Cronos Group Inc. 10-Q/A

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read together with other information, including Cronos Group’s restated 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/A 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 This Quarterly Report, the documents incorporated into this Quarterly Report by reference, other reports we file with, or furnish to, the U.S. Securities and Exchange Commission (“SEC”) and other regulatory agencies, and statements by our directors, officers, other employees and other persons authorized to speak on our behalf contain information that may constitute forward-looking information and forward-looking statements within the meaning of applicable securities laws (collectively, “Forward-Looking Statements”), which are based upon our current internal expectations, estimates, projections, assumptions and beliefs. All information that is not clearly historical in nature may constitute Forward-Looking Statements. In some cases, Forward-Looking Statements can be identified by the use of forward-looking terminology, such as “expect”, “likely”, “may”, “will”, “should”, “intend”, “anticipate”, “potential”, “proposed”, “estimate” and other similar words, expressions and phrases, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussion of strategy. Forward-Looking Statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of historical fact. Forward-Looking Statements include, but are not limited to, statements with respect to: • the uncertainties associated with the COVID-19 pandemic, including our ability, and the abilities of our joint ventures and our suppliers and distributors, to effectively deal with the restrictions, limitations and health issues presented by the COVID-19 pandemic, the ability to continue our production, distribution and sale of our products, and demand for and the use of our products by consumers; • laws and regulations and any amendments thereto applicable to our business and the impact thereof, including uncertainty regarding the application of United States (“U.S.”) state and federal law to U.S. hemp (including CBD) products and the scope of any regulations by the U.S. Food and Drug Administration (the “FDA”), the U.S. Drug Enforcement Administration (the “DEA”), the U.S. Federal Trade Commission (the “FTC”), the U.S. Patent and Trademark Office (the “PTO”) and any state equivalent regulatory agencies over U.S. hemp (including CBD) products; • the laws and regulations and any amendments thereto relating to the U.S. hemp industry in the U.S., including the promulgation of regulations for the U.S. hemp industry by the U.S. Department of Agriculture (the “USDA”) and relevant state regulatory authorities; • the grant, renewal and impact of any license or supplemental license to conduct activities with cannabis or any amendments thereof; • our international activities and joint venture interests, including required regulatory approvals and licensing, anticipated costs and timing, and expected impact; • our ability to successfully create and launch brands and further create, launch and scale U.S. hemp-derived consumer products and cannabis products; • the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, including CBD and other cannabinoids; • expectations regarding the implementation and effectiveness of key personnel changes; • the anticipated benefits and impact of Altria Group, Inc.’s investment in the Company (the “Altria Investment”), pursuant to a subscription agreement dated December 7, 2018; • the potential exercise of one warrant of the Company included as part of the Altria Investment, 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; • the legalization of the use of cannabis for medical or adult-use in jurisdictions outside of Canada, the related timing and impact thereof and our intentions to participate in such markets, if and when such use is legalized; • expectations regarding the potential success of, and the costs and benefits associated with, our joint ventures, strategic alliances and equity investments, including the strategic partnership (the “Ginkgo Strategic Partnership”) with Ginkgo Bioworks, Inc. (“Ginkgo”); • our ability to execute on our strategy and the anticipated benefits of such strategy; • expectations of the amount or frequency of impairment losses, including as a result of the write-down of intangible assets, including goodwill; 34 Table of Contents • 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; • the future performance of our business and operations; • our competitive advantages and business strategies; • the competitive conditions of the industry; • the expected growth in the number of customers using our products; • our ability or plans to identify, develop, commercialize or expand our technology and research and development (“R&D”) initiatives in cannabinoids, or the success thereof; • expectations regarding acquisitions and dispositions and the anticipated benefits therefrom, including the proposed sale of our Original B.C. Ltd. (“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; • expectations regarding cash flow, liquidity and sources of funding; • expectations regarding capital expenditures; • the expansion of our production and manufacturing, the costs and timing associated therewith and the receipt of applicable production and sale licenses; • the expected growth in our growing, production and supply chain capacities; • expectations regarding the resolution of litigation and other legal and regulatory proceedings, reviews and investigations; • expectations with respect to future production costs; • expectations with respect to future sales and distribution channels and networks; • the expected methods to be used to distribute and sell our products; • the anticipated future gross margins of our operations; • accounting standards and estimates; • our ability to timely and effectively remediate any material weaknesses in our internal control over financial reporting; and • expectations regarding the costs and benefits associated with our contracts and agreements with third parties, including under our third-party supply and manufacturing agreements. Certain of the Forward-Looking Statements contained herein concerning the industries in which we conduct our business are based on estimates prepared by us using data from publicly available governmental sources, market research, industry analysis and on assumptions based on data and knowledge of these industries, which we believe to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. The industries in which we conduct our business involve risks and uncertainties that are subject to change based on various factors, which are described further below. The Forward-Looking Statements contained herein are based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including: (i) our ability, and the abilities of our joint ventures and our suppliers and distributors, to effectively deal with the restrictions, limitations and health issues presented by the COVID-19 pandemic and the ability to continue our production, distribution and sale of our products and customer demand for and use of our products; (ii) management’s perceptions of historical trends, current conditions and expected future developments; (iii) our ability to generate cash flow from operations; (iv) general economic, financial market, regulatory and political conditions in which we operate; (v) the production and manufacturing capabilities and output from our facilities and our joint ventures, strategic alliances and equity investments; (vi) consumer interest in our products; (vii) competition; (viii) anticipated and unanticipated costs; (ix) government regulation of our activities and products including, but not limited to, the areas of taxation and environmental protection; (x) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (xi) our ability to obtain qualified staff, equipment and services in a timely and cost-efficient manner; (xii) our ability to conduct operations in a safe, efficient and effective manner; (xiii) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our recent acquisitions into our existing operations; (xiv) our ability to complete planned dispositions, including the sale of OGBC, and, if completed, obtain our anticipated sales price; (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. 35 Table of Contents By their nature, Forward-Looking Statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the Forward-Looking Statements in this Quarterly Report and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf. Such factors include, without limitation, the risk that the COVID-19 pandemic may disrupt our operations and those of our suppliers and distribution channels and negatively impact the demand for and use of our products; the risk that cost savings and any other synergies from the Altria Investment may not be fully realized or may take longer to realize than expected; the risk that we will not complete planned dispositions, including the sale of OGBC, or, if completed, obtain our anticipated sales price; the implementation and effectiveness of key personnel changes; future levels of revenues; consumer demand for cannabis and U.S. hemp products; our ability to manage disruptions in credit markets or changes to our credit ratings; future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; the success or timing of completion of ongoing or anticipated capital or maintenance projects; business strategies, growth opportunities and expected investment; the adequacy of our capital resources and liquidity, including but not limited to, availability of sufficient cash flow to execute our business plan (either within the expected timeframe or at all); the potential effects of judicial, regulatory or other proceedings, or threatened litigation or proceedings, on our business, financial condition, results of operations and cash flows; volatility in and/or degradation of general economic, market, industry or business conditions; compliance with applicable environmental, economic, health and safety, energy and other policies and regulations and in particular health concerns with respect to vaping and the use of cannabis and U.S. hemp products in vaping devices; the anticipated effects of actions of third parties such as competitors, activist investors or federal (including U.S. federal), state, provincial, territorial or local regulatory authorities or self-regulatory organizations; 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. Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on Forward-Looking Statements. Forward-Looking Statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as of and for periods ended on certain dates and to present information about management’s current expectations and plans relating to the future, and the reader is cautioned that the Forward-Looking Statements may not be appropriate for any other purpose. While we believe that the assumptions and expectations reflected in the Forward-Looking Statements are reasonable based on information currently available to management, there is no assurance that such assumptions and expectations will prove to have been correct. Forward-Looking Statements are made as of the date they are made and are based on the beliefs, estimates, expectations and opinions of management on that date. We undertake no obligation to update or revise any Forward-Looking Statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such Forward-Looking Statements. The Forward-Looking Statements contained in this Quarterly Report and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf are expressly qualified in their entirety by these cautionary statements. Foreign currency exchange rates All currency amounts in this Quarterly Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars. The assets and liabilities of the Company’s foreign operations are translated into dollars at the exchange rate in effect as of June 30, 2021, June 30, 2020 and December 31, 2020. Transactions affecting the shareholders’ equity are translated at historical foreign exchange rates. The condensed consolidated statements of net income (loss) and comprehensive income (loss) and condensed consolidated statements of cash flows of the Company’s foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period using Bloomberg. The exchange rates used to translate from Canadian dollars (“C$”) to dollars is shown below: (Exchange rates are shown as C$ per $) As of June 30, 2021 June 30, 2020 December 31, 2020 Average rate 1.2293 1.3856 1.3036 Spot rate 1.2395 1.3576 1.2751 Year-to-date average rate 1.2481 1.3646 1.3411 36 Table of Contents Business Overview Cronos Group is an innovative global cannabinoid company with international production and distribution across five continents. Cronos Group is committed to building disruptive intellectual property by advancing cannabis research, technology and product development and is building 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+ ™ . Strategy Cronos Group seeks to create value for shareholders by focusing on four core strategic priorities: • growing a portfolio of iconic brands that responsibly elevate the consumer experience; • developing a diversified global sales and distribution network; • establishing an efficient global supply chain; and • creating and monetizing disruptive intellectual property. Business segments Cronos Group reports through two segments: “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 ™ , 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. Cronos Group has established strategic joint ventures in Canada, Israel and Colombia. Cronos Group additionally holds approximately 31% of the issued capital of Cronos Australia Limited, which is listed on the Australian Securities Exchange under the trading symbol “CAU.” Cronos Group currently exports cannabis products to countries that permit the import of such products, such as Australia, Germany and Israel. Recent Developments COVID-19 update The COVID-19 pandemic continues to impact the global economy and, specifically, the U.S., Canada, Israel, and the other countries in which the Company or its affiliates operate (including Australia and Colombia). Cronos Group continues to closely monitor and respond, where possible, to the ongoing COVID-19 pandemic. As the global situation continues to change rapidly, ensuring the health and safety of our employees remains one of our top priorities. In the U.S., numerous states have continued to remove their COVID-19 related restrictions 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. 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. 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. 37 Table of Contents In both the U.S. and ROW segments, there were no material increases in the current expected credit loss in connection with COVID-19. The Company continues to closely monitor the effects of COVID-19 on its operating results. 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; 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. Despite the impacts of the COVID-19 pandemic, the Company believes that its significant cash on hand and short-term investments will be adequate to meet liquidity and capital requirements for at least the next twelve months. 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. Transaction 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 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 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. 38 Table of Contents Appointments Kendrick Ashton Jr. was elected to Cronos Group’s Board of Directors at the Annual Meeting of Shareholders held on June 25, 2021. Mr. 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. Mr. 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. Mr. Cohn joined Cronos Group from The Avon Company, where he served as General Counsel and Corporate Secretary. Mr. 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. Mr. 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. Mr. 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. 39 Table of Contents Consolidated Results of Operations The tables below sets forth our condensed consolidated results of operations, expressed in thousands of U.S. dollars for the periods presented. Our restated 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 (Restated) (Restated) 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 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 Impairment loss on goodwill and indefinite-lived intangible assets 234,914 40,000 234,914 40,000 Impairment loss on long-lived assets 1,214 — 2,955 — Total operating expenses 280,561 71,786 322,798 110,370 Operating loss (296,345) (74,708) (341,545) (119,768) Other income (loss) 117,553 (32,949) 1,149 87,792 Loss from discontinued operations (561) (46) (582) (46) Net loss (179,353) (107,703) (340,978) (32,022) Net loss attributable to non-controlling interests (279) (726) (592) (1,085) Net loss attributable to Cronos Group $ (179,074) $ (106,977) $ (340,386) $ (30,937) 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 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 Net revenue 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. 40 Table of Contents 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. Gross loss 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. Operating expenses For the three months ended June 30, Change For the six months ended June 30, Change 2021 2020 $ % 2021 2020 $ % (Restated) (Restated) 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 % Impairment loss on goodwill and indefinite-lived intangible assets 234,914 40,000 194,914 487 % 234,914 40,000 194,914 487 % Impairment loss on long-lived assets 1,214 — 1,214 N/A 2,955 — 2,955 N/A Total operating expenses $ 280,561 $ 71,786 $ 208,775 291 % $ 322,798 $ 110,370 $ 212,428 192 % 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. 41 Table of Contents 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. Impairment loss on goodwill and indefinite-lived intangible assets For the three and six months ended June 30, 2021, there were $234.9 million of impairment charges on goodwill and indefinite-lived intangible assets representing an increase of $194.9 million from the three and six months ended June 30, 2020. For both the three and six month comparative periods, the increase in impairment loss on goodwill and indefinite-lived intangible assets was primarily due to a $234.9 million impairment charge on the goodwill associated with our U.S. reporting unit and Lord Jones™ brand name compared to $40.0 million in impairment charges on the U.S. reporting unit and the Lord Jones™ brand in the first half of 2020. For further information, see Note 5. Goodwill and Intangible Assets, Net to the Company’s restated condensed consolidated financial statements under Item 1. “Financial Statements” of this Quarterly Report. Impairment loss on long-lived assets For the six months ended June 30, 2021, impairment loss on long-lived assets was $3.0 million, representing an increase of $3.0 million from the six months ended June 30, 2020. For the three months ended June 30, 2021, impairment loss on long-lived assets was $1.2 million, representing an increase of $1.2 million from the three months ended June 30, 2020. For the three month comparative period, the increase in impairment charges relates to $1.2 million in impairment charges on property, plant and equipment located in the U.S. segment. For the six month comparative period, the increase in impairment charges relates to aforementioned impairment charges on property, plant and equipment located in the U.S. segment, as well as $1.7 million in impairment charges on leased premises in the U.S. segment. For further information, see Note 13. Impairment Loss on Long-lived Assets to the Company’s restated condensed consolidated financial statements under Item 1. “Financial Statements” of this Quarterly Report. 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 $ % Interest income, net $ 2,293 $ 3,734 $ (1,441) (39) % $ 4,622 $ 11,485 $ (6,863) (60) % Gain (loss) on revaluation of derivative liabilities 115,248 (35,880) 151,128 421 % (1,626) 77,488 (79,114) (102) % 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 (32,949) 150,502 457 % 1,149 87,792 (86,643) (99) % Loss from discontinued operations (561) (46) (515) (1120) % (582) (46) (536) (1165) % Net loss $ (179,353) $ (107,703) $ (71,650) (67) % $ (340,978) $ (32,022) $ (308,956) (965) % 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. 42 Table of Contents 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 fluctuations in derivative valuations. For further information, see Note 6. Derivative Liabilities to the Company’s restated condensed consolidated financial statements under Item 1. “Financial Statements” of this Quarterly Report. 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 restated condensed consolidated financial statements under Item 1. “Financial Statements” of this Quarterly Report. Other, net 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. 43 Table of Contents Results of Operations by Business Segment: 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 restated 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 % 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 For the three months ended June 30, Change For the six months ended June 30, Change 2021 2020 $ % 2021 2020 $ % Cannabis flower $ 11,597 $ 5,674 $ 5,923 104 % $ 21,031 $ 8,415 $ 12,616 150 % Cannabis extracts 1,531 1,917 (386) (20) % 2,234 5,317 (3,083) (58) % Other 267 118 149 126 % 300 233 67 29 % Net revenue $ 13,395 $ 7,709 $ 5,686 74 % $ 23,565 $ 13,965 $ 9,600 69 % 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. 44 Table of Contents 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 % 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 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. 45 Table of Contents Non-GAAP Measures Cronos Group reports its financial results in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). This Quarterly Report refers to measures not recognized under U.S. GAAP (“non-GAAP measures”). These non-GAAP measures do not have a standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these non-GAAP measures are provided as a supplement to corresponding U.S. GAAP measures to provide additional information regarding the results of operations from management’s perspective. Accordingly, non-GAAP measures should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. All non-GAAP measures presented in this Quarterly Report are reconciled to their closest reported U.S. GAAP measure. Reconciliations of historical adjusted financial measures to corresponding U.S. GAAP measures are provided below. Adjusted EBITDA Management reviews Adjusted EBITDA, a non-GAAP measure which excludes non-cash items and items that do not reflect management’s assessment of 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: share of loss from equity accounted investments; impairment loss on goodwill and indefinite-lived intangible assets; 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. The following table sets forth a reconciliation of net income (loss) as determined in accordance with U.S. GAAP to Adjusted EBITDA for the periods indicated (dollars in thousands): Three months ended June 30, 2021 United States Rest of World Corporate Total (Restated) (Restated) Net income (loss) $ (247,847) $ 79,627 $ (11,133) $ (179,353) Interest income, net (20) (2,273) — (2,293) Share of loss from equity accounted investments — 1,115 — 1,115 Impairment loss on goodwill and indefinite-lived intangible assets (i) 234,914 — — 234,914 Impairment loss on long-lived assets (ii) 1,214 — — 1,214 Gain on revaluation of derivative liabilities (iii) — (115,248) — (115,248) Transaction costs (iv) — — 2,758 2,758 Other, net (v) — (1,127) — (1,127) Loss from discontinued operations (vi) — 561 — 561 Share-based payments (vii) 822 1,743 — 2,565 Review costs related to restatement of 2019 interim financial statements (viii) — — 1,932 1,932 Depreciation and amortization 206 2,997 — 3,203 Adjusted EBITDA $ (10,711) $ (32,605) $ (6,443) $ (49,759) 46 Table of Contents Three months ended June 30, 2020 United States Rest of World Corporate 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 goodwill and indefinite-lived intangible assets (i) 40,000 — — 40,000 Loss on revaluation of derivative liabilities (iii) — 35,880 — 35,880 Other, net (v) — 9 — 9 Loss from discontinued operations (vi) — 46 — 46 Share-based payments (vii) 756 1,790 — 2,546 Review costs related to restatement of 2019 interim financial statements (viii) — — 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 Total (Restated) (Restated) Net loss $ (259,939) $ (62,520) $ (18,519) $ (340,978) Interest income, net (23) (4,599) — (4,622) Share of loss from equity accounted investments — 2,758 — 2,758 Impairment loss on goodwill and indefinite-lived intangible assets (i) 234,914 — — 234,914 Impairment loss on long-lived assets (ii) 2,955 — — 2,955 Loss on revaluation of derivative liabilities (iii) — 1,626 — 1,626 Transaction costs (iv) — — 3,259 3,259 Other, net (v) — (911) — (911) Loss from discontinued operations (vi) — 582 — 582 Share-based payments (vii) 1,567 3,497 — 5,064 Review costs related to restatement of 2019 interim financial statements (viii) — — 3,937 3,937 Depreciation and amortization 305 4,778 — 5,083 Adjusted EBITDA $ (20,221) $ (54,789) $ (11,323) $ (86,333) 47 Table of Contents Six months ended June 30, 2020 United States Rest of World Corporate 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 goodwill and indefinite-lived intangible assets (i) 40,000 — — 40,000 Gain on revaluation of derivative liabilities (iii) — (77,488) — (77,488) Other, net (v) — (785) — (785) Loss from discontinued operations (vi) — 46 — 46 Share-based payments (vii) 1,462 3,520 — 4,982 Review costs related to restatement of 2019 interim financial statements (viii) — — 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 three and six months ended June 30, 2021 and 2020, impairment loss on goodwill and indefinite-lived intangible assets relates to the impairment of goodwill on the U.S. reporting unit and the Lord Jones indefinite-lived intangible asset in our U.S. segment. See Note 5. Goodwill and Intangible Assets, net to the Company’s restated condensed consolidated financial statements under Item 1. “Financial Statements” of this Quarterly Report. (ii) For the three months ended June 30, 2021, impairment loss on long-lived assets relates to an impairment on property, plant and equipment in the U.S. segment. For the six months ended June 30, 2021, impairment loss on long-lived assets relates to the aforementioned impairment loss on property, plant and equipment as well as an impairment loss on leased premises in the U.S. segment from the first quarter of 2021. There was no impairment loss on long-lived assets for the three and six months ended June 30, 2020. See Note 13. Impairment Loss on Long-lived Assets to the Company’s restated condensed consolidated financial statements under Item 1. “Financial Statements” of this Quarterly Report. (iii) 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 6. Derivative Liabilities to the Company’s restated condensed consolidated financial statements under Item 1. “Financial Statements” of this Quarterly Report. (iv) 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. (v) For the three and six months ended June 30, 2021, other, net, primarily related to the gain recorded on sale of the Company’s Winnipeg facility previously designated as held-for-sale in the first quarter of 2021. For the 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. (vi) For the three and six months ended June 30, 2020, loss from discontinued operations relates to the discontinuance of OGBC. See Note 12. Held-For-Sale Assets and Discontinued Operations to the Company’s restated 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, 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 7. Share-based Payments to the Company’s restated condensed consolidated financial statements under Item 1. “Financial Statements” of this Quarterly Report. (viii) 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 48 Table of Contents Liquidity and Capital Resources 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. The following table summarizes the cash flows from operating, investing and financing activities (dollars in thousands): For the six months ended June 30, 2021 2020 Cash used in operating activities $ (86,197) $ (78,377) Cash provided/(used) in investing activities (106,563) 39,799 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) Comparison of the six months ended June 30, 2021 to the six months ended June 30, 2020 Operating activities 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 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 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 The Company’s critical accounting policies and estimates are discussed in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Annual Report on Form 10-K. There have been no material changes to these critical accounting policies and estimates. 49 Table of Contents