Cronos Group Inc. 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk. Interest rate risk Interest rate risk is the risk that the value or yield of fixed-income investments may decline if interest rates change. Fluctuations in interest rates may impact the level of income and expense recorded on the cash equivalents and short-term investments, and the market value of all interest-earning assets, other than those which possess a short-term to maturity. A 10% change in the interest rate in effect on 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 $2.3 million and $3.7 million, respectively. During the six months ended June 30, 2021 and 2020, the Company recorded net interest income of $4.6 million and $11.5 million, respectively. Net interest income in the first half of 2021 decreased compared to the first half of 2020 primarily due to lower interest earning assets during the six months ended June 30, 2021 compared to the interest earning assets during the six months ended June 30, 2020. Foreign currency risk The Company’s consolidated financial statements included in Part I, Item 1. of this Quarterly Report are expressed in U.S. dollars. In addition. the Company has net assets, liabilities and revenues denominated in foreign currencies, including Canadian dollars and Israeli new shekels. As a result, we are exposed to foreign currency translation gains and losses. Revenue and expenses of all foreign operations are translated into U.S. dollars at the foreign currency exchange rates that approximate the rates in effect during the period when such items are recognized. Appreciating foreign currencies relative to the U.S. dollar will adversely impact operating income and net earnings, while depreciating foreign currencies relative to the U.S. dollar will have a positive impact. A 10% change in the exchange rates for the Canadian dollar would affect the carrying value of net assets by approximately $163.0 million and $170.8 million as of June 30, 2021 and December 31, 2020, respectively. The corresponding impact would be recorded in accumulated other comprehensive income. We have not historically engaged in hedging transactions and do not currently contemplate engaging in hedging transactions to mitigate foreign exchange risks. As we continue to recognize gains and losses in foreign currency transactions, depending upon changes in future currency rates, such gains or losses could have a significant, and potentially adverse, effect on the Company’s results of operations. 44 Tab l e of Contents