What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-03-01 compared with 2021-02-26 · 1208 added, 1249 removed, 700 unchanged (78% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reports of KPMG LLP, Independent Registered Public Accounting Firm 67

Reports of KPMG LLP (PCAOB ID:

85 ), Independent Registered Public Accounting Firm located in Vaughan, Ontario, Canada

Consolidated Balance Sheets 75

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

Consolidated Statements of Changes in Shareholders’ Equity (Deficit)

Consolidated Statements of Changes in Shareholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Table of Con tents

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors Cronos Group Inc.:

To the Shareholders and Board of Directors

Cronos Group Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Cronos Group Inc.

(the Company) as of December 31, 2020 and December 31, 2019, the related consolidated statements of net income (loss) and comprehensive income (loss), changes in shareholders’ equity (deficit), and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and December 31, 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S.

(the Company) as of December 31, 2021 and 2020, the related consolidated statements of net income (loss) and comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2021, expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 1, 2022 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

13 unchanged sentences

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of sufficiency of audit evidence over inventory

As discussed in Note 5 to the consolidated financial statements, inventory consists of raw materials;

dry cannabis and cannabis extracts work-in-progress;

dry cannabis and cannabis extract finished goods;

and supplies and consumables.

The Company’s total inventory as of December 31, 2020 was $44,002 thousand.

The accuracy of inventory quantities is dependent upon the performance of an annual physical count and appropriately recording adjustments to inventory quantities in the Company’s inventory process.

The Company has also identified a material weakness related to inventory as of December 31, 2020.

We identified the evaluation of the sufficiency of audit evidence over the accuracy of inventory quantities as a critical audit matter.

Evaluating the sufficiency of the audit evidence obtained required especially subjective auditor judgment because of the material weakness described above.

Impact of Ineffective Control Environment

As discussed in Item 9A.

Controls and Procedures in the Form 10-K, management identified that a material weakness existed as of December 31, 2021 as the Company did not maintain an effective control environment.

Specifically, the control environment did not ensure that senior personnel in the accounting function engaged consistently in appropriate professional conduct and conduct consistent with the Company’s Code of Business Conduct and Ethics.

We identified the evaluation of the sufficiency of audit evidence in response to the material weakness as a critical audit matter.

Evaluating the sufficiency of the audit evidence obtained required especially subjective auditor judgement because of the material weakness identified above.

The following are the primary procedures we performed to address this critical audit matter.

We applied auditor judgment to determine the nature and extent of procedures to be performed over inventory.

We increased the number of inventory samples selected to perform certain procedures compared to those we would have selected if the Company’s internal controls were operating effectively at year end.

We performed independent test counts of inventory quantities.

We compared the results of our independent test counts to the Company’s inventory records.

We confirmed with third parties a selection of inventory quantities held by them.

We evaluated the overall sufficiency of audit evidence obtained by assessing the results of procedures performed.

Evaluation of the impairment analysis for goodwill in the U.S.

reporting unit and the Lord Jones TM brand indefinite life intangible asset

As discussed in Note 2(k) to the consolidated financial statements, goodwill and indefinite life intangible assets are not amortized but 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.

As discussed in Note 11 to the consolidated financial statements, the Company had $178,414 thousand of goodwill in the U.S.

reporting unit and an indefinite life intangible asset of $59,000 thousand from the Lord JonesTM brand.

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

reporting unit and $5,000 thousand of impairment charges on the Lord JonesTM brand indefinite life intangible asset in the year ended December 31, 2020.

We identified the evaluation of the impairment analysis for goodwill in the U.S.

reporting unit and the Lord JonesTM brand indefinite life intangible asset as a critical audit matter.

The evaluation of the Company’s key assumptions used in the discounted cash flow valuation model, including the growth rates, the discount rates, and forecasted royalty income from the Lord JonesTM brand indefinite life intangible asset, required a high degree of auditor judgment.

We applied significant auditor judgment to determine the nature and extent of procedures to be performed over processes for which control reliance could or could not be placed on certain key internal controls as a result of the material weakness.

In those areas where we were unable to rely on internal controls, we reflected the effect of the material weakness in our assessment of risk;

we increased the number of items selected to perform certain audit procedures and lowered the testing thresholds for investigating differences between recorded amounts and independent expectations developed by us as relative to what we would have done if the Company’s controls were designed and operating effectively;

and we evaluated the overall sufficiency of audit evidence obtained by assessing the results of procedures performed.

Table of Con tents

Evaluation of the impairment loss on goodwill and indefinite-lived intangible asset

As discussed in Notes 1(t) and 6(a) to the consolidated financial statements, the Company’s reporting units and indefinite-lived intangible assets are reviewed for impairment annually in the fourth quarter 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 amount.

An impairment charge would be recognized for the amount by which the reporting unit’s carrying amount exceeds its fair value.

As discussed in Note 6(a) to the consolidated financial statements, the Company determines the fair values of its U.S.

reporting unit and the Lord Jones brand indefinite-lived intangible asset using a discounted cash flow method on the reporting unit and the relief-from-royalty method on the Lord Jones brand.

Significant inputs include discount rates, growth rates, and cash flow projections, and, for the Lord Jones brand, royalty rate.

As discussed in Notes 6(a) and 6(b) to the consolidated financial statements, the Company recorded impairment losses of $178,414 thousand against the goodwill in the U.S.

reporting unit and $57,500 thousand against the Lord Jones brand for the year ended December 31, 2021.

We identified the evaluation of the impairment losses on the U.S.

reporting unit goodwill and Lord Jones brand as a critical audit matter.

The evaluation of the Company’s significant inputs including the growth rates and, discount rates, and for the Lord Jones brand, royalty rate, required a high degree of auditor judgment.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s impairment process, including a control related to the determination and assessment of the reasonableness of key assumptions used in the discounted cash flow valuation model.

We evaluated the key assumptions used in the discounted cash flow valuation model, including comparing forecasted growth rates against external analyst expectations for the industry in the United States.

We also performed sensitivity analysis on the forecasted growth rates and forecasted royalty income to assess the impact on the Company’s fair value estimate.

We compared a selection of royalty rates of comparable entities used by the Company to determine the royalty rate used in the discounted cash flow valuation model to publicly available information.

We evaluated the growth rates by comparing against external analyst expectations for the industry in the United States.

We involved valuation professionals with specialized skills and knowledge who assisted in:

• evaluating the discount rate, by comparing it against the internal rate of return and comparing the weighted average cost of capital to a range that was independently developed using publicly available market data for comparable entities.

• evaluating the royalty rate, which was applied to estimate forecasted revenues, to calculate forecasted royalty income, using industry knowledge and consideration of comparable brand royalty rates and qualitative factors specific to the brand.

• evaluating the discount rates by comparing against the internal rates of return and comparing the weighted average cost of capital to a range that was independently developed using publicly available market data for comparable entities

• evaluating the royalty rate which was applied to estimate forecasted revenues, to calculate forecasted royalty income, using industry knowledge, and considering comparable brand royalty rates and qualitative factors specific to the brand.

Chartered Professional Accountants, Licensed Public Accountants

1 unchanged sentence

Vaughan, Canada

February 26, 2021

March 1, 2022

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors Cronos Group Inc.:

To the Shareholders and Board of Directors

Cronos Group Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Cronos Group Inc.’s (the Company) internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and December 31, 2019, the related consolidated statements of net income (loss) and comprehensive income (loss), changes in shareholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated February 26, 2021 expressed an unqualified opinion on those consolidated financial statements.

In our opinion, because of the effect of the material weaknesses, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of net income (loss) and comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated March 1, 2022 expressed an unqualified opinion on those consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

A material weakness related to the following has been identified and included in management’s assessment:

Inventory verification:

Management failed to properly design and execute sufficient procedures to verify inventory quantities.

Specifically, while inventory counts were performed in the fourth quarter, (i) the aggregate value of items excluded from the count exceeded the Company’s materiality threshold, and (ii) human error in count execution, data transposition and reconciliation analysis resulted in inaccurate adjustments.

The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2020 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

Material weaknesses related to the following have been identified and included in management’s assessment:

• an ineffective control environment which (i) did not ensure that senior personnel in the Company’s accounting function engaged consistently in appropriate professional conduct and conduct consistent with the Company’s Code of Business Conduct and Ethics;

and (ii) lacked personnel in the accounting function with appropriate level of knowledge and experience in U.S.

GAAP sufficient to properly assess evidence and interpret accounting rules;

• the Company did not design and maintain effective controls to assess goodwill and indefinite-lived intangible asset for potential impairment.

The material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting (Item 9A(b)(i) of the Form 10-K).

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Annual Report on Form 10-K item 9A(b) Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

14 unchanged sentences

Chartered Professional Accountants, Licensed Public Accountants

February 26, 2021

Vaughan, Canada

March 1, 2022

CRONOS GROUP INC.

9 unchanged sentences

Short-term investments 117,684 211,766

Accounts receivable (i)

Accounts receivable, net 22,067 8,928

Other receivables 5,765 10,033

Current portion of loans receivable 7,083 4,664

Prepaids and other assets 11,161 9,395

Current portion of loans receivable, net 5,460 7,083

Prepaids and other current assets 8,967 11,161

Inventory, net 32,802 44,002

1 unchanged sentence

Total current assets 1,079,718 1,372,172

Investments in equity accounted investees 19,235 557

Advances to joint ventures 467 19,437

Loans receivable, net 87,191 44,967

Property, plant and equipment 187,599 159,948

Investments in equity accounted investees, net 16,764 19,235

Other investments 118,392 —

Non-current portion of loans receivable, net 80,635 87,191

Property, plant and equipment, net 74,070 187,599

Right-of-use assets 8,882 9,776

Intangible assets 69,720 71,235

Goodwill 1,098 179,522

Intangible assets, net 18,079 69,720

Other assets 100 467

Total assets $ 1,397,738 $ 1,925,682

Current liabilities

Accounts payable and other liabilities $ 42,102 $ 35,301

Accounts payable $ 11,218 $ 19,346

Accrued liabilities 26,069 22,756

Current portion of lease obligation 2,711 1,322

Derivative liabilities (ii)

163,410 297,160

Derivative liabilities 14,375 163,410

Total current liabilities 54,373 206,834

Due to non-controlling interests 1,913 2,188

Lease obligation 8,492 6,680

Non-current portion of lease obligation 7,095 8,492

Deferred income tax liability 81 —

Total liabilities 63,462 217,514

Commitments and contingencies (iii)

Shareholders’ equity

Share capital (iv, v)

Share capital (authorized for issue as of December 31, 2021 and 2020:

shares outstanding as of December 31, 2021 and 2020:

374,952,693 and 360,253,332 , respectively)

595,497 569,260

6 unchanged sentences

Total liabilities and shareholders’ equity $ 1,397,738 $ 1,925,682

(i) Net of current expected credit loss allowance of $ 74 as of December 31, 2020 (December 31, 2019 – $ 136 )

(ii) Refer to Note 14 in the notes to the consolidated financial statements.

(iii) Refer to Note 20 and Note 21 in the notes to the consolidated financial statements.

(iv) Authorized for issuance as of December 31, 2020:

unlimited (December 31, 2019 – unlimited).

(v) Shares issued as of December 31, 2020:

360,253,332 (as of December 31, 2019:

348,817,472 )

See notes to consolidated financial statements.

10 unchanged sentences

Inventory write-down 11,961 26,055 29,173

Gross profit (loss) ( 25,833 ) ( 17,597 ) 6,213

Gross profit ( 17,534 ) ( 25,833 ) ( 17,597 )

Operating expenses

4 unchanged sentences

Depreciation and amortization 4,484 2,872 2,090

Impairment loss on goodwill and indefinite-lived intangible assets 236,056 40,000 —

Impairment loss on long-lived assets 127,619 — —

Repurposing charges — — 5,328

3 unchanged sentences

Interest income, net 9,071 18,415 27,969

Gain on revaluation of derivative liabilities (i)

129,254 1,276,819 —

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

Gain on disposal of other investments 4,789 16,277 164

Share of loss from investments in equity accounted investees ( 4,510 ) ( 2,009 ) ( 723 )

Financing and transaction costs ( 40 ) ( 32,208 ) —

Other income (loss) ( 1,834 ) 197 —

Total other income (expense) 106,074 1,287,045 ( 478 )

Gain on revaluation of derivative liabilities 151,360 129,254 1,276,819

Gain on disposal of investments — 4,789 16,277

Share of loss from equity accounted investments ( 6,313 ) ( 4,510 ) ( 2,009 )

Gain (loss) on revaluation of financial instruments 8,611 ( 9 ) 197

Other, net 730 ( 1,825 ) —

Total other income 163,459 146,114 1,319,253

Income (loss) before income taxes ( 397,135 ) ( 73,273 ) 1,165,937

Income tax expense 1,347 — —

Income tax expense (benefit) ( 431 ) 1,347 —

Income (loss) from continuing operations ( 396,704 ) ( 74,620 ) 1,165,937

1 unchanged sentence

Net income (loss) ( 397,204 ) ( 75,270 ) 1,165,574

Net income (loss) attributable to:

Cronos Group $ ( 73,137 ) $ 1,166,506 $ ( 21,636 )

Non-controlling interests ( 2,133 ) ( 932 ) ( 181 )

$ ( 75,270 ) $ 1,165,574 $ ( 21,817 )

Net income (loss) per share

Basic $ ( 0.21 ) $ 3.76 $ ( 0.12 )

( 0.21 ) 3.33 ( 0.12 )

Weighted average number of outstanding shares

Basic 351,576,848 310,067,179 172,269,170

351,576,848 342,811,992 172,269,170

(i) Refer to Note 14 in the notes to the consolidated financial statements

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

See notes to consolidated financial statements.

Cronos Group Inc.

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

For the years ended December 31, 2020, 2019, and 2018

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

Year ended December 31,

2020 2019 2018

Net loss attributable to non-controlling interest ( 1,097 ) ( 2,133 ) ( 932 )

Net income (loss) attributable to Cronos Group $ ( 396,107 ) $ ( 73,137 ) $ 1,166,506

Comprehensive income (loss)

Net income (loss) $ ( 397,204 ) $ ( 75,270 ) $ 1,165,574

Other comprehensive income (loss)

Foreign exchange gain (loss) on translation 14,951 37,687 ( 12,337 )

Gain on revaluation and disposal of other investments, net of tax — — 3

Total other comprehensive income (loss) 14,951 37,687 ( 12,334 )

Foreign exchange gain on translation 8,192 14,951 37,687

Comprehensive income (loss) ( 389,012 ) ( 60,319 ) 1,203,261

Comprehensive income (loss) attributable to:

Cronos Group $ ( 57,976 ) $ 1,204,214 $ ( 33,964 )

Non-controlling interests ( 2,343 ) ( 953 ) ( 187 )

$ ( 60,319 ) $ 1,203,261 $ ( 34,151 )

Comprehensive income (loss) attributable to non-controlling interest 229 ( 2,343 ) ( 953 )

Comprehensive income (loss) attributable to Cronos Group $ ( 389,241 ) $ ( 57,976 ) $ 1,204,214

Net income (loss) from continuing operations per share

Basic $ ( 1.07 ) $ ( 0.21 ) $ 3.76

Diluted $ ( 1.07 ) $ ( 0.21 ) $ 3.33

See notes to consolidated financial statements.

Cronos Group Inc.

Consolidated Statements of Changes in Shareholders’ Equity (Deficit)

Consolidated Statements of Changes in Shareholders’ Equity

For the years ended December 31, 2021, 2020, and 2019

2 unchanged sentences

Balance as of January 1, 2021 360,253,332 $ 569,260 $ 34,596 $ 1,064,509 $ 42,999 $ ( 3,196 ) $ 1,708,168

Shares issued 15,677,143 115,510 — — — — 115,510

Share issuance costs — ( 7,577 ) — — — — ( 7,577 )

Warrants exercised 7,842,859 1,165 ( 1,163 ) — — — 2

Vesting of options — — 7,604 — — — 7,604

Options exercised 3,814,964 3,447 ( 3,433 ) — — — 14

Warrants exercised 13,114,336 3,563 ( 1,402 ) — — — 2,161

Contribution by non-controlling interests — — — — — 287 287

Net income (loss) — — — ( 21,636 ) — ( 181 ) ( 21,817 )

Other comprehensive income (loss) — — — — ( 12,328 ) ( 6 ) ( 12,334 )

Restricted share units settled 106,558 676 ( 676 ) — — — —

Share issuance pursuant to research and development milestones 2,934,980 17,374 — — — — 17,374

Withholding taxes on share-based awards — — ( 1,301 ) ( 12,157 ) — — ( 13,458 )

Vesting of restricted share units — — 2,547 — — — 2,547

Vesting of common shares issued in connection with the use of certain publicity rights in brand development — 2,000 ( 626 ) — — — 1,374

Recovery of forfeited awards — — ( 281 ) ( 56 ) — — ( 337 )

Accelerated restricted share units vesting out-of-period adjustment — 4,802 ( 4,802 ) — — — —

Top-up Rights exercised out-of-period adjustment — ( 3,227 ) — 3,227 — — —

Net loss — — — ( 396,107 ) — ( 1,097 ) ( 397,204 )

Other comprehensive income — — — — 6,866 1,326 8,192

Balance as of December 31, 2021 374,952,693 $ 595,497 $ 32,465 $ 659,416 $ 49,865 $ ( 2,967 ) $ 1,334,276

1 unchanged sentence

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

Shares issued 155,773,757 304,411 410 — — — 304,821

Share issuance costs — ( 3,722 ) — — — — ( 3,722 )

Warrants exercised 9,755,642 1,244 ( 1,137 ) — — — 107

Vesting of options — — 11,619 — — — 11,619

Options exercised 1,266,130 1,586 ( 1,577 ) — — — 9

Restricted share units settled 414,088 — — — — — —

Vesting of options — — 7,185 — — — 7,185

Vesting of restricted share units — — 8,176 — — — 8,176

Vesting of common shares issued in connection with the use of certain publicity rights in brand development — 2,000 863 — — — 2,863

Taxes withheld on share-based awards — — ( 2,148 ) — — — ( 2,148 )

Top-up Rights exercised — 3,265 — — — — 3,265

Net income (loss) — — — 1,166,506 — ( 932 ) 1,165,574

Net loss — — — ( 73,137 ) — ( 2,133 ) ( 75,270 )

Other comprehensive income (loss) — — — — 15,161 ( 210 ) 14,951

1 unchanged sentence

Cronos Group Inc.

Consolidated Statements of Changes in Shareholders’ Equity (Deficit)

Consolidated Statements of Changes in Shareholders’ Equity

For the years ended December 31, 2021, 2020, and 2019

2 unchanged sentences

Balance as of January 1, 2019 178,720,022 $ 175,001 $ 11,263 $ ( 27,945 ) $ ( 9,870 ) $ 100 $ 148,549

Shares issued 155,773,757 304,411 410 — — — 304,821

Share issuance costs — ( 3,722 ) — — — — ( 3,722 )

Warrants exercised 7,390,961 2,034 ( 596 ) — — — 1,438

Vesting of options — — 7,185 — — — 7,185

Options exercised 190,349 368 ( 351 ) ( 915 ) — — ( 898 )

Restricted share units settled 414,088 — — — — —

Vesting of options — — 11,619 — — — 11,619

Vesting of restricted share units — — 889 — — — 889

Taxes withheld on vesting of restricted share units — — ( 2,148 ) — — — ( 2,148 )

Vesting of common shares issued in connection with the use of certain publicity rights in brand development — 2,000 863 — — — 2,863

Top-up Rights exercised — 3,265 — — — — 3,265

Contribution by non-controlling interests 6,742,383 83,073 — — — — 83,073

Net income (loss) — — — 1,166,506 — ( 932 ) 1,165,574

9 unchanged sentences

Operating activities

Net (loss) income $ ( 75,270 ) $ 1,165,574 $ ( 21,817 )

Items not affecting cash:

Gain on revaluation of derivative liabilities (i)

( 129,254 ) ( 1,276,819 ) —

Impairment on goodwill and intangible assets 40,000 — —

Inventory write-down 26,055 29,173 —

Provisions for inventory and doubtful accounts 3,741 136 —

Net income (loss) $ ( 397,204 ) $ ( 75,270 ) $ 1,165,574

Adjustments to reconcile net income (loss) to net cash used in operating activities:

Gain on revaluation of derivative liabilities ( 151,360 ) ( 129,254 ) ( 1,276,819 )

Impairment loss on goodwill and indefinite-lived intangible assets 236,056 40,000 —

Impairment loss on long-lived assets 127,619 — —

Expected credit losses on long-term financial assets 12,202 2,437 —

Share-based payments 10,151 15,361 11,619

1 unchanged sentence

Share of loss from investments in equity accounted investees 6,313 4,510 2,009

Gain on disposal of other investments ( 4,789 ) ( 16,277 ) ( 164 )

Gain on disposal of investments — ( 4,789 ) ( 16,277 )

Loss (gain) on revaluation of financial instruments ( 8,611 ) 9 ( 197 )

Non-cash sales and marketing 1,383 2,863 410

Income tax expense 1,347 — —

Non-cash repurposing costs — — 4,439

Other non-cash operating activity expense (income) ( 3,562 ) 1,215 ( 46 )

Net changes in non-cash working capital ( 33,943 ) ( 54,208 ) 3,662

Net cash provided by (used in) operating activities ( 142,457 ) ( 130,274 ) ( 7,517 )

Changes in operating assets and liabilities:

Accounts receivable, net ( 13,163 ) ( 4,724 ) ( 566 )

Other receivables 3,838 ( 5,300 ) ( 10,509 )

Prepaids and other current assets 3,102 — ( 4,585 )

Inventory, net 11,565 ( 4,866 ) ( 23,073 )

Accounts payable ( 2,373 ) ( 3,292 ) ( 46 )

Accrued liabilities ( 4,974 ) 5,053 12,603

Net cash used in operating activities ( 153,616 ) ( 144,871 ) ( 131,193 )

Investing activities

Proceeds from (purchase of) short-term investments, net 95,404 ( 299,923 ) —

Investments in equity accounted investees — ( 1,658 ) ( 480 )

Proceeds from sale of other investments 4,789 19,614 747

Advances to joint ventures — ( 15,135 ) ( 5,358 )

Proceeds from short-term investments 215,303 296,730 —

Purchase of short-term investments ( 119,610 ) ( 201,326 ) ( 299,923 )

Purchase of investments ( 110,392 ) — ( 1,658 )

Proceeds from sale of investments — 4,789 19,614

Proceeds from held-for-sale assets 2,770 — —

Advances to joint ventures, net of repayments ( 4,707 ) ( 44,652 ) ( 58,472 )

Purchase of property, plant and equipment, net of disposals ( 11,144 ) ( 31,412 ) ( 38,664 )

Purchase of intangible assets ( 3,979 ) ( 289 ) ( 278 )

Purchase of intangible assets, net of disposals ( 1,118 ) ( 3,979 ) ( 289 )

Acquisition of Redwood — — ( 224,295 )

Advances on loans receivable ( 44,652 ) ( 43,337 ) —

Other non-cash investing activity expense (income) — 415 ( 231 )

Other non-cash investing activity expense — — 415

Net cash provided by (used in) investing activities ( 28,898 ) 20,150 ( 603,272 )

Cronos Group Inc.

Consolidated Statements of Cash Flows (continued)

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S dollars)

Year ended December 31,

2021 2020 2019

Financing activities

Advance to non-controlling interests — ( 1,019 ) —

Repayment of lease obligations ( 2,414 ) ( 919 ) —

Withholding taxes paid on equity awards ( 13,458 ) ( 2,148 ) ( 915 )

2 unchanged sentences

Proceeds from exercise of warrants and options 16 116 1,455

Proceeds from share issuance — — 115,510

Share issuance costs — — ( 3,722 )

Proceeds from construction loan payable — — 11,583

Repayment of construction loan payable — — ( 15,971 )

3 unchanged sentences

Effect of foreign currency translation on cash and cash equivalents 4,906 6,102 52,371

Increase in cash and cash equivalents ( 121,670 ) 1,175,766 16,602

Net change in cash and cash equivalents ( 191,050 ) ( 121,670 ) 1,175,766

Cash and cash equivalents, beginning of period 1,078,023 1,199,693 23,927

Cash and cash equivalents, end of period $ 886,973 $ 1,078,023 $ 1,199,693

(i) Refer to Note 14 in the notes to the consolidated financial statements

Supplementary cash flow information:

Interest paid $ — $ — $ 759

Interest received 8,988 18,105 25,520

Taxes paid 892 — —

See notes to consolidated financial statements.

3 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

dollars, except for share amounts)

Background, Basis of Presentation, and Summary of Significant Accounting Policies

(a) Background

Cronos Group Inc.

(“Cronos Group” or the “Company”) is incorporated in the Province of British Columbia and under the British Columbia Business Corporations Act with principal executive offices at 111 Peter St.

Street, Suite 300, Toronto, Ontario, M5V 2H1.

(“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 St., 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 four strategic joint ventures in Canada, Israel, and Colombia.

Cronos Group is an innovative global cannabinoid company 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 diverse international brand portfolio includes Spinach ® , PEACE NATURALS ® , Lord Jones ® , Happy Dance ® , and PEACE+™.

COVE ® was a premium positioned adult-use brand focused on creating crafted experience.

The Company no longer produces or distributes products under the COVE ® brand.

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

Cronos Israel (as defined herein) 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 6.

Summary of Significant Accounting Policies

(a) Basis of presentation

The Company also holds approximately 10 % of the issued capital of Cronos Australia Limited (“Cronos Australia”) and accounts for its investment under the fair value method of accounting.

For additional discussion regarding the joint ventures and strategic investments, see Note 3 “ Investments .”

(b) Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the dates of the consolidated financial statements and the reported amounts of net revenues and expenses during the reporting periods.

The accounting policies adopted in the preparation of the consolidated financial statements were effective as of January 1, 2020.

(b) Segment structure

The Company undertook a realignment of its management structure along geographic regions in September 2019.

As a result, effective September 2019, the Company’s results are reported through the following operating segments:

United States and Rest of World.

Prior period amounts contained in these consolidated financial statements have been adjusted to conform to the new segment presentation.

Refer to Note 29 for additional information.

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of net revenues and expenses during the reporting periods.

Certain prior year amounts have been reclassified to conform to the current year presentation of our consolidated financial statements.

These reclassifications had no effect on reported results of operations and ending shareholders’ equity.

The accompanying consolidated financial statements include the accounts of the Company, and all entities in which the Company has a controlling voting interest or is the primary beneficiary of a variable interest as of and for the fiscal years ended December 31, 2020, December 31, 2019 and December 31, 2018.

The Company assesses control under the variable interest entity (“VIE”) model to determine whether the Company is the primary beneficiary of that entity’s operations.

19 unchanged sentences

equity interest may differ from ownership interest as described herein.

In the consolidated statements of net income (loss) and comprehensive income (loss), net income (loss) and comprehensive income (loss) are attributed to the equity holders of the Company and to the non-controlling interests.

Non-controlling interests in the equity of Cronos Israel are presented separately in the shareholders’ equity section of the consolidated balance sheets and consolidated statements of shareholders’ equity.

All intercompany transactions and balances are eliminated upon consolidation.

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

In the consolidated statements of net income (loss) and comprehensive income (loss), the net income (loss) and comprehensive income (loss) are attributed to the equity holders of the Company and to the non-controlling interests.

Non-controlling interests in the equity of Cronos Israel are presented separately in the shareholders’ equity (deficit) section of the consolidated balance sheets and consolidated statements of shareholders’ equity (deficit).

All intercompany transactions and balances are eliminated upon consolidation.

(d) Use of estimates

dollars, except for share amounts)

(d) Out-of-period adjustments

During the year ended December 31, 2021, the Company identified an error in the accounting related to the withholding taxes on the net exercise of stock options resulting in an understatement of accrued 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.

This error was deemed immaterial, and thus the Company has recorded an out-of-period adjustment to the consolidated balance sheet and the consolidated statement of changes in shareholders’ equity during the year ended December 31, 2021 to correct the error.

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 consolidated statement of cash flows.

During the year ended December 31, 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.

The error was deemed immaterial, and thus the Company has recorded an out-of-period adjustment to the consolidated balance sheet and the consolidated statement of changes in shareholders’ equity during 2021 to correct the error.

The out-of-period adjustment had no impact on the consolidated statements of net income (loss) and comprehensive income (loss) or the consolidated statements of cash flows.

During the year ended December 31, 2021, the Company identified an error in the accounting related to shares issued pursuant to the accelerated vesting of RSUs in the third quarter of 2020, which resulted in an understatement of share capital of $ 4,802 and an overstatement of additional paid-in-capital of $ 4,802 as of December 31, 2020.

The out-of-period adjustment had no impact on the consolidated statements of net income (loss) and comprehensive income (loss) or the consolidated statements of cash flows.

(e) Use of estimates

The preparation of the consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes.

Significant estimates and assumptions include, among other things, valuation of derivative liabilities, fair value of assets and liabilities assumed in business combinations, impairment of goodwill, inventory write-downs, valuation allowance on deferred income tax assets and uncertain tax liabilities.

Significant estimates and assumptions include, among other things, valuation of derivative liabilities, expected credit losses on long-term financial assets, impairment losses on goodwill and indefinite-lived intangible assets, impairment losses on long-lived assets, inventory write-downs, share-bared payments, valuation allowance on deferred income tax assets and uncertain tax liabilities.

Actual results could differ from those estimates.

(e) Revenue recognition

The Company’s contracts with customers for the sale of dried cannabis, cannabis oil, cannabinoid-derived products and U.S.

hemp-derived personal care products consist of one performance obligation.

The Company has concluded that revenue from the sale of these products should be recognized at the point in time when control is transferred to the customer, which is on shipment or delivery, depending on the contract.

Revenue is recognized at the transaction price, which is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods to a customer.

Net revenue before excise taxes from sale of goods, as presented in the consolidated statements of net income (loss) and comprehensive income (loss), represents revenue from the sale of goods less expected price discounts, and allowances for customer returns.

Net revenue before excise taxes excludes excise taxes, which the Company pays as principal and excludes duties and taxes collected on behalf of third parties.

Excise taxes are a production tax classified as government remittances payable, which when applicable, become payable when a product is delivered to the customer and are not directly related to the value of revenue.

The Company treats shipping and handling activities as a fulfillment cost, classified as cost of sales.

Accordingly, the Company accrues all fulfillment costs related to the shipping and handling of consumer goods at the time of shipment.

Within the Company's Rest of World segment, dried cannabis sales outside of Canada may include profit sharing arrangements with distributors which give rise to variable consideration.

If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer.

The variable consideration is estimated as the most likely amount, based on the Company’s historical information, at contract inception.

The Company’s payment terms vary by customer and product type.

For individual consumer sales, payment is due prior to the transfer of control.

The Company elected to treat the costs incurred to obtain a contract, primarily related to sales commissions, as an expense in the period incurred and not an asset to be capitalized, as the amortization period of the related asset would be less than one year.

Accordingly, the Company will expense the costs to obtain a contract in the period incurred.

(f) Investments

Variable interest entities ( “ VIE ” )

A VIE is an entity having either a total equity investment that is insufficient to finance its activities without additional subordinated financial support or equity investors at risk that lack the ability to control the entity’s activities.

Variable interests are investments or other interests that will absorb portions of a VIE’s expected losses or receive portions of the VIE’s expected residual returns.

The Company evaluates whether it is the primary beneficiary of each VIE it identifies on an ongoing basis and considers the impact of any reconsideration events.

The primary beneficiary is the party that has both the power to direct the activities that most significantly impact the VIE and holds a variable interest that could potentially be significant to the VIE.

To make this determination the Company considers both quantitative and qualitative factors regarding the nature, size and form of its involvement with the VIE.

The Company consolidates the VIE when it is determined that it is the primary beneficiary of the VIE.

Equity method investments

The Company accounts for investments in companies over which it has the ability to exercise significant influence but does not hold a controlling financial interest, using the equity method.

Under the equity method, the Company records its proportionate share of income or losses in the consolidated statements of net income (loss) and comprehensive income (loss).

If the current fair value of an investment falls below its carrying amount, this may indicate that an impairment loss should be recorded.

Any impairment losses recognized cannot be reversed in subsequent periods.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

(f) Cash and cash equivalents and short term investments

Cash and cash equivalents are comprised of cash and highly liquid investments that are readily convertible into known amounts of cash with original maturities of three months or less.

Cash and cash equivalents include amounts held in dollars, C$ and ILS and security deposits.

Short-term investments consist of debt securities that (i) have original maturities of greater than three months and (ii) the Company has the ability to convert into cash within one year.

Short-term investments are classified as held-to-maturity.

Our investments classified as held-to-maturity are recorded at cost.

Interest earned on short-term investments is recorded in other receivables on the consolidated balance sheets and interest income on the consolidated statements of net income (loss) and comprehensive income (loss).

Cash inflows and outflows related to the purchase and maturity of short-term investments are classified as investing activities in the Company’s consolidated statements of cash flows.

(g) Inventory

Inventory is comprised of raw materials, finished goods and work-in-progress such as pre-harvested cannabis plants, by-products to be extracted, oils, gel caps, tinctures, and boxes.

Inventory is comprised of raw materials, finished goods and work-in-progress, such as pre-harvested cannabis plants, dried cannabis flower, by-products to be extracted, cannabis extracts and by-products, dry cannabis and cannabis extract containers, and boxes.

The costs of growing cannabis, including but not limited to labor, utilities, nutrition and irrigation, are capitalized into inventory until the time of harvest.

6 unchanged sentences

Factors considered in the determination of obsolescence include slow-moving or non-marketable products.

During the year ended December 31, 2020, we incurred significant inventory write-downs driven by pricing pressures in the marketplace and will continue assessing pricing pressures on the value of inventory at the end of each reporting period.

(h) Definite life intangible assets

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

(h) Investments

Variable interest entities

A variable interest entity is an entity having either a total equity investment that is insufficient to finance its activities without additional subordinated financial support or equity investors at risk that lack the ability to control the entity’s activities.

Variable interests are investments or other interests that will absorb portions of a VIE’s expected losses or receive portions of the VIE’s expected residual returns.

The Company evaluates whether it is the primary beneficiary of each VIE it identifies on a periodic basis and considers the impact of any reconsideration events.

To make this determination, the Company considers both quantitative and qualitative factors regarding the nature, size and form of its involvement with the VIE.

The Company consolidates the VIE when it is determined that it is the primary beneficiary of the VIE.

Equity method investments

The Company accounts for investments in companies over which it has the ability to exercise significant influence but does not hold a controlling financial interest using the equity method.

Under the equity method, the Company records its proportionate share of income or loss in the consolidated statements of net income (loss) and comprehensive income (loss).

Cash payments to equity method investees such as additional investments and expenses incurred on behalf of investees, as well as payments from equity method investees such as dividends and distributions are recorded as adjustments to investment balances.

If the current fair value of an investment falls below its carrying amount, this may indicate that an impairment loss should be recorded.

Any impairment losses recognized cannot be reversed in subsequent periods.

Other investments

Other investments include common stock and options in third party entities in which the Company’s influence is deemed non-significant.

The Company holds other investments with and without readily determinable fair values.

Other investments with readily determinable fair values are recorded using the fair value method of accounting as of period-end on the consolidated balance sheets.

Other investments without readily determinable fair values are recorded using the cost method of accounting on the consolidated balance sheets.

Other investments without readily determinable fair values are assessed for temporary and other than temporary observable price changes on a periodic basis.

Changes in the reported value of other investments are reported in the consolidated statements of net income (loss) and comprehensive income (loss).

(i) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Building and leasehold improvements 15 to 20 years

Machinery and equipment 5 to 7 years

Furniture and fixtures 5 years

Equipment under finance lease Lesser of term of lease and useful life

When assets are disposed of, the cost and accumulated depreciation are removed from the respective accounts and any related gain or loss is recognized.

Maintenance and repairs are charged to expense as incurred.

Significant expenditures, which increase productivity or extend the useful life of the asset, are capitalized.

Available for use is defined as the point at which the related property, plant and equipment is operational, including the possession of any requisite licenses.

Depreciation commences at the point the assets are available for use.

(j) Definite-lived intangible assets

Intangible assets are recorded at cost less any accumulated amortization and accumulated impairment losses.

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

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

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

All other costs are expensed as incurred.

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

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

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

Software Straight-line 5 years

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

Health Canada licenses Straight-line Useful life of corresponding facilities

Ginkgo exclusive licenses Straight-line 10 years

Israeli codes (i)

3 unchanged sentences

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

(i) Property, plant & equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Building 15 to 25 years

Furniture and equipment 5 to 7 years

Computer equipment 5 years

Leasehold improvements Lesser of term of lease and useful life

Equipment under finance lease Lesser of term of lease and useful life

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

When assets are disposed of, the cost and accumulated depreciation are removed from the respective accounts and any related gain or loss is recognized.

Maintenance and repairs are charged to expense as incurred.

Significant expenditures, which increase productivity or extend the useful life of the asset, are capitalized.

Interest incurred relating to construction or expansion of buildings is capitalized to construction in progress.

The Company ceases the capitalization of interest when construction activities are substantially completed and the facility is available for use.

At this point, construction in progress is transferred to the appropriate asset class.

Available for use is defined as the point at which the related building receives the requisite regulatory licenses to (i) possess cannabis, (ii) obtain dried cannabis, fresh cannabis, cannabis plants or cannabis plant seeds by cultivating, propagating and harvesting cannabis, and (iii) produce cannabis, other than obtaining it by cultivating, propagating, or harvesting.

Depreciation commences at the point the assets are available for use.

Intangible assets originating from the strategic partnership (the “Ginkgo Strategic Partnership”) with Ginkgo Bioworks Holdings, Inc.

(“Ginkgo”) are accounted for in accordance with the acquisition method of accounting.

Equity interests issued in exchange for an asset are initially recognized and measured at the date of acquisition at fair value.

We estimate fair value using the relief-from-royalty method and key assumptions include the discount rate and estimated life.

Definite-lived intangible assets, including intangible assets originating from the Ginkgo Strategic Partnership, are subject to amortization and reviewed for impairment annually or more frequently when events or changes in circumstances indicate that fair value has been reduced to less than its carrying amount.

(k) Accrued liabilities

Accrued liabilities consist of the following:

As of December 31,

Accrued payroll and related expenses $ 13,308 $ 9,697

Accrued professional fees 8,337 7,395

Accrued taxes 3,488 2,843

Other accrued expenses 936 2,821

Total accrued liabilities $ 26,069 $ 22,756

Accrued payroll and related expenses include salaries and wages, bonuses, and other related payroll expenses associated with the Company’s employees.

Accrued professional fees include fees for legal expenses, litigation, consulting, marketing, and other related expenses.

Accrued taxes include sales, excise and other taxes owed.

Other accrued expenses include the fair value of deferred share units outstanding to directors and other general expenses.

The Company enters into leases in the normal course of business, primarily for the land-use rights, office premises, and equipment used in the production of its products.

7 unchanged sentences

Leases with a term of 12 months or less are not recorded on the balance sheet as a lease.

The right-of-use asset is subject to impairment testing whenever events or changes in circumstances indicate the carrying value of the asset may not be recoverable.

The right-of-use asset is subject to impairment testing whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable.

The leased asset is amortized over the shorter of the lease term or its estimated useful life if title does not transfer to the Company, while the leased asset is depreciated in accordance with the Company’s depreciation policy if the title is to eventually transfer to the Company.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

The Company’s lease agreements generally exclude non-lease components.

3 unchanged sentences

For operating leases, lease expense is recognized on a straight-line basis over the term of the lease and presented as a single charge in the consolidated statements of net income (loss) and comprehensive income (loss).

(k) Impairment of long-lived assets

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

(m) Derivative liabilities

For financial instruments classified as derivatives that are not designated as hedging instruments or do not qualify for hedge accounting, changes in fair value are recorded in the consolidated statements of net income (loss) and comprehensive income (loss) each period.

The Company does not enter into or hold derivative financial instruments for trading or speculative purposes.

Derivative liabilities are initially recognized at fair value at the date on which the derivative contract was entered into.

Any attributable transaction costs are recognized in net income (loss) as incurred.

Subsequent to initial recognition, derivative liabilities are measured at fair value at each reporting date until settlement with the re-measurement gain or loss being recognized immediately in net income (loss) and comprehensive income (loss).

For more details on derivative liabilities consisting of the Altria Warrant, Pre-emptive Rights, and certain Top-up Rights, see Note 8 “ Derivative Liabilities .”

(n) Capital stock

Capital stock is presented at the fair value at the time of issuance of the shares issued.

Costs related to the issuance of shares are reported in equity, net of tax, as a deduction from the issuance proceeds.

(o) Revenue recognition

The Company’s contracts with customers for the sale of dried cannabis, cannabis oil, cannabinoid-derived products and “hemp” (as defined in the U.S.

Agricultural Improvement Act of 2018 “U.S.

hemp”) derived personal care products consist of one performance obligation.

The Company has concluded that revenue from the sale of these products should be recognized at the point in time when control is transferred to the customer, which is upon shipment or delivery, depending on the contract.

For consumer sales in the United States segment (the “U.S.

segment”), control passes to the customer upon shipment and, thus, revenue is recognized upon the transfer of goods to the shipping carrier in accordance with the terms of service agreed to by the customer at the time of purchase.

Revenue is recognized at the transaction price, which is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods to a customer.

Net revenue before excise taxes excludes excise taxes, which the Company pays as principal, and excludes duties and taxes collected on behalf of third parties.

Refer to Note 12 “ Segment Information and Disaggregated Net Revenue ” for further information on disaggregated revenue.

The Company treats shipping and handling activities as a fulfillment cost, classified as cost of sales.

Accordingly, the Company accrues all fulfillment costs related to the shipping and handling of consumer goods at the time of shipment.

Within the Company’s Rest of World segment (the “ROW segment”), dried cannabis sales outside of Canada may include profit sharing arrangements with distributors which give rise to variable consideration.

If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer.

The variable consideration is estimated using the expected value method, based on the Company’s historical information, at contract inception.

The Company’s payment terms vary by customer and product type.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

(p) Research and development

The Company has research and development centers in Canada and Israel which perform scientific research on the interaction of cannabinoids as well as strain development, growing conditions, extraction technology, and biosynthesis.

In Canada, fermentation and production related research is performed to further strategic initiatives around rare cannabinoids.

In addition, the Company has a collaboration and license agreement with Ginkgo (the “Ginkgo Collaboration Agreement”) to research, produce, and commercialize cultured cannabinoids.

Technological feasibility is considered to be established once productivity targets or commercialization are achieved, at which point the exclusive license is recognized at cost less impairment charges.

As of the acquisition date of each exclusive license, cost less impairment charges is equal to the fair value.

Refer to Note 6 “ Goodwill and Intangible Assets, net ” for more information on the Ginkgo Collaboration Arrangement.

Research and development costs associated with these collective efforts are expensed as incurred as part of operating expenses in the Company’s consolidated statements of net income (loss) and comprehensive income (loss).

(q) Advertising costs

Advertising costs include costs to sell the Company’s products and are expensed as incurred through sales and marketing expenses in the consolidated statements of net income (loss) and comprehensive income (loss).

Advertising costs were $ 11,514 , $ 6,087 and $ 1,287 for the years ended December 31, 2021, 2020, and 2019, respectively.

(r) Share-based compensation

As described in more detail below, the Company has five share-based compensation plans under which awards have been made:

the 2020 Omnibus Plan, the 2018 Stock Option Plan, the 2015 Stock Option Plan, the Employment Inducement Award Plan and the DSU Plan (each as defined below).

Share-based awards consists of equity-settled share-based awards such as stock options and restricted share units (“RSUs”) that are issued to eligible employees, non-executive directors, and non-employees.

Cash-settled deferred share units (“DSUs”) that are issued to non-executive directors under the DSU Plan are recorded in accrued liabilities with the fair value adjustment recorded in other income.

Equity instruments granted are initially measured at fair value on the grant date.

The fair value of the stock options is determined using the Black-Scholes option pricing model.

The fair value of RSUs and DSUs are determined using the market price of the Company’s common shares.

This is recognized on a straight-line basis in the consolidated statements of net income (loss) and comprehensive income (loss) over the vesting period for employees, and over the contractual term for non-employees.

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

The related costs for all equity-settled share-based awards are reflected in additional paid-in capital until the awards are settled or exercised.

Upon settlement or exercise, shares are issued and the amount previously reflected in the additional paid-in capital is, along with any proceeds paid upon settlement or exercise, credited to share capital.

Forfeitures are estimated at the time of grant, and the Company revises these estimates in subsequent periods if there is a difference in actual forfeitures and the estimates.

(s) Impairment of long-lived assets

The Company reviews its long-lived assets, such as property, plant and equipment and definite-lived intangible assets, for impairment in accordance with ASC Topic 360, Property, Plant, and Equipment .

In accordance with ASC Topic 360, long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying amount may not be recoverable.

The Company periodically reviews for indicators and, if indicators are present, tests the carrying amount of long-lived assets, assessing their fair values based on estimated undiscounted cash flows over their remaining estimated useful lives.

The Company groups assets at the lowest level for which cash flows are separately identifiable, referred to as an asset group.

The Company prepares projected undiscounted cash flow analyses for each asset or asset group.

If the sum of the undiscounted cash flow is less than the carrying value of the asset or asset group, an impairment loss is recognized equal to the excess of the carrying value over the fair value, if any.

Impairment losses on assets held for sale are based on the fair value, less costs to sell.

Goodwill and indefinite life intangible assets are not amortized.

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.

If the carrying amount of an asset (or asset group) exceeds its estimated undiscounted future cash flows, an impairment charge is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on discounted cash flows.

(t) Impairment of goodwill and indefinite-lived intangible assets

Goodwill and indefinite-lived intangible assets are not amortized.

Goodwill and indefinite-lived 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 amount in accordance with the provisions of ASC Topic 350, Intangibles—Goodwill and Other .

The Company performs an impairment test annually in the fourth quarter by comparing the fair value of the reporting unit with its carrying amount, including goodwill.

1 unchanged sentence

An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.

The Company determined that it has two reporting units:

reporting unit and the Rest of World reporting unit.

The Company determined that it has two segments:

segment and the Rest of World segment.

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

(l) Repurposing charges

The Company’s repurposing charges primarily include employee termination benefits and refurbishment costs.

The recognition of repurposing charges requires the Company make certain judgments and estimates regarding the nature, timing, and amount of costs associated with the planned activity.

To the extent actual results differ from estimates and assumptions, a revision to the estimated liabilities, requiring the recognition of additional repurposing charges or the reduction of liabilities already recognized may be required.

At the end of each reporting period, the Company evaluates the remaining accrued balances to ensure these balances are properly stated and the utilization of the reserves are for their intended purpose in accordance with planned activity.

(m) Capital stock

Capital stock is presented at the fair value at the time of issuance of the shares issued.

Costs related to the issuance of shares are reported in equity, net of tax, as a deduction from the issuance proceeds.

(n) Foreign currency

The Company’s functional currency is the Canadian dollar (“C$”).

Prior to the year ended December 31, 2019, the Company reported its financial results in C$, however following the change in the Company’s status from foreign private issuer to a United States (“U.S.”) domestic issuer, the financial results are now reported in U.S dollars (“dollars” or “$”).

Functional currencies for the entities in these consolidated financial statements are their respective local currencies, including C$, Australian dollars (“A$”) and Israeli New Shekel (“ILS”).

The assets and liabilities of the Company’s foreign operations are translated into dollars at the exchange rate in effect as of December 31, 2020 and 2019.

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

The consolidated statements of net income (loss) and comprehensive income (loss) and the 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.

The cumulative translation adjustments (“CTA”) resulting from translating the consolidated financial statements into their dollar reporting currency are recorded in other comprehensive income (loss).

Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency by applying the foreign exchange rate in effect at the balance sheet date.

Revenues and expenses are translated using the average foreign exchange rate for the reporting period.

Realized and unrealized foreign currency differences are recognized in the consolidated statements of net income (loss) and comprehensive income (loss).

Transactions in foreign currencies are translated into the functional currency using the exchange rate prevailing at the date of the transaction and are recorded in other comprehensive income.

Exchange differences arising from operating transactions are recorded in net income for the period.

(o) Income taxes

dollars, except for share amounts)

(u) Income taxes

The Company uses the liability method of accounting for income taxes, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.

6 unchanged sentences

The valuation allowance against the net deferred tax assets does not in any way impact the Company’s ability to use future tax deductions such as the Company’s net operating loss carryforwards;

rather, the valuation allowance indicates, according to the provisions of Accounting Standards Codification 740, Income Taxes, it is more likely than not that the deferred tax assets will not be realized.

rather, the valuation allowance indicates, according to the provisions of Accounting Standards Codification (“ASC”) 740, Income Taxes , it is more likely than not that the deferred tax assets will not be realized.

The valuation allowance that was established will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that the net deferred tax assets will be realized.

1 unchanged sentence

There is uncertainty regarding any future realization of the benefit by the Company of all or part of our net deferred tax assets.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

Judgment is required to determine the recognition and measurement attributes prescribed in the accounting guidance for uncertainty in income taxes.

4 unchanged sentences

This process involves estimating our actual current tax exposure, including assessing the risks associated with income tax audits, together with assessing temporary differences resulting from the different treatment of items for tax and financial reporting purposes.

If actual results differ from our estimates, our net operating loss and credit carryforwards could be materially impacted in the period which such determination is made.

If actual results differ from our estimates, our net operating loss and credit carryforwards, to the extent not covered by a valuation allowance, could be materially impacted in the period which such determination is made.

The Company recognizes uncertain income tax positions at the largest amount that is more-likely-than-not to be sustained upon examination by the relevant taxing authority.

3 unchanged sentences

Accrued interest and penalties are included in accounts payable and other liabilities in the consolidated balance sheets.

(p) Share-based compensation

As described in more detail below, the Company has five share-based compensation plans under which awards have been made:

the 2020 Omnibus Plan (as defined below), the 2018 Stock Option Plan (as defined below), the 2015 Stock Option Plan (as defined below), the Employment Inducement Award Plan #1 (the “Employment Inducement Award Plan”) and a cash-settled deferred share unit (“DSU”) plan for non-executive directors.

Share-based compensation consists of equity-settled share-based awards such as stock options and restricted share units (“RSUs”) that are issued to eligible employees, non-executive directors, and non-employees.

Cash-settled deferred share units (“DSUs”) that are issued to non-executive directors are recorded in accounts payable and other liabilities with the fair value adjustment recorded in other income (loss).

Equity instruments granted are initially measured at fair value on the grant date.

The fair value of the stock options are determined using the Black-Scholes option pricing model.

The fair value of RSUs and DSUs are determined using the market price.

The related costs for all equity-settled share-based awards are reflected in additional paid-in capital until the awards are exercised.

Upon exercise, shares are issued and the amount previously reflected in the additional paid-in capital is, along with any proceeds paid upon exercise, credited to share capital.

Forfeitures are estimated at the time of grant, and the Company revises these estimates in subsequent periods if there is a difference in actual forfeitures and the estimates.

(q) Net earnings (loss) per share

The Company presents basic and diluted net earnings (loss) per share data for its common shares.

Basic net earnings (loss) per share is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period.

Diluted net earnings (loss) per share is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all potentially dilutive common shares that are issuable upon exercise of warrants, stock options and the Altria Warrant (as defined below) as well as the vesting of RSUs outstanding.

(r) Cash and cash equivalents and short-term investments

Cash and cash equivalents are comprised of cash and highly liquid investments that are readily convertible into known amounts of cash with original maturities of three months or less.

Cash and cash equivalents include amounts held in dollars, C$ and ILS and security deposits.

(v) Foreign currency

The Company’s functional currency is the Canadian dollar (“C$”) and its reporting currency is the U.S.

All assets and liabilities of operations with a functional currency other than the U.S.

dollar are translated at period-end currency exchange rates.

The resulting translation adjustments are recorded in accumulated other comprehensive income (loss), net of tax.

Revenues and expenses of operations, as well as all cash flows, with a functional currency other than the U.S.

dollar are translated at the average exchange rates for the period.

Transaction gains and losses resulting from changes in foreign currency exchange rates are recorded in either cost of sales, general and administrative expenses, or other, net in the consolidated statements of net income (loss) and comprehensive income (loss).

Cronos Group reports through two segments:

segment and the ROW segment.

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

Refer to Note 12 “ Segment Information and Disaggregated Net Revenue ” for additional information.

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

Short-term investments consist of debt securities that (i) have original maturities of greater than three months and (ii) the Company has the ability to convert into cash within one year.

Short-term investments are classified as held-to-maturity.

Our investments classified as held-to-maturity are recorded at cost.

Interest earned on short-term investments is recorded in other receivables on the consolidated balance sheet and interest income on the consolidated statement of comprehensive income (loss).

Cash inflows and outflows related to the purchase and maturity of short-term investments are classified as investing activities in the Company’s consolidated statements of cash flows.

(s) Derivative liabilities

For financial instruments that are not designated as hedging instruments or do not qualify for hedge accounting, changes in fair value are recorded in the consolidated statements of net income (loss) and comprehensive income (loss) each period.

The Company does not enter into or hold derivative financial instruments for trading or speculative purposes.

Derivative liabilities are initially recognized at fair value at the date on which the derivative contract was entered into.

Any attributable transaction costs are recognized in net income (loss) as incurred.

For more details on derivative liabilities consisting of the Altria Warrant, Pre-emptive Rights, and certain Top-up Rights, see Note 14.

(t) Fair value measurements

The carrying value of the Company’s cash and cash equivalents, accounts receivable, other receivables, loan receivable, account payables and other liabilities and holdbacks payable approximate fair value, given their short-term nature.

dollars, except for share amounts)

(x) Earnings (loss) per share

The Company presents basic and diluted earnings (loss) per share data for its common shares.

Basic earnings (loss) per share is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period.

Diluted earnings (loss) per share is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all potentially dilutive common shares.

(y) Fair value measurements

The carrying amount of the Company’s cash and cash equivalents, accounts receivable, other receivables, loans receivable, account payables and other liabilities approximate fair value, given their short-term nature.

Cronos Group uses a fair value hierarchy, which gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities, noted as Level 1 measurements, and the lowest priority to unobservable inputs, noted as Level 3 measurements.

4 unchanged sentences

The Company’s policy for determining when transfers between levels of the fair value hierarchy occur is based on the date of the event or changes in circumstances that caused the transfer.

(u) Acquisitions

The accounting basis for each acquisition is dependent on whether the integrated set of assets and activities acquired constitutes a business.

A business consists of inputs and processes applied to those inputs that have the ability to contribute to the creation of outputs.

The cost of acquisition is allocated to the assets acquired on a relative fair value basis.

No goodwill is recognized in an asset acquisition.

If it is determined that a business is not acquired, the transaction is accounted for as an asset acquisition and the relevant values are finalized prior to the next reporting period.

On the other hand, when a business is acquired, the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805 is applied, which requires that once control of the business is obtained, the assets and liabilities of the acquired business, including amounts attributable to non-controlling interests, be recorded at their respective fair values as of the date of acquisition.

Any excess of purchase consideration over the net fair value of tangible and identified intangible assets acquired less liabilities assumed is recorded as goodwill.

The costs of business acquisitions, including fees for accounting, legal, professional consulting and valuation specialists, are expensed as incurred.

Purchase price allocations may be preliminary and, during the measurement period not to exceed one year from the date of acquisition, changes in assumptions and estimates that result in adjustments to the fair value of assets acquired and liabilities assumed are recorded in the period the adjustments are determined.

For business combinations achieved in stages, the Company’s previously held interest in the acquiree is remeasured at its subsequent acquisition date fair value, with the resulting gain or loss recorded in the consolidated statements of net income (loss) and comprehensive income (loss).

For a pre-existing relationship between the Company and acquiree that is not extinguished on the business combination, such a relationship is considered effectively settled as part of the business combination even if it is not legally cancelled.

At the acquisition date, it becomes an intercompany relationship and is eliminated upon consolidation.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

Contingent consideration in a business combination is initially measured at fair value.

Subsequently all liability classified as contingent consideration is remeasured at fair value at each reporting period until the contingency is resolved and any change in the fair value following the date of acquisition is recorded in the consolidated statements of net income (loss) and comprehensive income (loss).

All equity classified as contingent consideration is not remeasured and its subsequent settlement is accounted for within equity.

(v) Assets held for sale and discontinued operations

(z) Assets held for sale and discontinued operations

In accordance with ASC 205-20 Presentation of Financial Statements:

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

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

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

During the year ended December 31, 2020, OGBC, formerly included within the Rest of World segment, met the criteria for “held-for-sale”.

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

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

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

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

During the year ended December 31, 2020, Original B.C.

(“OGBC”), formerly included within the Rest of World segment, met the criteria for “held-for-sale”.

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

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

The discontinued operations of OGBC are described further in Note 30.

New Accounting Pronouncements

(a) Adoption of new accounting pronouncements

On January 1, 2020, the Company adopted ASU No.

2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820) (“ASU No.

2018-13 adds, modifies, and removes certain fair value measurement disclosure requirements.

The adoption of ASU No.

2018-13 did not have a material impact on the Company’s consolidated financial statements.

On January 1, 2020, the Company adopted ASU No.

2018-15, Intangibles – Goodwill and Other Internal-use-software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU No.

2018-15 amends current guidance to align the accounting for costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing costs associated with developing or obtaining internal-use software.

The guidance in ASU No.

2018-15 is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted.

The adoption of ASU No.

2018-15 did not have a material impact on the Company’s consolidated financial statements.

On January 1, 2020, the Company adopted ASU No.

2017-04, Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment (“ASU No.

2017-04 eliminates step 2 from the goodwill impairment test and instead requires an entity to measure the impairment of goodwill assigned to a reporting unit if the carrying value of assets and liabilities assigned to the reporting unit, including goodwill, exceeds the reporting unit’s fair value.

The guidance in ASU No.

2017-04 is effective for annual and interim goodwill tests completed by the Company beginning on January 1, 2020.

During the year ended December 31, 2021, the Company sold its OGBC assets previously classified as held-for-sale.

Discontinued operations are described in further detail in Note 16 “ Held-For-Sale Assets and Discontinued Operations .”

(aa) Adoption of new accounting pronouncements

On January 1, 2021, the Company adopted Accounting Standards Update (“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 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.

2017-04 was applied prospectively and the Company follows a one-step model for goodwill impairment.

(b) New accounting pronouncements not yet adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

2020-01 did not have an impact on the Company’s 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.

1 unchanged sentence

GAAP-related changes in enacted tax laws or rates and employee stock option plans.

2019-12 is effective for annual and interim periods beginning after December 15, 2020.

Early adoption is permitted.

The Company has evaluated the impact of ASU No.

2019-12 and the adoption will not have a material impact on the Company’s consolidated financial statements.

The adoption of ASU No.

2019-12 did not have an impact on the Company’s consolidated financial statements.

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

In January 2020, the Financial Accounting Standards Board issued 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 clarifies the interaction of accounting for the transition into and out of the equity method.

The new standard also clarifies the accounting for measuring certain purchased options and forward contracts to acquire investments.

The guidance in ASU No.

2020-01 is effective for annual and interim periods beginning after December 15, 2020.

The Company has evaluated the impact of ASU No.

2020-01 and does not expect the adoption to have a material impact to the Company’s consolidated financial statements.

dollars, except for share amounts)

(ab) 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.

2 unchanged sentences

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 of ASU No.

2020-06 on its consolidated financial statements and related disclosures.

Revenues from Contracts with Customers

Cronos Group disaggregates net revenues based on product type.

For further discussion, see Note 29.

Receivables were $ 8,928 at December 31, 2020 (December 31, 2019 – $ 4,638 ).

The Company recorded a current expected credit loss allowance of $ 74 as of December 31, 2020 (December 31, 2019 – $ 136 ).

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

Cronos Group records an allowance for cash discounts, which is included as a contra-asset against receivables on the Company’s consolidated balance sheets.

Revenue is measured net of returns.

As a result, the Company is required to estimate the amount of returns based on the historical data by customer and product type, adjusted for forward-looking information.

This is included as a provision against accounts receivable on the Company’s consolidated balance sheets.

The Company estimates sales returns based principally on historical volume and return rates, as a reduction to revenues.

The difference between actual sales and estimated sales returns is recorded in the period in which the actual amounts become known.

These differences, if any, have not had a material impact on the Company’s consolidated financial statements.

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

The Company has assessed that the amount recoverable is immaterial.

Inventory is comprised of the following items:

The Company does not expect the adoption of ASU No.

2020-06 to have a material impact on its consolidated financial statements.

Inventory, net

Inventory, net is comprised of the following items:

As of December 31,

Raw materials $ 9,211 $ 11,489

Work-in-progress – dry cannabis 20,520 11,538

Work-in-progress – cannabis extracts 5,758 17,975

Finished goods – dry cannabis 4,894 1,798

Finished goods – cannabis extracts 1,011 2,624

Work-in-progress 12,405 26,278

Finished goods 10,778 5,905

Supplies and consumables 408 330

Total $ 32,802 $ 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.

For the year ended December 31, 2020, the Company recorded write-downs related to inventory of $ 26,055 (December 31, 2019 – $ 29,173 , December 31, 2018 - $ nil ) driven by pricing pressures in the Canadian marketplace.

As of December 31, 2020, an inventory reserve of $ 1,229 was recorded (December 31, 2019 – $ nil ) in cost of sales.

(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”) and Cannasoul Lab Services Ltd.

The Company’s investments in Cronos GrowCo and Natuera 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, the Company 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

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 GrowCo’s economic performance is driven by the day-to-day operations of Cronos GrowCo, which are controlled by 2645485 Ontario Inc.

(“Mucci”), the Company’s joint venture partner.

During the year ended December 31, 2021, the Company concluded that lower than expected sales forecasts combined with the increase to the aggregate principal amount of the GrowCo Facility (as defined below) were indicators of impairment for the Company’s equity method investment in Cronos GrowCo.

Accordingly, the Company performed a quantitative impairment assessment in the third quarter of 2021 to compare the fair value of the investment in Cronos GrowCo to its carrying amount.

The fair value was estimated using the discounted cash flow method.

Significant inputs include discount rate, growth rates, and cash flow projections.

As a result of this analysis, the Company concluded that as of September 30, 2021, the estimated fair value was higher than the carrying amount and no impairment charges were recorded.

MedMen Canada Inc.

(“MedMen Canada”) was 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.

The Company held variable interests in MedMen Canada through its ownership of 50 % of MedMen Canada’s common shares and other subordinated debt.

Effective as of December 31, 2021, the Company and MedMen Enterprises, Inc., the joint venture partner (“the MedMen JV Partner”), dissolved MedMen Canada due to its prolonged inactivity and a lack of business operations.

In accordance with the MedMen dissolution agreement, cash of $ 256 and $ 220 was distributed to the Company and the MedMen JV Partner, respectively.

The remaining $ 118 of cash held by MedMen Canada will be used to settle any remaining legal fees and related charges.

Any remaining funds will then be distributed equally between the Company and the MedMen JV Partner.

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

Variable Interest Entities

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.

Cronos GrowCo is a joint venture incorporated under the Canada Business Corporations Act (“CBCA”) on June 14, 2018 with the objective of building a cannabis production greenhouse, applying for cannabis licenses under the Cannabis Act (Canada), and growing, cultivating, extracting, producing and selling cannabis in accordance with such licenses.

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

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.

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.

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

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 medical cannabis to serve the export market.

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

Natuera’s economic performance is driven by the quantity and strains of cannabis to be grown.

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

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

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

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

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

dollars, except for share amounts)

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.

An affiliate of Agroidea SAS, a Colombian agricultural services provider, owns the remaining 50 % of Natuera’s common shares (such affiliate, the “Natuera JV Partner”).

Natuera’s economic performance is driven by the quantity and strains of cannabis grown, which is mutually determined by the joint venture partners.

During the year ended December 31, 2021, the Company concluded that lower than expected sales forecasts as of December 31, 2021 were an other than temporary indicator of impairment for the Company’s equity method investment in Natuera.

Accordingly, the Company performed a qualitative assessment to determine whether there was any value remaining in the investment.

As a result of this analysis, the Company concluded that, as of December 31, 2021, the estimated fair value was zero , and $ 167 was recorded as an impairment loss on equity method investees on the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

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 will advance ILS 8,297 (approximately $ 2,574 ) by a non-recourse loan to CLS over a period of two years from April 1, 2020 for the capital and operating expenditures of the laboratory.

The loan will bear interest at 3.5 % annually.

Cronos Israel agreed to advance up to ILS 8,297 ($ 2,664 ) 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.

3 unchanged sentences

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 8 for further information regarding loans receivable .

See Note 4 “ Loans Receivable, net ” for further information regarding loans receivable.

A reconciliation of the carrying amount of the investments in equity method investees, net is as follows:

Ownership interest As of December 31,

Cronos Australia (i)

Cronos GrowCo 50 % $ 16,764 19,235

Natuera (ii, iii)

$ 16,764 $ 19,235

(i) As of December 31, 2021, the Company held an approximately 10 % ownership interest in Cronos Australia, which is included in other investments on the consolidated balance sheet.

As such, the Company’s investment in Cronos Australia is no longer included as an investment in equity-method investees in the table above.

As of December 31, 2020, the Company held an approximately 31 % ownership interest in Cronos Australia.

The gross investment balance in Cronos Australia was offset by equity losses as of December 31, 2020.

(ii) On April 1, 2021, the Company and the Natuera JV Partner, 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 the Natuera JV Partner advanced the remaining 50 %, or $ 7,750 each.

As a result, the Company transferred the carrying amount of the Natuera Series A Loan of approximately $ 2,013 plus accrued interest of $ 540 , for a total investment value of $ 2,553 , which approximated the then fair value, to investments in equity accounted investees in respect of Natuera.

See Note 4 “ Loans Receivable, net .”

(iii) As of December 31, 2021, the Company concluded that the estimated fair value of the investment in Natuera was lower than the carrying amount resulting in an impairment charge of $ 167 being recorded as an impairment loss on equity method investees in the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

(a) Equity Method Investments

A reconciliation of the carrying amount of the investments in associates and joint ventures is as follows:

Ownership interest Carrying Amount

December 31, 2020 December 31, 2019

Cronos Australia (i)

31 % $ — $ ( 346 )

Cronos GrowCo (ii)

50 % 19,235 1,501

Natuera 50 % — ( 598 )

$ 19,235 $ 557

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

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

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

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

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

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

Total aggregate gross advances to Cronos GrowCo, excluding any amounts advanced by the Company to Cronos GrowCo under the GrowCo Credit Facility, were C$ 49,300 ($ 37,010 ), of which the Company advanced 50 % and Mucci advanced the remaining 50 % for an amount of C$ 24,650 ($ 18,505 ) each.

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

The Company’s share of net earnings (losses) from equity investments accounted for under the equity method of accounting as of and for the years ended December 31:

dollars, except for share amounts)

The following is a summary of the Company’s share of net losses from equity investments accounted for under the equity method of accounting:

Year ended December 31,

2021 2020 2019

Whistler Medicinal Marijuana Company (“Whistler”) (i)

Cronos Australia (ii)

( 48 ) ( 363 ) ( 1,101 )

Cronos Australia ( 363 ) ( 1,101 ) ( 588 )

Cronos GrowCo ( 2,518 ) ( 1,537 ) ( 167 )

MedMen Canada — 35 ( 213 )

MedMen Canada (iii)

( 3,747 ) ( 2,610 ) ( 805 )

2 unchanged sentences

The Company fully divested its investment in Whistler during 2019.

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

The following is a summary of financial information for the Company’s equity method investments as of and for the year ended December 31:

(ii) As of December 31, 2021, the Company held a 10 % ownership interest in Cronos Australia and Cronos Australia is no longer considered an equity-method investee.

As of December 31, 2020, and up to December 16, 2021, the Company held a 31 % ownership interest in Cronos Australia and was considered an equity-method investee.

The gross investment balance in Cronos Australia was offset by equity losses as of December 31, 2020.

(iii) By agreement of the joint venture partners, MedMen Canada was dissolved effective as of December 31, 2021.

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

See Note 4 “ Loans Receivable, net.

The following is a summary of financial information for the Company’s equity method investments:

As of December 31,

2021 2020 2019

3 unchanged sentences

Non-current liabilities 81,594 76,313 33,189

Year ended December 31,

2021 2020 2019

Revenue $ 8,186 $ 367 $ 52

1 unchanged sentence

Net loss ( 12,603 ) ( 11,453 ) ( 2,048 )

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

(b) Advances to Joint Ventures

MedMen Canada (i)

Cronos GrowCo (ii)

Cronos Australia (iii)

Natuera Total

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

Transfer to investments in equity accounted investees (ii)

— ( 18,505 ) — — ( 18,505 )

Interest on advances — — 37 — 37

Advances to joint ventures recovered from (applied to) carrying amount of investments — — ( 38 ) — ( 38 )

Effect from foreign exchange ( 4 ) ( 461 ) 1 — ( 464 )

As of December 31, 2020 $ 467 $ — $ — $ — $ 467

MedMen Canada (i)

Cronos GrowCo (ii)

Cronos Australia (iii)

Natuera Total

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

Advances (repayments) ( 852 ) 15,494 274 219 15,135

Advances to joint ventures recovered from (applied to) carrying amount of investments 35 22 ( 779 ) ( 224 ) ( 946 )

Effect from foreign exchange 44 480 30 5 559

As of December 31, 2019 $ 471 $ 18,966 $ — $ — $ 19,437

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

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

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

Refer to footnote (ii) to the first table set forth under Note 6(a).

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

The loan is due on January 1, 2022.

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

The Company determined that the maximum exposure to loss on variable interest entities 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 for the year ended December 31, 2020 and 2019:

The following is a summary of the maximum exposure to loss from the Company’s investments in equity method investees:

Ownership interest Other Net Assets (Liabilities) Maximum Exposure to Loss

Cronos Australia 31 % $ 8,976 $ 1,530

Cronos GrowCo 50 % $ 33,674 $ 21,125

MedMen Canada 50 % — 467

Natuera 50 % 2,712 7,826

1 unchanged sentence

Ownership interest Other Net Assets (Liabilities) Maximum Exposure to Loss

Cronos Australia 31 % $ 10,900 $ 1,355

Cronos Australia (i)

31 % $ 8,976 $ 1,530

Cronos GrowCo 50 % 109,329 21,125

MedMen Canada 50 % ( 199 ) 642

MedMen Canada (ii)

Natuera 50 % ( 6,849 ) 8,154

Balance as of December 31, 2020 $ 111,456 $ 31,276

(i) As of December 31, 2021, the Company held an approximately 10 % ownership interest in Cronos Australia which is included in other investments on the consolidated balance sheet.

As such, the Company’s maximum exposure to loss from the Company’s investment in Cronos Australia is no longer included in the table above.

As of December 31, 2020, the Company held an approximately 31 % ownership interest in Cronos Australia.

(ii) By agreement of the joint venture partners, MedMen Canada was dissolved effective as of December 31, 2021 .

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

Other Investments

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

As of December 31, 2020 and December 31, 2019, the Company did not hold any other investments.

The gains and losses on sale of other investments are classified as fair value through net income (loss).

The gains (losses) recognized in net income (loss) related to other investments were as follows:

Year ended December 31,

2020 2019 2018

Gain recognized in net income (loss)

Canopy Growth Corporation (“Canopy”) (i)

dollars, except for share amounts)

(b) Other investments

Other investments consist of investments in common shares and options of two companies in the cannabis industry.

A reconciliation of the carrying amount of the other investments is as follows:

Ownership interest As of December 31,

PharmaCann, Inc.

10.5 % $ 110,392 $ —

Vivo Cannabis (“Vivo”) - shares (ii)

Vivo Cannabis - share warrants (ii)

Whistler (iii)

Aurora Cannabis Inc.

(“Aurora”) (iv)

Cronos Australia 10 % 8,000 N/A

$ 118,392 $ —

(i) During the year ended December 31, 2019, the Company sold all remaining 11,062 common shares of Canopy (2018 – 18,436 common shares) for net proceeds of $ 355 (2018 – $ 530 ) recorded as a gain on disposal of other investments in other income (expense).

Upon adoption of ASU 2016-01 during the year ended December 31, 2018, the gains and losses on the Canopy investment were reclassified from fair value through other comprehensive income to fair value through net income.

(ii) During the year ended December 31, 2018, the Company exercised 182,927 share warrants for aggregate consideration of $ 87 for additional shares of Vivo.

During the year ended December 31, 2018, the Company then sold all 182,927 shares of Vivo for proceeds of $ 216 .

Upon adoption of ASU 2016-01 during the year ended December 31, 2018, the gains and losses on the Vivo Cannabis shares investment were reclassified from fair value through other comprehensive income to fair value through net income.

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

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

During the year ended December 31, 2019, the Company sold all 2,524,341 common shares of Aurora, for gross proceeds of $ 19,259 .

A gain on disposal of other investments was recorded in other income (expense) as a result.

(iv) For the year ended December 31, 2020, in connection with the achievement of certain milestones related to the Whistler Transaction, the Company received 980,662 common shares of Aurora.

During the year ended December 31, 2020, the Company sold all 980,662 of the Aurora common shares, for gross proceeds of approximately $ 4,789 (C$ 6,404 ), recorded as a gain on disposal of other investments in other income (expense).

On June 14, 2021, the Company purchased an option (the “PharmaCann 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 as of the date of the PharmaCann Option, 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.

The Company has deemed its influence in PharmaCann to be non-significant.

The PharmaCann Option is classified as an investment without a readily determinable fair value in an equity security.

The Company measures the PharmaCann Option at cost less accumulated impairment charges, if any, and subsequently adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

The PharmaCann Option is reported as other investments on the consolidated balance sheet for the period ended December 31, 2021.

On October 12, 2021, PharmaCann announced that it had entered into a definitive merger agreement with LivWell Holdings, Inc.

(“LivWell”) pursuant to which PharmaCann will acquire LivWell (the “LivWell Transaction”).

LivWell is a multi-state cannabis cultivation and retail leader based in Colorado.

Under the terms of the Company’s investment in PharmaCann, the Company’s rights to nominate an observer or a director to the PharmaCann board of directors could be lost if the Company’s ownership drops below 6 % on a fully-diluted basis and it sells or transfer all or any portion of the option (subject to certain exceptions).

As a result, further dilution could adversely affect the Company’s rights under the PharmaCann Option.

As a result of the LivWell Transaction, the value of the Company’s option in PharmaCann could be materially impacted.

As of December 31, 2021, the Company performed an assessment on the existence of impairment indicators on the PharmaCann Option and noted no indicators of impairment existed.

As such, no impairment loss on the investment was recorded during the year ended December 31, 2021.

Cronos Australia

On September 14, 2021, Cronos Australia entered into a merger agreement to acquire 100 % of the issued shares of CDA Health Pty Ltd, an Australian medicinal cannabis company, subject to customary closing conditions, including shareholder approval (the “Cronos Australia Merger”).

The Cronos Australia Merger closed on December 16, 2021.

In connection with the closing of the Cronos Australia Merger, all advances made under the Company’s A$ 1,500 unsecured loan to Cronos Australia, plus accrued interest and certain royalties payable, were converted into ordinary shares of Cronos Australia.

In addition, the Company’s ownership interest in Cronos Australia decreased to approximately 10 % and the Company’s number of Cronos Australia board seats was reduced from two to one .

The reduction in ownership interest and board seats constituted a loss of significant influence and resulted in a reclassification on the consolidated balance sheet from investments in equity accounted investees using the equity method of accounting to other investments using the fair value method of accounting, with unrealized holding gains and losses included in net income (loss) on the consolidated statements of net income (loss) and comprehensive income (loss).

As a result, the Company recorded a gain on revaluation of other investments of $ 8,287 included in the gain on revaluation of financial instruments on the statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

The Company’s investment in Cronos Australia was $ 8,000 , included in other investments on the balance sheet as of December 31, 2021.

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

Loans Receivable

December 31, 2020 December 31, 2019

Current portion

Natuera Series A Loan (i)

dollars, except for share amounts)

The following is a summary of the Company’s gain from disposals of investments:

Year ended December 31,

2021 2020 2019

GrowCo Credit Facility (ii)

Accrued interest 428 89

Canopy Growth Corporation (“Canopy”) (i)

Whistler (ii, iii)

Aurora — 4,789 696

$ — $ 4,789 $ 16,277

(i) The Company sold all remaining 11,602 common shares of Canopy during the year ended December 31, 2019, for net proceeds of $ 355 , resulting in a $ 51 gain on disposal of investments on the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2019.

(ii) On March 4, 2019, the Company sold all 2,563 shares of Whistler, representing approximately 19.0 % of Whistler’s issued and outstanding common shares, to Aurora Cannabis Inc.

(“Aurora”), in connection with Aurora’s acquisition of Whistler (the “Whistler Transaction”).

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

During the year ended December 31, 2019, the Company sold all 2,524,341 common shares of Aurora, for gross proceeds of $ 19,259 , resulting in a $ 15,530 gain on disposal of investments being recorded on the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2019.

(iii) During the year ended December 31, 2020, in connection with the achievement of certain milestones related to the Whistler Transaction, the Company received 980,662 common shares of Aurora.

The Company sold all 980,662 of the Aurora common shares during the year ended December 31, 2020, for gross proceeds of approximately $ 4,789 , resulting in a $ 4,789 gain on disposal of investments being recorded on the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2020.

Loans Receivable, net

Loans receivable, net consists of the following:

As of December 31,

Natuera Series A Loan (i)

GrowCo Facility (ii)

Current portion of accrued interest 2,322 428

Total current portion of loans receivable 5,460 7,083

Long term portion

GrowCo Credit Facility (ii)

GrowCo Facility (ii)

64,367 69,939

2 unchanged sentences

Cannasoul Collaboration loan (iv)

Accrued interest 2,667 702

Long-term portion of accrued interest — 2,667

Total long-term portion of loans receivable 80,635 87,191

Total loans receivable $ 86,095 $ 94,274

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

Outstanding principal amounts continue to bear interest at a fixed annual rate of 5.67 %.

In December 2020, the Series A Loan was amended to extend its maturity date to September 1, 2021 from March 1, 2021.

As of December 31, 2020, a current expected credit loss allowance of $ 685 was recorded against the Natuera Series A loan.

A loss allowance of $ 3,024 was recorded against the Natuera Series A Loan related to the Company’s share of net loss from Natuera in excess of the carrying value of the equity method investment.

Refer to Note 6.

(ii) On August 23, 2019, the Company entered into a credit agreement with Cronos GrowCo in respect of a C$ 100,000 (approximately $ 78,430 ) secured non-revolving term loan credit facility (the “GrowCo Credit Facility”).

The GrowCo Credit Facility will mature on March 31, 2031 and will bear interest at varying rates based on the Canadian prime rate as announced by the Bank of Montreal.

Interest began to accrue as of the closing date of the GrowCo Credit Facility and is payable on a quarterly basis until maturity, except that any interest accrued prior to March 31, 2021 will be payable not later than December 31, 2021.

Repayment of principal will be made on a quarterly basis commencing on March 31, 2021.

The GrowCo Credit Facility is secured by substantially all present and after acquired property of Cronos GrowCo and its subsidiaries.

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

As of December 31, 2020, Cronos GrowCo had drawn C$ 95,150 ($ 74,626 ) from the GrowCo Credit Facility.

Subsequent to December 31, 2020, the terms of the GrowCo Credit Facility were amended, such that any interest accrued from April 1, 2021 to December 31, 2021 will be payable not later than December 31, 2022, and repayment of principal will be made on a quarterly basis commencing on March 31, 2022.

As of December 31, 2020, a current expected credit loss allowance of $ 1,470 was recorded against the GrowCo Credit Facility.

(i) On April 1, 2021, the Company and the Natuera JV Partner converted all advances made to Natuera under the Natuera Series A Loan, plus accrued interest, into equity of Natuera (the “Natuera Debt Conversion”).

Total aggregate gross advances to Natuera under the Natuera Series A Loan were $ 15,500 , of which the Company advanced 50 % and the Natuera JV Partner advanced the remaining 50 %, or $ 7,750 each.

As a result, the Company transferred the carrying amount 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 investments in respect of Natuera.

See Note 3 “ Investments .”

(ii) On August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into a senior secured credit agreement for an aggregate principal amount of C$ 100,000 (the “GrowCo Facility”).

In August 2021, the GrowCo Facility was amended to increase the aggregate principal amount available to C$ 105,000 .

As a result of the increase in the aggregate principal amount of the GrowCo Facility and lower than expected sales forecasts from Cronos GrowCo, the Company revalued its allowance for credit loss on the GrowCo Facility resulting in an increase in the allowance of $ 12,748 , which was recorded in general and administrative expenses on the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

In conjunction with the aforementioned revaluation, the Company changed its expected credit loss valuation methodology from the historical credit loss method to the probability of default method.

As of December 31, 2021 and 2020, Cronos GrowCo had drawn C$ 104,000 ($ 81,598 ) and C$ 95,150 ($ 74,626 ), respectively, from the GrowCo Facility.

(iii) On June 28, 2019, the Company entered into a promissory note receivable agreement (the “Mucci Promissory Note”) for C$ 16,350 (approximately $ 12,828 ) with Mucci.

4 unchanged sentences

Subsequent to December 31, 2020, the terms of the Mucci Promissory Note were amended, such that interest accrued under the Mucci Promissory Note until July 1, 2022, is payable by way of capitalization on the principal amount and interest thereafter must be paid in cash on a quarterly basis.

As of December 31, 2020, a current expected credit loss allowance of $ 259 has been recorded against the Mucci Promissory Note.

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

Cronos Israel has agreed to advance approximately ILS 8,297 (approximately $ 2,574 ) by a non-recourse loan to CLS over a period of two years for the capital and operating expenditures of the laboratory.

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

For the year ended December 31, 2020, CLS has received ILS $ 4,148 (approximately $ 1,287 ).

As of December 31, 2020, a current expected credit loss allowance of $ 25 has been recorded against the Cannasoul Collaboration loan.

(iv) As of December 31, 2021 and 2020, CLS has received ILS 8,297 and ILS 4,148 , respectively (approximately $ 2,664 and $ 1,287 , respectively), from the Cannasoul Collaboration Loan.

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

Loans Payable

As of December 31, 2020, the Company did not have any loans payable.

On January 23, 2019, the Company entered into a credit agreement with the Canadian Imperial Bank of Commerce, as administrative agent and lender, and the Bank of Montreal, as lender, in respect of a C$ 65,000 ($ 48,715 ) secured non-revolving term loan credit facility (the “Credit Facility”).

The loan was guaranteed by the Company’s wholly owned Canadian subsidiaries and secured by substantially all present and after-acquired property of the Company and its wholly owned Canadian subsidiaries.

The Company used the funds available under the Credit Facility to fully repay the construction loan payable, consisting of C$ 21,311 ($ 15,971 ) in loan principal and C$ 275 ($ 206 ) in accrued interest and fees, calculated for the period from January 1, 2019 to January 22, 2019.

On March 8, 2019, the Credit Facility was fully repaid.

In connection with the Credit Facility, the Company incurred financing costs of C$ 523 ($ 395 ) which were expensed upon repayment of the Credit Facility.

Property, Plant and Equipment

dollars, except for share amounts)

Expected credit loss allowances on the Company’s long-term financial assets were comprised of the following items:

As of January 1, 2021 Increase (decrease) (i)

Foreign exchange effect As of December 31, 2021

GrowCo Facility $ 1,546 $ 12,748 $ ( 205 ) $ 14,089

Natuera Series A Loan 721 ( 737 ) 16 —

Mucci Promissory Note 270 ( 183 ) 3 90

Cannasoul Collaboration Loan 26 374 15 415

$ 2,563 $ 12,202 $ ( 171 ) $ 14,594

As of January 1, 2020 Increase (decrease) (i)

Foreign exchange effect As of December 31, 2020

GrowCo Facility $ — $ 1,470 $ 76 $ 1,546

Natuera Series A Loan — 685 36 721

Mucci Promissory Note — 257 13 270

Cannasoul Collaboration Loan — 25 1 26

$ — $ 2,437 $ 126 $ 2,563

(i) During the year ended December 31, 2021, $ 737 of expected credit losses on long-term financial assets was transferred to investments in equity method investees in relation to the Natuera Debt Conversion, as the carrying amount of the loan receivable, net, approximated fair value as of the date of transfer.

During the years ended December 31, 2021 and 2020, $ 12,939 and $ 2,437 , respectively, were recorded to general and administrative expenses on the consolidated statements of net income (loss) and comprehensive income (loss) as a result of adjustments to our expected credit losses.

Property, Plant and Equipment, net

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

As of December 31, 2021

Cost Accumulated depreciation Accumulated impairment charges Net

Land $ 2,822 $ — $ — $ 2,822

Building 158,586 149,690

Furniture and equipment 18,824 10,079

Computer equipment 710 526

Leasehold improvements 3,740 1,758

Building and leasehold improvements 188,522 ( 22,720 ) ( 109,177 ) 56,625

Machinery and equipment 18,894 ( 5,778 ) ( 3,876 ) 9,240

Furniture and fixtures 5,937 ( 1,808 ) ( 615 ) 3,514

Construction in progress 2,502 — ( 633 ) 1,869

accumulated depreciation and amortization ( 18,295 ) ( 8,745 )

Balance as of December 31 $ 187,599 $ 159,948

Depreciation expense included in costs of sales relating to manufacturing equipment and production facilities for the year ended December 31, 2020 was $ 3,447 (December 31, 2019 – $ 1,812 ;

$ 218,677 $ ( 30,306 ) $ ( 114,301 ) $ 74,070

Depreciation expense included in operating expenses related to general office space and equipment for the year ended December 31, 2020 was $ 2,058 (December 31, 2019 – $ 1,444 ;

As of December 31, 2020

Cost Accumulated depreciation Accumulated impairment charges Net

Land $ 3,197 $ — $ — $ 3,197

Building and leasehold improvements 162,326 ( 13,970 ) — 148,356

Machinery and equipment 14,032 ( 3,195 ) — 10,837

Furniture and fixtures 5,502 ( 1,130 ) — 4,372

Construction in progress 20,837 — — 20,837

$ 205,894 $ ( 18,295 ) $ — $ 187,599

The remaining depreciation is included in inventory.

For the year ended December 31, 2020, there was no capitalized interest included in construction in progress (2019 – $ nil ;

For the years ended December 31, 2021, 2020 and 2019, depreciation expense on property, plant and equipment was $ 11,668 , $ 9,052 and $ 3,263 , respectively, and was included in cost of sales as well as depreciation and amortization in operating expenses on the consolidated statements of net income (loss) and comprehensive income (loss).

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

Impairment of Long-lived Assets

Accumulated impairment charges on property, plant and equipment consist of the following:

As of January 1, 2021 Impairment charges Foreign exchange effect As of December 31, 2021

Building and leasehold improvements $ — $ 110,963 $ ( 1,786 ) $ 109,177

Machinery and equipment — 3,939 ( 63 ) 3,876

Furniture and fixtures — 625 ( 10 ) 615

Construction in progress — 643 ( 10 ) 633

$ — $ 116,170 $ ( 1,869 ) $ 114,301

Intangible Assets and Goodwill

The ongoing restrictions and closures experienced by retail stores in the U.S.

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

reporting unit.

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

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

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

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

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

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

Significant inputs include discount rate, growth rates, and cash flow projections.

Based on these valuations, the carrying value exceeded the fair value resulting in an impairment on both the reporting unit as well as the Lord Jones™ brand.

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

reporting unit and $ 5,000 of impairment charges on the Lord Jones™ brand during year ended December 31, 2020.

There were no impairment charges on property, plant and equipment during the years ended December 31, 2020 and 2019.

During the fourth quarter of 2021, the Company concluded that indicators of impairment were present with respect to its Canadian asset group in connection with the potential wind down and closure of the Company’s facility in Stayner, Ontario, Canada happening in 2022.

Refer to Note 18 “ Subsequent Events ” for further information.

As a result, the Company compared the sum of the undiscounted future cash flows attributable to the Canadian asset group to their respective carrying amounts and recorded a non-cash impairment charge on long-lived assets of $ 113,917 as the difference between the carrying amount of the asset group and its estimated fair value for the year ended December 31, 2021, in the consolidated statements of net income (loss) and comprehensive income (loss).

During the second quarter of 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 the Company’s decision to no longer use the leased premises.

The Company recognized an impairment charge on the derecognition of the right-of-use asset of $ 702 during the year ended December 31, 2021.

Both of the impairment charges described herein are recognized on the consolidated statements of net income (loss) and comprehensive income (loss) as an impairment loss on long-lived assets.

During the third quarter of 2021, in connection with the Company’s reassessment of indicators of impairment relating to the U.S.

segment’s property, plant and equipment asset group for the quarter ended June 30, 2021, the Company concluded that triggers were present which indicated that the carrying amounts of those assets were not recoverable.

Accordingly, the Company compared the sum of the undiscounted future cash flows attributable to the U.S.

asset group (the lowest level for which identifiable cash flows are available) to their respective carrying amount and recorded a non-cash impairment charge on long-lived assets of $ 1,214 for the difference between the carrying amount of the asset group and its estimated fair values in the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

Goodwill and Intangible Assets, net

Goodwill is comprised of the following items:

As of December 31, 2021

Cost Accumulated impairment charges Net

Peace Naturals Project Inc.

(“Peace Naturals”)

$ 1,098 $ — $ 1,098

Redwood 213,414 ( 213,414 ) —

$ 214,512 $ ( 213,414 ) $ 1,098

As of December 31, 2020

Cost Accumulated impairment charges Net

OGBC $ 307 $ ( 307 ) $ —

Peace Naturals 1,108 — 1,108

Redwood 213,414 ( 35,000 ) 178,414

$ 214,829 $ ( 35,307 ) $ 179,522

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

(a) Intangible assets

Intangible assets are comprised of the following items:

Weighted average amortization period (in years) As of December 31, 2020

Cost Accumulated amortization Impairment charges Net

Software 5 $ 610 $ ( 291 ) $ — $ 319

ERP system 5 3,955 ( 274 ) — 3,681

Health Canada licenses 17 7,526 ( 1,254 ) — 6,272

Lord Jones TM brand

N/A 64,000 — ( 5,000 ) 59,000

Trademarks N/A 148 — — 148

Israeli codes (i)

dollars, except for share amounts)

Impairment of Goodwill

Accumulated impairment charges on goodwill consist of:

As of January 1, 2021 Impairment charges Foreign exchange effect As of December 31, 2021

Redwood $ ( 35,000 ) $ ( 178,414 ) $ — $ ( 213,414 )

As of January 1, 2020 Impairment charges Foreign exchange effect As of December 31, 2020

$ — $ ( 292 ) $ ( 15 ) $ ( 307 )

Redwood — ( 35,000 ) — ( 35,000 )

$ — $ ( 35,292 ) $ ( 15 ) $ ( 35,307 )

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

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

Cost Accumulated amortization Net

(i) Impairment charges to OGBC goodwill were related to the discontinuation of OGBC and are included in other, net on the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2020 .

In 2019, the Company acquired (the “Redwood Acquisition”) all of the issued and outstanding shares of each of the four Redwood operating subsidiaries (collectively “Redwood”) for an aggregate consideration of $ 283,300 , which included $ 227,191 in cash and 5,086,586 common shares of the Company with a fair value of $ 56,109 .

Goodwill attributable to the acquisition was $ 213,414 .

The Company is required to perform a quantitative analysis of goodwill to test for impairment on an annual basis or more frequently when events or changes in circumstances indicate that fair value of the reporting unit may be less than its carrying amount.

Under ASC 350 Intangibles - Goodwill and Other , the qualitative assessment requires the consideration of factors such as recent market transactions, macroeconomic conditions, and changes in projected future cash flows or planned revenue or earnings of the reporting unit as indicators of impairment when determining the need for a quantitative assessment of impairment.

During the third quarter of 2021, the Company reassessed the existence of impairment indicators on goodwill associated with the U.S.

reporting unit, derived from the Redwood Acquisition, and the Lord Jones ® brand indefinite-lived intangible asset as of June 30, 2021, and determined that quantitative impairment analyses were required as of June 30, 2021 due to slower actual revenue growth as compared to previous revenue growth forecasts and significant pricing pressures brought about by increased competition and aggressive discounting in the U.S.

reporting unit and associated with the Lord Jones ® brand indefinite-lived intangible asset.

As such, the Company reassessed its estimates and forecasts as of June 30, 2021, to determine the fair values of the reporting unit and intangible asset using a discounted cash flow method on the reporting unit and the relief-from-royalty method on the Lord Jones ® brand.

Significant inputs include discount rates, growth rates, and cash flow projections, and, for the Lord Jones ® brand, royalty rate.

These valuation inputs would be considered Level 3 inputs as defined by ASC 820 Fair Value Measurement .

As a result of the analysis as of June 30, 2021, the Company concluded that the carrying amount of the U.S.

reporting unit exceeded its fair value, which resulted in the recognition of an impairment charge of $ 178,414 on goodwill associated with the its U.S.

reporting unit on the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

In June 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 second quarter, represented indicators of impairment for the Company’s U.S.

reporting unit.

Accordingly, the Company performed an interim impairment analysis as of June 30, 2020, which revealed the carrying amount of the reporting unit exceeded its fair value.

As a result, the Company recorded an impairment charge of $ 35,000 on goodwill associated with its U.S.

reporting unit for the year ended December 31, 2020.

(b) Intangible assets, net

Intangible assets, net are comprised of the following items:

As of December 31, 2021

Cost Accumulated amortization Accumulated impairment charges Net

Software $ 5,644 $ ( 1,595 ) $ ( 4 ) $ 4,045

Health Canada licenses 8,793 ( 1,883 ) ( 6,910 ) —

Lord Jones TM brand

N/A 64,000 — 64,000

Trademarks N/A 36 — 36

Israeli codes (i)

Ginkgo exclusive license (i, ii)

17,330 ( 335 ) ( 4,752 ) 12,243

Israeli codes (iii)

330 ( 39 ) — 291

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

The aggregate amortization was $ 814 for the year ended December 31, 2020 (December 31, 2019 – $ 646 ;

Total definite-lived intangible assets 32,097 ( 3,852 ) ( 11,666 ) 16,579

Lord Jones ® brand

64,000 — ( 62,500 ) 1,500

Intangible asset additions in 2020 primarily relate to the implementation of a new ERP system.

Intangible asset additions in the year ended December 31, 2019 included the Lord Jones™ brand for $ 64 million.

There were no material disposals of intangible assets in 2020 or 2019.

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

Trademarks 142 — ( 142 ) —

Total intangible assets $ 96,239 $ ( 3,852 ) $ ( 74,308 ) $ 18,079

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

As of December 31, 2020

Cost Accumulated amortization Accumulated impairment charges Net

Software $ 4,565 $ ( 565 ) $ — $ 4,000

Health Canada licenses 8,790 ( 1,465 ) ( 1,053 ) 6,272

Israeli codes (iii)

322 ( 22 ) — 300

Total definite-lived intangible assets 13,677 ( 2,052 ) ( 1,053 ) 10,572

Lord Jones ® brand

64,000 — ( 5,000 ) 59,000

Trademarks 148 — — 148

Total intangible assets $ 77,825 $ ( 2,052 ) $ ( 6,053 ) $ 69,720

(i) In August 2021, the Company announced the achievement of the final productivity target in respect of cannabigerolic acid (“CBGA”), under the Ginkgo Collaboration Agreement.

As a result of this achievement, on August 21, 2021, the Company issued 1,467,490 common shares at a share price of C$ 7.90 for total consideration given of C$ 11,593 ($ 9,042 ) to Ginkgo through the Ginkgo Collaboration Agreement for the achievement of commercialization and productivity milestones for CBGA.

The estimated fair value of the exclusive license for CBGA (the “CBGA Exclusive License”) was $ 7,300 determined using a variation of the income approach called the relief-from-royalty method, which requires an estimate or forecast of the expected future cash flows.

The definite-lived intangible asset is being amortized using the straight-line method over its estimated useful life of 10 years.

The difference between the consideration paid to Ginkgo and the fair value of the exclusive license intangible asset of $ 1,784 was recognized as an impairment charge on the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

(ii) In November, 2021, the Company achieved the final productivity target in respect of cannabigerovarinic acid (“CBGVA”), another of the eight target cannabinoids under the Ginkgo Collaboration Agreement.

As a result of this achievement on November 12, 2021, the Company issued 1,467,490 common shares at a share price of C$ 7.12 for total consideration given of C$ 10,449 ($ 8,150 ) to Ginkgo.

The estimated fair value of the exclusive license for CBGVA (the “CBGVA Exclusive License”) was $ 5,300 determined using a variation of the income approach called the relief-from-royalty method, which requires an estimate or forecast of the expected future cash flows.

The definite-lived intangible asset is being amortized using the straight-line method over its estimated useful life of ten years .

The difference between the consideration paid to Ginkgo and the fair value of the exclusive license intangible asset of $ 3,008 was recognized as an impairment charge on the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

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

For the years ended December 31, 2021, 2020 and 2019, the aggregate amortization expense on intangible assets was $ 1,800 , $ 814 and $ 646 , respectively, and was included in depreciation and amortization in operating expenses on the consolidated statements of net income (loss) and comprehensive income (loss).

The estimated future amortization of definite-lived intangible assets is as follows:

As of December 31, 2021

Thereafter 6,159

Impairment of Intangible Assets

Accumulated impairment charges on intangible assets, net consist of:

As of January 1, 2021 Impairment charges Foreign exchange effect As of December 31, 2021

Software $ — $ ( 4 ) $ — $ ( 4 )

Health Canada licenses ( 1,053 ) ( 5,951 ) 94 ( 6,910 )

Ginkgo exclusive license — ( 4,792 ) 40 ( 4,752 )

Lord Jones ® brand

( 5,000 ) ( 57,500 ) — ( 62,500 )

Trademarks — ( 142 ) — ( 142 )

$ ( 6,053 ) $ ( 68,389 ) $ 134 $ ( 74,308 )

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

Peace Naturals $ 1,078 $ — $ — $ 30 $ 1,108

Redwood 213,414 — ( 35,000 ) — 178,414

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

As of January 1, 2020 Impairment charges Foreign exchange effect As of December 31, 2020

Health Canada licenses $ — $ ( 1,001 ) $ ( 52 ) $ ( 1,053 )

Lord Jones ® brand

— ( 5,000 ) — ( 5,000 )

$ — $ ( 6,001 ) $ ( 52 ) $ ( 6,053 )

During the fourth quarter of 2021, in connection with the expected wind down and closure of the Company’s facility in Stayner, Ontario, the Company determined that the Peace Naturals Health Canada license associated with ongoing use of the Stayner facility for cannabis cultivation and production was also impaired.

Accordingly, the Company recorded an impairment loss on long-lived assets of $ 5,951 in the consolidated statements of net income (loss) and comprehensive income (loss) for the year end December 31, 2021.

Impairment charges on the Company’s Health Canada licenses for the year ended December 31, 2020 are related to the discontinuation of OGBC.

As mentioned above, during third and fourth quarter of 2021, the fair value of each of the Company’s Ginkgo exclusive licenses for two cannabinoids that achieved productivity milestones were deemed to be lower than the consideration paid for each of those licenses.

As a result, the Company recorded an aggregate impairment loss of $ 4,792 on long-lived assets for the year ended December 31, 2021 in the consolidated statements of net income (loss) and comprehensive income (loss).

During the third quarter of 2021, as a result of the reassessment of impairment indicators and interim impairment analysis as of June 30, 2021, as described above, the Company concluded the carrying amount of the Lord Jones ® brand exceeded its fair value, which resulted in impairment charges of $ 56,500 on its Lord Jones ® brand in the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

Additionally, in the fourth quarter of 2021, due to the U.S.

segment’s sustained operating losses and lack of revenue growth, the Company performed an additional impairment test on Lord Jones ® brand intangible asset.

As a result, the Company concluded the carrying amount of the Lord Jones ® brand exceeded its fair value, which resulted in an additional impairment charge of $ 1,000 on its Lord Jones ® brand for the year ended December 31, 2021 in the consolidated statements of net income (loss) and comprehensive income (loss).

In June 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 indicators of impairment for the U.S.

reporting unit’s Lord Jones ® brand.

Accordingly, the Company performed an interim impairment analysis as of June 30, 2020, which concluded the carrying amount of the brand exceeded its fair value.

As a result of the analysis, the Company recorded an impairment loss on indefinite-lived intangible assets of $ 5,000 on the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2020.

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

dollars, except for share amounts)

The Company has entered into leases primarily for the land-use rights, office premises and equipment used in the production of cannabis, U.S.

hemp and related products.

hemp-derived cannabinoids and other related products.

The Company’s leases have terms which range from three years to six years , excluding land use rights, which generally extend to 15 years.

8 unchanged sentences

Total lease cost $ 2,540 $ 2,539

Weighted-average remaining lease term – operating leases 6 5

Supplemental cash flow and other information

Operating cash flows - cash paid for operating lease obligations $ 2,458 $ 2,414

Non-cash activity - right-of-use assets obtained in exchange for lease obligations 3,277 5,332

Weighted-average remaining lease term (years) – operating leases 4.3 5.5

Weighted-average discount rate – operating leases 7.65 % 8.86 %

General and Administrative Expenses

General and administrative expense are comprised of the following items:

Year ended December 31,

2020 2019 2018

Salaries and wages $ 26,742 $ 17,829 $ 4,240

Professional and consulting 15,135 15,369 5,242

Office and general 17,845 13,407 3,713

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

Current expected credit loss 2,512 136 —

Other 8,607 2,530 154

Total $ 80,529 $ 49,271 $ 13,349

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

For the years ended December 31, 2021, 2020 and 2019, the aggregate depreciation expense on right-of-use assets was $ 1,934 , $ 1,310 and $ 480 , respectively, and was included in general and administrative expenses on the consolidated statements of net income (loss) and comprehensive income (loss).

During the year ended December 31, 2021, the Company recognized impairment charges of $ 702 related to the derecognition of an unutilized right-of-use asset in the U.S.

The following is a summary of the Company’s future minimum lease payments under operating leases for its premises due in future fiscal years:

As of December 31, 2021

Thereafter 686

Total lease payments 10,663

imputed interest ( 857 )

Present value of lease liabilities $ 9,806

In addition to the minimum lease payments, the Company is required to pay realty taxes and other occupancy costs in accordance with the terms of the lease agreements.

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

dollars, except for share amounts)

Derivative Liabilities

1 unchanged sentence

(“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, refer to Note 15, issued to a wholly owned subsidiary of Altria and one warrant of the Company (the “Altria Warrant”), refer to Note 16(a), issued to a wholly owned subsidiary of Altria.

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

As of the closing date of the Altria Investment, Altria beneficially held an approximate 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 December 31, 2021, Altria beneficially held 156,573,537 of the Company’s common shares, an approximate 42 % ownership interest in the Company (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.

The Altria Warrant entitles the holder, subject to certain qualifications and limitations, to subscribe for and purchase up to an additional 10 % of the common shares of Cronos (approximately 80.1 million common shares as of December 31, 2020) at a per share exercise price of C$ 19.00 , which expires at 5:00 p.m.

(Toronto time) on March 8, 2023.

The number of common shares of the Company to which the holder is entitled, and the corresponding exercise price, is subject to adjustment in the event of a share dividend, share issuance, distribution, or share subdivision, split or other division, share consolidation, reverse-split or other aggregation, share reclassification, a capital reorganization, consolidation, amalgamation, arrangement, binding share exchange, merger or other combination, certain securities issuances, repurchases, redemptions or certain other actions that would result in a reduction in the number of common shares of the Company outstanding, in each case, executed by the Company.

If and whenever there is a reclassification of the common shares or a capital reorganization of the Company, or a consolidation, amalgamation, arrangement, binding share exchange or merger of the Company, in each case executed by the Company and pursuant to which (i) in the event the consideration received by the Company’s shareholders is exclusively cash, the Company or the successor entity (as applicable) is required to purchase the Altria Warrant in cash equal to the amount by which the purchase price per share paid for the common shares acquired exceeds the exercise price of the Altria Warrant multiplied by the number of common shares that would have been issuable upon exercise of the Altria Warrant immediately prior to any such transaction, and (ii) in the event the consideration received by the Company’s shareholders is not exclusively cash, the Altria Warrant will remain outstanding in accordance with its terms until any subsequent exercise of the Altria Warrant, at which time the holder thereof will receive in lieu of each share that would have been issuable upon the exercise of the Altria Warrant immediately prior to any such transaction, the kind and amount of cash, the number of shares or other securities or property resulting from any such transaction that such holder would have been entitled to receive had such holder been the registered holder of such shares that would have been issuable upon the exercise of the Altria Warrant on the record date or effective date of the transaction (as applicable).

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 (the “Ginkgo Agreement”), refer to Note 20(b)), 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 Altria Warrant entitles the holder, subject to certain qualifications and limitations, to subscribe for and purchase up to an additional 10 % of the common shares of Cronos ( 83,322,820 common shares as of December 31, 2021) at a per share exercise price of C$ 19.00 , which expires on March 8, 2023.

The Company granted to Altria, subject to certain qualifications and limitations, upon the occurrence of certain issuances of common shares of the Company executed by the Company (including issuances pursuant to the research and development (“R&D”) partnership with Ginkgo, (refer to Note 9 “ Commitments and Contingencies ”), 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;

provided that if the consideration paid in connection with any such issuance is non-cash, the price per common share of the Company that would have been received had such common shares been issued for cash consideration will be determined by an independent committee (acting reasonably and in good faith);

provided further that 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 Agreement will be C$ 16.25 per common share.

provided further that 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 Collaboration Agreement 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 %.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

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”).

3 unchanged sentences

The Altria Warrant, Pre-emptive Rights, and fixed price Top-up Rights have been classified as derivative liabilities.

related transaction costs of $ 22,355 have been expensed as financing costs in 2019.

Reconciliations of the carrying amounts of the derivative liability are presented below:

As of January 1, 2020 Gain on revaluation Exercise of Rights Effect of FX As of December 31, 2020

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

A reconciliations of the carrying amounts of the derivative liability are presented below:

As of January 1, 2021 Gain on revaluation Exercise of Rights Foreign exchange effect

As of December 31, 2021

(a) Altria Warrant $ 138,858 $ ( 127,099 ) $ — $ 1,961 $ 13,720

2 unchanged sentences

$ 163,410 $ ( 151,360 ) $ — $ 2,325 $ 14,375

As of March 8, 2019 Gain on revaluation Exercise of Rights Effect of FX As of December 31, 2019

As of January 1, 2020 Gain on revaluation Exercise of Rights Foreign exchange effect

As of December 31, 2020

(a) Altria Warrant $ 234,428 $ ( 95,045 ) $ — $ ( 525 ) $ 138,858

5 unchanged sentences

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

During the year ended December 31, 2020, the Company’s share price decreased from December 31, 2019 resulting in a gain on revaluation of $ 129,254 .

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

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

The fair values of the derivative liabilities were determined using the Black-Scholes pricing model using the following inputs:

As of December 31, 2021

21 unchanged sentences

(i) The risk-free interest rate was based on Bank of Canada government treasury bills and bonds with a remaining term equal to the expected life of the derivative liabilities.

The risk-free interest rate uses a range of approximately 0.10 % to 0.39 % as of December 31, 2020 (December 31, 2019 – 1.66 % to 1.73 %) for the Pre-emptive Rights and Top-up Rights.

(ii) The expected life in years represents the period of time that the derivative liabilities are expected to be outstanding.

As of December 31, 2021 and December 31, 2020, the risk-free interest rate uses a range of approximately 0.16 % to 1.10 % and 0.10 % to 0.39 %, respectively, for the Pre-emptive Rights and Top-up Rights.

(ii) 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.

The expected life uses a range of approximately 0.50 years to 5 years as of December 31, 2020 (December 31, 2019 – 0.25 years to 6 years).

(iii) Volatility was based on the blended historical volatility levels of the Company and peer companies.

As of December 31, 2021 and December 31, 2020, the expected life uses a range of approximately 0.25 years to 3.75 years and 0.50 years to 5 years, respectively.

(iii) Volatility was based on an equally weighted blended historical and implied volatility level of the underlying equity securities of the Company as of December 31, 2021.

As of December 31, 2020, volatility was based on the blended historical volatility levels of the Company and peer companies.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

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.

As of December 31, 2020, there would be an equal but opposite impact on net income (loss), refer to Note 15, and as of December 31, 2019, there would be an equal but opposite impact on share capital.

While a decrease in the inputs noted below would cause a decrease in the carrying amount of the derivative liability, there would also be an equal and opposite impact on net income (loss).

10% decrease as of December 31, 2021

8 unchanged sentences

Expected annualized volatility 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 uncontrollable factors, which could significantly affect the fair value of these derivative liabilities in future periods.

These inputs are classified in Level 3 on the fair value hierarchy and are subject to volatility and several factors outside the Company’s control, which could significantly affect the fair value of these derivative liabilities in future periods.

Commitments and Contingencies

(a) Commitments

R&D commitments

On September 4, 2018, the Company announced an R&D partnership with Ginkgo to develop scalable and consistent production of eight target cannabinoids, including THC, CBD and a variety of other lesser known and rarer cannabinoids.

As part of this partnership, Cronos Group has agreed to issue up to 14,674,903 common shares of the Company (aggregate value of approximately $ 100,000 as of July 17, 2018 assuming all milestones are met, collectively the “Ginkgo Equity Milestones”) in tranches and $ 22,000 in cash subject to Ginkgo’s achievement of certain milestones and to fund certain R&D expenses, including foundry access fees.

During the year ended December 31, 2021, 2,934,980 shares of the Company’s common stock were issued in conjunction with this partnership.

No shares were issued for the years ended December 31, 2020 or December 31, 2019.

(ii) Technion.

On October 15, 2018, the Company entered into a sponsored research agreement with the Technion Research and Development Foundation of the Technion – Israel Institute of Technology (“Technion”).

Research was focused on the use of cannabinoids and their role in regulating skin health and skin disorders.

This research was conducted by Technion over a three-year period and concluded during the fourth quarter of 2021.

During the year ended December 31, 2021, the Company funded $ 60 of cash payments related to this agreement.

The Company had no further funding requirements as of December 31, 2021.

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

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

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

The Company will also pay all third party direct charges incurred during the monthly period in connection with the services, including any reasonable and documented costs, fees and expenses associated with obtaining any consent, license or permit.

The Services Agreement will remain in effect until terminated by either party.

See Note 15 “ Related Party Transactions .”

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

Capital Stock

The Company is authorized to issue an unlimited number of no par value common shares.

The holders of the common shares are entitled to receive dividends, which may be declared from time to time, and are entitled to one vote per share at shareholder meetings of the Company.

All common shares are ranked equally with regards to the Company’s residual net assets.

The following is a summary of common shares issued, other than in connection with outstanding options and warrants (see Note 16):

2020 2019 2018

Altria Investment (i)

— 149,831,154 —

Redwood Acquisition (ii)

— 5,086,586 —

Private placement (iii)

Bought deal offering (iv)

— — 15,677,143

— 155,773,757 15,677,143

(i) During the year ended December 31, 2019, the Company issued 149,831,154 common shares to Altria for aggregate gross proceeds of $ 1,809,556 , net of issuance costs of $ 3,722 .

The gross proceeds were first allocated to the derivative liabilities issued in connection with the Altria Investment, and the residual of $ 248,302 was allocated to share capital.

Pursuant to the Altria Investment, the Company incurred transaction costs of $ 25,223 , of which $ 3,642 was allocated to share capital and $ 21,581 to the derivative liabilities based on the relative fair values assigned to the respective components.

Refer to Note 14 for additional information.

(ii) During the year ended December 31, 2019, the Company issued 5,086,586 common shares with a fair value of $ 56,109 related to the acquisition (the “Redwood Acquisition”) of certain subsidiaries of Redwood Holding Group, LLC (collectively, “Redwood”).

Refer to Note 27 for additional information.

(iii) During the year ended December 31, 2019, the Company issued 856,017 common shares to Kristen Bell, an accredited investor in a private placement (“Private Placement”) in reliance on Section 4(a)(2) of the Securities Act in connection with the use of certain publicity rights in brand development.

The common shares vest in three equal installments on each of (a) January 31, 2020, (b) June 23, 2021, and (c) December 23, 2022.

dollars, except for share amounts)

Use of publicity rights in brand development

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

One-third of such common shares vested on January 31, 2020 and an additional one-third of such common shares vested on June 23, 2021, with the remaining shares vesting on December 23, 2022.

The issuance did not involve a public offering and was made without general solicitation or advertising.

1 unchanged sentence

The fair value of the shares was calculated using the 10 -day volume weighted average price per share of the Company’s common shares on Nasdaq.

(iv) During the year ended December 31, 2018, the Company issued 15,677,143 common shares for aggregate gross proceeds of $ 115,510 through bought deal offerings, net of issuance costs of $ 7,577 .

There were no share repurchases during the year ended December 31, 2020, 2019 or 2018.

Additional restricted common shares are issued when certain performance milestones are achieved:

(i) First Performance Issuance:

if, prior to December 23, 2022, the product line generates at least $ 50,000 in net revenue, additional common shares with an aggregate value of $ 1,000 will be issued;

(ii) Second Performance Issuance:

if, prior to December 23, 2022, the product line generates at least $ 100,000 in net revenue, additional common shares with an aggregate value of $ 1,000 will be issued (together with the First Performance Issuance noted above).

The number of common shares that would be issued upon achieving the foregoing milestones will be determined based on the 10 -day volume weighted average price per share of the Company’s common shares on Nasdaq as of the trading day immediately prior to the date of filing with the Securities and Exchange Commission of the Company’s audited year-end financial statements for the first fiscal year during which such milestones are achieved.

(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 consolidated financial condition but could be material to its results of operations for any particular reporting period depending, in part, on its results for that period.

Class action complaints relating to restatement of 2019 interim financial statements

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 now former Chief Financial Officer.

The court has consolidated the cases, and the consolidated amended complaint alleges violations of Section 10(b) of 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 control were incorrect based on the Company’s disclosures relating to the Audit Committee of the Board of Directors’ (the “Board”) 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.

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 (i) the Company, (ii) its former Chief Executive Officer (now Executive Chairman), (iii) now former Chief Financial Officer, (iv) former Chief Financial Officer and Chief Commercial Officer, and (v) current and former members of the Board 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 control were misrepresentations based on the Company’s March 2, 2020 disclosure that the Audit Committee of the Board 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 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 has appealed the Court’s dismissal of the motions only with respect to the Company, the former Chief Executive Officer (now Executive Chairman), and the now former Chief Financial Officer;

the remaining defendants were dismissed from the matter with prejudice and the Company and all individual defendants agreed not to seek costs from plaintiff in connection with the dismissal of the motions.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

Regulatory reviews relating to restatements

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 as well as the previously disclosed restatement of the second quarter of 2021 interim financial statements.

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.

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.

On January 31, 2022, upon consent of the Company and the plaintiffs, the court dismissed the case in its entirety as to the Company.

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, 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 Annual 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.

Share-based Payments

The following is a summary of the changes in warrants during the year ended December 31, 2020 and December 31, 2019:

Weighted average exercise price (C$) Number of warrants

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

Exercise of warrants 0.27 ( 10,079,313 )

Balance as of December 31, 2020 $ 0.25 7,987,349

Weighted average exercise price (C$) Number of warrants

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

Exercise of warrants 0.26 ( 7,390,961 )

Balance as of December 31, 2019 $ 0.26 18,066,662

For a description of the Altria Warrant, see Note 14.

As of December 31, 2020, the Company had outstanding warrants as follows:

Grant date Expiry date Weighted average exercise price (C$) Number of warrants

May 13 – 27, 2016 May 13 – 27, 2021 $ 0.25 7,987,349

As of December 31, 2020 $ 0.25 7,987,349

(a) Share-based award plans

The Company has granted stock options, RSUs and 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 Employment Inducement Award Plan #1 (the “Employment Inducement Award Plan”), 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 or the Employment Inducement Award Plan.

The following table summarizes the total share-based payments associated with the Company’s stock options and RSUs:

Year ended December 31,

2021 2020 2019

Stock options $ 7,604 $ 7,185 $ 11,619

RSUs 2,547 8,176 889

Total share-based payments $ 10,151 $ 15,361 $ 12,508

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

dollars, except for share amounts)

(b) Stock options

(i) Stock option plans

The Company adopted an amended and restated stock option plan dated May 26, 2015 (the “2015 Stock Option Plan”), which was approved by shareholders of the Company at the annual general meeting of shareholders held on June 28, 2017.

The 2015 Stock Option Plan allowed the Company’s Board of Directors (the “Board”) to award options to purchase shares to directors, officers, key employees and service providers of the Company.

The Company adopted the 2015 Stock Option Plan, which was approved by shareholders of the Company at the annual general meeting of shareholders held on June 28, 2017.

The 2015 Stock Option Plan allowed the Board to award options to purchase shares to directors, officers, key employees and service providers of the Company.

As of June 28, 2018, no further awards will be granted under the 2015 Stock Option Plan;

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

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

On June 28, 2018, the shareholders of the Company approved the 2018 Stock Option Plan, which replaced the 2015 Stock Option Plan.

The 2018 Stock Option Plan terminated the Company’s ability to grant equity under the 2015 Stock Option Plan.

As of June 25, 2020, the date on which the 2020 Omnibus Plan (as defined below) was approved by the shareholders of the Company, no further awards will be granted under the 2018 Stock Option Plan;

As of June 25, 2020, the date on which the 2020 Omnibus Plan was approved by the shareholders of the Company, no further awards will be granted under the 2018 Stock Option Plan;

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

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

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

The 2020 Omnibus Plan terminated the Company’s ability to grant equity awards under the 2018 Stock Option Plan and restricted stock units under the Employment Inducement Plan.

On March 29, 2020, the Board adopted the 2020 Omnibus Plan, which was approved by the shareholders of the Company at the annual and special meeting of shareholders held on June 25, 2020.

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

The 2020 Omnibus Plan terminated the Company’s ability to grant equity awards under the 2018 Stock Option Plan and RSUs under the Employment Inducement Award Plan.

Options represent the right to purchase Company common shares on the date of exercise at a stated exercise price.

The exercise price of an option generally must be at least equal to the fair market value of the Company common shares on the date of grant.

The Compensation Committee of the Board (“Compensation Committee”) may provide for options to be exercised only as they vest or to be immediately exercisable with any shares issued on exercise being subject to the Company’s right of repurchase that lapses as the shares vest.

Vesting conditions for grants of options are determined by the Compensation Committee.

4 unchanged sentences

The 2020 Omnibus Plan does not authorize grants of options with an exercise price below the Fair Market Value.

The equity plans described above have the following stock options outstanding:

Shares outstanding as of December 31,

2020 2019 2018

2020 Omnibus Plan 2,000,000 — —

2018 Stock Option Plan 1,627,715 1,817,287 285,000

2015 Stock Option Plan 10,127,433 12,332,215 12,617,995

Total stock options outstanding 13,755,148 14,149,502 12,902,995

For the year ended December 31, 2020, the total stock-based compensation expense associated with the equity plans was $ 7,185 (December 31, 2019 – $ 10,278 ;

December 31, 2018 - $ 8,151 ).

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

(ii) Summary of changes

The following is a summary of the changes in options during the year ended December 31, 2020 and December 31, 2019:

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

The following is a summary of the changes in options:

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

Issuance of options (i)

6.96 2,000,000

Issuance of options 9.19 900,000

Exercise of options 2.11 ( 5,598,695 )

2 unchanged sentences

Exercisable at December 31, 2021 $ 6.69 5,836,616 1.37

(i) The weighted average exercise price reflects the conversion of foreign currency-denominated options at the exchange rates as of December 31, 2020.

For foreign currency-denominated options, the weighted average exercise prices are translated using exchange rates as of the settlement date.

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

Weighted average exercise price (C$) (i)

Number of options Weighted average remaining contractual term (years)

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

4 unchanged sentences

Exercisable at December 31, 2020 $ 3.75 9,643,682 1.34

(iii) Fair value of options issued

(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.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

For the years ended December 31, 2021 and 2020, the fair value per option at grant date was C$ 6.39 and C$ 4.84 , respectively.

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

Share price at grant date (per share) C$ 9.19 C$ 6.96

Exercise price (per option) (i)

C$ 6.96 C$ 15.34 – $ 24.75

Exercise price (per option) C$ 9.19 C$ 6.96

Risk-free interest rate 1.39 % 0.43 %

Expected life of options (in years) (ii)

Expected life of options (in years) (i)

Expected annualized volatility 75 % 91 %

2 unchanged sentences

Forfeiture rate — —

(i) The weighted average exercise price reflects the conversion of foreign currency-denominated options at the exchange rates as of December 31, 2020.

For foreign currency-denominated options, the weighted average exercise prices are translated using exchange rates as of the settlement date.

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

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

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

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

The weighted average fair value per share at grant date of the options during the year ended December 31, 2020 was C$ 4.84 per share (December 31, 2019 – C$ 13.03 per share).

The following table summarizes stock options outstanding:

Options outstanding as of December 31,

2021 2020 2019

2020 Omnibus Plan 2,900,000 2,000,000 —

2018 Stock Option Plan 1,550,074 1,627,715 1,817,287

2015 Stock Option Plan 4,489,256 10,127,433 12,332,215

Total stock options outstanding 8,939,330 13,755,148 14,149,502

2 unchanged sentences

Fair value is determined using the closing price of the trading day immediately preceding the date of grant.

RSUs issued under the 2020 Omnibus Plan typically vest over a three-year period following the grant date, have no performance requirements and no forfeiture rate.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

RSUs issued under the 2020 Omnibus Plan typically vest over a three-year period following the grant date and have no performance requirements.

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

In connection with such separation agreements, 732,972 outstanding and unvested RSUs were accelerated and vested during the year ended December 31, 2020.

For the year ended December 31, 2020, the Company recorded $ 8,176 (December 31, 2019 – $ 889 ) in share-based compensation expense related to these RSUs.

No RSUs were granted in 2018.

In connection with such separation agreements, 732,972 outstanding and unvested RSUs granted under the Employment Inducement Award Plan were accelerated and vested during the year ended December 31, 2020.

The following is a summary of the changes in RSUs:

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

Weighted average grant date fair value (C$) (ii)

Number of RSUs

Balance at January 1, 2021 $ 7.66 948,357

Granted 957,854 7.66

Exercised ( 732,972 ) 15.34

11.06 576,876

Vested and issued 7.57 ( 158,178 )

Cancellation and forfeitures 8.03 ( 141,185 )

Balance at December 31, 2021 $ 9.22 1,225,870

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

Weighted average grant date fair value (C$) (ii)

Number of RSUs

Balance at January 1, 2020 $ 15.34 732,972

Granted 732,972 15.34

Vested and issued 15.34 ( 732,972 )

Cancellation and forfeitures 7.52 ( 9,497 )

Balance at December 31, 2020 $ 7.66 948,357

(i) RSUs granted in the period vest annually in equal installments over a three-year period from either the grant date or after a three or five year “cliff-period.” All RSUs are 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.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

(d) Deferred share units

On August 10, 2019, the Company established a cash-settled deferred share unit plan (“DSU Plan”) pursuant to which its non-executive directors receive deferred share units (“DSUs”).

On August 10, 2019, the Company established the DSU Plan pursuant to which its non-executive directors receive DSUs for Board services.

The DSU Plan is designed to promote a greater alignment of long-term interests between non-executive directors and shareholders.

3 unchanged sentences

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

No DSUs were granted during 2018.

The following is a summary of the changes in DSUs:

Number of DSUs Financial liability

Financial liability Number of DSUs

Balance at January 1, 2021 $ 577 83,293

1 unchanged sentence

Liabilities settled ( 203 ) ( 27,764 )

Loss (gain) on revaluation — 30

Gain on revaluation ( 320 ) —

Balance at December 31, 2021 $ 408 104,442

Number of DSUs Financial liability

Financial liability Number of DSUs

Balance at January 1, 2020 $ 255 $ 33,397

Granting and vesting of DSUs 338 58,380

Loss (gain) on revaluation — ( 197 )

Liabilities settled ( 46 ) ( 8,484 )

Loss on revaluation 30 —

Balance at December 31, 2020 $ 577 $ 83,293

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

Earnings (loss) Per Share

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

2020 2019 2018

Basic earnings (loss) per share computation

Income (loss) from continuing operations attributable to common shareholders of Cronos Group $ ( 72,487 ) $ 1,166,869 $ ( 20,742 )

Weighted average number of common shares outstanding 351,576,848 310,067,179 172,269,170

Basic earnings (loss) per share $ ( 0.21 ) $ 3.76 $ ( 0.12 )

Diluted earnings (loss) per share computation

Income (loss) from continuing operations used in the computation of basic earnings (loss) per share $ ( 72,487 ) $ 1,166,869 $ ( 20,742 )

Adjustment for gain on revaluation of derivative liabilities — ( 24,416 ) —

Income (loss) from continuing operations used in the computation of diluted income (loss) per share ( 72,487 ) 1,142,453 ( 20,742 )

Weighted average number of common shares outstanding used in the computation of basic earnings (loss) per share 351,576,848 310,067,179 172,269,170

Dilutive effect of warrants — 19,481,352 —

Dilutive effect of stock options — 10,649,487 —

Dilutive effect of restricted share units — 732,972 —

Dilutive effect of Altria Warrant — — —

Dilutive effect of Top-up Rights – exercised and exercisable fixed price — 1,881,002 —

Weighted average number of common shares for computation of diluted income (loss) per share 351,576,848 342,811,992 172,269,170

Diluted earnings (loss) per share (i)

$ ( 0.21 ) $ 3.33 $ ( 0.12 )

(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.

Basic and diluted loss per share from discontinued operations are calculated using the following numerators and denominators:

2020 2019 2018

Basic loss from discontinued operations per share computation

Loss from discontinued operations attributable to common shareholders of Cronos Group $ ( 650 ) $ ( 363 ) $ ( 894 )

Weighted average number of common shares outstanding 351,576,848 310,067,179 172,269,170

Basic loss from discontinued operations per share (i)

$ 0.00 $ 0.00 $ ( 0.01 )

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.

2020 2019 2018

Ginkgo Equity Milestones 14,674,904 14,674,904 —

Pre-emptive Rights 11,534,475 12,006,740 —

Top-up Rights – fixed price

17,214,621 25,103,456 —

Top-up Rights – market price

3,413,065 1,255,223 —

Altria Warrant 80,056,296 77,514,993 —

Warrants 15,147,116 — 25,457,623

Stock options 9,218,674 1,315,787 12,902,995

Restricted share units 79,611 — —

Total anti-dilutive securities 151,338,762 131,871,103 38,360,618

The following is a summary of the changes in warrants:

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 December 31, 2021 $ — —

Weighted average exercise price (C$) Number of warrants

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

Exercise of warrants 0.27 ( 10,079,313 )

Balance as of December 31, 2020 $ 0.25 7,987,349

As of December 31, 2021, there are no warrants outstanding other than the Altria Warrant.

See Note 8 “ Derivative Liabilities ” for further description of the Altria Warrant.

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

Accumulated Other Comprehensive Income (Loss)

The following is a continuity schedule of accumulated other comprehensive income (loss):

2020 2019 2018

Net unrealized gain (loss) on revaluation and disposal of other investments

Balance at January 1 $ 5 $ 5 $ 446

Cumulative effect from adoption of ASU 2016-01 — — ( 444 )

Net unrealized (loss) gain — — 3

Balance at December 31 5 5 5

Net foreign exchange gain (loss) on translation of foreign operations

Balance at January 1 27,833 ( 9,875 ) 2,456

Net unrealized (loss) gain 15,161 37,708 ( 12,331 )

Balance at December 31 42,994 27,833 ( 9,875 )

Total other comprehensive income (loss) $ 42,999 $ 27,838 $ ( 9,870 )

dollars, except for share amounts)

For financial reporting purposes, income (loss) from continuing operations before income taxes includes the following components:

4 unchanged sentences

Total $ ( 397,135 ) $ ( 73,273 ) $ 1,165,937

The loss before income taxes above excludes losses from discontinued operations of $ 650 for the year ended December 31, 2020 (December 31, 2019 – $ 363 ;

December 31, 2018 – $ 894 ).

Income tax expense consists of the following components:

The loss before income taxes above excludes losses from discontinued operations of $ 500 , $ 650 and $ 363 for the year ended December 31, 2021, 2020 and 2019, respectively.

Income tax expense (benefit) consists of the following components:

Year ended December 31,

6 unchanged sentences

Total $ 40 $ — $ —

Included in accounts payable and other liabilities as of December 31, 2020 is $ 865 (December 31, 2019 – $ nil ;

December 31, 2018 – $ nil ) related to current income tax expense above.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

Included in accounts payable and other liabilities as of December 31, 2021, 2020 and 2019 is $ 105 , $ 865 and $ nil , respectively, related to current income tax expense.

Included in other receivables as of December 31, 2021, 2020 and 2019 is $ 543 , $ nil and $ nil , respectively, related to current income tax benefits.

Income tax differs from that computed using the combined Canadian federal and provincial statutory income tax rate of 26.5 %.

Reconciliation of the expected income tax to the effective tax rate in continuing operations is as follows:

Year ended December 31,

2021 2020 2019

11 unchanged sentences

Other 476 867 632

Income tax expense (recovery), net $ 1,347 $ — $ —

Income tax expense (benefit), net $ ( 431 ) $ 1,347 $ —

The valuation allowance recorded against the loss on discontinued operations is not reflected in the effective tax rate reconciliation presented above for continuing operations.

The following table summarizes the significant components of the Company’s deferred tax assets and liabilities as of December 31, 2020 and December 31, 2019:

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

The following table summarizes the significant components of the Company’s deferred tax assets and liabilities:

As of December 31,

Deferred assets:

13 unchanged sentences

Deferred tax liabilities:

Inventory — ( 1,227 )

Plant and equipment — —

Intangible assets — ( 2,126 )

Investment — —

License ( 1,662 ) ( 293 )

Health Canada license — ( 1,662 )

Right-of-use assets ( 1,860 ) ( 1,943 )

Unrealized foreign exchange ( 483 ) —

Total deferred tax liabilities ( 2,343 ) ( 3,605 )

Net deferred tax liability $ ( 40 ) $ —

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

The realization of deferred tax assets is dependent on the Company’s generating sufficient taxable income in the years that the temporary differences become deductible.

13 unchanged sentences

These open years contain certain matters that could be subject to differing interpretations of applicable tax laws and regulations and tax treaties, as they relate to the amount, timing, or inclusion of revenue and expense.

As of December 31, 2021, Peace Naturals is under examination with the Canadian Reserve Agency for tax years 2019 and 2020.

Jurisdiction Open Years

3 unchanged sentences

The following table outlines the movements in the valuation allowance:

Balance at beginning of year Change due to foreign exchange Increase Balance at end of year

Balance at beginning of year Foreign exchange effect Increase Balance at end of year

Year ended December 31, 2021 $ ( 85,935 ) $ 2,798 $ ( 141,639 ) $ ( 224,776 )

Year ended December 31, 2020 ( 36,948 ) ( 693 ) ( 48,294 ) ( 85,935 )

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

As of December 31, 2021 and December 31, 2020, the Company recorded a valuation allowance of $ 224,776 and $ 85,935 , respectively.

The valuation allowance increased by $ 141,639 and $ 48,294 during the years ended December 31, 2021 and December 31, 2020, respectively.

The increase in the valuation allowance during the years ended December 31, 2020 and December 31, 2019 was primarily due to an increase in net operating loss carryforwards, the utilization of which did not meet the more-likely-than-not recognition threshold.

The increase in the valuation allowance during the years ended December 31, 2021 and December 31, 2020 was primarily due to an increase in net operating loss carryforwards.

Accounting guidance clarifies the accounting for uncertain tax positions and prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return.

Additionally, the authoritative guidance addresses the de-recognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions.

Additionally, the authoritative guidance addresses the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions.

Only tax positions that meet the more-likely-than-not recognition threshold may be recognized.

There were no identified unrecognized tax benefits as of December 31, 2021 or December 31, 2020.

The Company considers all earnings and profits of its subsidiaries outside Canada to be indefinitely reinvested.

As of December 31, 2020 and December 31, 2019, the amount of undistributed earnings upon which income taxes have not been provided is immaterial to these consolidated financial statements.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

(a) Lease Commitments

The following is a summary of the Company’s future minimum lease payments under operating leases for its premises due in future fiscal years:

As of December 31,

2026 and thereafter 1,916

In addition to the minimum lease payments, the Company is required to pay realty taxes and other occupancy costs in accordance with the terms of the lease agreements.

(b) R&D commitments

On September 4, 2018, the Company announced an R&D partnership with Ginkgo Bioworks Inc.

(“Ginkgo”) to develop scalable and consistent production of eight target cannabinoids, including THC, CBD and a variety of other lesser known and rarer cannabinoids.

(ii) Technion.

On October 15, 2018, the Company entered into a sponsored research agreement with the Technion Research and Development Foundation of the Technion – Israel Institute of Technology (“Technion”).

Research is focused on the use of cannabinoids and their role in regulating skin health and skin disorders.

The Company has committed to $ 1,784 of research funding over a period of three years .

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

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

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

The Company will also pay all third-party direct charges incurred during the monthly period in connection with the services, including any reasonable and documented costs, fees and expenses associated with obtaining any consent, license or permit.

The Services Agreement will remain in effect until terminated by either party.

(d) Use of publicity rights in brand development

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

The issuance did not involve a public offering and was made without general solicitation or advertising.

The total fair value of the consideration paid for the issuance of such common shares was approximately $ 6,000 .

The fair value of the shares was calculated using the 10 -day volume weighted average price per share of the Company’s common shares on Nasdaq.

Additional restricted common shares are issued when certain performance milestones are achieved:

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

(i) First Performance Issuance:

if, prior to December 23, 2022, the product line generates at least $ 50,000 in net revenue, additional common shares with an aggregate value of $ 1,000 will be issued.

(ii) Second Performance Issuance:

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.

(a) Class action complaints relating to restatement

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

District Court for the Eastern District of New York against the Company and its former Chief Executive Officer (now Executive Chairman) and Chief Financial Officer.

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 March 2, 2020 disclosure that the Audit Committee of the Board 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.

The consolidated amended complaint does not quantify a damage request.

Defendants moved to dismiss on February 8, 2021.

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 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 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.

(b) Regulatory reviews relating to restatement

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.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

On December 4, 2020, a Third Amended Statement of Claim was filed, which added a second alleged consumer.

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.

hemp products.

The complaint did not quantify a damage request.

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 Annual Report, the plaintiff has not refiled the complaint.

Supplementary Cash Flow Information

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

Year ended December 31,

2020 2019 2018

Accounts receivable $ ( 4,724 ) $ ( 702 ) $ ( 2,569 )

Prepaids and other receivables ( 5,300 ) ( 10,509 ) ( 2,382 )

Current portion of loans receivable — ( 4,585 ) —

Inventory ( 28,094 ) ( 51,888 ) ( 4,092 )

Accounts payable and other liabilities 4,175 13,476 12,705

Total $ ( 33,943 ) $ ( 54,208 ) $ 3,662

Financial Instruments

The Company’s activities expose it to a variety of financial risks, including credit risk, liquidity risk, and market risk (including interest rate risk) and foreign currency risk.

(a) 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, loan receivable, and advances to joint ventures.

The Company’s maximum exposure to this risk is equal to the carrying amount of these financial assets, which amounted to $ 1,403,491 as of December 31, 2020 (December 31, 2019 – $ 1,586,978 ).

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

(i) Accounts receivable

The Company had accounts receivable of $ 8,928 as of December 31, 2020 (December 31, 2019 – $ 4,638 ).

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, amongst others, the failure of a debtor to engage in a repayment plan, and a failure to make contractual payments for a period of greater than 120 days past due.

For the year ended December 31, 2020, the Company recognized an approximate CECL of $ 74 (December 31, 2019 – $ 136 ).

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

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

The Company held cash and cash equivalents of $ 1,078,023 at December 31, 2020 (December 31, 2019 – $ 1,199,693 ).

The short-term investments and related interest receivable of $ 211,766 (December 31, 2019 – $ 306,347 ) represents short-term investments with a maturity of less than a year and accrued interest as of December 31, 2020.

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.

(iii) Advances to joint ventures

The Company had advances to joint ventures of $ 467 as of December 31, 2020 (December 31, 2019 – $ 19,437 ).

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

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

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

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

(b) 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 had accounts payable of $ 12,107 as of December 31, 2020 (December 31, 2019 – $ 9,194 ).

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 is primarily provided in the form of capital raised through the issuance of common shares and warrants.

As of December 31, 2020, 64 % of the Company’s payables were due to four vendors (December 31, 2019 – 42 % due to three vendors).

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.

The Company manages risk by having a portfolio of securities from multiple issuers, such that the Company was not materially exposed to any one issuer.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

(d) 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.

During the year ended December 31, 2020, the Company had net interest income of $ 18,415 (December 31, 2019 – $ 27,969 ).

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

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

During the year ended December 31, 2020, the Company’s average variable interest rate fell 1.49 %, which resulted in a decrease of net interest income of $ 15,671 in the period.

During the year ended December 31, 2019, the Company’s average variable interest rate did not materially change.

(e) Currency rate 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 advances to joint ventures 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.

As of December 31, 2020, the Company had foreign currency gain (loss) on translation of $ 14,951 (December 31, 2019 – $ 37,687 ).

A 10% change in the exchange rates for the foreign currencies would affect the carrying value of net assets by approximately $ 170,817 as of December 31, 2020 (December 31, 2019 – $ 174,902 ).

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.

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

As of 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

As of December 31, 2019

Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 1,199,693 $ — $ — $ 1,199,693

Short-term investments 306,347 — — 306,347

Derivative liabilities — — 297,160 297,160

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

Related Party Transactions and Balances

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

The Company incurred the following expenses for consulting services from Altria Pinnacle LLC, a subsidiary of Altria (“Altria Pinnacle”):

Year ended December 31,

Altria Pinnacle – expense

$ 1,199 $ 3,479

Total $ 1,199 $ 3,479

No expenses for consulting services from Altria Pinnacle during the year ended December 31, 2018.

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

As of December 31,

Altria Pinnacle – payable

Total $ — $ 1,152

During 2019, the Company purchased machinery and equipment amounting to $ 1,258 from a subsidiary of Altria, which was fully paid for during the year.

Refer to Note 14 for further information on the derivative liabilities related to the Altria Investment.

There were no other material related party transactions during the years ended December 31, 2020, December 31, 2019 and December 31, 2018.

Non-monetary Transactions

The Company had no non-monetary transactions during the year ended December 31, 2020 or 2018.

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

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

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

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

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

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

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

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

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

Business Combinations

On September 5, 2019, the Company closed the Redwood Acquisition.

Redwood manufactures, markets and distributes U.S.

hemp-derived supplements and cosmetics product through e-commerce, retail and hospitality channels in the U.S.

under the brand Lord Jones™.

Redwood’s products use high quality U.S.

hemp extract that retains naturally occurring phytocannabinoids and terpenes found in the plant.

The Company plans to leverage Redwood’s capabilities to capitalize on the significant demand to further create and scale U.S.

hemp-derived consumer products and brands.

In 2019, the Company acquired all the issued and outstanding shares of each of the four Redwood operating subsidiaries for an aggregate consideration of $ 283,300 , which included $ 227,191 in cash and 5,086,586 common shares of the Company with a fair value of $ 56,109 .

The fair value of the shares issued as part of the consideration paid was based on the volume weighted average trading price of the common shares on Nasdaq on each of the ten consecutive trading days prior to the date of the Membership Interest Purchase Agreement dated August 1, 2019 (the “MIPA”), by and among the Company, Redwood Holding Group, LLC, and certain Key Persons solely for the purposes as described in the MIPA, at C$ 14.74 per share.

The Redwood Acquisition was unanimously approved by the board of directors of Redwood Holdings Group, LLC and by the Board following the unanimous recommendation of a special committee of independent directors (“Special Committee”).

A Special Committee composed entirely of independent directors of the Company was formed to evaluate and make recommendations to the Board since one of our directors, Jason Adler, and Michael Gorenstein, our Executive Chairman and former President and Chief Executive Officer, each held an indirect interest in Redwood Holding Group, LLC by way of their interest in certain funds affiliated with Gotham Green Partners, which funds were equity holders in Redwood Holding Group, LLC.

Jason Adler is the co-founder and Managing Member of Gotham Green Partners, a private equity firm focused primarily on early-stage investing in companies in the cannabis industry, and Michael Gorenstein is a co-founder and non-managing Member of Gotham Green Partners.

The Special Committee engaged Perella Weinberg Partners LP as financial advisor.

The Redwood Acquisition was accounted for as a business combination as defined in ASC 805 Business Combinations.

As a result of the change in control of Redwood, the assets and liabilities of Redwood are recorded at fair value in the consolidated financial statements of the Company.

The following table summarizes the Company’s finalized allocation of the purchase price to assets acquired and liabilities assumed at the acquisition date.

September 5, 2019

Fair value of net assets acquired

Accounts receivable (i)

Prepaid expenses and other assets 265

Inventory 2,806

Property and equipment 1,890

Right-of-use assets 3,533

Intangible assets (ii)

Goodwill 213,414

Accounts payable and accrued liabilities ( 2,688 )

Lease obligations ( 3,500 )

(i) The fair value of acquired accounts receivable is $ 647 .

No loss allowance was recognized on acquisition.

(ii) Intangible assets include the fair value of brand name of $ 64,000 , the remaining balance relates to software.

For the year ended December 31, 2019, acquisition-related costs of $ 8,531 were expensed.

These costs are included in the consolidated statement of net income (loss) in financing and transaction costs.

The goodwill recognized represents the excess over the fair value of the net tangible and intangible assets acquired as a part of the Redwood acquisition.

This goodwill is attributable to the expertise and reputation of the assembled workforce acquired, the expected synergies, and other intangible assets that do not qualify for separate recognition.

The goodwill is no t deductible for income tax purposes.

The Relief-from-Royalty Method was used to value the intangible asset relating to the Lord Jones™ brand.

Significant inputs include discount rate, growth rates, and cash flow projections.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

During the period from September 5, 2019 to December 31, 2019, the Company recognized $ 3,364 in revenues and a net loss of $ 2,613 from Redwood operations.

If the acquisition had occurred on January 1, 2019, the Company estimates that for the year ended December 31, 2019, it would have recorded an increase of $ 12,266 in revenues and a decrease of $ 1,112 in net income and that for the year ended December 31, 2018, it would have recorded an increase of $ 7,630 in revenues and an increase of $ 1,533 in net income.

There were no business combinations during the years ended December 31, 2020 or December 31, 2018.

Repurposing Charges

During the year ended December 31, 2019, the Company commenced initiatives to better align its evolving business and its strategy.

Certain facilities at the Peace Naturals campus were repurposed from cultivation activities to provide for the following activities:

additional R&D activities focused on new technologies for value-added product manufacturing;

production and manufacturing of derivative products;

and increased vault and warehousing capabilities.

The activities associated with the repurposing were completed as of December 31, 2019.

The following table presents information associated with this plan:

Year ended December 31, 2019

Employee termination benefits $ 889

Impairment costs associated with plan 4,439

During the year ended December 31, 2019, an inventory write-down associated with the repurposing cost of $ 1,940 was included as part of inventory write-down on the consolidated statements of net income (loss) and comprehensive income (loss).

The Company did not incur any further significant costs related to the repurposing activities.

No repurposing costs were incurred during the years ended December 31, 2020 or December 31, 2018.

As of December 31, 2020, there was no accrued liability associated with the Company’s repurposing initiative (December 31, 2019 - $ 907 ).

All repurposing related charges were incurred within the Rest of World segment.

Segment Information

As of December 31, 2021 and 2020, deferred income taxes have not been provided for any undistributed earnings from operations outside of Canada.

The foreign subsidiaries have accumulated losses and as such the amount of undistributed earnings upon which income taxes have not been provided is immaterial to these consolidated financial statements.

Segment Information and Disaggregated Net Revenue

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.

1 unchanged sentence

United States and Rest of World.

The United States operating segment consists of the manufacture and distribution of hemp-derived CBD infused products.

The United States operating segment consists of the manufacture and distribution of U.S.

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 .

2 unchanged sentences

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.

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

The operating segments are presented in accordance with the same criteria used for internal reporting prepared for the CODMs.

Inter-segment transactions are recorded at the stated values as agreed to by the segments.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

Segment data was as follows for the year ended December 31, 2020:

Adjusted EBITDA is defined as earnings before interest, tax, depreciation, non-cash items and items that do not reflect management’s assessment of ongoing business performance.

The tables below set forth our consolidated results of operations by segment:

Year ended December 31, 2021

United States Rest of World Corporate Total

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

Cannabis flower $ — $ 55,194 $ — $ 55,194

2 unchanged sentences

Net revenue 9,874 64,561 — 74,435

Share of loss from equity accounted investees — ( 4,510 ) — ( 4,510 )

Interest revenue 16 18,585 — 18,601

Share of loss from equity accounted investments — 6,313 — 6,313

Interest income 40 9,058 — 9,098

Interest expense — ( 27 ) — ( 27 )

Interest income (expense), net 40 9,031 — 9,071

Total assets 462,830 273,484 661,424 1,397,738

Depreciation and amortization 295 4,189 — 4,484

Income tax expense 323 1,024 — 1,347

Impairment loss on goodwill and indefinite-lived assets 236,019 37 — 236,056

Impairment loss on long-lived assets 2,955 124,664 — 127,619

Loss from discontinued operations — ( 500 ) — ( 500 )

Adjusted EBITDA ( 40,717 ) ( 99,139 ) ( 20,607 ) ( 160,463 )

Consolidated balance sheets

Total assets 253,745 388,351 1,283,586 1,925,682

Investments in equity accounted investees — 19,235 — 19,235

Goodwill 178,414 1,108 — 179,522

Purchase of property, plant and equipment 385 31,027 — 31,412

Segment data was as follows for the year ended December 31, 2019:

Purchase of property, plant and equipment, net 776 10,368 — 11,144

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

Year ended December 31, 2020

United States Rest of World Corporate Total

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

Cannabis flower $ — $ 27,932 $ — $ 27,932

3 unchanged sentences

Share of loss from equity accounted investees — 4,510 — 4,510

Interest revenue 6 29,207 — 29,213

Interest income 16 18,585 — 18,601

Interest expense ( 34 ) ( 152 ) — ( 186 )

Interest income, net ( 18 ) 18,433 — 18,415

Total assets 253,745 388,351 1,283,586 1,925,682

Depreciation and amortization 234 2,638 — 2,872

Income tax expense — — — —

Impairment loss on goodwill and indefinite-lived assets 40,000 — — 40,000

Loss from discontinued operations — ( 650 ) — ( 650 )

Adjusted EBITDA ( 28,019 ) ( 98,349 ) ( 20,885 ) ( 147,253 )

Consolidated balance sheets

Total assets 293,985 309,854 1,486,603 2,090,442

Investments in equity accounted investees — 557 — 557

Goodwill 213,414 1,078 — 214,492

Purchase of property, plant and equipment 259 38,405 — 38,664

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2020, 2019, and 2018

(In thousands of U.S.

dollars, except for gram and share amounts)

Segment data was as follows for the year ended December 31, 2018:

Purchase of property, plant and equipment, net 385 31,027 — 31,412

Year ended December 31, 2019

United States Rest of World Corporate Total

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

Cannabis flower $ — $ 15,020 $ — $ 15,020

3 unchanged sentences

Share of loss from equity accounted investees — 2,009 — 2,009

Interest revenue — 220 — 220

Interest income 6 29,207 — 29,213

Interest expense — ( 1,244 ) — ( 1,244 )

Interest income, net 6 27,963 — 27,969

Total assets 293,985 309,854 1,486,603 2,090,442

Depreciation and amortization 46 2,044 — 2,090

Income tax expense — — — —

Loss from discontinued operations — ( 363 ) — ( 363 )

Adjusted EBITDA ( 1,703 ) ( 84,826 ) ( 11,779 ) ( 98,308 )

Consolidated balance sheets

Total assets — 183,471 — 183,471

Investments in equity accounted investees — 2,960 — 2,960

Goodwill — 1,314 — 1,314

Purchase of property, plant and equipment — 88,308 — 88,308

Adjusted EBITDA is reconciled to net income (loss) as follows for the years ended December 31, 2020, 2019 and 2018:

Purchase of property, plant and equipment, net 259 38,405 — 38,664

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

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:

(in thousands of U.S.

dollars) Year ended December 31, 2021

US ROW Corporate

Expenses Total

US ROW Corporate Total

Net income (loss) $ ( 283,883 ) $ ( 81,811 ) $ ( 31,510 ) $ ( 397,204 )

Interest income, net ( 40 ) ( 9,031 ) — ( 9,071 )

Income tax benefit ( 89 ) ( 342 ) — ( 431 )

Share of loss from equity accounted investments — 6,313 — 6,313

Impairment loss on goodwill and indefinite-lived intangible assets (i)

236,019 37 — 236,056

Impairment loss on long-lived assets (ii)

2,955 124,664 — 127,619

Gain on revaluation of derivative liabilities (iii)

— ( 151,360 ) — ( 151,360 )

Gain on revaluation of financial instruments (iv)

— ( 8,611 ) — ( 8,611 )

Transaction costs (v)

— — 3,801 3,801

Other, net (vii)

3 ( 733 ) — ( 730 )

Loss from discontinued operations (viii)

Share-based payments (ix)

3,401 6,750 — 10,151

Financial statement review costs (x)

— — 7,102 7,102

Depreciation and amortization 917 14,485 — 15,402

Adjusted EBITDA $ ( 40,717 ) $ ( 99,139 ) $ ( 20,607 ) $ ( 160,463 )

(in thousands of U.S.

dollars) Year ended December 31, 2020

US ROW Corporate Total

Net income (loss) $ ( 77,368 ) $ 32,671 $ ( 30,573 ) $ ( 75,270 )

Interest expense (income), net 18 ( 18,433 ) — ( 18,415 )

Income tax expense 323 1,024 — 1,347

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

Financing and transaction costs 40 — — 40

Gain on revaluation of derivative liabilities — ( 129,254 ) — ( 129,254 )

Gain on disposal of other investments — ( 4,789 ) — ( 4,789 )

Share of loss from equity accounted investees — 4,510 — 4,510

Loss from discontinued operations — 650 — 650

Other loss (income) 20 1,814 — 1,834

Review costs related to restatement of 2019 interim financial statements — — 9,688 9,688

Share-based payments 8,714 6,647 — 15,361

Adjusted EBIT ( 28,253 ) ( 105,160 ) ( 20,885 ) ( 154,298 )

Share of loss from equity accounted investments — 4,510 — 4,510

Impairment loss on goodwill and indefinite-lived intangible assets (i)

40,000 — — 40,000

Gain on revaluation of derivative liabilities (iii)

— ( 129,254 ) — ( 129,254 )

Loss on revaluation of financial instruments (iv)

Transaction costs (v)

Gain on disposal of other investments (vi)

— ( 4,789 ) — ( 4,789 )

Other, net (vii)

20 1,805 — 1,825

Loss from discontinued operations (viii)

Share-based payments (ix)

8,714 6,647 — 15,361

Financial statement review costs (x)

— — 9,688 9,688

Depreciation and amortization 234 6,811 — 7,045

4 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

dollars, except for share amounts)

(in thousands of U.S.

dollars) Year ended December 31, 2019

US ROW Corporate

Expenses Total

US ROW Corporate Total

Net income (loss) $ ( 2,888 ) $ 1,180,241 $ ( 11,779 ) $ 1,165,574

Interest income, net ( 6 ) ( 27,963 ) — ( 27,969 )

Impairment loss on goodwill and intangible assets — — — —

Repurposing charges — 7,268 — 7,268

Financing and transaction costs 117 32,091 — 32,208

Gain on revaluation of derivative liabilities — ( 1,276,819 ) — ( 1,276,819 )

Gain on disposal of other investments — ( 16,277 ) — ( 16,277 )

Share of loss from equity accounted investees — 2,009 — 2,009

Loss from discontinued operations — 363 — 363

Other loss (income) 182 ( 197 ) ( 182 ) ( 197 )

Share-based payments 900 10,719 — 11,619

Adjusted EBIT ( 1,877 ) ( 88,565 ) ( 11,779 ) ( 102,221 )

Share of loss from equity accounted investments — 2,009 — 2,009

Gain on revaluation of derivative liabilities (iii)

— ( 1,276,819 ) — ( 1,276,819 )

Gain on revaluation of financial instruments (iv)

— ( 197 ) — ( 197 )

Transaction costs (v)

117 32,091 — 32,208

Gain on disposal of investments (vi)

— ( 16,277 ) — ( 16,277 )

Loss from discontinued operations (viii)

Share-based payments (ix)

900 10,719 — 11,619

Depreciation and amortization 174 3,739 — 3,913

Adjusted EBITDA $ ( 1,703 ) $ ( 84,826 ) $ ( 11,779 ) $ ( 98,308 )

(in thousands of U.S.

dollars) Year ended December 31, 2018

Net income (loss) $ ( 21,817 )

Interest income, net ( 81 )

Loss (gain) on disposal of other investments ( 164 )

Share of loss (income) from equity accounted investees 723

Loss from discontinued operations 894

(i) For the year ended December 31, 2021, impairment loss on goodwill and indefinite-lived intangible assets relates to impairment on goodwill and intangible assets related to our U.S.

segment and impairment on an indefinite-lived trademark related to the ROW segment.

For the year ended December 31, 2020, impairment loss on goodwill and indefinite-lived intangible assets relates to impairment on goodwill and intangible assets related to the U.S.

See Note 6 “ Goodwill and Intangible Assets, net .”

(ii) For the year ended December 31, 2021, impairment loss on long-lived assets relates to impairment charges on property, plant and equipment and definite-lived intangible assets in the Canadian asset group, impairment charges for the differences between the consideration paid to Ginkgo for the achievement of two equity milestones in connection with the Ginkgo Collaboration Agreement and the fair values of the CBGA Exclusive License and CBGVA Exclusive License as well as impairment on leased premises in the U.S.

See Note 5 “ Property, Plant and Equipment, net ” and Note 6 “ Goodwill and Intangible Assets, net .”

(iii) For the years ended December 31, 2021, 2020 and 2019, the gain on revaluation of derivative liabilities represents the fair value changes on the derivative liabilities.

See Note 8 “ Derivative Liabilities .”

(iv) For the year ended December 31, 2021, gain on revaluation of financial instruments relates primarily to the Company’s unrealized holding gain on its mark-to-market investment in Cronos Australia as well as revaluations of financial liabilities resulting from DSUs.

For the years ended December 31, 2020 and 2019, gain (loss) on revaluation of financial instruments relates to revaluations of financial liabilities resulting from DSUs.

See Note 3 “ Investments .”

(v) For the years ended December 31, 2021, 2020 and 2019, transaction costs represent 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 consolidated statements of net income (loss) and comprehensive income (loss).

(vi) For the years ended December 31, 2020 and 2019, gain on disposal of investments is primarily comprised of the gain recorded related to the sale of common shares of Aurora, which were received in connection with the achievement of a milestone related to the Whistler Transaction in 2020 and as a result of the closing of the Whistler Transaction in 2019.

See Note 3 “ Investments .”

(vii) For the years ended December 31, 2021 and 2020, other, net is primarily related to (gain) loss on reclassification of held-for-sale assets and (gain) loss on disposal of assets.

(viii) For the years ended December 31, 2021, 2020 and 2019, loss from discontinued operations relates to the discontinuance of OGBC.

See Note 16 “ Held-For-Sale Assets and Discontinued Operations .”

(ix) For the years ended December 31, 2021, 2020 and 2019, 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 10.

“ Share-based Payments .”

Adjusted EBIT ( 12,294 )

Depreciation and amortization 1,937

Adjusted EBITDA $ ( 10,357 )

Sources of net revenue were as follows:

Year ended December 31,

Cannabis flower $ 27,932 $ 15,020

Cannabis extracts 18,254 8,702

Net revenue $ 46,719 $ 23,750

(x) For the years ended December 31, 2021 and 2020, financial statement review costs include costs related to the restatements of the Company’s 2019 interim financial statements and second quarter 2021 interim financial statements, costs related to the Company’s responses to requests for information from various regulatory authorities relating to such restatements and legal costs defending shareholder class action complaints brought against the Company as a result of the 2019 restatement.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

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

1 unchanged sentence

Canada $ 50,294 $ 34,538

Israel 13,376 2,539

United States 9,874 9,495

Other countries 891 147

Net revenue $ 74,435 $ 46,719

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

As of December 31,

Canada $ 49,117 $ 162,163

United States 480 2,293

Israel 24,473 23,143

Total $ 74,070 $ 187,599

Earnings (Loss) per Share

Basic and diluted earnings (loss) per share from continued and discontinued operations are calculated as follows:

Year ended December 31,

2021 2020 2019

Basic earnings (loss) per share computation

Net income (loss) from continuing operations attributable to the shareholders of Cronos Group $ ( 395,607 ) $ ( 72,487 ) $ 1,166,869

Weighted-average number of common shares outstanding 370,390,965 351,576,848 310,067,179

Basic earnings (loss) from continuing operations per share $ ( 1.07 ) $ ( 0.21 ) $ 3.76

Loss from discontinued operations attributable to the shareholders of Cronos Group $ ( 500 ) $ ( 650 ) $ ( 363 )

Weighted-average number of common shares outstanding 370,390,965 351,576,848 310,067,179

Basic loss from discontinued operations per share $ — $ — $ —

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

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

As of December 31,

Canada $ 162,163 $ 139,160

United States 2,293 2,103

Other countries 23,143 18,685

Total $ 187,599 $ 159,948

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 annual revenues and greater than 10% of accounts receivable.

United States

During the years ended December 31, 2020 and December 31, 2019, the Company had no major customers in the U.S.

As of December 31, 2020, $ 65 in expected credit losses has been recognized on receivables from contract with customers (December 31, 2019 – $ 12 ).

Refer to Note 23(a).

Rest of World

During the year ended December 31, 2020, the Company earned a total net revenue before excise taxes of $ 34,295 from four major customers (December 31, 2019 – $ 7,597 ;

December 31, 2018 – $ 2,186 from two and one major customers, respectively), accounting for 63 % of the Company’s revenues (December 31, 2019 – 32 %;

December 31, 2018 – 17 %).

As of December 31, 2020, $ 9 (December 31, 2019 – $ 124 ;

December 31, 2018 – $ nil ) in expected credit losses has been recognized on receivables from contract with customers.

Refer to Note 23(a).

Discontinued Operations and Held-for-sale Assets

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.

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

Accordingly, the property, plant and equipment assets of OGBC are separately reported as assets and liabilities held-for-sale as of December 31, 2020 on the consolidated balance sheet.

For comparative purposes, amounts in the prior periods have been reclassified to conform to current year presentation, as disclosed below.

For the year ended December 31, 2020, the Company recorded $ 1,860 as a loss on held-for-sale assets, including $ 919 as a valuation allowance loss upon reclassification of property, plant and equipment assets as held-for-sale in Q3 2020, and a further $ 941 impairment charge on held-for-sale assets in Q4 2020 upon surrender of the OGBC Health Canada licenses.

OGBC was formerly included within the Rest of World segment.

The following table summarizes the financial information for discontinued operations as of December 31, 2020:

dollars, except for share amounts)

Year ended December 31,

2021 2020 2019

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

OGBC income (loss) from discontinued operations, net of income taxes $ ( 650 ) $ ( 363 ) $ ( 894 )

As of December 31,

Consolidated balance sheets

Long-term assets classified as discontinued operations $ 1,176 $ 3,248

Diluted earnings (loss) per share computation

Net income (loss) used in the computation of basic earnings (loss) from continuing operations per share $ ( 395,607 ) $ ( 72,487 ) $ 1,166,869

Adjustment for exercise of rights on derivative liabilities — — ( 24,416 )

Net income (loss) used in the computation of diluted earnings (loss) from continuing operations per share ( 395,607 ) ( 72,487 ) 1,142,453

Weighted-average number of common shares outstanding used in the computation of basic earnings (loss) per share 370,390,965 351,576,848 310,067,179

Dilutive effect of warrants — — 19,481,352

Dilutive effect of stock options — — 10,649,487

Dilutive effect of restricted share units — — 732,972

Dilutive effect of Top-up Rights - market price — — 1,881,002

Weighted-average number of common shares for computation of diluted earnings (loss) from continuing operations per share (i)

370,390,965 351,576,848 342,811,992

Diluted earnings (loss) per share from continuing operations $ ( 1.07 ) $ ( 0.21 ) $ 3.33

Loss from discontinued operations attributable to the shareholders of Cronos Group $ ( 500 ) $ ( 650 ) $ ( 363 )

Weighted-average number of common shares for computation of diluted earnings (loss) from discontinued operations per share 370,390,965 351,576,848 342,811,992

Diluted loss from discontinued operations per share $ 0.00 $ 0.00 $ 0.00

Total securities of 125,195,001 , 151,338,762 and 131,871,103 were not included in the computation of diluted shares outstanding for the years ended December 31, 2021, 2020 and 2019, respectively, because the effect would be anti-dilutive.

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.

Cronos Group Inc.

2 unchanged sentences

(In thousands of U.S.

dollars, except for gram and share amounts)

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

dollars, except for share amounts)

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

As of December 31, 2021

As previously disclosed Held-for-sale adjustment Adjusted balance

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

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

Goodwill 214,794 ( 302 ) 214,492

The following table presents a reconciliation of the major classes of line items constituting reported operating loss of discontinued operations to net loss of discontinued operations for the years ended December 31, 2019 and December 31, 2018:

Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 886,973 $ — $ — $ 886,973

Short-term investments 117,684 — — 117,684

Other investments (i)

8,000 — — 8,000

Derivative liabilities — — 14,375 14,375

As of 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

(i) On December 16, 2021, Cronos Australia closed their merger agreement to acquire CDA Health Pty Ltd, an Australian medicinal cannabis company.

In connection with the closing of the Cronos Australia Merger, the Company’s ownership interest in Cronos Australia decreased to approximately 10 % and the Company’s number of Cronos Australia board seats was reduced from two to one which constituted a loss of significant influence.

As such, the Company reclassified the investment from an investment in equity method investees under the equity method of accounting to an other investment under the fair value method of accounting.

See Note 3 “ Investments .”

There were no transfers between fair value categories during the periods presented.

(b) Financial risks

The Company’s activities expose it to a variety of financial risks, including credit risk, liquidity risk, market risk, interest rate risk, and foreign currency rate 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’s maximum exposure to this risk is equal to the carrying amount of these financial assets, which amounted to $ 1,118,684 and $ 1,403,491 as of December 31, 2021 and December 31, 2020, respectively.

(i) Accounts receivable

The Company had accounts receivable of $ 22,067 and $ 8,928 as of December 31, 2021 and December 31, 2020, respectively.

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.

Accounts receivable are written off when there is no reasonable expectation of recovery.

As of December 31, 2021, 2020 and 2019, the Company had $ 8 , $ 9 and $ 124 , respectively, in expected credit losses on receivables from contracts with customers in the Rest of World segment and $ 104 , $ 65 and $ 12 , respectively, in expected credit losses on receivables from contracts with customers in the U.S.

As of December 31, 2021, the Company has assessed that there is a concentration of credit risk as 88 % 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.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

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.

During the year ended December 31, 2021, the Company earned a total net revenue before excise taxes of $ 41,603 from three major customers in the ROW segment, together accounting for 56 % of the Company’s total net revenue before excise taxes.

During the year ended December 31, 2020, the Rest of World segment earned a total net revenue before excise taxes of $ 34,295 from four major customers, together accounting for 63 % of the Company’s total net revenue before excise taxes.

During the year ended December 31, 2019, the Rest of World segment earned a total net revenue before excise taxes of $ 7,597 from one major customer, accounting for 32 % of the Company’s total net revenues before excise taxes.

During the years ended December 31, 2021, 2020, and 2019 the U.S.

segment had no major customers.

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

The Company held cash and cash equivalents of $ 886,973 and $ 1,078,023 as of December 31, 2021 and December 31, 2020, respectively.

The short-term investments and related interest receivable of $ 117,684 and $ 211,766 as of December 31, 2021 and December 31, 2020, respectively, represent short-term investments with a maturity of less than a year and accrued interest.

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.

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.

The Company had trade accounts payable of $ 8,395 and $ 12,107 as of December 31, 2021 and December 31, 2020, respectively, included in accounts payable on the consolidated balance sheet.

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 is primarily provided in the form of capital raised through the issuance of common shares and warrants.

As of December 31, 2021, the Company has assessed a concentration of risk of vendors as 19 % of accounts payables were due to one vendor.

As of December 31, 2020, the Company has assessed a concentration risk of vendors as 40 % due to four vendors.

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 amounts.

The Company manages risk by having a portfolio of securities from multiple issuers, such that the Company was not materially exposed to any one issuer.

Interest rate risk

Interest rate risk is the risk that the value or yield of fixed-income investments may decline if interest rates change.

A 10% change in the interest rate in effect on December 31, 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 years ended December 31, 2021 and December 31, 2020, the Company had net interest income of $ 9,071 and $ 18,415 , respectively.

During the year ended December 31, 2021, the Company’s average variable interest rate did not change materially.

During the year ended December 31, 2020, the Company’s average variable interest rate fell 1.49 %, which resulted in a decrease of net interest income of $ 15,671 in the period.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

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 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.

As of December 31, 2021 and December 31, 2020, the Company had foreign currency gain (loss) on translation of $ 8,192 and $ 14,951 , respectively.

A 10% change in the exchange rates for the foreign currencies would affect the carrying amounts of net assets by approximately $ 133,428 and $ 170,817 as of December 31, 2021 and December 31, 2020, respectively.

Related Party Transactions

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

As of December 31, 2021, Altria beneficially held an approximately 42 % ownership interest in the Company (calculated on a non-diluted basis).

The Company incurred the following expenses for consulting services from Altria Pinnacle LLC, a subsidiary of Altria (“Altria Pinnacle”):

Year ended December 31,

As previously disclosed Held-for-sale adjustment Adjusted balance

Inventory write-down $ ( 29,440 ) $ 267 $ ( 29,173 )

Operating expenses ( 103,620 ) 109 ( 103,511 )

Other income (loss) 1,287,058 ( 13 ) 1,287,045

Net income (loss) from continuing operations 1,165,574 363 1,165,937

2021 2020 2019

Altria Pinnacle – expense

$ 436 $ 1,199 $ 3,479

During 2019, the Company purchased machinery and equipment amounting to $ 1,258 from a subsidiary of Altria, which was fully paid for during the year ended December 31, 2019.

There were no amounts payable related to the consulting services with Altria Pinnacle as of December 31, 2021 and 2020.

Refer to Note 8 “ Derivative Liabilities ” for further information on the derivative liabilities related to the Altria Investment.

(b) Cronos GrowCo

The Company holds a variable interest in Cronos GrowCo through its ownership of 50 % of Cronos GrowCo’s common shares and senior secured debt in Cronos GrowCo.

See Note 3 “ Investments ” for further discussion.

The Company made the following purchases of cannabis products from Cronos GrowCo:

Year ended December 31,

As previously disclosed Held-for-sale adjustment Adjusted balance

Operating expenses $ ( 27,554 ) $ 896 $ ( 26,658 )

Other income (loss) ( 476 ) ( 2 ) ( 478 )

Net income (loss) from continuing operations ( 21,817 ) 894 ( 20,923 )

T able of Contents

2021 2020 2019

Cronos GrowCo – purchases

$ 4,820 $ — $ —

The Company’s outstanding payable balance to Cronos GrowCo was $ 82 as of December 31, 2021.

There was no amount payable to Cronos GrowCo as of December 31, 2020.

Additionally, on August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into the GrowCo Facility.

See additional information in Note 4 “ Loans Receivable, net .”

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2021, 2020, and 2019

(In thousands of U.S.

dollars, except for share amounts)

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 to discontinued operations in the accompanying consolidated financial statements.

During the second quarter of 2021, the Company determined that the fair value of OGBC was lower than the carrying amount of the assets.

As such, a write-down to these held-for-sale assets of $ 561 was recorded in the second quarter of 2021.

On September 10, 2021, OGBC was sold for $ 727 , net of costs to sell.

As a result, the Company recorded $ 82 in loss from discontinued operations in its consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

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 consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

The following table summarizes the financial information for discontinued operations:

Year ended December 31,

2021 2020 2019

Loss from discontinued operations, net of income taxes $ ( 500 ) $ ( 650 ) $ ( 363 )

As of December 31,

OGBC assets classified as held-for-sale $ — $ 1,176

Non-monetary Transactions

The Company had no non-monetary transactions during the year ended December 31, 2021 or 2020.

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

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

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

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

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

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

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

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

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2019

(In thousands of U.S.

dollars, except for gram and share amounts)

Subsequent Events

(a) Realignment

In the first quarter of 2022, the Company initiated a strategic plan to realign the business around its brands, centralize functions and evaluate the Company’s supply chain (the “Realignment”).

The organizational and cost initiatives being undertaken are intended to position the Company to drive profitable and sustainable growth over time.

Restructuring costs of $ 1,219 , which impact all segments and will be incurred in 2022, include mostly one-time employee-related severance associated with the Realignment.

(b) Planned Exit of the Stayner Facility

On February 28, 2022, the Board approved plans to leverage its strategic partnerships to improve supply chain efficiencies and reduce manufacturing overhead by exiting its production facility in Stayner, Ontario, Canada (the “Stayner Facility”).

The Company expects to incur charges of approximately $ 4,500 in connection with the planned exit, all of which impact the ROW segment.

These charges include employee-related costs such as severance, relocation and other termination benefits, as well as contract termination and other related costs, which are expected to be incurred primarily in the second half of 2022.

In addition, the Company anticipates capital expenditures of approximately $ 2,500 to modernize information technology systems and build distribution capabilities.

These anticipated charges and capital expenditures are subject to a number of assumptions, including product costs, the timing of certain events, market factors and others.

As a result of these assumptions, actual results may differ materially.

On February 28, 2022, PharmaCann closed the LivWell Transaction.

Based upon the terms of the definitive merger agreement, the Company’s ownership percentage in PharmaCann on a fully-diluted basis decreased to approximately 6.7 %.

The decrease to ownership percentage does not materially affect the Company’s rights under the PharmaCann Option.

Further dilution could adversely affect the Company’s rights under the PharmaCann Option.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data