Cronos Group Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read together with other information, including Cronos Group’s condensed consolidated interim financial statements and the related notes to those statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023 (this “Quarterly Report”), consolidated financial statements appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”), Part I, Item 1A, Risk Factors, of the Annual Report and Part II, Item 1A, Risk Factors, of this Quarterly Report. Forward-Looking Statements This Quarterly Report, the documents incorporated into this Quarterly Report by reference, other reports we file with, or furnish to, the U.S. Securities and Exchange Commission (“SEC”) and other regulatory agencies, and statements by our directors, officers, other employees and other persons authorized to speak on our behalf contain information that may constitute forward-looking information and forward-looking statements within the meaning of applicable U.S. and Canadian securities laws and court decisions (collectively, “Forward-Looking Statements”), which are based upon our current internal expectations, estimates, projections, assumptions and beliefs. All information that is not clearly historical in nature may constitute Forward-Looking Statements. In some cases, Forward-Looking Statements can be identified by the use of forward-looking terminology, such as “expect”, “likely”, “may”, “will”, “should”, “intend”, “anticipate”, “potential”, “proposed”, “estimate” and other similar words, expressions and phrases, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussion of strategy. Forward-Looking Statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of historical fact. Forward-Looking Statements include, but are not limited to, statements with respect to: • expectations related to our announcement of additional cost-cutting measures, including our decision to wind-down operations at our Winnipeg, Manitoba facility and list the facility for sale, the expected costs and benefits from the wind-down of production activities at the facility, challenges and effects related thereto as well as changes in strategy, metrics, investments, costs, operating expenses, employee turnover and other changes with respect thereto; • expectations related to the impact of our decision to exit our U.S. hemp-derived cannabinoid product operations, including the costs, expenses and write-offs associated therewith, the impact on our operations and our financial statements and any future plans to re-enter the U.S. market; • expectations related to our announced realignment (the “Realignment”) and any progress, challenges and effects related thereto as well as changes in strategy, metrics, investments, reporting structure, costs, operating expenses, employee turnover and other changes with respect thereto; • the timing of the change in the nature of operations at our facility in Stayner, Ontario (the “Peace Naturals Campus”) and the expected costs and benefits from the wind-down of cultivation and certain production activities at the Peace Naturals Campus; • our ability to effectively wind-down cultivation and certain production activities at the Peace Naturals Campus in an organized fashion and acquire raw materials from other suppliers, including Cronos Growing Company Inc. (“Cronos GrowCo”), and the costs and timing associated therewith; • expectations regarding the potential success of, and the costs and benefits associated with, our joint ventures, strategic alliances and equity investments, including the strategic partnership (the “Ginkgo Strategic Partnership”) with Ginkgo Bioworks Holdings, Inc. (“Ginkgo”); • our ability or plans to identify, develop, commercialize or expand our technology and research and development (“R&D”) initiatives in cannabinoids, or the success thereof; • expectations regarding revenues, expenses, gross margins and capital expenditures; • expectations regarding our future production and manufacturing strategy and operations, the costs and timing associated therewith and the receipt of applicable production and sale licenses; • the ongoing impact of the legalization of additional cannabis product types and forms for adult-use in Canada, including federal, provincial, territorial and municipal regulations pertaining thereto, the related timing and impact thereof and our intentions to participate in such markets; • the legalization of the use of cannabis for medical or adult-use in jurisdictions outside of Canada, including the United States, the related timing and impact thereof and our intentions to participate in such markets, if and when such use is legalized; • the grant, renewal, withdrawal, suspension, delay and impact of any license or supplemental license to conduct activities with cannabis or any amendments thereof; • our ability to successfully create and launch brands and cannabis products; • the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, including CBD and other cannabinoids; 27 Table of Contents • laws and regulations and any amendments thereto applicable to our business and the impact thereof, including uncertainty regarding the application of United States (“U.S.”) state and federal law and the scope of any regulations by the U.S. Food and Drug Administration (the “FDA”), the U.S. Drug Enforcement Administration (the “DEA”), the U.S. Federal Trade Commission (the “FTC”), the U.S. Patent and Trademark Office (the “PTO”) and any state equivalent regulatory agencies; • the anticipated benefits and impact of Altria Group Inc.’s investment in the Company (the “Altria Investment”), pursuant to a subscription agreement dated December 7, 2018; • uncertainties as to our ability to exercise our option (the “PharmaCann Option”) in PharmaCann Inc. (“PharmaCann”), in the near term or the future, in full or in part, including the uncertainties as to the status and future development of federal legalization of cannabis in the U.S. and our ability to realize the anticipated benefits of the transaction with PharmaCann; • expectations regarding the implementation and effectiveness of key personnel changes; • expectations regarding acquisitions and dispositions and the anticipated benefits therefrom; • our ability to timely and effectively remediate any material weaknesses in our internal control over financial reporting; • expectations of the amount or frequency of impairment losses, including as a result of the write-down of intangible assets, including goodwill; • the uncertainties associated with the COVID-19 pandemic, including our ability, and the abilities of our joint ventures and our suppliers and distributors, to effectively deal with the restrictions, limitations and health issues presented by the COVID-19 pandemic, the ability to continue our production, distribution and sale of our products, and demand for and the use of our products by consumers; • the impact of the ongoing military conflict between Russia and Ukraine (and resulting sanctions) on our business, financial condition and results of operations or cash flows; • our compliance with the terms of the settlement with the SEC (the “Settlement Order”) and the settlement agreement with the Ontario Securities Commission (“Settlement Agreement”), including complying with any recommendations made by the independent consultant appointed pursuant to the Settlement Order and Settlement Agreement; and • the impact of the loss of our ability to rely on private offering exemptions under Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), and the loss of our status as a well-known seasoned issuer, each as a result of the Settlement Order. Certain of the Forward-Looking Statements contained herein concerning the industries in which we conduct our business are based on estimates prepared by us using data from publicly available governmental sources, market research, industry analysis and on assumptions based on data and knowledge of these industries, which we believe to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. The industries in which we conduct our business involve risks and uncertainties that are subject to change based on various factors, which are described further below. The Forward-Looking Statements contained herein are based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including: (i) our ability to efficiently and effectively wind-down our operations at our Winnipeg, Manitoba facility and realize the expected cost-savings and other benefits related thereto, (ii) our ability to efficiently and effectively wind-down our operations in the U.S. and realize the expected cost-savings and other benefits related thereto, (iii) our ability to realize the expected cost-savings, efficiencies and other benefits of our Realignment and other announced cost-cutting measures and employee turnover related thereto; (iv) our ability to efficiently and effectively wind-down our cultivation and certain production activities at the Peace Naturals Campus, receive the benefits of the change in the nature of our operations at our Peace Naturals Campus and acquire raw materials on a timely and cost-effective basis from third parties, including Cronos GrowCo; (v) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our acquisitions and strategic investments; (vi) the production and manufacturing capabilities and output from our facilities and our joint ventures, strategic alliances and equity investments; (vii) government regulation of our activities and products including, but not limited to, the areas of cannabis taxation and environmental protection; (viii) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (ix) consumer interest in our products; (x) competition; (xi) anticipated and unanticipated costs; (xii) our ability to generate cash flow from operations; (xiii) our ability to conduct operations in a safe, efficient and effective manner; (xiv) our ability to hire and retain qualified staff, and acquire equipment and services in a timely and cost-efficient manner; (xv) our ability to exercise the PharmaCann Option and realize the anticipated benefits of the transaction with PharmaCann; (xvi) our ability to complete planned dispositions, and, if completed, obtain our anticipated sales price; (xvii) our ability, and the abilities of our joint ventures and our suppliers and distributors, to effectively deal with the restrictions, limitations and health issues presented by the COVID-19 pandemic and the ability to continue our production, distribution and sale of our products and customer demand for and use of our products; (xviii) general economic, financial market, regulatory and political conditions in which we operate; (xix) management’s perceptions of historical trends, current conditions and expected future developments; and (xx) other considerations that management believes to be appropriate in the circumstances. While our management considers these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct. 28 Table of Contents By their nature, Forward-Looking Statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct, and that objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the Forward-Looking Statements in this Quarterly Report and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf. Such factors include, without limitation, that we may not be able to wind-down our operations at our Winnipeg, Manitoba facility in a disciplined and cost-effective manner or achieve the anticipated benefits thereof or be able to access raw materials on a timely and cost-effective basis from third-parties; that we may be unable to further streamline our operations and reduce expenses; that we may not be able to wind-down our U.S. operations in a disciplined and cost-effective manner or achieve the anticipated benefits thereof or be able to effectively and efficiently re-enter the U.S. market in the future; that we may not able to wind-down cultivation and certain production activities at the Peace Naturals Campus in a disciplined manner or achieve the anticipated benefits of the change in the nature of our operations or be able to access raw materials on a timely and cost-effective basis from third-parties, including Cronos GrowCo; the risk that the COVID-19 pandemic and the military conflict between Russia and Ukraine may disrupt our operations and those of our suppliers and distribution channels and negatively impact the demand for and use of our products; the risk that cost savings and any other synergies from the Altria Investment may not be fully realized or may take longer to realize than expected; failure to execute key personnel changes; the risks that our Realignment, the change in the nature of our operations at the Peace Naturals Campus and our further leveraging of our strategic partnerships will not result in the expected cost-savings, efficiencies and other benefits or will result in greater than anticipated turnover in personnel; lower levels of revenues; the lack of consumer demand for our cannabis products; our inability to reduce expenses at the level needed to meet our projected net change in cash and cash equivalents; our inability to manage disruptions in credit markets or changes to our credit ratings; unanticipated future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; growth opportunities not turning out as expected; the lack of cash flow necessary to execute our business plan (either within the expected timeframe or at all); difficulty raising capital; the potential adverse effects of judicial, regulatory or other proceedings, or threatened litigation or proceedings, on our business, financial condition, results of operations and cash flows; volatility in and/or degradation of general economic, market, industry or business conditions; compliance with applicable environmental, economic, health and safety, energy and other policies and regulations and in particular health concerns with respect to vaping and the use of cannabis in vaping devices; the unexpected effects of actions of third parties such as competitors, activist investors or federal (including U.S. federal), state, provincial, territorial or local regulatory authorities or self-regulatory organizations; adverse changes in regulatory requirements in relation to our business and products; legal or regulatory obstacles that could prevent us from being able to exercise the PharmaCann Option and thereby realizing the anticipated benefits of the transaction with PharmaCann; dilution of our fully diluted ownership of PharmaCann and the loss of our rights as a result of that dilution; a delay in our remediation of a material weakness in our internal control over financial reporting and the improvement of our control environment and our systems, processes and procedures; and the factors discussed under Part I, Item 1A “Risk Factors” of the Annual Report and under Part II, Item 1A “Risk Factors” in our Quarterly Reports. Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on Forward-Looking Statements. Forward-Looking Statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as of and for periods ended on certain dates and to present information about management’s current expectations and plans relating to the future, and the reader is cautioned not to place undue reliance on these Forward-Looking Statements because of their inherent uncertainty and to appreciate the limited purposes for which they are being used by management. While we believe that the assumptions and expectations reflected in the Forward-Looking Statements are reasonable based on information currently available to management, there is no assurance that such assumptions and expectations will prove to have been correct. Forward-Looking Statements are made as of the date they are made and are based on the beliefs, estimates, expectations and opinions of management on that date. We undertake no obligation to update or revise any Forward-Looking Statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such Forward-Looking Statements. The Forward-Looking Statements contained in this Quarterly Report and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf are expressly qualified in their entirety by these cautionary statements. Foreign currency exchange rates All currency amounts in this Quarterly Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars. The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of June 30, 2023, June 30, 2022, and December 31, 2022. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates. The condensed consolidated statements of net loss and comprehensive income (loss) and condensed consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period as reported on Bloomberg. The exchange rates used to translate from Canadian dollars (“C$”) to dollars is shown below: 29 Table of Contents (Exchange rates are shown as C$ per $) As of June 30, 2023 June 30, 2022 December 31, 2022 Spot rate 1.3242 1.2874 1.3554 Year-to-date average rate 1.3474 1.2715 N/A The exchange rates used to translate from Israeli Shekels (“ILS”) to dollars is shown below: (Exchange rates are shown as ILS per $) As of June 30, 2023 June 30, 2022 December 31, 2022 Spot rate 3.7051 3.4936 3.5178 Year-to-date average rate 3.5892 3.2670 N/A Business Overview 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 ® . Strategy Cronos seeks to create value for shareholders by focusing on four core strategic priorities: • growing a portfolio of iconic brands that responsibly elevate the consumer experience; • developing a diversified global sales and distribution network; • establishing an efficient global supply chain; and • creating and monetizing disruptive intellectual property. Discontinued Operations In the second quarter of 2023, Cronos exited its U.S. hemp-derived cannabinoid product operations. The exit of the U.S. operations represented a strategic shift that has a major effect on Cronos’ operations and financial results, and as such, qualifies for reporting as discontinued operations in our condensed consolidated statements of net loss and comprehensive income (loss). Prior period amounts have been reclassified to reflect the discontinued operations classification of the U.S. operations. For further detail on the discontinuation of the U.S. operations, see Note 2 “Discontinued Operations” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report. Business segments Beginning in the second quarter of 2023, following the exit of our U.S. operations, Cronos is reporting through one consolidated segment, which includes operations in both Canada and Israel. In Canada, Cronos operates two wholly owned license holders under the Cannabis Act (Canada) (the “Cannabis Act”), Peace Naturals Project Inc. (“Peace Naturals”), which has production facilities near Stayner, Ontario (the “Peace Naturals Campus”), and Thanos Holdings Ltd., known as Cronos Fermentation (“Cronos Fermentation”), which has a production facility in Winnipeg, Manitoba. In Israel, the Company operates under the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production and marketing of dried flower, pre-rolls and oils in the Israeli medical market. 30 Table of Contents Recent Developments Brand and Product Portfolio In the second quarter of 2023, the Company expanded its number-one-ranking gummy portfolio with two new flavors, Pink Lemonade and Strawberry Kiwi, under the SOURZ by Spinach ® brand. In July 2023, the Company expanded its vape offering under the Spinach ® brand by launching 1.2 gram vapes, featuring 1,000mg of THC per cartridge. The initial flavor offerings under this new size format are Peach Punch, Pink Lemonade and Strawberry Slurricane. Cronos continued to elevate its pre-roll offering under the Spinach ® brand by launching three new infused pre-rolls during the second quarter of 2023. The Spinach ® Fully Charged infused pre-roll line extension includes Peach Punch, Pink Lemonade and Strawberry Slurricane. In Israel, Cronos launched two new pre-roll offerings under the Peace Naturals ® brand, Wedding Rolls and Cocoa Bomba, in addition to a new flower offering with our successful Space Cake genetic. Strategic and Organizational Update In May 2023, Cronos simultaneously announced the discontinuation of the U.S. segment and the planned repurposing of the Lord Jones ® brand, by bringing the brand back to its adult-use roots in Canada in the fourth quarter of 2023. In August 2023, following a careful evaluation of the Company’s global supply chain, the Company announced the planned wind-down of Cronos Fermentation, with intentions to list the facility for sale. The Company expects to incur charges of approximately $1.2 million in connection with the planned exit. 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 2023. Cronos expects to continue to operate the Cronos Fermentation facility with a phased reduction and planned exit by the end of 2023. Also in August 2023, the Company announced organization-wide cost reductions. Expected restructuring costs of approximately $2.0 million, with the majority expected to be incurred in the second half of 2023, include mostly one-time employee-related severance charges. Global Supply Chain In July 2023, Cronos signed an agreement with one of the leading distributors of medical cannabis in Germany. Cronos anticipates commencing shipments of cannabis to Germany in the third quarter of 2023. Cronos intends to launch the Peace Naturals ® medical-focused brand in Germany with a goal to make it a top brand similar to our success in Israel. 31 Table of Contents Consolidated Results of Operations The tables below set forth our condensed consolidated results of operations, expressed in thousands of U.S. dollars for the periods presented. Our condensed consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods . (in thousands of USD) Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Net revenue, before excise taxes $ 25,798 $ 27,095 $ 52,352 $ 54,173 Excise taxes (6,777) (5,493) (13,836) (9,866) Net revenue 19,021 21,602 38,516 44,307 Cost of sales 15,922 17,280 32,490 33,275 Gross profit 3,099 4,322 6,026 11,032 Operating expenses Sales and marketing 5,297 4,185 11,038 7,195 Research and development 1,107 4,194 3,146 8,115 General and administrative 13,451 16,286 25,307 37,417 Restructuring costs — 978 — 3,009 Share-based compensation 2,331 2,583 4,866 6,199 Depreciation and amortization 1,533 1,398 3,058 2,666 Impairment loss on long-lived assets — — — 3,493 Total operating expenses 23,719 29,624 47,415 68,094 Operating loss (20,620) (25,302) (41,389) (57,062) Other income 14,777 7,467 16,075 11,224 Income tax expense (benefit) 180 308 1,616 (54) Loss from discontinued operations (2,834) (2,811) (4,056) (7,099) Net loss (8,497) (20,338) (27,754) (52,991) Net loss attributable to non-controlling interest (137) (117) (225) (132) Net loss attributable to Cronos Group $ (8,360) $ (20,221) $ (27,529) $ (52,859) Summary of select financial results (in thousands of USD) Three months ended June 30, Change Six months ended June 30, Change 2023 2022 $ % 2023 2022 $ % Net revenue $ 19,021 $ 21,602 $ (2,581) (12) % $ 38,516 $ 44,307 $ (5,791) (13) % Cost of sales 15,922 17,280 (1,358) (8) % 32,490 33,275 (785) (2) % Gross profit 3,099 4,322 (1,223) (28) % 6,026 11,032 (5,006) (45) % Gross margin (i) 16 % 20 % N/A (4) pp 16 % 25 % N/A (9) pp (i) Gross margin is defined as gross profit divided by net revenue. Net revenue For the three months ended June 30, 2023, we reported consolidated net revenue of $19.0 million, representing a decrease of $2.6 million from the three months ended June 30, 2022. For the six months ended June 30, 2023, we reported consolidated net revenue of $38.5 million, representing a decrease of $5.8 million from the six months ended June 30, 2022. For both the three and six month comparative periods, the decrease was primarily due to lower cannabis flower sales in Israel due to competitive activity, the slowdown in patient permit authorizations and geopolitical unrest, and an adverse price/mix in Canada in the cannabis flower category driving increased excise tax payments as a percentage of revenue. Furthermore, the weakened Canadian dollar and Israeli Shekel against the U.S. dollar during the current period adversely impacted results. 32 Table of Contents Cost of sales For the three months ended June 30, 2023, we reported consolidated cost of sales of $15.9 million, representing a decrease of $1.4 million from the three months ended June 30, 2022. For the six months ended June 30, 2023, we reported consolidated cost of sales of $32.5 million, representing a decrease of $0.8 million from the six months ended June 30, 2022. For both the three and six month comparative periods, the decrease was primarily due to lower cannabis flower sales in the Israeli medical market, lower cannabis biomass costs and the impact of the weakened Canadian dollar and Israeli Shekel against the U.S. dollar during the current periods. Gross profit For the three months ended June 30, 2023, we reported gross profit of $3.1 million, representing a decrease of $1.2 million from the three months ended June 30, 2022. For the six months ended June 30, 2023, we reported gross profit of $6.0 million, representing a decrease of $5.0 million from the six months ended June 30, 2022. For both the three and six month comparative periods, the decrease was primarily due to lower cannabis flower sales in the Israeli medical market and adverse price/mix on cannabis flower sales in Canada resulting in higher excise taxes as a percentage of revenue. Operating expenses Three months ended June 30, Change Six months ended June 30, Change 2023 2022 $ % 2023 2022 $ % Sales and marketing $ 5,297 $ 4,185 $ 1,112 27 % $ 11,038 $ 7,195 $ 3,843 53 % Research and development 1,107 4,194 (3,087) (74) % 3,146 8,115 (4,969) (61) % General and administrative 13,451 16,286 (2,835) (17) % 25,307 37,417 (12,110) (32) % Restructuring costs — 978 (978) N/A — 3,009 (3,009) N/A Share-based payments 2,331 2,583 (252) (10) % 4,866 6,199 (1,333) (22) % Depreciation and amortization 1,533 1,398 135 10 % 3,058 2,666 392 15 % Impairment loss on long-lived assets — — — N/A — 3,493 (3,493) N/A Total operating expenses $ 23,719 $ 29,624 $ (5,905) (20) % $ 47,415 $ 68,094 $ (20,679) (30) % Sales and marketing For the three months ended June 30, 2023, sales and marketing expenses were $5.3 million, representing an increase of $1.1 million from the three months ended June 30, 2022. For the six months ended June 30, 2023, sales and marketing expenses were $11.0 million, representing an increase of $3.8 million from the six months ended June 30, 2022. For both the three and six month comparative periods, the increase was primarily due to higher advertising and marketing spend and higher payroll-related costs. Research and development For the three months ended June 30, 2023, research and development expenses were $1.1 million, representing a decrease of $3.1 million from the three months ended June 30, 2022. For the six months ended June 30, 2023, research and development expenses were $3.1 million, representing a decrease of $5.0 million from the six months ended June 30, 2022. For both the three and six month comparative periods, the decrease was primarily due to lower costs associated with the achievement of Ginkgo milestones. General and administrative For the three months ended June 30, 2023, general and administrative expenses were $13.5 million, representing a decrease of $2.8 million from the three months ended June 30, 2022. For the six months ended June 30, 2023, general and administrative expenses were $25.3 million, representing a decrease of $12.1 million from the six months ended June 30, 2022. For both the three and six month comparative periods, the decrease was primarily due to lower professional fees, largely related to financial statement review costs, and lower bonus and insurance costs. Restructuring costs For both the three and six months ended June 30, 2023, there were no restructuring costs incurred, compared to $1.0 million and $3.0 million for the three and six months ended June 30, 2022, respectively. For further information, see Note 7 “ Restructuring ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report. Share-based compensation For the three months ended June 30, 2023, share-based compensation expense was $2.3 million, representing a decrease of $0.3 million from the three months ended June 30, 2022. For the six months ended June 30, 2023, share-based compensation expense was $4.9 million, representing a decrease of $1.3 million from the six months ended June 30, 2022. For the three months ended June 30, 2023, the decrease was primarily due to lower option expense, partially offset by higher expense on restricted share units. For the six 33 Table of Contents months ended June 30, 2023, the decrease was primarily due to the acceleration of expense in the six months ended June 30, 2022, on equity awards granted to certain executive employees in connection with their separation from the Company. Depreciation and amortization For the three months ended June 30, 2023, depreciation and amortization expenses were $1.5 million, representing an increase of $0.1 million from the three months ended June 30, 2022. For the six months ended June 30, 2023, depreciation and amortization expenses were $3.1 million, representing an increase of $0.4 million from the six months ended June 30, 2022. For the three and six months ended June 30, 2023, the increase was primarily due to higher amortization on Ginkgo-related intangible assets. Impairment loss on long-lived assets For the three months ended June 30, 2023 and for three months ended June 30, 2022, we recorded no impairment loss on long-lived assets. For the six months ended June 30, 2023, we recorded no impairment loss on long-lived assets, compared to $3.5 million in the six months ended June 30, 2022. For further information, see Note 12 “Impairment Loss on Long-lived Assets” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report. Other income (loss) and income tax benefit (expense) Three months ended June 30, Change Six months ended June 30, Change 2023 2022 $ % 2023 2022 $ % Interest income, net $ 12,471 $ 3,775 $ 8,696 230 % $ 23,646 $ 5,820 $ 17,826 306 % Gain (loss) on revaluation of derivative liabilities 43 3,410 (3,367) (99) % (22) 13,829 (13,851) N/M Share of income (loss) from equity method investments 270 5,197 (4,927) (95) % (226) 5,197 (5,423) N/M Gain (loss) on revaluation of financial instruments 5,193 (2,112) 7,305 N/M (2,565) 2,156 (4,721) N/M Impairment loss on other investments — — — N/M — (11,238) 11,238 N/M Foreign currency transaction loss (3,174) (2,852) (322) (11) % (4,817) (4,724) (93) (2) % Other, net (26) 49 (75) N/M 59 184 (125) (68) % Total other income 14,777 7,467 7,310 98 % 16,075 11,224 4,851 43 % Income tax benefit (expense) 180 308 (128) N/M 1,616 (54) 1,670 N/M Loss from continuing operations (5,663) (17,527) 11,864 68 % (23,698) (45,892) 22,194 48 % Loss from discontinued operations (2,834) (2,811) (23) (1) % (4,056) (7,099) 3,043 43 % Net loss $ (8,497) $ (20,338) $ 11,841 58 % $ (27,754) $ (52,991) $ 25,237 48 % (i) “N/M” is defined as not meaningful. Interest income, net For the three months ended June 30, 2023, interest income, net was $12.5 million, representing an increase of $8.7 million from the three months ended June 30, 2022. For the six months ended June 30, 2023, interest income, net was $23.6 million, representing an increase of $17.8 million from the six months ended June 30, 2022. For both the three and six month comparative periods, the increase in net interest income was primarily due to higher short-term investment balances and higher interest rates during the comparative periods. Gain (loss) on revaluation of derivative liabilities For the three months ended June 30, 2023, the gain on revaluation of derivative liabilities was $43 thousand, representing a decrease of $3.4 million from the three months ended June 30, 2022. For the six months ended June 30, 2023, the loss on revaluation of derivative liabilities was $22 thousand, representing a decrease of $13.9 million from the six months ended June 30, 2022. We expect continued changes in derivative valuations as our share price fluctuates period to period and the remaining expected terms of our derivative instruments change over time. For further information, see Note 6 “Derivative Liabilities” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report. 34 Table of Contents Share of income (loss) from equity method investments For the three months ended June 30, 2023, our share of income from equity method investments was $0.3 million, representing a decrease of $4.9 million from the three months ended June 30, 2022. For the six months ended June 30, 2023, our share of loss from equity method investments was $0.2 million, representing a decrease of $5.4 million from the six months ended June 30, 2022. For both the three and six month comparative periods, the change was primarily due to lower income pick-ups from our equity method investment in Cronos GrowCo. Gain (loss) on revaluation of financial instruments For the three months ended June 30, 2023, the gain on revaluation of financial instruments was $5.2 million, representing an increased gain of $7.3 million from the three months ended June 30, 2022. For the six months ended June 30, 2023, the loss on revaluation of financial instruments was $2.6 million, representing an increased loss of $4.7 million from the six months ended June 30, 2022. For both the three and six month comparative periods, the change was primarily related to the change in fair value of our investment in Vitura Health Limited (“Vitura”). For further information, see Note 4 “ Investments ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report. Impairment loss on other investments There were no impairment losses on other investments during the three and six months ended June 30, 2023. For the six months ended June 30, 2022, impairment loss on other investments was $11.2 million, due to impairment charges recorded on our PharmaCann Option for the difference between its estimated fair value and its carrying amount. There were no impairment losses on other investments during the three months ended June 30, 2022. For more information, see Note 4 “ Investments ” in our condensed consolidated interim financial statements under Item 1 of this Quarterly Report. Foreign currency transaction loss For the three months ended June 30, 2023, foreign currency translation loss was $3.2 million, representing an increased loss of $0.3 million from the three months ended June 30, 2022. For the six months ended June 30, 2023, foreign currency translation loss was $4.8 million, representing an increased loss of $0.1 million from the six months ended June 30, 2022. For both the three and six month comparative periods, the change was primarily due to certain foreign currency-denominated intercompany loans anticipated to be settled in the foreseeable future. Other, net Other, net primarily includes gains and losses on the disposal of assets. Loss from discontinued operations Three months ended June 30, Six months ended June 30, 2023 2022 2023 2022 Net revenue $ 380 $ 1,459 $ 1,029 $ 3,787 Cost of sales 848 1,661 2,044 3,773 Inventory write-down (i) 839 — 839 — Gross profit (1,307) (202) (1,854) 14 Operating expenses Sales and marketing 387 1,397 518 3,399 Research and development 18 108 20 226 General and administrative 213 719 736 1,956 Restructuring costs 534 292 534 1,345 Share-based compensation 5 33 21 103 Depreciation and amortization 5 13 13 38 Impairment loss on long-lived assets (ii) 205 — 205 — Total operating expenses 1,367 2,562 2,047 7,067 Interest income 3 — 8 1 Other, net (iii) (163) (47) (163) (47) Total other loss (160) (47) (155) (46) Loss before income taxes (2,834) (2,811) (4,056) (7,099) Income tax expense (benefit) — — — — Net loss from discontinued operations $ (2,834) $ (2,811) $ (4,056) $ (7,099) 35 Table of Contents (i) As of June 30, 2023, all inventory associated with our U.S. operations was $nil as a result of the $0.8 million inventory write-down of obsolete product in the second quarter of 2023. (ii) During the three and six months ended June 30, 2023, as a result of the exit of the U.S. operations, the Company recognized an impairment charge of $205 related to the right-of-use lease assets associated with the Company’s former U.S. manufacturing facility in Los Angeles, California. (iii) For the three and six months ended June 30, 2023 and June 30, 2022, Other, net related to loss on disposal of assets that were part of the U.S. operations. For the three months ended June 30, 2023, loss from discontinued operations was $2.8 million, consistent with the three months ended June 30, 2022. For the six months ended June 30, 2023, loss from discontinued operations was $4.1 million, representing a decreased loss of $3.0 million from the six months ended June 30, 2022. In each of the comparative periods, lower gross profit due to increased inventory write-downs was offset by lower operating expenses driven by lower sales and marketing expenses. For more information, see Note 2 “ Discontinued Operations ” in our condensed consolidated interim financial statements under Item 1 of this Quarterly Report. Non-GAAP Measures Cronos Group reports its financial results in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). This Quarterly Report refers to measures not recognized under U.S. GAAP (“non-GAAP measures”). These non-GAAP measures do not have a standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these non-GAAP measures are provided as a supplement to corresponding U.S. GAAP measures to provide additional information regarding the results of operations from management’s perspective. Accordingly, non-GAAP measures should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. All non-GAAP measures presented in this Quarterly Report are reconciled to their closest reported U.S. GAAP measure. Reconciliations of historical adjusted financial measures to corresponding U.S. GAAP measures are provided below. Adjusted EBITDA Management reviews Adjusted EBITDA, a non-GAAP measure, which excludes non-cash items and items that do not reflect management’s assessment of ongoing business performance. Management defines Adjusted EBITDA as net income (loss) before interest, tax expense (benefit), depreciation and amortization adjusted for: share of (income) loss from equity method investments; impairment loss on goodwill and intangible assets; impairment loss on long-lived assets; (gain) loss on revaluation of derivative liabilities; (gain) loss on revaluation of financial instruments; transaction costs related to strategic projects; impairment loss on other investments; foreign currency transaction loss; other, net; loss from discontinued operations; restructuring costs; share-based compensation; and financial statement review costs and reserves related to the restatements of our 2019 and 2021 interim financial statements (the “Restatements”), including the costs related to the settlement of the SEC’s and the Ontario Securities Commission’s (“OSC”) investigations of the Restatements and legal costs defending shareholder class action complaints brought against us as a result of the 2019 restatement (see Part II, Item 1 “Legal Proceedings” of this Quarterly Report for a discussion of the shareholder class action complaints relating to the restatement of the 2019 interim financial statements and the settlement of the SEC’s and the OSC’s investigations of the Restatements). Results are reported as total consolidated results, reflecting our reporting structure of one reportable segment. Management believes that Adjusted EBITDA provides the most useful insight into underlying business trends and results and provides a more meaningful comparison of period-over-period results. Management uses Adjusted EBITDA for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets. Adjusted EBITDA is reconciled to net income (loss) as follows: 36 Table of Contents Three months ended June 30, 2023 Continuing Operations Discontinued Operations Total Net loss $ (5,663) $ (2,834) $ (8,497) Interest income, net (12,471) (3) (12,474) Income tax benefit (180) — (180) Depreciation and amortization 2,265 115 2,380 EBITDA (16,049) (2,722) (18,771) Share of income from equity method investments (270) — (270) Impairment loss on long-lived assets (i) — 205 205 Gain on revaluation of derivative liabilities (ii) (43) — (43) Gain on revaluation of financial instruments (iii) (5,193) — (5,193) Foreign currency transaction loss 3,174 — 3,174 Other, net (v) 26 163 189 Restructuring costs (vi) — 534 534 Share-based compensation (vii) 2,331 5 2,336 Financial statement review costs (viii) 119 — 119 Inventory write-down (ix) — 839 839 Adjusted EBITDA $ (15,905) $ (976) $ (16,881) Three months ended June 30, 2022 Continuing Operations Discontinued Operations Total Net loss $ (17,527) $ (2,811) $ (20,338) Interest income, net (3,775) — (3,775) Income tax benefit (308) — (308) Depreciation and amortization 3,944 283 4,227 EBITDA (17,666) (2,528) (20,194) Share of income from equity method investments (5,197) — (5,197) Gain on revaluation of derivative liabilities (ii) (3,410) — (3,410) Loss on revaluation of financial instruments (iii) 2,112 — 2,112 Foreign currency transaction loss 2,852 — 2,852 Other, net (v) (49) 47 (2) Restructuring costs (vi) 978 292 1,270 Share-based compensation (vii) 2,583 33 2,616 Financial statement review costs (viii) 1,154 — 1,154 Adjusted EBITDA $ (16,643) $ (2,156) $ (18,799) 37 Table of Contents Six months ended June 30, 2023 Continuing Operations Discontinued Operations Total Net loss $ (23,698) $ (4,056) $ (27,754) Interest income, net (23,646) (8) (23,654) Income tax benefit (1,616) — (1,616) Depreciation and amortization 4,541 244 4,785 EBITDA (44,419) (3,820) (48,239) Share of loss from equity method investments 226 — 226 Impairment loss on long-lived assets (i) — 205 205 Loss on revaluation of derivative liabilities (ii) 22 — 22 Loss on revaluation of financial instruments (iii) 2,565 — 2,565 Foreign currency transaction loss 4,817 — 4,817 Other, net (v) (59) 163 104 Restructuring costs (vi) — 534 534 Share-based compensation (vii) 4,866 21 4,887 Financial statement review costs (viii) 395 — 395 Inventory write-down (ix) — 839 839 Adjusted EBITDA $ (31,587) $ (2,058) $ (33,645) Six months ended June 30, 2022 Continuing Operations Discontinued Operations Total Net loss $ (45,892) $ (7,099) $ (52,991) Interest income, net (5,820) (1) (5,821) Income tax benefit 54 — 54 Depreciation and amortization 7,051 715 7,766 EBITDA (44,607) (6,385) (50,992) Share of income from equity method investments (5,197) — (5,197) Impairment loss on long-lived assets (i) 3,493 — 3,493 Gain on revaluation of derivative liabilities (ii) (13,829) — (13,829) Gain on revaluation of financial instruments (iii) (2,156) — (2,156) Impairment loss on other investments (iv) 11,238 — 11,238 Foreign currency transaction loss 4,724 — 4,724 Other, net (v) (184) 47 (137) Restructuring costs (vi) 3,009 1,345 4,354 Share-based compensation (vii) 6,199 103 6,302 Financial statement review costs (viii) 5,216 — 5,216 Adjusted EBITDA $ (32,094) $ (4,890) $ (36,984) (i) For the three and six months ended June 30, 2023, impairment loss on long-lived assets related to certain leased properties associated with the Company’s U.S. operations. For the six months ended June 30, 2022, impairment loss on long-lived assets related to the Company’s decision to seek a sublease for leased office space in Toronto, Ontario, Canada during the first quarter of 2022. See Note 12 “ Impairment Loss on Long-lived Assets. ” (ii) For the three and six months ended June 30, 2023 and 2022, (gain) loss on revaluation of derivative liabilities represents the fair value changes on the derivative liabilities. See Note 6 “ Derivative Liabilities. ” (iii) For the three and six months ended June 30, 2023 and 2022, (gain) loss on revaluation of financial instruments related primarily to the Company’s equity securities in Vitura. (iv) For the six months ended June 30, 2022, impairment loss on other investments related to the PharmaCann Option for the difference between its fair value and carrying amount. See Note 4 “ Investments. ” (v) For the three and six months ended June 30, 2023 and 2022, other, net related to (gain) loss on disposal of assets. 38 Table of Contents (vi) For the three and six months ended June 30, 2023, restructuring costs related to employee-related severance costs and other restructuring costs associated with our U.S. operations as described in Note 2 “ Discontinued Operations .” For the three and six months ended June 30, 2022, restructuring costs related to the employee-related severance costs and other restructuring costs associated with the Realignment, including the change in nature of operations at the Peace Naturals Campus. See Note 7 “ Restructuring. ” (vii) For the three and six months ended June 30, 2023 and 2022, share-based compensation related to the non-cash expenses of share-based compensation awarded to employees under the Company’s share-based award plans as described in Note 8 “ Share-based Compensation. ” (viii) For the three and six months ended June 30, 2023 and 2022, financial statement review costs include costs and reserves taken related to the Restatements, costs related to the Company’s responses to requests for information from various regulatory authorities relating to the Restatements and legal costs incurred defending shareholder class action complaints brought against the Company as a result of the 2019 restatement. (ix) For the three and six months ended June 30, 2023, inventory write-downs relate to product destruction and obsolescence associated with the exit of our U.S. operations as described in Note 2 “ Discontinued Operations .” Constant Currency To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented constant currency adjusted financial measures for net revenues, gross profit, gross profit margin, operating expenses, net income (loss) and Adjusted EBITDA for the three and six months ended June 30, 2023, as well as cash and cash equivalents and short-term investment balances as of June 30, 2023 compared to December 31, 2022, which are considered non-GAAP financial measures. We present constant currency information to provide a framework for assessing how our underlying operations performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period income statement results in currencies other than U.S. dollars are converted into U.S. dollars using the average exchange rates from the three and six month comparative periods in 2022 rather than the actual average exchange rates in effect during the respective current periods; constant currency current and prior comparative balance sheet information is translated at the prior year-end spot rate rather than the current period spot rate. All growth comparisons relate to the corresponding period in 2022. We have provided this non-GAAP financial information to aid investors in better understanding the performance of our operations. The non-GAAP financial measures presented in this Quarterly Report should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP. 39 Table of Contents The table below sets forth certain measures of consolidated results from continuing operations on a constant currency basis for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022 as well as cash and cash equivalents and short-term investments as of June 30, 2023 and December 31, 2022, both on an as-reported and constant currency basis (in thousands): As Reported As Adjusted for Constant Currency Three months ended June 30, As Reported Change Three months ended June 30, Constant Currency Change 2023 2022 $ % 2023 $ % Net revenue $ 19,021 $ 21,602 $ (2,581) (12) % $ 20,219 $ (1,383) (6) % Gross profit 3,099 4,322 (1,223) (28) % 3,322 (1,000) (23) % Gross margin 16 % 20 % N/A (4) pp 16 % N/A (4) pp Operating expenses 23,719 29,624 $ (5,905) (20) % 25,216 (4,408) (15) % Net loss (5,663) (17,527) 11,864 68 % (6,716) 10,811 62 % Adjusted EBITDA (15,905) (16,643) 738 4 % (16,968) (325) (2) % Six months ended June 30, As Reported Change Six months ended June 30, Constant Currency Change 2023 2022 $ % 2023 $ % Net revenue $ 38,516 $ 44,307 $ (5,791) (13) % 41,223 $ (3,084) (7) % Gross profit 6,026 11,032 (5,006) (45) % 6,520 (4,512) (41) % Gross margin 16 % 25 % N/A (9) pp 16 % N/A (9) pp Operating expenses 47,415 68,094 $ (20,679) (30) % 50,571 (17,523) (26) % Net loss (23,698) (45,892) 22,194 48 % (25,738) 20,154 44 % Adjusted EBITDA (31,587) (32,094) 507 2 % (33,883) (1,789) (6) % As of June 30, As of December 31, As Reported Change Six months ended June 30, Constant Currency Change 2023 2022 $ % 2023 $ % Cash and cash equivalents $ 409,428 $ 764,644 $ (355,216) (46) % $ 407,775 $ (356,869) (47) % Short-term investments 431,510 113,077 318,433 282 % 421,577 308,500 273 % Total cash and cash equivalents and short-term investments $ 840,938 $ 877,721 $ (36,783) (4) % $ 829,352 $ (48,369) (6) % 40 Table of Contents Net revenue As Reported As Adjusted for Constant Currency Three months ended June 30, As Reported Change Three months ended June 30, Constant Currency Change 2023 2022 $ % 2023 $ % Cannabis flower $ 14,014 $ 15,739 $ (1,725) (11) % $ 14,955 $ (784) (5) % Cannabis extracts 4,926 5,582 (656) (12) % 5,178 (404) (7) % Other 81 281 (200) (71) % 86 (195) (69) % Net revenue $ 19,021 $ 21,602 $ (2,581) (12) % $ 20,219 $ (1,383) (6) % As Reported As Adjusted for Constant Currency Six months ended June 30, As Reported Change Six months ended June 30, Constant Currency Change 2023 2022 $ % 2023 $ % Cannabis flower $ 27,142 $ 34,364 $ (7,222) (21) % $ 29,158 $ (5,206) (15) % Cannabis extracts 11,227 9,570 1,657 17 % 11,909 2,339 24 % Other 147 373 (226) (61) % 156 (217) (58) % Net revenue $ 38,516 $ 44,307 $ (5,791) (13) % $ 41,223 $ (3,084) (7) % As Reported As Adjusted for Constant Currency Three months ended June 30, As Reported Change Three months ended June 30, Constant Currency Change 2023 2022 $ % 2023 $ % Canada $ 13,595 $ 14,389 $ (794) (6) % $ 14,293 $ (96) (1) % Israel 5,426 7,213 (1,787) (25) % 5,926 (1,287) (18) % Net revenue $ 19,021 $ 21,602 $ (2,581) (12) % $ 20,219 $ (1,383) (6) % As Reported As Adjusted for Constant Currency Six months ended June 30, As Reported Change Six months ended June 30, Constant Currency Change 2023 2022 $ % 2023 $ % Canada $ 28,029 $ 27,965 $ 64 — % $ 29,701 $ 1,736 6 % Israel 10,487 16,342 (5,855) (36) % 11,522 (4,820) (29) % Net revenue $ 38,516 $ 44,307 $ (5,791) (13) % $ 41,223 $ (3,084) (7) % For the three months ended June 30, 2023, net revenue on a constant currency basis was $20.2 million, representing a 6% decrease from the three months ended June 30, 2022. For the six months ended June 30, 2023, net revenue on a constant currency basis was $41.2 million, representing a 7% decrease from the six months ended June 30, 2022. On a constant currency basis, net revenue decreased for the three and six months ended June 30, 2023 primarily due to lower cannabis flower sales in Israel due to competitive activity, the slowdown in patient permit authorizations and geopolitical unrest, and an adverse price/mix in Canada in the cannabis flower category driving increased excise tax payments as a percentage of revenue. Gross profit For the three months ended June 30, 2023, gross profit on a constant currency basis was $3.3 million, representing a 23% decrease from the three months ended June 30, 2022. For the six months ended June 30, 2023, gross profit on a constant currency basis was $6.5 million, representing a 41% decrease from the six months ended June 30, 2022. On a constant currency basis, gross profit decreased for the three and six months ended June 30, 2023 primarily due to lower cannabis flower sales in the Israeli medical market and adverse price/mix on cannabis flower sales in Canada resulting in higher excise taxes as a percentage of revenue. 41 Table of Contents Operating expenses For the three months ended June 30, 2023, operating expenses on a constant currency basis were $25.2 million, representing a 15% decrease from the three months ended June 30, 2022. For the six months ended June 30, 2023, operating expenses on a constant currency basis were $50.6 million, representing a 26% decrease from the six months ended June 30, 2022. On a constant currency basis, operating expenses decreased for the three and six months ended June 30, 2023, primarily due to lower professional fees, largely related to financial statement review costs, lower bonus expense, lower insurance costs, lower costs associated with the achievement of Ginkgo milestones and impairment loss on long-lived assets recognized in the prior year. Net loss For the three months ended June 30, 2023, net loss on a constant currency basis was $6.7 million, representing a 62% reduction in net loss from the three months ended June 30, 2022. For the six months ended June 30, 2023, net loss on a constant currency basis was $25.7 million, representing a 44% reduction in net loss from the six months ended June 30, 2022. Adjusted EBITDA For the three months ended June 30, 2023, Adjusted EBITDA on a constant currency basis was $(17.0) million, representing a 2% decrease from the three months ended June 30, 2022. For the six months ended June 30, 2023, Adjusted EBITDA on a constant currency basis was $(33.9) million, representing a 6% decrease from the six months ended June 30, 2022. The decrease in Adjusted EBITDA for the three and six months ended June 30, 2023 on a constant currency basis was primarily driven by lower cannabis flower sales in the Israeli medical market and adverse price/mix on cannabis flower sales in Canada resulting in higher excise taxes as a percentage of revenue, partially offset by decreases in general and administrative expenses due primarily to lower bonus expense, insurance costs and professional fees as well as lower costs associated with the achievement of Ginkgo milestones. Cash and cash equivalents & short-term investments Cash and cash equivalents and short-term investments on a constant currency basis decreased 6% to $829.4 million as of June 30, 2023 from $877.7 million as of December 31, 2022. The decrease in cash and cash equivalents and short-term investments is primarily due to cash flows used in operating activities in the six months ended June 30, 2023. Liquidity and Capital Resources As of June 30, 2023, we had $409.4 million in cash and cash equivalents and $431.5 million in short-term investments. We believe that the existing cash and cash equivalents and short-term investments will be sufficient to fund the business operations and capital expenditures over the next twelve months. The following table summarizes the cash flows from operating, investing and financing activities: (In thousands of U.S. dollars) Six months ended June 30, 2023 2023 2022 Cash flows used in operating activities $ (59,467) $ (51,191) Cash flows used in investing activities (298,964) (40,321) Cash flows used in financing activities (782) (2,034) Effect of foreign currency translation on cash and cash equivalents 3,997 (3,884) Net change in cash $ (355,216) $ (97,430) Comparison of cash flows between the six months ended June 30, 2023 and the six months ended June 30, 2022 Operating activities During the six months ended June 30, 2023, we used $59.5 million of cash in operating activities as compared to cash used of $51.2 million in the six months ended June 30, 2022, representing an increase in cash used of $8.3 million. This change is primarily driven by a $32.8 million decrease in income taxes payable as a result of a tax payment connected to the previously disclosed relinquishment by Altria of its warrant to purchase additional shares of the Company and a $6.8 million increase in interest receivable, partially offset by a $28.6 million increase in net income after adjusting for non-cash items during the six months ended June 30, 2023 compared to the six months ended June 30, 2022. Investing activities During the six months ended June 30, 2023, we used $299.0 million of cash in investing activities, compared to $40.3 million of cash used in investing activities during the six months ended June 30, 2022, representing an increase of $258.6 million in cash used by investing activities. This change is primarily driven by purchases of short-term investments in the six months ended June 30, 2023. 42 Table of Contents Financing activities During the six months ended June 30, 2023, cash used in financing activities was $0.8 million, compared to $2.0 million of cash used in financing activities during six months ended June 30, 2022, representing a decrease of $1.3 million in cash used in financing activities. This change is primarily driven by a decrease of $1.3 million in withholding taxes paid on share-based awards during six months ended June 30, 2023 compared to six months ended June 30, 2022. Cash Requirements The Company’s cash requirements have not changed significantly since the filing of the Annual Report. Critical Accounting Policies and Estimates Our critical accounting policies and estimates are discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. Our critical accounting policies and estimates have not changed significantly since the filing of the Annual Report.