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Item 8. Financial Statements and Supplementary Data

2023-02-28 compared with 2022-03-01 · 685 added, 692 removed, 1216 unchanged (53% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reports of KPMG LLP (PCAOB ID:

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

Reports of Independent Registered Public Accounting Firm ( KPMG LLP , Vaughan, Ontario, Canada , Auditor Firm ID:

Consolidated Balance Sheets 77

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Notes to Consolidated Financial Statements

Table of Con tents

Report of Independent Registered Public Accounting Firm

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

(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).

and subsidiaries (the Company) as of December 31, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2022, 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, 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.

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, 2022, 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 28, 2023 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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.

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 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.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of an option to purchase equity securities without a readily determinable fair value

As disclosed in note 1(g) of the consolidated financial statements, the Company records its other investments without a readily determinable fair value using the cost method, and assesses such investments for observable price changes and other than temporary impairment 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).

As disclosed in note 3(b) to the consolidated financial statements, the Company’s investment in an option to purchase equity securities of PharmaCann, Inc.

(the “PharmaCann Option”) is accounted for as an other investment without a readily determinable fair value.

To estimate the fair value of the PharmaCann Option, management uses a combination of the income and market approaches.

Under the income approach, significant assumptions used in the discounted cash flow method that require the use of judgment are the discount rate, terminal growth rate, cash flow projections, and the timing of federal legalization of cannabis in the United States.

Under the market valuation approach, the key assumptions which require judgment under the Guideline Public Companies method are cash flow projections, selected multiples and the discount for lack of marketability.

As disclosed in note 14(a) of the consolidated financial statements, the Company’s other investment in PharmaCann Option amounted to $49,000 thousand as of December 31, 2022.

We identified the evaluation of the impairment assessment of PharmaCann Option as a critical audit matter.

As the original cash flow projections of the investee were not prepared by management, a high degree of challenging auditor judgement was required to evaluate fair value of the investment.

These assumptions were challenging to test as they represented subjective determinations of future market, economic, and legal conditions that are sensitive to variation.

Minor changes to these assumptions could have had a significant

impact on the Company’s assessment of the fair value of the PharmaCann Option.

Additionally, the audit effort associated with this estimate required specialized skills and knowledge.

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

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 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.

We evaluated the design and tested the operating effectiveness of an internal control related to the critical audit matter.

We compared the historical cash flow projections of PharmaCann to actual results to assess the Company’s ability to accurately project PharmaCann cash flows.

We evaluated the reasonableness of the cash flow projections by comparing them to historical actual results, planned business initiatives, external industry reports, and peer data.

We evaluated the reasonableness of the timing of federal legalization of cannabis in the United States by comparing management’s estimated timing with external industry reports and market information.

In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:

• assessing the discount rate used in the income approach and the multiples used in the market approach against ranges that were independently developed using peer data

• evaluating the terminal growth rate used in the income approach by comparing management’s assumption against external market information

• independently developing a discount for lack of marketability and comparing to management’s assumption used in the market approach.

Chartered Professional Accountants, Licensed Public Accountants

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Vaughan, Canada

March 1, 2022

February 28, 2023

Report of Independent Registered Public Accounting Firm

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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 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.

We have audited Cronos Group Inc.

and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2022, 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, 2022, 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, 2022 and 2021, 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, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated February 28, 2023 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.

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.

A material weakness related to the design and maintenance of effective controls over Information Technology General Controls, pertaining to user access management and the provisioning and monitoring of user access, including privileged access was identified by management.

This material weakness did not impact any information derived from information systems and did not result in any identified misstatements in the financial statements.

The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 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 Annual Report on Form 10-K item 9A(b) Management’s Report on Internal Control Over Financial Reporting.

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.

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

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Vaughan, Canada

March 1, 2022

February 28, 2023

CRONOS GROUP INC.

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Current portion of loans receivable, net 8,890 5,460

Prepaids and other current assets 8,967 11,161

Inventory, net 37,559 32,802

Held-for-sale assets — 1,176

Prepaids and other current assets 7,106 8,967

Total current assets 960,156 1,079,718

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

Equity method investments, net 18,755 16,764

Other investments 70,993 118,392

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Intangible assets, net 26,704 18,079

Other assets 100 467

Other 193 100

Total assets $ 1,213,009 $ 1,397,738

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Accounts payable $ 11,163 $ 11,113

Income taxes payable 32,956 105

Accrued liabilities 22,268 25,636

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Derivative liabilities 15 14,375

Current portion due to non-controlling interests 384 433

Total current liabilities 68,116 54,373

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

Non-current portion due to non-controlling interests 1,383 1,913

Non-current portion of lease obligation 2,546 7,095

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Retained earnings 490,682 659,416

Accumulated other comprehensive income 49,865 42,999

Accumulated other comprehensive income (loss) ( 797 ) 49,865

Total equity attributable to shareholders of Cronos Group 1,143,885 1,337,243

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General and administrative 71,178 96,482 80,569

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

Restructuring costs 5,333 — —

Share-based compensation 15,115 10,151 15,361

Depreciation and amortization 6,025 4,484 2,872

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Impairment loss on long-lived assets 3,493 127,619 —

Repurposing charges — — 5,328

Total operating expenses 136,807 543,060 193,554

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Gain on revaluation of derivative liabilities 14,060 151,360 129,254

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

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

Share of income (loss) from equity method investments 3,114 ( 6,313 ) ( 4,510 )

Gain (loss) on revaluation of financial instruments 14,739 8,611 ( 9 )

Impairment loss on other investments ( 61,392 ) — —

Foreign currency transaction loss ( 2,286 ) — —

Gain on disposal of investments — — 4,789

Other, net ( 493 ) 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

Total other income (expense) ( 9,721 ) 163,459 146,114

Loss before income taxes ( 134,559 ) ( 397,135 ) ( 73,273 )

Income tax expense (benefit) 34,175 ( 431 ) 1,347

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

Loss from continuing operations ( 168,734 ) ( 396,704 ) ( 74,620 )

Loss from discontinued operations — ( 500 ) ( 650 )

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

Net loss ( 168,734 ) ( 397,204 ) ( 75,270 )

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

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

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

Net loss attributable to Cronos Group $ ( 168,734 ) $ ( 396,107 ) $ ( 73,137 )

Comprehensive income (loss)

Net loss $ ( 168,734 ) $ ( 397,204 ) $ ( 75,270 )

Foreign exchange gain (loss) on translation ( 50,616 ) 8,192 14,951

Comprehensive loss ( 219,350 ) ( 389,012 ) ( 60,319 )

Comprehensive income (loss) attributable to non-controlling interest 46 229 ( 2,343 )

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

Net income (loss) from continuing operations per share

Comprehensive loss attributable to Cronos Group $ ( 219,396 ) $ ( 389,241 ) $ ( 57,976 )

Net loss from continuing operations per share

Basic $ ( 0.45 ) $ ( 1.07 ) $ ( 0.21 )

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

Number of shares Share capital Additional paid-in capital Retained earnings (accumulated deficit) Accumulated other comprehensive income (loss) Non-controlling interests Total shareholders’ equity

Number of shares Share capital Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Non-controlling interests Total shareholders’ equity

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

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

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

Shares issued — — — — — — —

Share issuance costs — — — — — — —

Activities relating to share-based compensation 11,435,860 8,095 11,362 — — — 19,457

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

Foreign exchange gain (loss) on translation — — — — 15,161 ( 210 ) 14,951

Balance as of December 31, 2020 360,253,332 569,260 34,596 1,064,509 42,999 ( 3,196 ) 1,708,168

Shares issued — — — — — — —

Share issuance costs — — — — — — —

Activities relating to share-based compensation 11,764,381 7,288 2,671 ( 12,213 ) — — ( 2,254 )

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 — — —

Top-up rights 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

Foreign exchange gain on translation — — — — 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

Number of shares Share capital Additional paid-in capital Retained earnings (accumulated deficit) Accumulated other comprehensive income (loss) Non-controlling interests Total shareholders’ equity

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

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

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

Activities relating to share-based compensation 1,464,822 4,617 10,217 — — — 14,834

Share issuance pursuant to research and development milestones 4,157,888 11,204 — — — — 11,204

Net loss — — — ( 168,734 ) — — ( 168,734 )

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

Balance as of December 31, 2020 360,253,332 $ 569,260 $ 34,596 $ 1,064,509 $ 42,999 $ ( 3,196 ) $ 1,708,168

Cronos Group Inc.

Consolidated Statements of Changes in Shareholders’ Equity

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

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

Number of shares Share capital Additional paid-in capital Retained earnings (accumulated deficit) Accumulated other comprehensive income (loss) Non-controlling interests Total shareholders’ equity

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

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

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

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

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

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

Other comprehensive income (loss) — — — — 37,708 ( 21 ) 37,687

Foreign exchange gain (loss) on translation — — — — ( 50,662 ) 46 ( 50,616 )

Balance as of December 31, 2022 380,575,403 $ 611,318 $ 42,682 $ 490,682 $ ( 797 ) $ ( 2,921 ) $ 1,140,964

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Operating activities

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 )

Net loss $ ( 168,734 ) $ ( 397,204 ) $ ( 75,270 )

Adjustments to reconcile net loss to net cash used in operating activities:

Share-based compensation 15,115 10,151 15,361

Depreciation and amortization 13,122 15,402 7,045

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

Impairment loss on long-lived assets 3,493 127,619 —

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

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

Depreciation and amortization 15,402 11,176 4,271

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

Impairment loss on other investments 61,392 — —

(Income) loss from investments ( 17,853 ) ( 1,974 ) 4,510

Gain on revaluation of derivative liabilities ( 14,060 ) ( 151,360 ) ( 129,254 )

Changes in expected credit losses on long-term financial assets ( 662 ) 12,202 2,437

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

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

Non-cash sales and marketing 341 1,383 2,863

Non-cash repurposing costs — — 4,439

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

Foreign currency transaction loss 2,286 — —

Other non-cash operating activities, net ( 4,051 ) ( 3,886 ) ( 123 )

Changes in operating assets and liabilities:

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Accounts payable ( 863 ) ( 1,597 ) ( 2,784 )

Income taxes payable 34,212 ( 776 ) 839

Accrued liabilities ( 2,921 ) ( 4,974 ) 5,053

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Purchase of investments — ( 110,392 ) —

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 )

Dividend proceeds 384 — —

Repayments (advances) on loan receivables 5,246 ( 4,967 ) ( 44,652 )

Purchase of property, plant and equipment, net of disposals ( 3,451 ) ( 11,144 ) ( 31,412 )

Purchase of intangible assets, net of disposals ( 1,581 ) ( 1,118 ) ( 3,979 )

Acquisition of Redwood — — ( 224,295 )

Other non-cash investing activity expense — — 415

Other investing activities 68 3,030 4,789

Net cash provided by (used in) investing activities ( 1,842 ) ( 28,898 ) 20,150

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Withholding taxes paid on equity awards ( 2,829 ) ( 13,458 ) ( 2,148 )

Proceeds from Altria Investment — — 1,809,556

Proceeds from exercise of Top-up Rights — — 67,051

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

Share issuance costs — — ( 3,722 )

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

Advance under Credit Facility — — 48,715

Repayment of Credit Facility — — ( 48,309 )

Net cash provided by (used in) financing activities ( 13,442 ) ( 3,051 ) 1,857,860

Other financing activities, net ( 68 ) 16 116

Net cash used in financing activities ( 2,897 ) ( 13,442 ) ( 3,051 )

Effect of foreign currency translation on cash and cash equivalents ( 28,642 ) 4,906 6,102

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Supplementary cash flow information:

Interest paid $ — $ — $ 759

Interest received 15,548 8,988 18,105

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dollars, except for share amounts)

Table of Conte nts

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

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Cronos Group Inc.

(“Cronos Group” or the “Company”) is incorporated in the province of British Columbia and under the Business Corporations Act (British Columbia) with principal executive offices at 111 Peter St., Suite 300, Toronto, Ontario, M5V 2H1.

(“Cronos” 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 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 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 .”

Cronos is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development.

With a passion to responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio.

Cronos’ diverse international brand portfolio includes Spinach ® , PEACE NATURALS ® and Lord Jones ® .

(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 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.

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Investments in which the Company has the ability to exercise significant influence over the operating and financial policies of the investee, but does not have control, are accounted for under the equity method of accounting.

The Company consolidates the financial results of the following entities, which the Company controls:

The Company consolidates the financial results of the following entities, which the Company controls but does not wholly own:

Subsidiaries Jurisdiction of incorporation Incorporation date Ownership interest (ii)

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All intercompany transactions and balances are eliminated upon consolidation.

(d) 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.

Cronos Group Inc.

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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, 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.

Table of Conte nts

inventory write-downs, share-bared payments, valuation allowance on deferred income tax assets and uncertain tax liabilities.

Actual results could differ from those estimates.

(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.

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

Cash and cash equivalents are comprised of cash and highly liquid short-term investments that are readily convertible into known amounts of cash, generally 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).

Short-term investments consist of debt securities that (i) generally 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 either available-for-sale or held-to-maturity and recorded at cost.

Interest earned on short-term investments is recorded in other receivables on the consolidated balance sheets and interest income, net 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

(f) Inventory

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.

When the Company cultivated cannabis, costs capitalized into inventory until the time of harvest included, but were not limited to, labor, utilities, nutrition and irrigation.

Inventory is stated at the lower of cost and net realizable value, determined using weighted average cost.

Cost includes expenditures directly related to manufacturing and distribution of the products.

Primary costs include consumables (insect control, fertilizers, soil), packaging, shipping, direct labor, overhead, supplies and small tools, and the depreciation of manufacturing equipment and production facilities determined at normal capacity.

Primary costs include consumables (insect control, fertilizers, soil), packaging, shipping, direct labor, contract manufacturer fees, overhead, supplies and small tools, and the depreciation of manufacturing equipment and production facilities determined at normal capacity.

Manufacturing overhead and related expenses include salaries, wages, employee benefits, rent, utilities, security, and property taxes.

Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation.

At the end of each reporting period, the Company performs an assessment of inventory obsolescence to measure inventory at the lower of cost and net realizable value.

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

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

At the end of each reporting period, the Company performs an assessment to measure inventory at the lower of cost and net realizable value.

Factors considered in the determination of net realizable value include slow-moving or non-marketable products.

(g) Investments

Variable interest entities

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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.

The Company consolidates a 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.

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

Cash payments to equity method investees such as additional investments or expenses incurred on behalf of investees, as well as income earned and 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.

Any impairment losses recognized in one period cannot be reversed in subsequent periods.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

Other investments

3 unchanged sentences

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.

Other investments without readily determinable fair values are assessed for observable price changes and other than temporary impairment 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

(h) Property, plant and equipment

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

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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.

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

(j) Definite-lived intangible assets

(i) Definite-lived intangible assets

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

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All other costs are expensed as incurred.

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:

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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

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

(j) Accrued liabilities

Accrued liabilities consist of the following:

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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.

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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).

(m) Derivative liabilities

(l) 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.

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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

(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.

(o) Revenue recognition

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

(n) Revenue recognition

Revenue is recognized in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” and is measured based on the consideration specified in a contract with a customer.

The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

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.

hemp”) derived products consist of a single 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, depending on the specific contractual terms.

The Company has determined that the most definitive demonstration that control has transferred to a customer is physical shipment or delivery, depending on the contractual shipping terms, except for consignment transactions.

Consignment transactions are arrangements where the Company transfers product to a customer or third-party location but retains ownership and control of such product until it is used by the customer.

Revenue for consignment arrangements is recognized upon the customer’s usage.

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, allowances for customer returns and other forms of consideration paid to customers.

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.

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.

Within the Company’s Rest of World segment (the “ROW segment”), dried cannabis sales outside of Canada may include commission arrangements with distributors that 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.

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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.

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

(o) Research and development

The Company has a research and development center in Canada that performs scientific research on the interaction of cannabinoids as well as strain development, growing conditions, extraction technology, and biosynthesis.

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.

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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

(p) 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 $ 928 , $ 11,514 and $ 6,087 for the years ended December 31, 2022, 2021, and 2020, respectively.

(r) Share-based compensation

(q) Share-based compensation

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

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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 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.

This is recognized on a straight-line basis in the consolidated statements of net income (loss) and comprehensive

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

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

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

Forfeitures of share-based compensation awards are accounted for as reductions to share-based compensation and additional paid-in capital as they occur.

(r) 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 .

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

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

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

Goodwill and indefinite-lived intangible assets are not amortized.

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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 segments:

segment and the Rest of World segment.

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)

(u) Income taxes

(t) 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.

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The Company considers all available evidence, both positive and negative, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies, in assessing the need for a valuation allowance.

The Company has a full valuation allowance against its net deferred tax assets, and has concluded, based on the weight of all available evidence, that it is more likely than not that the net deferred tax assets will not be realized, primarily due to the historical net operating losses.

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;

A valuation allowance against some or all of 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 (“ASC”) 740, Income Taxes , it is more likely than not that the deferred tax assets will not be realized.

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The Company uses a two-step approach for evaluating uncertain tax positions.

Step one, recognition, requires us to determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any.

Step one, recognition, requires us to determine whether the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any.

If a tax position is not considered “more likely than not” to be sustained, no benefits of the position are recognized.

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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.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

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.

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

(v) Foreign currency

(u) Foreign currency

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

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”).

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

dollar are translated at period-end currency exchange rates.

Functional currencies for the entities in these consolidated financial statements are their respective local currencies, including C$, U.S.

dollar and Israeli New Shekel (“ILS”).

All assets and liabilities of operations with a functional currency other than the Canadian dollar are translated into Canadian dollars at the period-end currency exchange rates and subsequently translated into U.S.

dollars 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:

Revenues and expenses of operations, as well as all cash flows, with a functional currency other than the Canadian dollar are translated into Canadian dollars at the average exchange rates for the period and subsequently translated into U.S.

dollars 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 foreign currency transaction gain (loss) in the consolidated statements of net income (loss) and comprehensive income (loss).

Cronos 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.

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)

(x) Earnings (loss) per share

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

(w) Earnings (loss) per share

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

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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

(x) 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.

Cronos 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.

The following are the three levels of inputs used to measure fair value:

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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.

(z) Assets held for sale and discontinued operations

(y) Assets held for sale and discontinued operations

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

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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.

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.

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.

2019-12 eliminates certain exceptions and simplifies the application of U.S.

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

The adoption of ASU No.

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

Cronos Group Inc.

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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.

Table of Conte nts

(z) Adoption of new accounting pronouncements

On January 1, 2022, the Company adopted ASU No.

2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815–40) (“ASU No.

2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

ASU No 2020-06 is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S.

ASU No 2020-06 is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.

2020-06 is part of the Financial Accounting Standards Board’s (“FASB”) simplification initiative, which aims to reduce unnecessary complexity in U.S.

The adoption of ASU No.

2020-06 did not have an impact on the Company’s consolidated financial statements.

(aa) New accounting pronouncements not yet adopted

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures (“ASU No.

2022-02 eliminates the existing troubled debt restructuring recognition and measurement guidance, and instead aligns the accounting treatment to that of other loan modifications.

The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty.

2022-02 also requires that entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases.

2022-02 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, and is to be adopted prospectively.

The Company does not expect the adoption of ASU No.

2022-02 to have a material impact on its consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU No.

2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered in measuring fair value.

The amendments also require additional disclosures for equity securities subject to contractual sale restrictions.

ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, and is to be adopted prospectively.

The Company does not expect the adoption of ASU No.

2022-03 to have a material impact on its consolidated financial statements.

Inventory, net

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Total $ 37,559 $ 32,802

(a) Variable interest entities and investments in equity accounted investees, net

(a) Variable interest entities and investments in equity method investments, net

The Company holds variable interests in Cronos Growing Company Inc.

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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.

Thus, the Company is not considered the primary beneficiary of either entity.

The investment in Cronos GrowCo is accounted for as an equity method investment classified as “Investments in equity method investments, net” in the consolidated balance sheets.

As of December 31, 2022, the investment in Natuera is accounted for as an equity security without a readily determinable fair value classified as “Other Investments” 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 is a joint venture incorporated under the Canada Business Corporations Act 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.

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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.

Table of Conte nts

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 Credit 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 included 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.

There were no such indicators of impairment present for the year ended December 31, 2022.

Upon formation, Natuera was a joint venture registered in Luxembourg with the objective of cultivating and commercializing hemp and cannabis products, and its economic performance is driven by the quantity and strains of cannabis grown.

Until December 2022, the Company held variable interests in Natuera through its ownership of 50 % of Natuera’s common shares.

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

In December 2022, Natuera entered into a $ 9.5 million convertible bridge loan with the Natuera JV Partner and a new investment group, whereby the Natuera JV Partner and the new investment group provided $ 9.5 million in exchange for convertible notes that were converted into equity immediately following the closing of the loan.

Post-closing, the Company’s ownership share was diluted to approximately 13.7 % and the Company will no longer have any members on the board of directors of Natuera.

Given these changes in ownership and board representation, the Company believes it no longer exerts significant influence over Natuera, has discontinued accounting for the investment under the equity method and has reclassified its investment in Natuera as an investment in equity securities without a readily determinable fair value, presented in Other Investments on the consolidated balance sheets as of December 31, 2022.

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.

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 investments 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”).

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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:

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

Ownership interest As of December 31,

Cronos Australia (i)

Cronos GrowCo 50 % $ 18,755 $ 16,764

Natuera (ii, iii)

Natuera (i, ii, iii)

13.7 % / 50 % (iii)

$ 18,755 $ 16,764

(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.

(i) 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 (“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.

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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.

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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:

Table of Conte nts

(ii) 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 investments in the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

(iii) As of December 31, 2022, the Company classifies its investment in Natuera as an investment in equity securities without a readily determinable fair value, presented in Other Investments on the consolidated balance sheets.

As of December 31, 2022, the Company’s ownership interest in Natuera was approximately 13.7 %.

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

Year ended December 31,

2022 2021 2020

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

Cronos Australia (ii)

( 48 ) ( 363 ) ( 1,101 )

N/A $ ( 48 ) $ ( 363 )

Cronos GrowCo 3,114 ( 2,518 ) ( 1,537 )

MedMen Canada (iii)

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

Natuera (ii)(iii)

N/A ( 3,747 ) ( 2,610 )

$ 3,114 $ ( 6,313 ) $ ( 4,510 )

(i) Whistler was incorporated in British Columbia, Canada and is a license holder under the Cannabis Act (Canada) with production facilities in British Columbia, Canada.

The Company fully divested its investment in Whistler during 2019.

(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.

(i) As of December 31, 2022, the Company held a 10 % ownership interest in Vitura, and Vitura is no longer considered an equity-method investment.

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

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

(ii) As of December 31, 2021, the combination of the Company’s share of accumulated net losses and impairment charges was in excess of its equity investment in Natuera, and the net book value of the investment was zero.

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

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Gross profit 24,379 ( 5,059 ) ( 631 )

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

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

Net income (loss) 6,569 ( 12,603 ) ( 11,453 )

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

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

Cronos GrowCo 50 % $ 62,368 $ 19,866

Natuera 50 % 2,712 7,826

Balance as of December 31, 2022 $ 62,368 $ 19,866

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

Cronos Australia (i)

31 % $ 8,976 $ 1,530

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

MedMen Canada (ii)

Natuera 50 % 2,712 7,826

Balance as of December 31, 2021 $ 36,386 $ 28,951

(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.

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dollars, except for share amounts)

Table of Conte nts

(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 $ —

Cronos Australia 10 % 8,000 N/A

$ 118,392 $ —

PharmaCann Option

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.

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

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”).

The PharmaCann Option is reported as other investments on the consolidated balance sheet for the periods ended December 31, 2022 and 2021.

On February 28, 2022, PharmaCann closed its previously announced transaction with LivWell Holdings, Inc.

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

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

As a result of the LivWell Transaction, the Company’s ownership percentage in PharmaCann on a fully diluted basis decreased to approximately 6.4 %.

As of December 31, 2022, the Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 6.3 %.

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.

The decrease in the Company’s ownership percentage since acquisition does not materially affect the Company’s rights under the PharmaCann Option.

During the first, third and fourth quarters of 2022, the Company identified adverse forecast changes in the financial performance of PharmaCann as indicators of impairment related to the PharmaCann Option and conducted analyses comparing the PharmaCann Option’s carrying amount to its estimated fair value.

The fair value was estimated using a combination of the income approach and the market approach.

Under the income approach, significant inputs used in the discounted cash flow method include discount rate, growth rates, and cash flow projections.

Under the market valuation approach, the key assumptions are the selected multiples and the discount for lack of marketability.

As a result of these analyses, the Company recorded non-cash impairment charges of $ 11,238 .

$ 28,972 and $ 21,182 in the first, third and fourth quarters of 2022, respectively, as the difference between the carrying amount of the PharmaCann Option and its estimated fair value, in the consolidated statements of net income (loss) and comprehensive income (loss).

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”).

Vitura (formerly known as Cronos Australia)

On September 14, 2021, Cronos Australia (now, Vitura Health Limited) 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.

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 zero .

On November 29, 2022, the shareholders of Cronos Australia approved the proposal to change the name of the company to “Vitura Health Limited” (the “CAU Name Change”).

On December 2, 2022, in connection with the CAU Name Change, Vitura and the Company mutually agreed to terminate the intellectual property license that granted Vitura the right to use certain intellectual property of the Company, including, but not limited to, the “Cronos” name and the PEACE NATURALS ® brand.

Vitura has 180 days following the date of termination to cease all usage of the Company’s intellectual property.

The reduction in ownership interest and loss of all board seats constituted a loss of significant influence and resulted in a reclassification on the consolidated balance sheet from investments in equity method investments 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).

Cronos Group Inc.

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dollars, except for share amounts)

Table of Conte nts

The Company recorded a gain on revaluation of other investments of $ 14,739 and $ 8,287 , included in the gain on revaluation of financial instruments on the statements of net income (loss) and comprehensive income (loss), for the years ended December 31, 2022 and 2021, respectively.

The Company’s investment in Vitura was $ 21,993 and $ 8,000 , included in other investments on the balance sheet, as of December 31, 2022 and 2021, respectively.

The following table summarizes the Company’s other investments activity:

As of January 1, 2022 Unrealized gain Impairment charges Foreign exchange effect As of December 31, 2022

PharmaCann $ 110,392 $ — $ ( 61,392 ) $ — $ 49,000

Vitura 8,000 14,739 — ( 746 ) 21,993

$ 118,392 $ 14,739 $ ( 61,392 ) $ ( 746 ) $ 70,993

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2022 2021 2020

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.

(i) 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 Cannabis Inc.

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.

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As of December 31,

Natuera Series A Loan (i)

GrowCo Facility (ii)

Current portion of accrued interest 2,322 428

GrowCo Credit Facility $ 4,427 $ 3,138

Accrued interest 4,463 2,322

Total current portion of loans receivable 8,890 5,460

GrowCo Facility (ii)

GrowCo Credit Facility

56,898 64,367

Mucci Promissory Note (iii)

Mucci Promissory Note

13,438 14,019

Cannasoul Collaboration loan (iv)

Cannasoul Collaboration loan 1,837 2,249

Long-term portion of accrued interest 172 —

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Total loans receivable $ 81,235 $ 86,095

(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.

Cronos GrowCo Credit Facility

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 Credit Facility”).

In August 2021, the GrowCo Credit 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 Credit Facility and lower than expected sales forecasts from Cronos GrowCo, the Company revalued its allowance for credit loss on the GrowCo Credit 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.

The outstanding principal amount of the Mucci Promissory Note bears interest at 3.95 % annually and is due within 90 days of demand.

The Company does not intend to demand the loan within 12 months.

Interest accrued under the Mucci Promissory Note until July 1, 2021 is payable by way of capitalization on the principal amount and interest thereafter must be paid in cash on a quarterly basis.

The Mucci Promissory Note is secured by a general security agreement covering all the assets of Mucci.

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.

(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.

As of December 31, 2022 and 2021, Cronos GrowCo had drawn C$ 104,000 ($ 76,730 ) and C$ 104,000 ($ 81,598 ), respectively, from the GrowCo Credit Facility.

As of December 31, 2022, Cronos GrowCo had repaid C$ 4,000 ($ 3,073 ) in principal under the terms of the GrowCo Credit Facility.

Cronos Group Inc.

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Table of Conte nts

Mucci Promissory Note

On June 28, 2019, the Company entered into a promissory note receivable agreement (the “Mucci Promissory Note”) for C$ 16,350 (approximately $ 12,063 ) with Mucci.

The Mucci Promissory Note is secured by a general security agreement covering all the assets of Mucci.

On September 30, 2022, the Mucci Promissory Note was amended and restated to increase the interest rate from 3.95 % to the Canadian Prime Rate plus 1.25 %, change the interest payments from quarterly to annual, and defer Mucci’s initial cash interest payment from September 30, 2022 to July 1, 2023.

This debt modification resulted in an increase of approximately C$ 180 ($ 140 ) in interest income.

Cannasoul Collaboration Loan

As of both December 31, 2022 and 2021, CLS has received ILS 8,297 (approximately $ 2,359 and $ 2,664 , respectively), from the Cannasoul Collaboration Loan.

See Note 3 “Investments” for further information regarding the Cannasoul Collaboration Loan.

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

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Foreign exchange effect As of December 31, 2022

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

Natuera Series A Loan 721 ( 737 ) 16 —

GrowCo Credit Facility $ 14,089 $ ( 827 ) $ ( 807 ) $ 12,455

Mucci Promissory Note 90 4 ( 5 ) 89

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Foreign exchange effect As of December 31, 2021

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

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

Natuera Series A Loan 721 ( 737 ) 16 —

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

(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.

(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 investments 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, 2022 and 2021, $( 662 ) and $ 12,939 , 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.

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As of December 31,

Cost Accumulated depreciation Accumulated impairment charges Net

Land $ 2,556 $ 2,822

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Construction in progress 841 2,502

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

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

accumulated depreciation ( 35,347 ) ( 30,306 )

accumulated impairment charges ( 109,063 ) ( 114,301 )

Property, plant and equipment, net $ 60,557 $ 74,070

For the years ended December 31, 2022, 2021 and 2020, depreciation expense on property, plant and equipment was $ 8,667 , $ 11,668 and $ 9,052 , 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).

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Table of Conte nts

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

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.

During the first quarter of 2022, the Company recognized an impairment charge of $ 1,507 related to leasehold improvements and other office equipment that it plans to include in any potential sublease agreement of the Company’s corporate headquarters, encompassing approximately 29,000 square feet, in Toronto, Ontario, Canada.

The determination to seek a sublease of the property and include leasehold improvements and other office equipment in any potential sublease agreement triggered the impairment charges.

The impairment charge was recognized as impairment loss on long-lived assets on the consolidated statements of net income (loss) and comprehensive income (loss).

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 previously anticipated wind-down and closure of the Company’s facility in Stayner, Ontario.

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.

segment’s property, plant and equipment asset group for the quarter ended June 30, 2021, the Company concluded that triggers were present that 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.

The impairment charges were recognized in the consolidated statements of net income (loss) and comprehensive income (loss) as an impairment loss on long-lived assets.

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

Goodwill and Intangible Assets, net

2 unchanged sentences

Cost Accumulated impairment charges Net

Peace Naturals Project Inc.

Peace Naturals

4 unchanged sentences

Cost Accumulated impairment charges Net

OGBC $ 307 $ ( 307 ) $ —

Peace Naturals $ 1,098 $ — $ 1,098

1 unchanged sentence

$ 214,512 $ ( 213,414 ) $ 1,098

Impairment of Goodwill

Accumulated impairment charges on goodwill consist of:

As of January 1, 2022 Impairment charges Foreign exchange effect As of December 31, 2022

Redwood $ ( 213,414 ) $ — $ — $ ( 213,414 )

Cronos Group Inc.

3 unchanged sentences

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 )

Table of Conte nts

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

$ — $ ( 292 ) $ ( 15 ) $ ( 307 )

Redwood $ ( 35,000 ) ( 178,414 ) — $ ( 213,414 )

$ — $ ( 35,292 ) $ ( 15 ) $ ( 35,307 )

(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 .

In 2019, the Company acquired all of the issued and outstanding shares of each of the four Redwood operating subsidiaries (collectively “Redwood”) for an aggregate consideration of $ 283,300 (the “Redwood Acquisition”), 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 .

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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 .

These valuation inputs are 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 exceeded its fair value, which resulted in the recognition of an impairment charge of $ 178,414 on goodwill associated with its U.S.

reporting unit on the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

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Health Canada licenses 8,269 ( 1,771 ) ( 6,498 ) —

Ginkgo exclusive license (i, ii)

17,330 ( 335 ) ( 4,752 ) 12,243

Israeli codes (iii)

Ginkgo exclusive licenses 27,676 ( 1,854 ) ( 4,434 ) 21,388

Israeli codes (i)

292 ( 49 ) — 243

9 unchanged sentences

dollars, except for share amounts)

Table of Conte nts

As of December 31, 2021

2 unchanged sentences

Health Canada licenses 8,793 ( 1,883 ) ( 6,910 ) —

Israeli codes (iii)

Ginkgo exclusive licenses 17,330 ( 335 ) ( 4,752 ) 12,243

Israeli codes (i)

330 ( 39 ) — 291

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Total intangible assets $ 96,239 $ ( 3,852 ) $ ( 74,308 ) $ 18,079

(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.

(i) The Israeli codes were transferred by non-controlling interests to Cronos Israel in exchange for their equity interests in the Cronos Israel entities.

Ginkgo Exclusive Licenses

In August 2021, the Company achieved the final productivity target in respect of cannabigerolic acid (“CBGA”), under the Ginkgo Collaboration Agreement.

As a result, 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.

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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.

In November, 2021, the Company achieved the final productivity target in respect of cannabigerovarinic acid (“CBGVA”).

As a result, 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 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 $ 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.

In June 2022, the Company achieved the final productivity target in respect of tetrahydrocannabivaric acid (“THCVA”) under the Ginkgo Collaboration Agreement.

As a result, the Company issued 2,201,236 common shares at a share price of C$ 3.47 , and made a cash payment of $ 600 , for total consideration of C$ 8,412 ($ 6,522 ) to Ginkgo through the Ginkgo Collaboration Agreement.

The definite-lived intangible asset is being amortized using the straight-line method over its estimated useful life of 10 years.

In November 2022, the Company achieved the early commercialization milestone in respect of cannabichromenic acid (“CBCA”) under the Ginkgo Collaboration Agreement.

As a result, the Company issued 489,163 common shares at a share price of C$ 4.11 for total consideration of C$ 2,010 ($ 1,473 ) to Ginkgo through the Ginkgo Collaboration Agreement.

The definite-lived intangible asset is being amortized using the straight-line method over its estimated useful life of 10 years.

In December 2022, the Company achieved the final productivity target in respect of cannabichromevarinic acid (“CBCVA”) under the Ginkgo Collaboration Agreement.

As a result, the Company issued 1,467,490 common shares at a share price of C$ 3.44 for total consideration of C$ 5,048 ($ 3,724 ) to Ginkgo through the Ginkgo Collaboration Agreement.

The definite-lived intangible asset is being amortized using the straight-line method over its estimated useful life of 10 years.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

For the years ended December 31, 2022, 2021 and 2020, the aggregate amortization expense on intangible assets was $ 2,751 , $ 1,800 and $ 814 , respectively, and was included in depreciation and amortization in operating expenses on the consolidated statements of net income (loss) and comprehensive income (loss).

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Health Canada licenses ( 6,910 ) — 412 ( 6,498 )

Ginkgo exclusive license — ( 4,792 ) 40 ( 4,752 )

Ginkgo exclusive licenses ( 4,752 ) — 318 ( 4,434 )

Lord Jones ® brand

2 unchanged sentences

$ ( 74,308 ) $ ( 76 ) $ 734 $ ( 73,650 )

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

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

Software $ — $ ( 4 ) $ — $ ( 4 )

Health Canada licenses ( 1,053 ) ( 5,951 ) 94 ( 6,910 )

Ginkgo exclusive licenses — ( 4,792 ) 40 ( 4,752 )

Lord Jones® brand ( 5,000 ) ( 57,500 ) — ( 62,500 )

— ( 5,000 ) — ( 5,000 )

Trademarks — ( 142 ) — ( 142 )

$ ( 6,053 ) $ ( 68,389 ) $ 134 $ ( 74,308 )

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.

During the fourth quarter of 2021, in connection with the previously anticipated 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 Peace Naturals Campus for cannabis cultivation and production was also impaired.

Accordingly, the Company recorded an impairment loss on long-lived assets in its ROW segment of $ 5,951 in the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

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 in 2021 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.

During the third quarter of 2021, 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.

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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.

3 unchanged sentences

dollars, except for share amounts)

Table of Conte nts

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.

Impairment charges on the Company’s Health Canada licenses for the year ended December 31, 2020 are related to the discontinuation of Original B.C.

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-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.

The Company’s leases have terms that range from three years to six years , excluding land use rights, which generally extend to 15 years.

These leases often include options to extend the term of the lease for up to 10 years.

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As of December 31,

2022 2021 2020

Operating lease cost $ 2,209 $ 2,530 $ 2,479

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For the years ended December 31, 2022, 2021 and 2020, the aggregate depreciation expense on right-of-use assets was $ 1,704 , $ 1,934 and $ 1,310 , 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.

During the year ended December 31, 2022, the Company recognized an impairment charge of $ 1,986 related to the right-of-use lease asset associated with the Company’s corporate headquarters, encompassing approximately 29,000 square feet, in Toronto, Ontario, Canada, for which the Company determined it would seek a sublease.

During the year ended, December 31, 2021, the Company recognized an impairment charge of $ 702 related to the right-of-use asset associated with 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 leased asset was being used and the expectation that, more likely than not, the leased asset would be abandoned before the end of the lease term triggered an impairment.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

The following is a summary of the Company’s future minimum lease payments under operating leases for its premises due in future fiscal years:

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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.

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)

Derivative Liabilities

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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).

On December 16, 2022, Altria notified the Company that it was irrevocably relinquishing all of its rights, title and interest in the Altria Warrant, effective immediately.

As a result, the Company’s liability associated with the Altria Warrant was reduced to nil , with the change recorded to gain on revaluation of derivative liabilities for the year ended December 31, 2022.

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 ( 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 Altria Warrant entitled the holder, subject to certain qualifications and limitations, to subscribe for and purchase up to an additional 10 % of the common shares of Cronos at a per share exercise price of C$ 19.00 , which was set to expire on March 8, 2023.

The Altria Warrant was irrevocably relinquished by Altria on December 16, 2022.

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;

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These rights may not be exercised if Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20 %.

In addition to (and without duplication of) the Pre-emptive Rights, the Company granted to Altria, subject to certain qualifications and limitations, the right to subscribe for common shares of the Company issuable in connection with the exercise, conversion or exchange of convertible securities of the Company issued prior to March 8, 2019 or thereafter (excluding any convertible securities of the Company owned by Altria or any of its subsidiaries), a share incentive plan of the Company, the exercise of any right granted by the Company pro rata to all shareholders of the Company to purchase additional common shares and/or securities of the Company, bona fide bank debt, equipment financing or non-equity interim financing transactions that contemplate an equity component or bona fide acquisitions (including acquisitions of assets or rights under a license or otherwise), mergers or similar business combination transactions or joint ventures involving the Company in order to maintain their ownership percentage of issued and outstanding common shares of the Company immediately preceding any such transactions (“Top-up Rights”).

The price per common share to be paid by Altria pursuant to the exercise of its Top-up Rights will be, subject to certain limited exceptions, the 10 -day volume-weighted average price of the common shares of the Company on the TSX for the 10 full days preceding such exercise by Altria;

provided that the price per common share of the Company to be paid by Altria pursuant to the exercise of its Top-up Rights in connection with the issuance of common shares of the Company pursuant to the exercise of options or warrants that were outstanding as of March 8, 2019 will be C$ 16.25 per common share without any set off, counterclaim, deduction, or withholding.

These rights may not be exercised if Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20 %.

The Altria Warrant, Pre-emptive Rights, and fixed price Top-up Rights have been classified as derivative liabilities.

Cronos Group Inc.

3 unchanged sentences

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

Table of Conte nts

These rights may not be exercised if Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20 %.

The Altria Warrant, Pre-emptive Rights, and fixed price Top-up Rights have been classified as derivative liabilities on the Company’s consolidated balance sheet.

As of December 31, 2022, Altria beneficially held 156,573,537 of the Company’s common shares, an approximate 41 % ownership interest in the Company (calculated on a non-diluted basis).

Reconciliations of the carrying amounts of the derivative liability are presented below:

As of January 1, 2022 Gain on revaluation Foreign exchange effect

As of December 31, 2022

3 unchanged sentences

$ 14,375 $ ( 14,060 ) $ ( 300 ) $ 15

As of January 1, 2020 Gain on revaluation Exercise of Rights Foreign exchange effect

As of January 1, 2021 Gain on revaluation Foreign exchange effect

As of December 31, 2021

3 unchanged sentences

$ 163,410 $ ( 151,360 ) $ 2,325 $ 14,375

Fluctuations in the Company’s share price are a primary driver for the changes in the derivative valuations during each reporting period.

As the share price decreases for each of the related derivative instruments, the liability of the instrument generally decreases.

Share price is one of the significant observable inputs used in the fair value measurement of each of the Company’s derivative instruments.

Fluctuations in the expected life of the derivative instruments and the Company’s share price are primary drivers for the changes in the derivative valuations during each reporting period.

As the period of time the derivative liability is expected to be outstanding decreases and the share price decreases, the fair value typically decreases for each related derivative instrument.

Weighted-average expected life and share price are two of the significant observable inputs used in the fair value measurement of each of the Company’s derivative instruments.

The fair values of the derivative liabilities were determined using the Black-Scholes pricing model using the following inputs:

As of December 31, 2022

Altria Warrant Pre-emptive Rights Top-up Rights

Share price at grant date (per share in C$) $ 4.98 $ 4.98 $ 4.98

Pre-emptive Rights Top-up Rights

Share price at valuation date (per share in C$) $ 3.44 $ 3.44

Subscription price (per share in C$) $ 16.25 $ 16.25

2 unchanged sentences

Weight average expected life (in years) (ii)

1.18 0.50 0.80

Expected annualized volatility (iii)

80 % 80 % 80 %

Expected dividend yield — % — %

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

As of December 31, 2021

Altria Warrant Pre-emptive Rights Top-up Rights

Share price at grant date (per share in C$) $ 8.84 $ 8.84 $ 8.84

Share price at valuation date (per share in C$) $ 4.98 $ 4.98 $ 4.98

Subscription price (per share in C$) $ 19.00 $ 16.25 $ 16.25

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As of December 31, 2022 and December 31, 2021, the expected life uses a range of approximately 0.25 years to 2.75 years and 0.25 years to 3.75 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)

(iii) Volatility was based on an equally weighted blended historical and implied volatility level of the underlying equity securities of the Company.

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.

2 unchanged sentences

10% decrease as of December 31, 2022

Altria Warrant Pre-emptive Rights Top-up Rights

Pre-emptive Rights Top-up Rights

Share price at issuance date $ — $ 4

7 unchanged sentences

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.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

Commitments and Contingencies

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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.

On September 4, 2018, the Company announced an R&D partnership with Ginkgo to develop scalable and consistent production of a variety of certain common and lesser-known cannabinoids.

As part of this partnership, Cronos 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 years ended December 31, 2022 and December 31, 2021, 4,157,888 shares and 2,934,980 shares, respectively, of the Company’s common stock were issued in conjunction with this partnership.

No shares were issued for the year ended December 31, 2020.

(ii) Technion.

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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.

The Company had no further funding requirements as of both December 31, 2022 and 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”).

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See Note 15 “ Related Party Transactions .”

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)

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.

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:

(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

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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

(i) 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.

District Court for the Eastern District of New York against the Company and its Chief Executive Officer 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 Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder against all defendants, and Section 20(a) of the Exchange Act against the individual defendants.

The consolidated amended complaint generally alleges that certain of the Company’s prior public statements about revenues and internal control were incorrect based on the Company’s disclosures relating to the Audit Committee of the Board of Director’s 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.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

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 names (i) the Company, (ii) its Chief Executive Officer, (iii) now former Chief Financial Officer, (iv) former Chief Financial Officer and Chief Commercial Officer, and (v) current and former members of the Board of Directors (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.

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 plaintiff appealed the Court’s dismissal of the motions only with respect to the Company, the Chief Executive Officer, 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.

On September 26, 2022, the Court of Appeal for Ontario reversed the Superior Court’s dismissal of the leave and certification motions, granted the plaintiff leave to proceed to bring a claim for misrepresentation under the Ontario Securities Act, and remitted the certification motion back to the Superior Court.

(ii) 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 (collectively, the “Restatements”).

The Company has been responding to all such requests for information and cooperating with all regulatory authorities.

Securities and Exchange Commission Settlement

On October 24, 2022, the U.S.

Securities and Exchange Commission (“SEC”) issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8(a) of the Securities Act of 1933 (the “Securities Act”) and Section 21(c) of the Exchange Act, Making Findings, and Imposing a Cease-and-Desist Order (the “SEC Order”) resolving the Restatements.

The Company has agreed to settle with the SEC, without admitting or denying the allegations described in the SEC Order.

The SEC Order fully and finally disposes of the investigation of the Company by the SEC into the Restatements without the payment of any civil penalty or other amount.

The SEC Order required the Company to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 13a-13, 13a-15(a), 13a-16 and 12b-20 thereunder.

Additionally, the Company agreed to certain undertakings, which include, among other things, retaining a qualified independent consultant (the “Consultant”) to engage in a review of, and make recommendations with respect to, certain of the Company’s internal accounting controls and internal control over financing reporting.

As a result of the SEC Order, the Company (i) lost its status as a well-known seasoned issuer for a period of three years, (ii) is unable to rely on the private offering exemptions provided by Regulations A and D under the Securities Act for a period of five years and (iii) is unable to rely on the safe harbor provisions of the U.S.

Private Securities Litigation Reform Act of 1995 for a period of three years.

OSC Settlement

On October 24, 2022, the Ontario Capital Markets Tribunal approved a settlement agreement (the “OSC Settlement”) between the Company and the staff of the Ontario Securities Commission (the “OSC”), resolving the Restatements.

Pursuant to the terms of the OSC Settlement, which fully and finally disposes the investigation of the Company by the OSC, Cronos agreed to pay a total of C$ 1.34 million to fully settle the matter, and acknowledged that it had failed to comply with the requirement under Section 77 of the Securities Act (Ontario) to file interim financial reports in the manner set out therein and had acted in a manner contrary to the public interest.

Additionally, the Company agreed to retain the Consultant to engage in a review of, and make recommendations with respect to, certain of the Company’s internal accounting controls and internal control over financing reporting, on substantially the same terms as were required by the SEC pursuant the SEC Order.

Cronos Group Inc.

3 unchanged sentences

dollars, except for share amounts)

Regulatory reviews relating to restatements

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.

Table of Conte nts

(iii) Litigation relating to marketing, distribution and sale of products

On June 16, 2020, an alleged consumer filed a Statement of Claim on behalf of a class in the Court of King’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.

15 unchanged sentences

The Company expects litigation and regulatory proceedings relating to the marketing, distribution and sale of its products to increase.

Share-based Payments

Share-based Compensation

(a) Share-based award plans

1 unchanged sentence

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:

The following table summarizes the total share-based compensation associated with the Company’s stock options and RSUs:

Year ended December 31,

2 unchanged sentences

RSUs 7,740 2,547 8,176

Total share-based payments $ 10,151 $ 15,361 $ 12,508

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)

Liability-classified awards (i)

Total share-based compensation $ 15,115 $ 10,151 $ 15,361

(i) Represents share-based compensation awards conditionally approved for grant to one of the Company’s former executives for a fixed monetary value, but a variable number of shares.

These awards were liability-classified until the number of shares was determined.

(b) Stock options

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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 was approved by the shareholders of the Company, no further awards will be granted under the 2018 Stock Option Plan;

As of June 25,

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

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.

33 unchanged sentences

dollars, except for share amounts)

Table of Conte nts

For the years ended December 31, 2022 and 2021, the fair value per option at grant date was C$ 2.94 and C$ 6.39 , respectively.

23 unchanged sentences

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 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:

Weighted average grant date fair value (C$) (ii)

Weighted average grant date fair value (C$) (iii)

Number of RSUs

Balance at January 1, 2022 $ 9.22 1,225,870

Granted (i)(ii)

4.27 6,140,492

5 unchanged sentences

Balance at January 1, 2021 $ 7.66 948,357

11.06 576,876

Vested and issued 7.57 ( 158,178 )

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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.

(ii) Equity grants for 2020, 2021 and 2022 were held back for certain executives of the Company in connection with ongoing investigations by the SEC and the OSC, which were subsequently settled on October 24, 2022.

On August 5, 2022, the Compensation Committee approved the release of these held-back equity grants conditioned upon settlement of the SEC and OSC investigations.

These RSUs vest in equal installments over a period of three years from what would have been their original grant dates had the grants not been withheld.

(iii) 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.

3 unchanged sentences

dollars, except for share amounts)

Table of Conte nts

(d) Deferred share units

1 unchanged sentence

The DSU Plan is designed to promote a greater alignment of long-term interests between non-executive directors and shareholders.

The number of DSUs granted under the DSU Plan (including fractional DSUs) is determined by dividing the amount of remuneration payable by the closing price as reported by the TSX on the trading day immediately preceding the date of grant.

The number of DSUs granted under the DSU Plan (including fractional DSUs) is determined by dividing the amount of remuneration payable by the closing price as reported by the TSX for awards made prior to 2022 and as reported by Nasdaq for awards made in 2022 on the trading day immediately preceding the date of grant.

DSUs are payable at the time a non-executive director ceases to hold the office of director for any reason and are settled by a lump-sum cash payment, in accordance with the terms of the DSU Plan, based on the fair value of the DSUs at such time.

The fair value of the cash payout is determined by multiplying the number of DSUs vested at the payout date by the closing price as reported by the TSX on the trading day immediately preceding the payout date.

The fair value of the cash payout is determined by multiplying the number of DSUs vested at the payout date by the closing price as reported by the TSX for awards made prior to 2022 and as reported by Nasdaq for awards made in 2022 on the trading day immediately preceding the payout date.

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.

3 unchanged sentences

Granting and vesting of DSUs 443 161,290

Liabilities settled ( 203 ) ( 27,764 )

Gain on revaluation ( 177 ) —

11 unchanged sentences

Balance as of December 31, 2021 $ — —

Weighted average exercise price (C$) Number of warrants

As of December 31, 2022, there were no warrants outstanding.

(f) Liability-classified awards

During the year ended December 31, 2022, the Compensation Committee conditionally approved the grant to one of the Company’s former executives of share-based compensation awards for a fixed monetary amount, but a variable number of common shares.

These awards were liability-classified until the number of common shares was determined.

Financial liability

Balance as of January 1, 2022 $ —

Exercise of warrants 0.27 ( 10,079,313 )

Transfers to equity awards ( 597 )

Balance as of December 31, 2022 $ —

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.

As of December 31, 2021, there were no liability-classified awards outstanding.

Cronos Group Inc.

3 unchanged sentences

dollars, except for share amounts)

For financial reporting purposes, income (loss) from continuing operations before income taxes includes the following components:

Table of Conte nts

For financial reporting purposes, loss from continuing operations before income taxes includes the following components:

Year ended December 31,

3 unchanged sentences

Total $ ( 134,559 ) $ ( 397,135 ) $ ( 73,273 )

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.

The loss before income taxes above excludes losses from discontinued operations of $ nil , $ 500 and $ 650 for the year ended December 31, 2022, 2021 and 2020, respectively.

Income tax expense (benefit) consists of the following components:

7 unchanged sentences

Total $ ( 241 ) $ 40 $ —

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.

As of December 31, 2022, 2021 and 2020, the Company’s current income taxes payable were $ 32,956 , $ 105 and $ 865 , respectively, related to current income tax expense.

Included in other receivables as of December 31, 2022, 2021 and 2020 is $ 40 , $ 543 and $ nil , respectively, related to current income tax benefits.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

Income tax differs from that computed using the combined Canadian federal and provincial statutory income tax rate of 26.5%.

2 unchanged sentences

2022 2021 2020

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

Loss before income taxes $ ( 134,559 ) $ ( 397,135 ) $ $ ( 73,273 )

Effective income tax rate 26.5 % 26.5 % 26.5 %

Expected income tax expense (benefit) $ ( 105,241 ) $ ( 19,417 ) $ 308,973

Non-taxable income 39 ( 711 ) ( 2,156 )

Expected income tax benefit $ ( 35,658 ) $ ( 105,241 ) $ ( 19,417 )

Non-taxable income (loss) ( 2,140 ) 39 ( 711 )

Non-deductible share-based compensation 1,198 1,667 2,498

3 unchanged sentences

Effect of tax rates outside of Canada 1,848 ( 1,869 ) ( 362 )

Effect of change in tax rates 11,041 — —

Fair value gain on financial liabilities ( 3,726 ) ( 40,111 ) ( 34,250 )

Changes in valuation allowance ( 6,873 ) 141,639 48,227

Capital gain on financial liabilities 66,193 — —

Other ( 154 ) 476 867

1 unchanged sentence

The valuation allowance recorded against the loss on discontinued operations is not reflected in the effective tax rate reconciliation presented above for continuing operations.

For the year ended December 31, 2022, the Company realized a capital gain for tax purposes of $ 479,800 as a result of Altria’s irrevocable relinquishment of the Altria Warrant on December 16, 2022, resulting in an increase in the total income tax expense reported for the year ended December 31, 2022.

Cronos Group Inc.

3 unchanged sentences

dollars, except for share amounts)

Table of Conte nts

The following table summarizes the significant components of the Company’s deferred tax assets and liabilities:

9 unchanged sentences

Intangible asset 53,365 65,088

Inventory 1,287 —

Reserve 2,972 3,633

R&D investment tax credits 293 —

Other 3,099 1,450

3 unchanged sentences

Deferred tax liabilities:

Health Canada license — ( 1,662 )

Right-of-use assets ( 365 ) ( 1,860 )

1 unchanged sentence

Total deferred tax liabilities ( 449 ) ( 2,343 )

Net deferred tax liability $ ( 40 ) $ —

Net deferred tax asset (liability) (i)

$ 193 $ ( 40 )

(i) Net deferred tax asset (liability) is reported as Other assets within our consolidated balance sheet.

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.

A valuation allowance has been provided for the deferred tax assets that the Company determined did not meet the more-likely-than-not recognition threshold under U.S.

As of December 31, 2021, the Company had net operating losses in Canada, the U.S., and Israel available to offset future years’ taxable income of approximately $ 276,497 , $ 117,983 , and $ 24,843 , respectively.

As of December 31, 2022 and 2021, the Company’s valuation allowance was $ 214,199 and $ 224,776 , respectively.

The valuation allowance decreased by $ 10,577 during the year ended December 31, 2022, and increased by $ 138,841 during the year ended December 31, 2021.

The decrease in the valuation allowance during the year ended December 31, 2022, was primarily due to the recognition of a portion of deferred tax assets for which a valuation allowance was recorded in the prior year.

As of December 31, 2022, the Company had net operating losses in Canada, the U.S., and Israel available to offset future years’ taxable income of approximately $ 216,120 , $ 134,593 , $ 18,739 , respectively.

3 unchanged sentences

The net operating losses in Israel can be carried forward indefinitely.

The decrease in net operating loss carry-forward balance reported in Canada was primarily due to the Company utilizing a portion of its net operating loss carry-forward balance in Canada to offset a portion of the capital gain realized as a result of Altria’s irrevocable relinquishment of the Altria Warrant on December 16, 2022.

Utilization of the net operating loss carryforwards may be subject to limitations under the tax laws applicable in each tax jurisdiction due to ownership changes that could occur in the future.

These ownership changes could limit the amount of net operating loss carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax expense.

Specifically, if Altria exercises its warrant the Company would recognize a change in control event and certain Canadian net operating loss carryforwards may be limited.

Due to the existence of the valuation allowance, limitations created by ownership changes, if any, will not impact the Company’s effective tax rate.

As of December 31, 2022, the Company has various scientific research and experimental development investment tax credit carryforwards of $ 293 related to Canadian operations, which, if not utilized, will begin to expire in 2040.

Investment tax credits are recognized when realization of the tax credits is more likely than not.

The Company files federal income tax returns in Canada, Israel and the U.S.

The Company has open tax years with the taxation jurisdictions.

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

Canada 2016 – 2021

United States 2019 – 2021

Israel 2018 – 2021

The following table outlines the movements in the valuation allowance:

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 )

These open years contain certain matters that could be subject to differing interpretations of applicable tax laws and

Cronos Group Inc.

3 unchanged sentences

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, 2021 and December 31, 2020 was primarily due to an increase in net operating loss carryforwards.

Table of Conte nts

regulations and tax treaties, as they relate to the amount, timing, or inclusion of revenue and expense.

As of December 31, 2022, Peace Naturals is under examination with the Canadian Reserve Agency for tax years 2019 and 2020.

Jurisdiction Open Years

Canada 2018 – 2022

United States 2019 – 2022

Israel 2019 – 2022

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.

4 unchanged sentences

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.

Segment Information and Disaggregated Revenue

Segment reporting is prepared on the same basis that the Company’s chief operating decision maker (the “CODM”) manage the business, make operating decisions and assess the Company’s performance.

For the years ended December 31, 2022 and December 31, 2021, the Company determined that it has the following two reportable segments:

1 unchanged sentence

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 .

hemp-derived products.

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

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

The results of each segment are regularly reviewed by the CODMs to assess the performance of the segment and make decisions regarding the allocation of resources.

The CODMs review adjusted earnings (loss) before interest, tax, depreciation and amortization (“Adjusted EBITDA”) as the measure of segment profit or loss to evaluate performance of and allocate resources for its reportable segments.

The results of each segment are regularly reviewed by the CODM to assess the performance of the segment and make decisions regarding the allocation of resources.

The CODM reviews 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 ongoing business performance.

6 unchanged sentences

Net revenue 5,155 86,749 — 91,904

Share of loss from equity accounted investments — 6,313 — 6,313

Share of income from equity method investments — 3,114 — 3,114

Interest income 4,519 18,031 — 22,550

3 unchanged sentences

Depreciation and amortization 344 5,681 — 6,025

Impairment loss on goodwill and indefinite-lived assets 236,019 37 — 236,056

Impairment loss on long-lived assets — 3,493 — 3,493

Loss from discontinued operations — ( 500 ) — ( 500 )

Adjusted EBITDA ( 20,134 ) ( 37,230 ) ( 23,244 ) ( 80,608 )

5 unchanged sentences

dollars, except for share amounts)

Table of Conte nts

Year ended December 31, 2021

4 unchanged sentences

Net revenue 9,874 64,561 — 74,435

Share of loss from equity accounted investees — 4,510 — 4,510

Share of loss from equity method investments — ( 6,313 ) — ( 6,313 )

Interest income 40 9,058 — 9,098

4 unchanged sentences

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 )

7 unchanged sentences

Net revenue 9,495 37,224 — 46,719

Share of loss from equity accounted investees — 2,009 — 2,009

Share of loss from equity method investments — ( 4,510 ) — ( 4,510 )

Interest income 16 18,585 — 18,601

3 unchanged sentences

Depreciation and amortization 234 2,638 — 2,872

Impairment loss on indefinite-lived assets 40,000 — — 40,000

Loss from discontinued operations — ( 650 ) — ( 650 )

6 unchanged sentences

dollars, except for share amounts)

Table of Conte nts

The following tables set forth a reconciliation of net income (loss) as determined in accordance with U.S.

3 unchanged sentences

US ROW Corporate Total

Net income (loss) $ ( 283,883 ) $ ( 81,811 ) $ ( 31,510 ) $ ( 397,204 )

Net loss $ ( 84,194 ) $ ( 54,129 ) $ ( 30,411 ) $ ( 168,734 )

Interest income, net ( 4,518 ) ( 18,019 ) — ( 22,537 )

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

Income tax expense — 34,175 — 34,175

Depreciation and amortization 1,485 11,637 — 13,122

EBITDA ( 87,227 ) ( 26,336 ) ( 30,411 ) ( 143,974 )

Share of income from equity accounted investments — ( 3,114 ) — ( 3,114 )

Impairment loss on long-lived assets (ii)

4 unchanged sentences

— ( 14,739 ) — ( 14,739 )

Transaction costs (v)

Impairment loss on other investments (vi)

61,392 — — 61,392

Foreign currency transaction loss — 2,286 — 2,286

Other, net (vii)

169 324 — 493

Loss from discontinued operations (viii)

Share-based payments (ix)

Restructuring costs (ix)

1,788 3,545 — 5,333

Financial statement review costs (x)

Share-based compensation (x)

3,744 11,371 — 15,115

Depreciation and amortization 917 14,485 — 15,402

Financial statement review costs (xi)

— — 7,167 7,167

Adjusted EBITDA $ ( 20,134 ) $ ( 37,230 ) $ ( 23,244 ) $ ( 80,608 )

2 unchanged sentences

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

Share of loss from equity accounted investments — 4,510 — 4,510

Net loss $ ( 283,883 ) $ ( 81,811 ) $ ( 31,510 ) $ ( 397,204 )

Interest income, net ( 40 ) ( 9,031 ) — ( 9,071 )

Income tax benefit ( 89 ) ( 342 ) — ( 431 )

Depreciation and amortization 917 14,485 — 15,402

EBITDA ( 283,095 ) ( 76,699 ) ( 31,510 ) ( 391,304 )

Share of loss from equity method 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 )

Loss on revaluation of financial instruments (iv)

Gain on revaluation of financial instruments (iv)

— ( 8,611 ) — ( 8,611 )

Transaction costs (v)

Gain on disposal of other investments (vi)

— — 3,801 3,801

2 unchanged sentences

Loss from discontinued operations (viii)

Share-based payments (ix)

Share-based compensation (x)

3,401 6,750 — 10,151

Financial statement review costs (x)

Financial statement review costs (xi)

— — 7,102 7,102

Depreciation and amortization 234 6,811 — 7,045

Adjusted EBITDA $ ( 40,717 ) $ ( 99,139 ) $ ( 20,607 ) $ ( 160,463 )

4 unchanged sentences

dollars, except for share amounts)

Table of Conte nts

(in thousands of U.S.

2 unchanged sentences

Net income (loss) $ ( 77,368 ) $ 32,671 $ ( 30,573 ) $ ( 75,270 )

Interest income, net ( 6 ) ( 27,963 ) — ( 27,969 )

Repurposing charges — 7,268 — 7,268

Interest expense (income), net 18 ( 18,433 ) — ( 18,415 )

Income tax expense 323 1,024 — 1,347

Depreciation and amortization 234 6,811 — 7,045

EBITDA ( 76,793 ) 22,073 ( 30,573 ) ( 85,293 )

Share of loss from equity accounted investments — 4,510 — 4,510

Gain on revaluation of derivative liabilities (iii)

Impairment loss on goodwill and indefinite-lived intangible assets (i)

40,000 — — 40,000

Gain on revaluation of financial instruments (iv)

Gain on revaluation of derivative liabilities (iii)

— ( 129,254 ) — ( 129,254 )

Loss on revaluation of financial instruments (iv)

Transaction costs (v)

117 32,091 — 32,208

Gain on disposal of investments (vi)

Other, net (vii)

20 1,805 — 1,825

Loss from discontinued operations (viii)

Share-based payments (ix)

Share-based compensation (x)

8,714 6,647 — 15,361

Depreciation and amortization 174 3,739 — 3,913

Financial statement review costs (xi)

— — 9,688 9,688

Gain on disposal of investments (xii)

— ( 4,789 ) — ( 4,789 )

Adjusted EBITDA $ ( 28,019 ) $ ( 98,349 ) $ ( 20,885 ) $ ( 147,253 )

3 unchanged sentences

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.

(ii) For the year ended December 31, 2022, impairment loss on long-lived assets relates to the Company’s decision to seek a sublease for leased office space in Toronto, Ontario, Canada during the first quarter of 2022.

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 .”

1 unchanged sentence

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.

(iv) For the year ended December 31, 2022 and 2021, gain on revaluation of financial instruments relates primarily to the Company’s unrealized holding gain on its mark-to-market investment in Vitura as well as revaluations of financial liabilities resulting from DSUs.

For the year ended December 31, 2020, (gain) loss on revaluation of financial instruments relates to revaluations of financial liabilities resulting from DSUs.

See Note 3 “ Investments .”

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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.

(vi) For the year ended December 31, 2022, impairment loss on other investments related to the PharmaCann Option for the difference between its fair value and carrying amount.

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.

(vii) For the year ended December 31, 2022, other, net primarily related to $ 877 loss on disposal of assets and $ 384 of dividends declared by Vitura on the Company’s 55,176,065 ordinary shares in the capital of Vitura.

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 and 2020, 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 .”

(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.

(ix) For the year ended December 31, 2022, restructuring costs related to the employee-related severance costs and other restructuring costs associated with the Realignment, including the change in the nature of operations at the Peace Naturals Campus.

See Note 16 “ Restructuring.

(x) For the years ended December 31, 2022, 2021 and 2020, share-based compensation 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 Compensation .”

(xi) For the years ended December 31, 2022, 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.

(xii) For the year ended December 31, 2020, 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 .”

Cronos Group Inc.

3 unchanged sentences

dollars, except for share amounts)

Net revenue attributed to a geographic region based on the location of the customer were as follows:

Table of Conte nts

Net revenue attributed to a geographic region based on the location of the customer was as follows:

Year ended December 31,

2022 2021 2020

Canada $ 56,233 $ 50,294 $ 34,538

13 unchanged sentences

2022 2021 2020

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

Basic loss per share computation

Net loss from continuing operations attributable to the shareholders of Cronos Group $ ( 168,734 ) $ ( 395,607 ) $ ( 72,487 )

Weighted-average number of common shares outstanding for computation for basic earnings per share (i)

376,961,797 370,390,965 351,576,848

Basic loss from continuing operations per share $ ( 0.45 ) $ ( 1.07 ) $ ( 0.21 )

Loss from discontinued operations attributable to the shareholders of Cronos Group $ — $ ( 500 ) $ ( 650 )

Weighted-average number of common shares outstanding 370,390,965 351,576,848 310,067,179

Weighted-average number of common shares outstanding from computation for basic earnings per share 376,961,797 370,390,965 351,576,848

Basic loss from discontinued operations per share $ 0.00 $ 0.00 $ 0.00

4 unchanged sentences

dollars, except for share amounts)

Year ended December 31,

2021 2020 2019

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

Table of Conte nts

Diluted loss per share computation

Net loss used in the computation of basic loss from continuing operations per share $ ( 168,734 ) $ ( 395,607 ) $ ( 72,487 )

Adjustment for exercise of rights on derivative liabilities — — —

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

Net loss used in the computation of diluted loss from continuing operations per share $ ( 168,734 ) $ ( 395,607 ) $ ( 72,487 )

Weighted-average number of common shares outstanding used in the computation of basic loss per share 376,961,797 370,390,965 351,576,848

Dilutive effect of stock options — — —

Dilutive effect of restricted share units — — 732,972

Dilutive effect of RSUs — — —

Dilutive effect of Altria Warrant — — —

Dilutive effect of Top-up Rights – market price — — —

Weighted-average number of common shares for computation of diluted earnings (loss) from continuing operations per share (i)

Weighted-average number of common shares for computation of diluted loss from continuing operations per share (i)

376,961,797 370,390,965 351,576,848

Diluted earnings (loss) per share from continuing operations $ ( 1.07 ) $ ( 0.21 ) $ 3.33

Diluted loss per share from continuing operations $ ( 0.45 ) $ ( 1.07 ) $ ( 0.21 )

Loss from discontinued operations attributable to the shareholders of Cronos Group $ — $ ( 500 ) $ ( 650 )

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

Weighted-average number of common shares for computation of diluted loss from discontinued operations per share 376,961,797 370,390,965 351,576,848

Diluted loss from discontinued operations per share $ 0.00 $ 0.00 $ 0.00

13 unchanged sentences

dollars, except for share amounts)

Table of Conte nts

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:

10 unchanged sentences

Short-term investments 117,684 — — 117,684

Other investments (i)

8,000 — — 8,000

Derivative liabilities — — 14,375 14,375

(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.

(i) On December 16, 2021, Cronos Australia (now, Vitura) 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 zero which constituted a loss of significant influence.

As such, the Company reclassified the investment from an investment in equity method investments under the equity method of accounting to other investments under the fair value method of accounting.

See Note 3 “ Investments .”

There were no transfers between fair value categories during the periods presented.

The following tables present information about the Company’s assets that are measured at fair value on a non-recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:

As of December 31, 2022

Level 1 Level 2 Level 3 Total

Other investments (i)

— — 49,000 49,000

(i) On June 14, 2021, the Company purchased an option to acquire 473,787 shares of Class A Common Stock of 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 .

On February 28, 2022, PharmaCann closed its previously announced transaction with LivWell pursuant to which PharmaCann acquired LivWell.

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

As a result of the LivWell Transaction, the Company’s ownership percentage in PharmaCann on a fully diluted basis decreased to approximately 6.4 %.

As of December 31, 2022, the Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 6.3 %.

See Note 3 “ Investments .”

There were no transfers between fair value categories during the periods presented.

(b) Financial risks

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The Company’s maximum exposure to this risk is equal to the carrying amount of these financial assets, which amounted to $ 987,442 and $ 1,118,684 as of December 31, 2022 and December 31, 2021, respectively.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

(i) Accounts receivable

5 unchanged sentences

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.

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, 2022, 2021 and 2020, the Company had $ 2 , $ 8 and $ 9 , respectively, in expected credit losses on receivables from contracts with customers in the ROW segment and $ 217 , $ 104 and $ 65 , respectively, in expected credit losses on receivables from contracts with customers in the U.S.

As of December 31, 2022, the Company has assessed that there is a concentration of credit risk as 55 % of the Company’s accounts receivable were due from three customers with an established credit history with the Company.

As of December 31, 2021, 88 % 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.

1 unchanged sentence

During the year ended December 31, 2022, the Company earned a total net revenue before excise taxes of $ 63,509 from three major customers in the ROW segment, together accounting for 55 % 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 year ended December 31, 2021, the ROW segment earned a total net revenue before excise taxes of $ 41,603 from three major customers, together accounting for 56 % of the Company’s total net revenue before excise taxes.

During the year ended December 31, 2020, the ROW segment earned a total net revenue before excise taxes of $ 34,295 from four major customers, accounting for 63 % of the Company’s total net revenues before excise taxes.

During the years ended December 31, 2022, 2021, and 2020 the U.S.

11 unchanged sentences

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.

The Company’s funding has primarily been provided in the form of capital raised through the issuance of common shares and warrants.

As of December 31, 2022, the Company has assessed a concentration of risk of vendors as 27 % of accounts payable were due to one vendor.

As of December 31, 2021, the Company has assessed a concentration risk of vendors as 19 % of accounts payable due to one vendor.

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.

3 unchanged sentences

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, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

Interest rate risk

Interest rate risk is the risk that the value or yield of fixed-income investments may decline if interest rates change.

Fluctuations in interest rates may impact the level of income and expense recorded on the cash equivalents and short-term investments, and the market value of all interest-earning assets, other than those which possess a short term to maturity.

A 10% change in the interest rate in effect on December 31, 2022 and December 31, 2021, 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.

1 unchanged sentence

During the years ended December 31, 2022 and December 31, 2021, the Company had net interest income of $ 22,537 and $ 9,071 , respectively.

During the year ended December 31, 2022, the Company’s average variable interest rate increased approximately 3.5 %.

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 exposed to this risk on investments in equity investments 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.

12 unchanged sentences

$ — $ 436 $ 1,199

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, 2022 and 2021.

Refer to Note 8 “ Derivative Liabilities ” for further information on the derivative liabilities related to the Altria Investment.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S.

dollars, except for share amounts)

Table of Conte nts

(b) Cronos GrowCo

6 unchanged sentences

$ 18,144 $ 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.

The Company’s outstanding payable balance to Cronos GrowCo was $ 2,519 and $ 82 as of December 31, 2022 and December 31, 2021, respectively.

Additionally, on August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into the GrowCo Credit Facility.

See additional information in Note 4 “ Loans Receivable, net .”

In November 2022, the Company entered into an agreement with an external vendor whereby the vendor would provide certain manufacturing services to the Company.

The vendor then subcontracted out a portion of those services to another company whose chief executive officer is an immediate family member of an executive of the Company.

The Company has no direct contractual relationship with the related party.

During the year-ended 2022, the Company purchased $ 645 of products and services under this agreement and had no outstanding accounts payable related to the agreement as of December 31, 2022.

Cronos Group Inc.

3 unchanged sentences

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:

Table of Conte nts

Restructuring

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”).

As part of the Realignment, on February 28, 2022, the Board approved plans to leverage the Company’s strategic partnerships to improve supply chain efficiencies and reduce manufacturing overhead by exiting its production facility in Stayner, Ontario, Canada (the “Peace Naturals Campus”).

On February 27, 2023, the Board approved revisions to the Realignment, which are expected to result in the Company maintaining select components of its operations at the Peace Naturals Campus, namely distribution warehousing, certain R&D activities and manufacturing of certain of the Company’s proprietary innovation products, while seeking to lease the remaining portions of the Peace Naturals Campus to third parties.

The Realignment initiatives were intended to position the Company to drive profitable and sustainable growth over time.

During the year ended December 31, 2022, the Company recognized $ 5,333 of restructuring costs in connection with the Realignment, including the change in the nature of operations at the Peace Naturals Campus.

Charges related thereto include employee-related costs such as severance, relocation and other termination benefits, as well as contract termination and other related costs.

The Company incurred the following restructuring costs by reportable segment:

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)

Rest of World $ 3,544 $ —

United States 1,789 —

Total $ 5,333 $ —

The following table summarizes the Company’s restructuring activity for the year ended December 31, 2022:

As of January 1, 2022 Expenses Payments/Write-offs As of December 31, 2022

Employee termination benefits $ — $ 3,671 $ ( 3,268 ) $ 403

Other restructuring costs — 1,662 ( 1,641 ) 21

Total $ — $ 5,333 $ ( 4,909 ) $ 424

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.

In March 2022, following the evaluation of our global supply chain, we announced the planned exit of our Peace Naturals Campus as part of the Realignment.

Given the constantly evolving operating landscape Cronos participates in and our continued work towards building an efficient global supply chain, we continue to remain agile in our evaluation of our footprint and the market’s capabilities.

To that end, in February 2023, the Board approved plans to maintain select components of the Company’s operations at the Peace Naturals Campus, namely distribution and warehousing, certain R&D activities and manufacturing of certain of the Company’s proprietary innovation products.

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