(d)~~(f)Concentration of 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 and loans ~~receivable, and advances to joint ventures.~~receivable. The Company’s maximum exposure to this risk is equal to the carrying amount of these financial assets, which amounted to ~~$992,385~~$945,179 and ~~$1,118,684~~$987,836 as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

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, amongst 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. As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company had $2$45 and ~~$8,~~$2, respectively, in expected credit losses that have been recognized on receivables from contracts with ~~customers in the ROW segment.~~ customers.

As of September 30, ~~2022 and~~2023, the Company assessed that there is a concentration of credit risk, as 43% of the Company’s accounts receivable were due from two customers with an established credit history with the Company. As of December 31, ~~2021,~~2022, 56% of the ~~Company had $457 and $104, respectively, in expected~~Company’s accounts receivable were due from three customers with an established credit ~~losses that have been recognized on receivables from contracts~~history with ~~customers in~~ the ~~U.S. segment.~~Company.

910


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

As of September 30, 2022, the Company assessed that there is a concentration of credit risk, as 68% of the Company’s accounts receivable were due from three customers with an established credit history with the Company. As of December 31, 2021, 88% of the Company’s accounts receivable were due from four customers with an established credit history with the Company.

The Company sells products to a limited number of major customers. Major customers are defined as customers that each individually accounted for greater than 10% of the Company’s revenue. During the three months ended September 30, 2023, the Company earned a total net revenue before excise taxes of $22,618 from three major customers, together accounting for 67% of the Company’s total net revenues before excise taxes. During the three months ended September 30, 2022, the Company earned a total net revenue before excise taxes of $12,094 from three major customers, ~~in the ROW segment,~~ together accounting for ~~56%~~60% of the Company’s total net revenues before excise taxes. During the ~~three~~nine months ended September 30, ~~2021,~~2023, the ~~ROW segment~~Company earned a total net revenue before excise taxes of ~~$12,256~~$57,398 from three major customers, together accounting for ~~60%~~67% of the Company’s total net revenues before excise taxes. During the nine months ended September 30, 2022, the Company earned a total net revenue before excise taxes of $36,564 from three major customers, ~~in the ROW segment,~~ together accounting for 54% of the Company’s total net revenue before excise taxes. During the nine months ended September 30, 2021, the ROW segment earned a total net revenue before excise taxes of $25,667 from three major customers, together accounting for 53%58% of the Company’s total net revenues before excise taxes. ~~During the three and nine months ended September 30, 2022 and 2021, the U.S. segment had no major customers.~~

~~(e)~~(g)Adoption of new accounting pronouncements

On January 1, ~~2022,~~2023, the Company adopted ASU No. 2020-06, Debt –Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—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 No. 2020-06 is part of the Financial Accounting Standards Board’s (“FASB”) simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The adoption of ASU No. 2020-06 did not have an impact on the Company’s condensed consolidated interim financial statements.

~~(f)New accounting pronouncements not yet adopted~~

~~In March 2022, the FASB issued~~ ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU ~~No.~~ 2022-02”). ASU ~~No.~~ 2022-02 eliminates the existing troubled debt restructuring recognition and measurement guidance, and instead aligns the accounting treatment to that of other loan modifications. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU ~~No.~~ 2022-02 also requires that entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. ~~ASU No. 2022-02 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, and is to be adopted prospectively.~~ The ~~Company does not expect the~~ adoption of ASU ~~No.~~ 2022-02 todid not have a material impact on ~~its~~the Company’s condensed consolidated interim financial statements.

(h)New accounting pronouncements not yet adopted

In June 2022, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU ~~No.~~ 2022-03”). ASU ~~No.~~ 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered in measuring fair value. The amendments also require additional disclosures for equity securities subject to contractual sale restrictions. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, and iswe expect to ~~be adopted~~adopt ASU 2022-03 prospectively. The Company does not expect the adoption of ASU ~~No.~~ 2022-03 to have a material impact on its condensed consolidated interim financial statements.

2. ~~Inventory,~~Discontinued Operations

In the second quarter of 2023, the Company exited its then-existing U.S. hemp-derived cannabinoid product operations. Accordingly, the net

~~Inventory, net is comprised~~ loss of the ~~following items:~~

As of September 30, 2022 As of December 31, 2021
Raw materials $ 7,863 $ 9,211
Work-in-progress 11,021 12,405
Finished goods 14,205 10,778
Supplies and consumables 1,005 408
Total $ 34,094 $ 32,802
U.S. operations for the three and nine months ended September 30, 2023 and 2022 are reported separately as loss from discontinued operations on the condensed consolidated statements of net loss and comprehensive loss.

1011


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

The following table presents the major components comprising loss from discontinued operations in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022:


	Three months ended September 30,			Nine months ended September 30,
		2023		2022		2023		2022
Net revenue		$	—	$	514	$	1,029	$	4,301
Cost of sales		—		2,501		2,044		6,274
Inventory write-down(i)		—		—		839		—
Gross profit		—		(1,987)		(1,854)		(1,973)
Operating expenses
Sales and marketing		—		676		518		4,075
Research and development		—		28		20		254
General and administrative		190		813		926		2,769
Restructuring costs		28		137		562		1,482
Share-based compensation		(4)		18		17		121
Depreciation and amortization		—		11		13		49

Impairment loss on long-lived assets(ii)		—		—		205		—
Total operating expenses		214		1,683		2,261		8,750
Interest income		1		1		9		2
Other, net(iii)		31		(112)		(132)		(159)
Total other income (loss)		32		(111)		(123)		(157)
Loss before income taxes		(182)		(3,781)		(4,238)		(10,880)
Income tax expense (benefit)		—		—		—		—
Net loss from discontinued operations		$	(182)	$	(3,781)	$	(4,238)	$	(10,880)

(i)For the nine months ended September 30, 2023, Inventory write-down relates to the disposal of obsolete inventory as a result of the exit of the U.S. operations.

(ii)During the nine months ended September 30, 2023, as a result of the exit of the U.S. operations, the Company recognized an impairment charge of $205 related to the right-of-use lease assets associated with the Company’s former U.S. manufacturing facility in Los Angeles, California.

(iii)For the three and nine months ended September 30, 2023 and September 30, 2022, Other, net related to gain and loss on disposal of assets that were part of the U.S. operations.

The following tables present the Company's discontinued operations revenue by major product category:


	Three months ended September 30,
	2023		2022
Cannabis extracts	—		514
Net revenue	$	—	$	514


	Nine months ended September 30,
	2023		2022
Cannabis extracts	1,029		4,301
Net revenue	$	1,029	$	4,301


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

The following tables summarize the Company’s discontinued operations restructuring activity for the three and nine months ended September 30, 2023 and 2022:


	Accrual as of June 30, 2023		Expenses		Payments/Write-offs		Accrual as of September 30, 2023
Employee Termination Benefits	$	219	$	28	$	(169)	$	78

Other Restructuring Costs	92		—		(92)		—
Total	$	311	$	28	$	(261)	$	78


	Accrual as of January 1, 2023		Expenses		Payments/Write-offs		Accrual as of September 30, 2023
Employee Termination Benefits	$	—	$	470	$	(392)	$	78

Other Restructuring Costs	—		92		(92)		—
Total	$	—	$	562	$	(484)	$	78


	Accrual as of June 30, 2022		Expenses		Payments/Write-offs		Accrual as of September 30, 2022
Employee Termination Benefits	$	66	$	137	$	(93)	$	110


Total	$	66	$	137	$	(93)	$	110


	Accrual as of January 1, 2022		Expenses		Payments/Write-offs		Accrual as of September 30, 2022
Employee Termination Benefits	$	—	$	1,482	$	(1,372)	$	110


Total	$	—	$	1,482	$	(1,372)	$	110

The following table presents a reconciliation of assets and liabilities of the discontinued operations presented in the condensed consolidated balance sheets:


	As of September 30, 2023		As of December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	900	$	2,300

Accounts receivable, net	—		253
Other receivables	—		775

Prepaids and other current assets	5		464
Inventory, net	—		934
Current assets of discontinued operations	905		4,726

Non-current assets



Property, plant and equipment, net	—		254
Right-of-use assets	—		430

Intangible assets, net	—		1,594

Non-current assets of discontinued operations	—		2,278

Liabilities
Current liabilities
Accounts payable	—		166

Accrued liabilities	210		807
Current portion of lease obligation	—		415


Current liabilities of discontinued operations	$	210	$	1,388


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

For the nine months ended September 30, 2023, purchases of property plant and equipment related to discontinued operations were $67. For the nine months ended September 30, 2022, purchases of property plant and equipment related to discontinued operations were $133.

3. Inventory, net

Inventory, net is comprised of the following items:


	As of September 30, 2023		As of December 31, 2022
Raw materials	$	6,739	$	7,421
Work-in-progress	11,665		15,646
Finished goods	16,536		13,503
Supplies and consumables	907		989
Total	$	35,847	$	37,559

4. Investments

(a)~~Variable interest entities and equity~~Equity method investments, net

A reconciliation of the carrying amount of the investments in equity method investees, net is as follows:

Ownership interest As of September 30, 2022 As of December 31, 2021
Cronos Growing Company Inc. (“Cronos GrowCo”) 50% $ 19,234 $ 16,764
NatuEra S.à.r.l. (“Natuera”) 50% — —
$ 19,234 $ 16,764


	Ownership interest	As of September 30, 2023		As of December 31, 2022

Cronos Growing Company Inc. (“Cronos GrowCo”)	50%	$	18,258	$	18,755

		$	18,258	$	18,755

The following is a summary of the Company’s share of net ~~income~~gain (loss) from equity method investments:

For the three months ended September 30, For the nine months ended September 30,
2022 2021 2022 2021
Cronos GrowCo $ (1,119) $ (1,214) $ 4,078 $ (1,972)
Natuera — (200) — (2,200)
$ (1,119) $ (1,414) $ 4,078 $ (4,172)


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Cronos GrowCo	$	1,057	$	(1,119)	$	831	$	4,078

	$	1,057	$	(1,119)	$	831	$	4,078

(b)Other investments

Other investments consist of investments in common shares and options of two companies in the cannabis industry.

PharmaCann, Inc.

In 2021, the Company purchased an option (the “PharmaCann Option”) to acquire 473,787 shares of Class A Common Stock of PharmaCann, Inc. (“PharmaCann”), a vertically integrated cannabis company in the United States, which represented an ownership interest of approximately 10.5% as of ~~December 31, 2021.~~the purchase date of the PharmaCann Option, for an aggregate purchase price of approximately $110,392. The PharmaCann Option is classified as an equity security without a readily determinable fair value. The Company has elected to measure the fair value of the PharmaCann Option at cost less impairment, if any, and subsequently adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. On February 28, 2022, PharmaCann closed the previously announced transaction with LivWell Holdings, Inc. (“LivWell”) pursuant to which PharmaCann acquired LivWell (the “LivWell Transaction”). LivWell is a multi-state cannabis cultivation and retail leader based in Colorado. As a result of the LivWell Transaction, the Company’s ownership percentage in PharmaCann on a fully-diluted basis decreased to approximately 6.4%. As of September 30, ~~2022,~~2023, the Company’s proforma ownership percentage in PharmaCann on a fully-diluted basis was approximately 6.3%. The decrease in the Company’s ownership percentage since acquisition does not materially affect the Company’s rights under the PharmaCann Option. The PharmaCann Option is measured at fair value on a non-recurring basis and is a level 3 asset. See Note 11 “Fair Value Measurements” for more information on the fair value hierarchy.

Vitura Health Limited (formerly known as Cronos ~~Australia Limited~~Australia)

The Company owns approximately 10% of the outstanding common shares of ~~Cronos Australia~~Vitura Health Limited (“~~Cronos Australia”~~Vitura”). The investment is considered an equity security with a readily determinable fair value. Changes in the fair value of the investment are recorded as gain (loss) on revaluation of financial instruments on the condensed consolidated statements of net ~~income (loss)~~loss and comprehensive ~~income (loss).~~loss. During the three months ended September 30, ~~2022, Cronos Australia~~2023, Vitura declared a dividend of ~~AUD $0.01~~A$0.01 per ordinary share. Based on the Company’s holding of 55,176,065 ordinary shares in the capital of ~~Cronos Australia,~~Vitura, the Company recorded dividend income of ~~$390~~$346 within other, net on the condensed consolidated statements of net ~~income (loss)~~loss and comprehensive ~~income (loss).~~loss.

1114


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

The following table summarizes the Company’s other investments activity:


		As of July 1, 2022		Unrealized gain		Impairment charges		Foreign exchange effect		As of September 30, 2022			As of July 1, 2023		Unrealized loss		Impairment charges		Foreign exchange effect		As of September 30, 2023
PharmaCann	PharmaCann	$	99,154	$	—	$	(28,972)	$	—	$	70,182	PharmaCann	$	49,000	$	—	$	—	$	—	$	49,000
Cronos Australia		9,515		17,118		—		(2,258)		24,375
Vitura												Vitura	18,925		(5,204)		—		(578)		13,143
		$	108,669	$	17,118	$	(28,972)	$	(2,258)	$	94,557		$	67,925	$	(5,204)	$	—	$	(578)	$	62,143


		As of January 1, 2022		Unrealized gain		Impairment charges		Foreign exchange effect		As of September 30, 2022			As of January 1, 2023		Unrealized loss		Impairment charges		Foreign exchange effect		As of September 30, 2023
PharmaCann	PharmaCann	$	110,392	$	—	$	(40,210)	$	—	$	70,182	PharmaCann	$	49,000	$	—	$	—	$	—	$	49,000
Cronos Australia		8,000		19,114		—		(2,739)		24,375
Vitura												Vitura	21,993		(7,933)		—		(917)		13,143
		$	118,392	$	19,114	$	(40,210)	$	(2,739)	$	94,557		$	70,993	$	(7,933)	$	—	$	(917)	$	62,143


	As of July 1, 2022		Unrealized gain		Impairment charges		Foreign exchange effect		As of September 30, 2022
PharmaCann	$	99,154	$	—	$	(28,972)	$	—	$	70,182
Vitura	9,515		17,118		—		(2,258)		24,375
	$	108,669	$	17,118	$	(28,972)	$	(2,258)	$	94,557


	As of January 1, 2022		Unrealized gain		Impairment charges		Foreign exchange effect		As of September 30, 2022
PharmaCann	$	110,392	$	—	$	(40,210)	$	—	$	70,182
Vitura	8,000		19,114		—		(2,739)		24,375
	$	118,392	$	19,114	$	(40,210)	$	(2,739)	$	94,557

During both the three months ended March 31, 2022, and the three months ended September 30, 2022, the Company identified adverse forecast changes in the financial performance of PharmaCann as indicators of impairment related to the PharmaCann Option and conducted analyses comparing the PharmaCann Option’s carrying amount to its estimated fair value. The fair value ~~for the three months ended March 31, 2022~~ was estimated using a combination of the market and income ~~approaches, and the fair value for the three months ended September 30, 2022 was estimated using the income approach.~~approaches. Under the income approach, significant inputs used in the discounted cash flow method ~~include~~were the discount rate, growth rates, ~~and~~ cash flow ~~projections.~~projections, and the timing of federal legalization of cannabis in the U.S. Under the market valuation approach, the key assumptions that require judgment under the Guideline Public Companies method are cash flow projections, selected multiples and the discount for lack of marketability. As a result of ~~these analyses,~~this analysis, the Company recorded non-cash impairment charges of $11,238 and $28,972 during the three months ended March 31, 2022, and September 30, 2022, respectively, as the difference between the carrying amount of the PharmaCann Option and its estimated fair value in the condensed consolidated statements of net ~~income (loss)~~loss and comprehensive ~~income (loss).~~loss.

During the three and nine months ended September 30, 2021, the Company had no gain or loss on revaluation of other investments. As of September 30, 2022 and December 31, 2021, the Company did not hold any additional other investments.


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

5. Loans Receivable, net

Loans receivable, net consists of the following:


		As of September 30, 2022		As of December 31, 2021			As of September 30, 2023		As of December 31, 2022

GrowCo Facility(i)		$	3,857	$	3,138
GrowCo Credit Facility						GrowCo Credit Facility	$	4,911	$	4,427
Add: Current portion of accrued interest	Add: Current portion of accrued interest	4,882		2,322		Add: Current portion of accrued interest	246		4,463
Total current portion of loans receivable	Total current portion of loans receivable	8,739		5,460		Total current portion of loans receivable	5,157		8,890
GrowCo Facility(i)		56,740		64,367
Mucci Promissory Note(ii)		13,219		14,019
Cannasoul Collaboration Loan(iii)		1,955		2,249
GrowCo Credit Facility						GrowCo Credit Facility	53,350		56,898
Mucci Promissory Note						Mucci Promissory Note	13,051		13,438
Cannasoul Collaboration Loan						Cannasoul Collaboration Loan	1,683		1,837
Add: Long-term portion of accrued interest	Add: Long-term portion of accrued interest	150		—		Add: Long-term portion of accrued interest	217		172
Total long-term portion of loans receivable	Total long-term portion of loans receivable	72,064		80,635		Total long-term portion of loans receivable	68,301		72,345
Total loans receivable, net	Total loans receivable, net	$	80,803	$	86,095	Total loans receivable, net	$	73,458	$	81,235

~~(i)~~Cronos GrowCo Credit Facility

On August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into a senior secured credit agreement for an aggregate principal amount of C$100,000 (the “GrowCo Credit Facility”). The GrowCo Credit Facility is secured by substantially all present and after-acquired personal and real property of Cronos GrowCo. In August 2021, the GrowCo Credit Facility was amended to increase the aggregate principal amount available to C$105,000. As of both September 30, ~~2022~~2023, and December 31, ~~2021,~~2022, Cronos GrowCo had ~~outstanding borrowings of C$101,000 ($73,035) and~~drawn C$104,000 ($~~81,598), respectively,~~76,600 and $76,730, respectively) from the GrowCo Credit Facility. The interest rate on the outstanding borrowings is the Canadian Prime Rate plus 1.25%, with interest payments due on December 2021, December 2022, and quarterly thereafter. Principal payments of C$1,000 commenced in March 2022 and are due quarterly thereafter. For the three months ended September 30, 2023, Cronos GrowCo repaid C$1,666 ($1,076) in principal and C$2,032 ($1,189) in interest related to the GrowCo Credit Facility. For the nine months ended September 30, 2023, Cronos GrowCo repaid C$5,833 ($4,170) in principal and C$11,458 ($8,430) in interest related to the GrowCo Credit Facility. As of September 30, ~~2022,~~2023, Cronos GrowCo had repaid C$~~3,000~~9,833 ($~~2,169)~~7,243) and C$18,518 ($13,639) in principal and interest, respectively, under the terms of the GrowCo Credit Facility. ~~The available borrowing capacity under the GrowCo Facility was C$1,000 ($723) at both September 30, 2022 and December 31, 2021.~~

~~(ii)~~Mucci Promissory Note

On June ~~26,~~28, 2019, the Company ~~and~~entered into a promissory note receivable agreement (the “Mucci Promissory Note”) for C$16,350 (approximately $12,042) with the Cronos GrowCo joint venture partner (“Mucci”)~~, entered into~~. The Mucci Promissory Note is secured by a ~~demand promissory note~~general security agreement ~~for an aggregate principal amount~~covering all the assets of ~~C$16,350 (the “Mucci Promissory Note”).~~Mucci. On September 30, 2022, the Mucci Promissory Note was amended and restated to increase the interest rate from 3.95% to the Canadian Prime Rate plus 1.25%, ~~changed~~change the interest payments from quarterly to annual, and ~~deferred~~defer Mucci’s initial cash interest payment from September 30, 2022 to July 1, 2023. ~~This debt modification resulted~~

Prior to July 1, 2022, interest accrued on the Mucci Promissory Note was capitalized as part of the principal balance. As of July 1, 2022, interest was accrued and to be paid in ~~an increase~~cash beginning on July 1, 2023. Prior to 2023, there were no repayments of ~~approximately~~principal or interest on the Mucci Promissory Note. For the nine months ended September 30, 2023, Mucci repaid C$~~180~~563 ($~~140)~~415) in principal and C$1,187 ($874) in interest ~~income.~~related to the Mucci Promissory Note. For the three months ended September 30, 2023, there were no repayments of principal or interest on the Mucci Promissory Note.

~~(iii)~~Cannasoul Collaboration Loan

As of both September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, Cannasoul Lab Services Ltd. has received ILS 8,297 ~~($2,327)~~(approximately $2,175 and ~~ILS 8,297 ($2,664)~~$2,359, respectively), ~~respectively,~~ from the Cannasoul Collaboration Loan.

1216


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

Expected credit loss allowances on the Company’s long-term financial assets for the three and nine months ended September 30, ~~2022~~2023 and ~~2021~~2022 were comprised of the following items:


		As of July 1, 2022		Increase (decrease)(i)		Foreign exchange effect		As of September 30, 2022			As of July 1, 2023		Increase (decrease)(i)		Foreign exchange effect		As of September 30, 2023
GrowCo Facility		$	13,293	$	74	$	(929)	$	12,438
GrowCo Credit Facility										GrowCo Credit Facility	$	11,579	$	(199)	$	(283)	$	11,097

Mucci Promissory Note	Mucci Promissory Note	91		1		(6)		86		Mucci Promissory Note	86		2		(2)		86
Cannasoul Collaboration Loan	Cannasoul Collaboration Loan	377		3		(8)		372		Cannasoul Collaboration Loan	503		4		(14)		493
		$	13,761	$	78	$	(943)	$	12,896		$	12,168	$	(193)	$	(299)	$	11,676


		As of July 1, 2021		Increase (decrease)		Foreign exchange effect		As of September 30, 2021			As of July 1, 2022		Increase (decrease)(i)		Foreign exchange effect		As of September 30, 2022
GrowCo Facility		$	1,590	$	13,074	$	(202)	$	14,462
GrowCo Credit Facility										GrowCo Credit Facility	$	13,293	$	74	$	(929)	$	12,438

Mucci Promissory Note	Mucci Promissory Note	278		(184)		(4)		90		Mucci Promissory Note	91		1		(6)		86
Cannasoul Collaboration Loan	Cannasoul Collaboration Loan	39		272		(9)		302		Cannasoul Collaboration Loan	377		3		(8)		372
		$	1,907	$	13,162	$	(215)	$	14,854		$	13,761	$	78	$	(943)	$	12,896


		As of January 1, 2022		Increase (decrease)(i)		Foreign exchange effect		As of September 30, 2022			As of January 1, 2023		Increase (decrease)(i)		Foreign exchange effect		As of September 30, 2023
GrowCo Facility		$	14,089	$	(590)	$	(1,061)	$	12,438
GrowCo Credit Facility										GrowCo Credit Facility	$	12,455	$	(1,348)	$	(10)	$	11,097

Mucci Promissory Note	Mucci Promissory Note	90		3		(7)		86		Mucci Promissory Note	89		(3)		—		86
Cannasoul Collaboration Loan	Cannasoul Collaboration Loan	415		10		(53)		372		Cannasoul Collaboration Loan	522		12		(41)		493
		$	14,594	$	(577)	$	(1,121)	$	12,896		$	13,066	$	(1,339)	$	(51)	$	11,676


		As of January 1, 2021		Increase (decrease)		Foreign exchange effect		As of September 30, 2021			As of January 1, 2022		Increase (decrease)		Foreign exchange effect		As of September 30, 2022
GrowCo Facility		$	1,546	$	13,074	$	(158)	$	14,462
Natuera Series A Loan(ii)		721		(737)		16		—
GrowCo Credit Facility										GrowCo Credit Facility	$	14,089	$	(590)	$	(1,061)	$	12,438

Mucci Promissory Note	Mucci Promissory Note	270		(184)		4		90		Mucci Promissory Note	90		3		(7)		86
Cannasoul Collaboration Loan	Cannasoul Collaboration Loan	26		272		4		302		Cannasoul Collaboration Loan	415		10		(53)		372
		$	2,563	$	12,425	$	(134)	$	14,854		$	14,594	$	(577)	$	(1,121)	$	12,896

(i)During the three and nine months ended September 30, 2023, $193 and $1,339, respectively, were recorded as decreases to general and administrative expenses on the condensed consolidated statements of net loss and comprehensive loss as a result of principal and interest payments made by Cronos GrowCo reducing our expected credit losses on loans receivable. During the three months ended September 30, 2022, $78 was recorded as an increase to general and administrative expenses on the condensed consolidated statements of net ~~income (loss)~~loss and comprehensive ~~income (loss)~~loss as a result of adjustments to our expected credit losses. During the nine months ended September 30, 2022, $577 was recorded as a decrease to general and administrative expenses on the condensed consolidated statements of net ~~income (loss)~~loss and comprehensive income (loss) as a result of adjustments to our expected credit losses. During the three and nine months ended September 30, 2021, $13,162 and $12,425, respectively, were recorded as an increase to general and administrative expenses on the condensed consolidated statements of net income (loss) and comprehensive income (loss)loss as a result of adjustments to our expected credit losses.

~~(ii)~~On April 1, 2021, the Company and an affiliate of Agroidea, the other joint venture partner of Natuera, converted all advances made to Natuera under the master loan agreement entered into with Natuera on September 27, 2019, plus accrued interest, into equity of Natuera. As a result, the Company decreased its credit loss allowances by $737 for the nine months ended September 30, 2021. As of September 30, 2022 and December 31, 2021, loans receivable, net for the Natuera Series A Loan was $nil.

~~5. Intangible Assets, net~~

~~Intangible assets, net are comprised of the following items as of September 30, 2022 and December 31, 2021:~~

Useful life (in years) As of September 30, 2022
Cost Accumulated amortization Accumulated impairment charges Net
Software 5 $ 5,567 $ (2,120) $ (75) $ 3,372
Health Canada licenses 17 8,104 (1,736) (6,368) —
Ginkgo exclusive licenses(i)
10 22,022 (1,362) (4,347) 16,313
Israeli codes(ii)
20 288 (45) — 243
Total definite-lived intangible assets 35,981 (5,263) (10,790) 19,928
Lord Jones® brand
N/A 1,500 — — 1,500
Total intangible assets $ 37,481 $ (5,263) $ (10,790) $ 21,428


~~Cronos Group Inc.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(In thousands of U.S. dollars, except share amounts)~~			~~Table of Contents~~

Useful life (in years) As of December 31, 2021
Cost Accumulated amortization Accumulated impairment charges Net
Software 5 $ 5,644 $ (1,595) $ (4) $ 4,045
Health Canada licenses 17 8,793 (1,883) (6,910) —
Ginkgo exclusive licenses 10 17,330 (335) (4,752) 12,243
Israeli codes(ii)
20 330 (39) — 291
Total definite-lived intangible assets 32,097 (3,852) (11,666) 16,579
Lord Jones® brand
N/A 64,000 — (62,500) 1,500
Trademarks N/A 142 — (142) —
Total intangible assets $ 96,239 $ (3,852) $ (74,308) $ 18,079

~~(i)~~In June 2022, the Company announced the achievement of the final productivity target in respect of tetrahydrocannabivarin (“THCV”) under its collaboration and license agreement (the “Ginkgo Collaboration Agreement”) with Ginkgo Bioworks Holdings, Inc. (“Ginkgo”). As a result of the achievement of the final productivity target for THCV, the Company issued 2,201,236 common shares at a share price of C$3.47, and made a cash payment of $600, for total consideration of C$8,412 ($6,522) to Ginkgo through the Ginkgo Collaboration Agreement. The definite-lived intangible asset is being amortized using the straight-line method over its estimated useful life of ten years.

~~(ii)The Israeli codes were transferred by non-controlling interests to Cronos Israel in exchange for their equity interests in the Cronos Israel entities.~~

~~Amortization expense~~ ~~was $893 and $641 for the three months ended September 30, 2022 and 2021, respectively and $2,014 and $1,084 for the nine months ended September 30, 2022 and 2021, respectively.~~

~~As of September 30, 2022, the estimated future amortization of definite-lived intangible assets is as follows:~~

As of September 30, 2022
Remainder of 2022 (3 months) $ 751
2023 2,843
2024 2,830
2025 2,545
2026 1,981
2027 1,811
Thereafter 7,167
$ 19,928

For the three and nine months ended September 30, 2021, the Company recorded an impairment charge of $1,784 related to the Ginkgo exclusive licenses intangible assets. Additionally, for the nine months ended September 30, 2021, the Company recorded an impairment charge of $56,500 on its Lord Jones® ~~brand intangible asset. There were no impairment charges on intangible assets for the three and nine months ended September 30, 2022.~~

6. Derivative Liabilities

As of September 30, 2022, Altria Group Inc. (“Altria”) beneficially held 156,573,537 of the Company’s common shares, an approximate 41% ownership interest in the Company (calculated on a non-diluted basis) and one warrant of the Company (the “Altria Warrant”). 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 52% (calculated on a non-diluted basis). Pursuant to the investor rights agreement (the “Investor Rights Agreement”) between the Company and Altria ~~(the “Investor Rights Agreement”~~Group Inc. (“Altria”), ~~entered into in connection with the closing of Altria’s investment in the Company (the “Altria Investment”) pursuant to a subscription agreement dated December 7, 2018,~~ the Company granted Altria certain rights, among others, summarized in this ~~note.~~


~~Cronos Group Inc.~~note.
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(In thousands of U.S. dollars, except share amounts)~~			~~Table of Contents~~

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.~~Agreement.

a.The Altria Warrant entitles the holder, subject to certain qualifications and limitations, to subscribe for and purchase up to approximately an additional 10% of the common shares of Cronos (84,076,946 common shares as of September 30, 2022) 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 research and development (“R&D”) partnership ~~(the “Ginkgo Strategic Partnership”)~~ with ~~Ginkgo)~~Ginkgo Bioworks Holdings, Inc. (“Ginkgo”)), the right to purchase up to such number of common shares of the Company in order to maintain ~~their~~its 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; provided that if the consideration paid in connection with any such issuance is non-cash, the price per common share of the Company that would have been received had such common shares been issued for cash consideration will be determined by an independent committee (acting reasonably and in good faith); provided further that 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~~Collaboration Agreement 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%.


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

c.b.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 Pre-emptive Rights, and fixed price Top-up Rights have been classified as derivative liabilities on the Company’s consolidated balance sheet.

As of September 30, 2023, Altria beneficially held 156,573,537 of the Company’s common shares, an approximate 41% ownership interest in the Company (calculated on a non-diluted basis).

Reconciliation of the Company’s derivative liabilities activity are as follows:

As of July 1, 2022 Revaluation gain Foreign exchange effect As of September 30, 2022
(a) Altria Warrant $ 491 $ (336) $ (121) $ 34
(b) Pre-emptive Rights 16 (18) 2 —
(c) Top-up Rights 67 (21) (7) 39
$ 574 $ (375) $ (126) $ 73


	As of July 1, 2023		Revaluation (gain) loss		Foreign exchange effect		As of September 30, 2023

Pre-emptive Rights	$	37	$	(7)	$	(1)	$	29
Top-up Rights	—		(1)		1		—
	$	37	$	(8)	$	—	$	29

As of July 1, 2021 Revaluation gain Foreign exchange effect As of September 30, 2021
(a) Altria Warrant $ 150,083 $ (116,285) $ (1,736) $ 32,062
(b) Pre-emptive Rights 13,926 (12,430) (148) 1,348
(c) Top-up Rights 5,554 (4,201) (235) 1,118
$ 169,563 $ (132,916) $ (2,119) $ 34,528


	As of July 1, 2022		Revaluation gain		Foreign exchange effect		As of September 30, 2022
Altria Warrant	$	491	$	(336)	$	(121)	$	34
Pre-emptive Rights	16		(18)		2		—
Top-up Rights	67		(21)		(7)		39
	$	574	$	(375)	$	(126)	$	73

As of January 1, 2022 Revaluation gain Foreign exchange effect As of September 30, 2022
(a) Altria Warrant $ 13,720 $ (13,592) $ (94) $ 34
(b) Pre-emptive Rights 180 (182) 2 —
(c) Top-up Rights 475 (430) (6) 39
$ 14,375 $ (14,204) $ (98) $ 73


	As of January 1, 2023		Revaluation (gain) loss		Foreign exchange effect		As of September 30, 2023

Pre-emptive Rights	$	—	$	29	—		$	29
Top-up Rights	15		(15)		—		—
	$	15	$	14	$	—	$	29

As of January 1, 2021 Revaluation gain Foreign exchange effect As of September 30, 2021
(a) Altria Warrant $ 138,858 $ (109,099) $ 2,303 $ 32,062
(b) Pre-emptive Rights 12,095 (10,957) 210 1,348
(c) Top-up Rights 12,457 (11,234) (105) 1,118
$ 163,410 $ (131,290) $ 2,408 $ 34,528


	As of January 1, 2022		Revaluation gain		Foreign exchange effect		As of September 30, 2022
Altria Warrant	$	13,720	$	(13,592)	$	(94)	$	34
Pre-emptive Rights	180		(182)		2		—
Top-up Rights	475		(430)		(6)		39
	$	14,375	$	(14,204)	$	(98)	$	73

Fluctuations in the expected life of the derivative instruments and the Company’s share price are primary drivers for the changes in the derivative valuations during each reporting period. As the period of time that the derivative liability is expected to be outstanding decreases and the share price decreases, the fair value typically decreases for each related derivative instrument. Weighted-average expected life and share price are two of the significant observable inputs used in the fair value measurement of each of the Company’s derivative instruments.

1518


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

Fluctuations in the expected life of the derivative instruments and the Company’s share price are primary drivers for the changes in the derivative valuations during each reporting period. As the expected period of time the derivative liability is expected to be outstanding decreases and the share price decreases, the fair value typically decreases for each related derivative instrument. Weighted-average expected life and share price are two of the significant observable inputs used in the fair value measurement of each of the Company’s derivative instruments.

The fair values of the derivative liabilities were determined using the Black-Scholes pricing model using the following inputs:


		As of September 30, 2022				As of September 30, 2023
		Altria Warrant	Pre-emptive Rights	Top-up Rights		Pre-emptive Rights	Top-up Rights
Share price at valuation date (per share in C$)	Share price at valuation date (per share in C$)	$3.87	$3.87	$3.87	Share price at valuation date (per share in C$)	$2.71	$2.71
Subscription price (per share in C$)	Subscription price (per share in C$)	$19.00	$16.25	$16.25	Subscription price (per share in C$)	$16.25	$16.25
Weighted-average risk-free interest rate(i)	Weighted-average risk-free interest rate(i)	3.67%	3.52%	3.64%	Weighted-average risk-free interest rate(i)	5.01%	5.03%
Weighted-average expected life (in years)(ii)	Weighted-average expected life (in years)(ii)	0.44	0.25	0.58	Weighted-average expected life (in years)(ii)	1.25	0.85
Expected annualized volatility(iii)	Expected annualized volatility(iii)	73%	73%	73%	Expected annualized volatility(iii)	61%	57%
Expected dividend yield	Expected dividend yield	—%	—%	—%	Expected dividend yield	—%	—%


		As of December 31, 2021				As of December 31, 2022
		Altria Warrant	Pre-emptive Rights	Top-up Rights		Pre-emptive Rights	Top-up Rights
Share price at valuation date (per share in C$)	Share price at valuation date (per share in C$)	$4.98	$4.98	$4.98	Share price at valuation date (per share in C$)	$3.44	$3.44
Subscription price (per share in C$)	Subscription price (per share in C$)	$19.00	$16.25	$16.25	Subscription price (per share in C$)	$16.25	$16.25
Weighted-average risk-free interest rate(i)	Weighted-average risk-free interest rate(i)	0.79%	0.39%	0.50%	Weighted-average risk-free interest rate(i)	4.14%	4.28%
Weighted-average expected life (in years)(ii)	Weighted-average expected life (in years)(ii)	1.18	0.50	0.80	Weighted-average expected life (in years)(ii)	0.25	0.59
Expected annualized volatility(iii)	Expected annualized volatility(iii)	80%	80%	80%	Expected annualized volatility(iii)	73%	73%
Expected dividend yield	Expected dividend yield	—%	—%	—%	Expected dividend yield	—%	—%

(i)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. As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the risk-free interest rate uses a range of approximately ~~3.52%~~4.79% to ~~3.80%~~5.05% and ~~0.16%~~3.81% to ~~1.10%~~4.37%, respectively, for the Pre-emptive Rights and Top-up Rights.

(ii)The expected life 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. As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the expected life uses a range of approximately ~~0.25~~0.75 years to ~~3.00~~2.00 years and 0.25 years to ~~3.75~~2.75 years, respectively, for the Pre-emptive Rights and Top-up Rights.

(iii)Volatility was based on an equally weighted blended historical and implied volatility level of the underlying equity securities of the Company.

~~The following table quantifies each~~

7. Restructuring

In the first quarter of 2022, the Company initiated a strategic plan to realign the business around its brands, centralize functions and evaluate the Company’s supply chain (the “Realignment”). As part of the ~~significant inputs described above~~Realignment, on February 28, 2022, the Board approved plans to leverage the Company’s strategic partnerships to improve supply chain efficiencies and ~~provides a sensitivity analysis~~reduce manufacturing overhead by exiting its production facility in Stayner, Ontario, Canada (the “Peace Naturals Campus”). On February 27, 2023, the Board approved revisions to the Realignment, which are expected to result in the Company maintaining select components of its operations at the Peace Naturals Campus, namely distribution warehousing, certain research and development activities and manufacturing of certain of the ~~impact on the reported values~~Company’s products, while seeking to sell and lease back all or some of the ~~derivative liabilities.~~Peace Naturals Campus or to lease certain portions of the Peace Naturals Campus to third parties. In the third quarter of 2023, the Board approved revisions to the Realignment to wind-down operations at its Winnipeg, Manitoba facility (“Cronos Fermentation”), list the Cronos Fermentation facility for sale, and implement additional organization-wide cost reductions as the Company continues its Realignment initiatives. The ~~sensitivity analysis for each significant input is~~Realignment initiatives were intended to position the Company to drive profitable and sustainable growth over time. During the three months ended September 30, 2023, the Company performed ~~by assuming~~an assessment under ASC 360, Property Plant and Equipment, of the recovery of the carrying value of the Canada asset group, which includes Cronos Fermentation, and determined the carrying value of the asset group was recoverable. As of September 30, 2023, Cronos Fermentation did not meet the criteria to be classified as held-for-sale.

During both the three and nine months ended September 30, 2023, the Company incurred $1,423 of restructuring costs in its continuing operations in connection with the Realignment. During the three and nine months ended September 30, 2022, the Company recognized $387 and $3,396, respectively, of restructuring costs in continuing operations in connection with the Realignment. Charges related thereto include employee-related costs such as severance, relocation and other termination benefits, as well as contract termination and other related costs. During the three and nine months ended September 30, 2023, as a ~~10% decrease~~result of the decision to wind down operations at Cronos Fermentation, the Company recognized an inventory write-down of $716 related to certain obsolete raw materials. Restructuring costs and inventory write-downs incurred in the ~~input while other significant inputs remain constant at management’s best estimate as of~~Company’s discontinued operations during the ~~respective dates. While a decrease~~three and nine months ended September 30, 2023 and 2022 is presented in ~~the inputs noted below would cause a decrease in the carrying amount of the derivative liability, there would also be an equal and opposite impact on net income (loss)~~Note 2 “Discontinued Operations.

10% decrease as of September 30, 2022
Altria Warrant Pre-emptive Rights Top-up Rights
Share price $ 20 $ — $ 12
Weighted-average expected life 18 — 15
Expected annualized volatility 27 — 15

10% decrease as of December 31, 2021
Altria Warrant Pre-emptive Rights Top-up Rights
Share price $ 3,970 $ 80 $ 123
Weighted-average expected life 2,971 171 133
Expected annualized volatility 5,402 96 155

These inputs are classified as Level 3 on the fair value hierarchy and are subject to volatility and several factors outside the Company’s control, which could significantly affect the fair value of these derivative liabilities in future periods.”

1619


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

7. ~~Restructuring~~

The Company expects to incur approximately $6,100 in connection with the Realignment, including the planned exit of the Stayner Facility, of which $4,878 has been incurred as of September 30, 2022. Estimated charges related to the exit of the Stayner Facility include employee-related costs such as severance, relocation and other termination benefits, as well as contract termination and other related costs. The Company expects to incur approximately $1,200 in additional charges related to the Realignment, including the planned exit of the Stayner Facility.

~~The Company incurred the following restructuring costs by reportable segment:~~

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Rest of World $ 387 $ — $ 3,396 $ —
United States 137 — 1,482 —
Total $ 524 $ — $ 4,878 $ —

The following table summarizes the Company’s restructuring activity for the three and nine months ended September 30, 2023 and 2022:

Accrual as of July 1, 2022 Expenses Payments/Write-offs Accrual as of September 30, 2022
Employee termination benefits $ 888 $ 332 $ (662) $ 558
Other restructuring costs 21 192 (192) 21
Total $ 909 $ 524 $ (854) $ 579


	Accrual as of July 1, 2023		Expenses		Payments/Write-offs		Accrual as of September 30, 2023
Employee Termination Benefits	$	61	$	1,420	$	(947)	$	534

Other Restructuring Costs	—		3		(3)		—
Total	$	61	$	1,423	$	(950)	$	534

Accrual as of January 1, 2022 Expenses Payments/Write-offs Accrual as of September 30, 2022
Employee termination benefits $ — $ 3,267 $ (2,709) $ 558
Other restructuring costs — 1,611 (1,590) 21
Total $ — $ 4,878 $ (4,299) $ 579


	Accrual as of January 1, 2023		Expenses		Payments/Write-offs		Accrual as of September 30, 2023
Employee Termination Benefits	$	403	$	1,420	$	(1,289)	$	534

Other Restructuring Costs	21		3		(24)		—
Total	$	424	$	1,423	$	(1,313)	$	534


	Accrual as of July 1, 2022		Expenses		Payments/Write-offs		Accrual as of September 30, 2022
Employee Termination Benefits	$	822	$	195	$	(569)	$	448

Other Restructuring Costs	21		192		(192)		21
Total	$	843	$	387	$	(761)	$	469


	Accrual as of January 1, 2022		Expenses		Payments/Write-offs		Accrual as of September 30, 2022
Employee Termination Benefits	$	—	$	1,785	$	(1,337)	$	448

Other Restructuring Costs	—		1,611		(1,590)		21
Total	$	—	$	3,396	$	(2,927)	$	469


~~Cronos Group Inc.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(In thousands of U.S. dollars, except share amounts)~~			~~Table of Contents~~

8. Share-based Compensation

(a)Share-based award plans

The Company has granted stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”) to employees and non-employee directors under the Stock 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, together with the 2015 Stock Option Plan, the “Prior Option Plans”), the Employment Inducement Award Plan #1 (the “Employment Inducement Award Plan”), 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 or the Employment Inducement Award Plan.

The following table summarizes the total share-based compensation expense associated with the Company’s stock options, RSUs and liability-classified awards for the three and nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022:


		Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				For the nine months ended September 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Stock options	Stock options	$	1,077	$	1,886	$	3,947	$	5,814	Stock options	$	35	$	1,077	$	1,141	$	3,947
RSUs	RSUs	2,591		781		6,023		1,917		RSUs	1,922		2,573		5,682		5,902
Liability-classified awards(i)	Liability-classified awards(i)	597		—		597		—		Liability-classified awards(i)	—		597		—		597
Total share-based compensation	Total share-based compensation	$	4,265	$	2,667	$	10,567	$	7,731	Total share-based compensation	$	1,957	$	4,247	$	6,823	$	10,446

(i)Represents share-based payment awards conditionally approved for grant in the three months ended September 30, 2022 to one of the Company’s former executives for a fixed monetary value, but a variable number of shares. These awards ~~are~~were liability-classified until the number of shares iswas determined.

~~(b)Stock options~~

Vesting conditions for grants of options are determined by the Compensation ~~Committee.~~Committee of the Company’s Board 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 Prior Option Plans is quarterly vesting over three to five years with a maximum term of seven years. The Prior Option Plans did not, and the 2020 Omnibus Plan does not, authorize grants of options with an exercise price below fair market value.

1820


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

The following is a summary of the changes in stock options for the nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022:

Weighted-average exercise price (C$) (i)
Number of options Weighted-average remaining contractual term (years)
Balance as of January 1, 2022 $ 7.75 8,939,330 2.70
Exercise of options 2.81 (2,583,692)
Cancellation, forfeiture and expiry of options 11.26 (186,992)
Balance as of September 30, 2022 $ 9.71 6,168,646 2.97
Exercisable as of September 30, 2022 $ 9.99 4,037,319 1.99


	Weighted-average exercise price (C$) (i)		Number of options	Weighted-average remaining contractual term (years)
Balance as of January 1, 2023	$	10.57	5,350,600	0.73
Issuance of options	2.96		188,317

Cancellation, forfeiture and expiry of options	7.75		(3,435,716)
Balance as of September 30, 2023	$	14.50	2,103,201	2.09
Exercisable as of September 30, 2023	$	16.02	1,845,841	1.50

Weighted-average exercise price (C$) (i)
Number of options Weighted-average remaining contractual term (years)
Balance as of January 1, 2021 $ 5.40 13,755,148 2.30
Issuance of options 9.19 900,000
Exercise of options 2.14 (5,360,050)
Cancellation, forfeiture and expiry of options 10.73 (90,274)
Balance as of September 30, 2021 $ 7.62 9,204,824 3.15
Exercisable as of September 30, 2021 $ 6.25 5,844,094 1.46


	Weighted-average exercise price (C$) (i)		Number of options	Weighted-average remaining contractual term (years)
Balance as of January 1, 2022	$	7.75	8,939,330	2.70

Exercise of options	2.81		(2,583,692)
Cancellation, forfeiture and expiry of options	11.26		(186,992)
Balance as of September 30, 2022	$	9.71	6,168,646	2.97
Exercisable as of September 30, 2022	$	9.99	4,037,319	1.99

(i)The weighted-average exercise price reflects the conversion of foreign currency-denominated stock options translated into C$ using the average foreign exchange rate as of the date of issuance.

~~The following table summarizes stock options outstanding:~~

As of September 30, 2022 As of December 31, 2021
2020 Omnibus Plan 2,900,000 2,900,000
2018 Stock Option Plan 1,464,269 1,550,074
2015 Stock Option Plan 1,804,377 4,489,256
Total stock options outstanding 6,168,646 8,939,330


~~Cronos Group Inc.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(In thousands of U.S. dollars, except share amounts)~~			~~Table of Contents~~

~~(c)Restricted share units~~

~~The following is a summary of the changes in RSUs for~~For the nine months ended September 30, ~~2022 and 2021:~~

Weighted-average grant date fair value (C$)(iii)
Number of RSUs
Balance as of January 1, 2022 $ 9.22 1,225,870
Granted(i)(ii)
4.34 5,042,316
Vested and issued 8.56 (771,682)
Cancellation and forfeitures 6.91 (168,610)
Balance as of September 30, 2022 $ 4.77 5,327,894

Weighted-average grant date fair value (C$)(iii)
Number of RSUs
Balance as of January 1, 2021 $ 7.66 948,357
Granted(i)
11.06 576,718
Vested and issued 7.11 (115,500)
Cancellation and forfeitures 8.04 (36,971)
Balance as of September 30, 2021 $ 9.12 1,372,604

~~(i)Except as noted below, RSUs granted in~~2023, the weighted-average fair value per option at grant date was C$2.07. The fair value of the options issued during the period ~~vest annually in equal installments over a three-year period from the grant date or vest after a~~ ~~three~~ or five year “cliff-period.” All RSUs are 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)~~Equity grants for 2020, 2021, and 2022 were held back for certain executives of the Company in connection with ongoing investigations by the Securities and Exchange Commission (the “SEC”) and the Ontario Securities Commission (the “OSC”), which were subsequently settled on October 24, 2022. On August 5, 2022, the Compensation Committee approved the release of these held-back equity grants upon the settlement of the SEC and OSC investigations. These RSUs vest in equal installments over a period of three-years from what would have been their original grant dates had the grants not been withheld.

~~(iii)The weighted-average grant date fair value reflects the conversion of foreign currency-denominated RSUs translated into C$~~was determined using the ~~foreign exchange rate as of~~Black-Scholes option pricing model, using the ~~date of issuance.~~

~~(d)Deferred share units~~

~~The~~ following ~~is a summary of the changes in DSUs for the nine months ended September 30, 2022 and 2021:~~

Financial liability Number of DSUs
Balance as of January 1, 2022 $ 408 104,442
Gain on revaluation (116) —
Balance as of September 30, 2022 $ 292 104,442

Financial liability Number of DSUs
Balance as of January 1, 2021 $ 577 83,293
Granting and vesting of DSUs 354 48,913
DSU liabilities settled (203) (27,764)
Gain on revaluation (139) —
Balance as of September 30, 2021 $ 589 104,442

~~(e)Warrants~~

~~The following is a summary of the changes in warrants for the nine months ended September 30, 2021:~~

Weighted-average exercise price (C$) Number of warrants
Balance as of January 1, 2021 $ 0.25 7,987,349
Exercise of warrants 0.25 (7,987,349)
Balance as of September 30, 2021 $ — —

~~As of September 30, 2022, there are no warrants outstanding other than the Altria Warrant. See Note 6 “Derivative Liabilities” for further description of the Altria Warrant.~~

inputs:


~~Cronos Group Inc.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(In thousands of U.S. dollars, except share amounts)~~			~~Table of Contents~~

~~(f)Liability-classified awards~~

During the three months ended September 30, 2022, the Compensation Committee conditionally approved the grant to one of the Company’s former executives of share-based compensation awards for a fixed monetary amount, but a variable number of shares. These awards are liability-classified until the number of shares is determined.


	~~Financial liability~~2023
~~Balance as of January 1, 2022~~	$	—
~~Grants~~	~~597~~


~~Balance as of September 30, 2022~~Share price at grant date (per share)	$2.96
Exercise price (per option)	~~597~~ $2.96
Risk-free interest rate	3.22%
Expected life of options (in years)	7
Expected annualized volatility	72.68%
Expected dividend yield	—
Weighted average Black-Scholes value at grant date (per option)	$2.07
Forfeiture rate	—

~~As of September 30, 2021, there were no liability-classified awards outstanding.~~The following table summarizes stock options outstanding:

~~9. Earnings (Loss) per Share~~

~~Basic and diluted earnings (loss) per share from continuing and discontinued operations are calculated as follows (in thousands, except share and per share amounts):~~

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Basic and diluted earnings (loss) per share computation
Net income (loss) from continuing operations attributable to the shareholders of Cronos Group $ (36,991) $ 77,834 $ (89,850) $ (261,970)
Weighted-average number of common shares outstanding for computation for basic earnings per share(i)
378,114,160 372,456,354 376,400,902 369,097,920
Basic earnings (loss) from continuing operations per share $ (0.10) $ 0.21 $ (0.24) $ (0.71)
Loss from discontinued operations attributable to the shareholders of Cronos Group $ — $ 82 $ — $ (500)
Weighted-average number of common shares outstanding from computation for basic earnings per share 378,114,160 372,456,354 376,400,902 369,097,920
Basic earnings (loss) 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 $ (36,991) $ 77,834 $ (89,850) $ (261,970)
Adjustment for exercise of rights on derivative liabilities — — — —
Net income (loss) used in the computation of diluted earnings (loss) from continuing operations per share $ (36,991) $ 77,834 $ (89,850) $ (261,970)
Weighted-average number of common shares outstanding used in the computation of basic earnings (loss) per share 378,114,160 372,456,354 376,400,902 369,097,920
Dilutive effect of stock options — 2,507,471 — —
Dilutive effect of RSUs — 581,481 — —
Dilutive effect of Top-up Rights – market price — 107,942 — —
Weighted-average number of common shares for computation of diluted earnings (loss) from continuing operations per share(i)
378,114,160 375,653,248 376,400,902 369,097,920
Diluted earnings (loss) per share from continuing operations $ (0.10) $ 0.21 $ (0.24) $ (0.71)
Income (loss) from discontinued operations attributable to the shareholders of Cronos Group $ — $ 82 $ — $ (500)
Weighted-average number of common shares for computation of diluted earnings (loss) from discontinued operations per share 378,114,160 375,653,248 376,400,902 369,097,920
Diluted loss from discontinued operations per share $ 0.00 $ 0.00 $ 0.00 $ 0.00

~~(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.


	As of September 30, 2023	As of December 31, 2022
2020 Omnibus Plan	702,264	2,788,947
2018 Stock Option Plan	1,400,937	1,422,069
2015 Stock Option Plan	—	1,139,584
Total stock options outstanding	2,103,201	5,350,600


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

~~For~~(b)Restricted share units

The following is a summary of the ~~three months ended September 30, 2022 and 2021, total securities of 117,100,621 and 118,255,677, respectively, and~~changes in RSUs for the nine months ended September 30, ~~2022~~2023 and ~~2021, total securities of 118,304,608 and 127,137,014, respectively, were not included~~2022:


	Weighted-average grant date fair value (C$)(ii)		Number of RSUs
Balance as of January 1, 2023	$	4.63	5,725,470
Granted(i)	2.65		2,883,500
Vested and issued	5.13		(764,056)
Cancellation and forfeitures	3.65		(510,342)
Balance as of September 30, 2023	$	3.86	7,334,572


	Weighted-average grant date fair value (C$)(ii)		Number of RSUs
Balance as of January 1, 2022	$	9.22	1,225,870
Granted(i)	4.34		5,042,316
Vested and issued	8.56		(771,682)
Cancellation and forfeitures	6.91		(168,610)
Balance as of September 30, 2022	$	4.77	5,327,894

(i)RSUs granted in the ~~computation~~period vest annually in equal installments over a three-year period from either the grant date or after a three or five year “cliff-period.” All RSUs are subject to such holder’s continued employment through each vesting date. The vesting of ~~diluted shares outstanding, because~~such RSUs is not subject to the ~~effect would be anti-dilutive.~~

~~10. Segment Information~~achievement of any performance criteria.

(ii)The ~~tables below set forth our condensed consolidated results~~weighted-average grant date fair value reflects the conversion of ~~operations by segment. The Company’s condensed consolidated financial results for these periods are not necessarily indicative~~foreign currency-denominated RSUs translated into C$ using the foreign exchange rate as of the ~~consolidated financial results that~~date of issuance.

(c)Deferred share units

The following is a summary of the ~~Company will achieve~~changes in ~~future periods. Segment data was as follows~~DSUs for the ~~three and~~ nine months ended September 30, ~~2022~~2023 and ~~2021:~~2022:

Three months ended September 30, 2022
United States Rest of World Corporate Total
Cannabis flower $ — $ 13,674 $ — $ 13,674
Cannabis extracts 514 6,627 — 7,141
Other — 108 — 108
Net revenue $ 514 $ 20,409 $ — $ 20,923
Share of loss from equity method investments $ — $ (1,119) $ — $ (1,119)
Total assets $ 395,732 $ 277,165 $ 564,562 $ 1,237,459
Depreciation and amortization 84 1,629 — 1,713
Adjusted EBITDA (4,864) (11,423) (5,410) (21,697)


	Financial liability		Number of DSUs
Balance as of January 1, 2023	$	674	265,732
Granting and vesting of DSUs	450		255,947

Gain on revaluation	(82)		—
Balance as of September 30, 2023	$	1,042	521,679

Three months ended September 30, 2021
United States Rest of World Corporate Total
Cannabis flower $ — $ 15,306 $ — $ 15,306
Cannabis extracts 2,100 2,786 — 4,886
Other — 215 — 215
Net revenue $ 2,100 $ 18,307 $ — $ 20,407
Share of loss from equity method investments $ — $ (1,414) $ — $ (1,414)
Total assets $ 474,915 $ 376,569 $ 683,715 $ 1,535,199
Depreciation and amortization 70 1,181 — 1,251
Adjusted EBITDA (12,200) (29,760) (4,813) (46,773)


	Financial liability		Number of DSUs
Balance as of January 1, 2022	$	408	104,442


Gain on revaluation	(116)		—
Balance as of September 30, 2022	$	292	104,442

Nine months ended September 30, 2022
United States Rest of World Corporate Total
Cannabis flower $ — $ 48,038 $ — $ 48,038
Cannabis extracts 4,301 16,197 — 20,498
Other — 481 — 481
Net revenue $ 4,301 $ 64,716 $ — $ 69,017
Share of income from equity method investments $ — $ 4,078 $ — $ 4,078
Total assets $ 395,732 $ 277,165 $ 564,562 $ 1,237,459
Depreciation and amortization 267 4,150 — 4,417
Adjusted EBITDA (15,827) (23,843) (19,726) (59,396)


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

Nine months ended September 30, 2021
United States Rest of World Corporate Total
Cannabis flower $ — $ 36,337 $ — $ 36,337
Cannabis extracts 6,768 5,020 — 11,788
Other — 515 — 515
Net revenue $ 6,768 $ 41,872 $ — $ 48,640
Share of loss from equity method investments $ — $ (4,172) $ — $ (4,172)
Total assets $ 474,915 $ 376,569 $ 683,715 $ 1,535,199
Depreciation and amortization 209 2,820 — 3,029
Adjusted EBITDA (32,421) (84,549) (16,136) (133,106)
9. Loss per Share

~~The following tables set forth a reconciliation of net income (loss)~~Basic and diluted loss per share from continuing and discontinued operations are calculated as ~~determined in accordance with U.S. GAAP to Adjusted EBITDA for the periods indicated:~~follows (in thousands, except share and per share amounts):

Three months ended September 30, 2022
United States Rest of World Corporate Total
Net income (loss) $ (33,223) $ 2,817 $ (6,480) $ (36,886)
Interest income, net (1,418) (5,791) — (7,209)
Income tax expense — 2,118 — 2,118
Share of loss from equity method investments — 1,119 — 1,119
Gain on revaluation of derivative liabilities(iii)
— (375) — (375)
Gain on revaluation of financial instruments(v)
— (17,049) — (17,049)
Impairment loss on other investment(vi)
28,972 — — 28,972
Foreign currency transaction gain — (2,387) — (2,387)
Other, net(vii)
159 534 — 693
Restructuring costs(ix)
137 387 — 524
Share-based compensation(x)
8 4,257 — 4,265
Financial statement review costs(xi)
— — 1,070 1,070
Depreciation and amortization 501 2,947 — 3,448
Adjusted EBITDA $ (4,864) $ (11,423) $ (5,410) $ (21,697)


~~Cronos Group Inc.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(In thousands of U.S. dollars, except share amounts)~~			~~Table of Contents~~

Three months ended September 30, 2021
United States Rest of World Corporate Total
Net income (loss) $ (13,499) $ 97,198 $ (6,033) $ 77,666
Interest income, net (4) (2,060) — (2,064)
Income tax benefit — (159) — (159)
Share of loss from equity method investments — 1,414 — 1,414
Impairment loss on goodwill and indefinite-lived intangible assets(i)
105 37 — 142
Impairment loss on long-lived assets(ii)
— 1,784 — 1,784
Gain on revaluation of derivative liabilities(iii)
— (132,916) — (132,916)
Transaction costs(iv)
— — 542 542
Gain on revaluation of financial instruments(v)
— (266) — (266)
Other, net(vii)
— (7) — (7)
Income from discontinued operations(viii)
— (82) — (82)
Share-based compensation(x)
967 1,700 — 2,667
Financial statement review costs(xi)
— — 678 678
Depreciation and amortization 231 3,597 — 3,828
Adjusted EBITDA $ (12,200) $ (29,760) $ (4,813) $ (46,773)

Nine months ended September 30, 2022
United States Rest of World Corporate Total
Net loss $ (59,937) $ (3,928) $ (26,012) $ (89,877)
Interest income, net (1,873) (11,157) — (13,030)
Income tax expense — 2,172 — 2,172
Share of income from equity method investments — (4,078) — (4,078)
Impairment loss on long-lived assets(ii)
— 3,493 — 3,493
Gain on revaluation of derivative liabilities(iii)
— (14,204) — (14,204)
Gain on revaluation of financial instruments(v)
— (19,205) — (19,205)
Impairment loss on other investment(vi)
40,210 — — 40,210
Foreign currency transaction loss — 2,337 — 2,337
Other, net(vii)
159 397 — 556
Restructuring costs(ix)
1,482 3,396 — 4,878
Share-based compensation(x)
2,917 7,650 — 10,567
Financial statement review costs(xi)
— — 6,286 6,286
Depreciation and amortization 1,215 9,284 — 10,499
Adjusted EBITDA $ (15,827) $ (23,843) $ (19,726) $ (59,396)


~~Cronos Group Inc.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(In thousands of U.S. dollars, except share amounts)~~			~~Table of Contents~~

Nine months ended September 30, 2021
United States Rest of World Corporate Total
Net income (loss) $ (273,438) $ 34,678 $ (24,552) $ (263,312)
Interest income, net (27) (6,659) — (6,686)
Income tax benefit — (159) — (159)
Share of loss from equity method investments — 4,172 — 4,172
Impairment loss on goodwill and indefinite-lived intangible assets(i)
235,019 37 — 235,056
Impairment loss on long-lived assets(ii)
2,955 1,784 — 4,739
Gain on revaluation of derivative liabilities(iii)
— (131,290) — (131,290)
Transaction costs(iv)
— — 3,801 3,801
Gain on revaluation of financial instruments(v)
— (143) — (143)
Other, net(vii)
— (1,041) — (1,041)
Loss from discontinued operations(viii)
— 500 — 500
Share-based compensation(x)
2,534 5,197 — 7,731
Financial statement review costs(xi)
— — 4,615 4,615
Depreciation and amortization 536 8,375 — 8,911
Adjusted EBITDA $ (32,421) $ (84,549) $ (16,136) $ (133,106)


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Basic and diluted loss per share computation
Net loss from continuing operations attributable to the shareholders of Cronos Group	$	(1,462)	$	(33,210)	$	(24,935)	$	(78,970)
Weighted-average number of common shares outstanding for computation for basic and diluted loss per share(i)	381,100,005		378,114,160		380,900,334		376,400,902
Basic earnings (loss) from continuing operations per share	$	(0.00)	$	(0.09)	$	(0.07)	$	(0.21)
Diluted earnings (loss) per share from continuing operations	$	(0.00)	$	(0.09)	$	(0.07)	$	(0.21)

Loss from discontinued operations attributable to the shareholders of Cronos Group	$	(182)	$	(3,781)	$	(4,238)	$	(10,880)
Weighted-average number of common shares outstanding for computation for basic and diluted loss per share(i)	381,100,005		378,114,160		380,900,334		376,400,902
Basic loss from discontinued operations per share	$	(0.00)	$	(0.01)	$	(0.01)	$	(0.03)
Diluted loss from discontinued operations per share	$	(0.00)	$	(0.01)	$	(0.01)	$	(0.03)

(i)In computing diluted loss 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.

For the three ~~and nine~~ months ended September 30, ~~2021, impairment on goodwill~~2023 and ~~indefinite-lived intangible assets relates to impairment on goodwill~~2022, total securities of 23,340,811 and ~~indefinite-lived intangible assets related to~~117,100,621, respectively, were not included in the ~~Company’s U.S. segment.~~

~~(ii)~~computation of diluted shares outstanding because the effect would be anti-dilutive. For the nine months ended September 30, 2023 and 2022, ~~impairment loss on long-lived assets related to the Company’s decision to seek a sublease for leased office space in Toronto, Ontario, Canada during the first quarter~~total securities of ~~2022. For the three months ended September 30, 2021, impairment loss on long-lived assets relates to an impairment on property, plant~~27,399,000 and ~~equipment~~118,304,608, respectively, were not included in the ~~U.S. segment. For~~computation of diluted shares outstanding because the nine months ended September 30, 2021, impairment loss on long-lived assets relates to the aforementioned impairment loss on property, plant and equipment as well as an impairment loss on leased premises in the U.S. segment from the first quarter of 2021. See Note 13 “~~Impairment Loss on Long-lived Assets~~.”

~~(iii)For the three and nine months ended September 30, 2022 and 2021, gain on revaluation of derivative liabilities represents the fair value changes on the derivative liabilities. See Note 6 “Derivative Liabilities~~.”

~~(iv)~~For the three and nine months ended September 30, 2021, transaction costs represent 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).

~~(v)~~For the three and nine months ended September 30, 2022, gain on revaluation of financial instruments related primarily to the Company’s equity securities in Cronos Australia. For three and nine months ended September 30, 2021, gain on revaluation of financial instruments related primarily to revaluations of financial liabilities resulting from DSUs.

~~(vi)~~For the three and nine months ended September 30, 2022, impairment loss on other investments related to the PharmaCann Option for the difference between its fair value and carrying amount. See Note 3 “~~Investments.~~”

~~(vii)~~For the three months ended September 30, 2022, other, net related to $1,083 loss on disposal of assets and $390 of dividends declared by Cronos Australia on the Company’s 55,176,065 ordinary shares in the capital of Cronos Australia. For the nine months ended September 30, 2022, other, net related to $946 loss on disposal of assets and $390 of dividends declared by Cronos Australia on the Company’s 55,176,065 ordinary shares in the capital of Cronos Australia. For the three and nine months ended September 30, 2021, other, net primarily related to gain recorded on sale of an asset previously designated as held-for-sale in the first quarter of 2021.

~~(viii)For the three and nine months ended September 30, 2021, loss (income) from discontinued operations related to the discontinuance of Original B.C. Ltd. (“OGBC”).~~

~~(ix)~~For the three and nine months ended September 30, 2022, restructuring costs related to the employee-related severance costs and other restructuring costs associated with the Realignment, including the planned exit of the Stayner Facility. See Note 7 “~~Restructuring.~~”

~~(x)~~For the three and nine months ended September 30, 2022 and 2021, share-based compensation related to the vesting expenses of share-based compensation awarded to employees under the Company’s share-based award plans as described in Note 8 “~~Share-based Compensation~~.”

~~(xi)~~For the three and nine months ended September 30, 2022 and 2021, financial statement review costs include costs and reserves taken related to the restatements of the Company’s 2019 and second quarter 2021 interim financial statements, costs related to the Company’s responses to requests for information from various regulatory authorities relating to such restatements and legal costs defending shareholder class action complaints brought against the Company as a result of the 2019 restatement.


~~Cronos Group Inc.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(In thousands of U.S. dollars, except share amounts)~~			~~Table of Contents~~

~~Net revenue attributed to a geographic region based on the location of the customer were as follows:~~

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Canada $ 13,370 $ 14,186 $ 41,335 $ 32,432
Israel 7,039 3,752 23,381 8,580
United States 514 2,100 4,301 6,768
Other countries — 369 — 860
Net revenue $ 20,923 $ 20,407 $ 69,017 $ 48,640
effect would be anti-dilutive.

~~11.~~10. Commitments and Contingencies

(a)Commitments

There have been no material changes in the information regarding commitments as disclosed in the Company’s Annual Report.

(b)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 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.

(i)Class action complaints relating to restatement of 2019 interim financial statements

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 Chief Executive Officer and now former Chief Financial Officer. 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 consolidated amended complaint generally alleges that certain of the Company’s prior public statements about revenues and internal control were incorrect based on the Company’s disclosures relating to the Audit Committee of the Board’s review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel. The consolidated amended complaint does not quantify a damage request. Defendants moved to dismiss on February 8, 2021.


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, 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 (i) the Company, (ii) its Chief Executive Officer, (iii) now former Chief Financial Officer, (iv) former Chief Financial Officer and Chief Commercial Officer, and (v) current and former members of the Board 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 control were misrepresentations based on the Company’s March 2, 2020 disclosure that the Audit Committee of the Board 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 a damage request. On June 28, 2021, the 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 plaintiff appealed the Court’s dismissal of the motions only with respect to the Company, the Chief Executive Officer, and the now former Chief Financial Officer; the remaining defendants were dismissed from the matter with prejudice, and the Company and all individual defendants agreed not to seek costs from plaintiff in connection with the dismissal of the motions. On September 26, 2022, the Court of Appeal for Ontario reversed the Superior Court’s dismissal of the leave and certification motions, granted the plaintiff leave to proceed to bring a claim for misrepresentation under the Ontario Securities Act, and remitted the certification motion back to the Superior Court. On October 10, 2023, the Superior Court certified a class that includes shareholders that acquired shares on the TSX and NASDAQ exchanges.

(ii)Regulatory reviews relating to restatements

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 as well as the previously disclosed restatement of the second quarter of 2021 interim financial statements (collectively, the “Restatements”). The Company has been responding to all such requests for information and cooperating with all regulatory authorities.


~~Cronos Group Inc.~~
~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~(In thousands of U.S. dollars, except share amounts)~~			~~Table of Contents~~

SEC Settlement

On October 24, 2022, the SEC issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8(a) of the Securities Act of 1933 (the “Securities Act”) and Section 21(c) of the Exchange Act, Making Findings, and Imposing a Cease-and-Desist Order (the “Settlement Order”) resolving the Restatements.

The Company has agreed to settle with the SEC, without admitting or denying the allegations described in the Settlement Order. The Settlement Order fully and finally disposes of the investigation of the Company by the SEC into the Restatements without the payment of any civil penalty or other amount.

The Settlement Order required the Company to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 13a-13, 13a-15(a), 13a-16 and 12b-20 thereunder. Additionally, the Company agreed to certain undertakings, which include, among other things, retaining a qualified independent consultant (the “Consultant”) to engage in a review of, and make recommendations with respect to, certain of the Company’s internal accounting controls and internal control over financing reporting. The Consultant’s review has been completed.

As a result of the Settlement Order, the Company ~~will~~ (i) ~~lose~~lost its status as a well-known seasoned issuer for a period of three years, (ii) beis unable to rely on the private offering exemptions provided by Regulations A and D under the Securities Act for a period of five years and (iii) beis unable to rely on the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 for a period of three years.

OSC Settlement

On October 24, 2022, the Ontario Capital Markets Tribunal approved a settlement agreement (the “Settlement Agreement”) between the Company and the staff of the OSC, resolving the Restatements.

Pursuant to the terms of the Settlement Agreement, which fully and finally ~~disposes~~disposed the investigation of the Company by the OSC, Cronos agreed to pay a total of C$1.34 million to fully settle the matter, and acknowledged that it had failed to comply with the requirement under Section 77 of the Securities Act (Ontario) to file interim financial reports in the manner set out therein and had acted in a manner contrary to the public interest. Additionally, the Company agreed to retain the Consultant to engage in a review of, and make recommendations with respect to, certain of the Company’s internal accounting controls and internal control over financing reporting, on substantially the same terms as were required by the SEC pursuant the Settlement ~~Order.~~

~~(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.Agreement. 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 CompanyConsultant’s review has ~~not responded to the Third Amended Statement of Claim. On January 31, 2022, upon consent of the Company and the plaintiffs, the court dismissed the case in its entirety as to the Company.~~

~~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 did 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.

~~The Company expects litigation and regulatory proceedings relating to the marketing, distribution and sale of its products to increase.~~completed.

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Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

~~12.~~(iii)Litigation relating to marketing, distribution and sale of products

On April 17, 2023, a group of plaintiffs led by the Green Leaf (Ale Yarok) political party filed a Statement of Claim and Request for Approval of a Class Action on behalf of a purported class of Israeli cannabis consumers in the District Court of Tel Aviv, Israel, against 26 cannabis-related parties, including three Cronos Israel entities. The Statement of Claim alleges that the defendants violated certain laws relating to the marketing of medical cannabis products, including marketing to unlicensed cannabis consumers. The lawsuit seeks a total of ILS 420 million. The Cronos Israel defendants moved to dismiss the action on August 13, 2023.

11. Fair Value Measurements

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~~include situations where there is little, if any, market activity for the asset or liability.

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis:


		September 30, 2022									September 30, 2023
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Cash and cash equivalents	Cash and cash equivalents	$	633,296	$	—	$	—	$	633,296	Cash and cash equivalents	$	571,656	$	—	$	—	$	571,656
Short-term investments	Short-term investments	255,452		—		—		255,452		Short-term investments	267,905		—		—		267,905
Other investments(i)	Other investments(i)	24,375		—		—		24,375		Other investments(i)	13,143		—		—		13,143
Derivative liabilities	Derivative liabilities	—		—		73		73		Derivative liabilities	—		—		29		29

December 31, 2021
Level 1 Level 2 Level 3 Total
Cash and cash equivalents $ 886,973 $ — $ — $ 886,973
Short-term investments 117,684 — — 117,684
Other investments(i)
8,000 — — 8,000
Derivative liabilities — — 14,375 14,375


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	$	764,644	$	—	$	—	$	764,644
Short-term investments	113,077		—		—		113,077
Other investments(i)	21,993		—		—		21,993
Derivative liabilities	—		—		15		15

(i)As of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, the Company’s influence on ~~Cronos Australia~~Vitura is deemed non-significant and the investment is considered an equity security with a readily determinable fair value. See Note 34 “Investments” for additional information.

There were no transfers between fair value categories during the periods presented.

The following tables present information about the Company’s assets that are measured at fair value on a non-recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

~~13.~~


	As of September 30, 2023
	Level 1	Level 2	Level 3	Total
Other investments(i)	—	—	49,000	49,000


	As of December 31, 2022
	Level 1	Level 2	Level 3	Total
Other investments(i)	—	—	49,000	49,000

(i)On June 14, 2021, the Company purchased an option to acquire 473,787 shares of Class A Common Stock of 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 as of the date of the PharmaCann Option, for an aggregate purchase price of approximately $110,392. On February 28, 2022, PharmaCann closed its previously announced transaction with LivWell Holdings Inc. (“LivWell”) pursuant to which PharmaCann acquired LivWell (“the LivWell Transaction”). LivWell is a multi-state cannabis cultivation and retail leader based in Colorado. As a result of the LivWell Transaction, the Company’s ownership percentage in PharmaCann on a fully diluted basis decreased to approximately 6.4%. As of both September 30, 2023 and December 31, 2022, the Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 6.3%. See Note 4 “Investments.”

There were no transfers between fair value categories during the periods presented.

12. Impairment Loss on Long-lived Assets

(a)Right-of-use assets and property, plant, and equipment, net

During the nine months ended September 30, 2022, the Company recognized an impairment charge of $1,986 related to the right-of-use lease asset associated with the Company’s corporate headquarters, encompassing approximately 29,000 square feet, in Toronto, Ontario, Canada, for which the Company determined it would seek a sublease. In addition, the Company recognized an impairment charge of $1,507 during the nine months ended September 30, 2022 related to leasehold improvements and other office equipment that it plans to include in any potential sublease agreement. The determination to seek a sublease of the property and include leasehold improvements and other office equipment in any potential sublease agreement triggered the impairment charges. Both of the impairment charges are recognized as impairment loss on long-lived assets on the condensed consolidated statements of net ~~income (loss)~~loss and comprehensive ~~income (loss).~~loss.

During the nine months ended September 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 the Company’s decision to no longer use the leased premises.

13. Related Party Transactions

(a)Cronos GrowCo

The Company ~~recognized an impairment charge on~~holds a variable interest in Cronos GrowCo through its ownership of 50% of Cronos GrowCo’s common shares and senior secured debt in Cronos GrowCo. See Note 4 “Investments” for additional information.

The Company made the ~~de-recognition~~following purchases of the right-of-use asset of $702 during the nine months ended September 30, 2021. Both of the impairment charges are recognized as impairment loss on long-lived assets on the condensed consolidated statements of net income (loss) and comprehensive income (loss).cannabis products from Cronos GrowCo:


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Cronos GrowCo - purchases	$	2,939	$	2,158	$	16,954	$	10,973

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Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

Additionally, during the nine months ended September 30, 2021, the Company reassessed the existence of impairment indicators on property, plant and equipment associated with sales channels in the U.S. segment. The Company determined that slower actual revenue growth as compared to previous growth forecasts and significant pricing pressures brought about by increased competition and aggressive discounting in sales channels in the U.S. segment represented indicators of impairment. As a result, a quantitative impairment analysis was required as of June 30, 2021. As such, the Company reassessed its estimates and forecasts as of June 30, 2021, to determine the fair values of the property, plant and equipment using an undiscounted cash flow methodology. Significant inputs include growth rates and cash flow projections. As a result of the analysis as of June 30, 2021, the Company concluded the carrying amount of the property, plant and equipment associated with sales channels in the U.S. segment exceeded its fair value, which resulted in impairment charges of $1,214 on the condensed consolidated statements of net income (loss) and comprehensive income (loss) for the nine months ended September 30, 2021.

~~No impairment charges were recorded during the three months ended September 30, 2022 and 2021 on property, plant and equipment and right-of-use assets.~~

~~(b)Intangible assets, net~~

During the three and nine months ended September 30, 2021, the Company recognized an impairment charge of $1,784 on definite-lived intangible assets for the difference between the consideration paid to Ginkgo for the achievement of certain milestones in connection with the Ginkgo Collaboration Agreement and the fair value of the Ginkgo exclusive license intellectual property. See Note 5 “~~Intangible Assets, net~~” ~~for additional information. The impairment charge is recognized as impairment loss on long-lived assets on the condensed consolidated statements of net income (loss) and comprehensive income (loss).~~

~~No impairment charges were recorded during the three and nine months ended September 30, 2022 on definite-lived intangible assets.~~

~~14. Related Party Transactions~~

~~(a)Altria~~

~~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.~~ As of September 30, ~~2022, Altria beneficially held an approximately 41% ownership interest in the Company (calculated on a non-diluted basis).~~

~~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,
2022 2021 2022 2021
Altria Pinnacle - expense $ — $ 424 $ 28 $ 436

~~As of both September 30, 2022~~2023, and December 31, ~~2021, the Company had no payables outstanding to Altria Pinnacle.~~

~~(b)Cronos GrowCo~~

~~The Company holds a variable interest in Cronos GrowCo through its ownership of 50% of Cronos GrowCo’s common shares and senior secured debt in Cronos GrowCo. See Note 3 “Investments” for additional information.~~

~~The Company made the following purchases of cannabis products from Cronos GrowCo:~~

Three months ended September 30, Nine months ended September 30,
2022 2021 2022 2021
Cronos GrowCo - purchases $ 2,158 $ 278 $ 10,973 $ 812

~~As of September 30,~~ 2022, ~~and December 31, 2021,~~ the Company had payables outstanding to Cronos GrowCo of ~~$972~~$307 and ~~$82,~~$2,519, respectively.

During the third quarter of 2023, the Company, as supplier, entered into a cannabis germplasm supply agreement with Cronos GrowCo as buyer. For germplasm supplied to GrowCo whose cannabis Cronos expects to purchase, a deferred inventory liability is recorded and subsequently amortized into cost of goods sold. For germplasm supplied to GrowCo whose cannabis Cronos expects to be sold to unrelated third parties, revenue is recorded. In relation to this agreement, Cronos recognized $353 of revenue and a reduction to cost of goods sold of $181 during both the three and nine months ended September 30, 2023. Also in relation to this agreement, Cronos recorded $126 of deferred inventory liabilities and a reduction to inventory of $2 as of September 30, 2023.

Also during the third quarter of 2023, the Company sold certain held for sale assets with carrying value of $324 and certain other previously expensed assets with a zero net book value to Cronos GrowCo and recognized a $433 gain.

Additionally, on August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into the GrowCo Facility. See Note 45 “Loans Receivable, net” for additional information.

(b)Vendor Agreement

In November 2022, the Company entered into an agreement with an external vendor whereby the vendor would provide certain manufacturing services to the Company. The vendor then subcontracted out a portion of those services to another company whose chief executive officer is an immediate family member of an executive of the Company. In late October 2023, the Company was negotiating a direct contract with the related party subcontractor.

During the three and nine months ended September 30, 2023, the Company purchased $406 and $1,842, respectively, of products and services under this agreement and had outstanding accounts payable related to the agreement of $15 and $nil as of September 30, 2023 and December 31, 2022, respectively.

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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 interim financial statements and the related notes to those statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarterly period ended September 30, ~~2022~~2023 (this “Quarterly Report”), consolidated financial statements appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 (the “Annual Report”), Part I, Item 1A, Risk Factors, of the Annual Report and Part II, 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 U.S. and Canadian securities laws and court decisions (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:

•expectations related to the ~~impact of the ongoing military conflict~~war between ~~Russia~~Israel and ~~Ukraine (and resulting sanctions)~~Hamas (the “Israel-Hamas War”) and its impact on our ~~business, financial condition~~operations in Israel, the supply of product in the market and ~~results of operations or cash flows;~~the demand for product among medical patients in Israel;

•expectations related to the ~~uncertainties associated with the COVID-19 pandemic,~~German and Australian markets, including our ~~ability,~~strategic partnerships with Cansativa GmbH (“Cansativa”) and ~~the abilities of our joint ventures~~Vitura Health Limited (“Vitura”), respectively, and our ~~suppliers and distributors,~~plans to ~~effectively deal with~~distribute 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;PEACE NATURALS® brand in Germany;

•~~laws and regulations and any amendments thereto applicable~~expectations related to our ~~business~~announcement of additional cost-cutting measures, including our decision to wind-down operations at our Winnipeg, Manitoba facility and list the ~~impact thereof, including uncertainty regarding~~facility for sale, the ~~application~~expected costs and benefits from the wind-down of ~~United States (“U.S.”) state~~production activities at the facility, challenges and ~~federal law to U.S. hemp (including CBD~~effects related thereto as well as changes in strategy, metrics, investments, costs, operating expenses, employee turnover and other U.S. hemp-derived cannabinoids) products and the scope of any regulations by the U.S. Food 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 and other U.S. hemp-derived cannabinoids) products;changes with respect thereto;

•expectations related to the ~~laws~~impact of our decision to exit our U.S. hemp-derived cannabinoid product operations, including the costs, expenses and ~~regulations~~write-offs associated therewith, the impact on our operations and our financial statements and any ~~amendments thereto relating~~future plans to re-enter 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 (the “USDA”) and relevant state regulatory authorities;~~market;

•expectations related to our announced realignment (the “Realignment”) and any progress, challenges and effects related thereto as well as changes in strategy, metrics, investments, reporting structure, costs, operating expenses, employee turnover and other changes with respect thereto;

•the timing of ~~our planned exit from~~the change in the nature of operations at our facility in Stayner, Ontario (the ~~“Stayner Facility”~~“Peace Naturals Campus”) and the expected costs and benefits from the wind-down of certain production activities at the ~~Stayner Facility;~~Peace Naturals Campus;

•our ability to effectively wind-down certain production activities at the ~~Stayner Facility~~Peace Naturals Campus in an organized fashion and acquire raw materials from other suppliers, including Cronos Growing Company Inc. (“Cronos GrowCo”), and the costs and timing associated therewith;

•~~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;~~

•~~our ability to successfully create and launch brands and further create, launch and scale U.S. hemp-derived cannabinoid consumer products and cannabis 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 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 Investment (the “Altria Warrant”), pre-emptive rights and/or top-up rights in connection with the Altria Investment, including proceeds to us that may result therefrom;

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•the impact of the loss of our ability to rely on private offering exemptions under Regulation D of the Securities Act of 1933, as amended (the “Securities Act”); and the loss of our status as a well-known seasoned issuer, each as a result of our settlement with the SEC (the “SEC Order”);

•our compliance with the terms of the SEC Order and the settlement with the Ontario Securities Commission (the “OSC Settlement”), including complying with any recommendations made by the independent consultant to be appointed pursuant to the SEC Order (the “Consultant”);

•~~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 Holdings, Inc. (“Ginkgo”);

•our ability or plans to ~~execute on~~identify, develop, commercialize or expand our ~~strategy~~technology and research and development (“R&D”) initiatives in cannabinoids, or the ~~anticipated benefits of such strategy;~~success thereof;

•expectations regarding revenues, expenses, gross margins and capital expenditures;

•expectations regarding our future production and manufacturing strategy and operations, the costs and timing associated therewith and the receipt of ~~the amount or frequency of impairment losses, including as a result of the write-down of intangible assets, including goodwill;~~applicable production and sale licenses;

•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;

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•the ~~future performance~~legalization of the use of cannabis for medical or adult-use in jurisdictions outside of Canada, including the United States and Germany, the related timing and impact thereof and our ~~business~~intentions to participate in such markets, if and ~~operations;~~

•~~our competitive advantages and business strategies;~~when such use is legalized;

•the ~~competitive conditions~~grant, renewal, withdrawal, suspension, delay and impact of ~~the industry;~~

•~~the expected growth in the number of customers using our products;~~any license or supplemental license to conduct activities with cannabis or any amendments thereof;

•our ability ~~or plans~~ to ~~identify, develop, commercialize or expand our technology~~successfully create and ~~research~~launch brands and ~~development (“R&D”) initiatives in cannabinoids, or the success thereof;~~cannabis products;

•expectations related to the differentiation of our products, including through the utilization of rare cannabinoids;

•the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, including CBD and other cannabinoids;

•laws and regulations and any amendments thereto applicable to our business and the impact thereof, including uncertainty regarding ~~acquisitions~~the application of United States (“U.S.”) state and ~~dispositions~~federal law and the scope of any regulations by the U.S. Food 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;

•the anticipated benefits ~~therefrom;~~and impact of Altria Group Inc.’s investment in the Company (the “Altria Investment”), pursuant to a subscription agreement dated December 7, 2018;

•uncertainties as to our ability to exercise our option (the “PharmaCann Option”) in PharmaCann Inc. (“PharmaCann”), in the near term or the future, 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;

•expectations regarding ~~revenues, expenses~~the implementation and ~~anticipated cash needs;~~effectiveness of key personnel changes;

•expectations regarding ~~cash flow, liquidity~~acquisitions and ~~sources of funding;~~

•~~expectations regarding capital expenditures;~~

•~~expectations regarding our future production and manufacturing strategy and operations, the costs and timing associated therewith~~dispositions and the ~~receipt of applicable production and sale licenses;~~

•~~expectations regarding 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 and networks;~~

•~~the expected methods to be used to distribute and sell our products;~~

•~~the~~ anticipated ~~future gross margins of our operations;~~

•~~accounting standards and estimates;~~benefits therefrom;

•our ability to timely and effectively remediate any material weaknesses in our internal control over financial reporting;

•expectations of the amount or frequency of impairment losses, including as a result of the write-down of intangible assets, including goodwill;

•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;

•the impact of the ongoing military conflict between Russia and Ukraine (and resulting sanctions) on our business, financial condition and results of operations or cash flows;

•our compliance with the terms of the settlement with the SEC (the “Settlement Order”) and the settlement agreement with the Ontario Securities Commission (“Settlement Agreement”), including complying with any recommendations made by the independent consultant appointed pursuant to the Settlement Order and Settlement Agreement; and

•~~expectations regarding~~ the ~~costs~~impact of the loss of our ability to rely on private offering exemptions under Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), and ~~benefits associated with~~the loss of our ~~contracts and agreements with third parties, including under our third-party supply and manufacturing agreements.~~status as a well-known seasoned issuer, each as a result of the Settlement Order.

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 to effectively navigate developments in the Israel-Hamas War and its impact on our employees and operations in Israel, the supply of product in the market and demand for product among medical patients in Israel; (ii) our ability to efficiently and effectively ~~exit~~distribute our PEACE NATURALS® brand in Germany with our strategic partner Cansativa and our ability to efficiently and effectively distribute products in Australia with our strategic partner Vitura; (iii) our ability to efficiently and effectively wind-down our operations at our Winnipeg, Manitoba facility and realize the ~~Stayner Facility,~~expected cost-savings and other benefits related thereto, (iv) our ability to efficiently and effectively wind-down our operations in the U.S. and realize the expected cost-savings and other benefits related thereto, (v) our ability to realize the expected cost-savings, efficiencies and other benefits of our Realignment and other announced cost-cutting measures and employee turnover related thereto; (vi) our ability to efficiently and effectively wind-down certain production activities at the Peace Naturals Campus, receive the benefits of the ~~Stayner Facility wind down~~change in the nature of our operations at our Peace Naturals Campus and acquire raw materials on a timely and cost-effective basis from third parties, including Cronos GrowCo; ~~(ii)~~(vii) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our acquisitions and strategic investments; (viii) the production and manufacturing capabilities and output from our facilities and our joint ventures, strategic alliances and equity investments; (ix) government regulation of our activities and products including, but not limited to, the areas of cannabis taxation and environmental protection; (x) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (xi) consumer interest in our products; (xii) our ability to differentiate our products, including through the utilization of rare cannabinoids; (xiii) competition; (xiv) anticipated and unanticipated costs; (xv) our ability to generate cash flow from operations; (xvi) our ability to conduct operations in a safe, efficient and effective manner; (xvii) our ability to hire and retain qualified staff, and acquire equipment and services in a timely and cost-efficient manner; (xviii) our ability to exercise the PharmaCann Option and realize the anticipated benefits of the transaction with PharmaCann; (xix) our ability to complete planned dispositions, and, if completed, obtain our anticipated sales price; (xx) 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; ~~(iii) management’s perceptions of historical trends, current conditions and expected future developments; (iv) our ability to generate cash flow from operations; (v)~~(xxi) general economic, financial market, regulatory and political conditions in which we operate; ~~(vi) the production~~(xxii) management’s perceptions of historical trends, current conditions and ~~manufacturing capabilities~~expected future developments; and output from our facilities and our joint ventures, strategic alliances and equity investments; (vii) consumer interest in our products; (viii) competition; (ix) anticipated and unanticipated costs; (x) government regulation of our activities and products including, but not limited to, the areas of taxation and environmental protection; (xi) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (xii) our ability to obtain qualified staff, equipment and services in a timely and cost-efficient manner; (xiii) our ability to conduct operations in a safe, efficient and effective manner; (xiv) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our acquisitions into our existing operations; (xv) our ability to realize the expected cost-savings, efficiencies and other benefits of our Realignment and employee turnover related thereto; (xvi) our ability to complete planned dispositions, and, if completed, obtain our anticipated sales price; (xvii) our ability to exercise the PharmaCann Option and realize the anticipated benefits of the transaction with PharmaCann; and (xviii)(xxiii) 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, negative impacts on our employees, business and operations in Israel due to the Israel-Hamas War, including that we may not be able to ~~exit~~produce, import or sell our products or protect our people or facilities in Israel during the ~~Stayner Facility~~Israel-Hamas War, the supply of product in ~~an organized fashion~~the market and the demand for product among medical patients in Israel; that we may not be able to successfully continue to distribute our products in Germany and Australia or generate material revenue from sales in those markets; that we may not be able to wind-down our operations at our Winnipeg, Manitoba facility in a disciplined and cost-effective manner or achieve the anticipated benefits ~~of the exit~~thereof or be able to access raw materials on a timely and cost-effective basis from ~~third parties,~~third-parties; that we may be unable to further streamline our operations and reduce expenses; that we may not be able to wind-down our U.S. operations in a disciplined and cost-effective manner or achieve the anticipated benefits thereof or be able to effectively and efficiently re-enter the U.S. market in the future; that we may not able to wind-down certain production activities at the Peace Naturals Campus in a disciplined manner or achieve the anticipated benefits of the change in the nature of our operations or be able to access raw materials on a timely and cost-effective basis from third-parties, including Cronos GrowCo; the risk that the COVID-19 pandemic and the military conflict between Russia and Ukraine 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, or, if completed, obtain our anticipated sales price; the implementation and effectiveness of~~failure to execute key personnel changes; the risks that our Realignment, the ~~closure~~change in the nature of our operations at the ~~Stayner Facility~~Peace Naturals Campus and our further leveraging of our strategic partnerships will not result in the expected cost-savings, efficiencies and other benefits or will result in greater than anticipated turnover in personnel; ~~future~~lower levels of revenues; the lack of consumer demand for our cannabis ~~and U.S. hemp~~ products; our ~~ability~~inability to reduce expenses at the level needed to meet our projected net change in cash and cash equivalents; our inability to manage disruptions in credit markets or changes to our credit ratings; unanticipated 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;~~not turning out as expected; the ~~adequacy~~lack of ~~our capital resources and liquidity, including but not limited to, availability of sufficient~~ cash flow necessary to execute our business plan (either within the expected timeframe or at all); ~~our ability to raise capital under Regulation D under~~difficulty raising capital; the ~~Securities Act and to qualify as a well-known seasoned issuer; the~~ potential adverse 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~~unexpected 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; adverse 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; dilution of our ~~fully-diluted~~fully diluted ownership of PharmaCann and the loss of our rights as a result of that dilution; a delay in our remediation of a material ~~weaknesses~~weakness in our internal control over financial reporting and the improvement of our control environment and our systems, processes and procedures; and the factors discussed under Part I, Item 1A “Risk Factors” of the Annual ~~Report.~~Report and under Part II, Item 1A “Risk Factors” in our Quarterly Reports. 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 not to place undue reliance on these Forward-Looking Statements because of their inherent uncertainty and to appreciate the limited purposes for which they are being used by management. 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

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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.

Foreign currency exchange rates

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. The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of September 30, ~~2022,~~2023, September 30, ~~2021~~2022, and December 31, ~~2021.~~2022. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates. The condensed consolidated statements of net ~~income (loss)~~loss and comprehensive ~~income (loss)~~loss and condensed consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period as reported on Bloomberg.

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The exchange rates used to translate from Canadian dollars (“C$”) to dollars is shown below:

(Exchange rates are shown as C$ per $)

As of

(Exchange rates are shown as C$ per $)

As of

September 30, 2022

September 30, 2021

December 31, 2021

September 30, 2023

September 30, 2022

December 31, 2022

Quarter-to-date average rate

1.3053

1.2593

N/A

Spot rate

1.3829

1.2680

1.2746

Spot rate

1.3577

1.3829

1.3554

Year-to-date average rate

1.2829

1.2519

1.2541

Year-to-date average rate

1.3455

1.2829

N/A

The exchange rates used to translate from New Israeli Shekels (“ILS”) to dollars is shown below:

(Exchange rates are shown as ILS per $)

As of

September 30, 2023

September 30, 2022

December 31, 2022

Spot rate

3.8138

3.5660

3.5178

Year-to-date average rate

3.6385

3.3107

N/A

Business Overview

Cronos ~~Group~~ is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product ~~development and are seeking~~development. With a passion to ~~build~~responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio. ~~Cronos Group’s~~Cronos’ diverse international brand portfolio includes Spinach®, PEACE NATURALS®,and Lord Jones®~~, Happy Dance~~® ~~and PEACE+~~®.

Strategy

Cronos ~~Group~~ seeks to create value for shareholders by focusing on four core strategic priorities:

•growing a portfolio of iconic brands that 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.

Discontinued Operations

In the second quarter of 2023, Cronos exited its U.S. hemp-derived cannabinoid product operations. The exit of the U.S. operations represented a strategic shift that has a major effect on Cronos’ operations and financial results, and as such, qualifies for reporting as discontinued operations in our condensed consolidated statements of net loss and comprehensive loss. Prior period amounts have been reclassified to reflect the discontinued operations classification of the U.S. operations. For further detail on the discontinuation of the U.S. operations, see Note 2 “Discontinued Operations” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

Business segments

We report through two segments: “United States” (the “U.S. segment”) and “Rest of World” (the “ROW segment”). These two segments represent the geographic regions in which we operate and the different product offerings within each geographic region.

~~The U.S. segment manufactures, markets and distributes U.S. hemp-derived supplements and cosmetic products through e-commerce, retail and hospitality partner channels~~Beginning in the ~~United States under~~second quarter of 2023, following the ~~brands Lord Jones~~®~~, Happy Dance~~®exit of our U.S. operations, Cronos is reporting through one consolidated segment, which includes operations in both Canada and ~~PEACE+~~®.

~~The ROW segment is involved in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets.~~Israel. In Canada, Cronos ~~Group~~ operates two wholly owned license holders under the Cannabis Act (Canada) (the “Cannabis Act”), Peace Naturals Project Inc. (“Peace Naturals”), which has production facilities near Stayner, Ontario, ~~(the “Stayner Facility”),~~ and Thanos Holdings Ltd., known as Cronos Fermentation (“Cronos Fermentation”), which has a production facility 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 three strategic joint ventures in Canada, Israel and Colombia. Additionally, as of September 30, 2022, Cronos Group held approximately 10% of the issued capital of Cronos Australia Limited (“Cronos Australia”), which is listed on the Australian Securities Exchange under the trading symbol “CAU.”

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Recent Developments

~~COVID-19 update~~Israel-Hamas War

~~In December 2019, an outbreak of a novel strain of coronavirus, COVID-19, was identified~~Cronos continues to monitor the conflict in ~~Wuhan, China. Since then, COVID-19 has spread across the globe, including the U.S., Canada and~~ Israel and ~~other countries~~potential impacts the conflict could have on the Company’s personnel and business in which Cronos Group or its affiliates operate (including Australia and Colombia) and was recognized as a pandemic by the World Health Organization. The COVID-19 pandemic resulted in a sharp contraction in many areas of the global economy and increased volatility and uncertainty in the capital markets. In response to the pandemic, the governments of many countries, provinces, states, municipalities, 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 measures were eased or lifted in varying degrees by different governments of various countries, states and municipalities since implementation in 2020, but 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 and re-impose quarantines, border closures, closure of certain businesses and stay-at-home orders.

~~The COVID-19 pandemic continues to impact the global economy and, specifically, the U.S., Canada,~~ Israel and the ~~other countries in which Cronos Group or its affiliates operate (including Australia~~recorded amounts of assets and Colombia). We continue to closely monitor and respond, 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. This has resulted in the re-opening of, and increased occupancy capacities in, retail outlets, including those that sell our products. Any reinstatement of restrictions on the operations of retail outlets could negatively impact our short-term results of operations in the U.S. Recently in the U.S., there have been a number of supply chain challenges, such as container ships facing delays due to congestion in ports, impacting many industries, including the industries in which we operate. Although we have not yet seen a significant impact from supply chain disruptions, we continue to monitor our supply chain closely.

In Canada, COVID-19 restrictions began gradually easing at the end of June 2021 as the vaccination rate increased. The lockdown measures taken in the first six months of 2021 to slow infection rates negatively impacted our short-term revenue growth in Canada in 2021. The increase in casesliabilities related to the ~~Omicron variant~~Company’s operations in Israel. The extent to which the conflict may impact the Company’s personnel, business and activities will depend on future developments which remain highly uncertain and cannot be predicted. It is possible that the recorded amounts of COVID-19 beginning in December 2021 caused the reinstatement of some restrictions on non-essential retail stores in some provinces, including Quebec, in early 2022; however, those restrictions have eased in most other provinces. Each province is responsible for implementing re-opening plansassets and ~~certain provinces, including Ontario, are progressing through phases of re-opening which may permit continued increases~~liabilities related to the ~~allowance of in-person shopping, typically~~Company’s operations in Israel could change materially in the form of percentage of store capacity. All provinces have some form of cannabis retail open to consumers, and most provinces have lifted the requirement that retail shoppers show proof of vaccination before entering retail stores. The potential for recurring retail restrictions is ongoing, which could negatively impact our results of operations.near term.

New Israeli Shekel Weakening

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 our products. We do not expectOctober 2023, with the ~~remaining COVID-19 restrictions to have a material impact on our short-term revenue growth in Israel.~~

~~Collectively, the effects~~onset of the ~~COVID-19 pandemic have adversely affected our results~~aforementioned Israel-Hamas war, the New Israeli Shekel has significantly weakened against the U.S. dollar and Canadian dollar. As of ~~operations~~October 30, 2023, the New Israeli Shekel has weakened to a position of 4.019 per U.S. dollar and ifa position of 2.906 per Canadian dollar, representing decreases of 5% and 3.5%, respectively, from the ~~effects continue unabated, could continue to do so~~rates as ~~long as measures to combat the COVID-19 pandemic remain in effect or supply chains continue to be challenged. At this time, neither the duration nor scope~~ of the disruption can be predicted; therefore, the ultimate impact to our business cannot be reasonably estimated, but such impact could materially adversely affect our business, financial condition and results of operations.

Despite the impacts of the COVID-19 pandemic, we believe that our significant cash on hand and short-term investments will be adequate to meet liquidity and capital requirements for at least the next twelve months.

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~~Strategic and Organizational Update~~

InSeptember 30, 2023. We cannot predict when or if the ~~third quarter of 2022, following the decision to begin a phased exit of the wholesale beauty category in~~currency will recover against the U.S. ~~business in the second quarter~~dollar and Canadian dollar and we have, as a result, experienced an adverse impact on our results of 2022, the Company continued to reduce operating expenses in the U.S. to better align the business structure with the new strategy to focus on adult-use product formats in the direct-to-consumer channel.

Due to the restructuring of the U.S. business and other newly identified cost savings opportunities, the Company now expects to incur approximately $6.1 million in expenses in connection with the Realignment, a decrease from the previously stated $6.4 million.

The Company now anticipates exiting the Peace Naturals Campus in 2023 due to longer than anticipated transition timing for contract manufacturers, lead times on required equipment, and the receipt of necessary regulatory licenses. As the Company continues its transition out of the Peace Naturals Campus in Stayner, Ontario into 2023, it anticipates that it will begin to incur the majority of the expected capital expenditures related to the Realignment.operations.

Brand and Product Portfolio

In the third quarter of ~~2022, Cronos Israel was awarded~~2023, the Company launched two new THCV-infused products under the Spinach FEELZ™ brand, the Full Tilt THC+THCV vape and gummy.

In November 2023, the Company launched Lord Jones® Hash Fusions, a ~~prestigious Clio Award~~line-up of premium ice water hash infused pre-rolls, in the ~~Social Good category for~~Canadian adult-use market. The Company intends to launch additional products under the Lord Jones® brand, including live resin vapes and a differentiated chocolate offering.

In Israel, Cronos launched four new flower offerings under the PEACE NATURALS® brand, ~~campaign in~~Sticky Ape, Raphael Gems, Purple Punch and Tangerine Twist. Driven by our best-in-class genetics program and high-quality cultivation capabilities we seek to meet the market demands as consumers continue to look for strain variety.

Global Supply Chain

In September 2023, Cronos successfully completed its first shipment of cannabis to Germany through a strategic partnership with Cansativa GmbH, a leading German cannabis company. We believe that re-establishing Cronos and its PEACE NATURALS® brand in the ~~Warriors for Life Association in Israel.~~German market will position us to capitalize on this growing market, with additional growth potential from future legislative changes.

In ~~October 2022,~~ the ~~Company continued~~coming weeks, we plan to ~~expand its gummy offering with the launch of SOURZ by Spinach™ Tropical Triple Berry 2:1 CBD:THC. This marks Cronos’ first CBD dominant edible~~ship cannabis to Vitura Health Limited for sale in the ~~Canadian adult-use market for those looking for a more mellow low-dose experience.~~

~~In November 2022,~~Australian medical market. Cronos ~~will launch two infused pre-rolls~~owns approximately 10% of the common shares of Vitura. Vitura has stated that it is the market-leading prescriber, patient, pharmacy and supplier online platform, focused on creating medicinal cannabis products and digital health solutions that connect and strengthen the cannabis ecosystem in ~~Canada. The first, under~~ the Spinach® brand is called Fully Charged Atomic GMO, which will be offered in a 5-pack with 0.5 grams per pre-roll. Secondly, Cronos is launching a CBG infused pre-roll under the Spinach FEELZ™ brand called Tropical Diesel CBG, which will be offered in a 3-pack with 0.5 grams per pre-roll.

Australian medical cannabis market.

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Consolidated Results of Operations

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 not necessarily indicative of the consolidated financial results that we will achieve in future periods.


		Three months ended September 30,		Nine months ended September 30,
(in thousands of USD)										(in thousands of USD)	Three months ended September 30,				Nine months ended September 30,
		2022		2021		2022		2021			2023		2022			2023		2022
Net revenue, before excise taxes	Net revenue, before excise taxes	$	26,584	$	24,590	$	84,544	$	58,092	Net revenue, before excise taxes	$	33,912	$	26,070		$	86,264	$	80,243
Excise taxes	Excise taxes	(5,661)		(4,183)		(15,527)		(9,452)		Excise taxes	(9,102)		(5,661)			(22,938)		(15,527)
Net revenue	Net revenue	20,923		20,407		69,017		48,640		Net revenue	24,810		20,409			63,326		64,716
Cost of sales	Cost of sales	19,766		21,137		56,814		56,156		Cost of sales	20,124		17,265			52,614		50,540
Inventory write-down	Inventory write-down	—		—		—		11,961		Inventory write-down	716		—			716		—
Gross profit	Gross profit	1,157		(730)		12,203		(19,477)		Gross profit	3,970		3,144			9,996		14,176
Operating expenses	Operating expenses									Operating expenses
Sales and marketing	Sales and marketing	5,923		10,821		16,517		34,284		Sales and marketing	5,296		5,247			16,334		12,442
Research and development	Research and development	2,569		6,473		10,910		16,774		Research and development	1,246		2,541			4,392		10,656
General and administrative	General and administrative	17,167		32,546		56,540		76,869		General and administrative	14,366		16,354			39,673		53,771
Restructuring costs	Restructuring costs	524		—		4,878		—		Restructuring costs	1,423		387			1,423		3,396
Share-based compensation	Share-based compensation	4,265		2,667		10,567		7,731		Share-based compensation	1,957		4,247			6,823		10,446
Depreciation and amortization	Depreciation and amortization	1,713		1,251		4,417		3,029		Depreciation and amortization	1,457		1,702			4,515		4,368
Impairment loss on goodwill and indefinite-lived intangible assets		—		142		—		235,056

Impairment loss on long-lived assets	Impairment loss on long-lived assets	—		1,784		3,493		4,739		Impairment loss on long-lived assets	—		—			—		3,493
Total operating expenses	Total operating expenses	32,161		55,684		107,322		378,482		Total operating expenses	25,745		30,478			73,160		98,572
Operating loss	Operating loss	(31,004)		(56,414)		(95,119)		(397,959)		Operating loss	(21,775)		(27,334)			(63,164)		(84,396)
Other income (expense)	Other income (expense)	(3,764)		133,839		7,414		134,988		Other income (expense)	18,931		(3,653)			35,006		7,571
Income tax benefit (expense)		(2,118)		159		(2,172)		159
Income (loss) from discontinued operations		—		82		—		(500)
Net income (loss)		(36,886)		77,666		(89,877)		(263,312)
Income tax (expense) benefit										Income tax (expense) benefit	1,254		(2,118)			2,870		(2,172)
Loss from discontinued operations										Loss from discontinued operations	(182)		(3,781)			(4,238)		(10,880)
Net loss										Net loss	(1,772)		(36,886)			(29,526)		(89,877)
Net income (loss) attributable to non-controlling interest	Net income (loss) attributable to non-controlling interest	105		(250)		(27)		(842)		Net income (loss) attributable to non-controlling interest	(128)		105			(353)		(27)
Net income (loss) attributable to Cronos Group		$	(36,991)	$	77,916	$	(89,850)	$	(262,470)
Net loss attributable to Cronos Group										Net loss attributable to Cronos Group	$	(1,644)	$	(36,991)		$	(29,173)	$	(89,850)

Table of Contents

Summary of select financial results


		Three months ended September 30,						Change				Nine months ended September 30,						Change
(in thousands of USD)																						(in thousands of USD)	Three months ended September 30,						Change				Nine months ended September 30,						Change
		2022			2021			$		%		2022			2021			$		%			2023			2022			$		%		2023			2022			$		%
Net revenue	Net revenue	$	20,923		$	20,407		$	516	3	%	$	69,017		$	48,640		$	20,377	42	%	Net revenue	$	24,810		$	20,409		$	4,401	22	%	$	63,326		$	64,716		$	(1,390)	(2)	%
Cost of sales	Cost of sales	19,766			21,137			(1,371)		(6)	%	56,814			56,156			658		1	%	Cost of sales	20,124			17,265			2,859		17	%	52,614			50,540			2,074		4	%
Inventory write-down	Inventory write-down	—			—			—		N/A		—			11,961			(11,961)		(100)	%	Inventory write-down	716			—			716		N/A		716			—			716		N/A
Gross profit	Gross profit	1,157			(730)			1,887		258	%	12,203			(19,477)			31,680		163	%	Gross profit	3,970			3,144			826		26	%	9,996			14,176			(4,180)		(29)	%
Gross margin(i)	Gross margin(i)	6		%	(4)		%	N/A		10	pp	18		%	(40)		%	N/A		58	pp	Gross margin(i)	16		%	15		%	N/A		1	pp	16		%	22		%	N/A		(6)	pp

(i)Gross margin is defined as gross profit divided by net revenue.

Net revenue

For the three months ended September 30, ~~2022,~~2023, we reported consolidated net revenue of ~~$20.9~~$24.8 million, representing an increase of ~~$0.5~~$4.4 million from the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, we reported consolidated net revenue of ~~$69.0~~$63.3 million, representing ~~an increase~~a decrease of ~~$20.4~~$1.4 million from the nine months ended September 30, ~~2021.~~2022. For ~~both~~ the ~~three- and nine-month~~three month comparative ~~periods,~~period, the increase was primarily due to higher cannabis flower ~~sales in the Israeli medical market~~ and ~~higher cannabis~~ extract sales in the Canadian adult-use market, partially offset by ~~a reduction in revenue in the U.S. segment,~~ lower cannabis flower sales in ~~the Canadian adult-use market~~Israel driven by pricing pressure as a result of competitive activity, the slowdown in patient permit authorizations and geopolitical unrest, and an adverse price/mix ~~shift~~in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue. Furthermore, the weakened Canadian dollar and ~~the impact of the weakening Canadian dollar~~New Israeli Shekel against the U.S. dollar during the ~~current period.~~

~~Table~~period adversely impacted results. For the nine month comparative period, the decrease was primarily due to lower cannabis flower sales in Israel driven by pricing pressure as a result of ~~Contents~~

competitive activity, the slowdown in patient permit authorizations and geopolitical unrest, and an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue, partially offset by higher cannabis flower and extract sales in the Canadian adult-use market. Furthermore, the weakened Canadian dollar and New Israeli Shekel against the U.S. dollar during the period adversely impacted results.

Cost of sales

For the three months ended September 30, ~~2022,~~2023, we reported consolidated cost of sales of ~~$19.8~~$20.1 million, representing ~~a decrease~~an increase of ~~$1.4~~$2.9 million from the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, we reported consolidated cost of sales of ~~$56.8~~$52.6 million, representing an increase of ~~approximately $0.7~~$2.1 million from the nine months ended September 30, ~~2021.~~2022. For the ~~three-month~~three month comparative period, the increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, partially offset by lower biomass costs and the impact of the weakened Canadian dollar and New Israeli Shekel against the U.S. dollar during the period. For the nine month comparative period, the increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, partially offset by lower cannabis flower sales in the Israeli medical market, lower cannabis biomass costs and the impact of the weakened Canadian dollar and New Israeli Shekel against the U.S. dollar during the period.

Inventory write-down

For the three and nine months ended September 30, 2023, we reported inventory write-downs of $0.7 million as a result of the Company’s decision to wind down operations at Cronos Fermentation. For further information, see Note 7 “Restructuring” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

Gross profit

For the three months ended September 30, 2023, we reported gross profit of $4.0 million, representing an increase of $0.8 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, we reported gross profit of $10.0 million, representing a decrease of $4.2 million from the nine months ended September 30, 2022. For the three month comparative period, the increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market and lower biomass costs, partially offset by lower cannabis flower sales in Israel, an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue and the inventory write-down recognized as a result of the decision to wind down operations at Cronos Fermentation. For the nine month comparative period, the decrease was primarily due to lower cannabis ~~biomass costs, lower~~flower sales ~~volumes~~ in the ~~U.S. segment~~Israeli medical market, an adverse price/mix on cannabis flower sales in Canada resulting in higher excise taxes as a percentage of revenue and the ~~impact~~inventory write-down recognized as a result of the ~~weakening Canadian dollar against the U.S. dollar during the current period,~~decision to wind down operations at Cronos Fermentation, partially offset by higher ~~sales volumes in the ROW segment~~cannabis flower and lower fixed cost absorption due to the timing of wind down activities associated with our planned exit of the Stayner Facility. For the nine-month comparative period, the increase was primarily due to higherextract sales volumes in the ROW segment and lower fixed cost absorption due to the timing of wind down activities associated with our planned exit of the Stayner facility, partially offset by lower cannabis biomass costs, lower sales volumes in the U.S. segment and the impact of the weakening Canadian dollar against the U.S. dollar during the period.

~~Inventory write-down~~

For the nine months ended September 30, 2021, we reported inventory write-downs of $12.0 million primarily related to cannabis strains and potency levels that were no longer in-line with consumer preferences in the Canadian ~~market and adjustments for obsolete inventory in Canada. We reported no such write-down for the three months ended September 30, 2021 and for the three and nine months ended September 30, 2022.~~adult-use market.

~~Gross profit~~

~~For the three months ended September 30, 2022, we reported gross profit~~

Table of $1.2 million, representing an increase in gross profit of $1.9 million compared to the three months ended September 30, 2021. For the nine months ended September 30, 2022, we reported gross profit of $12.2 million, representing an increase in gross profit of $31.7 million compared to the nine months ended September 30, 2021. For the three-month comparative period, the change was primarily due to increased revenue in the ROW segment driven mainly by sales of cannabis flower in Israel and a favorable mix of cannabis extract products, which carry a higher gross profit and gross margin than other product categories, and lower cannabis biomass costs, partially offset by lower fixed cost absorption due to the timing of wind-down activities associated with our planned exit of the Stayner Facility and lower revenue in the U.S. segment. For the nine-month comparative period, the change was primarily due to increased revenue in the ROW segment driven mainly by sales of cannabis flower in Israel and a favorable mix of cannabis extract products, which carry a higher gross profit and gross margin than other product categories, the absence of inventory write-downs in the current period, and lower cannabis biomass costs, partially offset by lower fixed cost absorption due to the timing of wind-down activities associated with our planned exit of the Stayner Facility and lower revenue in the U.S. segment.Contents

Operating expenses


		Three months ended September 30,				Change				Nine months ended September 30,				Change					Three months ended September 30,				Change				Nine months ended September 30,				Change
		2022		2021		$		%		2022		2021		$		%			2023		2022		$		%		2023		2022		$		%
Sales and marketing	Sales and marketing	$	5,923	$	10,821	$	(4,898)	(45)	%	$	16,517	$	34,284	$	(17,767)	(52)	%	Sales and marketing	$	5,296	$	5,247	$	49	1	%	$	16,334	$	12,442	$	3,892	31	%
Research and development	Research and development	2,569		6,473		(3,904)		(60)	%	10,910		16,774		(5,864)		(35)	%	Research and development	1,246		2,541		(1,295)		(51)	%	4,392		10,656		(6,264)		(59)	%
General and administrative	General and administrative	17,167		32,546		(15,379)		(47)	%	56,540		76,869		(20,329)		(26)	%	General and administrative	14,366		16,354		(1,988)		(12)	%	39,673		53,771		(14,098)		(26)	%
Restructuring costs	Restructuring costs	524		—		524		N/A		4,878		—		4,878		N/A		Restructuring costs	1,423		387		1,036		268	%	1,423		3,396		(1,973)		(58)	%
Share-based compensation		4,265		2,667		1,598		60	%	10,567		7,731		2,836		37	%
Share-based payments																		Share-based payments	1,957		4,247		(2,290)		(54)	%	6,823		10,446		(3,623)		(35)	%
Depreciation and amortization	Depreciation and amortization	1,713		1,251		462		37	%	4,417		3,029		1,388		46	%	Depreciation and amortization	1,457		1,702		(245)		(14)	%	4,515		4,368		147		3	%
Impairment loss on goodwill and indefinite-lived intangible assets		—		142		(142)		(100)	%	—		235,056		(235,056)		(100)	%

Impairment loss on long-lived assets	Impairment loss on long-lived assets	—		1,784		(1,784)		(100)	%	3,493		4,739		(1,246)		(26)	%	Impairment loss on long-lived assets	—		—		—		N/A		—		3,493		(3,493)		N/A
Total operating expenses	Total operating expenses	$	32,161	$	55,684	$	(23,523)	(42)	%	$	107,322	$	378,482	$	(271,160)	(72)	%	Total operating expenses	$	25,745	$	30,478	$	(4,733)	(16)	%	$	73,160	$	98,572	$	(25,412)	(26)	%

Sales and marketing

For the three months ended September 30, ~~2022,~~2023, sales and marketing expenses were ~~$5.9~~essentially flat at $5.3 million ~~representing a decrease of $4.9 million from~~compared to the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, sales and marketing expenses were ~~$16.5~~$16.3 million, representing ~~a decrease~~an increase of ~~$17.8~~$3.9 million from the nine months ended September 30, ~~2021.~~2022. For ~~both~~ the ~~three- and nine-month~~nine month comparative ~~periods,~~period, the ~~decrease~~increase was primarily due to ~~lower~~higher advertising and marketing ~~spend and lower payroll-related costs in the U.S. segment as a result of the Realignment.~~

~~Table of Contents~~

spend.

Research and development

For the three months ended September 30, ~~2022,~~2023, research and development expenses were ~~$2.6~~$1.2 million, representing a decrease of ~~$3.9~~$1.3 million from the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, research and development expenses were ~~$10.9~~$4.4 million, representing a decrease of ~~$5.9~~$6.3 million from the nine months ended September 30, ~~2021.~~2022. For both the ~~three-~~three and ~~nine-month~~nine month comparative periods, the decrease was primarily due to lower costs associated with the ~~timing~~achievement of Ginkgo ~~milestones and a cancellation of beauty-focused product development spending in the U.S. segment.~~milestones.

General and administrative

For the three months ended September 30, ~~2022,~~2023, general and administrative expenses were ~~$17.2~~$14.4 million, representing a decrease of ~~$15.4~~$2.0 million from the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, general and administrative expenses were ~~$56.5~~$39.7 million, representing a decrease of ~~$20.3~~$14.1 million from the nine months ended September 30, ~~2021.~~2022. For both the ~~three-~~three and ~~nine-month~~nine month comparative periods, the decrease was primarily due to ~~credit loss revaluation allowances recognized in the prior comparative period~~lower professional fees, largely related to financial statement review costs, and ~~reduced advisory fees associated with strategic initiatives.~~lower bonus, payroll and insurance costs.

Restructuring costs

For both the three and nine months ended September 30, 2023, restructuring costs were $1.4 million, compared to $0.4 million and $3.4 million for the three and nine months ended September 30, 2022, ~~restructuring costs were $0.5 million and $4.9 million, respectively, compared to no restructuring costs for the three and nine months ended September 30, 2021.~~ respectively. For further information, see Note 7 “Restructuring ~~costs for both the three and nine months ended September 30, 2022, were related~~” to the ~~Realignment, including the planned exit~~condensed consolidated interim financial statements under Item 1 of ~~the Stayner Facility.~~this Quarterly Report.

Share-based compensation

For the three months ended September 30, ~~2022,~~2023, share-based compensation expense was ~~$4.3~~$2.0 million, representing ~~an increase~~a decrease of ~~$1.6~~$2.3 million from the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, share-based compensation expense was ~~$10.6~~$6.8 million, representing ~~an increase~~a decrease of ~~$2.8~~$3.6 million from the nine months ended September 30, ~~2021.~~2022. For the ~~three-month~~three month comparative ~~periods,~~period, the ~~increase~~decrease was primarily due to previously held-back equity awards granted to certain executives in the three months ended September 30, 2022. For the ~~nine-month~~nine month comparative ~~periods,~~period, the ~~increase~~decrease was primarily due to the acceleration of expense on equity awards granted to certain executive employees in connection with their separation from the Company, as well as previously held-back equity awards granted to certain executives in the nine months ended September 30, 2022.

Depreciation and amortization

For the three months ended September 30, ~~2022,~~2023, depreciation and amortization expenses were ~~$1.7~~$1.5 million, representing ~~an increase~~a decrease of ~~$0.5~~$0.2 million from the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, depreciation and amortization expenses were ~~$4.4~~$4.5 million, representing an increase of ~~$1.4~~$0.1 million from the nine months ended September 30, ~~2021.~~2022. For the ~~three- and nine-month~~three month comparative ~~periods,~~period, the decrease was primarily due to the recognition of certain tax credits related to the company’s fixed assets. For the nine month comparative period, the increase was primarily due to higher amortization on Ginkgo-related intangible assets, partially offset by the recognition of certain tax credits related to the Company’s fixed assets.

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Impairment loss on ~~goodwill and indefinite-lived intangible~~long-lived assets

~~For both the three and nine month ended September 30, 2022, there was~~We recorded no impairment loss on ~~goodwill and indefinite-lived intangible assets. For~~long-lived assets for both the three ~~and nine month~~months ended September 30, ~~2021, impairment loss on goodwill~~2023 and ~~indefinite-lived intangible assets was $0.1 million and $235.1 million, respectively. The impairment loss on goodwill and indefinite-lived intangible assets in~~September 30, 2022. For the nine months ended September 30, ~~2021 was due to impairment charges on the goodwill associated with our U.S. reporting unit and Lord Jones~~® ~~brand.~~

~~Impairment loss on long-lived assets~~

~~For the three months ended September 30, 2022, there was~~2023, we recorded no impairment loss on long-lived assets, compared to ~~$1.8~~$3.5 million ~~impairment loss from the three months ended September 30, 2021. For~~in the nine months ended September 30, ~~2022, impairment loss on long-lived assets was $3.5 million, representing a decrease of $1.2 million from the nine months ended September 30, 2021.~~2022. For further information, see Note ~~13 “Impairment~~12 “Impairment Loss on Long-lived ~~Assets~~”Assets” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

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Other income (loss), and income tax ~~expense and discontinued operations~~benefit (expense)


		Three months ended September 30,				Change				Nine months ended September 30,				Change					Three months ended September 30,				Change				Nine months ended September 30,				Change
		2022		2021		$		%		2022		2021		$		%			2023		2022		$		%		2023		2022		$		%
Interest income, net	Interest income, net	$	7,209	$	2,064	$	5,145	249	%	$	13,030	$	6,686	$	6,344	95	%	Interest income, net	$	13,375	$	7,208	$	6,167	86	%	$	37,021	$	13,028	$	23,993	184	%
Gain on revaluation of derivative liabilities		375		132,916		(132,541)		(100)	%	14,204		131,290		(117,086)		(89)	%
Gain (loss) on revaluation of derivative liabilities																		Gain (loss) on revaluation of derivative liabilities	8		375		(367)		(98)	%	(14)		14,204		(14,218)		N/M
Share of income (loss) from equity method investments	Share of income (loss) from equity method investments	(1,119)		(1,414)		295		21	%	4,078		(4,172)		8,250		198	%	Share of income (loss) from equity method investments	1,057		(1,119)		2,176		194	%	831		4,078		(3,247)		N/M
Gain on revaluation of financial instruments		17,049		266		16,783		N/M		19,205		143		19,062		N/M
Gain (loss) on revaluation of financial instruments																		Gain (loss) on revaluation of financial instruments	(5,291)		17,049		(22,340)		N/M		(7,856)		19,205		(27,061)		N/M
Impairment loss on other investments	Impairment loss on other investments	(28,972)		—		(28,972)		N/A		(40,210)		—		(40,210)		N/A		Impairment loss on other investments	—		(28,972)		28,972		N/M		—		(40,210)		40,210		N/M
Foreign currency transaction gain (loss)	Foreign currency transaction gain (loss)	2,387		—		2,387		N/A		(2,337)		—		(2,337)		N/A		Foreign currency transaction gain (loss)	8,816		2,387		6,429		269	%	3,999		(2,337)		6,336		271	%
Other, net	Other, net	(693)		7		(700)		N/M		(556)		1,041		(1,597)		(153)	%	Other, net	966		(581)		1,547		N/M		1,025		(397)		1,422		N/M
Total other income		(3,764)		133,839		(137,603)		(103)	%	7,414		134,988		(127,574)		(95)	%
Total other income (loss)																		Total other income (loss)	18,931		(3,653)		22,584		618	%	35,006		7,571		27,435		362	%
Income tax benefit (expense)	Income tax benefit (expense)	(2,118)		159		(2,277)		N/A		(2,172)		159		(2,331)		N/A		Income tax benefit (expense)	1,254		(2,118)		3,372		N/M		2,870		(2,172)		5,042		N/M
Income (loss) from discontinued operations		—		82		(82)		(100)	%	—		(500)		500		100	%
Net income (loss)		$	(36,886)	$	77,666	$	(114,552)	(147)	%	$	(89,877)	$	(263,312)	$	173,435	66	%
Loss from continuing operations																		Loss from continuing operations	(1,590)		(33,105)		31,515		95	%	(25,288)		(78,997)		53,709		68	%
Loss from discontinued operations																		Loss from discontinued operations	(182)		(3,781)		3,599		95	%	(4,238)		(10,880)		6,642		61	%
Net loss																		Net loss	$	(1,772)	$	(36,886)	$	35,114	95	%	$	(29,526)	$	(89,877)	$	60,351	67	%

(i)“N/M” is defined as not meaningful.

Interest income, net

For the three months ended September 30, ~~2022,~~2023, interest income, net was ~~$7.2~~$13.4 million, representing an increase of ~~$5.1~~$6.2 million from the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, interest income, net was ~~$13.0~~$37.0 million, representing an increase of ~~$6.3~~$24.0 million from the nine months ended September 30, ~~2021.~~2022. For both the ~~three-~~three and ~~nine-month~~nine month comparative periods, the increase in net interest income was primarily due to higher interest rates and higher cash equivalents and short-term investment balances ~~and higher interest rates~~ during the ~~current period.~~2023 periods.

Gain (loss) on revaluation of derivative liabilities

For the three months ended September 30, ~~2022,~~2023, the gain on revaluation of derivative liabilities was ~~$0.4 million,~~$8 thousand, representing a decrease of ~~$132.5~~$0.4 million from the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, the ~~gain~~loss on revaluation of derivative liabilities was ~~$14.2 million,~~$14 thousand, representing a ~~decrease~~decreased gain of ~~$117.1~~$14.2 million from the nine months ended September 30, ~~2021.~~2022. We expect continued changes in derivative valuations as our share price fluctuates period to period and the remaining expected terms of our derivative instruments ~~decrease.~~change over time. For further information, see Note 6 ~~“Derivative Liabilities”~~“Derivative Liabilities” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

Share of income (loss) from equity method investments

For the three months ended September 30, 2022, our share of loss from equity method investments was $1.1 million, representing a decrease of $0.3 million from the three months ended September 30, 2021. For the nine months ended September 30, 2022,2023, our share of income from equity method investments was ~~$4.1~~$1.1 million, representing an increase of ~~$8.3~~$2.2 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, our share of income from equity method investments was $0.8 million, representing a decrease of $3.2 million from the nine months ended September 30, ~~2021.~~2022. For ~~both~~ the ~~three- and nine-month~~three month comparative ~~periods,~~period, the ~~change~~increase was primarily due to ~~improved results~~higher income pick-ups from our equity method investment in Cronos GrowCo. For the nine month comparative period, the decrease was primarily due to lower income pick-ups from our equity method investment in Cronos GrowCo. Periodic income and loss pickups from our equity method investment in Cronos GrowCo are impacted both by the profitability of Cronos GrowCo and any unsold inventory remaining at Cronos that originated from Cronos GrowCo.

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Gain (loss) on revaluation of financial instruments

For the three months ended September 30, ~~2022,~~2023, the ~~gain~~loss on revaluation of financial instruments was ~~$17.0~~$5.3 million, representing an increased ~~gain~~loss of ~~$16.8~~$22.3 million ~~compared to~~from the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, the ~~gain~~loss on revaluation of financial instruments was ~~$19.2~~$7.9 million, representing an increased ~~gain~~loss of ~~$19.1~~$27.1 million ~~compared to~~from the nine months ended September 30, ~~2021.~~2022. For both the ~~three-~~three and ~~nine-month~~nine month comparative periods, the change was primarily related to the change in fair value of our investment in ~~Cronos Australia.~~Vitura Health Limited (“Vitura”). For further information, see Note 34 “Investments” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

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Impairment loss on other investments

For the three and nine months ended September 30, 2022, impairment loss on other investments was $29.0 million and $40.2 million, respectively, driven by impairments of the PharmaCann Option for the difference between its estimated fair value and its carrying amount. There were no impairment losses on other investments during the three and nine months ended September 30, ~~2021.~~2023. For the three and nine months ended September 30, 2022, impairment loss on other investments were $29.0 million and $40.2 million, respectively, due to impairment charges recorded on our PharmaCann Option for the difference between its estimated fair value and its carrying amount. For more information, see Note 34 “Investments” in our condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

Foreign currency transaction gain (loss)

For the three ~~and~~months ended September 30, 2023, foreign currency translation gain was $8.8 million, representing an increased gain of $6.4 million from the three months ended September 30, 2022. For the nine months ended September 30, ~~2022,~~2023, foreign currency ~~transaction~~translation gain ~~(loss)~~ was ~~$2.4~~$4.0 million, representing an increased gain of $6.3 million from the nine months ended September 30, 2022. For both the three and ~~$(2.3) million, respectively, which related~~nine month comparative periods, the change was primarily due to certain foreign currency-denominated cash equivalents and short-term investments and certain foreign currency-denominated intercompany loans anticipated to be settled in the foreseeable future. ~~There were no such foreign currency transaction~~

Other, net

Other, net primarily includes gains orand losses ~~during~~on the disposal of assets.

Loss from discontinued operations


	Three months ended September 30,			Nine months ended September 30,
		2023		2022		2023		2022
Net revenue		$	—	$	514	$	1,029	$	4,301
Cost of sales		—		2,501		2,044		6,274
Inventory write-down(i)		—		—		839		—
Gross profit		—		(1,987)		(1,854)		(1,973)
Operating expenses
Sales and marketing		—		676		518		4,075
Research and development		—		28		20		254
General and administrative		190		813		926		2,769
Restructuring costs		28		137		562		1,482
Share-based compensation		(4)		18		17		121
Depreciation and amortization		—		11		13		49

Impairment loss on long-lived assets(ii)		—		—		205		—
Total operating expenses		214		1,683		2,261		8,750
Interest income		1		1		9		2
Other, net(iii)		31		(112)		(132)		(159)
Total other loss		32		(111)		(123)		(157)
Loss before income taxes		(182)		(3,781)		(4,238)		(10,880)
Income tax expense (benefit)		—		—		—		—
Net loss from discontinued operations		$	(182)	$	(3,781)	$	(4,238)	$	(10,880)

(i)As of September 30, 2023, all inventory associated with our U.S. operations was $nil as a result of the $0.8 million inventory write-down of obsolete product in the second quarter of 2023.

(iii)For the three and nine months ended September 30, ~~2021.~~

~~Other, net~~

~~For the three months ended~~2023 and September 30, 2022, ~~other,~~Other, net was a loss of $0.7 million, compared to breakeven for the three months ended September 30, 2021. For the nine months ended September 30, 2022, other, net was a loss of $0.6 million, compared to income of $1.0 million in the nine months ended September 30, 2021. For both the three- and nine-month comparative periods, the change was duerelated to loss on disposal of assets ~~associated with the Realignment, partially offset by dividend income from our Cronos Australia investment during the current periods.~~

~~Results~~that were part of ~~Operations by Business Segment:~~

~~The tables below set forth our condensed consolidated results of operations by our two business segments: the ROW segment and~~ the U.S. segment, 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 roundingoperations..

~~Summary of select financial results~~ – ~~ROW~~

Three months ended September 30, Change Nine months ended September 30, Change
2022 2021 $ % 2022 2021 $ %
Net revenue $ 20,409 $ 18,307 $ 2,102 11 % $ 64,716 $ 41,872 $ 22,844 55 %
Cost of sales 17,265 17,735 (470) (3) % 50,540 49,906 634 1 %
Inventory write-down — — — N/A — 11,961 (11,961) (100) %
Gross profit 3,144 572 2,572 450 % 14,176 (19,995) 34,171 171 %
Gross margin 15 % 3 % N/A 12 pp 22 % (48) % N/A 70 pp

~~Net revenue~~ – ~~ROW~~

Three months ended September 30, Change Nine months ended September 30, Change
2022 2021 $ % 2022 2021 $ %
Cannabis flower $ 13,674 $ 15,306 $ (1,632) (11) % $ 48,038 $ 36,337 $ 11,701 32 %
Cannabis extracts 6,627 2,786 3,841 138 % 16,197 5,020 11,177 223 %
Other 108 215 (107) (50) % 481 515 (34) (7) %
Net revenue $ 20,409 $ 18,307 $ 2,102 11 % $ 64,716 $ 41,872 $ 22,844 55 %

For the three months ended September 30, 2022, the ROW segment reported net revenue of $20.4 million, representing an increase of $2.1 million from the three months ended September 30, 2021. For the nine months ended September 30, 2022, the ROW segment reported net revenue of $64.7 million, representing an increase of $22.8 million from the nine months ended September 30, 2021. For both the three- and nine-month comparative periods, the change was primarily due to higher cannabis flower sales in the Israeli medical market and higher cannabis extract sales in the Canadian adult-use market, partially offset by lower cannabis flower sales in the Canadian adult-use market driven by an adverse price/mix shift and the impact of the weakening Canadian dollar against the U.S. dollar during the period.

~~Cost of sales~~ – ~~ROW~~

For the three months ended September 30, 2022, the ROW segment reported cost of sales of $17.3 million, representing a decrease of $0.5 million from the three months ended September 30, 2021. For the nine months ended September 30, 2022, the ROW segment reported cost of sales of $50.5 million, representing an increase of $0.6 million from the nine months ended September 30, 2021. For

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the three-month comparative period, the decrease was primarily due to lower cannabis biomass costs and the impact of the weakening Canadian dollar against the U.S. dollar during the current period, partially offset by higher sales volumes and lower fixed cost absorption due to the timing of wind down activities associated with our planned exit of the Stayner Facility. For the nine-month comparative period, the increase was primarily due to higher sales volumes and lower fixed cost absorption due to the timing of wind down activities associated with our planned exit of the Stayner Facility, partially offset by lower cannabis biomass costs and the impact of the weakening Canadian dollar against the U.S. dollar during the current period.

~~Inventory write-down~~ – ~~ROW~~

For the nine months ended September 30, 2021, the ROW segment reported consolidated inventory write-down of $12.0 million primarily related to cannabis strains and potency levels that were no longer in-line with consumer preferences in the Canadian market and adjustments for obsolete inventory in Canada. The ROW segment reported no such write-down for the three months ended September 30, 2021 and the three and nine months ended September 30, 2022.

~~Gross profit~~ – ~~ROW~~

For the three months ended September 30, 2022, the ROW segment reported gross profit of $3.1 million, representing an increase in gross profit of $2.6 million from the three months ended September 30, 2021. For the nine months ended September 30, 2022, the ROW segment reported gross profit of $14.2 million, representing an increase in gross profit of $34.2 million from the nine months ended September 30, 2021. For the three-month comparative period, the change was primarily due to increased revenue driven mainly by sales of cannabis flower in Israel and a higher cannabis extract sales in Canada, which carry a higher gross profit and gross margin than other product categories, and lower cannabis biomass costs, partially offset by lower fixed cost absorption due to the timing of wind-down activities associated with our planned exit of the Stayner Facility. For the nine-month comparative period, the change was primarily due to the absence of inventory write-downs in the current periods, increased revenue driven mainly by sales of cannabis flower and a favorable mix of cannabis extract products, which carry a higher gross profit and gross margin than other product categories, and lower cannabis biomass costs, partially offset by lower fixed cost absorption due to the timing of wind-down activities associated with our planned exit of the Stayner Facility.

~~Summary of select financial results~~ – ~~U.S.~~

Three months ended September 30, Change Nine months ended September 30, Change
2022 2021 $ % 2022 2021 $ %
Net revenue $ 514 $ 2,100 $ (1,586) (76) % $ 4,301 $ 6,768 $ (2,467) (36) %
Cost of sales 2,501 3,402 (901) (26) % 6,274 6,250 24 — %
Gross profit (1,987) (1,302) (685) (53) % (1,973) 518 (2,491) (481) %
Gross margin (387) % (62) % N/A (325) pp (46) % 8 % N/A (54) pp

~~Net revenue~~ – ~~U.S.~~

For the three months ended September 30, 2022, the U.S. segment reported net revenue of $0.5 million, representing a decrease of $1.6 million from the three months ended September 30, 2021. For the nine months ended September 30, 2022, the U.S. segment reported net revenue of $4.3 million, representing a decrease of $2.5 million from the nine months ended September 30, 2021. For both the three- and nine-month comparative periods, the decrease was primarily driven by a reduction in sales as a result of a decrease in promotional spending and SKU rationalization efforts as the Company implements the Realignment in the U.S. segment.

~~Cost of sales~~ – ~~U.S.~~

For the three months ended September 30, 2022, the U.S. segment reported cost of sales of $2.5 million, representing a decrease of $0.9 million from the three months ended September 30, 2021. For the nine months ended September 30, 2022, the U.S. segment reported cost of sales of $6.3 million, essentially unchanged from the nine months ended September 30, 2021. For the three-month comparative period, the decrease was primarily due to lower sales volumes. For the nine-month comparative period, the reduction in cost of sales was driven by lower sales volumes, partially offset by a higher level of inventory reserves.

~~Gross profit~~ – ~~U.S.~~

For the three months ended September 30, 2022, the U.S. segment reported gross profit of $(2.0) million, representing a decrease of $0.7 million from the three months ended September 30, 2021. For the nine months ended September 30, 2022, the U.S. segment reported gross profit of $(2.0) million, representing a decrease of $2.5 million from the nine months ended September 30, 2021. For both the three- and nine-month comparative periods, the change was primarily due to lower sales volumes and higher inventory reserves.

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For the three months ended September 30, 2023, loss from discontinued operations was $0.2 million, representing a decreased loss of $3.6 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, loss from discontinued operations was $4.2 million, representing a decreased loss of $6.6 million from the nine months ended September 30, 2022. For the comparative three month period, the decreased loss was driven by the decrease in operating expense as a result of the exit of U.S. operations. For the comparative nine month period, the decreased loss was driven by negative gross margins and higher operating expenses in the nine months ended September 30, 2022. For more information, see Note 2 “Discontinued Operations” in our condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

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.

Adjusted EBITDA

Management reviews Adjusted EBITDA, a non-GAAP measure, which excludes non-cash items and items that do not reflect management’s assessment of ongoing business ~~performance of our operating segments.~~performance. Management defines Adjusted EBITDA as net income (loss) before interest, tax expense (benefit), depreciation and amortization adjusted for: share of ~~income (loss)~~(income) loss from equity method investments; impairment loss on goodwill and intangible assets; impairment loss on long-lived assets; (gain) loss on revaluation of derivative liabilities; (gain) loss on revaluation of financial instruments; transaction costs related to strategic projects; impairment loss on other investments; foreign currency transaction loss; other, net; loss from discontinued operations; restructuring costs; inventory write-downs resulting from restructuring actions; share-based compensation; and financial statement review costs and reserves related to the restatements of our 2019 and 2021 interim financial statements (the “Restatements”), including the costs related to the settlement of the SEC’s and the ~~OSC’s~~Ontario Securities Commission’s (“OSC”) investigations of the Restatements and legal costs defending shareholder class action complaints brought against us as a result of the 2019 restatement (see Part II, Item 1 “Legal Proceedings” of this Quarterly Report for a discussion of the shareholder class action complaints relating to the restatement of the 2019 interim financial statements and the settlement of the SEC’s and the OSC’s investigations of the ~~Restatements.~~Restatements). Results are reported as total consolidated results, reflecting our reporting structure of one reportable segment.

Management believes that Adjusted EBITDA provides the most useful insight into underlying business trends and results and provides a more meaningful comparison of period-over-period results. Management uses Adjusted EBITDA for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets.

Adjusted EBITDA is reconciled to net income (loss) as follows:

(In thousands of U.S. dollars) Three months ended September 30, 2022
United States Rest of World Corporate Total
Net income (loss) $ (33,223) $ 2,817 $ (6,480) $ (36,886)
Interest income, net (1,418) (5,791) — (7,209)
Income tax expense — 2,118 — 2,118
Share of loss from equity method investments — 1,119 — 1,119
Gain on revaluation of derivative liabilities(iii)
— (375) — (375)
Gain on revaluation of financial instruments(v)
— (17,049) — (17,049)
Impairment loss on other investment(vi)
28,972 — — 28,972
Foreign currency transaction gain — (2,387) — (2,387)
Other, net(vii)
159 534 — 693
Restructuring costs(ix)
137 387 — 524
Share-based compensation(x)
8 4,257 — 4,265
Financial statement review costs(xi)
— — 1,070 1,070
Depreciation and amortization 501 2,947 — 3,448
Adjusted EBITDA $ (4,864) $ (11,423) $ (5,410) $ (21,697)

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(In thousands of U.S. dollars) Three months ended September 30, 2021
United States Rest of World Corporate Total
Net income (loss) $ (13,499) $ 97,198 $ (6,033) $ 77,666
Interest income, net (4) (2,060) — (2,064)
Income tax benefit — (159) — (159)
Share of loss from equity method investments — 1,414 — 1,414
Impairment loss on goodwill and indefinite-lived intangible assets(i)
105 37 — 142
Impairment loss on long-lived assets(ii)
— 1,784 — 1,784
Gain on revaluation of derivative liabilities(iii)
— (132,916) — (132,916)
Transaction costs(iv)
— — 542 542
Gain on revaluation of financial instruments(v)
— (266) — (266)
Other, net(vii)
— (7) — (7)
Income from discontinued operations(viii)
— (82) — (82)
Share-based compensation(x)
967 1,700 — 2,667
Financial statement review costs(xi)
— — 678 678
Depreciation and amortization 231 3,597 — 3,828
Adjusted EBITDA $ (12,200) $ (29,760) $ (4,813) $ (46,773)


	Three months ended September 30, 2023
	Continuing Operations		Discontinued Operations		Total
Net loss	$	(1,590)	$	(182)	$	(1,772)
Interest income, net	(13,375)		(1)		(13,376)
Income tax expense (benefit)	(1,254)		—		(1,254)
Depreciation and amortization	2,148		—		2,148
EBITDA	(14,071)		(183)		(14,254)
Share of (income) loss from equity method investments	(1,057)		—		(1,057)

(Gain) loss on revaluation of derivative liabilities(ii)	(8)		—		(8)
(Gain) loss on revaluation of financial instruments(iii)	5,291		—		5,291
Foreign currency transaction (gain) loss	(8,816)		—		(8,816)
Other, net(v)	(966)		(31)		(997)
Restructuring costs(vi)	1,423		28		1,451
Share-based compensation(vii)	1,957		(4)		1,953
Financial statement review costs(viii)	344		—		344
Inventory write-down(ix)	716		—		716
Adjusted EBITDA	$	(15,187)	$	(190)	$	(15,377)

(In thousands of U.S. dollars) Nine months ended September 30, 2022
United States Rest of World Corporate Total
Net loss $ (59,937) $ (3,928) $ (26,012) $ (89,877)
Interest income, net (1,873) (11,157) — (13,030)
Income tax expense — 2,172 — 2,172
Share of income from equity method investments — (4,078) — (4,078)
Impairment loss on long-lived assets(ii)
— 3,493 — 3,493
Gain on revaluation of derivative liabilities(iii)
— (14,204) — (14,204)
Gain on revaluation of financial instruments(v)
— (19,205) — (19,205)
Impairment loss on other investment(vi)
40,210 — — 40,210
Foreign currency transaction loss — 2,337 — 2,337
Other, net(vii)
159 397 — 556
Restructuring costs(ix)
1,482 3,396 — 4,878
Share-based compensation(x)
2,917 7,650 — 10,567
Financial statement review costs(xi)
— — 6,286 6,286
Depreciation and amortization 1,215 9,284 — 10,499
Adjusted EBITDA $ (15,827) $ (23,843) $ (19,726) $ (59,396)


	Three months ended September 30, 2022
	Continuing Operations		Discontinued Operations		Total
Net loss	$	(33,105)	$	(3,781)	$	(36,886)
Interest income, net	(7,208)		(1)		(7,209)
Income tax expense (benefit)	2,118		—		2,118
Depreciation and amortization	3,166		282		3,448
EBITDA	(35,029)		(3,500)		(38,529)
Share of (income) loss from equity method investments	1,119		—		1,119
Impairment loss on long-lived assets(i)	28,972		—		28,972
(Gain) loss on revaluation of derivative liabilities(ii)	(375)		—		(375)
(Gain) loss on revaluation of financial instruments(iii)	(17,049)		—		(17,049)
Foreign currency transaction (gain) loss	(2,387)		—		(2,387)
Other, net(v)	581		112		693
Restructuring costs(vi)	387		137		524
Share-based compensation(vii)	4,247		18		4,265
Financial statement review costs(viii)	1,070		—		1,070
Adjusted EBITDA	$	(18,464)	$	(3,233)	$	(21,697)

4340

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(In thousands of U.S. dollars) Nine months ended September 30, 2021
United States Rest of World Corporate Total
Net income (loss) $ (273,438) $ 34,678 $ (24,552) $ (263,312)
Interest income, net (27) (6,659) — (6,686)
Income tax benefit — (159) — (159)
Share of loss from equity method investments — 4,172 — 4,172
Impairment loss on goodwill and indefinite-lived intangible assets(i)
235,019 37 — 235,056
Impairment loss on long-lived assets(ii)
2,955 1,784 — 4,739
Gain on revaluation of derivative liabilities(iii)
— (131,290) — (131,290)
Transaction costs(iv)
— — 3,801 3,801
Gain on revaluation of financial instruments(v)
— (143) — (143)
Other, net(vii)
— (1,041) — (1,041)
Loss from discontinued operations(viii)
— 500 — 500
Share-based compensation(x)
2,534 5,197 — 7,731
Financial statement review costs(xi)
— — 4,615 4,615
Depreciation and amortization 536 8,375 — 8,911
Adjusted EBITDA $ (32,421) $ (84,549) $ (16,136) $ (133,106)


	Nine months ended September 30, 2023
	Continuing Operations		Discontinued Operations		Total
Net loss	$	(25,288)	$	(4,238)	$	(29,526)
Interest income, net	(37,021)		(9)		(37,030)
Income tax expense (benefit)	(2,870)		—		(2,870)
Depreciation and amortization	6,689		244		6,933
EBITDA	(58,490)		(4,003)		(62,493)
Share of (income) loss from equity method investments	(831)		—		(831)
Impairment loss on long-lived assets(i)	—		205		205
(Gain) loss on revaluation of derivative liabilities(ii)	14		—		14
(Gain) loss on revaluation of financial instruments(iii)	7,856		—		7,856

Foreign currency transaction (gain) loss	(3,999)		—		(3,999)
Other, net(v)	(1,025)		132		(893)
Restructuring costs(vi)	1,423		562		1,985
Share-based compensation(vii)	6,823		17		6,840
Financial statement review costs(viii)	739		—		739
Inventory write-down(ix)	716		839		1,555
Adjusted EBITDA	$	(46,774)	$	(2,248)	$	(49,022)


	Nine months ended September 30, 2022
	Continuing Operations		Discontinued Operations		Total
Net loss	$	(78,997)	$	(10,880)	$	(89,877)
Interest income, net	(13,028)		(2)		(13,030)
Income tax expense (benefit)	2,172		—		2,172
Depreciation and amortization	9,502		997		10,499
EBITDA	(80,351)		(9,885)		(90,236)
Share of (income) loss from equity method investments	(4,078)		—		(4,078)
Impairment loss on long-lived assets(i)	3,493		—		3,493
(Gain) loss on revaluation of derivative liabilities(ii)	(14,204)		—		(14,204)
(Gain) loss on revaluation of financial instruments(iii)	(19,205)		—		(19,205)
Impairment loss on other investments(iv)	40,210		—		40,210
Foreign currency transaction (gain) loss	2,337		—		2,337
Other, net(v)	397		159		556
Restructuring costs(vi)	3,396		1,482		4,878
Share-based compensation(vii)	10,446		121		10,567
Financial statement review costs(viii)	6,286		—		6,286
Adjusted EBITDA	$	(51,273)	$	(8,123)	$	(59,396)

(i)For the ~~three and~~ nine months ended September 30, ~~2021,~~2023, impairment loss on ~~goodwill and indefinite-lived intangible assets relates to impairment on goodwill and indefinite-lived intangible~~long-lived assets related to certain leased properties associated with the Company’s former U.S. ~~segment.~~

~~(ii)~~operations. For the nine months ended September 30, 2022, impairment loss on long-lived assets related to the Company’s decision to seek a sublease for leased office space in Toronto, Ontario, Canada during the first quarter of 2022. For the three months ended September 30, 2021, impairment loss on long-lived assets relates to an impairment on property, plant and equipment in the U.S. segment. For the nine months ended September 30, 2021, impairment loss on long-lived assets relates to the aforementioned impairment loss on property, plant and equipment as well as an impairment loss on leased premises in the U.S. segment from the first quarter of 2021. See Note 1312 “Impairment Loss on Long-lived ~~Assets~~Assets.” ~~to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.~~

~~(iii)~~(ii)For the three and nine months ended September 30, 2023 and 2022, ~~and 2021, gain~~(gain) loss on revaluation of derivative liabilities represents the fair value changes on the derivative liabilities. See Note 6 “Derivative ~~Liabilities~~Liabilities.” ~~to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.~~

~~(iv)~~(iii)For the three and nine months ended September 30, ~~2021, transaction costs represent legal, financial~~2023 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).

~~(v)For the three and nine months ended September 30,~~ 2022, ~~gain~~(gain) loss on revaluation of financial instruments related primarily to the Company’s equity securities in ~~Cronos Australia. See Note 3 “Investments~~” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report. For three and nine months ended September 30, 2021, gain on revaluation of financial instruments related primarily to revaluations of financial liabilities resulting from DSUs.Vitura.

~~(vi)~~(iv)For the three and nine months ended September 30, 2022, impairment loss on other investments related to the PharmaCann Option for the difference between its fair value and carrying amount. See Note 34 “~~Investments~~Investments.” ~~to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.~~

~~(viii)~~(v)For the three and nine months ended September 30, ~~2021,~~2023 and 2022, other, net related to (gain) loss ~~(income)~~on disposal of assets.

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(vi)For the three and nine months ended September 30, 2023, restructuring costs from continuing operations related to employee-related severance costs and other restructuring costs associated with the Realignment, as described in Note 7 “Restructuring. For the three and nine months ended September 30, 2023, restructuring costs from discontinued operations related to employee-related severance costs and other restructuring costs associated with the ~~discontinuance~~exit of ~~OGBC.~~

~~(ix)~~our former U.S. operations, as described in Note 2 “Discontinued Operations.” For the three and nine months ended September 30, 2022, restructuring costs related to the employee-related severance costs and other restructuring costs associated with the ~~Realignment, including the planned exit of the Stayner Facility.~~Realignment. See Note 7 “~~Restructuring~~Restructuring.” ~~to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.~~

~~(x)~~(vii)For the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, share-based compensation related to the ~~vesting~~non-cash expenses of share-based compensation awarded to employees under the Company’s share-based award plans as described in Note 8 “Share-based ~~Compensation~~Compensation.” ~~to the condensed consolidated financial statements under Item 1 of this Quarterly Report.~~

~~(xi)~~(viii)For the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~2022, financial statement review costs include costs and reserves taken related to the Restatements, costs related to the Company’s ~~settlement of the SEC’s and the OSC’s investigations of~~responses to requests for information from various regulatory authorities relating to the Restatements and legal costs incurred defending shareholder class action complaints brought against the Company as a result of the 2019 restatement.

~~Table~~(ix)For the nine months ended September 30, 2023, inventory write-downs from discontinued operations relate to product destruction and obsolescence associated with the exit of ~~Contents~~our U.S. operations as described in Note 2 “

Discontinued Operations.” For the three and nine months ended September 30, 2023, inventory write-downs from continuing operations relate to product destruction and obsolescence associated with the planned exit of Cronos Fermentation as described in Note 7 “Restructuring.”

Constant Currency

To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented constant currency adjusted financial measures for net revenues, gross profit, gross profit margin, operating expenses, net income (loss) and Adjusted EBITDA for the three and nine months ended September 30, ~~2022~~2023, as well as cash and cash equivalents and short-term investment balances as of September 30, ~~2022~~2023 compared to December 31, ~~2021,~~2022, which are considered non-GAAP financial measures. We present constant currency information to provide a framework for assessing how our underlying operations performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period income statement results in currencies other than U.S. dollars are converted into U.S. dollars using the average exchange rates from the ~~three-~~three and ~~nine-month~~nine month comparative periods in ~~2021~~2022 rather than the actual average exchange rates in effect during the respective current periods; constant currency current and prior comparative balance sheet information is translated at the prior year-end spot rate rather than the current period spot rate. All growth comparisons relate to the corresponding period in ~~2021.~~2022. We have provided this non-GAAP financial information to aid investors in better understanding the performance of our ~~segments.~~operations. The non-GAAP financial measures presented in this Quarterly Report should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP. See further discussion on foreign currency risk as noted in Item 3 “Quantitative and Qualitative Disclosures About Market Risk.”

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The table below sets forth certain measures of consolidated results from continuing operations on a constant currency basis for the three and nine months ended September 30, ~~2022~~2023 compared to the three and nine months ended September 30, ~~2021~~2022 as well as cash and cash equivalents and short-term investments as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, both on an as-reported and constant currency basis (in thousands):


		As Reported										As Adjusted for Constant Currency								As Reported										As Adjusted for Constant Currency
		Three months ended September 30,						As Reported Change				Three months ended September 30,			Constant Currency Change					Three months ended September 30,						As Reported Change				Three months ended September 30,			Constant Currency Change
		2022			2021			$		%		2022			$		%			2023			2022			$		%		2023			$		%
Net revenue	Net revenue	$	20,923		$	20,407		$	516	3	%	$	21,817		$	1,410	7	%	Net revenue	$	24,810		$	20,409		$	4,401	22	%	$	26,005		$	5,596	27	%
Gross profit	Gross profit	1,157			(730)			1,887		258	%	1,341			2,071		284	%	Gross profit	3,970			3,144			826		26	%	4,216			1,072		34	%
Gross margin	Gross margin	6		%	(4)		%	N/A		10	pp	6		%	N/A		10	pp	Gross margin	16		%	15		%	N/A		1	pp	16		%	N/A		1	pp

Operating expenses	Operating expenses	32,161			55,684			(23,523)		(42)	%	32,679			(23,005)		(41)	%	Operating expenses	25,745			30,478			(4,733)		(16)	%	25,905			(4,573)		(15)	%
Net income (loss)		(36,886)			77,666			(114,552)		(147)	%	(36,547)			(114,213)		(147)	%
Net loss from continuing operations																			Net loss from continuing operations	(1,590)			(33,105)			31,515		95	%	(823)			32,282		98	%
Adjusted EBITDA	Adjusted EBITDA	(21,697)			(46,773)			25,076		54	%	(22,008)			24,765		53	%	Adjusted EBITDA	(15,187)			(18,464)			3,277		18	%	(14,890)			3,574		19	%

		Nine months ended September 30,						As Reported Change				Nine months ended September 30,			Constant Currency Change					Nine months ended September 30,						As Reported Change				Nine months ended September 30,			Constant Currency Change
		2022			2021			$		%		2022			$		%			2023			2022			$		%		2023			$		%
Net revenue	Net revenue	$	69,017		$	48,640		$	20,377	42	%	$	70,426		$	21,786	45	%	Net revenue	$	63,326		$	64,716		$	(1,390)	(2)	%	$	67,228		$	2,512	4	%
Gross profit	Gross profit	12,203			(19,477)			31,680		163	%	12,475			31,952		164	%	Gross profit	9,996			14,176			(4,180)		(29)	%	10,736			(3,440)		(24)	%
Gross margin	Gross margin	18		%	(40)		%	N/A		58	pp	18		%	N/A		58	pp	Gross margin	16		%	22		%	N/A		(6)	pp	16		%	N/A		(6)	pp

Operating expenses	Operating expenses	107,322			378,482			(271,160)		(72)	%	108,736			(269,746)		(71)	%	Operating expenses	73,160			98,572			(25,412)		(26)	%	76,476			(22,096)		(22)	%
Net loss		(89,877)			(263,312)			173,435		66	%	(89,934)			173,378		66	%
Net loss from continuing operations																			Net loss from continuing operations	(25,288)			(78,997)			53,709		68	%	(26,561)			52,436		66	%
Adjusted EBITDA	Adjusted EBITDA	(59,396)			(133,106)			73,710		55	%	(59,917)			73,189		55	%	Adjusted EBITDA	(46,774)			(51,273)			4,499		9	%	(48,773)			2,500		5	%

		As of September 30,			As of December 31,			As Reported Change				As of September 30,			Constant Currency Change					As of September 30,			As of December 31,			As Reported Change				As of September 30,			Constant Currency Change
		2022			2021			$		%		2022			$		%			2023			2022			$		%		2023			$		%
Cash and cash equivalents	Cash and cash equivalents	$	633,296		$	886,973		$	(253,677)	(29)	%	$	660,084		$	(226,889)	(26)	%	Cash and cash equivalents	$	571,656		$	764,644		$	(192,988)	(25)	%	$	572,797		$	(191,847)	(25)	%
Short-term investments	Short-term investments	255,452			117,684			137,768		117	%	277,158			159,474		136	%	Short-term investments	267,905			113,077			154,828		137	%	268,359			155,282		137	%
Total cash and cash equivalents and short-term investments	Total cash and cash equivalents and short-term investments	$	888,748		$	1,004,657		$	(115,909)	(12)	%	$	937,242		$	(67,415)	(7)	%	Total cash and cash equivalents and short-term investments	$	839,561		$	877,721		$	(38,160)	(4)	%	$	841,156		$	(36,565)	(4)	%

Net revenue


	As Reported								As Adjusted for Constant Currency
	Three months ended September 30,				As Reported Change				Three months ended September 30,		Constant Currency Change
	2023		2022		$		%		2023		$		%
Cannabis flower	$	17,414	$	13,674	$	3,740	27	%	$	18,362	$	4,688	34	%
Cannabis extracts	7,268		6,627		641		10	%	7,510		883		13	%
Other	128		108		20		19	%	133		25		23	%
Net revenue	$	24,810	$	20,409	$	4,401	22	%	$	26,005	$	5,596	27	%

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~~Net revenue~~


	As Reported								As Adjusted for Constant Currency
	Nine months ended September 30,				As Reported Change				Nine months ended September 30,		Constant Currency Change
	2023		2022		$		%		2023		$		%
Cannabis flower	$	44,556	$	48,038	$	(3,482)	(7)	%	$	47,520	$	(518)	(1)	%
Cannabis extracts	18,495		16,197		2,298		14	%	19,419		3,222		20	%
Other	275		481		(206)		(43)	%	289		(192)		(40)	%
Net revenue	$	63,326	$	64,716	$	(1,390)	(2)	%	$	67,228	$	2,512	4	%

As Reported As Adjusted for Constant Currency
Three months ended September 30, As Reported Change Three months ended September 30, Constant Currency Change
2022 2021 $ % 2022 $ %
Cannabis flower $ 13,674 $ 15,306 $ (1,632) (11) % $ 14,339 $ (967) (6) %
Cannabis extracts 7,141 4,886 2,255 46 % 7,365 2,479 51 %
Other 108 215 (107) (50) % 113 (102) (47) %
Net revenue $ 20,923 $ 20,407 $ 516 3 % $ 21,817 $ 1,410 7 %


	As Reported								As Adjusted for Constant Currency
	Three months ended September 30,				As Reported Change				Three months ended September 30,		Constant Currency Change
	2023		2022		$		%		2023		$		%
Canada	$	18,738	$	13,370	$	5,368	40	%	$	19,348	$	5,978	45	%
Israel	5,673		7,039		(1,366)		(19)	%	6,239		(800)		(11)	%

Other countries	399		—		399		100	%	418		418		100	%
Net revenue	$	24,810	$	20,409	$	4,401	22	%	$	26,005	$	5,596	27	%

Nine months ended September 30, As Reported Change Nine months ended September 30, Constant Currency Change
2022 2021 $ % 2022 $ %
Cannabis flower $ 48,038 $ 36,337 $ 11,701 32 % $ 49,038 $ 12,701 35 %
Cannabis extracts 20,498 11,788 8,710 74 % 20,895 9,107 77 %
Other 481 515 (34) (7) % 493 (22) (4) %
Net revenue $ 69,017 $ 48,640 $ 20,377 42 % $ 70,426 $ 21,786 45 %

As Reported As Adjusted for Constant Currency
Three months ended September 30, As Reported Change Three months ended September 30, Constant Currency Change
2022 2021 $ % 2022 $ %
Canada $ 13,370 $ 14,186 $ (816) (6) % $ 13,868 $ (318) (2) %
Israel 7,039 3,752 3,287 88 % 7,435 3,683 98 %
United States 514 2,100 (1,586) (76) % 514 (1,586) (76) %
Other countries — 369 (369) (100) % — (369) (100) %
Net revenue $ 20,923 $ 20,407 $ 516 3 % $ 21,817 $ 1,410 7 %

Nine months ended September 30, As Reported Change Nine months ended September 30, Constant Currency Change
2022 2021 $ % 2022 $ %
Canada $ 41,335 $ 32,432 $ 8,903 27 % $ 42,358 $ 9,926 31 %
Israel 23,381 8,580 14,801 173 % 23,767 15,187 177 %
United States 4,301 6,768 (2,467) (36) % 4,301 (2,467) (36) %
Other countries — 860 (860) (100) % — (860) (100) %
Net revenue $ 69,017 $ 48,640 $ 20,377 42 % $ 70,426 $ 21,786 45 %


	As Reported								As Adjusted for Constant Currency
	Nine months ended September 30,				As Reported Change				Nine months ended September 30,		Constant Currency Change
	2023		2022		$		%		2023		$		%
Canada	$	46,767	$	41,335	$	5,432	13	%	$	49,049	$	7,714	19	%
Israel	16,160		23,381		(7,221)		(31)	%	17,761		(5,620)		(24)	%

Other countries	399		—		399		100	%	418		418		100	%
Net revenue	$	63,326	$	64,716	$	(1,390)	(2)	%	$	67,228	$	2,512	4	%

For the three months ended September 30, ~~2022,~~2023, net revenue on a constant currency basis was ~~$21.8~~$26.0 million, representing a 7%27% increase from the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, net revenue on a constant currency basis was ~~$70.4~~$67.2 million, representing a ~~45%~~4% increase from the nine months ended September 30, ~~2021. Net~~2022. On a constant currency basis, net revenue increased for both the three and nine months ended September 30, ~~2022 on a constant currency basis and was~~2023 primarily due to higher cannabis flower ~~sales in the Israeli medical market~~ and ~~higher cannabis extract~~extracts sales in the Canadian adult-use market, partially offset by ~~a reduction in revenue in the U.S. segment and~~ lower cannabis flower sales in ~~the Canadian adult-use market~~Israel driven by pricing pressure as a result of competitive activity, the slowdown in patient permit authorizations and geopolitical unrest, and an adverse price/mix ~~shift.~~

~~Table~~in Canada in the cannabis flower category driving increased excise tax payments as a percentage of ~~Contents~~

revenue.

Gross profit

For the three months ended September 30, ~~2022,~~2023, gross profit on a constant currency basis was ~~$1.3~~$4.2 million, representing a ~~284%~~34% increase from the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, gross profit on a constant currency basis was ~~$12.5~~$10.7 million, representing a ~~164% increase~~24% decrease from the nine months ended September 30, ~~2021. For~~2022. On a constant currency basis, gross profit increased for the ~~three-month comparative period, the change was~~three months ended September 30, 2023 primarily due to ~~increased revenue~~higher cannabis flower and extract sales in the ~~ROW segment driven mainly by sales of cannabis flower in Israel~~Canadian adult-use market and ~~a favorable mix of cannabis extract products, which carry a higher gross profit and gross margin than other product categories, and~~ lower ~~cannabis~~ biomass costs, partially offset by lower ~~fixed cost absorption due to~~cannabis flower sales in Israel, an adverse price/mix in the ~~timing~~Canadian cannabis flower category driving increased excise tax payments as a percentage of ~~wind-down activities associated with our planned exit~~revenue and the inventory write-down recognized as a result of the ~~Stayner Facility and lower revenue in~~decision to wind down operations at Cronos Fermentation. On a constant currency basis, gross profit decreased for the ~~U.S. segment. For the nine-month comparative period, the change was~~nine months ended September 30, 2023 primarily due to ~~increased revenue~~lower cannabis flower sales in the ~~ROW segment driven mainly by sales of~~Israeli medical market, an adverse price/mix on cannabis flower sales in ~~Israel~~Canada resulting in higher excise taxes as a percentage of revenue and the inventory write-down recognized as a ~~favorable mix~~result of ~~cannabis extract products, which carry a higher gross profit and gross margin than other product categories,~~ the ~~absence of inventory write-downs in the current period, and lower cannabis biomass costs,~~decision to wind down operations at Cronos Fermentation, partially offset by ~~lower fixed cost absorption due to the timing of wind-down activities associated with our planned exit of the Stayner Facility~~higher cannabis flower and ~~lower revenue~~extract sales in the ~~U.S. segment.~~Canadian adult-use market.

Operating expenses

For the three months ended September 30, ~~2022,~~2023, operating expenses on a constant currency basis ~~was $32.7~~were $25.9 million, representing a ~~41%~~15% decrease from the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, operating expenses on a constant currency basis ~~was $108.7~~were $76.5 million, representing a ~~71%~~22% decrease from the nine months ended September 30, ~~2021.~~2022. On a constant currency basis, operating expenses decreased for ~~both~~ the three and nine months ended September 30, ~~2022~~2023, primarily due to lower ~~advertising and marketing spend and~~professional fees, largely related to financial statement review costs, lower ~~payroll-related costs in the U.S. segment as a result of the Realignment, reduced~~ costs associated with the ~~timing~~achievement of Ginkgo milestones, ~~and a cancellation~~the acceleration of ~~beauty-focused product development spending~~expense on equity awards granted to certain executive employees in connection with their separation from the ~~U.S. segment~~Company, as well as ~~an expected credit~~previously held-back equity awards granted to certain executives in the prior year, impairment loss ~~allowance revaluation~~on long-lived assets recognized in the ~~three-~~prior year, lower bonus expense, lower payroll costs and ~~nine-month comparative periods,~~lower insurance costs, partially offset by higher ~~restructuring costs related to the Realignment, including the planned exit~~sales and marketing expenses.

Table of ~~the Stayner Facility.~~Contents

Net ~~income (loss)~~loss

For the three months ended September 30, ~~2022,~~2023, net loss on a constant currency basis was ~~$36.5~~$0.8 million, representing a ~~147%~~98% reduction in net ~~income~~loss from the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, net loss on a constant currency basis was ~~$89.9~~$26.6 million, representing a 66% ~~improvement~~reduction in net loss from the nine months ended September 30, ~~2021.~~2022.

Adjusted EBITDA

For the three months ended September 30, ~~2022,~~2023, Adjusted EBITDA on a constant currency basis was ~~$(22.0)~~$(14.9) million, representing a ~~53%~~19% improvement from the three months ended September 30, ~~2021.~~2022. For the nine months ended September 30, ~~2022,~~2023, Adjusted EBITDA on a constant currency basis was ~~$(59.9)~~$(48.8) million, representing a ~~55%~~5% improvement from the nine months ended September 30, ~~2021.~~2022. The ~~improvement~~increase in Adjusted EBITDA for ~~both~~ the three and nine months ended September 30, ~~2022~~2023 on a constant currency basis was primarily driven by higher cannabis flower and extracts sales in the Canadian adult-use market, decreases in general and administrative expenses, lower costs associated with the achievement of Ginkgo milestones, partially offset by lower cannabis flower sales ~~and marketing expenses, and research and development expenses~~in Israel driven by pricing pressure as a result of competitive activity, the ~~Company's strategic Realignment~~slowdown in patient permit authorizations and geopolitical unrest, an ~~improvement~~adverse price/mix in ~~gross profit.~~Canada in the cannabis flower category driving increased excise tax payments as a percentage of revenue and higher sales and marketing expenses.

Cash and cash equivalents & short-term investments

Cash and cash equivalents and short-term investments on a constant currency basis decreased 7%4% to ~~$937.2~~$841.2 million as of September 30, ~~2022~~2023 from ~~$1.0 billion~~$877.7 million as of December 31, ~~2021.~~2022. The decrease in cash and cash equivalents and short-term investments is primarily due to cash flows used in operating activities in ~~2022.~~the nine months ended September 30, 2023.

Liquidity and Capital Resources

As of September 30, ~~2022,~~2023, we had ~~$633.3~~$571.7 million in cash and cash equivalents and ~~$255.5~~$267.9 million in short-term ~~investments, which comprise the majority of the Company’s cash position.~~investments. We believe 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. The following table summarizes the cash flows from operating, investing and financing activities:

(In thousands of U.S. dollars) Nine months ended September 30,
2022 2021
Cash flows used in operating activities $ (64,576) $ (117,678)
Cash flows used in investing activities (160,300) (110,236)
Cash flows used in financing activities (2,277) (13,164)
Effect of foreign currency translation on cash and cash equivalents (26,524) 5,622
Net change in cash $ (253,677) $ (235,456)

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(In thousands of U.S. dollars)	Nine months ended September 30, 2023
	2023		2022
Cash flows used in operating activities	$	(59,650)	$	(64,576)
Cash flows used in investing activities	(141,392)		(160,300)
Cash flows used in financing activities	(812)		(2,277)
Effect of foreign currency translation on cash and cash equivalents	8,866		(26,524)
Net change in cash	$	(192,988)	$	(253,677)

Comparison of cash flows between the nine months ended September 30, ~~2022~~2023 and the nine months ended September 30, ~~2021~~2022

Operating activities

During the nine months ended September 30, ~~2022,~~2023, we used ~~$64.6~~$59.7 million of cash in operating activities as compared to cash used of ~~$117.7~~$64.6 million in the nine months ended September 30, ~~2021,~~2022, representing a decrease in cash used of ~~$53.1~~$4.9 million. This change is primarily driven by a ~~$63.1~~$41.5 million increase in net income after adjusting for non-cash items during the nine months ended September 30, ~~2022~~2023 compared to the nine months ended September 30, ~~2021.~~2022 and a decrease in accounts receivable, partially offset by a $32.8 million decrease in income taxes payable as a result of a tax payment connected to the previously disclosed relinquishment by Altria of its warrant to purchase additional shares of the Company, an increase in interest receivable and a decrease in accounts payable.

Investing activities

During the nine months ended September 30, ~~2022,~~2023, we used ~~$160.3~~$141.4 million of cash in investing activities, compared to ~~$110.2~~$160.3 million of cash used in investing activities during the nine months ended September 30, ~~2021,~~2022, representing ~~an increase~~a decrease of ~~$50.1~~$18.9 million in cash used by investing activities. This change is primarily driven by ~~higher levels~~an $11.9 million increase in proceeds from the repayment of ~~short-term investments, partially offset by the purchase of the PharmaCann option during~~loans receivable in the nine months ended September 30, ~~2021, lower purchases of property, plant and equipment and an increase in repayments and decrease in disbursements related to loans receivable with related parties.~~2023.

Financing activities

During the nine months ended September 30, ~~2022,~~2023, cash used in financing activities was ~~$2.3~~$0.8 million, compared to ~~$13.2~~$2.3 million of cash used in financing activities during ~~the~~ nine months ended September 30, ~~2021,~~2022, representing a decrease of ~~$10.9~~$1.5 million in cash used in financing activities. This change is primarily driven by a decrease of ~~$11.0~~$1.4 million in withholding taxes paid on share-based awards during ~~the~~ nine months ended September 30, ~~2022~~2023 compared to ~~the~~ nine months ended September 30, ~~2021.~~2022.

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Cash Requirements

The Company’s cash requirements have not changed significantly since the filing of the Annual Report.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. Our critical accounting policies and estimates have not changed significantly since the filing of the Annual Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The Company is exposed to certain market risks, including changes from foreign currency exchange rates related to our international operations. Except as updated below, the Company’s market risks have not changed significantly from ~~that~~the market risk disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report.

Foreign currency risk

The Company’s condensed consolidated financial statements included in Part I, Item 1. “Financial Statements” of this Quarterly Report are expressed in U.S. dollars. The Company is exposed to foreign currency risk based on its 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 positively impact operating income and net earnings, while depreciating foreign currencies relative to the U.S. dollar will have an adverse impact.

A 10% change in the exchange rates for the Canadian dollar would have affected the carrying amount of the net assets by approximately ~~$79.9~~$96.7 million and ~~$87.8~~$77.4 million as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, 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 and losses could have a significant, and potentially adverse, effect on the Company’s results of operations.

During the three and nine months ended September 30, 2023, the Company had foreign currency gain on translation of $20.1 million and $1.1 million, respectively. During the three and nine months ended September 30, 2022 ~~and 2021,~~ the Company had foreign currency loss on translation of $60.6 million and ~~$22.8 million, respectively. During the nine months ended September 30, 2022 and 2021, the Company had foreign currency gain (loss) on translation of $(68.8) million and $6.9~~$68.8 million, respectively.

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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 September 30, ~~2022.~~2023. Based on that evaluation, management has concluded that, as of September 30, ~~2022,~~2023, due to the existence of a material ~~weaknesses~~weakness 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 Weakness in Internal Controls Over Financial Reporting

A material weakness is a deficiency, or combination of deficiencies in internal ~~controls~~control 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 for the year ended December 31, ~~2021~~2022 (the “Annual Report”), we have identified the following material ~~weaknesses:~~weakness:

•~~Control Environment~~ITGCs - User Access:

We did not maintain an effective control environment. Specifically, our control environment (i) did not ensure that senior personnel in our accounting function engaged consistently in appropriate professional conduct and conduct consistent with our Code of Business Conduct and Ethics; and (ii) lacked personnel in our accounting function with appropriate level of knowledge and experience in U.S. GAAP sufficient to properly assess evidence and interpret accounting rules.

None of the personnel in the accounting function that engaged in misconduct were current or former executive officers of the Company. The control environment material weakness contributed to the goodwill and indefinite-lived intangible asset material weakness described below.

•~~Goodwill and Indefinite-lived Intangible Asset Impairment Testing~~:

~~We identified the following material weakness with respect to goodwill and indefinite-lived intangible asset impairment testing.~~ We did not design and maintain effective controls over Information Technology General Controls (“ITGC”), pertaining to ~~assess goodwill~~user access management and ~~indefinite-lived intangible assets for potential impairment as changes in~~ the ~~performance~~provisioning and monitoring of user access, including privileged access. We believe this weakness to be the result of ineffective monitoring of security administrator activities, insufficient retention of documentation to support access requests and ~~prospects for our U.S. reporting unit occurred. Specifically, we~~lack of training on the importance of ITGC. This material weakness did not ~~design~~impact any information derived from information systems and ~~maintain effective controls~~did not result in any identified misstatements to ~~sufficiently assess the overall~~our financial performance of and expectations for our U.S. reporting unit and certain macroeconomic, industry and market conditions when evaluating goodwill associated with our U.S. reporting unit and our Lord Jones® ~~brand indefinite-lived intangible asset for potential impairment.~~

The material weakness in the control environment contributed to material misstatements related to the impairment of goodwill and indefinite-lived intangible assets that led to the restatement of the Company’s condensed consolidated interim financial statements for the three and six months ended June 30, 2021. The material weaknesses create a reasonable possibility that a material misstatement to the consolidated financial statements would not be prevented or detected on a timely basis. The lack of personnel in our accounting function with appropriate level of knowledge and experience in U.S. GAAP sufficient to properly assess evidence and interpret accounting principles described above resulted in immaterial misstatements related to the accounting for derivatives, share-based compensation, earnings per share, and long-lived asset impairment.

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statements.

Remediation Plan and Status

As discussed above, we have identified a material weakness related to ITGCs in user access management and the provisioning and monitoring of privileged access. As of the filing date, the Company ~~has implemented or~~ is in the process of implementing various initiatives intended to address the identified material ~~weaknesses and strengthen our overall control environment.~~weakness. In this regard, some of our key remedial initiatives include:

Material Weakness

Control, Control Enhancement or Mitigant

Implementation Status

Management Testing Status

Remediation Status

~~Control Environment~~ITGCs

•~~The Company’s Chief Executive Officer~~Train security administrators on access provisioning and ~~Chief Financial Officer have reinforced~~approval protocols.

Completed

Tested

Not Remediated

•Align approval requirements for all privileged access for consistency and ~~will continue~~appropriate visibility within the IT function.

Completed

Tested

Not Remediated

•Implement a process to ~~reinforce on an ongoing basis~~identify instances where privileged access roles or profiles are assigned and, when identified, review activities performed during the ~~importance~~period of ~~adherence to the Company’s policies, procedures and standards of conduct, including identifying misconduct and raising and communicating concerns;~~assigned privileged access.

Completed

In Progress

Not Remediated

•~~All accounting personnel that engaged in unprofessional conduct have been terminated or resigned from the Company and are in the process of being replaced with qualified personnel;~~Implement a periodic control to compare each user’s system access to their responsibilities.

Completed

In Progress

Not Remediated

•We have enhanced our existing sub-certification process to include additional certifications regarding certain complex accounting topics and to include additional employees to increase accountability amongst Company personnel;Implement an oversight control over security administrator actions.

Completed

In Progress

~~Not Remediated~~

•~~We have expanded our compensation claw back provisions to incorporate all personnel who are subject to our enhanced sub-certification process;~~

~~Completed~~

~~In Progress~~

~~Not Remediated~~

•We have identified and are in the process of implementing organizational enhancements including (i) evaluating the sufficiency, experience and training of personnel within our accounting function and (ii) hiring accounting personnel with appropriate knowledge and experience in U.S. GAAP;

~~In Progress~~

~~Not Remediated~~

•We are in the process of developing and implementing a training program for accounting and finance personnel to enhance their knowledge of U.S. GAAP outlined in our accounting policies, which are used in the preparation of the Company’s consolidated financial statements; and

~~In Progress~~

~~Not Remediated~~

~~Asset Impairment Testing~~

•We have evaluated and will continue to regularly evaluate our policies and procedures relating to certain complex accounting topics and have begun implementing improvements in those policies and procedures.

~~Completed~~

~~In Progress~~

Not Remediated

~~The Company 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 weaknesses or certain of the remediation measures described above may be enhanced or modified. The material weaknesses 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

Other than ~~those~~the material ~~weaknesses~~weakness identified above and measures described above to remediate ~~the~~such material ~~weaknesses identified in the prior year,~~weakness, there were no 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 September 30, ~~2022,~~2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II
OTHER INFORMATION

Item 1: Legal Proceedings.

The information set forth under ~~Note~~ 11(b), Contingencies, to the Company’s condensed consolidated interim financial statements included in Part I, Item 1. “Financial Statements” of this Quarterly Report is incorporated herein by reference.

Item 1A: 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 factors 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 risk factors, 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.

~~We are subject~~Risks Related to ~~disabilities as a result of the SEC Order that may expose us to increased future litigation~~Operations in Israel

Conditions in Israel could materially and ~~adversely affect our ability to raise capital.~~

As of the date of the SEC Order, October 24, 2022, and for a period of three years thereafter, we are unable to rely on the safe harbor provisions regarding forward-looking statements provided by the Securities Act and the Exchange Act. Our inability to rely on these safe harbor provisions may expose us to increased future litigation in connection with forward-looking statements in our public disclosures.

Further, as of the date of the SEC Order, we have lost our status as a “well-known seasoned issuer” for a period of three years, which places limitations on the manner in which we can market our securities to the public, and we are unable to rely on the private offering exemptions provided by Regulations A and D under the Securities Act for a period of five years, which could impair our ability to raise additional capital in the private market quickly in response to changing requirements and market conditions.

~~Our business, financial condition, results of operations and cash flows could be adversely affected by disruptions in the global economy caused by the ongoing conflict between Russia and Ukraine.~~

The global economy has been negatively impacted by the military conflict between Russia and Ukraine. Furthermore, governments in the U.S., Canada, United Kingdom, and European Union have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia. Although we do not have any customers or direct supplier relationships in Russia or Ukraine, businesses in the United States and globally have experienced shortages in materials and increased costs for transportation, energy, and raw material due in part to the negative impact of the Russia-Ukraine military conflict on the global economy. Further escalation of geopolitical tensions related to the military conflict, including increased trade barriers or restrictions on global trade, could result in, among other things, cyberattacks, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect our business, financial condition, and results of operations.

We have operations in Israel through a strategic joint venture, Cronos Israel.

On October 7, 2023, Hamas terrorists from the Gaza Strip launched a rocket barrage against Israel and engaged in incursions into Israeli territory, breaching the Gaza-Israel border, attacking military bases and slaughtering and kidnapping civilians in neighboring Israeli communities. Israel formally declared war on October 8. The Israel-Hamas War may escalate, including due to an eruption of fighting between Hezbollah and Israel across Israel’s northern border, which would open a second front in the war, and may result in a broader conflict across the Middle East.The Israel-Hamas War (and any escalation) and any resulting regional political instability or interruption or curtailment of trade between Israel and its trading partners would likely materially and adversely affect our business, financial condition, and results of operations.

Our employees, including certain members of our management, operate from our offices located in Gan Shmuel, Israel and our manufacturing facilities located in Hadera, Israel. While our facilities have not been damaged by the war, rocket attacks continue, and our facilities could be damaged or destroyed. Imports into Israel have been severely restricted by the war, and we may be unable to import materials into Israel. Further, our sales have been, and likely will continue to be, adversely affected by the war.

Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Any losses or damages incurred by us could have an adverse effect on our business, financial condition, and results of operations.

Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict doing business with the State of Israel and with Israeli companies. A campaign of boycotts, divestment, and sanctions has been undertaken against Israel, which could also adversely impact our business, financial condition, and results of operations and ~~cash flows.~~

~~We are continuing to monitor~~ the ~~situation in Ukraine and globally and assessing its potential impact on~~expansion of our business. ~~Although~~

Our operations may be disrupted by the obligations of personnel to perform military service.

Some of our ~~business has not been,~~employees in Israel are obligated to perform annual reserve duty in the Israeli military for several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and are subject to being called for additional active duty under emergency circumstances. In response to the ~~date~~Israel-Hamas War, a number of ~~this Quarterly Report, materially impacted by~~our employees have been called up to serve in the ~~ongoing military conflict in Ukraine, it is impossible to~~Israeli military. We cannot predict the ~~extent to which our operations,~~full impact of these conditions on us in the future, particularly if emergency circumstances or ~~those~~an escalation in the political or military situation occurs. If many of our ~~suppliers and vendors, will be impacted in the short and long term, or the ways in which the conflict may impact~~employees are called for active duty, our business. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but may be substantial. In addition, the effects of the ongoing conflict could heighten any of our known risks described in our Annual Report.

~~There can be no assurance of continued growth~~operations in Israel and our ~~performance in Israel depends on, among other things, our ability to continue to import cannabis into Israel and our joint venture partners.~~

~~While our revenue in Israel has experienced a recent period of significant growth, our prior performance is~~business may not indicative of any potential future results in Israel. There can be no assurance that our recent growth in the Israeli market can be sustained or will continue. Our ability to manage and sustain revenue growth in Israel will depend on a number of factors, many of which are beyond our control, including, but not limited to, our ability to continue to import cannabis into Israel, changes in laws and regulations respecting the cultivation, production and marketing of dried flower, pre-rolls and oils in Israel, increased competition, our ability to produce sufficient volumes of our products to meet customer demand and our ability to maintain or grow our market share in Israel. Any of these factors could materially and negatively impact our growth in Israel.

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In connection with the Realignment, we have begun to further leverage our strategic joint venture with Cronos GrowCo. Our current efforts to wind-down and ultimately exit the Stayner Facility have increased the importance of Cronos GrowCo to our business and operations. Once the Stayner Facility is closed, Cronos GrowCo’s production facilities will be our principal source of raw materials. Therefore, our performance in Israel is reliant on our ability to acquire such raw materials on a timely and cost-effective basis from Cronos GrowCo and to continue to import such raw materials and cannabis products to Israel from Cronos GrowCo. There is no guarantee that we will be able to ~~successfully execute~~function at profitable levels, or at all, and our strategy to expand production at Cronos GrowCo or that we will be able to obtain the regulatory approvals, licenses and permits required for both the export of cannabis from Canada and the import of cannabis into Israel. See “~~–We may not successfully execute our production capacity strategy” included under Part I, Item 1A “Risk Factors” of the Annual Report.~~

~~Additionally, our performance~~business in, ~~Israel depends on the~~ results of ~~Cronos~~operations from, Israel ~~which holds the certificates and corresponding permits required for the cultivation, production and marketing of cannabis in Israel and is responsible for distributing PEACE NATURALS~~® branded cannabis products to the Israeli medical cannabis market. Cronos Israel is a strategic joint venture operating in a foreign country and is therefore subject to the all the risks normally associated with an investment in a joint venture and the conduct of business in a foreign country, any of which could materially and negatively impact the performance of Cronos Israel. See “~~– Our use of joint ventures may expose us to risks associated with jointly owned investments” and “~~– Investments and joint ventures outside of Canada and the U.S. are subject to the risks normally associated with any conduct of business in foreign countries, including varying degrees of political, legal, regulatory and economic risk~~” included under Part I, Item 1A “Risk Factors” of the Annual Report for a discussion of the risks relating to joint ventures and foreign investments.~~would be adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

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Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

~~Griese Letter Agreement~~Rule 10b5-1 Trading Plans

~~On November 7, 2022,~~

Securities Trading Plans of Directors and Executive Officers

During the ~~Company, Cronos USA Client Services LLC (“Cronos USA”) and Hortican Inc. (“Hortican”), both wholly-owned subsidiaries of the Company,~~three months ended September 30, 2023, no directors or executive officers entered into, a separation agreement with John Griese (the “Separation Agreement”), who previously ceased to serve as Senior Vice President, Head of Operations (North America) of the Company, effective as of the close of business on October 18, 2022.~~Jeff Jacobson, then Senior Vice President, Head of Growth (North America) for Cronos Group, assumed Mr. Griese’s responsibility for overseeing Cronos Group’s operations within North America.~~

Under the Separation Agreement, Mr. Griese will continue to be employed for purposes of transitioning his duties to Mr. Jacobson until January 18, 2023 (the “Resignation Date”). Following the Resignation Date, subject to Mr. Griese’s entering into a release of claims in favor of the Company and its affiliates and related entities, Mr. Griese will be entitled to (1) a lump sum payment of $139,615, which represents six months of Mr. Griese’s annual base salary, (2) a lump sum payment of $4,688, which is equal to six months of Cronos USA’s portion of Mr. Griese’s benefits premium, in lieu of the continuation of group insured benefits following Mr. Griese’s resignation, and (3) continued vesting of any outstanding and unvested equity awards in accordance with the terms and conditions of the applicable award agreements, subject to Mr. Griese’s compliance with his post-employment obligations.~~Mr. Griese is also eligible to receive an annual bonus~~modified or terminated, contracts, instructions or written plans for the ~~Company’s 2022 fiscal year, subject to the terms and conditions~~sale or purchase of the Company’s ~~short-term incentive compensation program~~securities that were intended to satisfy the affirmative defense conditions of Rule 10b5-1 or that constituted non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K).

Certain of our officers or directors have made, and ~~Mr. Griese entering into~~may from time to time make, elections to have shares withheld to cover withholding taxes or pay the ~~aforementioned release~~exercise price of ~~claims.~~

~~Pursuant~~options, which may be designed to satisfy the Separation Agreement, Mr. Griese is subject to an ongoing non-disparagement provision, and the ongoing confidentiality and intellectual property provisions contained in the Executive Employment Agreement, effective January 10, 2022, by and among Mr. Griese, Cronos USA and the Company.

~~The foregoing description~~affirmative defense conditions of the Separation Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Separation Agreement, which is attached hereto as Exhibit 10.1 and incorporated herein by reference.

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~~Jacobson Promotion~~

On November 7, 2022, Jeffrey Jacobson was promoted from Senior Vice President, Head of Growth (North America) to Chief Growth Officer. In connection with his promotion, Mr. Jacobson’s annual base salary increased to CAD $420,000, his annual target bonus opportunityRule 10b5-1 under the ~~Company’s short-term incentive compensation plan increased to 115%~~Exchange Act or may constitute non-Rule 10b5–1 trading arrangements (as defined in Item 408(c) of his base salary; and his target annual long-term incentive compensation opportunity increased to 115% of his base salary. All other terms and conditions of Mr. Jacobson’s employment remained the same.Regulation S-K).

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 Number						Exhibit Index
3.1						Certificate of Continuance, Notice of Articles and Articles of Cronos Group Inc. (incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q of Cronos Group Inc., filed August 6, 2020).

31.1*						Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**						Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**						Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~10.01~~						~~Letter Agreement by and among Jeffrey Jacobson and Hortican Inc., dated November 7, 2022.~~
~~10.02~~						~~Letter Agreement by and among John Griese, Cronos USA Client Services LLC, and Hortican Inc., dated November 7, 2022.~~
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.

† 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/ ~~Robert Madore~~James Holm
		~~Robert Madore~~James Holm Chief Financial Officer
November ~~7, 2022~~8, 2023




	By:	/s/ ~~Carlos Cortez~~Jimmy McGinness
		~~Carlos Cortez~~Jimmy McGinness Vice President, Controller, and Principal Accounting Officer
November ~~7, 2022~~8, 2023

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Condensed Consolidated Balance Sheets as of September 30, ~~2022~~2023 (Unaudited) and December 31, ~~202~~20221			4
Condensed Consolidated Statements of Net ~~Income (~~Loss ) and Comprehensive ~~Income (~~Loss ) for the three and ~~nine~~ni ne months ended September 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)			5
Condensed Consolidated Statements of Changes in Equity for the three and ~~nine~~ni ne months ended September 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)			6
Condensed Consolidated Statements of Cash Flows for the ~~nine~~ni ne months ended ~~September~~Septem ber 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)			8
Notes to Condensed Consolidated Financial Statements (Unaudited)			9


	Useful life (in years)	As of September 30, 2022
		Cost		Accumulated amortization		Accumulated impairment charges		Net
Software	5	$	5,567	$	(2,120)	$	(75)	$	3,372
Health Canada licenses	17	8,104		(1,736)		(6,368)		—
Ginkgo exclusive licenses(i)	10	22,022		(1,362)		(4,347)		16,313
Israeli codes(ii)	20	288		(45)		—		243
Total definite-lived intangible assets		35,981		(5,263)		(10,790)		19,928
Lord Jones® brand	N/A	1,500		—		—		1,500

Total intangible assets		$	37,481	$	(5,263)	$	(10,790)	$	21,428


	As of September 30, 2022
Remainder of 2022 (3 months)	$	751
2023	2,843
2024	2,830
2025	2,545
2026	1,981
2027	1,811
Thereafter	7,167
	$	19,928


	10% decrease as of September 30, 2022
	Altria Warrant		Pre-emptive Rights		Top-up Rights
Share price	$	20	$	—	$	12
Weighted-average expected life	18		—		15
Expected annualized volatility	27		—		15


	10% decrease as of December 31, 2021
	Altria Warrant		Pre-emptive Rights		Top-up Rights
Share price	$	3,970	$	80	$	123
Weighted-average expected life	2,971		171		133
Expected annualized volatility	5,402		96		155


	Weighted-average exercise price (C$)		Number of warrants
Balance as of January 1, 2021	$	0.25	7,987,349
Exercise of warrants	0.25		(7,987,349)

Balance as of September 30, 2021	$	—	—


	Three months ended September 30, 2022
	United States		Rest of World		Corporate		Total
Cannabis flower	$	—	$	13,674	$	—	$	13,674
Cannabis extracts	514		6,627		—		7,141
Other	—		108		—		108
Net revenue	$	514	$	20,409	$	—	$	20,923

Share of loss from equity method investments	$	—	$	(1,119)	$	—	$	(1,119)

Total assets	$	395,732	$	277,165	$	564,562	$	1,237,459
Depreciation and amortization	84		1,629		—		1,713



Adjusted EBITDA	(4,864)		(11,423)		(5,410)		(21,697)


	Three months ended September 30, 2021
	United States		Rest of World		Corporate		Total
Cannabis flower	$	—	$	15,306	$	—	$	15,306
Cannabis extracts	2,100		2,786		—		4,886
Other	—		215		—		215
Net revenue	$	2,100	$	18,307	$	—	$	20,407

Share of loss from equity method investments	$	—	$	(1,414)	$	—	$	(1,414)

Total assets	$	474,915	$	376,569	$	683,715	$	1,535,199
Depreciation and amortization	70		1,181		—		1,251



Adjusted EBITDA	(12,200)		(29,760)		(4,813)		(46,773)


	Nine months ended September 30, 2021
	United States		Rest of World		Corporate		Total
Cannabis flower	$	—	$	36,337	$	—	$	36,337
Cannabis extracts	6,768		5,020		—		11,788
Other	—		515		—		515
Net revenue	$	6,768	$	41,872	$	—	$	48,640

Share of loss from equity method investments	$	—	$	(4,172)	$	—	$	(4,172)

Total assets	$	474,915	$	376,569	$	683,715	$	1,535,199
Depreciation and amortization	209		2,820		—		3,029



Adjusted EBITDA	(32,421)		(84,549)		(16,136)		(133,106)