Cronos Group Inc. 10-Q

Item 1. Financial Statements Table of Contents Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020 4 Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) for the three and six months ended June 3 0 , 2021 and 2020 (Unaudited) 5 Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 3 0 , 2021 and 20 20 (Unaudited) 6 Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (Unaudited) 8 Notes to Condensed Consolidated Financial Statements (Unaudited) 9 3 Cronos Group Inc. Condensed Consolidated Balance Sheets (In thousands of U.S. dollars, except share amounts) Table of Contents As of June 30, 2021 As of December 31, 2020 Assets (Unaudited) (Audited) Current assets Cash and cash equivalents $ 895,181 $ 1,078,023 Short-term investments 201,699 211,766 Accounts receivable, net 11,299 8,928 Other receivables 2,468 10,033 Current portion of loans receivable, net 5,028 7,083 Prepaids and other current assets 10,153 11,161 Inventory, net 35,605 44,002 Held-for-sale assets 645 1,176 Total current assets 1,162,078 1,372,172 Advances to joint ventures 499 467 Investments in equity accounted investees, net 20,970 19,235 Other investments 110,392 — Loan receivable, net 94,113 87,191 Property, plant and equipment, net 193,920 187,599 Right-of-use assets 6,687 9,776 Intangible assets, net 70,409 69,720 Goodwill 179,543 179,522 Total assets $ 1,838,611 $ 1,925,682 Liabilities Current liabilities Accounts payable and other liabilities $ 29,829 $ 42,102 Current portion of lease obligation 1,206 1,322 Derivative liabilities 169,563 163,410 Total current liabilities 200,598 206,834 Due to non-controlling interests 1,768 2,188 Lease obligation 6,333 8,492 Total liabilities 208,699 217,514 Commitments and contingencies (see Note 9) Shareholders’ equity Share capital (i, ii) 572,858 569,260 Additional paid-in capital 32,368 34,596 Retained earnings 955,721 1,064,509 Accumulated other comprehensive income 71,729 42,999 Total equity attributable to shareholders of Cronos Group 1,632,676 1,711,364 Non-controlling interests ( 2,764 ) ( 3,196 ) Total shareholders’ equity 1,629,912 1,708,168 Total liabilities and shareholders’ equity $ 1,838,611 $ 1,925,682 (i) Authorized for issuance as of June 30, 2021: unlimited and December 31, 2020: unlimited. (ii) Shares issued as of June 30, 2021: 371,805,547 and December 31, 2020: 360,253,332 . See notes to condensed consolidated financial statements. 4 Cronos Group Inc. Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) (In thousands of U.S dollars, except share and per share amounts, unaudited) Table of Contents Three months ended June 30, 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 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 (“R&D”) 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) Interest income, net 2,293 3,734 4,622 11,485 Gain (loss) on revaluation of derivative liabilities 115,248 ( 35,880 ) ( 1,626 ) 77,488 Impairment loss on long-lived assets — ( 40,000 ) ( 1,741 ) ( 40,000 ) Share of loss from equity accounted investments ( 1,115 ) ( 794 ) ( 2,758 ) ( 1,966 ) Other, net 1,127 ( 9 ) 911 785 Total other income (loss) 117,553 ( 72,949 ) ( 592 ) 47,792 Income (loss) from continuing operations 57,336 ( 107,657 ) ( 104,268 ) ( 31,976 ) 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 interest ( 279 ) ( 726 ) ( 592 ) ( 1,085 ) Net income (loss) attributable to Cronos Group $ 57,054 $ ( 106,977 ) $ ( 104,258 ) $ ( 30,937 ) Other comprehensive income (loss) Net income (loss) $ 56,775 $ ( 107,703 ) $ ( 104,850 ) $ ( 32,022 ) Other comprehensive income (loss): Foreign exchange gain (loss) on translation 13,470 51,871 29,754 ( 61,821 ) Total other comprehensive income (loss) 13,470 51,871 29,754 ( 61,821 ) Comprehensive income (loss) 70,245 ( 55,832 ) ( 75,096 ) ( 93,843 ) Less: comprehensive income (loss) attributable to non-controlling interests ( 394 ) ( 762 ) 432 ( 1,098 ) Comprehensive income (loss) attributable to Cronos Group $ 70,639 $ ( 55,070 ) $ ( 75,528 ) $ ( 92,745 ) Net income (loss) per share Basic and diluted - continuing operations $ 0.15 $ ( 0.31 ) $ ( 0.28 ) $ ( 0.09 ) Weighted average number of outstanding shares Basic 371,721,382 349,075,408 367,391,118 348,946,439 Diluted 375,349,856 349,075,408 367,391,118 348,946,439 See notes to condensed consolidated financial statements. 5 Cronos Group Inc. Condensed Consolidated Statements of Changes in Equity For the three months ended June 30, 2021 and 2020 (In thousands of U.S. dollars, except share amounts, unaudited) Number of shares Share capital Additional paid-in capital Retained earnings Accumulated other comprehensive income Non-controlling interests Total shareholders’ equity Balance at April 1, 2021 371,656,590 $ 584,912 $ 32,090 $ 895,503 $ 58,144 $ ( 2,370 ) $ 1,568,279 Warrants exercised 10,000 4 ( 2 ) — — — 2 Vesting of options — — 1,864 — — — 1,864 Options exercised 80,603 102 ( 102 ) — — — — Restricted share units settled 58,354 345 ( 345 ) — — — — Withholding taxes paid on share-based awards — — ( 183 ) ( 63 ) — — ( 246 ) Vesting of restricted share units — — 701 — — — 701 Vesting of common shares issued in connection with the use of certain publicity rights in brand development — 2,000 ( 1,655 ) — — — 345 Top-up rights out-of-period adjustment — ( 14,505 ) — 3,227 — — ( 11,278 ) Net income (loss) — — — 57,054 — ( 279 ) 56,775 Foreign exchange gain (loss) on translation — — — — 13,585 ( 115 ) 13,470 Balance at June 30, 2021 371,805,547 $ 572,858 $ 32,368 $ 955,721 $ 71,729 $ ( 2,764 ) $ 1,629,912 Number of shares Share capital Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Non-controlling interests Total shareholders’ equity Balance at April 1, 2020 348,817,472 $ 563,165 $ 25,483 $ 1,213,686 $ ( 85,877 ) $ ( 1,189 ) $ 1,715,268 Vesting of options — — 1,770 — — — 1,770 Options exercised 1,068,930 1,329 ( 1,328 ) — — — 1 Vesting of restricted share units — — 776 — — — 776 Vesting of common shares issued in connection with the use of certain publicity rights in brand development — — 345 — — — 345 Top-up rights exercised — 717 — — — — 717 Net loss — — — ( 106,977 ) — ( 726 ) ( 107,703 ) Foreign exchange gain (loss) on translation — — — — 51,907 ( 36 ) 51,871 Balance at June 30, 2020 349,886,402 $ 565,211 $ 27,046 $ 1,106,709 $ ( 33,970 ) $ ( 1,951 ) $ 1,663,045 See notes to condensed consolidated financial statements. 6 Cronos Group Inc. Condensed Consolidated Statements of Changes in Equity For the six months ended June 30, 2021 and 2020 (In thousands of U.S. dollars, except share amounts, unaudited) Table of Contents Number of shares Share capital Additional paid-in capital Retained earnings Accumulated other comprehensive income Non-controlling interests Total shareholders’ equity Balance as of January 1, 2021 360,253,332 $ 569,260 $ 34,596 $ 1,064,509 $ 42,999 $ ( 3,196 ) $ 1,708,168 Warrants exercised 7,842,859 1,165 ( 1,163 ) — — — 2 Vesting of options — — 3,928 — — — 3,928 Options exercised 3,651,002 3,315 ( 3,305 ) — — — 10 Restricted share units settled 58,354 345 ( 345 ) — — — — Withholding taxes paid on share-based awards — — ( 1,162 ) ( 7,757 ) — — ( 8,919 ) Vesting of restricted share units — — 1,136 — — — 1,136 Vesting of common shares issued in connection with the use of certain publicity rights in brand development — 2,000 ( 1,317 ) — — — 683 Top-up rights out-of-period adjustment — ( 3,227 ) — 3,227 — — — Net loss — — — ( 104,258 ) — ( 592 ) ( 104,850 ) Foreign exchange gain on translation — — — — 28,730 1,024 29,754 Balance at June 30, 2021 371,805,547 $ 572,858 $ 32,368 $ 955,721 $ 71,729 $ ( 2,764 ) $ 1,629,912 Number of shares Share capital Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Non-controlling interests Total shareholders’ equity Balance as of January 1, 2020 348,817,472 $ 561,165 $ 23,234 $ 1,137,646 $ 27,838 $ ( 853 ) $ 1,749,030 Vesting of options — — 3,500 — — — 3,500 Options exercised 1,068,930 1,329 ( 1,328 ) — — — 1 Vesting of restricted share units — — 1,482 — — — 1,482 Vesting of common shares issued in connection with the use of certain publicity rights in brand development — 2,000 158 — — — 2,158 Top-up rights exercised — 717 — — — — 717 Net loss — — — ( 30,937 ) — ( 1,085 ) ( 32,022 ) Foreign exchange loss on translation — — — — ( 61,808 ) ( 13 ) ( 61,821 ) Balance at June 30, 2020 349,886,402 $ 565,211 $ 27,046 $ 1,106,709 $ ( 33,970 ) $ ( 1,951 ) $ 1,663,045 See notes to condensed consolidated financial statements. 7 Cronos Group Inc. Condensed Consolidated Statements of Cash Flows (In thousands of U.S. dollars, except share amounts, unaudited) Table of Contents Six months ended June 30, 2021 2020 Operating activities Net loss $ ( 104,850 ) $ ( 32,022 ) Adjustments to reconcile net loss to cash provided by operating activities: Share-based payments 5,064 4,982 Depreciation and amortization 5,083 2,879 Share of loss from investments in equity accounted investees 2,758 1,966 Gain (loss) on revaluation of derivative liabilities 1,626 ( 77,488 ) Impairment loss on long-lived assets 1,741 40,000 Expected credit losses on long-term financial assets — 1,357 Other non-cash operating activities, net ( 1,192 ) 599 Changes in operating assets and liabilities: Accounts receivable, net ( 2,194 ) 2,895 Other receivables 6,960 ( 3,047 ) Prepaids and other current assets 1,268 1,187 Inventory, net ( 1,010 ) ( 24,292 ) Inventory write-down 11,961 11,024 Accounts payable and other liabilities ( 13,412 ) ( 8,417 ) Cash flows used in operating activities ( 86,197 ) ( 78,377 ) Investing activities Purchase of short-term investments ( 120,180 ) ( 200,173 ) Proceeds from short-term investments 136,204 279,275 Purchase of other investments ( 110,392 ) — Purchase of property, plant and equipment ( 8,347 ) ( 13,344 ) Purchase of intangible assets ( 843 ) ( 2,754 ) Proceeds from sale of held-for-sale assets 2,059 — Advances on loans receivable ( 5,064 ) ( 23,974 ) Proceeds from sale of other investments — 769 Cash flows provided by (used in) investing activities ( 106,563 ) 39,799 Financing activities Withholding taxes paid on share-based awards ( 8,919 ) — Proceeds from exercise of warrants and options 12 1 Cash flows provided by (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 and cash equivalents ( 182,842 ) ( 89,993 ) Cash and cash equivalents, beginning of period 1,078,023 1,199,693 Cash and cash equivalents, end of period $ 895,181 $ 1,109,700 Supplemental cash flow information Interest paid $ — $ 90 Interest received 2,961 11,575 Income taxes paid 858 — See notes to condensed consolidated financial statements. 8 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents 1. Background, Basis of Presentation and Accounting Policies (a) Background Cronos Group Inc. (“Cronos Group” or the “Company”) is incorporated in the Province of British Columbia and under the Business Corporations Act (British Columbia) with principal executive offices at 111 Peter Street, Suite 300, Toronto, Ontario, M5V 2H1. The Company’s common shares are currently listed on the Toronto Stock Exchange (“TSX”) and Nasdaq Global Market (“Nasdaq”) under the ticker symbol “CRON.” Cronos Group is an innovative global cannabinoid company, with international production and distribution across five continents. The Company is committed to building disruptive intellectual property by advancing cannabis research, technology and product development and is seeking to build an iconic brand portfolio. Cronos Group’s brand portfolio includes PEACE NATURALS ™ , a global wellness platform; two adult-use brands, COVE ™ and Spinach ™ ; and three U.S. hemp-derived consumer products brands, Lord Jones ™ , Happy Dance ™ and PEACE+ ™ . Cronos Group has established strategic joint ventures in Canada, Israel, and Colombia. “Cronos Israel” consists of a cultivation company (Cronos Israel G.S. Cultivation Ltd.), a manufacturing company (Cronos Israel G.S. Manufacturing Ltd.), a distribution company (Cronos Israel G.S. Store Ltd.) and a pharmacy company (Cronos Israel G.S. Pharmacy Ltd.) and is consolidated for financial reporting purposes. The Company also holds approximately 31 % of the issued capital of Cronos Australia Limited (“Cronos Australia”) and accounts for its investment in Cronos Australia under the equity method of accounting. For additional discussion regarding the joint ventures and strategic investment, see Note 3. Investments. (b) Out-of-period adjustments During the three months ended March 31, 2021, the Company identified an error in the accounting related to the withholding taxes on the net exercise of stock options, which resulted in an understatement of accounts payable and other liabilities of $ 966 and overstatements of other receivables, retained earnings and share capital of $ 3,202 , $ 3,838 and $ 330 , respectively, as of December 31, 2020. The error was deemed immaterial, and thus the Company has recorded an out-of-period adjustment to the condensed consolidated balance sheet and the condensed consolidated statement of changes in equity during the first quarter of 2021 to correct the error. This error had no impact to the condensed consolidated statement of net income (loss) and comprehensive income (loss). The impact of the out-of-period adjustments are included within the changes in operating assets and liabilities and withholding taxes paid on share-based awards lines in the Company’s condensed consolidated statements of cash flows. During the three months ended June 30, 2021, the Company identified an error in the accounting related to the exercise of Top-up Rights (as defined herein), which resulted in an overstatement of share capital and an understatement of gain on revaluation of derivative liabilities of $ 3,227 as of December 31, 2020, and overstatements of share capital and loss on revaluation of derivative liabilities and an understatement of retained earnings of $ 14,505 , $ 11,278 and $ 3,227 , respectively, as of March 31, 2021. The error was deemed immaterial, and thus the Company has recorded an out-of-period adjustment to the condensed consolidated balance sheet, the condensed consolidated statement of net income (loss) and comprehensive income (loss) and the condensed consolidated statement of changes in equity during the second quarter of 2021 to correct the error. The impact of the out-of-period adjustments are included within the adjustments to net loss in the Company’s condensed consolidated statements of cash flows. (c) Basis of presentation The interim condensed consolidated financial statements of Cronos Group are unaudited. They have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”) for interim financial information and with applicable rules and regulations of the U.S. Securities and Exchange Commission relating to interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for any other reporting period. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Financial Statements”). Certain prior year amounts have been reclassified to conform to the current year presentation of our condensed consolidated financial statements. These reclassifications had no effect on the reported results of operations and ending shareholders’ equity. 9 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents (d) Adoption of new accounting pronouncements On January 1, 2021, the Company adopted ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU No. 2020-01”). ASU No. 2020-01 clarifies the interaction of accounting for the transition into and out of the equity method as well as measuring certain purchased options and forward contracts to acquire investments. The adoption of ASU No. 2020-01 did not have an impact on the Company’s interim condensed consolidated financial statements. On January 1, 2021, the Company adopted ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”). ASU No. 2019-12 eliminates certain exceptions and simplifies the application of U.S. GAAP-related changes in enacted tax laws or rates and employee stock option plans. The adoption of ASU No. 2019-12 did not have an impact on the Company’s interim condensed consolidated financial statements. (e) New accounting pronouncements not yet adopted In August 2020, the FASB issued ASU 2020-06, Debt –Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815–40) (“ASU No. 2020-06”). ASU No. 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU No. 2020-06 is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. ASU No. 2020-06 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU No. 2020-06 will have on its condensed consolidated financial statements. 2. Inventory, net Inventory, net is comprised of the following items: As of June 30, 2021 As of December 31, 2020 Raw materials $ 7,471 $ 11,489 Work-in-progress 17,291 26,278 Finished goods 10,247 5,905 Supplies and consumables 596 330 Total $ 35,605 $ 44,002 Inventory is written down for any obsolescence such as slow-moving or non-marketable products, or when the net realizable value of inventory is less than the carrying value. During the three months ended June 30, 2021 and 2020, the Company recorded write-downs related to inventory of $ 11,961 and $ 3,062 , respectively. During the six months ended June 30, 2021 and 2020, the Company recorded write-downs related to inventory of $ 11,961 and $ 11,024 , respectively. 3. Investments (a) Variable interest entities and investments in equity accounted investees, net The Company holds variable interests in Cronos Growing Company Inc. (“Cronos GrowCo”), Natuera S.à.r.l (“Natuera”), MedMen Canada Inc. (“MedMen Canada”) and Cannasoul Lab Services Ltd. (“CLS”). The Company’s investments in Cronos GrowCo, Natuera and MedMen Canada are exposed to economic variability from each entity’s performance; however, the Company does not consolidate the entities as it does not have the power to direct the activities that most significantly impact each entity’s economic performance. Thus, Cronos Group is not considered the primary beneficiary of each entity. These investments are accounted for as equity method investments classified as “Investments in equity accounted investees, net” in the consolidated balance sheets. Cronos GrowCo is a joint venture incorporated under the Canada Business Corporations Act (“CBCA”) on June 14, 2018 with the objective of cultivating and commercializing cannabis and cannabis products. Cronos Group holds variable interests in Cronos GrowCo through its ownership of 50 % of Cronos GrowCo’s common shares and senior secured debt. Cronos GrowCo’s economic performance is driven by the quantity and strains of cannabis grown. The joint venture partners mutually determine the quantity and strains of cannabis grown. 10 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents MedMen Canada is a joint venture incorporated under the CBCA on March 13, 2018, with the objective of the retail sale and marketing of cannabis products in Canada. MedMen Canada holds the exclusive license to the MedMen brand in Canada for a minimum term of 20 years. The Company holds variable interests in MedMen Canada through its ownership of 50 % of MedMen Canada’s common shares and other subordinated debt. MedMen Canada’s economic performance is driven by the quantity and strains of cannabis sold. Subject to applicable law, the joint venture partners mutually determine the quantity and strains of cannabis to be sold in MedMen Canada’s retail stores, if and when stores are opened. Natuera is a joint venture registered in Luxembourg with the objective of cultivating and commercializing hemp and cannabis products. The Company holds variable interests in Natuera through its ownership of 50 % of Natuera’s common shares. Natuera’s economic performance is driven by the quantity and strains of cannabis grown, which is mutually determined by the joint venture partners. CLS is a wholly owned subsidiary of Cannasoul Analytics Ltd., incorporated with the purpose of establishing a commercial cannabis analytical testing laboratory located on the premises of Cronos Israel (the “Cannasoul Collaboration”). Cronos Israel agreed to advance up to ILS 8,297 ($ 2,511 ) by a non-recourse loan (the “Cannasoul Collaboration Loan”) to CLS over a period of two years from April 1, 2020 for the capital and operating expenditures of the laboratory. The loan bears interest at 3.5 % annually. Cronos Israel will receive 70 % of the profits of the laboratory until such time as it has recovered 150 % of the amounts advanced to CLS, after which time it will receive 50 % of the laboratory profits. As a result, the Company is exposed to economic variability from CLS’s performance. The Company does not consolidate CLS as it does not have the power to direct the activities that most significantly impact the entity’s economic performance; thus, the Company is not considered the primary beneficiary of the entity. The carrying amount of the non-recourse loan is recorded under loans receivable and the full loan amount, ILS 8,297 , represents the Company’s maximum potential exposure to losses through the Cannasoul Collaboration. See Note 4. Loans Receivable, net for further information regarding loans receivable. A reconciliation of the carrying amount of the investments in associates and joint ventures is as follows: Ownership interest As of June 30, 2021 As of December 31, 2020 Cronos Australia 31 % $ — $ — Cronos GrowCo 50 % 19,022 19,235 Natuera (i) 50 % 1,948 — $ 20,970 $ 19,235 (i) On April 1, 2021, the Company and an affiliate of Agroidea (“AGI”), the other joint venture partner of Natuera, converted all advances made to Natuera under the master loan agreement entered into with Natuera on September 27, 2019 (the “Natuera Series A Loan”), plus accrued interest, into equity of Natuera. Total aggregate gross advances to Natuera under the Natuera Series A Loan were $ 15,500 , of which the Company advanced 50 % and AGI advanced the remaining 50 %, or $ 7,750 each. As a result, the Company transferred the carrying value of the Natuera Series A Loan of approximately $ 2,013 plus accrued interest of $ 540 , for a total investment value of $ 2,553 , which approximates fair value, to investments in equity accounted investees in respect of Natuera. See Note 4. Loans Receivable, net. The Company’s share of net 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, 2021 2020 2021 2020 Cronos Australia $ — $ ( 235 ) $ — $ ( 235 ) Cronos GrowCo ( 459 ) ( 190 ) ( 758 ) ( 501 ) Natuera ( 656 ) ( 369 ) ( 2,000 ) ( 1,230 ) $ ( 1,115 ) $ ( 794 ) $ ( 2,758 ) $ ( 1,966 ) 11 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents The Company determined that the maximum exposure of loss on investments in non-consolidated investments is limited to the Company’s initial investment, advances and/or loans for each variable interest entity. The following is a summary of the maximum exposure to loss as of June 30, 2021 and December 31, 2020: Ownership interest As of June 30, 2021 As of December 31, 2020 Cronos Australia 31 % $ 1,573 $ 1,530 Cronos GrowCo 50 % 21,723 21,125 MedMen Canada 50 % 494 467 Natuera 50 % 8,047 8,154 Total $ 31,837 $ 31,276 (b) Other investments Other investments consist of investments in options of companies in the cannabis industry. On June 14, 2021, the Company purchased an option to acquire 473,787 shares of Class A Common Stock of PharmaCann, Inc. (“PharmaCann”), a vertically integrated cannabis company in the United States, at an exercise price of $ 0.0001 per share, representing approximately 10.5 % of PharmaCann’s issued and outstanding capital stock on a fully diluted basis, for an aggregate purchase price of approximately $ 110,392 . The option exercise will be based upon various factors, including the status of U.S. federal cannabis legalization, as well as regulatory approvals, including in the states where PharmaCann operates that may be required upon exercise. This option is classified as an equity security without a readily determinable fair value. The Company has elected to measure the fair value of the option at cost less impairment, if any, and subsequently adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. The option is reported as other investments on the condensed consolidated balance sheet for the period ended June 30, 2021. As of June 30, 2021 and December 31, 2020, the Company did not hold any additional other investments. 4. Loans Receivable, net As of June 30, 2021 As of December 31, 2020 Natuera Series A Loan (i) $ — $ 3,518 GrowCo Facility (ii) 1,614 3,137 Add: Accrued interest 3,414 428 Total current portion of loans receivable 5,028 7,083 GrowCo Facility (ii) 77,474 69,939 Mucci Promissory Note (iii) 13,969 13,324 Cannasoul Collaboration Loan (iv) 1,870 1,261 Add: Accrued interest 800 2,667 Total long-term portion of loans receivable 94,113 87,191 Total loans receivable, net $ 99,141 $ 94,274 (i) On April 1, 2021, the Company and AGI converted all advances made to Natuera under the Series A Loan, plus accrued interest, into equity of Natuera. Total aggregate gross advances to Natuera under the Natuera Series A Loan were $ 15,500 , of which the Company advanced 50 % and AGI advanced the remaining 50 %, or $ 7,750 each. As a result, the Company transferred the carrying value of the Natuera Series A Loan of approximately $ 2,013 plus accrued interest of $ 540 , for a total investment value of $ 2,553 , which approximates fair value, to investments in equity accounted investees in respect of Natuera. See Note 3. Investments. (ii) As of June 30, 2021 and December 31, 2020, Cronos GrowCo had drawn C$ 100,000 ($ 80,678 ) and C$ 95,150 ($ 74,626 ), respectively, from a credit agreement it entered into with the Company in August 2019 (the “GrowCo Facility”). As of June 30, 2021 and December 31, 2020, the Company had an allowance for credit losses of $ 1,590 and $ 1,470 , respectively, recorded against the GrowCo Facility. (iii) As of June 30, 2021 and December 31, 2020, the Company had an allowance for credit losses of $ 278 and $ 259 , respectively, recorded against the promissory note receivable agreement entered into with Mucci on June 28, 2019 (the “Mucci Promissory Note”). (iv) As of June 30, 2021 and December 31, 2020 CLS has received ILS 6,223 and ILS 4,149 (approximately $ 1,909 and $ 1,287 respectively) from the Cannasoul Collaboration Loan. As of June 30, 2021 and December 31, 2020, the Company had an allowance for credit losses of $ 39 and $ 25 , respectively, recorded against the Cannasoul Collaboration Loan. 12 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents 5. Derivative Liabilities On March 8, 2019, the Company closed the previously announced investment in the Company (the “Altria Investment”) by Altria Group, Inc. (“Altria”), pursuant to a subscription agreement dated December 7, 2018. As of the closing date of the Altria Investment, the Altria Investment consisted of 149,831,154 common shares of the Company and one warrant of the Company (the “Altria Warrant”), all of which were issued to a wholly owned subsidiary of Altria. As of the closing date of the Altria Investment, Altria beneficially held an approximately 45 % ownership interest in the Company (calculated on a non-diluted basis). As summarized in this note, if exercised in full on such date, the exercise of the Altria Warrant would have resulted in Altria holding a total ownership interest in the Company of approximately 55 % (calculated on a non-diluted basis). As of June 30, 2021, Altria beneficially held an approximately 42 % ownership interest in the Company (calculated on a non-diluted basis). As summarized in this note, if exercised in full on such date, the exercise of the Altria Warrant would have resulted in Altria holding a total ownership interest in the Company of approximately 53 % (calculated on a non-diluted basis). Pursuant to the investor rights agreement between the Company and Altria, entered into in connection with the closing of the Altria Investment (the “Investor Rights Agreement”), the Company granted Altria certain rights, among others, summarized in this note. The summaries below are qualified entirely by the terms and conditions fully set out in the Investor Rights Agreement and the Altria Warrant, as applicable. a. The Altria Warrant entitles the holder, subject to certain qualifications and limitations, to subscribe for and purchase up to an additional approximate 10 % of the common shares of Cronos (approximately 83 million common shares at June 30, 2021) at a per share exercise price of C$ 19.00 , which expires on March 8, 2023. b. The Company granted to Altria, subject to certain qualifications and limitations, upon the occurrence of certain issuances of common shares of the Company executed by the Company (including issuances pursuant to the R&D partnership with Ginkgo Bioworks Inc. (“Ginkgo”) (the “Ginkgo Strategic Partnership”)), the right to purchase up to such number of common shares of the Company in order to maintain their ownership percentage of issued and outstanding common shares of the Company immediately preceding any issuance of shares by the Company (“Pre-emptive Rights”), at the same price per common share of the Company at which the common shares are sold in the relevant issuance. The price per common share of the Company to be paid by Altria pursuant to its exercise of its Pre-emptive Rights related to the Ginkgo Strategic Partnership will be C$ 16.25 per common share. These rights may not be exercised if Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20 %. c. In addition to (and without duplication of) the Pre-emptive Rights, the Company granted to Altria, subject to certain qualifications and limitations, the right to subscribe for common shares of the Company issuable in connection with the exercise, conversion or exchange of convertible securities of the Company issued prior to March 8, 2019 or thereafter (excluding any convertible securities of the Company owned by Altria or any of its subsidiaries), a share incentive plan of the Company, the exercise of any right granted by the Company pro rata to all shareholders of the Company to purchase additional common shares and/or securities of the Company, bona fide bank debt, equipment financing or non-equity interim financing transactions that contemplate an equity component or bona fide acquisitions (including acquisitions of assets or rights under a license or otherwise), mergers or similar business combination transactions or joint ventures involving the Company in order to maintain their ownership percentage of issued and outstanding common shares of the Company immediately preceding any such transactions (“Top-up Rights”). The price per common share to be paid by Altria pursuant to the exercise of its Top-up Rights will be, subject to certain limited exceptions, the 10 -day volume-weighted average price of the common shares of the Company on the TSX for the ten full days preceding such exercise by Altria, provided that the price per common share of the Company to be paid by Altria pursuant to the exercise of its Top-up Rights in connection with the issuance of common shares of the Company pursuant to the exercise of options or warrants that were outstanding as of March 8, 2019 will be C$ 16.25 per common share without any set off, counterclaim, deduction, or withholding. These rights may not be exercised if Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20 %. The Altria Warrant, Pre-emptive Rights, and fixed price Top-up Rights have been classified as derivative liabilities. 13 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents A reconciliation of the carrying amounts of the derivative liability for the three months ended June 30, 2021 and 2020: As of April 1, 2021 Revaluation gain Out-of-period adjustment Foreign exchange effect As of June 30, 2021 (a) Altria Warrant $ 234,656 $ ( 85,778 ) $ — $ 1,205 $ 150,083 (b) Pre-emptive Rights 20,173 ( 6,360 ) — 113 13,926 (c) Top-up Rights 17,471 ( 23,110 ) 11,278 ( 85 ) 5,554 $ 272,300 $ ( 115,248 ) $ 11,278 $ 1,233 $ 169,563 As of April 1, 2020 Revaluation loss Exercise of rights Foreign exchange effect As of June 30, 2020 (a) Altria Warrant $ 132,366 $ 30,052 $ — $ 3,540 $ 165,958 (b) Pre-emptive Rights 13,070 2,610 — 500 16,180 (c) Top-up Rights 20,013 3,218 ( 727 ) 1,072 23,576 $ 165,449 $ 35,880 $ ( 727 ) $ 5,112 $ 205,714 A reconciliation of the carrying amounts of the derivative liability for the six months ended June 30, 2021 and 2020: As of January 1, 2021 Revaluation loss/(gain) Exercise of rights Foreign exchange effect As of June 30, 2021 (a) Altria Warrant $ 138,858 $ 7,186 $ — $ 4,039 $ 150,083 (b) Pre-emptive Rights 12,095 1,473 — 358 13,926 (c) Top-up Rights 12,457 ( 7,033 ) — 130 5,554 $ 163,410 $ 1,626 $ — $ 4,527 $ 169,563 As of January 1, 2020 Revaluation loss/(gain) Exercise of rights Foreign exchange effect As of June 30, 2020 (a) Altria Warrant $ 234,428 $ ( 58,052 ) $ — $ ( 10,418 ) $ 165,958 (b) Pre-emptive Rights 12,787 3,925 — ( 532 ) 16,180 (c) Top-up Rights 49,945 ( 23,361 ) ( 727 ) ( 2,281 ) 23,576 $ 297,160 $ ( 77,488 ) $ ( 727 ) $ ( 13,231 ) $ 205,714 Fluctuations in the Company’s share price are a primary driver for the changes in the derivative valuations during each reporting period. As the share price decreases for each of the related derivative instruments, the liability of the instrument generally decreases. Share price is one of the significant observable inputs used in the fair value measurement of each of the Company’s derivative instruments. During the three months ended June 30, 2021, the Company’s share price decreased from April 1, 2021 and we recorded an out-of-period adjustment of $ 11,278 . See Note 1. Background, Basis of Presentation and Accounting Policies for more information on the out-of-period adjustment. 14 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents The fair values of the derivative liabilities were determined using the Black-Scholes pricing model as of June 30, 2021 and December 31, 2020 applying the following inputs: As of June 30, 2021 As of December 31, 2020 Altria Warrant Pre-emptive Rights Top-up Rights Altria Warrant Pre-emptive Rights Top-up Rights Share price at valuation date (i) $ 10.68 $ 10.68 $ 10.68 $ 8.84 $ 8.84 $ 8.84 Subscription price (i) $ 19.00 $ 16.25 $ 16.25 $ 19.00 $ 16.25 $ 16.25 Weighted average risk-free interest rate (ii) 0.38 % 0.28 % 0.31 % 0.21 % 0.17 % 0.13 % Weighted average expected life (iii) 1.68 1.25 1.31 2.18 1.50 0.98 Expected annualized volatility (iv) 75 % 75 % 75 % 81 % 81 % 81 % Expected dividend yield — % — % — % — % — % — % (i) Per share in C$. (ii) The risk-free interest rate was based on Bank of Canada government treasury bills and bonds with a remaining term equal to the expected life of the derivative liabilities. As of June 30, 2021 and December 31, 2020, the risk-free interest rate uses a range of approximately 0.15 % to 0.85 % and 0.10 % to 0.39 %, respectively, for the Pre-emptive Rights and Top-up Rights. (iii) The expected life represents the period of time, in years, that the derivative liabilities are expected to be outstanding. The expected life of the Pre-emptive Rights and Top-up Rights is determined based on the expected term of the underlying options, warrants, and shares, to which the Pre-emptive Rights and Top-up Rights are linked. As of June 30, 2021 and December 31, 2020, the expected life uses a range of approximately 0.25 year to 4.25 years and 0.50 year to 5.00 years, respectively. (iv) Volatility was based on an equally weighted blended historical and implied volatility level of the underlying equity securities of the Company as of June 30, 2021. As of December 31, 2020, volatility was based on the blended historical volatility levels of the Company and peer companies. The following table quantifies each of the significant inputs described above and provides a sensitivity analysis of the impact on the reported values of the derivative liabilities. The sensitivity analysis for each significant input is performed by assuming a 10% decrease in the input while other significant inputs remain constant at management’s best estimate as of the respective dates. While a decrease in the inputs noted below would cause a decrease in the carrying value of the derivative liability, there would also be an equal but opposite impact on net income (loss). Decrease as of June 30, 2021 Decrease as of December 31, 2020 Altria Warrant Pre-emptive Rights Top-up Rights Altria Warrant Pre-emptive Rights Top-up Rights Share price $ 31,375 $ 3,146 $ 1,302 $ 25,819 $ 2,527 $ 2,989 Weighted average expected life 14,220 5,266 502 13,541 1,988 2,121 Expected annualized volatility 27,375 2,348 968 26,183 2,269 2,602 These inputs are classified in Level 3 on the fair value hierarchy and are subject to volatility and several factors outside of the Company’s control, which could significantly affect the fair value of these derivative liabilities in future periods. 15 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents 6. Share-based Payments (a) Share-based award plans The Company has granted stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”) to employees and non-employee directors under the Stock Option Plan dated May 26, 2015 (the “2015 Stock Option Plan”), the 2018 Stock Option Plan dated June 28, 2018 (the “2018 Stock Option Plan” and, together with the 2015 Stock Option Plan, the “Prior Option Plans”), the 2020 Omnibus Equity Incentive Plan dated March 29, 2020 (the “2020 Omnibus Plan”) and the DSU plan dated August 10, 2019 (the “DSU Plan”). The Company can no longer make grants under the Prior Option Plans. The following table summarizes the total share-based payments associated with the Company’s stock options and RSUs for the three and six months ended June 30, 2021 and 2020: For the three months ended June 30, For the six months ended June 30, 2021 2020 2021 2020 Stock options $ 1,864 $ 1,770 $ 3,928 $ 3,500 RSUs 701 776 1,136 1,482 Total share-based payments $ 2,565 $ 2,546 $ 5,064 $ 4,982 (b) Stock options Vesting conditions for grants of options are determined by the Compensation Committee of the Company’s Board of Directors. The typical vesting for stock option grants made under the 2020 Omnibus Plan is annual vesting over three to five years with a maximum term of ten years . The typical vesting for stock option grants made under the Prior Option Plans is quarterly vesting over three to five years with a maximum term of seven years . The Prior Option Plans did not, and the 2020 Omnibus Plan does not, authorize grants of options with an exercise price below fair market value. The following is a summary of the changes in stock options during the six months ended June 30, 2021 and 2020: Weighted average exercise price (C$) (i) Number of options Weighted average remaining contractual term (years) Balance as of January 1, 2021 $ 5.40 13,755,148 2.30 Exercise of options 2.14 ( 5,349,818 ) Cancellation, forfeiture and expiry of options 14.86 ( 33,699 ) Balance as of June 30, 2021 $ 7.45 8,371,631 2.66 Exercisable as of June 30, 2021 $ 6.49 4,679,240 1.43 (i) The weighted average exercise price reflects the conversion of foreign currency-denominated stock options translated into C$ using the average foreign exchange rate as of the date of issuance. 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 Exercise of options 2.05 ( 1,807,909 ) Cancellation, forfeiture and expiry of options 15.78 ( 127,045 ) Balance as of June 30, 2020 $ 5.13 12,214,548 2.05 Exercisable as of June 30, 2020 $ 3.42 8,688,645 1.78 No stock options were granted during the six months ended June 30, 2021 and 2020. 16 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents The following table summarizes stock options outstanding for the 2020 Omnibus Plan, the 2018 Stock Option Plan, and the 2015 Stock Option Plan: Stock options outstanding as of June 30, 2021 December 31, 2020 2020 Omnibus Plan 2,000,000 2,000,000 2018 Stock Option Plan 1,586,725 1,627,715 2015 Stock Option Plan 4,784,906 10,127,433 Total stock options outstanding 8,371,631 13,755,148 (c) Restricted share units The following is a summary of the changes in RSUs for the six months ended June 30, 2021 and 2020: Number of RSUs (i) Weighted average grant date fair value (C$) (ii) Balance as of January 1, 2021 948,357 $ 7.66 Granted (i) 515,433 11.29 Vested and issued ( 89,912 ) 7.52 Balance as of June 30, 2021 1,373,878 $ 9.03 Number of RSUs (i) Weighted average grant date fair value (C$) (ii) Balance as of January 1, 2020 732,972 $ 15.34 Granted (i) 279,277 7.52 Balance as of June 30, 2020 1,012,249 $ 13.18 (i) RSUs granted in the period 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) The weighted average grant date fair value reflects the conversion of foreign currency-denominated RSUs translated into C$ using the foreign exchange rate as of the date of issuance. (d) Deferred share units The following is a summary of the changes in DSUs during the six months ended June 30, 2021 and 2020: Number of DSUs Financial liability Balance as of January 1, 2021 83,293 $ 577 Loss on revaluation — 141 Balance as of June 30, 2021 83,293 $ 718 Number of DSUs Financial liability Balance as of January 1, 2020 33,397 $ 255 DSU liabilities settled ( 8,484 ) ( 46 ) Gain on revaluation — ( 56 ) Balance as of June 30, 2020 24,913 $ 153 17 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents (e) Warrants The following is a summary of the changes in warrants during the six months ended June 30, 2021 and 2020: Weighted average exercise price (C$) Number of warrants Balance as of January 1, 2021 $ 0.25 7,987,349 Exercise of warrants 0.25 ( 7,987,349 ) Balance as of June 30, 2021 $ — — Weighted average exercise price (C$) Number of warrants Balance as of January 1, 2020 and June 30, 2020 $ 0.26 18,066,662 As of June 30, 2021, there are no warrants outstanding other than the Altria Warrant. See Note 5. Derivative Liabilities for further description on the Altria Warrant. 18 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents 7. Earnings (Loss) per Share Basic and diluted earnings (loss) per share from continuing operations are calculated using the following numerators and denominators: For the three months ended June 30, For the six months ended June 30, 2021 2020 2021 2020 Basic earnings (loss) per share computation Net income (loss) from continuing operations attributable to the shareholders of Cronos Group $ 57,615 $ ( 106,931 ) $ ( 103,676 ) $ ( 30,891 ) Weighted average number of common shares outstanding 371,721,382 349,075,408 367,391,118 348,946,439 Basic earnings (loss) from continuing operations per share (i) $ 0.15 $ ( 0.31 ) $ ( 0.28 ) $ ( 0.09 ) Loss from discontinued operations attributable to the shareholders of Cronos Group $ ( 561 ) $ ( 46 ) $ ( 582 ) $ ( 46 ) Weighted average number of common shares outstanding 371,721,382 349,075,408 367,391,118 348,946,439 Basic earnings from discontinued operations per share $ 0.00 $ 0.00 $ 0.00 $ 0.00 Diluted earnings (loss) per share computation Net income (loss) used in the computation of basic earnings (loss) from continuing operations per share $ 57,615 $ ( 106,931 ) $ ( 103,676 ) $ ( 30,891 ) Adjustment for gain (loss) on revaluation of derivative liabilities — ( 729 ) — ( 729 ) Net income (loss) used in the computation of diluted earnings (loss) from continuing operations per share $ 57,615 $ ( 107,660 ) $ ( 103,676 ) $ ( 31,620 ) Weighted average number of common shares outstanding used in the computation of basic earnings (loss) per share 371,721,382 349,075,408 367,391,118 348,946,439 Dilutive effect of warrants 5,577 — — — Dilutive effect of stock options 3,027,518 — — — Dilutive effect of RSUs 595,379 — — — Weighted average number of common shares for computation of diluted earnings (loss) from continuing operations per share (i) 375,349,856 349,075,408 367,391,118 348,946,439 Diluted earnings (loss) from continuing operations per share $ 0.15 $ ( 0.31 ) $ ( 0.28 ) $ ( 0.09 ) Loss from discontinued operations attributable to the shareholders of Cronos Group $ ( 561 ) $ ( 46 ) $ ( 582 ) $ ( 46 ) Weighted average number of common shares for computation of diluted loss from discontinued operations per share 375,349,856 349,075,408 367,391,118 348,946,439 Diluted earnings from discontinued operations per share $ 0.00 $ 0.00 $ 0.00 $ 0.00 (i) 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. 19 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents The following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive or because conditions for contingently issuable shares were not satisfied at the end of the reporting periods. Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Ginkgo equity milestones 14,674,904 14,674,904 14,674,904 14,674,904 Pre-emptive Rights 10,683,330 12,006,740 10,984,166 12,006,740 Top-up Rights – fixed price 3,698,611 26,686,413 7,406,031 26,686,413 Top-up Rights – market price 3,504,561 1,941,349 3,063,822 1,941,349 Altria Warrant 82,623,455 77,752,533 82,606,904 77,752,533 Stock options 1,411,944 10,495,235 6,136,113 10,547,256 Warrants — 17,521,903 2,784,377 17,536,558 Restricted share units 265,904 1,012,249 717,127 1,012,249 Total anti-dilutive securities 116,862,709 162,091,326 128,373,444 162,158,002 8. Segment Information Segment reporting is prepared on the same basis that the Company’s chief operating decision makers (the “CODMs”) manage the business, make operating decisions and assess the Company’s performance. The Company determined that it has the following two reportable segments: United States and Rest of World. The United States operating segment consists of the manufacture and distribution of hemp-derived CBD infused products. The Rest of World operating segment is involved in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets . These two segments represent the geographic regions in which the Company operates and the different product offerings within each geographic region. The results of each segment are regularly reviewed by the CODMs to assess the performance of the segment and make decisions regarding the allocation of resources. The CODMs review adjusted earnings (loss) before interest, tax, depreciation and amortization (“Adjusted EBITDA”) as the measure of segment profit or loss to evaluate performance of and allocate resources for its reportable segments. Adjusted EBITDA is defined as earnings before interest, tax, depreciation, non-cash items and items that do not reflect management’s assessment of on-going business performance. The tables below set forth our condensed consolidated results of operations, expressed in thousands of U.S. dollars for the periods presented. Our condensed consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods . 20 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents Segment data was as follows for the three and six months ended June 30, 2021 and 2020: Three months ended June 30, 2021 United States Rest of World Corporate Expenses Total Cannabis flower $ — $ 11,597 $ — $ 11,597 Cannabis extracts 2,227 1,531 — 3,758 Other — 267 — 267 Net revenue $ 2,227 $ 13,395 $ — $ 15,622 Share of loss from equity accounted investments $ — $ 1,115 $ — $ 1,115 Interest income $ 20 $ 2,280 $ — $ 2,300 Interest expense — ( 7 ) — ( 7 ) Interest income, net $ 20 $ 2,273 $ — $ 2,293 Total assets $ 709,956 $ 386,805 $ 741,850 $ 1,838,611 Depreciation and amortization 68 975 — 1,043 Adjusted EBITDA ( 10,711 ) ( 32,605 ) ( 6,443 ) ( 49,759 ) Purchase of property, plant and equipment, net 239 1,428 — 1,667 Three months ended June 30, 2020 United States Rest of World Corporate Expenses Total Cannabis flower $ — $ 5,674 $ — $ 5,674 Cannabis extracts 2,174 1,917 — 4,091 Other — 118 — 118 Net revenue $ 2,174 $ 7,709 $ — $ 9,883 Share of loss from equity accounted investments $ — $ 794 $ — $ 794 Interest income 9 3,808 — 3,817 Interest expense — ( 83 ) — ( 83 ) Interest income, net $ 9 $ 3,725 $ — $ 3,734 Total assets $ 250,470 $ 348,569 $ 1,311,248 $ 1,910,287 Depreciation and amortization 36 643 — 679 Impairment loss on long-lived assets 40,000 — — 40,000 Adjusted EBITDA ( 4,785 ) ( 18,618 ) ( 3,583 ) ( 26,986 ) Purchase of property, plant and equipment, net 39 6,894 — 6,933 21 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents Six months ended June 30, 2021 United States Rest of World Corporate Expenses Total Cannabis flower $ — $ 21,031 $ — $ 21,031 Cannabis extracts 4,668 2,234 — 6,902 Other — 300 — 300 Net revenue $ 4,668 $ 23,565 $ — $ 28,233 Share of loss from equity accounted investments $ — $ 2,758 $ — $ 2,758 Interest income $ 23 $ 4,612 $ — $ 4,635 Interest expense — ( 13 ) — ( 13 ) Interest income, net $ 23 $ 4,599 $ — $ 4,622 Total assets $ 709,956 $ 386,805 $ 741,850 $ 1,838,611 Depreciation and amortization $ 139 $ 1,639 $ — $ 1,778 Impairment loss on long-lived assets 1,741 — — 1,741 Adjusted EBITDA ( 20,221 ) ( 54,789 ) ( 11,323 ) ( 86,333 ) Purchase of property, plant and equipment, net 319 8,028 — 8,347 Six months ended June 30, 2020 United States Rest of World Corporate Expenses Total Cannabis flower $ — $ 8,415 $ — $ 8,415 Cannabis extracts 4,350 5,317 — 9,667 Other — 233 — 233 Net revenue $ 4,350 $ 13,965 $ — $ 18,315 Share of loss from equity accounted investments $ — $ 1,966 $ — $ 1,966 Interest income 16 11,559 — 11,575 Interest expense — ( 90 ) — ( 90 ) Interest income, net $ 16 $ 11,469 $ — $ 11,485 Total assets $ 250,470 $ 348,569 $ 1,311,248 $ 1,910,287 Depreciation and amortization 69 1,297 — 1,366 Impairment loss on long-lived assets 40,000 — — 40,000 Adjusted EBITDA ( 10,567 ) ( 47,628 ) ( 5,846 ) ( 64,041 ) Purchase of property, plant and equipment, net 219 13,125 — 13,344 22 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents The following tables set forth a reconciliation of net income (loss) as determined in accordance with U.S. GAAP to Adjusted EBITDA for the periods indicated: 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 ) Share of loss from equity accounted investments — 1,115 — 1,115 Gain on revaluation of derivative liabilities (ii) — ( 115,248 ) — ( 115,248 ) Transaction costs (iii) — — 2,758 2,758 Other, net (iv) — ( 1,127 ) — ( 1,127 ) Loss from discontinued operations (v) — 561 — 561 Share-based payments (vi) 822 1,743 — 2,565 Review costs related to restatement of 2019 interim financial statements (vii) — — 1,932 1,932 Depreciation and amortization 206 2,997 — 3,203 Adjusted EBITDA $ ( 10,711 ) $ ( 32,605 ) $ ( 6,443 ) $ ( 49,759 ) Three months ended June 30, 2020 United States Rest of World Corporate Expenses Total Net loss $ ( 45,566 ) $ ( 55,095 ) $ ( 7,042 ) $ ( 107,703 ) Interest income, net ( 9 ) ( 3,725 ) — ( 3,734 ) Share of loss from equity accounted investments — 794 — 794 Impairment loss on long-lived assets (i) 40,000 — — 40,000 Loss on revaluation of derivative liabilities (ii) — 35,880 — 35,880 Other, net (iv) — 9 — 9 Loss from discontinued operations (v) — 46 — 46 Share-based payments (vi) 756 1,790 — 2,546 Review costs related to restatement of 2019 interim financial statements (vii) — — 3,459 3,459 Depreciation and amortization 34 1,683 — 1,717 Adjusted EBITDA $ ( 4,785 ) $ ( 18,618 ) $ ( 3,583 ) $ ( 26,986 ) 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) — 582 — 582 Share-based payments (vi) 1,567 3,497 — 5,064 Review costs related to restatement of 2019 interim financial statements (vii) — — 3,937 3,937 Depreciation and amortization 305 4,778 — 5,083 Adjusted EBITDA $ ( 20,221 ) $ ( 54,789 ) $ ( 11,323 ) $ ( 86,333 ) 23 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents Six months ended June 30, 2020 United 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 ) Share of loss from equity accounted investments — 1,966 — 1,966 Impairment loss on long-lived assets (i) 40,000 — — 40,000 Loss on revaluation of derivative liabilities (ii) — ( 77,488 ) — ( 77,488 ) Other, net (iv) — ( 785 ) — ( 785 ) Loss from discontinued operations (v) — 46 — 46 Share-based payments (vi) 1,462 3,520 — 4,982 Review costs related to restatement of 2019 interim financial statements (vii) — — 7,866 7,866 Depreciation and 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. See Note 12. Impairment Loss on Long-Lived Assets. (ii) For the three and six months ended June 30, 2021 and 2020, gain/loss on revaluation of derivative liabilities represents the fair value changes on the derivative liabilities. See Note 5. Derivative Liabilities. (iii) For the three and six months ended June 30, 2021, transaction costs represents legal, financial and other advisory fees and expenses incurred in connection with various strategic investments. These costs are included in general and administrative expenses on the condensed consolidated statements of net income (loss) and comprehensive income (loss). (iv) For the three and six months ended June 30, 2021, other, net is related to gain recorded on sale of the Company’s Winnipeg facility previously designated as held-for-sale in the first quarter of 2021, For the three and six months ended June 30, 2020, other, net is primarily comprised of the gain recorded related to the sale of common shares of Aurora Cannabis, Inc. (“Aurora”), which were received in connection with the achievement of a milestone related to Aurora’s acquisition of Whistler Medical Marijuana Corporation. (v) For the three and six months ended June 30, 2020, loss from discontinued operations relates to the discontinuance of Original B.C. Ltd. (“OGBC”). See Note 11. Held-For-Sale Assets and Discontinued Operations. (vi) For the three and six months ended June 30, 2021 and 2020, share-based payments relates to the vesting expenses of share-based compensation awarded to employees under the Company’s share-based award plans as described in Note 6. Share-based Payments. (vii) For the three and six months ended June 30, 2021 and 2020, the financial statement review costs include costs related to the restatement of the Company’s 2019 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. 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, 2021 2020 2021 2020 Canada $ 10,664 $ 7,416 $ 18,246 $ 13,507 Israel 2,310 293 4,828 293 United States 2,227 2,174 4,668 4,350 Other countries 421 — 491 165 Net revenue $ 15,622 $ 9,883 $ 28,233 $ 18,315 Property, plant and equipment assets were physically located in the following geographic regions: As of June 30, 2021 As of December 31, 2020 Canada $ 168,462 $ 162,163 Israel 23,936 23,143 United States 1,522 2,293 Total $ 193,920 $ 187,599 The Company sells products through a limited number of major customers. Major customers are defined as customers that each individually accounted for greater than 10% of the Company’s revenues. 24 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents United States During the three and six months ended June 30, 2021 and 2020, the U.S. segment had no major customers. As of June 30, 2021 and December 31, 2020, the Company had $ 106 and $ 65 , respectively, in expected credit losses that have been recognized on receivables from contracts with customers. There was no loss from discontinued operations from the U.S. Segment for the three and six months ended June 30, 2021 and 2020. Rest of World During the three months ended June 30, 2021, the Rest of World segment earned a total net revenue before excise taxes of $ 8,497 from three major customers, Ontario Cannabis Retail Corporation, Alberta Gaming, Liquor and Cannabis Commission and Société Québécoise du Cannabis, accounting for 19 %, 14 % and 12 %, respectively, of the Company’s total net revenue before excise taxes. During the three months ended June 30, 2020, the Rest of World segment earned a total net revenue before excise taxes of $ 7,040 from four major customers, together accounting for 71 % of the Company’s total net revenues before excise taxes. During the six months ended June 30, 2021, the Rest of World segment earned a total net revenue before excise taxes of $ 18,250 from four major customers, Ontario Cannabis Retail Corporation, Novolog Group, Société Québécoise du Cannabis and Alberta Gaming, Liquor and Cannabis Commission, accounting for 15 %, 14 %, 13 %, and 12 % respectively, of the Company’s total net revenue before excise taxes. 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 four major customers, together accounting for 65 % of the Company’s total net revenues before excise taxes. As of June 30, 2021 and December 31, 2020, the Company had $ 158 and $ 9 , respectively, in expected credit losses that have been recognized on receivables from contracts with customers. The loss from discontinued operations from the Rest of World segment for the three months ended June 30, 2021 and 2020 was $ 561 and $ 46 , respectively. The loss from discontinued operations from the Rest of World segment for the six months ended June 30, 2021 and 2020 was $ 582 and $ 46 , respectively. 9. Commitments and Contingencies (a) Commitments There have been no material changes in the information regarding commitments as disclosed in the Company’s Annual Financial Statements. (b) Contingencies The Company is subject to various legal proceedings in the ordinary course of its business and in connection with its marketing, distribution and sale of its products. Many of these legal proceedings are in the early stages of litigation and seek damages that are unspecified or not quantified. Although the outcome of these matters cannot be predicted with certainty, the Company does not believe these legal proceedings, individually or in the aggregate, will have a material adverse effect on its financial condition but could be material to its results of operations for a quarterly period depending, in part, on its results for that quarter. (i) Class action complaints relating to restatement On March 11 and 12, 2020, two alleged shareholders of the Company separately filed two putative class action complaints in the U.S. District Court for the Eastern District of New York against the Company and its former Chief Executive Officer (now Executive Chairman) and Chief Financial Officer. The court has consolidated the cases, and the consolidated amended complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder against all defendants, and Section 20(a) of the Exchange Act against the individual defendants. The consolidated amended complaint generally alleges that certain of the Company’s prior public statements about revenues and internal controls were incorrect based on the Company’s disclosures relating to the Audit Committee of the Board of Directors’ review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel. The consolidated amended complaint does not quantify a damage request. Defendants moved to dismiss on February 8, 2021. 25 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents On June 3, 2020, an alleged shareholder filed a Statement of Claim, as amended on August 12, 2020, in the Ontario Superior Court of Justice in Toronto, Ontario, Canada, seeking, among other things, an order certifying the action as a class action on behalf of a putative class of shareholders and damages of an unspecified amount. The Amended Statement of Claim names the Company, its former Chief Executive Officer (now Executive Chairman), Chief Financial Officer, former Chief Financial Officer and Chief Commercial Officer, and current and former members of the Board of Directors as defendants and alleges breaches of the Ontario Securities Act, oppression under the Ontario Business Corporations Act and common law misrepresentation. The Amended Statement of Claim generally alleges that certain of the Company’s prior public statements about revenues and internal controls were misrepresentations based on the Company’s March 2, 2020 disclosure that the Audit Committee of the Board of Directors was conducting a review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel, and the Company’s subsequent restatement. The Amended Statement of Claim does not quantify a damage request. On June 28, 2021, the Ontario Court dismissed motions brought by the plaintiff for leave to commence a claim for misrepresentation under the Ontario Securities Act and for certification of the action as a class action. The plaintiff appealed the Court’s dismissal of the motions, except with respect to the former Chief Financial Officer and Chief Commercial Officer, who agreed not to seek costs from plaintiff in connection with the dismissal of the motions (ii) Regulatory reviews relating to restatement The Company has been responding to requests for information from various regulatory authorities relating to its previously disclosed restatement of its financial statements for the first three quarters of 2019. The Company is responding to all such requests for information and cooperating with all regulatory authorities. The Company cannot predict the outcome of any such regulatory review or investigation and it is possible that additional investigations or one or more formal proceedings may be commenced against the Company and its current and former officers and directors in connection with these regulatory reviews and investigations. (iii) Litigation relating to marketing, distribution and sale of products On June 16, 2020, an alleged consumer filed a Statement of Claim on behalf of a class in the Court of Queen’s Bench of Alberta in Alberta, Canada, against the Company and other Canadian cannabis manufacturers and/or distributors. On December 4, 2020, a Third Amended Statement of Claim was filed, which added a second alleged consumer. The Third Amended Statement of Claim alleges claims related to the defendants’ advertised content of cannabinoids in cannabis products for medicinal use on or after June 16, 2010 and cannabis products for adult use on or after October 17, 2018. The Third Amended Statement of Claim seeks a total of C$ 500 million for breach of contract, compensatory damages, and unjust enrichment or such other amount as may be proven in trial and C$ 5 million in punitive damages against each defendant, including the Company. The Third Amended Statement of Claim also seeks interest and costs associated with the action. The Company has not responded to the Third Amended Statement of Claim. A number of claims, including purported class actions, have been brought in the U.S. against companies engaged in the U.S. hemp business alleging, among other things, violations of state consumer protection, health and advertising laws. On April 8, 2020, a putative class action complaint was filed in the U.S. District Court for the Central District of California against Redwood Holding Group, LLC (“Redwood”), alleging violations of California’s Unfair Competition Law, False Advertising Law, Consumers Legal Remedies Act, and breaches of the California Commercial Code for breach of express warranties and implied warranty of merchantability with respect to Redwood’s marketing and sale of U.S. hemp products. The complaint did not quantify a damage request. On April 10, 2020, the class action complaint was dismissed for certain pleading deficiencies and the plaintiff was granted leave until April 24, 2020 to amend the complaint to establish federal subject matter jurisdiction. On April 28, 2020, the action was dismissed without prejudice for failure to prosecute and for failure to comply with a court order. As of the date of this Quarterly Report, the plaintiff has not refiled the complaint. The Company expects litigation and regulatory proceedings relating to the marketing, distribution and sale of its products to increase. 10. Financial Instruments (a) Fair value measurement The Company complies with ASC 820, Fair Value Measurements, for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. In general, fair values are determined by: • Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. • Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or liability. 26 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020 and indicate the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. June 30, 2021 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 895,181 $ — $ — $ 895,181 Short-term investments 201,699 — — 201,699 Derivative liabilities — — 169,563 169,563 December 31, 2020 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 1,078,023 $ — $ — $ 1,078,023 Short-term investments 211,766 — — 211,766 Derivative liabilities — — 163,410 163,410 There were no transfers between categories during the periods presented. (b) Financial risks The Company’s activities expose it to a variety of financial risks, including credit risk, market risk, interest rate risk, liquidity risk, and foreign currency rate risk. (i) Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk from its operating activities, primarily accounts receivable and other receivables, and its investing activities, including cash held with banks and financial institutions, short-term investments, loans 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 $ 1,210,287 and $ 1,403,491 as of June 30, 2021 and December 31, 2020, respectively. (a) C ash and cash equivalents, short-term investments, and other receivables The Company held cash and cash equivalents and short-term investments and related interest receivable. Short-term investments and related interest receivable represents short-term investments with a maturity of less than a year and accrued interest as of period end. The cash and cash equivalents and short-term investments, including guaranteed investment certificates and bankers’ acceptances, are held with central banks and financial institutions that are highly rated. In addition to interest receivable, other receivables include sales taxes receivable from the government. As such, the Company has assessed an insignificant loss allowance on these financial instruments. (b) Accounts receivable An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on the days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Accounts receivable are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, among others, the failure of a debtor to engage in a repayment plan and a failure to make contractual payments for a period of greater than 120 days past due. As of June 30, 2021 and December 31, 2020, the Company had an allowance for credit losses of $ 264 and $ 74 , respectively. As of June 30, 2021, the Company has assessed that there is a concentration of credit risk, as 74 % of the Company’s accounts receivable were due from four customers with an established credit history with the Company. As of December 31, 2020, 78 % of the Company’s accounts receivable were due from four customers with an established credit history with the Company. 27 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents (ii) Market risk Market risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will significantly fluctuate due to changes in market prices. The value of financial instruments can be affected by changes in interest rates, market and economic conditions, and equity and commodity prices. The Company is exposed to market risk in divesting its investments, such that unfavorable market conditions could result in dispositions of investments at less than their carrying values. Further, the revaluation of securities classified as fair value through net income could result in significant write-downs of the Company’s investments, which would have an adverse impact on the Company’s financial position, unless these would flow through other comprehensive income. The Company manages market risk by having a portfolio of securities from multiple issuers so that the Company is not materially exposed to any one issuer. (iii) Interest rate risk Interest rate risk is the risk that the value or yield of fixed-income investments may decline if interest rates change. Fluctuations in interest rates may impact the level of income and expense recorded on the cash equivalents and short-term investments, and the market value of all interest-earning assets, other than those which possess a short-term to maturity. A 10% change in the interest rate in effect on June 30, 2021 and December 31, 2020 would not have a material effect on (i) fair value of the cash equivalents and short-term investments as the majority of the portfolio has a maturity date of three months or less or (ii) interest income. Management continues to monitor external interest rates and revise the Company’s investment strategy as a result. During the three months ended June 30, 2021 and 2020, the Company recorded net interest income of $ 2,293 and $ 3,734 , respectively. During the six months ended June 30, 2021 and 2020, the Company recorded net interest income of $ 4,622 and $ 11,485 , respectively. (iv) Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due and arises principally from the Company’s accounts payable and other liabilities. The Company’s policy is to review liquidity resources and ensure that sufficient funds are available to meet financial obligations as they become due. Further, the Company’s management is responsible for ensuring funds exist and are readily accessible to support business opportunities as they arise. The Company’s funding was primarily provided in the form of capital raised through the issuance of common shares and warrants. As of June 30, 2021, the Company had assessed a concentration risk of vendors as 32 % of accounts payables were due to one vendor. As of December 31, 2020, the Company had assessed a concentration risk of vendors as 64 % due to four vendors. (v) Foreign currency risk Currency rate risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will significantly fluctuate due to changes in foreign exchange rates. The Company is exposed to this risk on investments in equity investees denominated in dollars, A$ and C$, and other assets and liabilities denominated in A$ and C$. The Company is further exposed to this risk through subsidiaries operating in Israel and the U.S. as the Company’s functional currency is in Canadian dollars. The Company does not currently use foreign exchange contracts to hedge its exposure to currency rate risk. As such, the Company’s financial position and financial results may be adversely affected by the unfavorable fluctuations in currency exchange rates. During the three months ended June 30, 2021 and 2020, the Company had foreign currency gain on translation of $ 13,470 and $ 51,871 , respectively. During the six months ended June 30, 2021 and 2020, the Company had foreign currency gain (loss) on translation of $ 29,754 and $( 61,821 ), respectively. A 10% change in the exchange rates for the U.S. dollar would affect the carrying value of net assets by approximately $ 162,991 and $ 170,817 as of June 30, 2021 and December 31, 2020, respectively. 11. Held-For-Sale Assets and Discontinued Operations During the year ended December 31, 2020, the Company advanced its plans for the sale and disposal of substantially all of the assets of OGBC and as a result, OGBC’s results of operations were reclassified as discontinued operations in the accompanying condensed consolidated financial statements for all periods presented. During the quarter ended June 30, 2021, the Company determined that the fair value of OGBC was lower than the carrying value of the assets. As such, a write-down to these held-for-sale assets of $ 561 was recorded in the second quarter of 2021. As of June 30, 2021, the assets and liabilities of OGBC continue to meet the definition of discontinued operations and are included as “held-for-sale” assets on the condensed consolidated balance sheet as of June 30, 2021 and December 31, 2020, and loss from discontinued operations on the condensed consolidated statements of net income and comprehensive income for the three and six months ended June 30, 2021 and 2020. 28 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of $, except share amounts) Table of Contents On June 10, 2021, the land and office building located in Winnipeg, Manitoba Canada, previously designated as held-for-sale in the first quarter of 2021, was sold for $ 2,059 , net of costs to sell. As a result, the Company recorded a gain on the sale of $ 1,279 in other, net in its condensed consolidated income statement for the three and six months ended June 30, 2021. The following table summarizes the financial information for discontinued operations: Three months ended June 30, Six months ended June 30, 2021 2020 2021 2020 Loss from discontinued operations, net of income taxes $ ( 561 ) $ ( 46 ) $ ( 582 ) $ ( 46 ) As of June 30, 2021 As of December 31, 2020 OGBC assets classified as held-for-sale $ 645 $ 1,176 12. Impairment Loss on Long-Lived Assets (a) Property, plant, and equipment, net and right-of-use assets During the six months ended June 30, 2021, the Company recognized an impairment charge of $ 1,039 related to leasehold improvements located within leased premises, encompassing approximately 6,000 square feet, in Los Angeles, California, which the Company determined it no longer had plans to use. The significant change in the extent and manner in which the leasehold improvements are being used and the expectation that, more likely than not, the leasehold improvements will be disposed of before the end of their useful life triggered an impairment. The right-of-use lease asset associated with the leasehold improvements was also written down as a result of our decision to no longer use the leased premises. The Company recognized an impairment charge on the de-recognition of the right-of-use asset of $ 702 during the six months ended June 30, 2021. Both of the impairment charges are recognized in the statement of net income (loss) as impairment loss on property, plant and equipment and right-of-use assets. No impairment charges were recorded during the three months ended June 30, 2021 and the three and six months ended June 30, 2020 on property, plant and equipment and right-of-use assets. (b) Intangible assets, net and goodwill Goodwill and indefinite life intangible assets are reviewed for impairment annually or more frequently when events or changes in circumstances indicate that fair value of the reporting unit has been reduced to less than its carrying value. During the three months ended June 30, 2020, the Company concluded that the projected impact of the COVID-19 pandemic on its sales and revenues in the near term, together with the volatility in the market conditions during the quarter, represented potential indicators of impairment for the Company’s U.S. reporting unit as well as its Lord Jones brand acquired in September 2019. Accordingly, the Company performed an interim impairment analysis during the second quarter of 2020. As a result of this analysis, the Company recorded impairment charges of $ 35,000 on its U.S. reporting unit and $ 5,000 on its Lord Jones™ brand for the three and six months ended June 30, 2020, when the carrying value of these assets exceeded their fair value. No triggering events were identified or impairment charges recorded during the three and six months ended June 30, 2021 on intangible assets and goodwill. 29 Tab l e of Contents