What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-08 · 242 added, 193 removed, 377 unchanged (54% of the section changed)

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.

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 September 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

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Forward-Looking Statements include, but are not limited to, statements with respect to:

• expectations related to the war between Israel and Hamas (the “Israel-Hamas War”) and its impact on our operations in Israel, the supply of product in the market and the demand for product among medical patients in Israel;

• expectations related to the German and Australian markets, including our strategic partnerships with Cansativa GmbH (“Cansativa”) and Vitura Health Limited (“Vitura”), respectively, and our plans to distribute the PEACE NATURALS® brand in Germany;

• 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;

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• 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.

• 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 certain production activities at the Peace Naturals Campus;

• our ability to effectively wind-down 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;

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• 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 legalization of the use of cannabis for medical or adult-use in jurisdictions outside of Canada, including the United States and Germany, 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;

• expectations related to the differentiation of our products, including through the utilization of rare cannabinoids;

• the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, including CBD and other cannabinoids;

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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.

(i) our ability to effectively navigate developments in the Israel-Hamas War and its impact on our employees and operations in Israel, the supply of product in the market and demand for product among medical patients in Israel;

(ii) our ability to efficiently and effectively distribute our PEACE NATURALS® brand in Germany with our strategic partner Cansativa and our ability to efficiently and effectively distribute products in Australia with our strategic partner Vitura;

(iii) 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, (iv) 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, (v) 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;

(vi) our ability to efficiently and effectively wind-down 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;

(vii) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our acquisitions and strategic investments;

(viii) the production and manufacturing capabilities and output from our facilities and our joint ventures, strategic alliances and equity investments;

(ix) government regulation of our activities and products including, but not limited to, the areas of cannabis taxation and environmental protection;

(x) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses;

(xi) consumer interest in our products;

(xii) our ability to differentiate our products, including through the utilization of rare cannabinoids;

(xiii) competition;

(xiv) anticipated and unanticipated costs;

(xv) our ability to generate cash flow from operations;

(xvi) our ability to conduct operations in a safe, efficient and effective manner;

(xvii) our ability to hire and retain qualified staff, and acquire equipment and services in a timely and cost-efficient manner;

(xviii) our ability to exercise the PharmaCann Option and realize the anticipated benefits of the transaction with PharmaCann;

(xix) our ability to complete planned dispositions, and, if completed, obtain our anticipated sales price;

(xx) 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;

(xxi) general economic, financial market, regulatory and political conditions in which we operate;

(xxii) management’s perceptions of historical trends, current conditions and expected future developments;

and (xxiii) 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.

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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;

Such factors include, without limitation, negative impacts on our employees, business and operations in Israel due to the Israel-Hamas War, including that we may not be able to produce, import or sell our products or protect our people or facilities in Israel during the Israel-Hamas War, the supply of product in the market and the demand for product among medical patients in Israel;

that we may not be able to successfully continue to distribute our products in Germany and Australia or generate material revenue from sales in those markets;

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;

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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;

that we may not able to wind-down 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;

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All references to “dollars” or “$” are to U.S.

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.

The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of September 30, 2023, September 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 condensed consolidated statements of net loss and comprehensive 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:

(Exchange rates are shown as C$ per $) As of

June 30, 2023 June 30, 2022 December 31, 2022

September 30, 2023 September 30, 2022 December 31, 2022

Spot rate 1.3577 1.3829 1.3554

Year-to-date average rate 1.3455 1.2829 N/A

The exchange rates used to translate from Israeli Shekels (“ILS”) to dollars is shown below:

The exchange rates used to translate from New 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

September 30, 2023 September 30, 2022 December 31, 2022

Spot rate 3.8138 3.5660 3.5178

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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.

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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.

(“Peace Naturals”), which has production facilities near Stayner, Ontario, 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.

Recent Developments

Israel-Hamas War

Cronos continues to monitor the conflict in Israel and potential impacts the conflict could have on the Company’s personnel and business in Israel and the recorded amounts of assets and liabilities related to the Company’s operations in Israel.

The extent to which the conflict may impact the Company’s personnel, business and activities will depend on future developments which remain highly uncertain and cannot be predicted.

It is possible that the recorded amounts of assets and liabilities related to the Company’s operations in Israel could change materially in the near term.

New Israeli Shekel Weakening

In October 2023, with the onset of the aforementioned Israel-Hamas war, the New Israeli Shekel has significantly weakened against the U.S.

dollar and Canadian dollar.

As of October 30, 2023, the New Israeli Shekel has weakened to a position of 4.019 per U.S.

dollar and a position of 2.906 per Canadian dollar, representing decreases of 5% and 3.5%, respectively, from the rates as of

September 30, 2023.

We cannot predict when or if the currency will recover against the U.S.

dollar and Canadian dollar and we have, as a result, experienced an adverse impact on our results of operations.

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.

In the third quarter of 2023, the Company launched two new THCV-infused products under the Spinach FEELZ ™ brand, the Full Tilt THC+THCV vape and gummy.

In November 2023, the Company launched Lord Jones ® Hash Fusions, a line-up of premium ice water hash infused pre-rolls, in the Canadian adult-use market.

The Company intends to launch additional products under the Lord Jones ® brand, including live resin vapes and a differentiated chocolate offering.

In Israel, Cronos launched four new flower offerings under the PEACE NATURALS ® brand, Sticky Ape, Raphael Gems, Purple Punch and Tangerine Twist.

Driven by our best-in-class genetics program and high-quality cultivation capabilities we seek to meet the market demands as consumers continue to look for strain variety.

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.

In September 2023, Cronos successfully completed its first shipment of cannabis to Germany through a strategic partnership with Cansativa GmbH, a leading German cannabis company.

We believe that re-establishing Cronos and its PEACE NATURALS ® brand in the German market will position us to capitalize on this growing market, with additional growth potential from future legislative changes.

In the coming weeks, we plan to ship cannabis to Vitura Health Limited for sale in the Australian medical market.

Cronos owns approximately 10% of the common shares of Vitura.

Vitura has stated that it is the market-leading prescriber, patient, pharmacy and supplier online platform, focused on creating medicinal cannabis products and digital health solutions that connect and strengthen the cannabis ecosystem in the Australian medical cannabis market.

Consolidated Results of Operations

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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,

(in thousands of USD) Three months ended September 30, Nine months ended September 30,

2023 2022 2023 2022

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Cost of sales 20,124 17,265 52,614 50,540

Inventory write-down 716 — 716 —

Gross profit 3,970 3,144 9,996 14,176

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Operating loss (21,775) (27,334) (63,164) (84,396)

Other income 14,777 7,467 16,075 11,224

Other income (expense) 18,931 (3,653) 35,006 7,571

Income tax (expense) benefit 1,254 (2,118) 2,870 (2,172)

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Net loss (1,772) (36,886) (29,526) (89,877)

Net loss attributable to non-controlling interest (137) (117) (225) (132)

Net income (loss) attributable to non-controlling interest (128) 105 (353) (27)

Net loss attributable to Cronos Group $ (1,644) $ (36,991) $ (29,173) $ (89,850)

Summary of select financial results

(in thousands of USD) Three months ended June 30, Change Six months ended June 30, Change

(in thousands of USD) Three months ended September 30, Change Nine months ended September 30, Change

2023 2022 $ % 2023 2022 $ %

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Cost of sales 20,124 17,265 2,859 17 % 52,614 50,540 2,074 4 %

Inventory write-down 716 — 716 N/A 716 — 716 N/A

Gross profit 3,970 3,144 826 26 % 9,996 14,176 (4,180) (29) %

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(i) Gross margin is defined as gross profit divided by 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.

For the three months ended September 30, 2023, we reported consolidated net revenue of $24.8 million, representing an increase of $4.4 million from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, we reported consolidated net revenue of $63.3 million, representing a decrease of $1.4 million from the nine months ended September 30, 2022.

For the three month comparative period, the increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, partially offset by lower cannabis flower sales in Israel driven by pricing pressure as a result of competitive activity, the slowdown in patient permit authorizations and geopolitical unrest, and an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue.

Furthermore, the weakened Canadian dollar and New Israeli Shekel against the U.S.

dollar during the period adversely impacted results.

For the nine month comparative period, the decrease was primarily due to lower cannabis flower sales in Israel driven by pricing pressure as a result of competitive activity, the slowdown in patient permit authorizations and geopolitical unrest, and an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue, partially offset by higher cannabis flower and extract sales in the Canadian adult-use market.

Furthermore, the weakened Canadian dollar and New Israeli Shekel against the U.S.

dollar during the period adversely impacted results.

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.

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.

For the three months ended September 30, 2023, we reported consolidated cost of sales of $20.1 million, representing an increase of $2.9 million from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, we reported consolidated cost of sales of $52.6 million, representing an increase of $2.1 million from the nine months ended September 30, 2022.

For the three month comparative period, the increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, partially offset by lower biomass costs and the impact of the weakened Canadian dollar and New Israeli Shekel against the U.S.

dollar during the period.

For the nine month comparative period, the increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, partially offset by lower cannabis flower sales in the Israeli medical market, lower cannabis biomass costs and the impact of the weakened Canadian dollar and New Israeli Shekel against the U.S.

dollar during the period.

Inventory write-down

For the three and nine months ended September 30, 2023, we reported inventory write-downs of $0.7 million as a result of the Company’s decision to wind down operations at Cronos Fermentation.

For further information, see Note 7 “ Restructuring ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

For the three months ended September 30, 2023, we reported gross profit of $4.0 million, representing an increase of $0.8 million from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, we reported gross profit of $10.0 million, representing a decrease of $4.2 million from the nine months ended September 30, 2022.

For the three month comparative period, the increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market and lower biomass costs, partially offset by lower cannabis flower sales in Israel, an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue and the inventory write-down recognized as a result of the decision to wind down operations at Cronos Fermentation.

For the nine month comparative period, the decrease was primarily due to lower cannabis flower sales in the Israeli medical market, an adverse price/mix on cannabis flower sales in Canada resulting in higher excise taxes as a percentage of revenue and the inventory write-down recognized as a result of the decision to wind down operations at Cronos Fermentation, partially offset by higher cannabis flower and extract sales in the Canadian adult-use market.

Operating expenses

Three months ended June 30, Change Six months ended June 30, Change

Three months ended September 30, Change Nine months ended September 30, Change

2023 2022 $ % 2023 2022 $ %

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General and administrative 14,366 16,354 (1,988) (12) % 39,673 53,771 (14,098) (26) %

Restructuring costs — 978 (978) N/A — 3,009 (3,009) N/A

Restructuring costs 1,423 387 1,036 268 % 1,423 3,396 (1,973) (58) %

Share-based payments 1,957 4,247 (2,290) (54) % 6,823 10,446 (3,623) (35) %

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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.

For the three months ended September 30, 2023, sales and marketing expenses were essentially flat at $5.3 million compared to the three months ended September 30, 2022.

For the nine months ended September 30, 2023, sales and marketing expenses were $16.3 million, representing an increase of $3.9 million from the nine months ended September 30, 2022.

For the nine month comparative period, the increase was primarily due to higher advertising and marketing spend.

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.

For the three months ended September 30, 2023, research and development expenses were $1.2 million, representing a decrease of $1.3 million from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, research and development expenses were $4.4 million, representing a decrease of $6.3 million from the nine months ended September 30, 2022.

For both the three and nine 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.

For the three months ended September 30, 2023, general and administrative expenses were $14.4 million, representing a decrease of $2.0 million from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, general and administrative expenses were $39.7 million, representing a decrease of $14.1 million from the nine months ended September 30, 2022.

For both the three and nine month comparative periods, the decrease was primarily due to lower professional fees, largely related to financial statement review costs, and lower bonus, payroll 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 both the three and nine months ended September 30, 2023, restructuring costs were $1.4 million, compared to $0.4 million and $3.4 million for the three and nine months ended September 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.

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.

For the three months ended September 30, 2023, share-based compensation expense was $2.0 million, representing a decrease of $2.3 million from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, share-based compensation expense was $6.8 million, representing a decrease of $3.6 million from the nine months ended September 30, 2022.

For the three month comparative period, the decrease was primarily due to previously held-back equity awards granted to certain executives in the three months ended September 30, 2022.

For the nine month comparative period, the decrease was primarily due to the acceleration of expense on equity awards granted to certain executive employees in connection with their separation from the Company, as well as previously held-back equity awards granted to certain executives in the nine months ended September 30, 2022.

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.

For the three months ended September 30, 2023, depreciation and amortization expenses were $1.5 million, representing a decrease of $0.2 million from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, depreciation and amortization expenses were $4.5 million, representing an increase of $0.1 million from the nine months ended September 30, 2022.

For the three month comparative period, the decrease was primarily due to the recognition of certain tax credits related to the company’s fixed assets.

For the nine month comparative period, the increase was primarily due to higher amortization on Ginkgo-related intangible assets, partially offset by the recognition of certain tax credits related to the Company’s fixed 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.

We recorded no impairment loss on long-lived assets for both the three months ended September 30, 2023 and September 30, 2022.

For the nine months ended September 30, 2023, we recorded no impairment loss on long-lived assets, compared to $3.5 million in the nine months ended September 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

Three months ended September 30, Change Nine months ended September 30, Change

2023 2022 $ % 2023 2022 $ %

4 unchanged sentences

Impairment loss on other investments — (28,972) 28,972 N/M — (40,210) 40,210 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 %

Foreign currency transaction gain (loss) 8,816 2,387 6,429 269 % 3,999 (2,337) 6,336 271 %

Other, net 966 (581) 1,547 N/M 1,025 (397) 1,422 N/M

Total other income (loss) 18,931 (3,653) 22,584 618 % 35,006 7,571 27,435 362 %

Income tax benefit (expense) 1,254 (2,118) 3,372 N/M 2,870 (2,172) 5,042 N/M

4 unchanged sentences

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.

For the three months ended September 30, 2023, interest income, net was $13.4 million, representing an increase of $6.2 million from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, interest income, net was $37.0 million, representing an increase of $24.0 million from the nine months ended September 30, 2022.

For both the three and nine month comparative periods, the increase in net interest income was primarily due to higher interest rates and higher cash equivalents and short-term investment balances during the 2023 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.

For the three months ended September 30, 2023, the gain on revaluation of derivative liabilities was $8 thousand, representing a decrease of $0.4 million from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, the loss on revaluation of derivative liabilities was $14 thousand, representing a decreased gain of $14.2 million from the nine months ended September 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.

1 unchanged sentence

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.

For the three months ended September 30, 2023, our share of income from equity method investments was $1.1 million, representing an increase of $2.2 million from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, our share of income from equity method investments was $0.8 million, representing a decrease of $3.2 million from the nine months ended September 30, 2022.

For the three month comparative period, the increase was primarily due to higher income pick-ups from our equity method investment in Cronos GrowCo.

For the nine month comparative period, the decrease was primarily due to lower income pick-ups from our equity method investment in Cronos GrowCo.

Periodic income and loss pickups from our equity method investment in Cronos GrowCo are impacted both by the profitability of Cronos GrowCo and any unsold inventory remaining at Cronos that originated from 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 the three months ended September 30, 2023, the loss on revaluation of financial instruments was $5.3 million, representing an increased loss of $22.3 million from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, the loss on revaluation of financial instruments was $7.9 million, representing an increased loss of $27.1 million from the nine months ended September 30, 2022.

For both the three and nine 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.

There were no impairment losses on other investments during the three and nine months ended September 30, 2023.

For the three and nine months ended September 30, 2022, impairment loss on other investments were $29.0 million and $40.2 million, respectively, due to impairment charges recorded on our PharmaCann Option for the difference between its estimated fair value and its carrying amount.

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.

Foreign currency transaction gain (loss)

For the three months ended September 30, 2023, foreign currency translation gain was $8.8 million, representing an increased gain of $6.4 million from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, foreign currency translation gain was $4.0 million, representing an increased gain of $6.3 million from the nine months ended September 30, 2022.

For both the three and nine month comparative periods, the change was primarily due to certain foreign currency-denominated cash equivalents and short-term investments and certain foreign currency-denominated intercompany loans anticipated to be settled in the foreseeable future.

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,

Three months ended September 30, Nine months ended September 30,

2023 2022 2023 2022

6 unchanged sentences

Research and development

18 108 20 226

General and administrative 190 813 926 2,769

11 unchanged sentences

Net loss from discontinued operations $ (182) $ (3,781) $ (4,238) $ (10,880)

(i) As of June 30, 2023, all inventory associated with our U.S.

(i) As of September 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.

(ii) During the nine months ended September 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.

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.

(iii) For the three and nine months ended September 30, 2023 and September 30, 2022, Other, net related to loss on disposal of assets that were part of the U.S.

For the three months ended September 30, 2023, loss from discontinued operations was $0.2 million, representing a decreased loss of $3.6 million from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, loss from discontinued operations was $4.2 million, representing a decreased loss of $6.6 million from the nine months ended September 30, 2022.

For the comparative three month period, the decreased loss was driven by the decrease in operating expense as a result of the exit of U.S.

For the comparative nine month period, the decreased loss was driven by negative gross margins and higher operating expenses in the nine months ended September 30, 2022.

For more information, see Note 2 “ Discontinued Operations ” in our condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

25 unchanged sentences

restructuring costs;

inventory write-downs resulting from restructuring actions;

share-based compensation;

4 unchanged sentences

Adjusted EBITDA is reconciled to net income (loss) as follows:

Three months ended June 30, 2023

Three months ended September 30, 2023

Continuing Operations Discontinued Operations Total

1 unchanged sentence

Interest income, net (13,375) (1) (13,376)

Income tax benefit (180) — (180)

Income tax expense (benefit)

(1,254) — (1,254)

Depreciation and amortization 2,148 — 2,148

EBITDA (14,071) (183) (14,254)

Share of income from equity method investments (270) — (270)

Impairment loss on long-lived assets (i)

Gain on revaluation of derivative liabilities (ii)

Gain on revaluation of financial instruments (iii)

Share of (income) loss from equity method investments

(1,057) — (1,057)

Foreign currency transaction loss 3,174 — 3,174

(Gain) loss on revaluation of derivative liabilities (ii)

(Gain) loss on revaluation of financial instruments (iii)

5,291 — 5,291

Foreign currency transaction (gain) loss

(8,816) — (8,816)

Other, net (v)

(966) (31) (997)

Restructuring costs (vi)

1,423 28 1,451

Share-based compensation (vii)

3 unchanged sentences

Adjusted EBITDA $ (15,187) $ (190) $ (15,377)

Three months ended June 30, 2022

Three months ended September 30, 2022

Continuing Operations Discontinued Operations Total

1 unchanged sentence

Interest income, net (7,208) (1) (7,209)

Income tax benefit (308) — (308)

Income tax expense (benefit)

2,118 — 2,118

Depreciation and amortization 3,166 282 3,448

EBITDA (35,029) (3,500) (38,529)

Share of income from equity method investments (5,197) — (5,197)

Gain on revaluation of derivative liabilities (ii)

Share of (income) loss from equity method investments

1,119 — 1,119

Loss on revaluation of financial instruments (iii)

Impairment loss on long-lived assets (i)

28,972 — 28,972

Foreign currency transaction loss 2,852 — 2,852

(Gain) loss on revaluation of derivative liabilities (ii)

(375) — (375)

(Gain) loss on revaluation of financial instruments (iii)

(17,049) — (17,049)

Foreign currency transaction (gain) loss

(2,387) — (2,387)

Other, net (v)

Restructuring costs (vi)

978 292 1,270

Share-based compensation (vii)

3 unchanged sentences

Adjusted EBITDA $ (18,464) $ (3,233) $ (21,697)

Six months ended June 30, 2023

Nine months ended September 30, 2023

Continuing Operations Discontinued Operations Total

1 unchanged sentence

Interest income, net (37,021) (9) (37,030)

Income tax benefit (1,616) — (1,616)

Income tax expense (benefit)

(2,870) — (2,870)

Depreciation and amortization 6,689 244 6,933

EBITDA (58,490) (4,003) (62,493)

Share of loss from equity method investments 226 — 226

Share of (income) loss from equity method investments

(831) — (831)

Impairment loss on long-lived assets (i)

Loss on revaluation of derivative liabilities (ii)

Loss on revaluation of financial instruments (iii)

(Gain) loss on revaluation of derivative liabilities (ii)

(Gain) loss on revaluation of financial instruments (iii)

7,856 — 7,856

Foreign currency transaction loss 4,817 — 4,817

Foreign currency transaction (gain) loss

(3,999) — (3,999)

Other, net (v)

(1,025) 132 (893)

Restructuring costs (vi)

1,423 562 1,985

Share-based compensation (vii)

2 unchanged sentences

Inventory write-down (ix)

716 839 1,555

Adjusted EBITDA $ (46,774) $ (2,248) $ (49,022)

Six months ended June 30, 2022

Nine months ended September 30, 2022

Continuing Operations Discontinued Operations Total

1 unchanged sentence

Interest income, net (13,028) (2) (13,030)

Income tax benefit 54 — 54

Income tax expense (benefit)

2,172 — 2,172

Depreciation and amortization 9,502 997 10,499

EBITDA (80,351) (9,885) (90,236)

Share of income from equity method investments (5,197) — (5,197)

Share of (income) loss from equity method investments

(4,078) — (4,078)

Impairment loss on long-lived assets (i)

3,493 — 3,493

Gain on revaluation of derivative liabilities (ii)

(Gain) loss on revaluation of derivative liabilities (ii)

(14,204) — (14,204)

Gain on revaluation of financial instruments (iii)

(Gain) loss on revaluation of financial instruments (iii)

(19,205) — (19,205)

1 unchanged sentence

40,210 — 40,210

Foreign currency transaction loss 4,724 — 4,724

Other, net (v)

Foreign currency transaction (gain) loss

2,337 — 2,337

Other, net (v)

Restructuring costs (vi)

5 unchanged sentences

Adjusted EBITDA $ (51,273) $ (8,123) $ (59,396)

(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.

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.

(i) For the nine months ended September 30, 2023, impairment loss on long-lived assets related to certain leased properties associated with the Company’s former U.S.

For the nine months ended September 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.

(ii) For the three and nine months ended September 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.

(iii) For the three and nine months ended September 30, 2023 and 2022, (gain) loss on revaluation of financial instruments related primarily to the Company’s equity securities in Vitura.

(iv) For the three and nine months ended September 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.

(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.

(v) For the three and nine months ended September 30, 2023 and 2022, other, net related to (gain) loss on disposal of assets.

(vi) For the three and nine months ended September 30, 2023, restructuring costs from continuing operations related to employee-related severance costs and other restructuring costs associated with the Realignment, as described in Note 7 “ Restructuring.

For the three and nine months ended September 30, 2023, restructuring costs from discontinued operations related to employee-related severance costs and other restructuring costs associated with the exit of our former U.S.

operations, as described in Note 2 “ Discontinued Operations .” For the three and nine months ended September 30, 2022, restructuring costs related to the employee-related severance costs and other restructuring costs associated with the Realignment.

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 .”

(vii) For the three and nine months ended September 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 nine months ended September 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 nine months ended September 30, 2023, inventory write-downs from discontinued operations relate to product destruction and obsolescence associated with the exit of our U.S.

operations as described in Note 2 “ Discontinued Operations .” For the three and nine months ended September 30, 2023, inventory write-downs from continuing operations relate to product destruction and obsolescence associated with the planned exit of Cronos Fermentation as described in Note 7 “ Restructuring.”

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.

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 nine months ended September 30, 2023, as well as cash and cash equivalents and short-term investment balances as of September 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.

1 unchanged sentence

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;

dollars using the average exchange rates from the three and nine 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.

2 unchanged sentences

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.

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):

See further discussion on foreign currency risk as noted in Item 3 “ Quantitative and Qualitative Disclosures About Market Risk.”

The table below sets forth certain measures of consolidated results from continuing operations on a constant currency basis for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022 as well as cash and cash equivalents and short-term investments as of September 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

Three months ended September 30, As Reported Change Three months ended September 30, Constant Currency Change

2023 2022 $ % 2023 $ %

3 unchanged sentences

Operating expenses 25,745 30,478 (4,733) (16) % 25,905 (4,573) (15) %

Net loss (5,663) (17,527) 11,864 68 % (6,716) 10,811 62 %

Net loss from continuing operations

(1,590) (33,105) 31,515 95 % (823) 32,282 98 %

Adjusted EBITDA (15,187) (18,464) 3,277 18 % (14,890) 3,574 19 %

Six months ended June 30, As Reported Change Six months ended June 30, Constant Currency Change

Nine months ended September 30, As Reported Change Nine months ended September 30, Constant Currency Change

2023 2022 $ % 2023 $ %

3 unchanged sentences

Operating expenses 73,160 98,572 (25,412) (26) % 76,476 (22,096) (22) %

Net loss (23,698) (45,892) 22,194 48 % (25,738) 20,154 44 %

Net loss from continuing operations

(25,288) (78,997) 53,709 68 % (26,561) 52,436 66 %

Adjusted EBITDA (46,774) (51,273) 4,499 9 % (48,773) 2,500 5 %

As of June 30, As of December 31, As Reported Change Six months ended June 30, Constant Currency Change

As of September 30, As of December 31, As Reported Change As of September 30, Constant Currency Change

2023 2022 $ % 2023 $ %

3 unchanged sentences

As Reported As Adjusted for Constant Currency

Three months ended June 30, As Reported Change Three months ended June 30, Constant Currency Change

Three months ended September 30, As Reported Change Three months ended September 30, Constant Currency Change

2023 2022 $ % 2023 $ %

4 unchanged sentences

As Reported As Adjusted for Constant Currency

Six months ended June 30, As Reported Change Six months ended June 30, Constant Currency Change

Nine months ended September 30, As Reported Change Nine months ended September 30, Constant Currency Change

2023 2022 $ % 2023 $ %

4 unchanged sentences

As Reported As Adjusted for Constant Currency

Three months ended June 30, As Reported Change Three months ended June 30, Constant Currency Change

Three months ended September 30, As Reported Change Three months ended September 30, Constant Currency Change

2023 2022 $ % 2023 $ %

1 unchanged sentence

Israel 5,673 7,039 (1,366) (19) % 6,239 (800) (11) %

Other countries 399 — 399 100 % 418 418 100 %

Net revenue $ 24,810 $ 20,409 $ 4,401 22 % $ 26,005 $ 5,596 27 %

As Reported As Adjusted for Constant Currency

Six months ended June 30, As Reported Change Six months ended June 30, Constant Currency Change

Nine months ended September 30, As Reported Change Nine months ended September 30, Constant Currency Change

2023 2022 $ % 2023 $ %

1 unchanged sentence

Israel 16,160 23,381 (7,221) (31) % 17,761 (5,620) (24) %

Other countries 399 — 399 100 % 418 418 100 %

Net revenue $ 63,326 $ 64,716 $ (1,390) (2) % $ 67,228 $ 2,512 4 %

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.

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.

For the three months ended September 30, 2023, net revenue on a constant currency basis was $26.0 million, representing a 27% increase from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, net revenue on a constant currency basis was $67.2 million, representing a 4% increase from the nine months ended September 30, 2022.

On a constant currency basis, net revenue increased for both the three and nine months ended September 30, 2023 primarily due to higher cannabis flower and extracts sales in the Canadian adult-use market, partially offset by lower cannabis flower sales in Israel driven by pricing pressure as a result of 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.

For the three months ended September 30, 2023, gross profit on a constant currency basis was $4.2 million, representing a 34% increase from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, gross profit on a constant currency basis was $10.7 million, representing a 24% decrease from the nine months ended September 30, 2022.

On a constant currency basis, gross profit increased for the three months ended September 30, 2023 primarily due to higher cannabis flower and extract sales in the Canadian adult-use market and lower biomass costs, partially offset by lower cannabis flower sales in Israel, an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue and the inventory write-down recognized as a result of the decision to wind down operations at Cronos Fermentation.

On a constant currency basis, gross profit decreased for the nine months ended September 30, 2023 primarily due to lower cannabis flower sales in the Israeli medical market, an adverse price/mix on cannabis flower sales in Canada resulting in higher excise taxes as a percentage of revenue and the inventory write-down recognized as a result of the decision to wind down operations at Cronos Fermentation, partially offset by higher cannabis flower and extract sales in the Canadian adult-use market.

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.

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.

For the three months ended September 30, 2023, operating expenses on a constant currency basis were $25.9 million, representing a 15% decrease from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, operating expenses on a constant currency basis were $76.5 million, representing a 22% decrease from the nine months ended September 30, 2022.

On a constant currency basis, operating expenses decreased for the three and nine months ended September 30, 2023, primarily due to lower professional fees, largely related to financial statement review costs, lower costs associated with the achievement of Ginkgo milestones, the acceleration of expense on equity awards granted to certain executive employees in connection with their separation from the Company, as well as previously held-back equity awards granted to certain executives in the prior year, impairment loss on long-lived assets recognized in the prior year, lower bonus expense, lower payroll costs and lower insurance costs, partially offset by higher sales and marketing expenses.

For the three months ended September 30, 2023, net loss on a constant currency basis was $0.8 million, representing a 98% reduction in net loss from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, net loss on a constant currency basis was $26.6 million, representing a 66% reduction in net loss from the nine months ended September 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.

For the three months ended September 30, 2023, Adjusted EBITDA on a constant currency basis was $(14.9) million, representing a 19% improvement from the three months ended September 30, 2022.

For the nine months ended September 30, 2023, Adjusted EBITDA on a constant currency basis was $(48.8) million, representing a 5% improvement from the nine months ended September 30, 2022.

The increase in Adjusted EBITDA for the three and nine months ended September 30, 2023 on a constant currency basis was primarily driven by higher cannabis flower and extracts sales in the Canadian adult-use market, decreases in general and administrative expenses, lower costs associated with the achievement of Ginkgo milestones, partially offset by lower cannabis flower sales in Israel driven by pricing pressure as a result of competitive activity, the slowdown in patient permit authorizations and geopolitical unrest, an adverse price/mix in Canada in the cannabis flower category driving increased excise tax payments as a percentage of revenue and higher sales and marketing expenses.

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.

Cash and cash equivalents and short-term investments on a constant currency basis decreased 4% to $841.2 million as of September 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 nine months ended September 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.

As of September 30, 2023, we had $571.7 million in cash and cash equivalents and $267.9 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.

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(In thousands of U.S.

dollars) Six months ended June 30, 2023

dollars) Nine months ended September 30, 2023

Cash flows used in operating activities $ (59,650) $ (64,576)

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Net change in cash $ (192,988) $ (253,677)

Comparison of cash flows between the six months ended June 30, 2023 and the six months ended June 30, 2022

Comparison of cash flows between the nine months ended September 30, 2023 and the nine months ended September 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.

During the nine months ended September 30, 2023, we used $59.7 million of cash in operating activities as compared to cash used of $64.6 million in the nine months ended September 30, 2022, representing a decrease in cash used of $4.9 million.

This change is primarily driven by a $41.5 million increase in net income after adjusting for non-cash items during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 and a decrease in accounts receivable, partially offset 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, an increase in interest receivable and a decrease in accounts payable.

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.

During the nine months ended September 30, 2023, we used $141.4 million of cash in investing activities, compared to $160.3 million of cash used in investing activities during the nine months ended September 30, 2022, representing a decrease of $18.9 million in cash used by investing activities.

This change is primarily driven by an $11.9 million increase in proceeds from the repayment of loans receivable in the nine months ended September 30, 2023.

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.

During the nine months ended September 30, 2023, cash used in financing activities was $0.8 million, compared to $2.3 million of cash used in financing activities during nine months ended September 30, 2022, representing a decrease of $1.5 million in cash used in financing activities.

This change is primarily driven by a decrease of $1.4 million in withholding taxes paid on share-based awards during nine months ended September 30, 2023 compared to nine months ended September 30, 2022.

Cash Requirements

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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-Q

Item 2. Management’s Discussion and Analysis