What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-09 compared with 2023-11-08 · 183 added, 337 removed, 282 unchanged (65% 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 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.

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 March 31, 2024 (this “Quarterly Report”), consolidated financial statements appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”), Part I, Item 1A, Risk Factors, of the Annual Report and Part II, Item 1A, Risk Factors, of this Quarterly Report.

Forward-Looking Statements

This Quarterly Report, the documents incorporated into this Quarterly Report by reference, other reports we file with, or furnish to, the U.S.

Securities and Exchange Commission (“SEC”) and other regulatory agencies, and statements by our directors, officers, other employees and other persons authorized to speak on our behalf contain information that may constitute forward-looking information and forward-looking statements within the meaning of applicable U.S.

This Quarterly Report, the documents incorporated into this Quarterly Report by reference, other reports we file with, or furnish to, the SEC and other regulatory agencies, and statements by our directors, officers, other employees and other persons authorized to speak on our behalf contain information that may constitute forward-looking information and forward-looking statements within the meaning of applicable U.S.

and Canadian securities laws and court decisions (collectively, “Forward-Looking Statements”), which are based upon our current internal expectations, estimates, projections, assumptions and beliefs.

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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;

• expectations related to the conflict involving Israel, Hamas, Iran and other stakeholders in the region (the “Middle East Conflict”) and its impact on our operations in Israel, the supply of product in the market and the demand for product by medical patients in Israel, as well as any regional or global escalations and their impact to global commerce and stability;

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

• expectations related to our announcement of cost-cutting measures, including our decision to wind-down operations at our Winnipeg, Manitoba facility and list the facility for sale, the expected costs and benefits from the wind-down of production activities at the facility, challenges and effects related thereto as well as changes in strategy, metrics, investments, costs, operating expenses, employee turnover and other changes with respect thereto;

• expectations related to the impact of our decision to exit our U.S.

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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 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.

• the timing of the change in the nature of operations at, and the announced sale-leaseback of, 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 complete the sale and leaseback of the Peace Naturals Campus pursuant to the agreement with Future Farmco Canada Inc.

(“Future Farmco”);

• our ability to acquire raw materials from suppliers, including Cronos Growing Company Inc.

(“Cronos GrowCo”), and the costs and timing associated therewith;

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

• laws and regulations and any amendments thereto applicable to our business and the impact thereof, including uncertainty regarding the application of United States (“U.S.”) state and federal law and the scope of any regulations by the U.S.

hemp (including CBD and other U.S.

hemp-derived cannabinoids) products and the scope of any regulations by the U.S.

Food and Drug Administration (the “FDA”), the U.S.

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Federal Trade Commission (the “FTC”), the U.S.

Patent and Trademark Office (the “PTO”) and any state equivalent regulatory agencies;

Patent and Trademark Office (the “PTO”) and any state equivalent regulatory agencies over cannabis and U.S.

hemp (including CBD and other U.S.

hemp-derived cannabinoids) products, including the possibility marijuana is moved from Schedule I to Schedule III under the U.S.

Controlled Substances Act;

• the anticipated benefits and impact of Altria Group Inc.’s investment in the Company (the “Altria Investment”), pursuant to a subscription agreement dated December 7, 2018;

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• expectations regarding acquisitions and dispositions and the anticipated benefits therefrom;

• our ability to timely and effectively remediate any material weaknesses in our internal control over financial reporting;

• expectations of the amount or frequency of impairment losses, including as a result of the write-down of intangible assets, including goodwill;

• the uncertainties associated with the COVID-19 pandemic, including our ability, and the abilities of our joint ventures and our suppliers and distributors, to effectively deal with the restrictions, limitations and health issues presented by the COVID-19 pandemic, the ability to continue our production, distribution and sale of our products, and demand for and the use of our products by consumers;

• the impact of the ongoing military conflict between Russia and Ukraine (and resulting sanctions) on our business, financial condition and results of operations or cash flows;

• our compliance with the terms of the settlement with the SEC (the “Settlement Order”) and the settlement agreement with the Ontario Securities Commission (“Settlement Agreement”), including complying with any recommendations made by the independent consultant appointed pursuant to the Settlement Order and Settlement Agreement;

• our compliance with the terms of the settlement with the SEC (the “Settlement Order”) and the settlement agreement with the Ontario Securities Commission (the “Settlement Agreement”);

• the impact of the loss of our ability to rely on private offering exemptions under Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), and the loss of our status as a well-known seasoned issuer, each as a result of the Settlement Order.

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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 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;

(i) our ability to effectively navigate developments related to the Middle East Conflict and its impact on our employees and operations in Israel, the supply of product in the market and demand for product by medical patients in Israel;

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

(iii) our ability to realize the expected cost-savings and other benefits related to the wind-down of our operations at our Winnipeg, Manitoba facility, (iv) 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;

(v) 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, and the announced sale-leaseback of, our Peace Naturals Campus and acquire raw materials on a timely and cost-effective basis from third parties, including Cronos GrowCo;

(vi) our ability to satisfy all conditions for the sale and leaseback of the Peace Naturals Campus;

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

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(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.

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

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

and (xxii) 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, 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;

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

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

that we may not be able to achieve the anticipated benefits of the wind-down of our operations at our Winnipeg, Manitoba facility or be able to access raw materials on a timely and cost-effective basis from third-parties;

that we may be unable to further streamline our operations and reduce expenses;

that we may not be able to wind-down our U.S.

operations in a disciplined and cost-effective manner or achieve the anticipated benefits thereof or be able to effectively and efficiently re-enter the U.S.

that we may not be able to effectively and efficiently re-enter the U.S.

market in the future;

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;

that we may not be able to wind-down certain production activities at, and complete the sale-leaseback of, 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 military conflict between Russia and Ukraine may disrupt our operations and those of our suppliers and distribution channels and negatively impact the demand for and use of our products;

the risk that cost savings and any other synergies from the Altria Investment may not be fully realized or may take longer to realize than expected;

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lower levels of revenues;

the lack of consumer demand for our cannabis products;

the lack of consumer demand for our products;

our inability to reduce expenses at the level needed to meet our projected net change in cash and cash equivalents;

our inability to manage disruptions in credit markets or changes to our credit ratings;

our inability to manage disruptions in credit markets;

unanticipated future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses;

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volatility in and/or degradation of general economic, market, industry or business conditions;

compliance with applicable environmental, economic, health and safety, energy and other policies and regulations and in particular health concerns with respect to vaping and the use of cannabis in vaping devices;

hemp products in vaping devices;

the unexpected effects of actions of third parties such as competitors, activist investors or federal (including U.S.

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adverse changes in regulatory requirements in relation to our business and products;

legal or regulatory obstacles that could prevent us from being able to exercise the PharmaCann Option and thereby realizing the anticipated benefits of the transaction with PharmaCann;

legal or regulatory obstacles that could prevent us from being able to exercise the PharmaCann Option and thereby realize the anticipated benefits of the transaction with PharmaCann;

dilution of our fully diluted ownership of PharmaCann and the loss of our rights as a result of that dilution;

a delay in our remediation of a material weakness in our internal control over financial reporting and the improvement of our control environment and our systems, processes and procedures;

our failure to improve our internal control environment and our systems, processes and procedures;

and the factors discussed under Part I, Item 1A “Risk Factors” of the Annual Report and under Part II, Item 1A “Risk Factors” in our Quarterly Reports.

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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 September 30, 2023, September 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 March 31, 2024, March 31, 2023, and December 31, 2023.

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

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

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

March 31, 2024 March 31, 2023 December 31, 2023

Spot rate 1.3532 1.3516 1.3243

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

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

March 31, 2024 March 31, 2023 December 31, 2023

Spot rate 3.6887 3.5966 3.6163

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operations, Cronos is reporting through one consolidated segment, which includes operations in both Canada and Israel.

In Canada, Cronos operates two wholly owned license holders under the Cannabis Act (Canada) (the “Cannabis Act”), Peace Naturals Project Inc.

(“Peace Naturals”), which has production facilities near Stayner, Ontario, and Thanos Holdings Ltd., known as Cronos Fermentation (“Cronos Fermentation”), which has a production facility in Winnipeg, Manitoba.

In Canada, Cronos operates one wholly owned license holder under the Cannabis Act (Canada) (the “Cannabis Act”), Peace Naturals Project Inc.

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

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.

Middle East Conflict

Cronos continues to monitor the Middle East Conflict and potential impacts the Middle East 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 Middle East 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 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 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.

Throughout the first quarter of 2024, the Company expanded its brand and product portfolio in Canada with the following select new products:

• Lord Jones ® Live Resin vapes, offered in both all-in-one and 510 thread formats, offering flavorful full spectrum 100% pure live resin

• Lord Jones ® Chocolate Fusions edibles, a multi-dimensional cannabis experience with three layers of creamy chocolate, crunchy inclusions and a chewy core

• Spinach ® Fully Charged Party Pack infused pre-rolls infused with cold-filtered cannabis extract and coated in kief

• Spinach ® Stix pre-rolls, Cronos’ new cylindrical style pre-roll, offered in a 10-pack

• Spinach ® all-in-one disposable vapes, Spinach Hitz, which offer convenience and sampling ease

• Spinach ® Atomic Sour Grapefruit 28g flower

• SOURZ by Spinach ® Fully Blasted edibles, featuring 10mg of THC in one piece, launched in three flavors, Cherry Lime, Pink Lemonade and Blue Raspberry Watermelon

In May, Cronos entered the UK, with its first shipment of cannabis flower under the PEACE NATURALS ® medical brand.

The Company has partnered with GROW ® Pharma, a leading distributor of prescribed cannabis medicinal products in Europe and the UK.

Cronos expects to provide cannabis products to patients in the UK through its partnership with GROW ® Pharma.

On April 2, 2024, Adam Wagner was appointed Senior Vice President, Head of Cronos Israel.

Wagner will oversee the business and strategy of Cronos Israel.

Before becoming Head of Cronos Israel, he was the Vice President of Finance at Cronos Israel managing Cronos Israel finance department.

Before joining Cronos, Adam worked as a Director of Finance at Motus GI, a publicly traded medical device company, where he oversaw the Israel-based finance department.

Prior to Motus GI, Adam was a Finance Manager at Medtronic, a publicly traded medical equipment manufacturer, where he oversaw the Israel-based finance department.

Prior to Medtronic’s acquisitions, Adam was the Corporate Controller for Mazor Robotics, a dual listed public medical device company.

Adam began his career as a Senior Auditor at EY managing a team that performed audits for various publicly traded and private companies.

Adam is a Certified Public Accountant (Israel).

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 September 30, Nine months ended September 30,

2023 2022 2023 2022

(in thousands of USD) Three months ended March 31,

Net revenue, before excise taxes $ 35,367 $ 26,554

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Cost of sales 20,805 16,568

Inventory write-down 716 — 716 —

Gross profit 4,483 2,927

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Operating loss (15,948) (20,769)

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

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

Other income 12,906 1,298

Income tax benefit

Loss from discontinued operations — (1,222)

Net loss (2,484) (19,257)

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

Net loss attributable to non-controlling interest (243) (88)

Net loss attributable to Cronos Group $ (2,241) $ (19,169)

Summary of select financial results

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

(in thousands of USD) Three months ended March 31, Change

2024 2023 $ %

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Cost of sales 20,805 16,568 4,237 26 %

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

Gross profit 4,483 2,927 1,556 53 %

Gross margin (i)

16 % 15 % N/A 1 pp 16 % 22 % N/A (6) pp

18 % 15 % N/A 3 pp

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

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.

For the three months ended March 31, 2024, we reported consolidated net revenue of $25.3 million, representing an increase of $5.8 million from the three months ended March 31, 2023.

The increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market and higher cannabis flower sales in Israel, partially offset by an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue.

Cost of sales

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.

For the three months ended March 31, 2024, we reported consolidated cost of sales of $20.8 million, representing an increase of $4.2 million from the three months ended March 31, 2023.

The increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market and higher cannabis flower sales in Israel, partially offset by favorable labor, overhead and inventory variances.

For the three months ended March 31, 2024, we reported gross profit of $4.5 million, representing an increase of $1.6 million from the three months ended March 31, 2023.

The increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, higher cannabis flower sales in Israel and favorable labor, overhead and inventory variances, partially offset by an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue.

Operating expenses

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

Three months ended March 31, Change

2024 2023 $ %

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General and administrative 8,907 11,856 (2,949) (25) %

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

Restructuring costs 83 — 83 N/M

Share-based payments 2,015 2,535 (520) (21) %

Depreciation and amortization 1,123 1,525 (402) (26) %

Impairment loss on long-lived assets — — — N/A — 3,493 (3,493) N/A

Impairment loss on long-lived assets 1,974 — 1,974 N/A

Total operating expenses $ 20,431 $ 23,696 $ (3,265) (14) %

Sales and marketing

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.

For the three months ended March 31, 2024, sales and marketing expenses were $5.3 million, representing a decrease of $0.4 million compared to the three months ended March 31, 2023.

The decrease was primarily due to lower advertising and marketing spend.

Research and development

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.

For the three months ended March 31, 2024, research and development expenses were $1.0 million, representing a decrease of $1.0 million from the three months ended March 31, 2023.

The decrease was primarily due to lower costs associated with the collaboration and license agreement between Ginkgo Bioworks Holdings, Inc.

(“Ginkgo”) and the Company.

General and administrative

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.

For the three months ended March 31, 2024, general and administrative expenses were $8.9 million, representing a decrease of $2.9 million from the three months ended March 31, 2023.

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 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 the three months ended March 31, 2024, restructuring costs were $0.1 million, compared to zero for the three months ended March 31, 2023.

For further information, see Note 6 “ Restructuring ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

Share-based compensation

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.

For the three months ended March 31, 2024, share-based compensation expense was $2.0 million, representing a decrease of $0.5 million from the three months ended March 31, 2023.

The decrease was primarily due to headcount reductions that occurred in the prior year.

Depreciation and amortization

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.

For the three months ended March 31, 2024, depreciation and amortization expenses were $1.1 million, representing a decrease of $0.4 million from the three months ended March 31, 2023.

The decrease was primarily due to lower amortization on Ginkgo-related intangible assets and lower depreciation on property, plant and equipment.

Impairment loss on long-lived assets

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 September 30, Change Nine months ended September 30, Change

For the three months ended March 31, 2024, impairment loss on long-lived assets was $2.0 million and was primarily due to the cessation of operations at Cronos Fermentation during Q1 2024.

There was no such impairment loss on long-lived assets for the three months ended March 31, 2023.

For further information, see Note 6 “ Restructuring ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

Other income and income tax benefit

Three months ended March 31, Change

2024 2023 $ %

Interest income, net $ 14,245 $ 11,175 $ 3,070 27 %

Gain (loss) on revaluation of derivative liabilities 8 375 (367) (98) % (14) 14,204 (14,218) N/M

Loss on revaluation of derivative liabilities (18) (65) 47 72 %

Share of income (loss) from equity method investments 1,448 (496) 1,944 N/M

Gain (loss) on revaluation of financial instruments (5,291) 17,049 (22,340) N/M (7,856) 19,205 (27,061) N/M

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

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

Loss on revaluation of financial instruments (2,642) (7,758) 5,116 66 %

Impairment loss on other investments (12,734) — (12,734) N/M

Foreign currency transaction gain (loss) 13,259 (1,643) 14,902 N/M

Other, net (652) 85 (737) N/M

Total other income 12,906 1,298 11,608 894 %

Income tax benefit 558 1,436 (878) (61) %

Loss from continuing operations (2,484) (18,035) 15,551 86 %

Loss from discontinued operations (182) (3,781) 3,599 95 % (4,238) (10,880) 6,642 61 %

Net loss $ (1,772) $ (36,886) $ 35,114 95 % $ (29,526) $ (89,877) $ 60,351 67 %

Loss from discontinued operations — (1,222) 1,222 N/M

$ (2,484) $ (19,257) $ 16,773 87 %

(i) “N/M” is defined as not meaningful.

Interest income, net

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 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.

For the three months ended March 31, 2024, interest income, net was $14.2 million, representing an increase of $3.1 million from the three months ended March 31, 2023.

The increase in net interest income was primarily due to higher interest rates in the current period compared to the three months ended March 31, 2023.

Loss on revaluation of derivative liabilities

For the three months ended March 31, 2024, the loss on revaluation of derivative liabilities was $18 thousand, representing a decreased loss of $47 thousand from the three months ended March 31, 2023.

We expect continued changes in derivative valuations as our share price fluctuates period to period and the remaining expected terms of our derivative instruments change over time.

For further information, see Note 6 “ Derivative Liabilities ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

Share of income (loss) from equity method investments

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.

For the three months ended March 31, 2024, our share of income from equity method investments was $1.4 million, representing an increase of $1.9 million from the three months ended March 31, 2023.

The increase was due to higher 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 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”).

Loss on revaluation of financial instruments

For the three months ended March 31, 2024, the loss on revaluation of financial instruments was $2.6 million, representing an improvement of $5.1 million from the three months ended March 31, 2023.

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 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.

For the three months ended March 31, 2024, we recognized $12.7 million of impairment loss on other investments, driven by an impairment charge recorded on our PharmaCann Option for the difference between its estimated fair value and its carrying amount.

There was no such impairment loss on other investments for the three months ended March 31, 2023.

For further information, see Note 4 “ Investments ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

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.

For the three months ended March 31, 2024, foreign currency translation gain was $13.3 million, representing an improvement of $14.9 million from the three months ended March 31, 2023.

The change was primarily due to certain foreign currency-denominated cash equivalents 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.

Income tax benefit

For the three months ended March 31, 2024, income tax benefit was $0.6 million, compared to $1.4 million for the three months ended March 31, 2023.

The decreased benefit was driven by lower current income tax benefits recorded on the losses that will be carried back to recover taxes paid in prior years.

Loss from discontinued operations

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)

Gross profit — (1,987) (1,854) (1,973)

Operating expenses

Sales and marketing — 676 518 4,075

Research and development

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)

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 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) 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 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 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.

There was no activity in discontinued operations for the three months ended March 31, 2024.

For the three months ended March 31, 2023, loss from discontinued operations was due to the exit of U.S.

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

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

Three months ended September 30, 2023

Continuing Operations Discontinued Operations Total

Net loss $ (1,590) $ (182) $ (1,772)

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

Income tax expense (benefit)

(1,254) — (1,254)

Depreciation and amortization 2,148 — 2,148

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

Share of (income) loss from equity method investments

(1,057) — (1,057)

(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)

1,957 (4) 1,953

Financial statement review costs (viii)

Inventory write-down (ix)

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

Three months ended September 30, 2022

Three months ended March 31, 2024

Continuing Operations Discontinued Operations Total

Net loss $ (33,105) $ (3,781) $ (36,886)

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

Income tax expense (benefit)

$ (2,484) $ — $ (2,484)

Depreciation and amortization 3,166 282 3,448

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

Share of (income) loss from equity method investments

1,119 — 1,119

Impairment loss on long-lived assets (i)

28,972 — 28,972

(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)

Share-based compensation (vii)

4,247 18 4,265

Financial statement review costs (viii)

1,070 — 1,070

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

Nine months ended September 30, 2023

Continuing Operations Discontinued Operations Total

Net loss $ (25,288) $ (4,238) $ (29,526)

Interest income, net (14,245) — (14,245)

Income tax expense (benefit)

(2,870) — (2,870)

Income tax benefit (558) — (558)

Depreciation and amortization 1,731 — 1,731

EBITDA (15,556) — (15,556)

Share of (income) loss from equity method investments

(831) — (831)

Impairment loss on long-lived assets (i)

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

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

Share of income from equity method investments

(1,448) — (1,448)

Foreign currency transaction (gain) loss

Impairment loss on long-lived assets

1,974 — 1,974

Other, net (v)

Loss on revaluation of derivative liabilities (i)

Loss on revaluation of financial instruments (ii)

2,642 — 2,642

Restructuring costs (vi)

Impairment loss on other investments (iii)

12,734 — 12,734

Share-based compensation (vii)

Foreign currency transaction gain (13,259) — (13,259)

Other, net (iv)

Restructuring costs (v)

Share-based compensation (vi)

2,015 — 2,015

Financial statement review costs (viii)

Inventory write-down (ix)

Financial statement review costs (vii)

(524) — (524)

Adjusted EBITDA $ (10,669) $ — $ (10,669)

Nine months ended September 30, 2022

Three months ended March 31, 2023

Continuing Operations Discontinued Operations Total

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Interest income, net (11,175) (5) (11,180)

Income tax expense (benefit)

2,172 — 2,172

Income tax benefit (1,436) — (1,436)

Depreciation and amortization 2,276 129 2,405

EBITDA (28,370) (1,098) (29,468)

Share of (income) loss from equity method investments

(4,078) — (4,078)

Impairment loss on long-lived assets (i)

3,493 — 3,493

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

(14,204) — (14,204)

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

(19,205) — (19,205)

Impairment loss on other investments (iv)

40,210 — 40,210

Foreign currency transaction (gain) loss

2,337 — 2,337

Other, net (v)

Restructuring costs (vi)

3,396 1,482 4,878

Share-based compensation (vii)

Share of loss from equity method investments 496 — 496

Loss on revaluation of derivative liabilities (i)

Loss on revaluation of financial instruments (ii)

7,758 — 7,758

Financial statement review costs (viii)

Foreign currency transaction loss 1,643 — 1,643

Other, net (iv)

Share-based compensation (vi)

2,535 16 2,551

Financial statement review costs (vii)

Adjusted EBITDA $ (15,682) $ (1,082) $ (16,764)

(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 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 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 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 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.”

(i) For the three months ended March 31, 2024 and 2023, loss on revaluation of derivative liabilities represents the fair value changes on the derivative liabilities.

(ii) For the three months ended March 31, 2024 and 2023, loss on revaluation of financial instruments related primarily to the Company’s equity securities in Vitura.

(iii) For the three months ended March 31, 2024, loss on other investments represents the fair value change on the PharmaCann Option.

(iv) For the three months ended March 31, 2024 and 2023, other, net related to (gain) loss on disposal of assets.

(v) For the three months ended March 31, 2024, restructuring costs from continuing operations related to employee-related severance costs and other restructuring costs associated with the Realignment, as described in Note 6 “ Restructuring.

(vi) For the three months ended March 31, 2024 and 2023, 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 7 “ Share-based Compensation.

(vii) For the three months ended March 31, 2024 and 2023, 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.

For the three months ended March 31, 2024, a credit balance is presented due to an insurance recovery.

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 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.

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 months ended March 31, 2024, as well as cash and cash equivalents and short-term investment balances as of March 31, 2024 compared to December 31, 2023, 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 nine 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 month comparative period in 2023 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.

3 unchanged sentences

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):

The table below sets forth certain measures of consolidated results from continuing operations on a constant currency basis for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 as well as cash and cash equivalents and short-term investments as of March 31, 2024 and December 31, 2023, both on an as-reported and constant currency basis (in thousands):

As Reported As Adjusted for Constant Currency

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

2023 2022 $ % 2023 $ %

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

Gross profit 3,970 3,144 826 26 % 4,216 1,072 34 %

Gross margin 16 % 15 % N/A 1 pp 16 % N/A 1 pp

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

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 %

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

Three months ended March 31, As Reported Change Three months ended March 31, Constant Currency Change

2024 2023 $ % 2024 $ %

6 unchanged sentences

Adjusted EBITDA (10,669) (15,682) 5,013 32 % (10,645) 5,037 32 %

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

As of March 31, 2024 As of December 31, As Reported Change As of December 31, Constant Currency Change

2024 2023 $ % 2024 $ %

3 unchanged sentences

As Reported As Adjusted for Constant Currency

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

2023 2022 $ % 2023 $ %

Cannabis flower $ 17,414 $ 13,674 $ 3,740 27 % $ 18,362 $ 4,688 34 %

Cannabis extracts 7,268 6,627 641 10 % 7,510 883 13 %

Other 128 108 20 19 % 133 25 23 %

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

As Reported As Adjusted for Constant Currency

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

Three months ended March 31, As Reported Change Three months ended March 31, Constant Currency Change

2024 2023 $ % 2024 $ %

4 unchanged sentences

As Reported As Adjusted for Constant Currency

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

2023 2022 $ % 2023 $ %

Canada $ 18,738 $ 13,370 $ 5,368 40 % $ 19,348 $ 5,978 45 %

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

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

Three months ended March 31, As Reported Change Three months ended March 31, Constant Currency Change

2024 2023 $ % 2024 $ %

1 unchanged sentence

Israel 6,417 5,061 1,356 27 % 6,670 1,609 32 %

Other countries 399 — 399 100 % 418 418 100 %

Net revenue $ 25,288 $ 19,495 $ 5,793 30 % $ 25,505 $ 6,010 31 %

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.

For the three months ended March 31, 2024, net revenue on a constant currency basis was $25.5 million, representing a 31% increase from the three months ended March 31, 2023.

On a constant currency basis, net revenue increased for the three months ended March 31, 2024 primarily due to higher cannabis flower and extract sales in the Canadian adult-use market and higher cannabis flower sales in Israel, partially offset by an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue.

For the three months ended March 31, 2024, gross profit on a constant currency basis was $4.5 million, representing a 55% increase from the three months ended March 31, 2023.

On a constant currency basis, gross profit increased for the three months ended March 31, 2024 primarily due to higher cannabis flower and extract sales in the Canadian adult-use market and higher cannabis flower sales in Israel and favorable labor, overhead and inventory variances, partially offset by an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue.

Operating expenses

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.

For the three months ended March 31, 2024, operating expenses on a constant currency basis were $20.5 million, representing a 14% decrease from the three months ended March 31, 2023.

On a constant currency basis, operating expenses decreased for the three months ended March 31, 2024, primarily due to lower advertising and marketing spend, lower costs associated with the achievement of Ginkgo milestones, lower professional fees, largely related to financial statement review costs, and lower bonus, payroll and insurance costs.

Net income (loss)

For the three months ended March 31, 2024, net income on a constant currency basis was $2.5 million, representing an improvement of $15.6 million from the three months ended March 31, 2023.

Adjusted EBITDA

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.

For the three months ended March 31, 2024, Adjusted EBITDA on a constant currency basis was $(10.6) million, representing a 32% improvement from the three months ended March 31, 2023.

The improvement in Adjusted EBITDA for the three months ended March 31, 2024 on a constant currency basis was driven by higher cannabis flower and extract sales in the Canadian adult-use market, higher cannabis flower sales in Israel, decreases in general and administrative expenses and lower costs associated with the achievement of Ginkgo milestones, partially offset by an adverse price/mix in Canada in the cannabis flower category driving increased excise tax payments as a percentage of revenue.

Cash and cash equivalents & short-term investments

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.

Cash and cash equivalents and short-term investments on a constant currency basis decreased 1% to $856.2 million as of March 31, 2024 from $861.5 million as of December 31, 2023.

The decrease in cash and cash equivalents and short-term investments is primarily due to cash flows used in operating activities in the three months ended March 31, 2024.

Liquidity and Capital Resources

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

As of March 31, 2024, we had $855.1 million in cash and cash equivalents and no 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.

1 unchanged sentence

(In thousands of U.S.

dollars) Nine months ended September 30, 2023

dollars) Three months ended March 31, 2024

Cash flows used in operating activities $ (2,204) $ (47,693)

Cash flows used in investing activities (141,392) (160,300)

Cash flows provided by (used in) investing activities

189,556 (303,812)

Cash flows used in financing activities (645) (743)

1 unchanged sentence

Net change in cash $ 185,823 $ (350,977)

Comparison of cash flows between the nine months ended September 30, 2023 and the nine months ended September 30, 2022

Comparison of cash flows between the three months ended March 31, 2024 and the three months ended March 31, 2023

Operating activities

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.

During the three months ended March 31, 2024, we used $2.2 million of cash in operating activities as compared to cash used of $47.7 million in the three months ended March 31, 2023, representing a decrease in cash used of $45.5 million.

This change is primarily driven by a $12.3 million increase in net income after adjusting for non-cash items during the three months ended March 31, 2024 compared to the three months ended March 31, 2023, a $32.8 million decrease in income taxes payable in the prior period 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, higher interest received and lower increases in inventory, partially offset by an increase in accounts receivable, net and a decrease in accounts payable.

Investing activities

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.

During the three months ended March 31, 2024, we generated $189.6 million of cash in investing activities, compared to $303.8 million of cash used in investing activities during the three months ended March 31, 2023, representing a change of $493.4 million.

This change is primarily driven by the maturity of certain short-term investments, which were reinvested as cash equivalents upon maturity in the three months ended March 31, 2024.

Financing activities

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.

During the three months ended March 31, 2024, cash used in financing activities was $0.6 million, compared to $0.7 million of cash used in financing activities during three months ended March 31, 2023, representing a decrease of $0.1 million in cash used in financing activities.

This change is primarily driven by a decrease of $0.1 million in withholding taxes paid on share-based awards during three months ended March 31, 2024 compared to three months ended March 31, 2023.

Cash Requirements

4 unchanged sentences

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