Cronos Group Inc. 10-Q

Item 1. Financial Statements Table of Contents Condensed Consolidated Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022 4 Condensed Consolidated Statements of Net Loss and Comprehensive Loss for the three and ni ne months ended September 30, 2023 and 2022 (Unaudited) 5 Condensed Consolidated Statements of Changes in Equity for the three and ni ne months ended September 30, 2023 and 2022 (Unaudited) 6 Condensed Consolidated Statements of Cash Flows for the ni ne months ended Septem ber 30, 2023 and 2022 (Unaudited) 8 Notes to Condensed Consolidated Financial Statements (Unaudited) 9 3 Cronos Group Inc. Condensed Consolidated Balance Sheets (In thousands of U.S. dollars, except share amounts) Table of Contents As of September 30, 2023 As of December 31, 2022 Assets Current assets Cash and cash equivalents $ 571,656 $ 764,644 Short-term investments 267,905 113,077 Accounts receivable, net 15,730 23,113 Interest receivable 11,723 2,469 Other receivables 4,707 3,298 Current portion of loans receivable, net 5,157 8,890 Inventory, net 35,847 37,559 Prepaids and other current assets 5,656 7,106 Total current assets 918,381 960,156 Equity method investments, net 18,258 18,755 Other investments 62,143 70,993 Non-current portion of loans receivable, net 68,301 72,345 Property, plant and equipment, net 55,604 60,557 Right-of-use assets 1,417 2,273 Goodwill 1,031 1,033 Intangible assets, net 24,236 26,704 Deferred tax asset 741 $ 193 Total assets $ 1,150,112 $ 1,213,009 Liabilities Current liabilities Accounts payable $ 4,749 $ 11,163 Income taxes payable 635 32,956 Accrued liabilities 23,868 22,268 Current portion of lease obligation 949 1,330 Derivative liabilities 29 15 Current portion due to non-controlling interests 354 384 Total current liabilities 30,584 68,116 Non-current portion due to non-controlling interests 1,009 1,383 Non-current portion of lease obligation 1,754 2,546 Total liabilities 33,347 72,045 Shareholders’ equity Share capital (authorized for issue as of September 30, 2023 and December 31, 2022: unlimited; shares outstanding as of September 30, 2023 and December 31, 2022: 381,113,564 and 380,575,403 , respectively) 613,290 611,318 Additional paid-in capital 47,133 42,682 Retained earnings 461,509 490,682 Accumulated other comprehensive loss ( 2,110 ) ( 797 ) Total equity attributable to shareholders of Cronos Group 1,119,822 1,143,885 Non-controlling interests ( 3,057 ) ( 2,921 ) Total shareholders’ equity 1,116,765 1,140,964 Total liabilities and shareholders’ equity $ 1,150,112 $ 1,213,009 See notes to condensed consolidated interim financial statements. 4 Cronos Group Inc. Condensed Consolidated Statements of Net Loss and Comprehensive Loss (In thousands of U.S dollars, except share and per share amounts, unaudited) Table of Contents Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Net revenue, before excise taxes $ 33,912 $ 26,070 $ 86,264 $ 80,243 Excise taxes ( 9,102 ) ( 5,661 ) ( 22,938 ) ( 15,527 ) Net revenue 24,810 20,409 63,326 64,716 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 Operating expenses Sales and marketing 5,296 5,247 16,334 12,442 Research and development 1,246 2,541 4,392 10,656 General and administrative 14,366 16,354 39,673 53,771 Restructuring costs 1,423 387 1,423 3,396 Share-based compensation 1,957 4,247 6,823 10,446 Depreciation and amortization 1,457 1,702 4,515 4,368 Impairment loss on long-lived assets — — — 3,493 Total operating expenses 25,745 30,478 73,160 98,572 Operating loss ( 21,775 ) ( 27,334 ) ( 63,164 ) ( 84,396 ) Other income (expense) Interest income, net 13,375 7,208 37,021 13,028 Gain (loss) on revaluation of derivative liabilities 8 375 ( 14 ) 14,204 Share of income (loss) from equity method investments 1,057 ( 1,119 ) 831 4,078 Gain (loss) on revaluation of financial instruments ( 5,291 ) 17,049 ( 7,856 ) 19,205 Impairment loss on other investments — ( 28,972 ) — ( 40,210 ) Foreign currency transaction gain (loss) 8,816 2,387 3,999 ( 2,337 ) Other, net 966 ( 581 ) 1,025 ( 397 ) Total other income (expense) 18,931 ( 3,653 ) 35,006 7,571 Loss before income taxes ( 2,844 ) ( 30,987 ) ( 28,158 ) ( 76,825 ) Income tax expense (benefit) ( 1,254 ) 2,118 ( 2,870 ) 2,172 Loss from continuing operations ( 1,590 ) ( 33,105 ) ( 25,288 ) ( 78,997 ) Loss from discontinued operations ( 182 ) ( 3,781 ) ( 4,238 ) ( 10,880 ) Net loss ( 1,772 ) ( 36,886 ) ( 29,526 ) ( 89,877 ) 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 ) Comprehensive loss Net loss $ ( 1,772 ) $ ( 36,886 ) $ ( 29,526 ) $ ( 89,877 ) Other comprehensive income (loss) Foreign exchange loss on translation ( 20,090 ) ( 60,572 ) ( 1,096 ) ( 68,756 ) Comprehensive loss ( 21,862 ) ( 97,458 ) ( 30,622 ) ( 158,633 ) Comprehensive income (loss) attributable to non-controlling interests ( 41 ) 201 ( 136 ) 62 Comprehensive loss attributable to Cronos Group $ ( 21,821 ) $ ( 97,659 ) $ ( 30,486 ) $ ( 158,695 ) Net loss per share Basic and diluted - continuing operations $ ( 0.00 ) $ ( 0.09 ) $ ( 0.07 ) $ ( 0.21 ) Basic and diluted - discontinued operations ( 0.00 ) ( 0.01 ) ( 0.01 ) ( 0.03 ) Basic and diluted - total $ ( 0.00 ) $ ( 0.10 ) $ ( 0.08 ) $ ( 0.24 ) See notes to condensed consolidated interim financial statements. 5 Cronos Group Inc. Condensed Consolidated Statements of Changes in Equity For the nine months ended September 30, 2023 and 2022 (In thousands of U.S. dollars, except share amounts, unaudited) Number of shares Share capital Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Non-controlling interests Total shareholders’ equity Balance as of January 1, 2023 380,575,403 $ 611,318 $ 42,682 $ 490,682 $ ( 797 ) $ ( 2,921 ) $ 1,140,964 Activities relating to share-based compensation 240,518 917 1,362 — — — 2,279 Net loss — — — ( 19,169 ) — ( 88 ) ( 19,257 ) Foreign exchange gain on translation — — — — 2,334 80 2,414 Balance as of March 31, 2023 380,815,921 $ 612,235 $ 44,044 $ 471,513 $ 1,537 $ ( 2,929 ) $ 1,126,400 Activities relating to share-based compensation 273,436 917 1,273 — — — 2,190 Net loss — — — ( 8,360 ) — ( 137 ) ( 8,497 ) Foreign exchange gain on translation — — — — 16,530 50 16,580 Balance as of June 30, 2023 381,089,357 $ 613,152 $ 45,317 $ 463,153 $ 18,067 $ ( 3,016 ) $ 1,136,673 Activities relating to share-based compensation 24,207 138 1,816 — — — 1,954 Net loss — — — ( 1,644 ) — ( 128 ) ( 1,772 ) Foreign exchange gain (loss) on translation — — — — ( 20,177 ) 87 ( 20,090 ) Balance as of September 30, 2023 381,113,564 $ 613,290 $ 47,133 $ 461,509 $ ( 2,110 ) $ ( 3,057 ) $ 1,116,765 6 Cronos Group Inc. Condensed Consolidated Statements of Changes in Equity For the nine months ended September 30, 2023 and 2022 (In thousands of U.S. dollars, except share amounts, unaudited) Number of shares Share capital Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Non-controlling interests Total shareholders’ equity Balance as of January 1, 2022 374,952,693 $ 595,497 $ 32,465 $ 659,416 $ 49,865 $ ( 2,967 ) $ 1,334,276 Activities relating to share-based compensation 347,287 871 2,900 — — — 3,771 Net loss — — — ( 32,638 ) — ( 15 ) ( 32,653 ) Foreign exchange gain (loss) on translation — — — — 16,223 ( 246 ) 15,977 Balance as of March 31, 2022 375,299,980 $ 596,368 $ 35,365 $ 626,778 $ 66,088 $ ( 3,228 ) $ 1,321,371 Activities relating to share-based compensation 395,156 2,251 ( 167 ) — — — 2,084 Share issuance pursuant to research and development milestones 2,201,235 6,007 — — — — 6,007 Net loss — — — ( 20,221 ) — ( 117 ) ( 20,338 ) Foreign exchange gain (loss) on translation — — — — ( 24,400 ) 239 ( 24,161 ) Balance as of June 30, 2022 377,896,371 $ 604,626 $ 35,198 $ 606,557 $ 41,688 $ ( 3,106 ) $ 1,284,963 Activities relating to share-based compensation 449,889 603 3,124 — — — 3,727 Net income (loss) — — — ( 36,991 ) — 105 ( 36,886 ) Foreign exchange gain (loss) on translation — — — — ( 60,668 ) 96 ( 60,572 ) Balance as of September 30, 2022 378,346,260 $ 605,229 38,322 569,566 ( 18,980 ) ( 2,905 ) 1,191,232 See notes to condensed consolidated interim financial statements. 7 Cronos Group Inc. Condensed Consolidated Statements of Cash Flows (In thousands of U.S. dollars, except share amounts, unaudited) Table of Contents Nine months ended September 30, 2023 2022 Operating activities Net loss $ ( 29,526 ) $ ( 89,877 ) Adjustments to reconcile net loss to cash used in operating activities: Share-based compensation 6,840 10,567 Depreciation and amortization 6,933 10,499 Impairment loss on long-lived assets 205 3,493 Impairment loss on other investments — 40,210 Loss (gain) from investments 7,103 ( 23,283 ) Loss (gain) on revaluation of derivative liabilities 14 ( 14,204 ) Changes in expected credit losses on long-term financial assets ( 1,339 ) ( 577 ) Foreign currency transaction (gain) loss ( 3,999 ) 2,337 Other non-cash operating activities, net ( 1,918 ) 3,680 Changes in operating assets and liabilities: Accounts receivable, net 6,976 1,172 Interest receivable ( 14,601 ) ( 5,332 ) Other receivables 25 3,601 Prepaids and other current assets 1,074 ( 904 ) Inventory 976 ( 4,241 ) Accounts payable ( 7,595 ) ( 1,627 ) Income taxes payable ( 32,728 ) — Accrued liabilities 1,910 ( 90 ) Cash flows used in operating activities ( 59,650 ) ( 64,576 ) Investing activities Purchase of short-term investments ( 537,186 ) ( 275,370 ) Proceeds from short-term investments 380,765 116,925 Dividends received from equity method investment 1,301 — Dividend proceeds 346 — Proceeds from repayment on loan receivables 14,151 2,339 Purchase of property, plant and equipment ( 1,287 ) ( 3,087 ) Purchase of intangible assets ( 344 ) ( 1,177 ) Other investing activities 862 70 Cash flows used in investing activities ( 141,392 ) ( 160,300 ) Financing activities Withholding taxes paid on share-based awards ( 812 ) ( 2,208 ) Other financing activities, net — ( 69 ) Cash flows used in financing activities ( 812 ) ( 2,277 ) Effect of foreign currency translation on cash and cash equivalents 8,866 ( 26,524 ) Net change in cash and cash equivalents ( 192,988 ) ( 253,677 ) Cash and cash equivalents, beginning of period 764,644 886,973 Cash and cash equivalents, end of period $ 571,656 $ 633,296 Supplemental cash flow information Interest paid $ — $ — Interest received $ 22,203 $ 7,734 Income taxes paid $ 33,013 $ 158 See notes to condensed consolidated interim financial statements. 8 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents 1. Background, Basis of Presentation, and Summary of Significant Accounting Policies (a) Background Cronos Group Inc. (“Cronos” or the “Company”) is incorporated in the province of British Columbia under the Business Corporations Act (British Columbia) with principal executive offices at 111 Peter St., Suite 300, Toronto, Ontario, M5V 2H1. The Company’s common shares are currently listed on the Toronto Stock Exchange (“TSX”) and Nasdaq Global Market (“Nasdaq”) under the ticker symbol “CRON.” Cronos 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 ® . The Company 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. (b) Basis of presentation These condensed consolidated interim financial statements of Cronos Group are unaudited. They have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”) for interim financial information and with applicable rules and regulations of the U.S. Securities and Exchange Commission relating to interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for any other reporting period. These condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”). Certain prior period amounts have been reclassified to conform to the current year presentation of our condensed consolidated interim financial statements. These reclassifications had no effect on the reported results of operations and ending shareholders’ equity. (c) Discontinued Operations In the second quarter of 2023, the Company 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 the Company’s operations and financial results, and as such, qualifies for reporting as discontinued operations in our condensed consolidated statements of net loss and comprehensive loss. Prior period amounts have been reclassified to reflect the discontinued operations classification of the U.S. operations. For more information, see Note 2 “ Discontinued Operations ”. (d) Segment information Segment reporting is prepared on the same basis that the Company’s chief operating decision maker (the “CODM”) manages the business, makes operating decisions and assesses the Company’s performance. Historically, the Company has reported results for two reportable segments, the U.S. and Rest of World. In the second quarter of 2023, as a result of the Company’s exit of its then-existing U.S. operations, the Company determined that it has one operating segment and therefore one reportable segment, which is comprised of operations in Canada and Israel and is involved in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets . All prior period segment disclosure information has been reclassified to conform to the current reporting structure in this Form 10-Q. These reclassifications had no effect on our consolidated financial statements in any period presented. (e) Revenue recognition The following tables present the Company's revenue by major product category for continuing operations: 9 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents Three months ended September 30, 2023 2022 Cannabis flower $ 17,414 $ 13,674 Cannabis extracts 7,268 6,627 Other 128 108 Net revenue $ 24,810 $ 20,409 Nine months ended September 30, 2023 2022 Cannabis flower $ 44,556 $ 48,038 Cannabis extracts 18,495 16,197 Other 275 481 Net revenue $ 63,326 $ 64,716 Net revenue attributed to a geographic region based on the location of the customer were as follows for continuing operations: Three months ended September 30, 2023 2022 Canada $ 18,738 $ 13,370 Israel 5,673 7,039 Other countries 399 — Net revenue $ 24,810 $ 20,409 Nine months ended September 30, 2023 2022 Canada $ 46,767 $ 41,335 Israel 16,160 23,381 Other countries 399 — Net revenue $ 63,326 $ 64,716 (f) Concentration of risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk from its operating activities, primarily accounts receivable and other receivables, and its investing activities, including cash held with banks and financial institutions, short-term investments and loans receivable. The Company’s maximum exposure to this risk is equal to the carrying amount of these financial assets, which amounted to $ 945,179 and $ 987,836 as of September 30, 2023 and December 31, 2022, respectively. An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on the days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Accounts receivable are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan and a failure to make contractual payments for a period of greater than 120 days past due. As of September 30, 2023 and December 31, 2022, the Company had $ 45 and $ 2 , respectively, in expected credit losses that have been recognized on receivables from contracts with customers. As of September 30, 2023, the Company assessed that there is a concentration of credit risk, as 43 % of the Company’s accounts receivable were due from two customers with an established credit history with the Company. As of December 31, 2022, 56 % of the Company’s accounts receivable were due from three customers with an established credit history with the Company. 10 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents The Company sells products to a limited number of major customers. Major customers are defined as customers that each individually accounted for greater than 10% of the Company’s revenue. During the three months ended September 30, 2023, the Company earned a total net revenue before excise taxes of $ 22,618 from three major customers, together accounting for 67 % of the Company’s total net revenues before excise taxes. During the three months ended September 30, 2022, the Company earned a total net revenue before excise taxes of $ 12,094 from three major customers, together accounting for 60 % of the Company’s total net revenues before excise taxes. During the nine months ended September 30, 2023, the Company earned a total net revenue before excise taxes of $ 57,398 from three major customers, together accounting for 67 % of the Company’s total net revenues before excise taxes. During the nine months ended September 30, 2022, the Company earned a total net revenue before excise taxes of $ 36,564 from three major customers, together accounting for 58 % of the Company’s total net revenues before excise taxes. (g) Adoption of new accounting pronouncements On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”). ASU 2022-02 eliminates the existing troubled debt restructuring recognition and measurement guidance, and instead aligns the accounting treatment to that of other loan modifications. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU 2022-02 also requires that entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. The adoption of ASU 2022-02 did not have a material impact on the Company’s condensed consolidated interim financial statements. (h) New accounting pronouncements not yet adopted In June 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered in measuring fair value. The amendments also require additional disclosures for equity securities subject to contractual sale restrictions. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, and we expect to adopt ASU 2022-03 prospectively. The Company does not expect the adoption of ASU 2022-03 to have a material impact on its condensed consolidated interim financial statements. 2. Discontinued Operations In the second quarter of 2023, the Company exited its then-existing U.S. hemp-derived cannabinoid product operations. Accordingly, the net loss of the U.S. operations for the three and nine months ended September 30, 2023 and 2022 are reported separately as loss from discontinued operations on the condensed consolidated statements of net loss and comprehensive loss. 11 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents The following table presents the major components comprising loss from discontinued operations in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022: Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Net revenue $ — $ 514 $ 1,029 $ 4,301 Cost of sales — 2,501 2,044 6,274 Inventory write-down (i) — — 839 — Gross profit — ( 1,987 ) ( 1,854 ) ( 1,973 ) Operating expenses Sales and marketing — 676 518 4,075 Research and development — 28 20 254 General and administrative 190 813 926 2,769 Restructuring costs 28 137 562 1,482 Share-based compensation ( 4 ) 18 17 121 Depreciation and amortization — 11 13 49 Impairment loss on long-lived assets (ii) — — 205 — Total operating expenses 214 1,683 2,261 8,750 Interest income 1 1 9 2 Other, net (iii) 31 ( 112 ) ( 132 ) ( 159 ) Total other income (loss) 32 ( 111 ) ( 123 ) ( 157 ) Loss before income taxes ( 182 ) ( 3,781 ) ( 4,238 ) ( 10,880 ) Income tax expense (benefit) — — — — Net loss from discontinued operations $ ( 182 ) $ ( 3,781 ) $ ( 4,238 ) $ ( 10,880 ) (i) For the nine months ended September 30, 2023, Inventory write-down relates to the disposal of obsolete inventory as a result of the exit of the U.S. operations. (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 nine months ended September 30, 2023 and September 30, 2022, Other, net related to gain and loss on disposal of assets that were part of the U.S. operations. The following tables present the Company's discontinued operations revenue by major product category: Three months ended September 30, 2023 2022 Cannabis extracts — 514 Net revenue $ — $ 514 Nine months ended September 30, 2023 2022 Cannabis extracts 1,029 4,301 Net revenue $ 1,029 $ 4,301 12 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents The following tables summarize the Company’s discontinued operations restructuring activity for the three and nine months ended September 30, 2023 and 2022: Accrual as of June 30, 2023 Expenses Payments/Write-offs Accrual as of September 30, 2023 Employee Termination Benefits $ 219 $ 28 $ ( 169 ) $ 78 Other Restructuring Costs 92 — ( 92 ) — Total $ 311 $ 28 $ ( 261 ) $ 78 Accrual as of January 1, 2023 Expenses Payments/Write-offs Accrual as of September 30, 2023 Employee Termination Benefits $ — $ 470 $ ( 392 ) $ 78 Other Restructuring Costs — 92 ( 92 ) — Total $ — $ 562 $ ( 484 ) $ 78 Accrual as of June 30, 2022 Expenses Payments/Write-offs Accrual as of September 30, 2022 Employee Termination Benefits $ 66 $ 137 $ ( 93 ) $ 110 Total $ 66 $ 137 $ ( 93 ) $ 110 Accrual as of January 1, 2022 Expenses Payments/Write-offs Accrual as of September 30, 2022 Employee Termination Benefits $ — $ 1,482 $ ( 1,372 ) $ 110 Total $ — $ 1,482 $ ( 1,372 ) $ 110 The following table presents a reconciliation of assets and liabilities of the discontinued operations presented in the condensed consolidated balance sheets: As of September 30, 2023 As of December 31, 2022 Assets Current assets Cash and cash equivalents $ 900 $ 2,300 Accounts receivable, net — 253 Other receivables — 775 Prepaids and other current assets 5 464 Inventory, net — 934 Current assets of discontinued operations 905 4,726 Non-current assets Property, plant and equipment, net — 254 Right-of-use assets — 430 Intangible assets, net — 1,594 Non-current assets of discontinued operations — 2,278 Liabilities Current liabilities Accounts payable — 166 Accrued liabilities 210 807 Current portion of lease obligation — 415 Current liabilities of discontinued operations $ 210 $ 1,388 13 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents For the nine months ended September 30, 2023, purchases of property plant and equipment related to discontinued operations were $ 67 . For the nine months ended September 30, 2022, purchases of property plant and equipment related to discontinued operations were $ 133 . 3. Inventory, net Inventory, net is comprised of the following items: As of September 30, 2023 As of December 31, 2022 Raw materials $ 6,739 $ 7,421 Work-in-progress 11,665 15,646 Finished goods 16,536 13,503 Supplies and consumables 907 989 Total $ 35,847 $ 37,559 4. Investments (a) Equity method investments, net A reconciliation of the carrying amount of the investments in equity method investees, net is as follows: Ownership interest As of September 30, 2023 As of December 31, 2022 Cronos Growing Company Inc. (“Cronos GrowCo”) 50 % $ 18,258 $ 18,755 $ 18,258 $ 18,755 The following is a summary of the Company’s share of net gain (loss) from equity method investments: For the three months ended September 30, For the nine months ended September 30, 2023 2022 2023 2022 Cronos GrowCo $ 1,057 $ ( 1,119 ) $ 831 $ 4,078 $ 1,057 $ ( 1,119 ) $ 831 $ 4,078 (b) Other investments Other investments consist of investments in common shares and options of two companies in the cannabis industry. PharmaCann, Inc. In 2021, the Company purchased an option (the “PharmaCann Option”) to acquire 473,787 shares of Class A Common Stock of PharmaCann, Inc. (“PharmaCann”), a vertically integrated cannabis company in the United States, which represented an ownership interest of approximately 10.5 % as of the purchase date of the PharmaCann Option, for an aggregate purchase price of approximately $ 110,392 . The PharmaCann Option is classified as an equity security without a readily determinable fair value. The Company has elected to measure the fair value of the PharmaCann Option at cost less impairment, if any, and subsequently adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. As of September 30, 2023, the Company’s proforma ownership percentage in PharmaCann on a fully-diluted basis was approximately 6.3 %. The decrease in the Company’s ownership percentage since acquisition does not materially affect the Company’s rights under the PharmaCann Option. The PharmaCann Option is measured at fair value on a non-recurring basis and is a level 3 asset. See Note 11 “ Fair Value Measurements ” for more information on the fair value hierarchy. Vitura Health Limited (formerly known as Cronos Australia) The Company owns approximately 10 % of the outstanding common shares of Vitura Health Limited (“Vitura”). The investment is considered an equity security with a readily determinable fair value. Changes in the fair value of the investment are recorded as gain (loss) on revaluation of financial instruments on the condensed consolidated statements of net loss and comprehensive loss. During the three months ended September 30, 2023, Vitura declared a dividend of A$ 0.01 per ordinary share. Based on the Company’s holding of 55,176,065 ordinary shares in the capital of Vitura, the Company recorded dividend income of $ 346 within other, net on the condensed consolidated statements of net loss and comprehensive loss. 14 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents The following table summarizes the Company’s other investments activity: As of July 1, 2023 Unrealized loss Impairment charges Foreign exchange effect As of September 30, 2023 PharmaCann $ 49,000 $ — $ — $ — $ 49,000 Vitura 18,925 ( 5,204 ) — ( 578 ) 13,143 $ 67,925 $ ( 5,204 ) $ — $ ( 578 ) $ 62,143 As of January 1, 2023 Unrealized loss Impairment charges Foreign exchange effect As of September 30, 2023 PharmaCann $ 49,000 $ — $ — $ — $ 49,000 Vitura 21,993 ( 7,933 ) — ( 917 ) 13,143 $ 70,993 $ ( 7,933 ) $ — $ ( 917 ) $ 62,143 As of July 1, 2022 Unrealized gain Impairment charges Foreign exchange effect As of September 30, 2022 PharmaCann $ 99,154 $ — $ ( 28,972 ) $ — $ 70,182 Vitura 9,515 17,118 — ( 2,258 ) 24,375 $ 108,669 $ 17,118 $ ( 28,972 ) $ ( 2,258 ) $ 94,557 As of January 1, 2022 Unrealized gain Impairment charges Foreign exchange effect As of September 30, 2022 PharmaCann $ 110,392 $ — $ ( 40,210 ) $ — $ 70,182 Vitura 8,000 19,114 — ( 2,739 ) 24,375 $ 118,392 $ 19,114 $ ( 40,210 ) $ ( 2,739 ) $ 94,557 During both the three months ended March 31, 2022, and the three months ended September 30, 2022, the Company identified adverse forecast changes in the financial performance of PharmaCann as indicators of impairment related to the PharmaCann Option and conducted analyses comparing the PharmaCann Option’s carrying amount to its estimated fair value. The fair value was estimated using a combination of the market and income approaches. Under the income approach, significant inputs used in the discounted cash flow method were the discount rate, growth rates, cash flow projections, and the timing of federal legalization of cannabis in the U.S. Under the market valuation approach, the key assumptions that require judgment under the Guideline Public Companies method are cash flow projections, selected multiples and the discount for lack of marketability. As a result of this analysis, the Company recorded non-cash impairment charges of $ 11,238 and $ 28,972 during the three months ended March 31, 2022, and September 30, 2022, respectively, as the difference between the carrying amount of the PharmaCann Option and its estimated fair value in the condensed consolidated statements of net loss and comprehensive loss. 15 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents 5. Loans Receivable, net Loans receivable, net consists of the following: As of September 30, 2023 As of December 31, 2022 GrowCo Credit Facility $ 4,911 $ 4,427 Add: Current portion of accrued interest 246 4,463 Total current portion of loans receivable 5,157 8,890 GrowCo Credit Facility 53,350 56,898 Mucci Promissory Note 13,051 13,438 Cannasoul Collaboration Loan 1,683 1,837 Add: Long-term portion of accrued interest 217 172 Total long-term portion of loans receivable 68,301 72,345 Total loans receivable, net $ 73,458 $ 81,235 Cronos GrowCo Credit Facility On August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into a senior secured credit agreement for an aggregate principal amount of C$ 100,000 (the “GrowCo Credit Facility”). The GrowCo Credit Facility is secured by substantially all present and after-acquired personal and real property of Cronos GrowCo. In August 2021, the GrowCo Credit Facility was amended to increase the aggregate principal amount available to C$ 105,000 . As of both September 30, 2023, and December 31, 2022, Cronos GrowCo had drawn C$ 104,000 ($ 76,600 and $ 76,730 , respectively) from the GrowCo Credit Facility. The interest rate on the outstanding borrowings is the Canadian Prime Rate plus 1.25 %, with interest payments due on December 2021, December 2022, and quarterly thereafter. Principal payments of C$ 1,000 commenced in March 2022 and are due quarterly thereafter. For the three months ended September 30, 2023, Cronos GrowCo repaid C$ 1,666 ($ 1,076 ) in principal and C$ 2,032 ($ 1,189 ) in interest related to the GrowCo Credit Facility. For the nine months ended September 30, 2023, Cronos GrowCo repaid C$ 5,833 ($ 4,170 ) in principal and C$ 11,458 ($ 8,430 ) in interest related to the GrowCo Credit Facility. As of September 30, 2023, Cronos GrowCo had repaid C$ 9,833 ($ 7,243 ) and C$ 18,518 ($ 13,639 ) in principal and interest, respectively, under the terms of the GrowCo Credit Facility. Mucci Promissory Note On June 28, 2019, the Company entered into a promissory note receivable agreement (the “Mucci Promissory Note”) for C$ 16,350 (approximately $ 12,042 ) with the Cronos GrowCo joint venture partner (“Mucci”). The Mucci Promissory Note is secured by a general security agreement covering all the assets of Mucci. On September 30, 2022, the Mucci Promissory Note was amended and restated to increase the interest rate from 3.95 % to the Canadian Prime Rate plus 1.25 %, change the interest payments from quarterly to annual, and defer Mucci’s initial cash interest payment from September 30, 2022 to July 1, 2023. Prior to July 1, 2022, interest accrued on the Mucci Promissory Note was capitalized as part of the principal balance. As of July 1, 2022, interest was accrued and to be paid in cash beginning on July 1, 2023. Prior to 2023, there were no repayments of principal or interest on the Mucci Promissory Note. For the nine months ended September 30, 2023, Mucci repaid C$ 563 ($ 415 ) in principal and C$ 1,187 ($ 874 ) in interest related to the Mucci Promissory Note. For the three months ended September 30, 2023, there were no repayments of principal or interest on the Mucci Promissory Note. Cannasoul Collaboration Loan As of both September 30, 2023 and December 31, 2022, Cannasoul Lab Services Ltd. has received ILS 8,297 (approximately $ 2,175 and $ 2,359 , respectively), from the Cannasoul Collaboration Loan. 16 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents Expected credit loss allowances on the Company’s long-term financial assets for the three and nine months ended September 30, 2023 and 2022 were comprised of the following items: As of July 1, 2023 Increase (decrease) (i) Foreign exchange effect As of September 30, 2023 GrowCo Credit Facility $ 11,579 $ ( 199 ) $ ( 283 ) $ 11,097 Mucci Promissory Note 86 2 ( 2 ) 86 Cannasoul Collaboration Loan 503 4 ( 14 ) 493 $ 12,168 $ ( 193 ) $ ( 299 ) $ 11,676 As of July 1, 2022 Increase (decrease) (i) Foreign exchange effect As of September 30, 2022 GrowCo Credit Facility $ 13,293 $ 74 $ ( 929 ) $ 12,438 Mucci Promissory Note 91 1 ( 6 ) 86 Cannasoul Collaboration Loan 377 3 ( 8 ) 372 $ 13,761 $ 78 $ ( 943 ) $ 12,896 As of January 1, 2023 Increase (decrease) (i) Foreign exchange effect As of September 30, 2023 GrowCo Credit Facility $ 12,455 $ ( 1,348 ) $ ( 10 ) $ 11,097 Mucci Promissory Note 89 ( 3 ) — 86 Cannasoul Collaboration Loan 522 12 ( 41 ) 493 $ 13,066 $ ( 1,339 ) $ ( 51 ) $ 11,676 As of January 1, 2022 Increase (decrease) Foreign exchange effect As of September 30, 2022 GrowCo Credit Facility $ 14,089 $ ( 590 ) $ ( 1,061 ) $ 12,438 Mucci Promissory Note 90 3 ( 7 ) 86 Cannasoul Collaboration Loan 415 10 ( 53 ) 372 $ 14,594 $ ( 577 ) $ ( 1,121 ) $ 12,896 (i) During the three and nine months ended September 30, 2023, $ 193 and $ 1,339 , respectively, were recorded as decreases to general and administrative expenses on the condensed consolidated statements of net loss and comprehensive loss as a result of principal and interest payments made by Cronos GrowCo reducing our expected credit losses on loans receivable. During the three months ended September 30, 2022, $ 78 was recorded as an increase to general and administrative expenses on the condensed consolidated statements of net loss and comprehensive loss as a result of adjustments to our expected credit losses. During the nine months ended September 30, 2022, $ 577 was recorded as a decrease to general and administrative expenses on the condensed consolidated statements of net loss and comprehensive loss as a result of adjustments to our expected credit losses. 6. Derivative Liabilities Pursuant to the investor rights agreement (the “Investor Rights Agreement”) between the Company and Altria Group Inc. (“Altria”), the Company granted Altria certain rights, among others, summarized in this note . The summaries below are qualified entirely by the terms and conditions fully set out in the Investor Rights Agreement. a. The Company granted to Altria, subject to certain qualifications and limitations, upon the occurrence of certain issuances of common shares of the Company executed by the Company (including issuances pursuant to the research and development (“R&D”) partnership with Ginkgo Bioworks Holdings, Inc. (“Ginkgo”)), the right to purchase up to such number of common shares of the Company in order to maintain its ownership percentage of issued and outstanding common shares of the Company immediately preceding any issuance of shares by the Company (“Pre-emptive Rights”), at the same price per common share of the Company at which the common shares are sold in the relevant issuance; provided that if the consideration paid in connection with any such issuance is non-cash, the price per common share of the Company that would have been received had such common shares been issued for cash consideration will be determined by an independent committee (acting reasonably and in good faith); provided further that the price per common share of the Company to be paid by Altria pursuant to its exercise of its Pre-emptive Rights related to the Ginkgo Collaboration Agreement will be C$ 16.25 per common share. These rights may not be exercised if Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20 %. 17 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents b. In addition to (and without duplication of) the Pre-emptive Rights, the Company granted to Altria, subject to certain qualifications and limitations, the right to subscribe for common shares of the Company issuable in connection with the exercise, conversion or exchange of convertible securities of the Company issued prior to March 8, 2019 or thereafter (excluding any convertible securities of the Company owned by Altria or any of its subsidiaries), a share incentive plan of the Company, the exercise of any right granted by the Company pro rata to all shareholders of the Company to purchase additional common shares and/or securities of the Company, bona fide bank debt, equipment financing or non-equity interim financing transactions that contemplate an equity component or bona fide acquisitions (including acquisitions of assets or rights under a license or otherwise), mergers or similar business combination transactions or joint ventures involving the Company in order to maintain their ownership percentage of issued and outstanding common shares of the Company immediately preceding any such transactions (“Top-up Rights”). The price per common share to be paid by Altria pursuant to the exercise of its Top-up Rights will be, subject to certain limited exceptions, the 10 -day volume-weighted average price of the common shares of the Company on the TSX for the 10 full days preceding such exercise by Altria; provided that the price per common share of the Company to be paid by Altria pursuant to the exercise of its Top-up Rights in connection with the issuance of common shares of the Company pursuant to the exercise of options or warrants that were outstanding as of March 8, 2019 will be C$ 16.25 per common share without any set off, counterclaim, deduction, or withholding. These rights may not be exercised if Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20 %. The Pre-emptive Rights, and fixed price Top-up Rights have been classified as derivative liabilities on the Company’s consolidated balance sheet. As of September 30, 2023, Altria beneficially held 156,573,537 of the Company’s common shares, an approximate 41 % ownership interest in the Company (calculated on a non-diluted basis). Reconciliation of the Company’s derivative liabilities activity are as follows: As of July 1, 2023 Revaluation (gain) loss Foreign exchange effect As of September 30, 2023 Pre-emptive Rights $ 37 $ ( 7 ) $ ( 1 ) $ 29 Top-up Rights — ( 1 ) 1 — $ 37 $ ( 8 ) $ — $ 29 As of July 1, 2022 Revaluation gain Foreign exchange effect As of September 30, 2022 Altria Warrant $ 491 $ ( 336 ) $ ( 121 ) $ 34 Pre-emptive Rights 16 ( 18 ) 2 — Top-up Rights 67 ( 21 ) ( 7 ) 39 $ 574 $ ( 375 ) $ ( 126 ) $ 73 As of January 1, 2023 Revaluation (gain) loss Foreign exchange effect As of September 30, 2023 Pre-emptive Rights $ — $ 29 — $ 29 Top-up Rights 15 ( 15 ) — — $ 15 $ 14 $ — $ 29 As of January 1, 2022 Revaluation gain Foreign exchange effect As of September 30, 2022 Altria Warrant $ 13,720 $ ( 13,592 ) $ ( 94 ) $ 34 Pre-emptive Rights 180 ( 182 ) 2 — Top-up Rights 475 ( 430 ) ( 6 ) 39 $ 14,375 $ ( 14,204 ) $ ( 98 ) $ 73 Fluctuations in the expected life of the derivative instruments and the Company’s share price are primary drivers for the changes in the derivative valuations during each reporting period. As the period of time that the derivative liability is expected to be outstanding decreases and the share price decreases, the fair value typically decreases for each related derivative instrument. Weighted-average expected life and share price are two of the significant observable inputs used in the fair value measurement of each of the Company’s derivative instruments. 18 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents The fair values of the derivative liabilities were determined using the Black-Scholes pricing model using the following inputs: As of September 30, 2023 Pre-emptive Rights Top-up Rights Share price at valuation date (per share in C$) $ 2.71 $ 2.71 Subscription price (per share in C$) $ 16.25 $ 16.25 Weighted-average risk-free interest rate (i) 5.01 % 5.03 % Weighted-average expected life (in years) (ii) 1.25 0.85 Expected annualized volatility (iii) 61 % 57 % Expected dividend yield — % — % As of December 31, 2022 Pre-emptive Rights Top-up Rights Share price at valuation date (per share in C$) $ 3.44 $ 3.44 Subscription price (per share in C$) $ 16.25 $ 16.25 Weighted-average risk-free interest rate (i) 4.14 % 4.28 % Weighted-average expected life (in years) (ii) 0.25 0.59 Expected annualized volatility (iii) 73 % 73 % Expected dividend yield — % — % (i) The risk-free interest rate was based on Bank of Canada government treasury bills and bonds with a remaining term equal to the expected life of the derivative liabilities. As of September 30, 2023 and December 31, 2022, the risk-free interest rate uses a range of approximately 4.79 % to 5.05 % and 3.81 % to 4.37 %, respectively, for the Pre-emptive Rights and Top-up Rights. (ii) The expected life represents the period of time, in years, that the derivative liabilities are expected to be outstanding. The expected life of the Pre-emptive Rights and Top-up Rights is determined based on the expected term of the underlying options, warrants, and shares, to which the Pre-emptive Rights and Top-up Rights are linked. As of September 30, 2023 and December 31, 2022, the expected life uses a range of approximately 0.75 years to 2.00 years and 0.25 years to 2.75 years, respectively, for the Pre-emptive Rights and Top-up Rights. (iii) Volatility was based on an equally weighted blended historical and implied volatility level of the underlying equity securities of the Company. 7. Restructuring In the first quarter of 2022, the Company initiated a strategic plan to realign the business around its brands, centralize functions and evaluate the Company’s supply chain (the “Realignment”). As part of the Realignment, on February 28, 2022, the Board approved plans to leverage the Company’s strategic partnerships to improve supply chain efficiencies and reduce manufacturing overhead by exiting its production facility in Stayner, Ontario, Canada (the “Peace Naturals Campus”). On February 27, 2023, the Board approved revisions to the Realignment, which are expected to result in the Company maintaining select components of its operations at the Peace Naturals Campus, namely distribution warehousing, certain research and development activities and manufacturing of certain of the Company’s products, while seeking to sell and lease back all or some of the Peace Naturals Campus or to lease certain portions of the Peace Naturals Campus to third parties. In the third quarter of 2023, the Board approved revisions to the Realignment to wind-down operations at its Winnipeg, Manitoba facility (“Cronos Fermentation”), list the Cronos Fermentation facility for sale, and implement additional organization-wide cost reductions as the Company continues its Realignment initiatives. The Realignment initiatives were intended to position the Company to drive profitable and sustainable growth over time. During the three months ended September 30, 2023, the Company performed an assessment under ASC 360, Property Plant and Equipment , of the recovery of the carrying value of the Canada asset group, which includes Cronos Fermentation, and determined the carrying value of the asset group was recoverable. As of September 30, 2023, Cronos Fermentation did not meet the criteria to be classified as held-for-sale. During both the three and nine months ended September 30, 2023, the Company incurred $ 1,423 of restructuring costs in its continuing operations in connection with the Realignment. During the three and nine months ended September 30, 2022, the Company recognized $ 387 and $ 3,396 , respectively, of restructuring costs in continuing operations in connection with the Realignment. Charges related thereto include employee-related costs such as severance, relocation and other termination benefits, as well as contract termination and other related costs. During the three and nine months ended September 30, 2023, as a result of the decision to wind down operations at Cronos Fermentation, the Company recognized an inventory write-down of $ 716 related to certain obsolete raw materials. Restructuring costs and inventory write-downs incurred in the Company’s discontinued operations during the three and nine months ended September 30, 2023 and 2022 is presented in Note 2 “ Discontinued Operations .” 19 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents The following table summarizes the Company’s restructuring activity for the three and nine months ended September 30, 2023 and 2022: Accrual as of July 1, 2023 Expenses Payments/Write-offs Accrual as of September 30, 2023 Employee Termination Benefits $ 61 $ 1,420 $ ( 947 ) $ 534 Other Restructuring Costs — 3 ( 3 ) — Total $ 61 $ 1,423 $ ( 950 ) $ 534 Accrual as of January 1, 2023 Expenses Payments/Write-offs Accrual as of September 30, 2023 Employee Termination Benefits $ 403 $ 1,420 $ ( 1,289 ) $ 534 Other Restructuring Costs 21 3 ( 24 ) — Total $ 424 $ 1,423 $ ( 1,313 ) $ 534 Accrual as of July 1, 2022 Expenses Payments/Write-offs Accrual as of September 30, 2022 Employee Termination Benefits $ 822 $ 195 $ ( 569 ) $ 448 Other Restructuring Costs 21 192 ( 192 ) 21 Total $ 843 $ 387 $ ( 761 ) $ 469 Accrual as of January 1, 2022 Expenses Payments/Write-offs Accrual as of September 30, 2022 Employee Termination Benefits $ — $ 1,785 $ ( 1,337 ) $ 448 Other Restructuring Costs — 1,611 ( 1,590 ) 21 Total $ — $ 3,396 $ ( 2,927 ) $ 469 8. Share-based Compensation (a) Share-based award plans The Company has granted stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”) to employees and non-employee directors under the Stock Option Plan dated May 26, 2015 (the “2015 Stock Option Plan”), the 2018 Stock Option Plan dated June 28, 2018 (the “2018 Stock Option Plan” and, together with the 2015 Stock Option Plan, the “Prior Option Plans”), the Employment Inducement Award Plan #1 (the “Employment Inducement Award Plan”), the 2020 Omnibus Equity Incentive Plan dated March 29, 2020 (the “2020 Omnibus Plan”) and the DSU Plan dated August 10, 2019 (the “DSU Plan”). The Company can no longer make grants under the Prior Option Plans or the Employment Inducement Award Plan. The following table summarizes the total share-based compensation expense associated with the Company’s stock options, RSUs and liability-classified awards for the three and nine months ended September 30, 2023 and 2022: Three months ended September 30, For the nine months ended September 30, 2023 2022 2023 2022 Stock options $ 35 $ 1,077 $ 1,141 $ 3,947 RSUs 1,922 2,573 5,682 5,902 Liability-classified awards (i) — 597 — 597 Total share-based compensation $ 1,957 $ 4,247 $ 6,823 $ 10,446 (i) Represents share-based payment awards conditionally approved for grant in the three months ended September 30, 2022 to one of the Company’s former executives for a fixed monetary value, but a variable number of shares. These awards were liability-classified until the number of shares was determined. Vesting conditions for grants of options are determined by the Compensation Committee of the Company’s Board of Directors. The typical vesting for stock option grants made under the 2020 Omnibus Plan is annual vesting over three to five years with a maximum term of ten years . The typical vesting for stock option grants made under the Prior Option Plans is quarterly vesting over three to five years with a maximum term of seven years . The Prior Option Plans did not, and the 2020 Omnibus Plan does not, authorize grants of options with an exercise price below fair market value. 20 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents The following is a summary of the changes in stock options for the nine months ended September 30, 2023 and 2022: Weighted-average exercise price (C$) (i) Number of options Weighted-average remaining contractual term (years) Balance as of January 1, 2023 $ 10.57 5,350,600 0.73 Issuance of options 2.96 188,317 Cancellation, forfeiture and expiry of options 7.75 ( 3,435,716 ) Balance as of September 30, 2023 $ 14.50 2,103,201 2.09 Exercisable as of September 30, 2023 $ 16.02 1,845,841 1.50 Weighted-average exercise price (C$) (i) Number of options Weighted-average remaining contractual term (years) Balance as of January 1, 2022 $ 7.75 8,939,330 2.70 Exercise of options 2.81 ( 2,583,692 ) Cancellation, forfeiture and expiry of options 11.26 ( 186,992 ) Balance as of September 30, 2022 $ 9.71 6,168,646 2.97 Exercisable as of September 30, 2022 $ 9.99 4,037,319 1.99 (i) The weighted-average exercise price reflects the conversion of foreign currency-denominated stock options translated into C$ using the average foreign exchange rate as of the date of issuance. For the nine months ended September 30, 2023, the weighted-average fair value per option at grant date was C$ 2.07 . The fair value of the options issued during the period was determined using the Black-Scholes option pricing model, using the following inputs: 2023 Share price at grant date (per share) $ 2.96 Exercise price (per option) $ 2.96 Risk-free interest rate 3.22 % Expected life of options (in years) 7 Expected annualized volatility 72.68 % Expected dividend yield — Weighted average Black-Scholes value at grant date (per option) $ 2.07 Forfeiture rate — The following table summarizes stock options outstanding: As of September 30, 2023 As of December 31, 2022 2020 Omnibus Plan 702,264 2,788,947 2018 Stock Option Plan 1,400,937 1,422,069 2015 Stock Option Plan — 1,139,584 Total stock options outstanding 2,103,201 5,350,600 21 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents (b) Restricted share units The following is a summary of the changes in RSUs for the nine months ended September 30, 2023 and 2022: Weighted-average grant date fair value (C$) (ii) Number of RSUs Balance as of January 1, 2023 $ 4.63 5,725,470 Granted (i) 2.65 2,883,500 Vested and issued 5.13 ( 764,056 ) Cancellation and forfeitures 3.65 ( 510,342 ) Balance as of September 30, 2023 $ 3.86 7,334,572 Weighted-average grant date fair value (C$) (ii) Number of RSUs Balance as of January 1, 2022 $ 9.22 1,225,870 Granted (i) 4.34 5,042,316 Vested and issued 8.56 ( 771,682 ) Cancellation and forfeitures 6.91 ( 168,610 ) Balance as of September 30, 2022 $ 4.77 5,327,894 (i) RSUs granted in the period vest annually in equal installments over a three-year period from either the grant date or after a three or five year “cliff-period.” All RSUs are subject to such holder’s continued employment through each vesting date. The vesting of such RSUs is not subject to the achievement of any performance criteria. (ii) The weighted-average grant date fair value reflects the conversion of foreign currency-denominated RSUs translated into C$ using the foreign exchange rate as of the date of issuance. (c) Deferred share units The following is a summary of the changes in DSUs for the nine months ended September 30, 2023 and 2022: Financial liability Number of DSUs Balance as of January 1, 2023 $ 674 265,732 Granting and vesting of DSUs 450 255,947 Gain on revaluation ( 82 ) — Balance as of September 30, 2023 $ 1,042 521,679 Financial liability Number of DSUs Balance as of January 1, 2022 $ 408 104,442 Gain on revaluation ( 116 ) — Balance as of September 30, 2022 $ 292 104,442 22 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents 9. Loss per Share Basic and diluted loss per share from continuing and discontinued operations are calculated as follows (in thousands, except share and per share amounts): Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Basic and diluted loss per share computation Net loss from continuing operations attributable to the shareholders of Cronos Group $ ( 1,462 ) $ ( 33,210 ) $ ( 24,935 ) $ ( 78,970 ) Weighted-average number of common shares outstanding for computation for basic and diluted loss per share (i) 381,100,005 378,114,160 380,900,334 376,400,902 Basic earnings (loss) from continuing operations per share $ ( 0.00 ) $ ( 0.09 ) $ ( 0.07 ) $ ( 0.21 ) Diluted earnings (loss) per share from continuing operations $ ( 0.00 ) $ ( 0.09 ) $ ( 0.07 ) $ ( 0.21 ) Loss from discontinued operations attributable to the shareholders of Cronos Group $ ( 182 ) $ ( 3,781 ) $ ( 4,238 ) $ ( 10,880 ) Weighted-average number of common shares outstanding for computation for basic and diluted loss per share (i) 381,100,005 378,114,160 380,900,334 376,400,902 Basic loss from discontinued operations per share $ ( 0.00 ) $ ( 0.01 ) $ ( 0.01 ) $ ( 0.03 ) Diluted loss from discontinued operations per share $ ( 0.00 ) $ ( 0.01 ) $ ( 0.01 ) $ ( 0.03 ) (i) In computing diluted loss per share, incremental common shares are not considered in periods in which a net loss is reported as the inclusion of the common share equivalents would be anti-dilutive. For the three months ended September 30, 2023 and 2022, total securities of 23,340,811 and 117,100,621 , respectively, were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive. For the nine months ended September 30, 2023 and 2022, total securities of 27,399,000 and 118,304,608 , respectively, were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive. 10. Commitments and Contingencies (a) Commitments There have been no material changes in the information regarding commitments as disclosed in the Company’s Annual Report. (b) Contingencies The Company is subject to various legal proceedings in the ordinary course of its business and in connection with its marketing, distribution and sale of its products. Many of these legal proceedings are in the early stages of litigation and seek damages that are unspecified or not quantified. Although the outcome of these matters cannot be predicted with certainty, the Company does not believe these legal proceedings, individually or in the aggregate, will have a material adverse effect on its financial condition but could be material to its results of operations for a quarterly period depending, in part, on its results for that quarter. (i) Class action complaints relating to restatement of 2019 interim financial statements On March 11 and 12, 2020, two alleged shareholders of the Company separately filed two putative class action complaints in the U.S. District Court for the Eastern District of New York against the Company and its Chief Executive Officer and now former Chief Financial Officer. The court has consolidated the cases, and the consolidated amended complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder against all defendants, and Section 20(a) of the Exchange Act against the individual defendants. The consolidated amended complaint generally alleges that certain of the Company’s prior public statements about revenues and internal control were incorrect based on the Company’s disclosures relating to the Audit Committee of the Board’s review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel. The consolidated amended complaint does not quantify a damage request. Defendants moved to dismiss on February 8, 2021. 23 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents On June 3, 2020, an alleged shareholder filed a Statement of Claim, as amended on August 12, 2020, in the Ontario Superior Court of Justice in Toronto, Ontario, Canada, seeking, among other things, an order certifying the action as a class action on behalf of a putative class of shareholders and damages of an unspecified amount. The Amended Statement of Claim names (i) the Company, (ii) its Chief Executive Officer, (iii) now former Chief Financial Officer, (iv) former Chief Financial Officer and Chief Commercial Officer, and (v) current and former members of the Board as defendants and alleges breaches of the Ontario Securities Act, oppression under the Ontario Business Corporations Act and common law misrepresentation. The Amended Statement of Claim generally alleges that certain of the Company’s prior public statements about revenues and internal control were misrepresentations based on the Company’s March 2, 2020 disclosure that the Audit Committee of the Board was conducting a review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel, and the Company’s subsequent restatement. The Amended Statement of Claim does not quantify a damage request. On June 28, 2021, the Court dismissed motions brought by the plaintiff for leave to commence a claim for misrepresentation under the Ontario Securities Act and for certification of the action as a class action. The plaintiff appealed the Court’s dismissal of the motions only with respect to the Company, the Chief Executive Officer, and the now former Chief Financial Officer; the remaining defendants were dismissed from the matter with prejudice, and the Company and all individual defendants agreed not to seek costs from plaintiff in connection with the dismissal of the motions. On September 26, 2022, the Court of Appeal for Ontario reversed the Superior Court’s dismissal of the leave and certification motions, granted the plaintiff leave to proceed to bring a claim for misrepresentation under the Ontario Securities Act, and remitted the certification motion back to the Superior Court. On October 10, 2023, the Superior Court certified a class that includes shareholders that acquired shares on the TSX and NASDAQ exchanges. (ii) Regulatory reviews relating to restatements The Company has been responding to requests for information from various regulatory authorities relating to its previously disclosed restatement of its financial statements for the first three quarters of 2019 as well as the previously disclosed restatement of the second quarter of 2021 interim financial statements (collectively, the “Restatements”). The Company has been responding to all such requests for information and cooperating with all regulatory authorities. SEC Settlement On October 24, 2022, the SEC issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8(a) of the Securities Act of 1933 (the “Securities Act”) and Section 21(c) of the Exchange Act, Making Findings, and Imposing a Cease-and-Desist Order (the “Settlement Order”) resolving the Restatements. The Company has agreed to settle with the SEC, without admitting or denying the allegations described in the Settlement Order. The Settlement Order fully and finally disposes of the investigation of the Company by the SEC into the Restatements without the payment of any civil penalty or other amount. The Settlement Order required the Company to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 13a-13, 13a-15(a), 13a-16 and 12b-20 thereunder. Additionally, the Company agreed to certain undertakings, which include, among other things, retaining a qualified independent consultant (the “Consultant”) to engage in a review of, and make recommendations with respect to, certain of the Company’s internal accounting controls and internal control over financing reporting. The Consultant’s review has been completed. As a result of the Settlement Order, the Company (i) lost its status as a well-known seasoned issuer for a period of three years, (ii) is unable to rely on the private offering exemptions provided by Regulations A and D under the Securities Act for a period of five years and (iii) is unable to rely on the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 for a period of three years. OSC Settlement On October 24, 2022, the Ontario Capital Markets Tribunal approved a settlement agreement (the “Settlement Agreement”) between the Company and the staff of the OSC, resolving the Restatements. Pursuant to the terms of the Settlement Agreement, which fully and finally disposed the investigation of the Company by the OSC, Cronos agreed to pay a total of C$ 1.34 million to fully settle the matter, and acknowledged that it had failed to comply with the requirement under Section 77 of the Securities Act (Ontario) to file interim financial reports in the manner set out therein and had acted in a manner contrary to the public interest. Additionally, the Company agreed to retain the Consultant to engage in a review of, and make recommendations with respect to, certain of the Company’s internal accounting controls and internal control over financing reporting, on substantially the same terms as were required by the SEC pursuant the Settlement Agreement. The Consultant’s review has been completed. 24 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents (iii) Litigation relating to marketing, distribution and sale of products On April 17, 2023, a group of plaintiffs led by the Green Leaf (Ale Yarok) political party filed a Statement of Claim and Request for Approval of a Class Action on behalf of a purported class of Israeli cannabis consumers in the District Court of Tel Aviv, Israel, against 26 cannabis-related parties, including three Cronos Israel entities. The Statement of Claim alleges that the defendants violated certain laws relating to the marketing of medical cannabis products, including marketing to unlicensed cannabis consumers. The lawsuit seeks a total of ILS 420 million. The Cronos Israel defendants moved to dismiss the action on August 13, 2023. 11. Fair Value Measurements The Company complies with ASC 820 Fair Value Measurements for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. In general, fair values are determined by: • Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. • Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis: September 30, 2023 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 571,656 $ — $ — $ 571,656 Short-term investments 267,905 — — 267,905 Other investments (i) 13,143 — — 13,143 Derivative liabilities — — 29 29 25 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents December 31, 2022 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 764,644 $ — $ — $ 764,644 Short-term investments 113,077 — — 113,077 Other investments (i) 21,993 — — 21,993 Derivative liabilities — — 15 15 (i) As of September 30, 2023 and December 31, 2022, the Company’s influence on Vitura is deemed non-significant and the investment is considered an equity security with a readily determinable fair value. See Note 4 “ Investments ” for additional information. There were no transfers between fair value categories during the periods presented. The following tables present information about the Company’s assets that are measured at fair value on a non-recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value: As of September 30, 2023 Level 1 Level 2 Level 3 Total Other investments (i) — — 49,000 49,000 As of December 31, 2022 Level 1 Level 2 Level 3 Total Other investments (i) — — 49,000 49,000 (i) On June 14, 2021, the Company purchased an option to acquire 473,787 shares of Class A Common Stock of PharmaCann, a vertically integrated cannabis company in the United States, at an exercise price of $ 0.0001 per share, representing approximately 10.5 % of PharmaCann’s issued and outstanding capital stock on a fully diluted basis as of the date of the PharmaCann Option, for an aggregate purchase price of approximately $ 110,392 . On February 28, 2022, PharmaCann closed its previously announced transaction with LivWell Holdings Inc. (“LivWell”) pursuant to which PharmaCann acquired LivWell (“the LivWell Transaction”). LivWell is a multi-state cannabis cultivation and retail leader based in Colorado. As a result of the LivWell Transaction, the Company’s ownership percentage in PharmaCann on a fully diluted basis decreased to approximately 6.4 %. As of both September 30, 2023 and December 31, 2022, the Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 6.3 %. See Note 4 “ Investments .” There were no transfers between fair value categories during the periods presented. 12. Impairment Loss on Long-lived Assets (a) Right-of-use assets and property, plant, and equipment, net During the nine months ended September 30, 2022, the Company recognized an impairment charge of $ 1,986 related to the right-of-use lease asset associated with the Company’s corporate headquarters, encompassing approximately 29,000 square feet, in Toronto, Ontario, Canada, for which the Company determined it would seek a sublease. In addition, the Company recognized an impairment charge of $ 1,507 during the nine months ended September 30, 2022 related to leasehold improvements and other office equipment that it plans to include in any potential sublease agreement. The determination to seek a sublease of the property and include leasehold improvements and other office equipment in any potential sublease agreement triggered the impairment charges. Both of the impairment charges are recognized as impairment loss on long-lived assets on the condensed consolidated statements of net loss and comprehensive loss. 13. Related Party Transactions (a) Cronos GrowCo The Company holds a variable interest in Cronos GrowCo through its ownership of 50 % of Cronos GrowCo’s common shares and senior secured debt in Cronos GrowCo. See Note 4 “ Investments ” for additional information. The Company made the following purchases of cannabis products from Cronos GrowCo: Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Cronos GrowCo - purchases $ 2,939 $ 2,158 $ 16,954 $ 10,973 26 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents As of September 30, 2023, and December 31, 2022, the Company had payables outstanding to Cronos GrowCo of $ 307 and $ 2,519 , respectively. During the third quarter of 2023, the Company, as supplier, entered into a cannabis germplasm supply agreement with Cronos GrowCo as buyer. For germplasm supplied to GrowCo whose cannabis Cronos expects to purchase, a deferred inventory liability is recorded and subsequently amortized into cost of goods sold. For germplasm supplied to GrowCo whose cannabis Cronos expects to be sold to unrelated third parties, revenue is recorded. In relation to this agreement, Cronos recognized $ 353 of revenue and a reduction to cost of goods sold of $ 181 during both the three and nine months ended September 30, 2023. Also in relation to this agreement, Cronos recorded $ 126 of deferred inventory liabilities and a reduction to inventory of $ 2 as of September 30, 2023. Also during the third quarter of 2023, the Company sold certain held for sale assets with carrying value of $ 324 and certain other previously expensed assets with a zero net book value to Cronos GrowCo and recognized a $ 433 gain. Additionally, on August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into the GrowCo Facility. See Note 5 “ Loans Receivable, net ” for additional information. (b) Vendor Agreement In November 2022, the Company entered into an agreement with an external vendor whereby the vendor would provide certain manufacturing services to the Company. The vendor then subcontracted out a portion of those services to another company whose chief executive officer is an immediate family member of an executive of the Company. In late October 2023, the Company was negotiating a direct contract with the related party subcontractor. During the three and nine months ended September 30, 2023, the Company purchased $ 406 and $ 1,842 , respectively, of products and services under this agreement and had outstanding accounts payable related to the agreement of $ 15 and $ nil as of September 30, 2023 and December 31, 2022, respectively. 27 Table of Contents