What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-06 · 462 added, 320 removed, 823 unchanged (49% of the section changed)

Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

Condensed Consolidated Statements of Net Income ( Loss) and Comprehensive Income (Loss) for the three and six months ended June 30, 2020 and 2019

Condensed Consolidated Statements of Changes in Equity (Deficit) for the three and six months ended June 30, 2020 and 2019

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

Condensed Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019

Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019

Condensed Consolidated Statements of Changes in Equity (Deficit) for the three and nine months ended September 30, 2020 and 2019

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019

Notes to Condensed Consolidated Financial Statements

1 unchanged sentence

Condensed Consolidated Balance Sheets

As of June 30, 2020 and December 31, 2019

As of September 30, 2020 and December 31, 2019

(In thousands of U.S.

dollars, except share amounts, unaudited)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Current assets

1 unchanged sentence

Short-term investments 202,883 306,347

Accounts receivable (1)

Accounts receivable (i)

Other receivables 10,401 7,232

1 unchanged sentence

Prepaids and other assets 10,532 9,395

Inventory 53,216 38,043

Inventory, net 56,359 38,043

Held-for-sale assets 2,066 3,248

Total current assets 1,393,954 1,573,260

15 unchanged sentences

Total liabilities $ 154,442 $ 341,412

Commitments and contingencies (2)

Commitments and contingencies (ii)

Shareholders’ equity

Share capital (3,4)

Share capital (iii,iv)

$ 566,577 $ 561,165

6 unchanged sentences

Total liabilities and shareholders’ equity $ 1,918,929 $ 2,090,442

(1) Net of current expected credit loss allowance of $ 80 as of June 30, 2020 (December 31, 2019 – $ 136 )

(2) Refer to Note 19 and Note 20 in the notes to condensed consolidated financial statements.

(3) Authorized for issuance as of June 30, 2020:

(i) Net of current expected credit loss allowance of $ 64 as of September 30, 2020 (December 31, 2019 – $ 136 )

(ii) Refer to Note 19 and Note 20 in the notes to condensed consolidated financial statements.

(iii) Authorized for issuance as of September 30, 2020:

unlimited (December 31, 2019 – unlimited).

(4) Shares issued as of June 30, 2020:

(iv) Shares issued as of September 30, 2020:

355,733,914 (as of December 31, 2019:

3 unchanged sentences

Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)

For the three and six months ended June 30, 2020 and 2019

(In thousands of U.S dollars, except share and per share amounts)

Three months ended June 30, Six months ended June 30,

For the three and nine months ended September 30, 2020 and 2019

(In thousands of U.S dollars, except share and per share amounts, unaudited)

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

16 unchanged sentences

Share of loss from investments in equity accounted investees ( 1,327 ) ( 565 ) ( 3,293 ) ( 1,504 )

Gain (loss) on revaluation of derivative liabilities ( 35,880 ) 197,310 77,488 525,526

Impairment loss on goodwill and intangible assets ( 40,000 ) — ( 40,000 ) —

Gain on revaluation of derivative liabilities 105,307 632,482 182,795 1,158,008

Financing and transaction costs ( 40 ) ( 6,083 ) ( 40 ) ( 31,684 )

Impairment loss on goodwill and intangible assets — — ( 40,000 ) —

Gain on disposal of other investments 3,974 — 4,743 16,242

Loss on reclassification of held-for-sale assets ( 919 ) — ( 919 ) —

Other income (loss) 318 147 334 147

2 unchanged sentences

Income tax expense 988 58 988 58

Income from continuing operations $ 68,937 $ 604,164 $ 36,961 $ 1,104,067

Income (loss) from discontinued operations ( 473 ) ( 36 ) ( 519 ) ( 63 )

Net income (loss) $ 68,464 $ 604,128 $ 36,442 $ 1,104,004

12 unchanged sentences

Net income (loss) per share

Basic $ ( 0.31 ) $ 0.56 $ ( 0.09 ) $ 1.57

Diluted $ ( 0.31 ) $ 0.16 $ ( 0.09 ) $ 0.41

Basic - continuing operations $ 0.20 $ 1.78 $ 0.11 $ 3.71

Basic - discontinued operations 0.00 0.00 0.00 0.00

Diluted - continuing operations (i)

0.19 1.62 0.10 0.92

Diluted - discontinued operations (i)

0.00 0.00 0.00 0.00

Weighted average number of outstanding shares

1 unchanged sentence

369,619,020 369,268,672 374,731,451 333,618,691

(1) 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.

(i) In computing diluted earnings per share, incremental common shares are not considered in periods in which a net loss is reported, as the inclusion of the common share equivalents would be anti-dilutive.

See notes to condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Changes in Equity (Deficit)

For the three months ended June 30, 2020 and 2019

For the three months ended September 30, 2020 and 2019

(In thousands of U.S.

dollars, except share amounts)

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 (deficit)

Balance at March 31, 2020 348,817,472 $ 563,165 $ 25,483 $ 1,213,686 $ ( 85,877 ) $ ( 1,189 ) $ 1,715,268

Balance at July 1, 2020 349,886,402 $ 565,221 $ 27,046 $ 1,106,709 $ ( 33,970 ) $ ( 1,951 ) $ 1,663,055

Warrants exercised 5,407,890 619 ( 619 ) — — — —

Vesting of options — — 1,551 — — — 1,551

Options exercised 25,534 57 ( 53 ) — — — 4

Top-up rights exercised — 717 — — — — 717

Vesting of restricted share units — — 776 — — — 776

Vesting of restricted share units, net of withholding taxes 414,088 — 4,217 — — — 4,217

Vesting of common shares issued in connection with the use of certain publicity rights in brand development — — 349 — — — 349

Top-up Rights exercised — 680 — — — — 680

Net income (loss) — — — 69,033 — ( 569 ) 68,464

Other comprehensive income (loss) — — — — 51,907 ( 36 ) 51,871

Balance at June 30, 2020 349,886,402 $ 565,211 $ 27,046 $ 1,106,709 $ ( 33,970 ) $ ( 1,951 ) $ 1,663,045

Other comprehensive income — — — — 26,150 17 26,167

Balance at September 30, 2020 355,733,914 $ 566,577 $ 32,491 $ 1,175,742 $ ( 7,820 ) $ ( 2,503 ) $ 1,764,487

Number of shares Share capital Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Non-controlling interests Total shareholders' equity (deficit)

Balance at March 31, 2019 333,020,377 $ 421,340 $ 12,244 $ 285,736 $ ( 5,975 ) $ — $ 713,345

Balance at July 1, 2019 336,144,543 $ 423,108 $ 14,779 $ 471,310 $ 11,973 $ ( 112 ) $ 921,058

Shares issued 5,086,586 56,109 — — — — 56,109

Share issuance costs — ( 4 ) — — — — ( 4 )

Warrants exercised 3,000,000 617 ( 67 ) — — — 550

Vesting of options — — 2,891 — — — 2,891

Options exercised 18,619 38 ( 33 ) ( 25 ) — — ( 20 )

Vesting of restricted share units — — 186 — — — 186

Top-up Rights exercised 2,514,459 45,338 — — — — 45,338

1 unchanged sentence

Other comprehensive loss — — — — ( 12,414 ) ( 8 ) ( 12,422 )

Balance at June 30, 2019 336,144,543 $ 423,108 $ 14,779 $ 471,310 $ 11,973 $ ( 112 ) $ 921,058

Balance at September 30, 2019 343,764,207 $ 524,589 $ 17,823 $ 1,075,695 $ ( 441 ) $ ( 402 ) $ 1,617,264

See notes to condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Changes in Equity (Deficit)

For the six months ended June 30, 2020 and 2019

For the nine months ended September 30, 2020 and 2019

(In thousands of U.S.

2 unchanged sentences

Balance as of January 1, 2020 348,817,472 $ 561,165 $ 23,234 $ 1,137,646 $ 27,838 $ ( 853 ) $ 1,749,030

Warrants exercised 5,407,890 619 ( 619 ) — — — —

Vesting of options — — 5,051 — — — 5,051

Options exercised 1,094,464 1,386 ( 1,381 ) — — — 5

Vesting of restricted share units — — 1,482 — — — 1,482

Top-up rights exercised — 717 — — — — 717

Vesting of restricted share units, net of withholding taxes 414,088 — 5,699 — — — 5,699

Vesting of common shares issued in connection with the use of certain publicity rights in brand development — 2,000 507 — — — 2,507

Top-up Rights exercised — 1,407 — — — — 1,407

Net income (loss) — — — 38,096 — ( 1,654 ) 36,442

Other comprehensive income (loss) — — — — ( 35,658 ) 4 ( 35,654 )

Balance at June 30, 2020 349,886,402 $ 565,211 $ 27,046 $ 1,106,709 $ ( 33,970 ) $ ( 1,951 ) $ 1,663,045

Balance at September 30, 2020 355,733,914 $ 566,577 $ 32,491 $ 1,175,742 $ ( 7,820 ) $ ( 2,503 ) $ 1,764,487

Number of shares Share capital Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Non-controlling interests Total shareholders’ equity (deficit)

5 unchanged sentences

Options exercised 170,087 356 ( 339 ) ( 861 ) — — ( 844 )

Vesting of restricted share units — — 186 — — — 186

Top-up Rights exercised 2,565,397 46,509 — — — — 46,509

1 unchanged sentence

Other comprehensive income (loss) — — — — 9,429 ( 5 ) 9,424

Balance at June 30, 2019 336,144,543 $ 423,108 $ 14,779 $ 471,310 $ 11,973 $ ( 112 ) $ 921,058

Balance at September 30, 2019 343,764,207 $ 524,589 $ 17,823 $ 1,075,695 $ ( 441 ) $ ( 402 ) $ 1,617,264

See notes to condensed consolidated financial statements.

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

For the six months ended June 30, 2020 and 2019

For the nine months ended September 30, 2020 and 2019

(In thousands of U.S.

dollars, except share amounts, unaudited)

Six months ended June 30,

Nine months ended September 30,

Operating activities

Net (loss) income $ ( 32,022 ) $ 499,876

Net income (loss) $ 36,442 $ 1,104,004

Items not affecting cash:

7 unchanged sentences

Loss (gain) on unrealized foreign exchange ( 3,020 ) 807

Provision for doubtful accounts 1,437 —

Provision for inventory and doubtful accounts 3,119 —

Non-cash sales and marketing 2,505 —

Loss on reclassification of held-for-sale assets 919 —

Other, net ( 298 ) ( 89 )

10 unchanged sentences

Purchase of intangible assets ( 3,094 ) ( 574 )

Acquisition of Redwood — ( 227,224 )

Advances on loans receivable ( 37,000 ) ( 33,012 )

Cash flows provided (used) in investing activities 39,799 ( 588,609 )

Proceeds from repayment of loans receivable — 238

Cash assumed on acquisition — 2,957

Cash flows provided by (used in) investing activities 37,811 ( 677,609 )

Financing activities

4 unchanged sentences

Proceeds from exercise of warrants and options 5 1,455

Withholding taxes paid on options — ( 836 )

Withholding taxes paid on equity awards ( 2,148 ) ( 861 )

Share issuance costs — ( 3,722 )

2 unchanged sentences

Transaction costs paid on construction loan payable — ( 15,971 )

Cash flows provided (used) in financing activities ( 1,183 ) 1,791,431

Cash flows provided by (used in) financing activities ( 4,189 ) 1,822,198

Effect of foreign currency translation on cash and cash equivalents ( 30,785 ) 22,691

Increase (decrease) in cash and cash equivalents ( 89,993 ) 1,182,132

Net change in cash and cash equivalents ( 101,847 ) 1,090,487

Cash and cash equivalents, beginning of period 1,199,693 23,927

6 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

8 unchanged sentences

two adult-use brands, COVE ™ and Spinach ™ ;

hemp-derived consumer products brands, Lord Jones ™ and PEACE+ ™ .

and three U.S.

hemp-derived consumer products brands, Lord Jones ™ , Happy Dance ™ and PEACE+ ™ .

Cronos Group has established four strategic joint ventures in Canada, Israel, and Colombia.

2 unchanged sentences

For additional discussion regarding the joint ventures and strategic investment, see Note 6.

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies and Changes in Accounting Policy

(a) Basis of presentation

6 unchanged sentences

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for any other reporting period.

Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results that may be expected for any other reporting period.

These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and related notes included in its Annual Report on Form 10-K/A for the year ended December 31, 2019 (the “Annual Financial Statements”).

4 unchanged sentences

Cronos Israel G.S.

Cultivations Ltd.

Cultivation Ltd.

Israel February 4, 2018 70 %

5 unchanged sentences

Cronos Israel G.S.

Pharmacies Ltd.

Pharmacy Ltd.

Israel February 15, 2018 90 %

7 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

7 unchanged sentences

reporting unit and the Rest of World reporting unit.

During the three months ended June 30, 2020, the Company concluded that the projected impact of the COVID-19 pandemic on its sales and revenues in the near term, together with the volatility in the market conditions during the quarter represented potential indicators of impairment for the U.S.

During the second quarter of 2020, the Company concluded that the projected impact of the COVID-19 pandemic on its sales and revenues in the near term, together with the volatility in the market conditions during the period represented potential indicators of impairment for the U.S.

reporting unit.

Accordingly, the Company performed an interim impairment analysis during the second quarter of 2020.

No triggering events were identified during the three months ended September 30, 2020.

See Note 13 for more information regarding intangibles assets and goodwill.

(d) Definite life intangible assets

On July 1, 2020, the Company changed its method of amortization for the computer software asset class from an accelerated 50 % double declining method to the straight-line method of five years .

The Company determined that the change in estimate to the straight-line method is more appropriate based on the usage of the assets in the asset class.

The change in estimate is applied prospectively as of July 1, 2020.

Intangible assets with finite useful lives are recorded at cost less any accumulated amortization and accumulated impairment losses.

Intangible assets acquired through a business combination are measured at fair value at the acquisition date.

The Company capitalizes certain costs incurred in connection with its enterprise resource planning software, which include external direct costs of materials and services consumed in developing or obtaining internal-use software, payroll and payroll-related costs for employees who are directly associated with and who devote time to the development of the software for the function intended.

All other costs are expensed as incurred.

Intangible assets with finite useful lives are amortized over their estimated useful lives using the following methods and rates:

Software Straight-line 5 years

Enterprise resource planning (“ERP”) system Straight-line 5 years

Health Canada licenses Straight-line Useful life of corresponding facilities

Israeli codes (i)

Straight-line Useful life of corresponding facilities

(i) The preliminary licenses granted to Kibbutz Gan Shmuel (the Cronos Israel joint venture partner) by the Medical Cannabis Unit of the Israeli Ministry of Health in early 2017 (the “Israeli codes”) were transferred by non-controlling interests to Cronos Israel in exchange for equity interests in the Cronos Israel entities specified above.

Amortization begins when assets become available for use.

The estimated useful life, amortization method, and rate are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

(e) Assets held for sale and discontinued operations

In accordance with Accounting Standards Codification (“ASC”) 205-20 Presentation of Financial Statements:

Discontinued Operations, a disposal of a component of an entity or a group of components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meet the criteria in paragraph 205-20-45-10.

In the period in which the component meets held-for-sale or discontinued operations criteria the major current assets, other assets, current liabilities, and noncurrent liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations.

At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations.

During the three months ended September 30, 2020, Original B.C.

(“OGBC”) met the criteria for “held-for-sale”.

As a result, the Company has reflected amounts relating to OGBC as a disposal group classified as held-for-sale on the consolidated balance sheet and included as part of discontinued operations on the consolidated statement of net income (loss) and comprehensive income (loss) for all

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

periods presented in this Quarterly Report.

OGBC is no longer included in the segment reporting following the reclassification to discontinued operations.

The discontinued operations of OGBC are described further in Note 24.

The following table presents a reconciliation of the carrying amounts of major classes of assets and liabilities of the discontinued operations to total assets and liabilities of the disposal group classified as held-for-sale in the consolidated balance sheet of December 31, 2019:

As of December 31, 2019

As previously disclosed Held-for-sale adjustment Adjusted balance

Property, plant and equipment $ 161,809 $ ( 1,861 ) $ 159,948

Intangible assets 72,320 ( 1,085 ) 71,235

Goodwill 214,794 ( 302 ) 214,492

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

Three months ended September 30, 2019 Nine months ended September 30, 2019

As previously disclosed Held-for-sale adjustment Adjusted balance As previously disclosed Held-for-sale adjustment Adjusted balance

Operating expenses $ 27,597 $ ( 36 ) $ 27,561 $ 60,126 $ ( 76 ) $ 60,050

Other income (loss) 634,920 — 634,920 1,161,677 ( 13 ) 1,161,664

Net income (loss) from continuing operations 604,128 36 604,164 1,104,004 63 1,104,067

(f) Reclassifications

Certain reclassifications have been made to the prior period financial information to conform to the presentation used in the financial statements for the three and nine months ended September 30, 2020.

These reclassifications have no effect on the results of reported operating loss, net income, shareholders’ equity or cash flows.

See Note 2(e) and Note 24.

Corporate expense reclassifications within segment disclosures:

In the three months ended September 30, 2020, the Company recorded a reclassification related to the allocation of operating expenses that was determined to be corporate expenses in nature to its segments, which decreased its Rest of World segment net loss by $ 4,626 and increased net loss attributable to corporate expenses by the same amount.

This reclassification had no effect on the Company's consolidated statement of net income (loss).

Had all these amounts been classified in this manner for the three-month periods ended March 31, 2020 and June 30, 2020, net income (loss) attributable to the Rest of World segment would have increased by $ 2,899 and $ 1,727 , respectively, and increased net loss attributable to corporate expenses by the same amounts.

The Company does not consider the effect on year-to-date 2020 results or the effect on comparable quarterly periods to be material, and there was no impact on 2019 full year results.

After evaluating the quantitative and qualitative aspects of these reclassifications, the Company concluded that its prior period financial statements were not materially misstated, and, therefore, no restatement was required .

Revision of previously issued financial statements:

During the three months ended September 30, 2020, the Company identified an error in the manner in which it calculated diluted earnings (loss) per share for the three months ended September 30, 2019.

The error had no impact on diluted earnings (loss) per share for the nine months ended September 30, 2019.

While the Company had excluded the anti-dilutive effect of the one warrant of the Company (the “Altria Warrant”), refer to Note 15(a) in the calculation of weighted average number of common shares for computation of diluted income (loss) per share, the gain on revaluation of derivative liabilities attributable to the Altria Warrant was incorrectly included in the calculation of diluted earnings (loss) per share, which resulted in an error in the previously reported amount for the three months ended September 30, 2019.

Because the average market price of the Company’s common stock remained above the strike price of the Altria Warrant for the nine months ended September 30, 2019, there was no impact on the reported amount for the nine months ended September 30, 2019, and there was no impact in prior or subsequent quarterly periods.

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

After evaluating the quantitative and qualitative aspects of this error, the Company concluded that its prior period financial statements were not materially misstated, and, therefore, no restatement was required.

However, the Company is revising the previously presented September 30, 2019 diluted earnings (loss) per share and adjustment for gain (loss) on revaluation of derivative liabilities, as follows:

Three months ended September 30, 2019

As previously disclosed Adjusted

Diluted earnings (loss) per share $ 0.42 $ 1.62

Adjustment for gain (loss) on revaluation of derivative liabilities ( 488,041 ) ( 6,952 )

New Accounting Pronouncements

34 unchanged sentences

2019-12, but anticipates that the adoption will not have a material impact on its condensed consolidated financial statements.

In August 2020, the FASB issued ASU 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 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 FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S.

2020-6 is effective for fiscal years beginning after December 15, 2021, and interim

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

periods within those fiscal years.

The Company is currently evaluating the impact ASU No.

2020-06 will have on its financial statements .

Revenues from Contracts with Customers

1 unchanged sentence

For further discussion, see Note 18.

Receivables were $ 3,477 as of June 30, 2020 (December 31, 2019 – $ 4,638 ).

The Company recorded a current expected credit loss allowance on receivables of $ 80 as of June 30, 2020 (December 31, 2019 – $ 136 ).

Receivables were $ 6,086 as of September 30, 2020 (December 31, 2019 – $ 4,638 ).

The Company recorded a current expected credit loss allowance on receivables of $ 64 as of September 30, 2020 (December 31, 2019 – $ 136 ).

The Company offers discounts to customers for prompt payment and calculates cash discounts as a percentage of the list price based on historical experience and agreed-upon payment terms.

7 unchanged sentences

Upon return, products can be extracted from dried cannabis, resold, or destroyed depending on the nature of the product.

The Company has assessed that the amount recoverable from returned products for the six months ended June 30, 2020 is not material.

The Company has assessed that the amount recoverable from returned products for the nine months ended September 30, 2020 is not material.

Inventory, net

Inventory is comprised of the following items:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Raw materials $ 10,214 $ 2,469

6 unchanged sentences

Inventory is written down for any obsolescence such as slow-moving or non-marketable products, or when the net realizable value of inventory is less than the carrying value.

For the three and six months ended June 30, 2020, the Company recorded write-downs related to inventory of $ 3,062 and $ 11,024 , respectively.

There were no inventory write-downs for the six months ended June 30, 2019.

For the nine months ended September 30, 2020, the Company recorded write-downs related to inventory of $ 11,024 (for the three and nine months ended September 30, 2019 – $ 5,424 ).

No inventory write-downs were recorded during the three months ended September 30, 2020.

As of September 30, 2020, an inventory reserve of $ 1,403 was recorded (September 30, 2019 – $nil)

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

7 unchanged sentences

Cronos Group holds variable interests in Cronos GrowCo through its ownership of 50 % of Cronos GrowCo’s common shares and senior secured debt in Cronos GrowCo.

The Company has also agreed to purchase a minimum amount of Cronos GrowCo’s cannabis product annually, subject to Cronos GrowCo’s receipt of all applicable licenses and permits.

Cronos GrowCo’s economic performance is driven by the quantity and strains of cannabis grown.

The joint venture partners mutually determine the quantity and strains of cannabis grown.

Natuera is a joint venture registered in Luxembourg with the objective of cultivating and commercializing medical cannabis to serve the export market.

Natuera is a joint venture registered in Luxembourg with the objective of cultivating and commercializing hemp and cannabis products to serve the export market.

Cronos holds variable interests in Natuera through its ownership of 50 % of Natuera’s common shares and other debt in the entity.

6 unchanged sentences

Subject to applicable law, the joint venture partners mutually determine the quantity and strains of cannabis to be sold in MedMen Canada’s retail stores, if and when stores are opened.

The Company’s investments in Cronos GrowCo, Natuera and MedMen Canada are exposed to economic variability from each entity’s performance, however the Company does not consolidate the entities as it does not have the power to direct the activities that most significantly impact the joint ventures’ economic performance.

Thus, Cronos Group is not considered the primary beneficiary of the entity.

The Company’s investments in Cronos GrowCo, Natuera and MedMen Canada are exposed to economic variability from each entity’s performance;

however, the Company does not consolidate the entities as it does not have the power to direct the activities that most significantly impact each entities’ economic performance.

Thus, Cronos Group is not considered the primary beneficiary of each entity.

These investments are accounted for as equity method investments classified as “Investments in equity accounted investees” in the consolidated balance sheets.

10 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

3 unchanged sentences

Carrying Amount

Ownership % June 30, 2020 December 31, 2019

Ownership % September 30, 2020 December 31, 2019

Cronos Australia (i)

31 % $ — $ ( 346 )

Cronos GrowCo 50 % 933 1,501

Cronos GrowCo (ii)

50 % 19,059 1,501

MedMen Canada 50 % — —

Natuera 50 % — ( 598 )

$ 19,059 $ 557

(i) On October 25, 2019, Cronos Australia issued 40 million new shares in an initial public offering at an offering price of A$ 0.50 per share.

The Company’s ownership in Cronos Australia decreased from 50 % to 31 % on November 7, 2019 when Cronos Australia began trading on the Australian Securities Exchange.

This resulted in a reconsideration event, which required the reassessment of the Company’s VIE conclusion.

Upon reconsideration, the Company determined that the entity was no longer a VIE as of December 31, 2019 and is now reported under the equity method.

This resulted in a reconsideration event, which required the reassessment of the Company’s variable interest entity conclusion.

Upon reconsideration, the Company determined that the entity was no longer a variable interest entity as of December 31, 2019 and is now reported under the equity method.

(ii) On September 25, 2020, the Company and 2645485 Ontario Inc.

(“Mucci”), the other joint venture partner of Cronos GrowCo, agreed to capitalize certain historical advances made by each shareholder to Cronos GrowCo.

Total aggregate gross advances to Cronos GrowCo, excluding any amounts advanced by the Company to Cronos GrowCo under the GrowCo Credit Facility, were C$ 49,300 ($ 37,932 ), of which the Company advanced 50 % and Mucci advanced the remaining 50 % for an amount of C$ 24,650 ($ 18,505 ) each.

As a result, the Company transferred the advances of C$ 24,650 ($ 18,505 ) to investments in equity accounted investees in respect of Cronos GrowCo..

The Company’s share of net earnings (losses) from equity investments accounted for under the equity method of accounting:

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

Whistler Medicinal Marijuana Company (“Whistler”)

$ — $ — $ — $ 29

Cronos Australia (i)

4 unchanged sentences

$ ( 1,327 ) $ ( 565 ) $ ( 3,293 ) $ ( 1,504 )

(i) The Company’s share of accumulated net losses in excess of its equity investment and advances in Cronos Australia was $ 512 for the six months ended June 30, 2020 (June 30, 2019 – $ nil ).

(i) The Company’s share of accumulated net losses in excess of its equity investment and advances in Cronos Australia was $ 512 for the nine months ended September 30, 2020 (September 30, 2019 – $ nil ).

(ii) The Company’s share of accumulated net losses in excess of its equity investment in Natuera has been applied as a loss allowance on the loan receivable.

2 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

2 unchanged sentences

MedMen Canada (i)

Cronos GrowCo Cronos Australia (ii)

Cronos GrowCo (ii)

Cronos Australia (iii)

Natuera Total

As of January 1, 2020 $ 471 $ 18,966 $ — $ — $ 19,437

Credit loss allowance (iii)

Transfer to investments in equity accounted investees (ii)

— ( 18,505 ) — — ( 18,505 )

Interest on advances — — 35 — 35

Advances to joint ventures recovered from (applied to) carrying amount of investments — — ( 36 ) — ( 36 )

Effect from foreign exchange ( 10 ) ( 461 ) 1 — ( 470 )

As of June 30, 2020 $ 451 $ 18,147 $ — $ — $ 18,598

As of September 30, 2020 $ 461 $ — $ — $ — $ 461

MedMen Canada (i)

Cronos GrowCo (ii)

Cronos Australia (iii)

Natuera Total

As of January 1, 2019 $ 1,244 $ 2,970 $ 475 $ — $ 4,689

4 unchanged sentences

(i) Advance is unsecured, non-interest bearing, and there are no terms of repayment.

(ii) A$ 1,500 is governed by an unsecured loan bearing interest at a rate of 12 % per annum, calculated and compounded daily, in arrears, on the amounts advanced from the date of each advance.

(ii) On September 25, 2020, the Company and Mucci agreed to capitalize historical advances made by each shareholder to Cronos GrowCo.

The Company capitalized C$ 24,650 ($ 18,505 ) through a transfer of aggregate gross advances from advances to joint ventures to investments in equity accounted investees in respect of Cronos GrowCo.

Refer to Note 6(a)(ii).

(iii) A$ 1,500 is governed by an unsecured loan bearing interest at a rate of 12 % per annum, calculated and compounded daily, in arrears, on the amounts advanced from the date of each advance.

The loan is due on January 1, 2022.

If the loan is overdue, the outstanding amount bears interest at an additional 2 % per annum.

(iii) For the three months ended June 30, 2020, a reversal of $ 917 related to the credit loss allowance for Cronos GrowCo was recorded as the Company assessed its recoverability.

As of June 30, 2020, total credit losses were $ nil .

Other Investments

Other investments consist of investments in common shares and warrants of several companies in the cannabis industry.

As of June 30, 2020, the Company did not hold any other investments.

During the six months ended June 30, 2020, in connection with the achievement of a milestone related to the Whistler transaction described below, the Company received 578,101 shares of Aurora Cannabis Inc.

The Company sold all of the Aurora shares on March 6, 2020 for gross proceeds of $ 769 recorded as an other item in other income (expenses).

The Company expects to further receive Aurora common shares upon the satisfaction of one milestone remaining, which has not been recognized in these condensed consolidated financial statements.

The exact number of Aurora common shares to be issued to the Company following the satisfaction of such milestone will be determined in reference to the five -day volume weighted average price of Aurora common shares immediately prior to the achievement of the applicable milestone.

No transactions occurred during the three months ended June 30, 2020.

As of September 30, 2020, the Company did not hold any other investments.

The gain and losses on sale of other investments are classified as fair value through net income.

During the three months ended September 30, 2020, in connection with the achievement of the final milestone related to the Whistler Transaction (defined below), the Company received 402,561 shares of Aurora Cannabis Inc.

The Company subsequently sold all 402,561 of the Aurora shares during the three months ended September 30, 2020 for gross proceeds of approximately $ 3,974 (C$ 5,354 ) recorded as a gain on disposal of other investments in other income (expense).

During the nine months ended September 30, 2020, in connection with the achievement of certain milestones related to the Whistler Transaction, the Company received 980,662 shares of Aurora.

The Company sold all 980,662 of the Aurora shares during the nine months ended September 30, 2020 for gross proceeds of approximately $ 4,743 (C$ 6,404 ) recorded as a gain on disposal of other investments in other income (expense).

On March 4, 2019, the Company sold all 2,563 shares of Whistler, representing approximately 19.0 % of Whistler’s issued and outstanding common shares, to Aurora, in connection with Aurora's acquisition of Whistler (the “Whistler Transaction”).

As a result of the closing of the Whistler Transaction, the Company received 2,524,341 Aurora common shares.

During the six months ended June 30, 2019, the Company sold all 2,524,341 common shares of Aurora, for gross proceeds of $ 19,259 recorded as an other item in other income (expenses).

No transactions occurred during the three months ended June 30, 2019.

During the six months ended June 30, 2019, the Company sold all remaining 11,062 common shares of Canopy Growth Corporation (“Canopy”) for gross proceeds of $ 355 .

The gains and losses on the Canopy investment were classified as fair value through net income.

No transactions occurred during the three months ended June 30, 2019.

During the nine months ended September 30, 2019, the Company sold all 2,524,341 common shares of Aurora, for gross proceeds of $ 19,259 recorded as a gain on disposal of other investments in other income (expense).

No transactions occurred during the three months ended September 30, 2019.

During the nine months ended September 30, 2019, the Company sold all remaining 11,062 common shares of Canopy Growth Corporation (“Canopy”) for net proceeds of $ 355 recorded as an other item in the other income (expense).

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

2 unchanged sentences

The following are continuity schedules of accumulated other comprehensive income (loss):

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

1 unchanged sentence

Balance beginning of period $ 5 $ 5 $ 5 $ 5

Cumulative effect from adoption of ASU 2016-01 — — — —

Balance as of June 30 5 5 5 5

Balance as of September 30 $ 5 $ 5 $ 5 $ 5

Net foreign exchange gain (loss) on translation

1 unchanged sentence

Net unrealized (loss) gain 26,150 ( 12,414 ) ( 35,658 ) 9,429

Balance as of June 30 ( 33,975 ) 11,968 ( 33,975 ) 11,968

Balance as of September 30 ( 7,825 ) ( 446 ) ( 7,825 ) ( 446 )

Total accumulated other comprehensive income (loss) $ ( 7,820 ) $ ( 441 ) $ ( 7,820 ) $ ( 441 )

2 unchanged sentences

These leases often include options to extend the term of the lease for up to 10 years.

When it is reasonably certain that the option will be exercised, the impact of the option is included in the lease term for purposes of determining total future lease payments.

When it is reasonably certain that an option will be exercised, the impact of such option is included in the lease term for purposes of determining total future lease payments.

Operating leases greater than one year are included in right-of-use assets and operating lease liabilities.

Finance leases are included in property, plant and equipment on the Company’s consolidated balance sheet.

During the six months ended June 30, 2020, the Company recognized two new operating leases for office premises which are included within the lease obligation and right-of-use lines in the condensed consolidated balance sheet.

In June 2020, the Company terminated an operating lease for office premises.

During the nine months ended September 30, 2020, the Company recognized two new operating leases for office premises which are included within the lease obligation and right-of-use lines in the condensed consolidated balance sheet.

In June 2020, the Company terminated an operating lease for an office premise.

The lease was removed from the lease obligation and right-of-use balances in the condensed consolidated balance sheet.

The Company’s finance leases were not material as of June 30, 2020 and December 31, 2019.

The Company’s finance leases were not material as of September 30, 2020 and December 31, 2019.

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

1 unchanged sentence

Loans Receivable, net

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Current portion

1 unchanged sentence

$ 5,210 $ 4,575

Cronos GrowCo Credit Facility (ii)

GrowCo Credit Facility (ii)

Accrued interest 317 89

1 unchanged sentence

Long term portion

Cronos GrowCo Credit Facility (ii)

GrowCo Credit Facility (ii)

60,408 31,678

2645485 Ontario Inc.

Mucci Promissory Note (iii)

4 unchanged sentences

Total loans receivable $ 83,929 $ 49,631

(i) On September 27, 2019, the Company entered into a master loan agreement (the “Series A Loan”) for $ 4,575 with Natuera with effect as of August 29, 2019.

The total aggregate principal amount of the Series A Loan is $ 9,150 , of which the Company has committed to fund 50 % and its joint venture partner has committed to fund the remaining 50 %.

Outstanding principal amounts bear interest at a fixed annual rate of 5.67 % with a maturity date of August 29, 2020.

As of June 30, 2020, accrued interest is recorded in other receivables.

Subsequent to June 30, 2020, an amendement to the agreement was executed.

Refer to Note 25.

For the six months ended June 30, 2020, a loss allowance of $ 1,591 was recorded against the Natuera Series A Loan related to the Company’s share of net loss from Natuera in excess of the carrying value of the equity method investment.

(i) On July 24, 2020, the Company and its joint venture partner entered into an amendment to the Series A Loan with Natuera to increase the principal amount of the Series A Loan by $ 6,350 , to an aggregate principal amount of $ 15,500 , of which the Company has committed to fund 50 % and its joint venture partner has committed to fund the remaining 50 %.

Outstanding principal amounts continue to bear interest at a fixed annual rate of 5.67 % and the maturity date of the Series A Loan has been extended to March 1, 2021.

For the nine months ended September 30, 2020, a loss allowance of $ 2,552 was recorded against the Natuera Series A Loan related to the Company’s share of net loss from Natuera in excess of the carrying value of the equity method investment.

Refer to Note 6.

5 unchanged sentences

Mucci, the other 50 % shareholder of Cronos GrowCo, has provided a limited recourse guarantee in favor of Cronos GrowCo, secured by Mucci’s shares in Cronos GrowCo.

As of June 30, 2020, Cronos GrowCo had drawn C$ 72,150 ($ 53,145 ) from the Cronos GrowCo Credit Facility.

For the six months ended June 30, 2020, a current expected credit loss allowance of $ 1,089 was recorded against the GrowCo Facility.

As of September 30, 2020, Cronos GrowCo had drawn C$ 85,150 ($ 63,981 ) from the Cronos GrowCo Credit Facility.

For the nine months ended September 30, 2020, a current expected credit loss allowance of $ 1,317 was recorded against the GrowCo Facility.

(iii) On June 28, 2019, the Company entered into a promissory note receivable agreement (the “Mucci Promissory Note”) for C$ 16,350 ($ 12,285 ) with Mucci.

3 unchanged sentences

The Mucci Promissory Note is secured by a general security agreement covering all the assets of Mucci.

For the six months ended June 30, 2020, a current expected credit loss allowance of $ 250 has been recorded against the Mucci loan.

For the nine months ended September 30, 2020, a current expected credit loss allowance of $ 258 has been recorded against the Mucci loan.

(iv) On April 1, 2020, Cronos Israel entered into the Cannasoul Collaboration.

1 unchanged sentence

The outstanding principal on the loan bears interest at 3.5 % annually and will be repaid through the profits generated from the Cannasoul Collaboration.

As of June 30, 2020, CLS has received the first installment of ILS 4,149 (approximately $ 1,198 ).

For the six months ended June 30, 2020, a current expected credit loss allowance of $ 24 has been recorded against the Cannasoul Collaboration loan.

As of September 30, 2020, CLS has received ILS 4,149 (approximately $ 1,198 ).

For the nine months ended September 30, 2020, a current expected credit loss allowance of $ 25 has been recorded against the Cannasoul Collaboration loan.

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

3 unchanged sentences

(“Altria”), pursuant to a subscription agreement dated December 7, 2018.

As of the closing date of the Altria Investment, the Altria Investment consisted of 149,831,154 common shares of the Company as of the closing date, issued to a wholly owned subsidiary of Altria and one warrant of the Company (the “Altria Warrant”), refer to Note 15(a), issued to a wholly owned subsidiary of Altria.

As of the closing date of the Altria Investment, the Altria Investment consisted of 149,831,154 common shares of the Company as of the closing date, issued to a wholly owned subsidiary of Altria and the Altria Warrant, issued to a wholly owned subsidiary of Altria.

As of the closing date of the Altria Investment, Altria beneficially held an approximately 45 % ownership interest in the Company (calculated on a non-diluted basis).

2 unchanged sentences

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.

The Altria Warrant entitles the holder, subject to certain qualifications and limitations, to subscribe for and purchase up to an additional 10 % of the common shares of Cronos (approximately 77.8 million common shares at June 30, 2020) at a per share exercise price of C$ 19.00 which expires on March 8, 2023.

The Altria Warrant entitles the holder, subject to certain qualifications and limitations, to subscribe for and purchase up to an additional 10 % of the common shares of Cronos (approximately 79.1 million common shares at September 30, 2020) at a per share exercise price of C$ 19.00 which expires on March 8, 2023.

The Company granted to Altria, subject to certain qualifications and limitations, upon the occurrence of certain issuances of common shares of the Company executed by the Company (including issuances pursuant to the R&D partnership with Ginkgo Bioworks Inc.

9 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

1 unchanged sentence

A reconciliation of the carrying amounts of the derivative liability is presented below:

April 1, 2020 (Gain) / Loss on revaluation Exercise of Rights Effect from foreign exchange As of June 30, 2020

As of July 1, 2020 (Gain) / loss on revaluation Exercise of rights Effect from foreign exchange As of September 30, 2020

(a) Altria Warrant $ 165,958 $ ( 82,495 ) $ — $ 2,374 $ 85,837

2 unchanged sentences

$ 205,714 $ ( 105,307 ) $ ( 680 ) $ 2,928 $ 102,655

January 1, 2020 (Gain) / Loss on revaluation Exercise of Rights Effect from foreign exchange As of June 30, 2020

As of January 1, 2020 (Gain) / loss on revaluation Exercise of rights Effect from foreign exchange As of September 30, 2020

(a) Altria Warrant $ 234,428 $ ( 140,547 ) $ — $ ( 8,044 ) $ 85,837

5 unchanged sentences

Share price is one of the significant observable inputs used in the fair value measurement of each of the Company’s derivative instruments.

During the six months ended June 30, 2020, the Company’s share price decreased from December 31, 2019 resulting in a gain on revaluation of $ 77,488 .

The fair values of the derivative liabilities were determined using the Black-Scholes pricing model as of June 30, 2020 and December 31, 2019 applying the following inputs:

As of June 30, 2020 As of December 31, 2019

During the nine months ended September 30, 2020, the Company’s share price decreased from December 31, 2019 resulting in a gain on revaluation of $ 182,795 .

The fair values of the derivative liabilities were determined using the Black-Scholes pricing model as of September 30, 2020 and December 31, 2019 applying the following inputs:

As of September 30, 2020 As of December 31, 2019

Altria Warrant Pre-emptive Rights Top-up Rights Altria Warrant Pre-emptive Rights Top-up Rights

9 unchanged sentences

(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.

The risk-free interest rate uses a range of approximate ly 0.21 % to 0.61 % as of June 30, 2020 (December 31, 2019 – 1.66 % to 1.73 %) for the Pre-emptive rights and Top-up rights.

The risk-free interest rate uses a range of approximately 0.12 % to 0.36 % as of September 30, 2020 (December 31, 2019 – 1.66 % to 1.73 %) for the Pre-emptive Rights and Top-up Rights.

(ii) The expected life in years represents the period of time 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.

The expected life uses a range of approximately 0.25 year to 5.5 year s as of June 30, 2020 (December 31, 2019 – 0.25 year to 6 years).

The expected life uses a range of approximately 0.25 year to 5.25 years as of September 30, 2020 (December 31, 2019 – 0.25 year to 6 years).

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

1 unchanged sentence

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

2 unchanged sentences

The sensitivity analysis for each significant input is performed by assuming a 10% decrease in the input while other significant inputs remain constant at management’s best estimate as of the respective dates.

A decrease in the inputs noted below would cause a decrease in derivative liability and as of June 30, 2020, there would be an equal but opposite impact on net income (loss).

Decrease as of June 30, 2020 Decrease as of December 31, 2019

A decrease in the inputs noted below would cause a decrease in derivative liability and as of September 30, 2020, there would be an equal but opposite impact on net income (loss).

Decrease as of September 30, 2020 Decrease as of December 31, 2019

Altria Warrant Pre-emptive Rights Top-up Rights Altria Warrant Pre-emptive Rights Top-up Rights

5 unchanged sentences

Property, plant and equipment, net consisted of the following:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Land $ 3,037 $ 3,071

6 unchanged sentences

Total $ 171,404 $ 159,948

Depreciation expense included in cost of sales relating to manufacturing equipment and production facilities for the six months ended June 30, 2020 was $ 759 (June 30, 2019 – $ 448 ).

Depreciation expense included in operating expenses related to general office space and equipment for six months ended June 30, 2020 was $ 1,025 (June 30, 2019 – $ 425 ).

Depreciation expense included in cost of sales relating to manufacturing equipment and production facilities for the nine months ended September 30, 2020 was $ 1,935 (September 30, 2019 – $ 1,628 ).

Depreciation expense included in operating expenses related to general office space and equipment for the nine months ended September 30, 2020 was $ 1,682 (September 30, 2019 – $ 577 ).

The remaining depreciation is included in inventory.

For the six months ended June 30, 2020, there is $ nil (June 30, 2019 – $ 367 ) of capitalized interest included in construction in progress.

For the nine months ended September 30, 2020, there was no capitalized interest included in construction in progress (September 30, 2019 – $ 367 ).

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

3 unchanged sentences

as a result of the COVID-19 pandemic have negatively impacted sales and demand which has resulted in slower than expected revenue growth in the U.S.

reporting unit for the three months ended June 30, 2020.

reporting unit.

The Company expects the revenue growth and operating results in the U.S.

reporting unit to continue to be negatively impacted as the decrease in customer demand and retail closures are expected to continue as a result of the pandemic.

The Company performed an interim impairment test during the three months ended June 30, 2020 on the U.S.

The Company performed an interim impairment test as of June 30, 2020 on the U.S.

reporting unit, which holds the Redwood goodwill, as well as the indefinite-lived intangible asset (Lord Jones™ brand) to determine whether the carrying amount of the reporting unit and intangible asset exceeded their respective fair values.

The Company reassessed its estimates and forecasts during the second quarter to determine the fair values of the reporting unit and intangible asset.

The Company reassessed its estimates and forecasts during the second quarter of 2020 to determine the fair values of the reporting unit and intangible asset.

The fair values were determined using a discounted cash flow method on the reporting unit and the relief-from-royalty method on the Lord Jones™ brand.

1 unchanged sentence

The Company does not believe the declines in fair values are temporary.

The Company recorded $ 35.0 million of impairment charges on the U.S.

reporting unit and $ 5.0 million on the Lord Jones™ brand for the three and six months ended June 30, 2020.

No impairment loss was recorded for either goodwill or intangible assets during the three and six months ended June 30, 2019.

The Company recorded $ 35,000 of impairment charges on the U.S.

reporting unit and $ 5,000 on the Lord Jones™ brand for the nine months ended September 30, 2020.

No impairment loss was recorded for either goodwill or intangible assets during the three months ended September 30, 2020 or during the three and nine months ended September 30, 2019.

(a) Intangible assets

Intangible assets are comprised of the following items:

Weighted Average Amortization Period (in years) As of June 30, 2020

Weighted average amortization period (in years) As of September 30, 2020

Cost Accumulated amortization Impairment charges Net

N/A $ 612 $ ( 298 ) $ — $ 314

Enterprise Resource Planning (“ERP”) system (ii)

Software 5 $ 575 $ ( 234 ) $ — $ 341

5 2,851 ( 130 ) — 2,721

3 unchanged sentences

Trademarks N/A 146 — — 146

Israeli Codes (iii)

Israeli codes (i)

25 300 ( 13 ) — 287

$ 75,083 $ ( 1,479 ) $ ( 5,000 ) $ 68,604

(i) Software amortizes using a double declining method.

(ii) During the six months ended June 30, 2020, the Company capitalized costs for the ERP system.

As of June 30, 2020, the system is not yet available for use, resulting in no amortization being recorded against the asset.

(iii) The preliminary licenses granted to Kibbutz Gan Shmuel (the Cronos Israel joint venture partner) by the Medical Cannabis Unit of the Israeli Ministry of Health in early 2017 (the “Israeli Codes”) were transferred by non-controlling interests to Cronos Israel in exchange for their equity interests in the Cronos Israel entities specified above.

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

Weighted average amortization period (in years) As of December 31, 2019

Cost Accumulated amortization Net

N/A $ 541 $ ( 202 ) $ 339

Software 5 $ 541 $ ( 202 ) $ 339

Health Canada licenses 17 7,387 ( 821 ) 6,566

2 unchanged sentences

Trademarks N/A 36 — 36

Israeli Codes (ii)

Israeli codes (i)

25 298 ( 4 ) 294

$ 72,262 $ ( 1,027 ) $ 71,235

(i) Software amortizes using a double declining method.

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

The aggregate amortization for the six months ended June 30, 2020 was $ 346 (June 30, 2019 – $ 301 ).

Intangible asset additions in 2020 included the ERP system for $ 2,570 .

There was $ 37 related to disposals of software during the six months ended June 30, 2020.

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

The aggregate amortization for the nine months ended September 30, 2020 was $ 570 (September 30, 2019 – $ 480 ).

There were no disposals of software during the three months ended September 30, 2020 and 2019.

The amortization expense for the next five years on intangible assets in use is estimated to be as follows:

5 unchanged sentences

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

As of December 31, 2019 Additions Impairment charges Effect of foreign exchange As of June 30, 2020

OGBC $ 302 $ — $ — $ ( 13 ) $ 289

As of December 31, 2019 Additions Impairment charges Effect of foreign exchange As of September 30, 2020

Peace Naturals 1,078 — — ( 33 ) 1,045

3 unchanged sentences

General and administrative expense are comprised of the following items:

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

6 unchanged sentences

Total $ 18,860 $ 16,202 $ 61,048 $ 34,987

(i) These financial statement review costs include costs related to the restatement of the Company’s 2019 interim financial statements and costs related to the Company’s responses to request for information from various regulatory authorities relating to such restatement.

(i) These financial statement review costs include costs related to the restatement of the Company’s 2019 interim financial statements, costs related to the Company’s responses to requests for information from various regulatory authorities relating to such restatement and legal costs defending shareholder class action complaints brought against the Company as a result of the restatement.

Share-based Payments

The following is a summary of the changes in warrants during the six months ended June 30, 2020 and 2019:

The following is a summary of the changes in warrants during the nine months ended September 30, 2020 and 2019:

Weighted average exercise price (C$) Number of warrants

Balance as of January 1, 2020 $ 0.26 18,066,662

Balance as of June 30, 2020 $ 0.26 $ 18,066,662

Exercise of warrants 0.27 ( 5,626,410 )

Balance as of September 30, 2020 $ 0.25 12,440,252

Balance as of January 1, 2019 $ 0.26 25,457,623

Exercise of warrants 0.26 ( 7,390,961 )

Balance as of June 30, 2019 $ 0.22 $ 18,066,662

As of June 30, 2020, the Company had outstanding warrants as follows.

Balance as of September 30, 2019 $ 0.26 18,066,662

As of September 30, 2020, the Company had outstanding warrants as follows.

For a description of the Altria Warrant, see Note 11.

2 unchanged sentences

May 13 – 27, 2016 May 13 – 27, 2021 0.25 11,987,349

As of June 30, 2020 $ 0.26 $ 18,066,662

As of September 30, 2020 $ 0.25 12,440,252

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

6 unchanged sentences

however, shares may be purchased via option exercise by the holders of any outstanding options previously issued under the 2015 Stock Option Plan.

As of June 30, 2020, options to purchase 10,486,569 Company common shares were outstanding under the 2015 Stock Option Plan.

As of September 30, 2020, options to purchase 10,443,447 Company common shares were outstanding under the 2015 Stock Option Plan.

On June 28, 2018, the shareholders of the Company approved a stock option plan (the “2018 Stock Option Plan”), which replaced the 2015 Stock Option Plan.

1 unchanged sentence

however, shares may be purchased via option exercise by the holders of any outstanding options previously issued under the 2018 Stock Option Plan.

As of June 30, 2020, options to purchase 1,727,979 Company common shares were outstanding under the 2018 Stock Option Plan.

As of September 30, 2020, options to purchase 1,641,759 Company common shares were outstanding under the 2018 Stock Option Plan.

On March 29, 2020, the Board adopted a new omnibus equity incentive plan (the “2020 Omnibus Plan”), which was approved by the shareholders of the Company at the annual and special meeting of shareholders held on June 25, 2020.

The 2020 Omnibus Plan provides for grants of stock options, share appreciation rights, restricted shares, restricted share units and other share-based or cash-based awards, which are subject to terms as determined by the Compensation Committee of the Board, and awards may be granted to eligible employees, non-employee directors and consultants.

As of June 30, 2020, no grants of options have been made under the 2020 Omnibus Plan.

For the three and six months ended June 30, 2020, the total stock-based compensation expense associated with the stock option plans was $ 1,770 (June 30, 2019 – $ 2,647 ) and $ 3,500 (June 30, 2019 – $ 4,418 ), respectively.

The 2020 Omnibus Plan provides for grants of stock options, share appreciation rights, restricted shares, restricted share units (“RSUs”) and other share-based or cash-based awards, which are subject to terms as determined by the Compensation Committee of the Board, and awards may be granted to eligible employees, non-employee directors and consultants.

As of September 30, 2020, options to purchase 2,000,000 Company common shares were outstanding under the 2020 Omnibus Plan.

For the three and nine months ended September 30, 2020, the total stock-based compensation expense associated with the stock options was $ 1,551 and $ 5,051 respectively (September 30, 2019 – $ 3,531 and $ 7,949 , respectively).

(ii) Summary of changes

The following is a summary of the changes during the six months ended June 30, 2020 and 2019:

The following is a summary of the changes during the nine months ended September 30, 2020 and 2019:

Weighted average exercise price (C$) Number of options Weighted average remaining contractual term (years)

Balance as of January 1, 2020 $ 4.84 14,149,502 2.56

Issuance of options (i)

6.96 2,000,000

Exercise of options 2.04 ( 1,841,863 )

Cancellation, forfeiture and expiry of options 15.06 ( 222,433 )

Balance as of June 30, 2020 $ 5.13 12,214,548 2.05

Exercisable at June 30, 2020 3.42 8,688,645 1.78

Balance as of September 30, 2020 $ 5.34 14,085,206 2.54

Exercisable as of September 30, 2020 $ 3.56 9,381,601 1.57

Balance as of January 1, 2019 $ 2.99 12,902,995 3.35

2 unchanged sentences

Cancellation, forfeiture and expiry of options — ( 5,083 )

Balance as of June 30, 2019 $ 4.66 13,988,545 3.04

Exercisable as of June 30, 2019 2.40 6,580,238 2.69

Balance as of September 30, 2019 $ 4.83 14,177,875 2.81

Exercisable as of September 30, 2019 $ 2.66 7,442,390 2.47

(i) On September 9, 2020, options to purchase 2,000,000 Company common shares were granted to Kurt Schmidt in connection with his appointment as President and Chief Executive Officer of the Company under the 2020 Omnibus Plan.

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

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The fair value of the options issued was determined using the Black-Scholes option pricing model, using the following inputs:

For the six months ended June 30, 2019

Share price at grant date (per share) C$ 20.65 - C$ 24.75

Exercise price (per option) C$ 20.65 - C$ 24.75

For the nine months ended September 30,

Share price at grant date (per share) C$ 6.96

C$ 15.34 - C$ 24.75

Exercise price (per option) C$ 6.96

C$ 15.34 - C$ 24.75

Risk-free interest rate 0.43 %

Expected life of options (in years) 5

1.39 % - 1.62 %

Expected life of options (in years) (i)

Expected annualized volatility 91 % 89 %

Expected dividend yield — % — %

Weighted average Black-Scholes value at grant date (per option) C$ 13.29 - C$ 15.91

Weighted average Black-Scholes value at grant date (per option) C$ 4.84

C$ 10.6 - C$ 15.91

Forfeiture rate — % — %

No s tock options were granted under the 2018 Stock Option Plan or the 2020 Omnibus Plan during the six months ended June 30, 2020.

During the six months ended June 30, 2019, the weighted average fair value per share at grant date of options was C$ 13.35 .

The expected life of the awards represents the period of time stock options are expected to be outstanding and is estimated considering vesting terms and employees’ and non-employees’ historical exercise and post-vesting employment termination behavior.

Volatility was estimated by using the historical volatility of the Company, adjusted for the Company’s expectation of volatility going forward.

(i) The expected life of the awards represents the period of time stock options are expected to be outstanding and is estimated considering vesting terms and employees’ and non-employees’ historical exercise and post-vesting employment termination behavior.

Volatility was based on an equally weighted blended historical volatility level of the underlying equity securities of the Company and peer companies.

The risk-free interest rate was based on the Bank of Canada government bonds with a remaining term equal to the expected life of the options at the grant date.

During the nine months ended September 30, 2020, the weighted average fair value per share at grant date of options was C$ 4.84 (nine months ended September 30, 2019 - C$ 13.32 ).

On May 11, 2020, the Company issued an aggregate of 279,277 restricted stock units (“RSUs”) to certain employees in connection with the 2020 Omnibus Plan.

Each RSU entitles the holder to receive upon vesting one common share of the Company.

The fair value of these RSUs has been determined based on the quoted market price of the applicable exchange on the date of issuance of C$ 7.52 per share on TSX or $ 5.42 per share on NASDAQ.

The RSUs vest annually in equal installments over a three-year period following the grant date and have no performance requirements.

On September 5, 2019, the Company issued an aggregate of 732,972 RSUs to certain employees in connection with the acquisition of four Redwood Holding Group, LLC subsidiaries (collectively, “Redwood”) and pursuant to Employment Inducement Award Plan.

Each RSU entitles the holder to receive upon vesting one common share of the Company.

The fair value of these RSUs has been determined based on the quoted market price on the date of issuance of C$ 15.34 per share.

Under the terms of the corresponding RSU agreement, the RSUs vest on the third anniversary following the grant date and have no performance requirements.

On July 20, 2020, the Company entered into separation agreements with Robert Rosenheck and another Redwood Wellness, LLC (“Redwood”) employee pursuant to which they resigned from their employment with Redwood.

In connection with such separation agreements, the 732972 outstanding and unvested RSUs as of July 20, 2020 to which they were entitled were accelerated and vested as of July 20, 2020.

Refer to Note 25 for further information.

For the three and six months ended June 30, 2020, the Company recorded $ 776 and $ 1,482 (June 30, 2019 – $ nil ) in share-based compensation expense related to these RSUs, respectively.

The following is a summary of the changes in RSUs from January 1, 2020 to June 30, 2020:

Number of RSUs Share-based reserve

For the three and nine months ended September 30, 2020, the Company reco rded $ 6,365 and $ 7,847 , respectively (for three and nine months ended September 30, 2019 – $ 186 ) in share-based compensation expense related to the issuance of RSUs during such periods.

The following is a summary of the changes in RSUs from January 1, 2020 to September 30, 2020:

Number of RSUs Weighted average grant date fair value (C$)

Balance as of January 1, 2020 732,972 $ 15.34

Issuance of RSUs 279,277 —

Vesting of issued RSUs — 1,482

Balance as of June 30, 2020 1,012,249 $ 2,371

No RSUs were granted or outstanding during the six months ended June 30, 2019.

Vested and issued (ii)

( 732,972 ) 15.34

Cancellation and forfeitures ( 9,497 ) 7.52

Balance as of September 30, 2020 805,377 $ 7.32

(i) On September 9, 2020, the Company issued 450,000 RSUs to Mr.

Schmidt in connection with his appointment as President and Chief Executive Officer of the Company under the 2020 Omnibus Plan.

The RSUs vest on September 10, 2023, subject to Mr.

Schmidt’s continued employment through such date.

The vesting of such RSUs is not subject to the achievement of any performance criteria.

In August 2020 and May 2020, the Company issued an aggregate of 85,597 and 279,277 RSUs, respectively, to certain employees under the 2020 Omnibus Plan.

Each RSU entitles the holder thereof to receive upon vesting one common share of the Company.

The RSUs vest annually in equal installments over a three-year period following the grant date, subject to such holder’s continued employment through each vesting date.

The vesting of such RSUs is not subject to the achievement of any performance criteria.

(ii) On July 20, 2020, the Company entered into separation agreements with Robert Rosenheck and another Redwood Wellness, LLC (“Redwood”) employee pursuant to which they resigned from their employment with Redwood.

In connection with such separation agreements, 732,972 outstanding and unvested RSUs were accelerated and vested during the three months ended September 30, 2020.

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

The following is a summary of the changes in RSUs from January 1, 2019 to September 30, 2019:

Number of RSUs Weighted average grant date fair value (C$)

Balance as of January 1, 2019 — $ —

732,972 15.34

Balance as of September 30, 2019 732,972 $ 15.34

(i) During the three months ended September 30, 2019, the Company issued an aggregate of 732,972 RSUs to Mr.

Rosenheck and another Redwood employee in connection with the acquisition of four Redwood Holding Group, LLC subsidiaries.

These RSUs were accelerated and vested during the three months ended September 30, 2020.

(d) Deferred share units

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The fair value of the cash payout is determined at each reporting date based on the fair value of the Company’s common shares at the reporting date and is recorded within other liabilities.

The following is a summary of the changes in DSUs from January 1, 2020 to June 30, 2020:

The following is a summary of the changes in DSUs from January 1, 2020 to September 30, 2020:

Number of DSUs Financial liability

Balance as of January 1, 2020 33,397 $ 255

Granting and vesting of DSUs 58,380 338

Liabilities settled ( 8,484 ) ( 46 )

Loss (gain) on revaluation — ( 128 )

Balance as of June 30, 2020 24,913 $ 153

No DSUs were granted or outstanding during the six months ended June 30, 2019.

Balance as of September 30, 2020 83,293 $ 419

The following is a summary of the changes in DSUs from January 1, 2019 to September 30, 2019:

Number of DSUs Financial liability

Balance as of January 1, 2019 — $ —

Granting and vesting of DSUs 33,937 454

Loss (gain) on revaluation — ( 147 )

Balance as of September 30, 2019 33,937 $ 307

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

Earnings (Loss) Per Share

Basic and diluted earnings (loss) per share are calculated using the following numerators and denominators:

For the three months ended June 30, For the six months ended June 30,

Basic and diluted earnings (loss) per share from continuing operations are calculated using the following numerators and denominators:

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

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Weighted average number of common shares outstanding 350,288,783 338,957,949 349,397,156 297,964,058

Basic earnings per share $ ( 0.31 ) $ 0.56 $ ( 0.09 ) $ 1.57

Diluted earnings per share computation (i)

Basic earnings per share (i)

$ 0.20 $ 1.78 $ 0.11 $ 3.71

Diluted earnings per share computation

Net income (loss) used in the computation of basic earnings per share $ 69,506 $ 604,446 $ 38,615 $ 1,104,564

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Weighted average number of common shares outstanding used in the computation of basic earnings per share 350,288,783 338,957,949 349,397,156 297,964,058

Dilutive effect of warrants (i)

— 19,287,262 — 21,239,056

Dilutive effect of stock options (i)

— 10,992,464 — 11,291,914

Dilutive effect of restricted share units (i)

Dilutive effect of Altria Warrant (i)

— 9,100,465 — 13,633,605

Dilutive effect of Top-up Rights – exercised and exercisable fixed price (i)

— 630,531 — 766,769

Dilutive effect of warrants 12,514,864 17,792,227 17,126,222 20,080,244

Dilutive effect of stock options 6,688,620 10,435,804 7,992,139 11,030,736

Dilutive effect of RSUs 126,753 732,972 215,934 732,972

Dilutive effect of Altria Warrant — — — 1,833,853

Dilutive effect of Top-up Rights – exercised and exercisable fixed price — 1,349,720 — 1,976,828

Weighted average number of common shares for computation of diluted income (loss) per share 369,619,020 369,268,672 374,731.451 333,618,691

Diluted earnings per share $ ( 0.31 ) $ 0.16 $ ( 0.09 ) $ 0.41

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

Diluted earnings per share (i)

$ 0.19 $ 1.62 $ 0.10 $ 0.92

(i) Basic and dilutive earnings per share from discontinued operations were $ 0.00 for the three and nine months ended September 30, 2020 and 2019.

The following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive or because conditions for contingently issuable shares were not satisfied at the end of the reporting periods.

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

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Stock options 2,017,176 1,346,902 1,571,134 51,830

Warrants 17,536,558 — 17,521,903 —

Restricted share units 1,012,249 — 1,012,249 —

Total anti-dilutive securities 133,367,902 130,802,485 132,921,860 53,115,367

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

Related Party Transactions and Balances

On March 8, 2019, in connection with the Altria Investment, Altria, through certain of its wholly owned subsidiaries, purchased a 45 % equity interest in the Company.

During the three and six months ended June 30, 2020, the Company incurred $ 281 and $ 953 respectively, for consulting services from Altria Pinnacle LLC, a subsidiary of Altria (“Altria Pinnacle”).

As of June 30, 2020, the accrual for these consulting services was $ 281 (December 31, 2019 – $ 1,152 ).

No consulting services were provided by Altria Pinnacle for the three and six months ended June 30, 2019.

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,

2020 2019 2020 2019

Altria Pinnacle – expense

$ 160 $ 1,772 $ 1,113 $ 1,772

Total $ 160 $ 1,772 $ 1,113 $ 1,772

The following is a summary of amounts payable related to the consulting services with Altria Pinnacle:

September 30, 2020 December 31, 2019

Altria Pinnacle – payable

Total $ 5 $ 1,152

During 2019, the Company purchased machinery and equipment amounting to $ 1,258 from a subsidiary of Altria.

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Refer to Note 11 for further information on the derivative liabilities related to the Altria Investment.

There were no other material related party transactions for the six months ended June 30, 2020 or June 30, 2019.

There were no other material related party transactions for the three and nine months ended September 30, 2020 and 2019.

Segment Information

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Operating income (loss) is defined as net revenue less cost of sales and operating expenses.

Corporate expenses are expenses that relate to the consolidated business and not to an individual operating segment.

The Company’s method of allocating corporate costs is refined periodically.

Reporting by operating segments follows the same accounting policies as those used to prepare the consolidated financial statements.

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Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

Segment data was as follows for the three months ended June 30, 2020:

Three months ended June 30, 2020

United States Rest of World Corporate Total

Segment data was as follows for the three months ended September 30, 2020:

Three months ended September 30, 2020

United States Rest of World Corporate expenses Total

Consolidated statements of net income (loss) and comprehensive income (loss)

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Income tax expense 143 845 — 988

Income (loss) from discontinued operations — ( 473 ) — ( 473 )

Net income (loss) ( 14,004 ) 93,447 ( 10,979 ) 68,464

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

Segment data was as follows for the six months ended June 30, 2020:

Six months ended June 30, 2020

United States Rest of World Corporate Total

Segment data was as follows for the nine months ended September 30, 2020:

Nine months ended September 30, 2020

United States Rest of World Corporate expenses Total

Consolidated statements of net income (loss) and comprehensive income (loss)

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Income tax expense 143 845 — 988

Income (loss) from discontinued operations — ( 519 ) — ( 519 )

Net income (loss) ( 71,571 ) 132,704 ( 24,691 ) 36,442

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Purchase of property, plant and equipment, net 294 21,040 — 21,334

Sources of net revenue for the three and six months ended June 30, 2020 and 2019 were as follows:

Three months ended June 30, Six months ended June 30,

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

Sources of net revenue for the three and nine months ended September 30, 2020 and 2019 were as follows:

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

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

Three months ended June 30, Six months ended June 30,

Three months ended September 31, Nine months ended September 31,

2020 2019 2020 2019

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Other countries 514 17 972 351

Total $ 9,883 $ 7,653 $ 18,315 $ 10,657

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

Net revenue $ 11,358 $ 5,785 $ 29,673 $ 16,442

Property, plant and equipment assets were physically located in the following geographic regions:

As of June 30, 2020 As of December 31, 2019

As of September 30, 2020 As of December 31, 2019

Canada $ 146,292 $ 139,160

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United States

During the three and six months ended June 30, 2020, the U.S.

During the three and nine months ended September 30, 2020 and 2019, the U.S.

segment had no major customers.

As of June 30, 2020, $ 46 (December 31, 2019 – $ 12 ) in expected credit losses has been recognized on receivables from contracts with customers.

As of September 30, 2020, $ 41 (December 31, 2019 – $ 12 ) in expected credit losses has been recognized on receivables from contracts with customers.

Rest of World

During the three months ended, June 30, 2020, the Rest of World segment earned a total net revenue before excise taxes of $ 7,040 from four major customers, BC Liquor Distribution Branch, Alberta Gaming, Liquor and Cannabis Commission, Ontario Cannabis Retail Corporation, and Société Québécoise du Cannabis accounting for 26 %, 19 %, 16 % and 12 % of the Company’s total revenues, respectively (three months ended June 30, 2019 – $ 4,118 from one major customer accounting for 54 % of the Company’s total revenues).

During the six months ended, June 30, 2020, the Rest of World segment earned a total net revenue before excise taxes of $ 11,819 from the same four major customers as mentioned above, representing 19 %, 22 %, 13 %, and 13 % of the Company’s total revenues, respectively (six months ended June 30, 2019 – $ 5,800 from two major customers, together accounting for 54 % of the Company’s total revenues).

As of June 30, 2020, $ 34 (December 31, 2019 – $ 124 ) in expected credit losses has been recognized on receivables from contracts with customers.

During the three months ended September 30, 2020, the Rest of World segment earned a total net revenue before excise taxes of $ 9,790 from four major customers, Société Québécoise du Cannabis, Alberta Gaming, Liquor and Cannabis Commission, Ontario Cannabis Retail Corporation, and BC Liquor Distribution Branch accounting for 26 %, 22 %, 20 % and 14 %, respectively, of the Company’s total revenue (three months ended September 30, 2019 – $ 3,351 from two major customers, together accounting for 58 % of the Company’s total revenues).

During the nine months ended September 30, 2020, the Rest of World segment earned a total net revenue before excise taxes of $ 22,142 from the same four major customers as mentioned above, accounting for 18 %, 23 %, 16 %, and 17 %, respectively, of the Company’s total revenue (nine months ended September 30, 2019 – $ 7,101 from two major customers, together accounting for 43 % of the Company’s total revenues).

As of September 30, 2020, $ 23 (December 31, 2019 – $ 124 ) in expected credit losses has been recognized on receivables from contracts with customers.

During the three months ended September 30, 2020, the Company classified OGBC as held-for-sale.

The loss from discontinued operations from the Rest of World segment for the three and nine months ended September 30, 2020 was $ 473 and $ 519 , respectively.

The loss from discontinued operations from the Rest of World segment for the three and nine months ended September 30, 2019 was $ 36 and $ 63 , respectively.

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the three and nine months ended September 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

(a) R&D commitments

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An additional $ 4,900 of cash payments will be paid to Technion upon the achievement of certain milestones.

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

(b) Altria consulting services

On February 18, 2019, the Company entered into an agreement with a wholly owned subsidiary of Altria (which agreement was subsequently amended and restated to substitute Altria Pinnacle as a party thereto), to receive strategic advisory and project management services from Altria Pinnacle (the “Services Agreement”).

Pursuant to the Services Agreement, the Company will pay Altria Pinnacle a monthly fee equal to the product of one hundred and five percent ( 105 %) and the sum of:

Pursuant to the Services Agreement, the Company will pay Altria Pinnacle a monthly fee equal to the product of 105 % and the sum of:

(i) all costs directly associated with the services incurred during the monthly period, and (ii) a reasonable and appropriate allocation of indirect costs incurred during the monthly period.

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On December 23, 2019, the Company issued 856,017 restricted common shares to an accredited investor in a private placement (“Private Placement – 2019”) in reliance on Section 4(a)(2) of the Securities Act of 1933 in connection with the use of certain publicity rights in brand development.

On December 23, 2019, the Company issued 856,017 restricted common shares to Kristen Bell, an accredited investor, in a private placement (“Private Placement – 2019”) in reliance on Section 4(a)(2) of the Securities Act of 1933 in connection with the use of certain publicity rights in the brand development of Happy Dance™.

One-third of such common shares vested on January 31, 2020 with the remaining shares vesting in two equal installments on June 23, 2021, and December 23, 2022.

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The number of common shares that would be issued upon achieving the foregoing milestones will be determined based on the ten -day volume weighted average price per share of the Company’s common shares on Nasdaq as of the trading day immediately prior to the date of filing with the SEC of the Company’s audited year-end financial statements for the first fiscal year during which such milestones are achieved.

(d) Take or Pay Supply Agreement

In January 2020, the Company entered into a take or pay supply agreement with a supplier of dried cannabis flower.

The Company agreed to purchase a minimum of approximately C$ 1,734 ($ 1,290 ) of dried cannabis flower over 6 months from the date of the agreement and, subject to the supplier’s satisfaction of certain conditions and the availability of additional product, potentially up to a maximum of approximately C$ 4,284 ($ 3,188 ) over 6 months from the date of the agreement.

As a t June 30, 2020, the Company is committed to purchase approximately C$ 1,230 ($ 906 ) of dried cannabis flower remaining under this agreement which, due to delays in deliveries from the supplier, are expected to be made during the remainder of 2020.

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

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Contingencies

The Company is subject to various legal proceedings in the ordinary course of business and in connection with its marketing, distribution and sale of its products.

The Company is subject to various legal proceedings in the ordinary course of its business and in connection with its marketing, distribution and sale of its products.

Many of these legal proceedings are in the early stages of litigation and seek damages that are unspecified or not quantified.

Although the outcome of these matters cannot be predicted with certainty, the Company does not believe these legal proceedings, individually or in the aggregate, will have a material adverse effect on the Company’s financial condition but could be material to the Company’s results of operations for a quarterly period depending, in part, on the results for that quarter.

(a) Class Action Complaints Relating to Restatements

Although the outcome of these matters cannot be predicted with certainty, the Company does not believe these legal proceedings, individually or in the aggregate, will have a material adverse effect on the its financial condition but could be material to the its results of operations for a quarterly period depending, in part, on its results for that quarter.

(a) Class action complaints relating to restatement

On March 11 and 12, 2020, two alleged shareholders of the Company separately filed two putative class action complaints in the U.S.

District Court for the Eastern District of New York against the Company and its Chief Executive Officer and Chief Financial Officer alleging 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.

District Court for the Eastern District of New York against the Company and its former Chief Executive Officer (now Executive Chairman) and Chief Financial Officer alleging violations of Section 10(b) of the 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 complaints generally allege that certain of the Company’s prior public statements about revenues and internal controls were incorrect based on the Company’s March 2, 2020, disclosure that the Audit Committee of its Board of Directors was conducting a review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel.

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On June 3, 2020, an alleged shareholder filed a Statement of Claim in the Ontario Superior Court of Justice in Toronto, Ontario, Canada, seeking, among other things, an order certifying the action as a class action on behalf of a putative class of shareholders and damages of an unspecified amount.

The Statement of Claim names the Company, its Chief Executive Officer, Chief Financial Officer, former Chief Financial Officer and Chief Commercial Officer, and current and former members of its Board of Directors as defendants and alleges breaches of the Ontario Securities Act, oppression under the Ontario Business Corporations Act and common law misrepresentation.

The Statement of Claim generally alleges that certain of the Company’s prior public statements about revenues and internal controls were misrepresentations based on the Company’s March 2, 2020 disclosure that the Audit Committee of its Board of Directors was conducting a review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel, and the Company’s subsequent restatements.

The Statement of Claim names the Company, its former Chief Executive Officer (now Executive Chairman), Chief Financial Officer, former Chief Financial Officer and Chief Commercial Officer, and current and former members of its Board of Directors as defendants and alleges breaches of the Ontario Securities Act, oppression under the Ontario Business Corporations Act and common law misrepresentation.

The Statement of Claim does not quantify its damage request.

The Company and the other named defendants have not yet filed a response to the Statement of Claim.

(b) Regulatory Reviews Relating to Restatements

(b) Regulatory reviews relating to restatement

The Company has been responding to requests for information from various regulatory authorities relating to its previously disclosed restatement of its financial statements for the first three quarters of 2019.

The Company is responding to all such requests for information and cooperating with all regulatory authorities.

The Company cannot predict the outcome of any such regulatory review or investigation and it is possible that additional investigations or one or more formal proceedings may be commenced against the Company and its current and former officers and directors in connection with these regulatory reviews.

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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.

As of the date of this Quarterly Report, the plaintiff has not refiled the complaint and the complaint has been dismissed without prejudice

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

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.

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

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

Financial Instruments

3 unchanged sentences

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, loan receivable, and advances to joint ventures.

The Company’s maximum exposure to this risk is equal to the carrying amount of these financial assets, which amounted to $ 1,424,786 as of June 30, 2020 (December 31, 2019 – $ 1,586,978 ).

The Company’s maximum exposure to this risk is equal to the carrying amount of these financial assets, which amounted to $ 1,401,606 as of September 30, 2020 (December 31, 2019 – $ 1,586,978 ).

(i) Accounts receivable

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Indicators that there is no reasonable expectation of recovery include, among others, the failure of a debtor to engage in a repayment plan, and a failure to make contractual payments for a period of greater than 120 days past due.

For the three months ended June 30, 2020, the Company recorded a current expected credit loss allowance of $ 80 (December 31, 2019 – $ 136 ).

The Company has assessed that there is a concentration of credit risk, as 78 % of the Company’s accounts receivable were due from four customers as of June 30, 2020 (December 31, 2019 – 56 % due from two customers) with an established credit history with the Company.

For the three months ended September 30, 2020, the Company recorded a current expected credit loss allowance of $ 64 (December 31, 2019 – $ 136 ).

The Company has assessed that there is a concentration of credit risk, as 59 % of the Company’s accounts receivable were due from four customers as of September 30, 2020 (December 31, 2019 – 56 % due from two customers) with an established credit history with the Company.

(ii) C ash and cash equivalents, short-term investments, and other receivables

The Company held cash and cash equivalents of $ 1,109,700 as of June 30, 2020 (December 31, 2019 – $ 1,199,693 ).

The short-term investments and related interest receivable of $ 213,614 as of June 30, 2020 (December 31, 2019 – $ 306,347 ) represents short-term investments with a maturity of less than a year and accrued interest as of period end.

The Company held cash and cash equivalents of $ 1,097,846 as of September 30, 2020 (December 31, 2019 – $ 1,199,693 ).

The short-term investments and related interest receivable of $ 202,883 as of September 30, 2020 (December 31, 2019 – $ 306,347 ) represents short-term investments with a maturity of less than a year and accrued interest as of period end.

The cash and cash equivalents and short-term investments, including guaranteed investment certificates and bankers’ acceptances, are held with central banks and financial institutions that are highly rated.

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The Company has assessed the credit risk of advances to joint ventures based on the financial position of the borrowers, and the regulatory and economic environment of the borrowers.

Based on historical information, and adjusted for forward-looking expectations, the Company has assessed an expected credit loss allowance on these advances as of June 30, 2020 of $ nil (December 31, 2019 – $ nil ).

The expected loss rates are based on the historical credit losses experienced.

Where appropriate, the historical loss rates are adjusted to reflect current and forward-looking information.

The Company has assessed an expected credit loss allowance on these advances as of September 30, 2020 to be $ nil (December 31, 2019 – $ nil ).

(b) Liquidity risk

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The Company’s funding is primarily provided in the form of capital raised through the issuance of common shares and warrants.

As of June 30, 2020, 14 % of the Company’s payables were due to one vendor (December 31, 2019 – 42 % due to three vendors).

As of September 30, 2020, the Company had no concentration risk of vendors (December 31, 2019 – 42 % due to three vendors).

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

9 unchanged sentences

Fluctuations in interest rates may impact the level of income and expense recorded on the cash equivalents and short-term investments, and the market value of all interest-earning assets, other than those which possess a short-term to maturity.

A 10% change in the interest rate in effect on June 30, 2020 and December 31, 2019, would not have a material effect on (i) fair value of the cash equivalents and short-term investments as the majority of the portfolio has a maturity date of three months or less, or (ii) interest income.

A 10% change in the interest rate in effect on September 30, 2020 and December 31, 2019, would not have a material effect on (i) fair value of the cash equivalents and short-term investments as the majority of the portfolio has a maturity date of three months or less, or (ii) interest income.

Management continues to monitor external interest rates and revise the Company’s investment strategy as a result.

During the six months ended June 30, 2020, the Company had net interest income of $ 11,485 (June 30, 2019 – $ 11,528 ).

During the three and six months ended June 30, 2020, the Company’s average variable interest rate fell 0.73 % and 1.45 %, respectively.

Had the interest rates been consistent, net interest income would have increased by $ 2,090 and $ 7,292 , respectively for the three and six months ended June 30, 2020.

During the nine months ended September 30, 2020, the Company had net interest income of $ 15,266 (September 30, 2019 – $ 20,455 ).

During the three and nine months ended September 30, 2020, the Company’s average variable interest rate fell 0.03 % and 1.44 %, respectively.

Had the interest rates been consistent, net interest income would have increased by $ 303 and $ 15,214 , respectively for the three and nine months ended September 30, 2020.

(e) Currency rate risk

5 unchanged sentences

As such, the Company’s financial position and financial results may be adversely affected by the unfavorable fluctuations in currency exchange rates.

As of June 30, 2020, the Company had foreign currency gain (loss) on translation of $( 61,821 ) (June 30, 2019 – $ 21,845 ).

As of September 30, 2020, the Company had foreign currency gain (loss) on translation of $( 35,654 ) (September 30, 2019 – $ 9,424 ).

A 10% change in the exchange rates for the U.S.

dollar would affect the carrying value of net assets by approximately $ 166,395 as of June 30, 2020 (December 31, 2019 – $ 174,902 ).

dollar would affect the carrying value of net assets by approximately $ 176,449 as of September 30, 2020 (December 31, 2019 –$ 174,902 ).

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

6 unchanged sentences

• Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability.

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2020 and December 31 2019, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

June 30, 2020 Level 1 Level 2 Level 3 Total

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of September 30, 2020 and December 31, 2019 and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value.

September 30, 2020 Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 1,097,846 $ — $ — $ 1,097,846

8 unchanged sentences

The net changes in non-cash working capital items are as follows:

For the six months ended June 30,

For the nine months ended September 30,

Accounts receivable $ ( 1,448 ) $ ( 1,991 )

1 unchanged sentence

Prepaids and other assets ( 1,137 ) ( 5,930 )

Inventory ( 23,913 ) ( 15,105 )

Current portion of loans receivable — ( 4,607 )

Inventory, net ( 18,316 ) ( 33,903 )

Accounts payable and other liabilities 3,711 23,676

Cumulative effect from foreign exchange ( 8,764 ) —

net working capital assumed on acquisition — 972

Total $ ( 29,123 ) $ ( 25,098 )

Non-monetary Transactions

During the six months ended June 30, 2020, the Company had no non-monetary transactions.

On March 28, 2019, the Company entered into two transactions to simultaneously purchase and sell inventory to a third party.

The Company purchased cannabis resin from the third party and in turn sold cannabis dry flower to the third party.

The transactions involved the exchange of work in progress inventory and were accounted for at the carrying value of inventory transferred by the Company, which equaled the value of the cannabis resin received.

No revenue was recognized as a result of this transaction and no gain or loss was recognized in the condensed consolidated statements of operations and comprehensive income (loss).

Cronos Group Inc.

Notes to Condensed Consolidated Financial Statements

For the six months ended June 30, 2020

For the three and nine months ended September 30, 2020

(In thousands of U.S.

dollars, except for gram and share amounts, unaudited)

Subsequent Events

(a) On July 24, 2020, the Company entered into an amendment to the Series A Loan with Natuera to increase the principal amount of the Series A Loan by $ 6,350 , to an aggregate principal amount of $ 15,500 , of which the Company has committed to fund 50 % and its joint venture partner has committed to fund the remaining 50 %.

Outstanding principal amounts continue to bear interest at a fixed annual rate of 5.67 % and the maturity date of the Series A Loan has been extended to March 1, 2021.

As of June 30, 2020, the Company has a loan receivable (net of credit allowance) of $ 2,984 from Natuera.

Refer to Note 10 for details.

(b) On July 20, 2020, the Company entered into separation agreements with Robert Rosenheck and another Redwood employee pursuant to which they resigned from their employment with Redwood Wellness, LLC.

In connection with such separation agreements, the 732,972 outstanding and unvested RSUs as of July 20, 2020 to which they were entitled were accelerated and vested as of July 20, 2020.

A total of $ 6.2 million of share-based compensation costs will be recognized in the third quarter of 2020.

Held-For-Sale Assets and Discontinued Operations

During the three months ended September 30, 2020, the Company advanced its plans for the sale and disposal of substantially all of the assets of OGBC.

As a result, OGBC’s results of operations have been reclassified as discontinued operations in the accompanying condensed consolidated financial statements.

Accordingly, the assets and liabilities of OGBC are separately reported as assets and liabilities “held-for-sale” as of September 30, 2020 on the consolidated balance sheet.

For comparative purposes, amounts in the prior periods have been reclassified to conform to current year presentation, as disclosed in Note 2(e).

The Company recorded $ 919 as a valuation allowance upon reclassification of assets as held-for-sale on OGBC for the three and nine months ended September 30, 2020.

The following table summarizes the financial information for discontinued operations:

Three months ended September 30, Nine months ended September 30,

2020 2019 2020 2019

Consolidated statements of net income (loss) and comprehensive income (loss)

OGBC income from discontinued operations, net of income taxes $ ( 473 ) $ ( 36 ) $ ( 519 ) $ ( 63 )

September 30, 2020 December 31, 2019

Consolidated balance sheets

Long-term assets classified as discontinued operations 2,066 3,248

Non-monetary Transactions

During the nine months ended September 30, 2020, the Company had no non-monetary transactions.

On March 28, 2019, the Company entered into two transactions to simultaneously purchase and sell inventory to a third party.

The Company purchased cannabis resin from the third party and in turn sold cannabis dry flower to the third party.

No revenue was recognized as a result of this transaction and no gain or loss was recognized in the condensed consolidated statements of net income (loss) and comprehensive income (loss).

In September 2019, the Company entered into three transactions to simultaneously purchase and sell inventory to a third party.

The Company purchased cannabis resin and cannabis tincture oil and in turn sold cannabis dry flower to the third party.

The transactions involved the exchange of work in progress inventory and were accounted for in accordance with ASC 845 Non-monetary transactions at the carrying value of inventory transferred by the Company.

$ 2,300 was recognized in revenue as a result of this transaction and no gain or loss was recognized in the consolidated statements of net income (loss) and comprehensive income (loss).

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements