Cronos Group Inc. 10-Q

Item 1. Financial Statements Table of Contents Condensed Consolidated Balance Sheets as of June 30 , 2024 (Unaudited) and December 31, 202 3 4 Condensed Consolidated Statements of Net Loss and Comprehensive Income ( Loss ) for the three and six months ended June 30 , 2024 and 2023 (Unaudited) 5 Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 30 , 2024 and 2023 (Unaudited) 6 Condensed Consolidated Statements of Cash Flows for the six months ended June 30 , 2024 and 2023 (Unaudited) 7 Notes to Condensed Consolidated Financial Statements (Unaudited) 8 3 Cronos Group Inc. Condensed Consolidated Balance Sheets (In thousands of U.S. dollars, except share amounts, unaudited) Table of Contents As of June 30, 2024 As of December 31, 2023 Assets Current assets Cash and cash equivalents $ 848,189 $ 669,291 Short-term investments — 192,237 Accounts receivable, net 16,179 13,984 Interest receivable 5,183 10,012 Other receivables 7,227 6,341 Current portion of loans receivable, net 4,875 5,541 Inventory, net 29,182 30,495 Prepaids and other current assets 5,246 5,405 Held-for-sale assets 19,197 — Total current assets 935,278 933,306 Equity method investments, net 21,226 19,488 Other investments 3,168 35,251 Non-current portion of loans receivable, net 73,165 69,036 Property, plant and equipment, net 36,964 59,468 Right-of-use assets 1,079 1,356 Goodwill 1,024 1,057 Intangible assets, net 19,103 21,078 Other assets 41 45 Total assets $ 1,091,048 $ 1,140,085 Liabilities Current liabilities Accounts payable $ 7,840 $ 12,130 Income taxes payable 61 64 Accrued liabilities 23,846 27,736 Current portion of lease obligation 931 994 Derivative liabilities 21 102 Current portion due to non-controlling interests 358 373 Total current liabilities 33,057 41,399 Non-current portion due to non-controlling interests 1,137 1,003 Non-current portion of lease obligation 1,062 1,559 Total liabilities 35,256 43,961 Shareholders’ equity Share capital (authorized for issue as of June 30, 2024 and December 31, 2023: unlimited; shares outstanding as of June 30, 2024 and December 31, 2023: 382,280,725 and 381,298,853 , respectively) 616,379 613,725 Additional paid-in capital 49,298 48,449 Retained earnings 405,650 416,719 Accumulated other comprehensive gain (loss) ( 12,013 ) 20,678 Total equity attributable to shareholders of Cronos Group 1,059,314 1,099,571 Non-controlling interests ( 3,522 ) ( 3,447 ) Total shareholders’ equity 1,055,792 1,096,124 Total liabilities and shareholders’ equity $ 1,091,048 $ 1,140,085 See notes to condensed consolidated interim financial statements. 4 Cronos Group Inc. Condensed Consolidated Statements of Net Loss and Comprehensive Income (Loss) (In thousands of U.S dollars, except share and per share amounts, unaudited) Table of Contents Three months ended June 30, Six months ended June 30, 2024 2023 2024 2023 Net revenue, before excise taxes $ 38,678 $ 25,798 $ 74,045 $ 52,352 Excise taxes ( 10,916 ) ( 6,777 ) ( 20,995 ) ( 13,836 ) Net revenue 27,762 19,021 53,050 38,516 Cost of sales 21,070 15,922 41,875 32,490 Inventory write-down 395 — 395 — Gross profit 6,297 3,099 10,780 6,026 Operating expenses Sales and marketing 4,330 5,297 9,662 11,038 Research and development 962 1,107 1,959 3,146 General and administrative 12,767 13,451 21,674 25,307 Restructuring costs 547 — 630 — Share-based compensation 2,236 2,331 4,251 4,866 Depreciation and amortization 1,016 1,533 2,139 3,058 Impairment loss on long-lived assets — — 1,974 — Total operating expenses 21,858 23,719 42,289 47,415 Operating loss ( 15,561 ) ( 20,620 ) ( 31,509 ) ( 41,389 ) Other income Interest income, net 13,451 12,471 27,696 23,646 Share of income (loss) from equity method investments 917 270 2,365 ( 226 ) Gain (loss) on revaluation of financial instruments ( 3,615 ) 5,193 ( 6,257 ) ( 2,565 ) Impairment loss on other investments ( 12,916 ) — ( 25,650 ) — Foreign currency transaction gain (loss) 6,543 ( 3,174 ) 19,802 ( 4,817 ) Other, net 248 17 ( 422 ) 37 Total other income 4,628 14,777 17,534 16,075 Loss before income taxes ( 10,933 ) ( 5,843 ) ( 13,975 ) ( 25,314 ) Income tax benefit ( 2,174 ) ( 180 ) ( 2,732 ) ( 1,616 ) Loss from continuing operations ( 8,759 ) ( 5,663 ) ( 11,243 ) ( 23,698 ) Loss from discontinued operations — ( 2,834 ) — ( 4,056 ) Net loss ( 8,759 ) ( 8,497 ) ( 11,243 ) ( 27,754 ) Net loss attributable to non-controlling interest ( 2 ) ( 137 ) ( 245 ) ( 225 ) Net loss attributable to Cronos Group $ ( 8,757 ) $ ( 8,360 ) $ ( 10,998 ) $ ( 27,529 ) Comprehensive income (loss) Net loss $ ( 8,759 ) $ ( 8,497 ) $ ( 11,243 ) $ ( 27,754 ) Other comprehensive income (loss) Foreign exchange gain (loss) on translation ( 10,160 ) 16,580 ( 32,521 ) 18,994 Comprehensive income (loss) ( 18,919 ) 8,083 ( 43,764 ) ( 8,760 ) Comprehensive income (loss) attributable to non-controlling interests 58 ( 87 ) ( 75 ) ( 95 ) Comprehensive income (loss) attributable to Cronos Group $ ( 18,977 ) $ 8,170 $ ( 43,689 ) $ ( 8,665 ) Net loss per share Basic and diluted - continuing operations $ ( 0.02 ) $ ( 0.01 ) $ ( 0.03 ) $ ( 0.06 ) Basic and diluted - discontinued operations — ( 0.01 ) — ( 0.01 ) Basic and diluted - total $ ( 0.02 ) $ ( 0.02 ) $ ( 0.03 ) $ ( 0.07 ) See notes to condensed consolidated interim financial statements. 5 Cronos Group Inc. Condensed Consolidated Statements of Changes in Equity For the six months ended June 30, 2024 and 2023 (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, 2024 381,298,853 $ 613,725 $ 48,449 $ 416,719 $ 20,678 $ ( 3,447 ) $ 1,096,124 Activities relating to share-based compensation 712,325 1,900 ( 401 ) — — — 1,499 Net loss — — — ( 2,241 ) — ( 243 ) ( 2,484 ) Foreign exchange gain (loss) on translation — — — — ( 22,471 ) 110 ( 22,361 ) Balance as of March 31, 2024 382,011,178 $ 615,625 $ 48,048 $ 414,478 $ ( 1,793 ) $ ( 3,580 ) $ 1,072,778 Activities relating to share-based compensation 269,547 754 1,250 ( 71 ) — — 1,933 Net loss — — — ( 8,757 ) — ( 2 ) ( 8,759 ) Foreign exchange gain (loss) on translation — — — — ( 10,220 ) 60 ( 10,160 ) Balance as of June 30, 2024 382,280,725 $ 616,379 $ 49,298 $ 405,650 $ ( 12,013 ) $ ( 3,522 ) $ 1,055,792 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 See notes to condensed consolidated interim financial statements. 6 Cronos Group Inc. Condensed Consolidated Statements of Cash Flows (In thousands of U.S. dollars, except share amounts, unaudited) Table of Contents Six months ended June 30, 2024 2023 Operating activities Net loss $ ( 11,243 ) $ ( 27,754 ) Adjustments to reconcile net loss to cash used in operating activities: Share-based compensation 4,251 4,887 Depreciation and amortization 3,244 4,785 Impairment loss on long-lived assets 1,974 205 Impairment loss on other investments 25,650 — Loss from investments 3,732 2,955 Changes in expected credit losses on long-term financial assets 1,021 ( 1,146 ) Foreign currency transaction (gain) loss ( 19,802 ) 4,817 Other non-cash operating activities, net 829 ( 554 ) Changes in operating assets and liabilities: Accounts receivable, net ( 2,723 ) 10,623 Interest receivable 1,174 ( 10,243 ) Other receivables ( 1,009 ) ( 200 ) Prepaids and other current assets ( 5 ) 480 Inventory 292 ( 7,259 ) Accounts payable ( 4,482 ) ( 2,478 ) Income taxes payable ( 47 ) ( 32,801 ) Accrued liabilities ( 3,316 ) ( 5,784 ) Cash flows used in operating activities ( 460 ) ( 59,467 ) Investing activities Purchase of short-term investments — ( 479,763 ) Proceeds from short-term investments 187,447 169,418 Dividends received from equity method investment — 1,299 Advances on loans receivable ( 8,836 ) — Proceeds from repayment on loans receivable 5,298 11,388 Purchase of property, plant and equipment ( 2,453 ) ( 1,298 ) Purchase of intangible assets ( 457 ) ( 8 ) Cash flows provided by (used in) investing activities 180,999 ( 298,964 ) Financing activities Withholding taxes paid on share-based awards ( 905 ) ( 782 ) Cash flows used in financing activities ( 905 ) ( 782 ) Effect of foreign currency translation on cash and cash equivalents ( 736 ) 3,997 Net change in cash and cash equivalents 178,898 ( 355,216 ) Cash and cash equivalents, beginning of period 669,291 764,644 Cash and cash equivalents, end of period $ 848,189 $ 409,428 Supplemental cash flow information Interest paid $ — $ — Interest received $ 28,291 $ 13,385 Income taxes paid $ 614 $ 32,995 See notes to condensed consolidated interim financial statements. 7 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 4491 Concession Rd 12, Stayner, Ontario, L0M 1S0. The Company’s common shares are 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 ® . (b) Basis of presentation These condensed consolidated interim financial statements of Cronos 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 (the “SEC”) 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 six months ended June 30, 2024 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, 2023 (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 had 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 income (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. Prior to the second quarter of 2023, the Company 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: Three months ended June 30, 2024 2023 Cannabis flower $ 20,661 $ 14,014 Cannabis extracts 7,064 4,926 Other 37 81 Net revenue $ 27,762 $ 19,021 8 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents Six months ended June 30, 2024 2023 Cannabis flower $ 38,186 $ 27,142 Cannabis extracts 14,791 11,227 Other 73 147 Net revenue $ 53,050 $ 38,516 Net revenue attributed to a geographic region based on the location of the customer were as follows for continuing operations: Three months ended June 30, 2024 2023 Canada $ 19,844 $ 13,595 Israel 6,889 5,426 Other countries 1,029 — Net revenue $ 27,762 $ 19,021 Six months ended June 30, 2024 2023 Canada $ 38,715 $ 28,029 Israel 13,306 10,487 Other countries 1,029 — Net revenue $ 53,050 $ 38,516 (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 $ 954,818 and $ 966,442 as of June 30, 2024 and December 31, 2023, 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 June 30, 2024 and December 31, 2023, the Company had $ 20 and $ 3 , respectively, in expected credit losses that have been recognized on receivables from contracts with customers. As of June 30, 2024, the Company assessed that there is a concentration of credit risk, as 30 % of the Company’s accounts receivable were due from one customer with an established credit history with the Company. As of December 31, 2023, 37 % of the Company’s accounts receivable were due from one customer with an established credit history with the Company. 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 June 30, 2024, the Company earned a total net revenue before excise taxes of $ 19,941 from two major customers, together accounting for 52 % of the Company’s total net revenues before excise taxes. During the three months ended June 30, 2023, the Company earned a total net revenue before excise taxes of $ 16,839 from three major customers, together accounting for 67 % of the Company’s total net revenues before excise taxes. During the six months ended June 30, 2024, the Company earned a total net revenue before excise taxes of $ 45,482 from three customers, together accounting for 62 % of the Company’s total net revenues before excise taxes. During the six months ended June 30, 2023, the Company earned a total net revenue before excise taxes of $ 34,732 from three major customers, together accounting for 67 % of the Company’s total net revenue before excise taxes. 9 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents (g) New accounting pronouncements not yet adopted In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 enhances reportable segment disclosures by requiring disclosures such as significant segment expenses, information on the CODM and disclosures for entities with a single reportable segment. Additionally, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, and contain other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and we expect to adopt ASU 2023-07 retrospectively. The Company does not expect the adoption of ASU 2023-07 to have a material impact on its consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 enhances the existing income tax disclosures to provide additional information to better assess how an entity’s operations, related tax risks and tax planning, and operational opportunities affect its tax rate and prospects for future cash flows. ASU 2023-09 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and we expect to adopt ASU 2023-09 prospectively. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements. (h) Adoption of new accounting pronouncements On January 1, 2024, the Company adopted 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. The adoption of ASU 2022-03 did not have a material impact on the Company’s condensed consolidated interim financial statements. With respect to the adoption of ASU 2022-03, see Note 4 “Investments” for discussion of the contractual restrictions related to the PharmaCann Option (as defined below). 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 six months ended June 30, 2023 are reported separately as loss from discontinued operations on the condensed consolidated statements of net loss and comprehensive income (loss). There was no activity in discontinued operations for the three and six months ended June 30, 2024. 10 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 six months ended June 30, 2023: Three months ended June 30, Six months ended June 30, 2023 Net revenue $ 380 $ 1,029 Cost of sales 848 2,044 Inventory write-down 839 839 Gross profit ( 1,307 ) ( 1,854 ) Operating expenses Sales and marketing 387 518 Research and development 18 20 General and administrative 213 736 Restructuring costs 534 534 Share-based compensation 5 21 Depreciation and amortization 5 13 Impairment loss on long-lived assets (i) 205 205 Total operating expenses 1,367 2,047 Interest income 3 8 Other, net (ii) ( 163 ) ( 163 ) Total other income (loss) ( 160 ) ( 155 ) Loss before income taxes ( 2,834 ) ( 4,056 ) Income tax expense (benefit) — — Net loss from discontinued operations $ ( 2,834 ) $ ( 4,056 ) (i) During the three and six months ended June 30, 2023, as a result of the exit of the U.S. operations, the Company recognized an impairment charge of $ 205 related to the right-of-use lease assets associated with the Company’s former U.S. manufacturing facility in Los Angeles, California. (ii) For the three and six months ended June 30, 2023, Other, net related to 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 June 30, Six months ended June 30, 2023 Cannabis extracts 380 1,029 Net revenue $ 380 $ 1,029 The following tables summarize the Company’s discontinued operations restructuring activity for the three and six months ended June 30, 2023: Accrual as of April 1, 2023 Expenses Payments/Write-offs Accrual as of June 30, 2023 Employee Termination Benefits $ — $ 442 $ ( 223 ) $ 219 Other Restructuring Costs — 92 — 92 Total $ — $ 534 $ ( 223 ) $ 311 Accrual as of January 1, 2023 Expenses Payments/Write-offs Accrual as of June 30, 2023 Employee Termination Benefits $ — $ 442 $ ( 223 ) $ 219 Other Restructuring Costs — 92 — 92 Total $ — $ 534 $ ( 223 ) $ 311 11 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents The Company had no assets or liabilities presented in the condensed consolidated balance sheets related to its discontinued operations as of both June 30, 2024 and December 31, 2023. For the six months ended June 30, 2024, there were no purchases of property plant and equipment related to discontinued operations. For the six months ended June 30, 2023, purchases of property plant and equipment related to discontinued operations were $ 67 . 3. Inventory, net Inventory, net is comprised of the following items: As of June 30, 2024 As of December 31, 2023 Raw materials $ 5,351 $ 4,795 Work-in-progress 9,116 10,593 Finished goods 14,367 14,819 Supplies and consumables 348 288 Total $ 29,182 $ 30,495 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 June 30, 2024 As of December 31, 2023 Cronos Growing Company Inc. (“Cronos GrowCo”) 50 % $ 21,226 $ 19,488 $ 21,226 $ 19,488 The following is a summary of the Company’s share of net income (losses) from equity investments accounted for under the equity method of accounting: For the three months ended June 30, For the six months ended June 30, 2024 2023 2024 2023 Cronos GrowCo $ 917 $ 270 $ 2,365 $ ( 226 ) $ 917 $ 270 $ 2,365 $ ( 226 ) Beginning in the third quarter of 2024, the results of Cronos GrowCo will be consolidated into the results of the Company, and the Company’s investment in Cronos GrowCo will be reclassified as an intercompany transaction and eliminated upon consolidation. For more information, see Note 12 “ Subsequent Events. ” (b) Other investments Other investments consist of investments in common shares and options of two companies in the cannabis industry. PharmaCann Option On June 14, 2021, the Company purchased an option (the “PharmaCann Option”) to acquire 473,787 shares of Class A Common Stock of PharmaCann, Inc. (“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 . The PharmaCann Option is classified as an investment in an equity security without a readily determinable fair value. The Company measures the PharmaCann Option at cost less accumulated impairment charges, if any, and subsequently adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. As of June 30, 2024 and December 31, 2023, based on updated information provided by PharmaCann in the second quarter, the Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 6.2 % and 6.6 %, respectively. 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 10 “ Fair Value Measurements ” for more information on the fair value hierarchy. The PharmaCann Option is reported as Other investments on the consolidated balance sheet as of June 30, 2024 and December 31, 2023. 12 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents During the first and second quarters of 2024, 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 the market approach. Under the market approach, the key assumptions are the selected multiples and the discount for lack of marketability. As a result of these analyses, the Company recorded non-cash impairment charges of $ 12,734 and $ 12,916 in the first and second quarters of 2024, 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 for the six months ended June 30, 2024. The Company may sell, transfer or dispose of the PharmaCann Option without PharmaCann’s prior written consent, subject to the following conditions: (i) any transferee of any part of the PharmaCann Option must comply with and commit to comply with all regulations issued by a governmental entity applicable to such transferee in all material respects; (ii) any transferee of any part of the PharmaCann Option must agree to be bound by the terms of the Option Purchase Agreement, dated as of June 14, 2021 (the “Option Purchase Agreement”), as a “Purchaser” thereunder; (iii) the Company may not split and/or transfer the PharmaCann Option, in the aggregate, to more than four persons (with certain exceptions); (iv) no transferee may be a Prohibited Assignee (as defined in the Option Purchase Agreement); and (v) subject to certain exceptions, in the event that the Company (or a Permitted Transferee of the whole PharmaCann Option) transfers less than all of the PharmaCann Option to any third party that is not a Permitted Transferee, certain governance and information rights terminate immediately, unless waived by the PharmaCann board of directors in its sole and absolute discretion. Additionally, in the event of an initial underwritten public offering of PharmaCann’s common stock pursuant to an effective registration statement, to the extent that holders of PharmaCann common stock are subject to any lock-up period imposed by the underwriter in connection therewith, the Company will, if applicable, execute a customary lock-up agreement on the same material terms and conditions as the other holders of common stock are subject to or as otherwise agreed between PharmaCann and the Company, subject to certain conditions with respect to the duration of the lock-up period. 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. The following table summarizes the Company’s other investments activity: As of April 1, 2024 Unrealized loss Impairment charges Foreign exchange effect As of June 30, 2024 PharmaCann $ 12,916 $ — $ ( 12,916 ) $ — $ — Vitura 6,842 ( 3,755 ) — 81 3,168 $ 19,758 $ ( 3,755 ) $ ( 12,916 ) $ 81 $ 3,168 As of January 1, 2024 Unrealized loss Impairment charges Foreign exchange effect As of June 30, 2024 PharmaCann $ 25,650 $ — $ ( 25,650 ) $ — $ — Vitura 9,601 ( 6,097 ) — ( 336 ) 3,168 $ 35,251 $ ( 6,097 ) $ ( 25,650 ) $ ( 336 ) $ 3,168 As of April 1, 2023 Unrealized gain Impairment charges Foreign exchange effect As of June 30, 2023 PharmaCann $ 49,000 $ — $ — $ — $ 49,000 Vitura 13,833 5,194 — ( 102 ) 18,925 $ 62,833 $ 5,194 $ — $ ( 102 ) $ 67,925 As of January 1, 2023 Unrealized loss Impairment charges Foreign exchange effect As of June 30, 2023 PharmaCann $ 49,000 $ — $ — $ — $ 49,000 Vitura 21,993 ( 2,729 ) — ( 339 ) 18,925 $ 70,993 $ ( 2,729 ) $ — $ ( 339 ) $ 67,925 13 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 June 30, 2024 As of December 31, 2023 GrowCo Credit Facility $ 4,875 $ 5,034 Add: Current portion of accrued interest — 507 Total current portion of loans receivable, net 4,875 5,541 GrowCo Credit Facility 57,271 53,638 Mucci Promissory Note 13,929 13,379 Cannasoul Collaboration Loan 1,692 1,771 Add: Long-term portion of accrued interest 273 248 Total long-term portion of loans receivable, net 73,165 69,036 Total loans receivable, net $ 78,040 $ 74,577 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 . In June 2024, the GrowCo Credit Facility was amended to increase the aggregate principal amount available by C$ 70,000 by providing a second secured non-revolving credit facility (“Term Loan B”). The funds from Term Loan B will be used to expand Cronos GrowCo’s purpose-built cannabis facility and will mature 10 years after the commencement of sales from the expansion area, following which, principal will be repaid on a quarterly basis. Interest on Term Loan B is payable on a quarterly basis until maturity beginning after the first borrowing under Term Loan B. Prior to July 1, 2024, only C$ 12,000 of the C$ 70,000 increased principal availability could be drawn, which Cronos GrowCo drew in full on June 20, 2024. As of June 30, 2024 and December 31, 2023, Cronos GrowCo had drawn C$ 116,000 and C$ 104,000 ($ 84,833 and $ 78,532 , respectively), 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 quarterly. Principal payments of C$ 1,000 commenced in March 2022 and are currently C$ 1,667 , due quarterly. For the three months ended June 30, 2024, Cronos GrowCo repaid C$ 1,667 ($ 1,216 ) in principal and C$ 1,920 ($ 1,401 ) in interest related to the GrowCo Credit Facility. For the six months ended June 30, 2024, Cronos GrowCo repaid C$ 3,333 ($ 2,447 ) in principal and C$ 3,862 ($ 2,835 ) in interest related to the GrowCo Credit Facility. As of June 30, 2024, Cronos GrowCo had repaid an aggregate C$ 14,833 ($ 10,848 ) and C$ 24,384 ($ 17,832 ) in principal and interest, respectively, under the terms of the GrowCo Credit Facility. Beginning in the third quarter of 2024, the results of Cronos GrowCo will be consolidated into the results of the Company, and the Cronos GrowCo Credit Facility will be reclassified as an intercompany transaction and eliminated upon consolidation. For more information, see Note 12 “ Subsequent Events. ” 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 $ 11,957 ) 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. On June 20, 2024, the Mucci Promissory Note was amended and restated. As a result, interest accrued on the Mucci Promissory Note between July 1, 2023 and July 1, 2024 was capitalized as part of the principal balance, which increased the loans receivable and decreased interest receivable by $ 974 on the condensed consolidated balance sheets as of June 30, 2024. As of July 1, 2024, interest is accrued and to be paid in cash beginning on July 1, 2025. 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 three and six months ended June 30, 2023, Mucci made a payment of C$ 1,750 (approximately $ 1,322 ) under the Mucci Promissory Note, with C$ 1,187 ($ 897 ) related to accrued interest and C$ 563 ($ 425 ) related to outstanding principal. For the three and six months ended June 30, 2024, there were no repayments of principal or interest on the Mucci Promissory Note. 14 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents Cannasoul Collaboration Loan As of both June 30, 2024 and December 31, 2023, Cannasoul Lab Services Ltd. has received ILS 8,297 (approximately $ 2,198 and $ 2,294 , respectively), from the Cannasoul Collaboration Loan. Expected credit loss allowances on the Company’s long-term financial assets for the six months ended June 30, 2024 and 2023 were comprised of the following items: As of April 1, 2024 Increase (i) Foreign exchange effect As of June 30, 2024 GrowCo Credit Facility $ 10,740 $ 1,207 $ ( 109 ) $ 11,838 Mucci Promissory Note 89 1 — 90 Cannasoul Collaboration Loan 518 4 ( 16 ) 506 $ 11,347 $ 1,212 $ ( 125 ) $ 12,434 As of January 1, 2024 Increase (i) Foreign exchange effect As of June 30, 2024 GrowCo Credit Facility $ 11,176 $ 1,010 $ ( 348 ) $ 11,838 Mucci Promissory Note 89 3 ( 2 ) 90 Cannasoul Collaboration Loan 524 8 ( 26 ) 506 $ 11,789 $ 1,021 $ ( 376 ) $ 12,434 As of April 1, 2023 Increase (decrease) Foreign exchange effect As of June 30, 2023 GrowCo Credit Facility $ 11,719 $ ( 379 ) $ 239 $ 11,579 Mucci Promissory Note 91 ( 7 ) 2 86 Cannasoul Collaboration Loan 514 4 ( 15 ) 503 $ 12,324 $ ( 382 ) $ 226 $ 12,168 As of January 1, 2023 Increase (decrease) Foreign exchange effect As of June 30, 2023 GrowCo Credit Facility $ 12,455 $ ( 1,149 ) $ 273 $ 11,579 Mucci Promissory Note 89 ( 5 ) 2 86 Cannasoul Collaboration Loan 522 8 ( 27 ) 503 $ 13,066 $ ( 1,146 ) $ 248 $ 12,168 (i) During the three and six months ended June 30, 2024, $ 1,212 and $ 1,021 , respectively, were recorded as increases to general and administrative expenses on the condensed consolidated statements of net loss and comprehensive income (loss) primarily as a result of the increased loans under the GrowCo Credit Facility. During the three and six months ended June 30, 2023, $ 382 and $ 1,146 , respectively, were recorded as decreases to general and administrative expenses on the condensed consolidated statements of net loss and comprehensive income (loss) as a result of adjustments to our expected credit losses. 15 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents 6. 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 were 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. On November 26, 2023, the Company entered into an agreement with Future Farmco Canada Inc. for the sale and leaseback of the Peace Naturals Campus. This agreement was subsequently terminated pursuant to its terms during the second quarter of 2024. The Company is continuing to evaluate its strategic options for the Peace Naturals Campus, which may include continuing and expanding operations at the facility. During the first quarter of 2024, the Company ceased operations at Cronos Fermentation and performed an assessment under ASC 360 of the recoverability of the carrying value of the Cronos Fermentation assets, and determined the carrying value of the assets was not fully recoverable. The fair value was estimated using a combination of the market and income approaches. As a result of this analysis, an impairment loss on long-lived assets of $ 1,631 was recorded to the condensed consolidated statements of net loss and comprehensive loss in the six months ended June 30, 2024. As of June 30, 2024, the assets of Cronos Fermentation met the held-for-sale criteria and were classified to assets held for sale on the condensed consolidated balance sheet and the assets are valued at their fair value less costs to sell. A $ 445 loss for estimated costs to sell was recorded in the six months ended June 30, 2024 as a result of the classification of the Cronos Fermentation assets as held for sale. During the three and six months ended June 30, 2024, the Company incurred $ 547 and $ 630 of restructuring costs in its continuing operations in connection with the Realignment. Charges related thereto include shutdown costs at the Cronos Fermentation facility, as well as employee-related costs such as severance and other termination benefits. During the three and six months ended June 30, 2023, the Company recognized no restructuring costs in continuing operations in connection with the Realignment. Restructuring costs incurred in the Company’s discontinued operations during the three and six months ended June 30, 2023 is presented in Note 2 “ Discontinued Operations .” The following table summarizes the Company’s restructuring activity for the three and six months ended June 30, 2024: Accrual as of April 1, 2024 Expenses Payments/Write-offs Accrual as of June 30, 2024 Employee Termination Benefits $ 38 $ — $ ( 14 ) $ 24 Other Restructuring Costs — 547 — 547 Total $ 38 $ 547 $ ( 14 ) $ 571 Accrual as of January 1, 2024 Expenses Payments/Write-offs Accrual as of June 30, 2024 Employee Termination Benefits $ 150 $ 62 $ ( 188 ) $ 24 Other Restructuring Costs — 568 ( 21 ) 547 Total $ 150 $ 630 $ ( 209 ) $ 571 16 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents 7. 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 2018 Stock Option Plan dated June 28, 2018 (the “2018 Stock Option Plan”), 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 2018 Stock Option Plan or the Employment Inducement Award Plan. The following table summarizes the total share-based compensation expense associated with the Company’s stock options and RSUs for the three and six months ended June 30, 2024 and 2023: For the three months ended June 30, For the six months ended June 30, 2024 2023 2024 2023 Stock options $ 33 $ 372 $ 67 $ 1,106 RSUs 2,203 1,959 4,184 3,760 Total share-based compensation $ 2,236 $ 2,331 $ 4,251 $ 4,866 (b) Stock options 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 2018 Stock Option Plan is quarterly vesting over three to five years with a maximum term of seven years . The 2018 Stock Option Plan did not, and the 2020 Omnibus Plan does not, authorize grants of options with an exercise price below fair market value. The following is a summary of the changes in stock options for the six months ended June 30, 2024 and 2023: Weighted-average exercise price (C$) (i) Number of options Weighted-average remaining contractual term (years) Balance as of January 1, 2024 $ 14.50 2,103,201 1.84 Cancellation, forfeiture and expiry of options 19.05 ( 1,381,696 ) Balance as of June 30, 2024 $ 5.78 721,505 4.13 Exercisable as of June 30, 2024 $ 6.59 520,820 3.58 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 June 30, 2023 $ 14.50 2,103,201 2.34 Exercisable as of June 30, 2023 $ 18.72 1,426,612 1.00 (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. The following table summarizes stock options outstanding: As of June 30, 2024 As of December 31, 2023 2020 Omnibus Plan 702,264 702,264 2018 Stock Option Plan 19,241 1,400,937 Total stock options outstanding 721,505 2,103,201 17 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents (c) Restricted share units The following is a summary of the changes in RSUs for the six months ended June 30, 2024 and 2023: Weighted-average grant date fair value (C$) (ii) Number of RSUs Balance as of January 1, 2024 $ 3.77 7,381,541 Granted (i) 2.95 2,503,835 Vested and issued 3.53 ( 1,343,425 ) Cancellation and forfeitures 2.98 ( 91,726 ) Balance as of June 30, 2024 $ 3.57 8,450,225 Weighted-average grant date fair value (C$) (ii) Number of RSUs Balance as of January 1, 2023 $ 4.63 5,725,470 Granted (i) 2.66 2,819,174 Vested and issued 5.04 ( 735,523 ) Cancellation and forfeitures 3.93 ( 254,382 ) Balance as of June 30, 2023 $ 3.87 7,554,739 (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. (d) Deferred share units The following is a summary of the changes in DSUs for the six months ended June 30, 2024 and 2023: Financial liability Number of DSUs Balance as of January 1, 2024 $ 1,092 521,679 DSU liabilities settled ( 359 ) ( 155,383 ) Loss on revaluation 122 — Balance as of June 30, 2024 $ 855 366,296 Financial liability Number of DSUs Balance as of January 1, 2023 $ 674 265,732 Gain on revaluation ( 150 ) — Balance as of June 30, 2023 $ 524 265,732 18 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents 8. 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 June 30, Six months ended June 30, 2024 2023 2024 2023 Basic loss per share computation Net loss from continuing operations attributable to the shareholders of Cronos Group $ ( 8,757 ) $ ( 5,526 ) $ ( 10,998 ) $ ( 23,473 ) Weighted-average number of common shares outstanding for computation for basic and diluted earnings per share (i) 382,157,555 380,961,682 381,800,078 380,792,802 Basic loss from continuing operations per share $ ( 0.02 ) $ ( 0.01 ) $ ( 0.03 ) $ ( 0.06 ) Diluted loss per share from continuing operations $ ( 0.02 ) $ ( 0.01 ) $ ( 0.03 ) $ ( 0.06 ) Loss from discontinued operations attributable to the shareholders of Cronos Group $ — $ ( 2,834 ) $ — $ ( 4,056 ) Weighted-average number of common shares outstanding for computation for basic and diluted earnings per share (i) 382,157,555 380,961,682 381,800,078 380,792,802 Basic loss from discontinued operations per share $ — $ ( 0.01 ) $ — $ ( 0.01 ) Diluted loss from discontinued operations per share $ — $ ( 0.01 ) $ — $ ( 0.01 ) (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 June 30, 2024 and 2023, total securities of 19,434,059 and 28,769,758 , respectively, were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive. For the six months ended June 30, 2024 and 2023, total securities of 22,007,363 and 29,428,093 , respectively, were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive. 9. 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 former Chief Financial Officer. The court 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 controls were incorrect based on the Company’s disclosures relating to the Audit Committee of the Board of Directors’ 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. The defendants moved to dismiss on February 8, 2021. On November 17, 2023, the court entered an order granting the motion and dismissed the case with prejudice. On December 1, 2023, the shareholder plaintiffs sought reconsideration of the dismissal, requesting that the court instead dismiss the action without prejudice and permit the plaintiffs to seek leave to further amend the complaint. The reconsideration motion is pending. 19 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 named (i) the Company, (ii) its Chief Executive Officer, (iii) 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 alleged breaches of the Ontario Securities Act, oppression under the Ontario Business Corporations Act and common law misrepresentation. The Amended Statement of Claim generally alleged that certain of the Company’s prior public statements about revenues and internal controls were misrepresentations based on the Company’s March 2, 2020 disclosure that the Audit Committee of the Board of Directors 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 did 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 April 11, 2023, the plaintiff filed a Fresh as Amended Statement of Claim, which reflected the dismissal of the defendants for which an appeal was not sought, the removal of the claims for oppression under the Ontario Business Corporations Act and common law misrepresentation, as well as shortening the proposed class period. On October 10, 2023, the Superior Court certified the action on behalf of a class of persons or entities who acquired shares in the secondary market, including on the TSX and Nasdaq, during the period from May 9, 2019 to March 30, 2020, other than certain excluded persons. (ii) Regulatory reviews relating to restatements On October 24, 2022, the Company announced regulatory settlements as follows: 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, as amended (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 agreed to settle with the SEC, without admitting or denying the allegations described in the Settlement Order. The Settlement Order fully and finally disposed 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. 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 Ontario Securities Commission (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 Ontario Securities Act to file interim financial reports in the manner set out therein and had acted in a manner contrary to the public interest. 20 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents (iii) Litigation and regulatory inquiries relating to marketing, distribution, import 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. The court granted the motion (and similar motions filed by other defendants) on May 16, 2024, dismissing the plaintiffs’ petition for class certification without prejudice and their individual claims with prejudice, and ordering the plaintiffs to pay ILS 10 thousand to each of the defendants for costs. On July 14, 2024, the plaintiffs appealed to the Supreme Court of Israel seeking to overturn both the dismissal of plaintiffs’ individual claims and the award of costs. The appeal is pending. On January 18, 2024, the Company was notified that the Trade Levies Commissioner of the Israel Ministry of Economy and Industry initiated a public investigation of alleged dumping of medical cannabis imports from Canada into Israel. On July 9, 2024, the Commissioner announced a preliminary determination proposing to impose an anti-dumping duty on Canadian licensed producers. The Company would be subject to a proposed duty of 369%. The Commissioner determined not to impose a provisional duty at this time pending the conclusion of the Ministry’s investigation. The Company previously responded to requests for information from the Ministry and is providing additional information. The Company cannot predict the outcome of the investigation. We expect litigation and regulatory proceedings relating to the marketing, distribution, import and sale of our products to increase. 10. 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: June 30, 2024 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 848,189 $ — $ — $ 848,189 Other investments (i) 3,168 — — 3,168 Derivative liabilities — — 21 21 December 31, 2023 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 669,291 $ — $ — $ 669,291 Short-term investments 192,237 — — 192,237 Other investments (i) 9,601 — — 9,601 Derivative liabilities — — 102 102 (i) As of June 30, 2024 and December 31, 2023, 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. 21 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents 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 June 30, 2024 Level 1 Level 2 Level 3 Total Other investments (i) $ — $ — $ — $ — As of December 31, 2023 Level 1 Level 2 Level 3 Total Other investments (i) $ — $ — $ 25,650 $ 25,650 (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 . As of June 30, 2024 and December 31, 2023, based on updated information provided by PharmaCann in the first quarter, the Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 6.2 % and 6.6 %. In the three and six months ended June 30, 2024, the PharmaCann Option was impaired to zero. See Note 4 “ Investments .” There were no transfers between fair value categories during the periods presented. 11. 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 June 30, Six months ended June 30, 2024 2023 2024 2023 Cronos GrowCo – purchases $ 9,942 $ 6,549 $ 16,952 $ 14,015 As of June 30, 2024, and December 31, 2023, the Company had payables outstanding to Cronos GrowCo of $ 1,640 and $ 2,267 , respectively. During the third quarter of 2023, the Company, as supplier, entered into a cannabis germplasm supply agreement with Cronos GrowCo as buyer. During the three and six months ended June 30, 2024, the Company received $ 266 and $ 627 , respectively, in relation to this agreement. Additionally, on August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into the GrowCo Credit Facility. In August 2021, the GrowCo Credit Facility was amended to increase the aggregate principal amount available. In June 2024, the GrowCo Credit Facility was further amended to increase the aggregate principal amount available by providing a second secured non-revolving credit facility. See Note 5 “ Loans Receivable, net ” for additional information. On June 20, 2024, the Company entered into an amended and restated supply agreement with Cronos GrowCo (the “Supply Agreement”). Pursuant to the terms of the Supply Agreement, prior to the commencement of sales from Cronos GrowCo’s Phase 2 expansion area, the Company and its affiliates have the right, but not the obligation, to purchase an aggregate total quantity of 80 % of what is produced by Cronos GrowCo. Thereafter, the Company and its affiliates will have the right, but not the obligation, to purchase 70 % of Cronos GrowCo’s forecasted production capacity over a given period and 70 % of Cronos GrowCo’s actual production in a given month. All prices for products purchased pursuant to the Supply Agreement are fixed throughout the four year term of the Supply Agreement. Beginning in the third quarter of 2024, the results of Cronos GrowCo will be consolidated into the results of the Company, and all transactions with Cronos GrowCo will be treated as intercompany transactions and eliminated upon consolidation. For more information, see Note 12 “ Subsequent Events. ” 22 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents (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. The Company purchased $ 603 and $ 1,436 of products and services under this subcontracted agreement for the three and six months ended June 30, 2023. The Company had $ 0 and $ 28 in outstanding payables related to the subcontracted agreement as of June 30, 2024 and December 31, 2023, respectively. In November 2023, the Company negotiated a direct contract with the related-party vendor. During the three and six months ended June 30, 2024, the Company purchased $ 260 and $ 936 of products and services under this agreement and had outstanding accounts payable related to the agreement of $ 7 and $ 11 as of June 30, 2024 and December 31, 2023, respectively. 12. Subsequent Events (a) Cronos GrowCo Amended Shareholders’ Agreement On July 1, 2024, the Company attained majority control of the board of directors of Cronos GrowCo. As a result, the Company will consolidate the results of operations of Cronos GrowCo in its condensed consolidated financial statements beginning in the third quarter of 2024. The consolidation of Cronos GrowCo results in a business combination under ASC 805. Acquisition costs of $ 196 were recorded to general and administrative expense on the condensed consolidated statements of loss and comprehensive income (loss) in the three and six months ended June 30, 2024. The initial accounting for the GrowCo business combination is incomplete as of the issuance of these financial statements. In addition, we have not yet completed our valuations of certain assets, including inventory, fixed assets and intangible assets. As such, it is impracticable to provide certain pro-forma financial information, information on the acquisition-date fair value of our equity interest in GrowCo or the allocation of fair value to the acquired GrowCo assets and liabilities. 23 Table of Contents