What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 355 added, 241 removed, 209 unchanged (74% of the section changed)

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

The following discussion and analysis should be read together with other information, including Cronos Group’s condensed consolidated financial statements and the related notes to those statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 (this “Quarterly Report”), consolidated financial statements appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”) and Part I, Item 1A, Risk Factors, of the Annual Report.

of this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021 (this “Quarterly Report”), consolidated financial statements appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”) and Part I, Item 1A, Risk Factors, of the Annual Report.

Forward-Looking Statements

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• expectations regarding the implementation and effectiveness of key personnel changes;

• the anticipated benefits and impact of the Altria Investment (as defined herein);

• the potential exercise of the Altria Warrant (as defined herein), pre-emptive rights and/or top-up rights in connection with the Altria Investment, including proceeds to us that may result therefrom;

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

• the potential exercise of one warrant of the Company included as part of the Altria Investment, pre-emptive rights and/or top-up rights in connection with the Altria Investment, including proceeds to us that may result therefrom;

• expectations regarding the use of proceeds of equity financings, including the proceeds from the Altria Investment;

3 unchanged sentences

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

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• the ongoing impact of the legalization of additional cannabis product types and forms for adult-use in Canada, including federal, provincial, territorial and municipal regulations pertaining thereto, the related timing and impact thereof and our intentions to participate in such markets;

6 unchanged sentences

(“OGBC”) production facility;

• uncertainties as to our ability to exercise the PharmaCann Option (as defined herein) in the near term or the future or in full or in part, including the uncertainties as to the status and future development of federal legalization of cannabis in the U.S.

and our ability to realize the anticipated benefits of the transaction with PharmaCann (as defined herein);

• expectations regarding revenues, expenses and anticipated cash needs;

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(xiv) our ability to complete planned dispositions, including the sale of OGBC, and, if completed, obtain our anticipated sales price;

and (xv) other considerations that management believes to be appropriate in the circumstances.

(xv) our ability to exercise the PharmaCann Option and realize the anticipated benefits of the transaction with PharmaCann;

and (xvi) other considerations that management believes to be appropriate in the circumstances.

While our management considers these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct.

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By their nature, Forward-Looking Statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved.

19 unchanged sentences

changes in regulatory requirements in relation to our business and products;

legal or regulatory obstacles that could prevent us from being able to exercise the PharmaCann Option and thereby realizing the anticipated benefits of the transaction with PharmaCann;

and the factors discussed under Part I, Item 1A, “Risk Factors” of the Annual Report.

9 unchanged sentences

All references to “dollars” or “$” are to U.S.

The assets and liabilities of the Company’s foreign operations are translated into dollars at the exchange rate in effect as of March 31, 2021, December 31, 2020 and March 31, 2020.

Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates.

The consolidated statements of net income (loss) and comprehensive income (loss) and consolidated statements of cash flows of the Company’s foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period using Bloomberg.

The assets and liabilities of the Company’s foreign operations are translated into dollars at the exchange rate in effect as of June 30, 2021, June 30, 2020 and December 31, 2020.

Transactions affecting the shareholders’ equity are translated at historical foreign exchange rates.

The condensed consolidated statements of net income (loss) and comprehensive income (loss) and condensed consolidated statements of cash flows of the Company’s foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period using Bloomberg.

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

(Exchange rates are shown as C$ per $) As of

March 31, 2021 March 31, 2020 December 31, 2020

June 30, 2021 June 30, 2020 December 31, 2020

Average rate 1.2293 1.3856 1.3036

1 unchanged sentence

Year-to-date average rate 1.2481 1.3646 1.3411

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Business Overview

12 unchanged sentences

Cronos Group reports through two segments:

“United States” and “Rest of World.” These two segments represent the geographic regions in which the Company operates and the different product offerings within each geographic region.

“United States” (“U.S.”) and “Rest of World” (“ROW”).

These two segments represent the geographic regions in which the Company operates and the different product offerings within each geographic region.

The United States segment manufactures, markets and distributes U.S.

hemp-derived supplements and cosmetic products through e-commerce, retail and hospitality partner channels in the United States under the brands Lord Jones ™ and Happy Dance ™ .

The Rest of World segment is involved in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets.

In Canada, Cronos Group operates a wholly owned license holder under the Cannabis Act (Canada), Peace Naturals Project Inc.

(“Peace Naturals”), which has production facilities near Stayner, Ontario (the “Peace Naturals Campus”).

hemp-derived supplements and cosmetic products through e-commerce, retail and hospitality partner channels in the United States under the brands Lord Jones ™ , Happy Dance ™ and PEACE+ ™ .

The ROW segment is involved in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets.

In Canada, Cronos Group operates two wholly owned license holders under the Cannabis Act (Canada), Peace Naturals Project Inc.

(“Peace Naturals”), which has production facilities near Stayner, Ontario (the “Peace Naturals Campus”), and Cronos Fermentation, which has fermentation and manufacturing facilities in Winnipeg, Manitoba.

In Israel, the Company operates under the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production and marketing of dried flower, pre-rolls and cannabis oils in the Israeli medical market.

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As the global situation continues to change rapidly, ensuring the health and safety of our employees remains one of our top priorities.

In the U.S., various states have begun rolling back their COVID-19 related restrictions as the continued rollout of vaccines has accelerated.

In the U.S., numerous states have continued to remove their COVID-19 related restrictions as the rollout of vaccines continues.

This has resulted in the re-opening of, and increased occupancy capacities in, retail outlets, including those that sell the Company’s products.

There are, however, indications that the pace of vaccinations may be slowing.

Any reinstatement of restrictions on the operations of retail outlets could negatively impact the Company’s short-term results of operations in the U.S.

In Canada, in response to a recent surge in infection rates, individual provinces are taking increasingly stronger measures to slow infection rates, including stay-at-home orders and temporary closures of retail outlets, including cannabis stores.

Most provinces, however, allow curbside pick-up or delivery, replacing in-person visits to cannabis stores.

The measures taken to slow infection rates are expected to have a negative impact on the Company’s short-term revenue growth in Canada.

The roll-out of vaccines in individual provinces has continued, but the pace of the roll-out has varied between the provinces, and the rate of vaccination in Canada is lower than in the U.S.

In Israel, COVID-19 restrictions have been gradually eased as vaccination rates have increased to cover over 50% of its population and daily infection rates remain low.

Occupancy limitations are still in place in retail outlets, including those that sell the Company’s products.

The Company does not expect these measures to have a material impact on the Company’s short-term revenue growth in Israel.

Recently in the U.S., there have been a number of supply chain challenges, such as container ships facing delays due to congestion in ports, impacting many industries, including the industries in which the Company operates.

Although we have not yet seen a significant impact, we continue to monitor our supply chain closely.

In Canada, COVID-19 restrictions began gradually easing at the end of June 2021 as the vaccination rate increases.

Each province is responsible for implementing re-opening plans and certain provinces, including Ontario, are progressing through phases of re-opening which may permit continued increases to the allowance of in-person shopping, typically in the form of percentage of store capacity.

All provinces have some form of cannabis retail open to consumers, whether it be restricted in-person shopping, curb-side pickup or delivery.

The lockdown measures taken in the first six months of 2021 to slow infection rates negatively impacted the Company’s short-term revenue growth in Canada.

However, if provincial reopening plans are effective across some provinces in the third quarter of 2021, we expect to partially mitigate this negative impact.

In Israel, most COVID-19 restrictions have been removed as vaccination rates have increased.

Occupancy limitations in retail outlets have been removed, including those that sell the Company’s products.

The Company does not expect the remaining COVID-19 restrictions to have a material impact on the Company’s short-term revenue growth in Israel.

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In both the U.S.

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Collectively, the effects of the COVID-19 pandemic have adversely affected the Company’s results of operations and, if the effects continue unabated, could continue to do so as long as measures to combat the COVID-19 pandemic remain in effect.

At this time,

neither the duration nor scope of the disruption can be predicted;

At this time, neither the duration nor scope of the disruption can be predicted;

therefore, the ultimate impact to the Company’s business cannot be reasonably estimated but such impact could materially adversely affect the Company’s business and financial results.

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The impact of reduced interest rates has inhibited the Company’s ability to generate interest income, but this has not had, and is not expected to have, a material impact on the liquidity or capital resources of the Company.

In June 2021, Cronos Group announced a strategic investment (the “PharmaCann Investment”) in PharmaCann Inc.

(“PharmaCann”), a leading vertically integrated U.S.

cannabis company.

A wholly owned subsidiary of Cronos Group purchased an option (the “PharmaCann Option”) to acquire an approximately 10.5% ownership stake in PharmaCann on a fully-diluted basis for a total consideration of approximately $110.4 million.

PharmaCann has a broad geographic footprint in the U.S.

and has built an efficient, effective and scalable operating model, including six production facilities and 24 dispensaries operating under the Verilife™ brand across the following six limited license states:

New York, Illinois, Ohio, Maryland, Pennsylvania and Massachusetts.

PharmaCann continues to invest in its manufacturing infrastructure and brand development to capitalize on the significant consumer retail and business-to-business wholesale opportunities.

Following the exercise of the PharmaCann Option (which will be based upon various factors, including the status of U.S.

federal cannabis legalization), Cronos Group and PharmaCann will enter into commercial agreements that would permit each party to offer its products through either party’s distribution channels.

Brand and product portfolio

In April 2021, Cronos Group announced that its Lord Jones™ brand launched a robust brand campaign entitled, “A Higher Order”.

The campaign features new creative assets along with a mix of market activations including out-of-home advertising and television spots in select U.S.

test markets.

This new Lord Jones™ campaign reaffirms the Company’s commitment to robust, breakthrough marketing and brand building that aims to bring high-quality U.S.

hemp-derived CBD products to adult consumers.

In the coming weeks, Cronos Group’s mainstream adult-use brand, Spinach™, intends to launch edibles, a new product category for Cronos Group, in the Canadian adult-use market.

This product has been developed by the Company’s world class innovation and R&D teams in partnership with various teams throughout the organization such as consumer insights, marketing, and sales.

Cronos Group approaches product launches with an aim to be the best, not necessarily the first.

The adult-use edibles are differentiated from what is currently on the market and seeks to provide an elevated experience for the consumer.

The Company’s new edibles capabilities will serve as a platform for future innovation that is expected to provide Cronos Group with a robust competitive advantage.

In April 2021, the Lord Jones™ brand launched a new product, the Lord Jones™ CBD Bump & Smooth Body Serum, which is designed to deliver non-abrasive chemical exfoliation that reduces bumpiness to reveal smoother, brighter looking skin.

The product is available on the Lord Jones™ website and is expected to be on Sephora's website and in their retail outlets in the coming weeks.

In the first quarter of 2021, Cronos Israel successfully launched PEACE NATURALS™ branded pre-rolls into the Israeli medical cannabis market.

This launch follows the successful launch of dried flower and oils to the Israeli medical cannabis market in 2020.

Cronos Israel continues to execute in Israel's rapidly growing market.

Global Supply Chain

In the first quarter of 2021, Natuera, the Company’s joint venture in Latin America, successfully exported THC cannabis derivatives from Colombia to the U.S.

for R&D purposes.

The import was conducted under a DEA permit for R&D purposes.

Additionally, Natuera's wholly owned subsidiary has been granted quotas by Colombia's Ministry of Justice and Law and Ministry of Health and Social Protection for the cultivation and manufacture of psychoactive cannabis into THC products for commercial export.

In the first quarter of 2021, Cronos GrowCo, the Company’s joint venture in Canada, continued to become operational in phases, completing its first harvest in the first quarter of 2021.

In addition to having a cultivation license for the operations contemplated by the first phase of the project, Cronos GrowCo has received a processing license, allowing it to sell into the Canadian cannabis wholesale market.

In June 2021, Cronos Group launched SOURZ by Spinach™, an exciting new line of cannabis gummies with bold and unique dual flavor combinations, into the Canadian adult-use market.

SOURZ by Spinach™ delivers bold fruit flavors in a distinctive “S” shape with a proprietary coating designed to provide a sour and sweet flavor profile, differentiating the product and elevating the consumer experience.

SOURZ by Spinach™ has quickly risen to being one of the top performing brands in the edibles category.

In June 2021, Cronos Group launched Spinach™ DABZ, a new line of cannabis concentrates, into the Canadian adult-use market.

Spinach™ DABZ are 100% cannabis-derived with no color remediation or additives to preserve terpenes and full spectrum cannabinoids.

Broadening the reach of Cronos Group’s Spinach™ brand into new and emerging categories with differentiated products will continue to be the key driver of innovation initiatives.

During the second quarter of 2021, the Spinach™ brand also launched a 28-gram format for Spinach™ flower, Spinach™ Nuggetz, and a new flower SKU, Spinach™ GMO Cookies, in select markets in Canada.

In June 2021, the Company officially re-launched PEACE+™, Cronos Group’s U.S.

hemp-derived CBD offering that is positioned in the mainstream market through its direct-to-consumer website, peaceplus.com.

PEACE+™’s initial product portfolio consists of four tinctures.

The Company intends to expand the product portfolio over time with innovative U.S.

hemp-derived CBD products.

Subsequent to the end of the second quarter of 2021, in July 2021, Happy Dance™ launched a new facial skin care product, Look Alive CBD Face Moisturizer.

This moisturizer has a whipped, light texture and is packed with hydrating ingredients such as avocado oil, hyaluronic acid and high-quality U.S.

hemp-derived CBD.

The product is now available online to U.S.

consumers through the brand’s direct-to-consumer website, doahappydance.com, and online at ULTA.com and is expected to become available in ULTA Beauty™ stores throughout the U.S.

in the coming weeks.

Intellectual property initiatives

In April 2021, Cronos Fermentation, Cronos Group’s GMP-standard fermentation and manufacturing facility in Winnipeg, Manitoba, received its processing license.

This is a significant milestone not just for Cronos Group, but for the evolution of the industry and advancements in science that will be applied in an effort to elevate the consumer experience.

Enterprise Initiatives

In April 2021, Cronos Group announced the launch of its U.S.

Cronos Employees Political Action Committee (the “Employees PAC”).

The Employees PAC was established to support and educate legislators who are open to responsibly advancing legislation and regulation for U.S.

hemp-derived CBD products in the U.S.

market and supporting a regulated, safe and legal federal cannabis industry in the U.S.

Subsequent to the end of the first quarter in April 2021, the Company expanded the implementation of its new enterprise resource planning (“ERP”) system to the U.S.

This follows the implementation of a new ERP system across the Canadian business in the third quarter of 2020.

The new ERP system will be a meaningful component of the Company's internal control over financial reporting and is expected to enable us to realize efficiencies throughout our supply chain and operations.

In June 2021, Cronos Group and Ginkgo Bioworks, Inc.

(“Ginkgo”) announced an amended collaboration and license agreement that will enable the companies to accelerate the commercialization of cultured cannabinoids at scale.

The amended agreement follows the receipt of Cronos Fermentation’s processing license in April 2021, and most recently the receipt of its license issued by the Canada Revenue Agency.

With the amended agreement and both licenses in hand, Cronos Fermentation commenced commercial-scale production of cannabigerol (“CBG”) in June 2021.

Cronos Group is prioritizing rare cannabinoids, such as CBG, and plans to sequence commercial production and subsequent product launches based on this approach.

Cronos Group expects that the final productivity target for CBG will be achieved prior to September 2021, as previously announced.

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Kendrick Ashton Jr.

was elected to Cronos Group’s Board of Directors at the Annual Meeting of Shareholders held on June 25, 2021.

Ashton is the Co-Founder and Co-Chief Executive Officer of The St.

James, a leading developer and operator of performance, wellness and lifestyle brands, experiences and destinations.

Prior to founding The St.

James in 2014, Mr.

Ashton was a founding member and Managing Director of Perella Weinberg Partners, a boutique financial services firm founded in 2006.

Prior to joining Perella Weinberg Partners, Mr.

Ashton was an investment banker at Goldman, Sachs & Co.

and gained legal experience at Cravath, Swaine & Moore LLP and Wachtell, Lipton, Rosen & Katz.

Ashton is a member of the Board of Trustees of the Colonial Williamsburg Foundation, the Board of Trustees of the National Urban League, the Board of Directors of Archbishop John Carroll High School and the Board of Directors of Bellwether Education Partners and is an emeritus member of the Board of Visitors and Foundation Board of the College of William & Mary.

In April 2021, Thomas Cohn joined Cronos Group as Head of Regulatory and Product.

Cohn joined Cronos Group from The Avon Company, where he served as General Counsel and Corporate Secretary.

Cohn also served as Deputy General Counsel, Regulatory at NBTY, Inc., a leading vertically integrated manufacturer, marketer and distributor of nutritional supplements with global operations.

Prior to his time at NBTY, Inc., Mr.

Cohn served in various roles at the Federal Trade Commission (“FTC”) from 1991 to 2008, including as Director and Assistant Director of its Northeast Region, where he was responsible for managing antitrust and consumer protection investigations and law enforcement actions, as well as local and regional outreach efforts to educate consumers, businesses, and law enforcement agencies on fraud identification and avoidance, and how to comply with antitrust and consumer protection laws enforced by the FTC.

In July 2021, Anthony Parisi joined Cronos Group as Global Head of Audit, a newly formed role for the Company.

Parisi joins Cronos Group with over 20 years of audit experience, most recently serving as Vice President of Global Audit and Risk Management for Reliance Worldwide Corporation, an ASX listed company.

In June 2021, Carlos Cortez joined Cronos Group as Vice President & Controller, a role which includes serving as the Company’s principal accounting officer.

Cortez joins Cronos Group with over 18 years of experience, most recently serving as Corporate Controller of SharpSpring, Inc., a publicly traded cloud-based marketing technology company.

Prior to his time at SharpSpring, Inc., Mr.

Cortez was the Senior Finance Director – Record to Report for Discovery, Inc., a publicly traded global media company, from August 2019 until December 2020.

Prior to his time at Discovery, Inc., Mr.

Cortez spent five years as Corporate Controller for Malibu Boats, Inc., a publicly traded manufacturer of recreational powerboats.

Consolidated Results of Operations

Q1 2021 compared with Q1 2020

Summary of financial results – consolidated

(In thousands of U.S.

dollars) For the three months ended March 31, Change

2021 2020 $ %

Net revenue $ 12,611 $ 8,432 $ 4,179 50 %

Gross profit (loss) (2,963) (6,476) 3,513 (54) %

Gross margin (23) % (77) % N/A 54 pp

Adjusted EBITDA (i)

$ (37,075) $ (37,055) $ (20) — %

(i) See “Non-GAAP measures” for information related to Non-GAAP measures.

Net revenue – consolidated

(In thousands of U.S.

dollars) For the three months ended March 31, Change

2021 2020 $ %

Net revenue, before excise taxes (i)

The tables below sets forth our condensed consolidated results of operations, expressed in thousands of U.S.

dollars for the periods presented.

Our condensed consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods .

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

2021 2020 2021 2020

Net revenue before excise taxes $ 18,848 $ 11,432 $ 33,502 $ 20,776

Excise taxes (3,226) (1,549) (5,269) (2,461)

Net revenue 15,622 9,883 28,233 18,315

(i) Net revenue, before excise taxes, is calculated net of sales returns and discounts.

For the three months ended March 31, 2021 (“Q1 2021”), we reported consolidated net revenue of $12.6 million, representing an increase of $4.2 million from the three months ended March 31, 2020 (“Q1 2020”).

This change was primarily due to:

• Continued growth of the adult-use market in Canada and sales in the Israeli medical market, partially offset by strategic price reductions on various adult-use cannabis products in Canada in the second half of 2020.

• An increase in sales in the U.S.

segment in Q1 2021 compared to Q1 2020, primarily driven by the introduction of new hemp-derived CBD products.

Cost of sales and gross profit (loss) - consolidated

(In thousands of U.S.

dollars) For the three months ended March 31, Change

Cost of sales 19,445 9,743 35,019 16,689

Inventory write-down 11,961 3,062 11,961 11,024

Gross loss (15,784) (2,922) (18,747) (9,398)

Operating expenses:

Sales and marketing 13,209 6,501 23,463 13,613

Research and development 5,199 3,631 10,301 8,221

General and administrative 22,417 18,429 44,323 42,188

Share-based payments 2,565 2,546 5,064 4,982

Depreciation and amortization 1,043 679 1,778 1,366

Total operating expenses 44,433 31,786 84,929 70,370

Operating loss (60,217) (34,708) (103,676) (79,768)

Other income (loss) 117,553 (72,949) (592) 47,792

Loss from discontinued operations (561) (46) (582) (46)

Net income (loss) 56,775 (107,703) (104,850) (32,022)

Net loss attributable to non-controlling interests (279) (726) (592) (1,085)

Net income (loss) attributable to Cronos Group $ 57,054 $ (106,977) $ (104,258) $ (30,937)

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Summary of select financial results

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

2021 2020 $ % 2021 2020 $ %

Net revenue $ 15,622 $ 9,883 $ 5,739 58 % $ 28,233 $ 18,315 $ 9,918 54 %

Cost of sales 19,445 9,743 9,702 100 % 35,019 16,689 18,330 110 %

Inventory write-down 11,961 3,062 8,899 291 % 11,961 11,024 937 8 %

Gross profit (loss) (2,963) (6,476) 3,513 (54) %

Gross margin (23) % (77) % N/A 54 pp

For Q1 2021, we reported a consolidated gross loss of $3.0 million, representing a decrease in losses of $3.5 million from Q1 2020.

This change was primarily due to:

• The increase in net revenue from Q1 2020, as described above.

• A decrease in inventory write-downs in the Rest of World (“ROW”) segment.

Adjusted EBITDA – consolidated

(In thousands of U.S.

dollars) For the three months ended March 31, Change

Gross loss (15,784) (2,922) (12,862) 440 % (18,747) (9,398) (9,349) 99 %

Gross margin (101) % (30) % N/A (71) pp (66) % (51) % N/A (15) pp

For the three months ended June 30, 2021, we reported consolidated net revenue of $15.6 million, representing an increase of $5.7 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021 we reported consolidated net revenue of $28.2 million, representing an increase of $9.9 million from the six months ended June 30, 2020.

For both the three and six month comparative periods, the increase was primarily due to the continued growth of the adult-use market in Canada and increased sales in the Israeli medical market.

Cost of sales

For the three months ended June 30, 2021, we reported consolidated cost of sales of $19.4 million, representing an increase of approximately $9.7 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021, we reported consolidated cost of sales of $35.0 million, representing an increase of approximately $18.3 million from the six months ended June 30, 2020.

For both the three and six month comparative periods, the increase was primarily due to the increase in sales volume noted above as well as start-up costs associated with new product development in the ROW segment.

Inventory write-downs

For the three months ended June 30, 2021, we reported consolidated inventory write-downs of $12.0 million, representing an increase of approximately $8.9 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021, we reported consolidated inventory write-downs of $12.0 million, representing an increase of approximately $0.9 million from the six months ended June 30, 2020.

For both the three and six month comparative periods, the increases in inventory-write downs were primarily related to cannabis strains and potency levels that are no longer in-line with consumer preferences in the Canadian market and adjustments for obsolete inventory in Canada.

For the three months ended June 30, 2021, we reported consolidated gross loss of $15.8 million, representing an increase in losses of $12.9 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021, we reported gross loss of $18.7 million, representing an increase in losses of $9.3 million from the six months ended June 30, 2020.

For the three month comparative periods, the changes in gross loss and gross margin percentage were primarily due to inventory write-downs in the ROW segment, the impact of strategic price reductions on various adult-use cannabis products in Canada in the second half of 2020 as well as start up costs associated with new product development in the ROW segment.

For the six month comparative periods, the changes in gross loss and gross margin percentage were primarily due to the impact of strategic price reductions on various adult-use cannabis products in Canada in the second half of 2020 as well as start up costs associated with new product development in the ROW segment.

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Operating expenses

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

2021 2020 $ % 2021 2020 $ %

Adjusted EBITDA (i)

Sales and marketing $ 13,209 $ 6,501 $ 6,708 103 % $ 23,463 $ 13,613 $ 9,850 72 %

Research and development 5,199 3,631 1,568 43 % 10,301 8,221 2,080 25 %

General and administrative 22,417 18,429 3,988 22 % 44,323 42,188 2,135 5 %

Share-based payments 2,565 2,546 19 1 % 5,064 4,982 82 2 %

Depreciation and amortization 1,043 679 364 54 % 1,778 1,366 412 30 %

Total operating expenses $ 44,433 $ 31,786 $ 12,647 40 % $ 84,929 $ 70,370 $ 14,559 21 %

Sales and marketing

For the three months ended June 30, 2021, sales and marketing expenses were $13.2 million, representing an increase of $6.7 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021, sales and marketing expenses were $23.5 million, representing an increase of $9.9 million from the six months ended June 30, 2020.

For both the three and six month comparative periods, the increase was primarily due to an increase in ongoing advertising and marketing campaigns related to our brands in the U.S.

segment, which began in the second half of 2020 as well as increased headcount and related costs tied to these marketing efforts.

During the first half of 2020, new hiring and spending on sales and marketing were delayed in the U.S.

segment due to the impact of COVID-19.

Research and development

For the three months ended June 30, 2021, research and development expenses were $5.2 million, representing an increase of $1.6 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021, research and development expenses were $10.3 million, representing an increase of $2.1 million from the six months ended June 30, 2020.

For both the three and six month comparative periods, this increase was primarily driven by increased spending on product development and developing cannabinoid intellectual property in the ROW segment.

General and administrative

For the three months ended June 30, 2021, general and administrative expenses were $22.4 million, representing an increase of $4.0 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021, general and administrative expenses were $44.3 million, representing an increase of $2.1 million from the six months ended June 30, 2020.

For both the three and six month comparative periods, this change was primarily due to increased advisory fees associated with strategic initiatives including the PharmaCann investment, which did not take place during the comparable periods in 2020.

Depreciation and amortization

For the three months ended June 30, 2021, depreciation and amortization expenses were $1.0 million, representing an increase of $0.4 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021, depreciation and amortization expenses were $1.8 million, representing an increase of $0.4 million from the six months ended June 30, 2020.

For both the three and six month comparative periods, the change was primarily due to the increased capital expenditures in the ROW segment in the second half of 2020.

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Other income (loss) & discontinued operations

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

2021 2020 $ % 2021 2020 $ %

(i) See “Non-GAAP measures” for information related to Non-GAAP measures.

For Q1 2021, we reported a consolidated Adjusted EBITDA loss of $37.1 million, representing a marginal increase from Q1 2020.

This was primarily due to:

• An increase in sales and marketing costs due to brand development in the U.S.

segment, partially offset by a decrease in sales and marketing spend in the ROW segment.

• An increase in research and development costs primarily driven by increased spending on product development and developing cannabinoid intellectual property.

• Offsetting decreases in gross loss, as described above, and general and administrative costs.

Other items affecting the comparability of net income (loss) during Q1 2021 and Q1 2020

Interest income, net $ 2,293 $ 3,734 $ (1,441) (39) % $ 4,622 $ 11,485 $ (6,863) (60) %

For Q1 2021, we reported interest income, net of $2.3 million representing a decrease of $5.4 million from Q1 2020.

Net interest income in the first quarter of 2021 decreased compared to the first quarter of 2020 primarily due to a lower interest earning account during the three months ended March 31, 2021 compared to the interest earning accounts during the three months ended March 31, 2020.

Gain (loss) on revaluation of derivative liabilities 115,248 (35,880) 151,128 421 % (1,626) 77,488 (79,114) (102) %

For Q1 2021, we reported a loss on revaluation of derivative liabilities of $116.9 million representing a decrease of $230.2 million from Q1 2020.

Impairment on long-lived assets — (40,000) 40,000 100 % (1,741) (40,000) 38,259 96 %

Share of loss from equity accounted investments (1,115) (794) (321) (40) % (2,758) (1,966) (792) (40) %

Other, net 1,127 (9) 1,136 12622 % 911 785 126 16 %

Total other income (loss) 117,553 (72,949) 190,502 261 % (592) 47,792 (48,384) (101) %

Loss from discontinued operations (561) (46) (515) (1120) % (582) (46) (536) (1165) %

Net income (loss) $ 56,775 $ (107,703) $ 164,478 153 % $ (104,850) $ (32,022) $ (72,828) (227) %

Interest income

For the three months ended June 30, 2021, net interest income was $2.3 million, representing a decrease of $1.4 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021, net interest income was $4.6 million, representing a decrease of $6.9 million from the six months ended June 30, 2020.

For both the three and six month comparative periods, the decrease in net interest income was primarily due to reduced interest rates on interest earning accounts as well as a decrease in interest earning assets during the three and six months ended June 30, 2021 compared to the same periods in 2020.

Gain/loss on revaluation of derivative liabilities

For the three months ended June 30, 2021, gain on revaluation on derivatives was $115.2 million, including an out-of-period adjustment of $11.3 million, representing an increase of $151.1 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021, loss on revaluation on derivatives was $1.6 million, representing a decrease of $79.1 million from the six months ended June 30, 2020.

The valuation of derivative liabilities is based on inputs such as the Company’s share price and volatility, expected term and expected risk-free interest rate which have in the past, and may in the future, fluctuate significantly period-to-period.

The Company expects continued changes in derivative valuations.

The Company expects continued fluctuations in derivative valuations.

For further information, see Note 5.

Derivative Liabilities to the Company’s condensed consolidated financial statements under Item 1 “Financial Statements” of this Quarterly Report.

Review costs related to restatement of 2019 interim financial statements

For Q1 2021, we reported review costs related to the restatement of 2019 interim financial statements of $2.0 million, which are included within general and administrative expenses in the consolidated statements of net income (loss) representing a decrease of $2.4 million from Q1 2020.

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.

Impairment loss on property, plant and equipment and right-of-use assets

For Q1 2021, we reported an impairment loss on property, plant and equipment of $1.0 million related to leasehold improvements located within leased premises, encompassing approximately 6,000 square feet, in Los Angeles, California, which the Company determined it no longer had plans to use.

An impairment loss on the associated right-of-use asset of $0.7 million was also recorded during Q1 2021.

No impairment loss was recognized on leasehold improvements or right-of-use assets during Q1 2020.

Derivative Liabilities to the Company’s condensed consolidated financial statements under Item 1.

“Financial Statements” of this Quarterly Report.

Impairment loss on long-lived assets

For the three months ended June 30, 2021, there were no impairments on long lived assets.

For the six months ended June 30, 2021, impairment on long lived assets was $1.7 million, representing a decrease of $38.3 million from the six months ended June 30, 2020.

For both the three and six month comparative periods, the decrease in impairment loss on long-lived assets was due to $40.0 million in impairment charges recorded on the U.S.

reporting unit and the Lord Jones™ brand recorded in the first half of 2020.

Share of loss from equity accounted investments

For the three months ended June 30, 2021, share of loss from equity accounted investments was $1.1 million, representing an increase of $0.3 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021, share of loss from equity accounted investments was $2.8 million, representing an increase of $0.8 million from the six months ended June 30, 2020.

For both the three and six month comparative periods, the change was due to recurring losses from the Company’s equity accounted investments.

For further information, see Note 3.

Investments to the Company’s condensed consolidated financial statements under Item 1.

“Financial Statements” of this Quarterly Report.

For the three months ended June 30, 2021, other income was $1.1 million, representing an increase of $1.1 million from the three months ended June 30, 2020.

This change was primarily due to a gain on held-for-sale assets in the three months ended June 30, 2021 compared with a small gain on disposal of other assets in the three months ended June 30, 2020.

For the six months ended June 30, 2021, other income was $0.9 million, essentially unchanged from the six months ended June 30, 2020.

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Results of Operations by Business Segment:

Q1 2021 compared with Q1 2020

Summary of financial results – Rest of World (“ROW”)

(In thousands of U.S.

dollars) For the three months ended March 31, Change

The tables below sets forth our condensed consolidated results of operations by our two business segments:

ROW and U.S., expressed in U.S.

dollars and in thousands for the periods presented.

Our condensed consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods.

Certain totals in the tables below will not sum to exactly 100% due to rounding .

Summary of select financial results – ROW

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

2021 2020 $ % 2021 2020 $ %

Net revenue $ 13,395 $ 7,709 $ 5,686 74 % $ 23,565 $ 13,965 $ 9,600 69 %

Gross profit (loss) (4,139) (7,558) 3,419 (45) %

Gross margin (41) % (121) % N/A 80 pp

Adjusted EBITDA (i)

$ (22,184) $ (29,010) $ 6,826 (24) %

(i) See “Non-GAAP measures” for information related to Non-GAAP measures.

Cost of sales 17,862 8,156 9,706 119 % 32,171 14,008 18,163 130 %

Inventory write-down 11,961 3,062 8,899 291 % 11,961 11,024 937 8 %

Gross loss (16,428) (3,509) (12,919) 368 % (20,567) (11,067) (9,500) 86 %

Gross margin (123) % (46) % N/A (77) pp (87) % (79) % N/A (8) pp

Net revenue – ROW

(In thousands of U.S.

dollars) For the three months ended March 31, Change

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

2021 2020 $ % 2021 2020 $ %

3 unchanged sentences

Net revenue $ 13,395 $ 7,709 $ 5,686 74 % $ 23,565 $ 13,965 $ 9,600 69 %

For Q1 2021, the ROW segment reported net revenue of $10.2 million, representing an increase of $3.9 million from Q1 2020.

This change was primarily due to:

• Continued growth of the adult-use cannabis flower market in Canada and sales in the Israeli medical cannabis market, partially offset by strategic price reductions on various adult-use cannabis products in Canada in the second half of 2020 and a decrease in cannabis extract sales in Canada primarily due to fluctuating provincial demand.

Cost of sales and gross profit (loss) – ROW

(In thousands of U.S.

dollars) For the three months ended March 31, Change

2021 2020 $ %

Cost of sales $ 14,309 $ 5,852 $ 8,457 145 %

Inventory write-down — 7,962 (7,962) (100) %

Gross profit (loss) (4,139) (7,558) 3,419 (45) %

Gross margin (41) % (121) % N/A 80 pp

For Q1 2021, the ROW segment reported a gross loss of $4.1 million, representing a decrease in losses of $3.4 million from Q1 2020.

This change was primarily due to:

• An increase in net revenue from Q1 2021, as described above.

• A decrease in inventory write-downs.

Adjusted EBITDA – ROW

(In thousands of U.S.

dollars) For the three months ended March 31, Change

2021 2020 $ %

Adjusted EBITDA (i)

$ (22,184) $ (29,010) $ 6,826 (24) %

(i) See “Non-GAAP measures” for information related to Non-GAAP measures.

For Q1 2021, the ROW segment reported an Adjusted EBITDA loss of $22.2 million, representing a decrease in losses of $6.8 million from Q1 2020.

This change was primarily due to:

• A decrease in gross loss from Q1 2020, as described above.

• A decrease in general and administrative expenses related to a decrease in professional and consulting fees.

• A partially offsetting increase in research and development costs primarily driven by increased spending on product development and developing cannabinoid intellectual property.

Summary of financial results – United States (“U.S.”)

(In thousands of U.S.

dollars) For the three months ended March 31, Change

2021 2020 $ %

Net revenue $ 2,441 $ 2,176 $ 265 12 %

Gross profit 1,176 1,082 94 9 %

Gross margin 48 % 50 % N/A (2) pp

Adjusted EBITDA (i)

$ (9,510) $ (5,782) (3,728) 64 %

(i) See “Non-GAAP measures” for information related to Non-GAAP measures.

Net revenue – U.S.

(In thousands of U.S.

dollars) For the three months ended March 31, Change

For the three months ended June 30, 2021, the ROW segment reported net revenue of $13.4 million, representing an increase of $5.7 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021, the ROW segment reported net revenue of $23.6 million, representing an increase of $9.6 million from the six months ended June 30, 2020.

For both the three and six month comparative periods, the change was primarily due to continued growth of the adult-use cannabis flower market in Canada and sales in the Israeli medical cannabis market.

Cost of sales – ROW

For the three months ended June 30, 2021, the ROW segment reported cost of sales of $17.9 million, representing an increase of $9.7 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021, the ROW segment reported cost of sales of $32.2 million, representing an increase of $18.2 million from the six months ended June 30, 2020.

For both the three and six month comparative periods, the increase was primarily due to an increase in sales volume as well as start-up costs associated with new product development in Canada.

Inventory write-downs – ROW

For the three months ended June 30, 2021, the ROW segment reported inventory write-downs of $12.0 million, representing an increase of approximately $8.9 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021, the ROW segment reported inventory write-downs of $12.0 million, representing an increase of approximately $0.9 million from the six months ended June 30, 2020.

For both the three and six month comparative periods, the increase in inventory-write downs primarily relates to cannabis strains and potency levels that are no longer in-line with consumer preferences in the Canadian market and adjustments for obsolete inventory in Canada.

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Gross loss – ROW

For the three months ended June 30, 2021, the ROW segment reported a gross loss of $16.4 million, representing an increase in losses of $12.9 million from the three months ended June 30, 2020.

For the six months ended June 30, 2021, the ROW segment reported a gross loss of $20.6 million, representing an increase in losses of $9.5 million from the six months ended June 30, 2020.

For the three month comparative periods, the changes in gross loss and gross margin percentage were primarily due to inventory write-downs, the impact of strategic price reductions on various adult-use cannabis products in Canada in the second half of 2020, as well as start-up costs associated with new product development.

For the six month comparative periods, the changes in gross loss and gross margin percentage were primarily due to the impact of strategic price reductions on various adult-use cannabis products in Canada in the second half of 2020, as well as start-up costs associated with new product development.

Summary of select financial results – U.S.

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

2021 2020 $ % 2021 2020 $ %

Net revenue $ 2,227 $ 2,174 $ 53 2 % $ 4,668 $ 4,350 $ 318 7 %

For Q1 2021, the U.S.

segment reported net revenue of $2.4 million, representing an increase of $0.3 million from Q1 2020.

This change was primarily due to:

• An increase in product sales in the U.S.

segment in Q1 2021 compared to Q1 2020, primarily driven by the introduction of new U.S.

hemp-derived CBD products.

Cost of sales and gross profit (loss) – U.S.

(In thousands of U.S.

dollars) For the three months ended March 31, Change

2021 2020 $ %

Cost of sales 1,583 1,587 (4) — % 2,848 2,681 167 6 %

Gross profit 644 587 57 10 % 1,820 1,669 151 9 %

Gross margin 48 % 50 % N/A (2) pp

For Q1 2021, the U.S.

segment reported gross profits of $1.2 million, with gross profit margins of 48%, representing an increase of $0.1 million from Q1 2020.

This change was primarily due to:

• An increase in net revenue from Q1 2020, as described above.

Adjusted EBITDA – U.S.

(In thousands of U.S.

dollars) For the three months ended March 31, Change

2021 2020 $ %

Adjusted EBITDA (i)

$ (9,510) $ (5,782) $ (3,728) 64 %

(i) See “Non-GAAP measures” for information related to Non-GAAP measures.

For Q1 2021, the U.S.

segment reported an Adjusted EBITDA loss of $9.5 million, representing an increase in losses of $3.7 million.

This change was primarily due to:

• An increase in sales and marketing costs related to brand development.

Gross margin 29 % 27 % N/A 2 pp 39 % 38 % N/A 1 pp

Net revenue – U.S.

For the three months ended June 30, 2021, the U.S.

segment reported net revenue of $2.2 million, essentially unchanged from the three months ended June 30, 2020.

For the six months ended June 30, 2021, the U.S.

segment reported net revenue of $4.7 million, representing an increase of $0.3 million from the six months ended June 30, 2020.

For the six month comparative period, the increase was primarily driven by sales of U.S.

hemp-derived CBD products introduced in the second half of 2020.

Cost of sales – U.S.

For the three months ended June 30, 2021, the U.S.

segment reported cost of sales of $1.6 million, essentially unchanged from the three months ended June 30, 2020.

For the six months ended June 30, 2021, the U.S.

segment reported cost of sales of $2.8 million, representing an increase of $0.2 million from the six months ended June 30, 2020.

For the six months ended June 30, 2021, the increase was primarily due to an increase in sales volumes.

Gross profit – U.S.

For the three months ended June 30, 2021, the U.S.

segment reported gross profit of $0.6 million, essentially unchanged from the three months ended June 30, 2020.

For the six months ended June 30, 2021, the U.S.

segment reported gross profits of $1.8 million, representing a $0.2 million increase from the six months ended June 30, 2020.

For the six month comparative period, the increase was primarily due to the increase in net revenue, partially offset by higher cost of sales as stated above.

Non-GAAP Measures

11 unchanged sentences

GAAP measures are provided below.

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Adjusted EBITDA

Management reviews Adjusted EBITDA, a non-GAAP measure which excludes non-cash items and items that do not reflect management’s assessment of on-going business performance.

Management reviews Adjusted EBITDA, a non-GAAP measure which excludes non-cash items and items that do not reflect management’s assessment of on-going business performance of our operating segments.

Management defines Adjusted EBITDA as net income (loss) before interest, tax expense, depreciation and amortization adjusted for:

impairment loss on property, plant and equipment and right-of-use assets, loss (gain) on revaluation of derivative liabilities, other loss (income), loss from discontinued operations, share-based payments and review costs related to the restatement of the Company’s 2019 interim financial statements, the Company’s responses to the reviews of such interim financial statements by various regulatory authorities and legal costs defending shareholder class action complaints brought against the Company as a result of the restatement (see Part II, Item 1 “Legal Proceedings” of this Quarterly Report for a discussion of the regulatory reviews and shareholder class action complaints relating to the restatement of the 2019 interim financial statements).

share of loss from equity accounted investments, impairment loss on long-lived assets, loss (gain) on revaluation of derivative liabilities, transaction costs related to strategic projects, other, net, loss from discontinued operations, share-based payments and review costs related to the restatement of the Company’s 2019 interim financial statements, the Company’s responses to the reviews of such interim financial statements by various regulatory authorities and legal costs defending shareholder class action complaints brought against the Company as a result of the restatement (see Part II, Item 1.

“Legal Proceedings” of this Quarterly Report for a discussion of the regulatory reviews and shareholder class action complaints relating to the restatement of the 2019 interim financial statements).

Management believes that Adjusted EBITDA provides the most useful insight into underlying business trends and results and provides a more meaningful comparison of period-over-period results.

Management uses Adjusted EBITDA for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets.

Adjusted EBITDA by segment

Management also reviews adjusted earnings (loss) before interest, tax, depreciation and amortization by segment (“Adjusted EBITDA by segment”), a non-GAAP measure which excludes non-cash items and items that do not reflect management’s assessment of on-going business performance.

Corporate expenses are removed from Adjusted EBITDA by segment.

Corporate expenses are expenses that relate to the consolidated business.

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

Management defines Adjusted EBITDA by segment as net income (loss) by segment before interest, tax expense, depreciation and amortization adjusted for the same items that are adjusted in consolidated Adjusted EBITDA.

Management believes that Adjusted EBITDA by segment provides useful insight into underlying segment trends and results and provides a more meaningful comparison of period-over-period segment results.

Management uses Adjusted EBITDA by segment for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets.

Adjusted EBITDA and Adjusted EBITDA by segment is reconciled to net income (loss) as follows for Q1 2021 and Q1 2020:

(In thousands of U.S.

dollars) For the three months ended March 31,

The following table sets forth a reconciliation of net loss as determined in accordance with GAAP to Adjusted EBITDA for the periods indicated (dollars in thousands):

Three months ended June 30, 2021

United States Rest of World Corporate

Expenses Total

Net income (loss) $ (11,719) $ 79,627 $ (11,133) $ 56,775

Interest income, net (20) (2,273) — (2,293)

Impairment loss on property, plant and equipment and right-of-use assets 1,741 —

Loss (gain) on revaluation of derivative liabilities 116,874 (113,368)

Other loss 1,859 378

Loss from discontinued operations 21 —

Share-based payments 2,499 2,436

Review costs related to restatement of 2019 interim financial statements 2,005 4,407

Adjusted EBIT (38,955) (38,217)

Share of loss from equity accounted investments — 1,115 — 1,115

Gain on revaluation of derivative liabilities (ii)

— (115,248) — (115,248)

Transaction costs (iii)

— — 2,758 2,758

Other, net (iv)

— (1,127) — (1,127)

Loss from discontinued operations (v)

Share-based payments (vi)

822 1,743 — 2,565

Review costs related to restatement of 2019 interim financial statements (vii)

— — 1,932 1,932

Depreciation and amortization 206 2,997 — 3,203

Adjusted EBITDA $ (10,711) $ (32,605) $ (6,443) $ (49,759)

(In thousands of U.S.

dollars) Three months ended March 31, 2021

US ROW Corporate

Three months ended June 30, 2020

United States Rest of World Corporate

Expenses Total

Net income (loss) $ (12,092) $ (142,147) $ (7,386) $ (161,625)

Net loss $ (45,566) $ (55,095) $ (7,042) $ (107,703)

Interest income, net (9) (3,725) — (3,734)

Impairment loss on property, plant and equipment and right-of-use assets 1,741 — — 1,741

Loss on revaluation of derivative liabilities — 116,874 — 116,874

Other loss — 1,859 — 1,859

Loss from discontinued operations — 21 — 21

Share-based payments 745 1,754 — 2,499

Review costs related to restatement of 2019 interim financial statements — — 2,005 2,005

Adjusted EBIT (9,609) (23,965) (5,381) (38,955)

Share of loss from equity accounted investments — 794 — 794

Impairment loss on long-lived assets (i)

40,000 — — 40,000

Loss on revaluation of derivative liabilities (ii)

— 35,880 — 35,880

Other, net (iv)

Loss from discontinued operations (v)

Share-based payments (vi)

756 1,790 — 2,546

Review costs related to restatement of 2019 interim financial statements (vii)

— — 3,459 3,459

Depreciation and amortization 34 1,683 — 1,717

Adjusted EBITDA $ (4,785) $ (18,618) $ (3,583) $ (26,986)

(In thousands of U.S.

dollars) Three months ended March 31, 2020

US ROW Corporate

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Six months ended June 30, 2021

United States Rest of World Corporate

Expenses Total

Net loss $ (23,811) $ (62,520) $ (18,519) $ (104,850)

Interest income, net (23) (4,599) — (4,622)

Share of loss from equity accounted investments — 2,758 — 2,758

Impairment loss on long-lived assets (i)

1,741 — — 1,741

Loss on revaluation of derivative liabilities (ii)

— 1,626 — 1,626

Transaction costs (iii)

— — 3,259 3,259

Other, net (iv)

— (911) — (911)

Loss from discontinued operations (v)

Share-based payments (vi)

1,567 3,497 — 5,064

Review costs related to restatement of 2019 interim financial statements (vii)

— — 3,937 3,937

Depreciation and amortization 305 4,778 — 5,083

Adjusted EBITDA $ (20,221) $ (54,789) $ (11,323) $ (86,333)

Six months ended June 30, 2020

United States Rest of World Corporate

Expenses Total

Net income (loss) $ (52,082) $ 33,772 $ (13,712) $ (32,022)

Interest income, net (16) (11,469) — (11,485)

Gain on revaluation of derivative liabilities — (113,368) — (113,368)

Other loss — 378 — 378

Share-based payments 706 1,730 — 2,436

Review costs related to restatement of 2019 interim financial statements — — 4,407 4,407

Adjusted EBIT (5,817) (30,137) (2,263) (38,217)

Share of loss from equity accounted investments — 1,966 — 1,966

Impairment loss on long-lived assets (i)

40,000 — — 40,000

Gain on revaluation of derivative liabilities (ii)

— (77,488) — (77,488)

Other, net (iv)

— (785) — (785)

Loss from discontinued operations (v)

Share-based payments (vi)

1,462 3,520 — 4,982

Review costs related to restatement of 2019 interim financial statements (vii)

— — 7,866 7,866

Depreciation and amortization 69 2,810 — 2,879

Adjusted EBITDA $ (10,567) $ (47,628) $ (5,846) $ (64,041)

(i) For the six months ended June 30, 2021, impairment loss on long-lived assets relates to impairment on a leased premise in the U.S.

segment, and for the three and six months ended June 30, 2020, impairment loss on long-lived assets relates to impairment on goodwill and intangibles related to our U.S.

segment in 2020.

Impairment Loss on Long-Lived Assets to the Company’s condensed consolidated financial statements under Item 1.

“Financial Statements” of this Quarterly Report.

(ii) For the three and six months ended June 30, 2021 and 2020, gain/loss on revaluation of derivative liabilities represents the fair value changes on the derivative liabilities.

Derivative Liabilities to the Company’s condensed consolidated financial statements under Item 1.

“Financial Statements” of this Quarterly Report.

(iii) For the three and six months ended June 30, 2021, transaction costs represents legal, financial and other advisory fees and expenses incurred in connection with various strategic investments.

These costs are included in general and administrative expenses on the condensed consolidated statements of net income (loss) and comprehensive income (loss) under Item 1.

“Financial Statements” of this Quarterly Report.

(iv) For the three and six months ended June 30, 2021, other, net, primarily related to gain recorded on sale of the Company’s Winnipeg facility previously designated as held-for-sale in the first quarter of 2021, For the three and six months ended June 30, 2020, other, net is primarily comprised of the gain recorded related to the sale of common shares of Aurora Cannabis Inc.

(“Aurora”), which were received in connection with the achievement of a milestone related to Aurora’s acquisition of Whistler Medical Marijuana Corporation.

(v) For the three and six months ended June 30, 2020, loss from discontinued operations relates to the discontinuance of OGBC.

Held-For-Sale Assets and Discontinued Operations to the Company’s condensed consolidated financial statements under Item 1.

“Financial Statements” of this Quarterly Report.

(vi) For the three and six months ended June 30, 2021 and 2020, share-based payments relates to the vesting expenses of share-based compensation awarded to employees under the Company’s share-based award plans as described in Note 6.

Share-based Payments to the Company’s condensed consolidated financial statements under Item 1.

“Financial Statements” of this Quarterly Report.

(vii) For the three and six months ended June 30, 2021 and 2020, the financial statement review costs include costs related to the restatement of the Company’s 2019 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.

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Liquidity and Capital Resources

As of March 31, 2021, we had $1,024.5 million in cash and cash equivalents and $214.9 million in short-term investments, which comprise the majority of the Company’s cash position.

As of June 30, 2021, we had $895.2 million in cash and cash equivalents and $201.7 million in short-term investments, which comprise the majority of the Company’s cash position.

Cronos Group believes that the existing cash and cash equivalents and the short-term investments will be sufficient to fund the business operations and capital expenditures over the next twelve months.

Summary of cash flows

(In thousands of U.S.

dollars) For the three months ended March 31,

Cash provided/(used) in operating activities $ (46,002) $ (38,898)

The following table summarizes the cash flows from operating, investing and financing activities (dollars in thousands):

For the six months ended June 30,

Cash used in operating activities $ (86,197) $ (78,377)

Cash provided/(used) in investing activities (106,563) 39,799

Cash provided/(used) by financing activities (9,276) (448)

Cash provided/(used) in financing activities (8,907) 1

Effect of foreign currency translation on cash and cash equivalents 18,825 (51,416)

Net change in cash $ (182,842) $ (89,993)

YTD 2021 cash flows vs YTD 2020 cash flows

Comparison of the six months ended June 30, 2021 to the six months ended June 30, 2020

Operating activities

During the three months ended March 31, 2021, we used $46.0 million of cash in operating activities as compared to cash used of $38.9 million in the three months ended March 31, 2020, representing an increase in cash used of $7.1 million.

This change is primarily driven by an increase in cost of sales and operating expenses, partially offset by changes in working capital during the three months ended March 31, 2021.

During the six months ended June 30, 2021, we used $86.2 million of cash in operating activities as compared to cash used of $78.4 million in the six months ended June 30, 2020, representing an increase in cash used of $7.8 million.

This change is primarily driven by a $32.0 million decrease in net income after adjusting for non-cash items, partially offset by an increase of $24.2 million in operating assets and liabilities during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Investing activities

During the three months ended March 31, 2021, we used $9.7 million of cash in investing activities, compared to $59.1 million of cash provided by investing activities during the three months ended March 31, 2020, representing a decrease of $68.8 million in cash provided by investing activities.

This change is primarily driven by a decrease in the net effect of the purchases of, and proceeds from the maturities of short-term investments during the three months ended March 31, 2021, due to the timing of purchases and maturities of short-term investments.

During the six months ended June 30, 2021, we used $106.6 million of cash in investing activities, compared to $39.8 million of cash provided by investing activities during the six months ended June 30, 2020, representing an increase of $146.4 million in cash used by investing activities.

This change is primarily driven by the Company’s investment in PharmaCann of approximately $110.4 million, a $63.1 million, net, decrease in proceeds from short-term investments and a $1.3 million increase in proceeds from the sale of other assets, partially offset by a $18.9 million decrease in loans receivables from joint ventures and a $6.9 million decrease in capital expenditures compared to the six months ended June 30, 2020.

The decrease in capital expenditures is primarily due to a reduction in construction costs in the ROW segment and a decrease in costs related to the implementation of the Company’s enterprise resource planning system compared to the six months ended June 30, 2020.

Financing activities

During the three months ended March 31, 2021, cash used in financing activities was $9.3 million, compared to $0.4 million of cash used in financing activities during the three months ended March 31, 2020, representing a decrease of $8.9 million in cash used in financing activities.

This change is primarily driven by taxes withheld on share-based awards during the three months ended March 31, 2021.

During the six months ended June 30, 2021, cash used in financing activities was $8.9 million higher than six months ended June 30, 2020.

This change is primarily driven by an increase of $8.9 million in withholding taxes paid on share-based awards during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Critical Accounting Policies and Estimates

1 unchanged sentence

There have been no material changes to these critical accounting policies and estimates.

Tab l e of Contents

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 2. Management’s Discussion and Analysis