Cronos Group Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read together with other information, including Cronos Group’s condensed consolidated interim financial statements and the related notes to those statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 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 SEC and other regulatory agencies, and statements by our directors, officers, other employees and other persons authorized to speak on our behalf contain information that may constitute forward-looking information and forward-looking statements within the meaning of applicable U.S. and Canadian securities laws and court decisions (collectively, “Forward-Looking Statements”), which are based upon our current internal expectations, estimates, projections, assumptions and beliefs. All information that is not clearly historical in nature may constitute Forward-Looking Statements. In some cases, Forward-Looking Statements can be identified by the use of forward-looking terminology, such as “expect,” “likely,” “may,” “will,” “should,” “intend,” “anticipate,” “potential,” “proposed,” “estimate” and other similar words, expressions and phrases, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussion of strategy. Forward-Looking Statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of historical fact. Forward-Looking Statements include, but are not limited to, statements with respect to: • the ongoing impact of the public investigation into Canadian licensed producers of alleged dumping of medical cannabis imports from Canada into Israel by the Israel Trade Levies Commissioner of the Israel Ministry of Economy and Industry (the “Anti-Dumping Investigation”); • 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. hemp-derived cannabinoid product operations, including the costs, expenses and write-offs associated therewith, the impact on our operations and our financial statements and any future plans to re-enter the U.S. market; • expectations related to our announced realignment (the “Realignment”) and any progress, challenges and effects related thereto as well as changes in strategy, metrics, investments, reporting structure, costs, operating expenses, employee turnover and other changes with respect thereto; • the timing of the change in the nature of operations at our facility in Stayner, Ontario (the “Peace Naturals Campus”); • our ability to acquire raw materials from suppliers, including Cronos GrowCo, and the costs and timing associated therewith; • expectations regarding the potential success of, and the costs and benefits associated with, our joint ventures, strategic alliances and equity investments, including the strategic partnership (the “Ginkgo Strategic Partnership”) with Ginkgo Bioworks Holdings, Inc. (“Ginkgo”); • expectations related to the expansion of Cronos GrowCo’s purpose-built cannabis facility; • our ability or plans to identify, develop, commercialize or expand our technology and research and development (“R&D”) initiatives in cannabinoids, or the success thereof; • expectations regarding revenues, expenses, gross margins and capital expenditures; • expectations regarding our future production and manufacturing strategy and operations, the costs and timing associated therewith and the receipt of applicable production and sale licenses; 24 Table of Contents • the ongoing impact of the legalization of additional cannabis product types and forms for adult-use in Canada, including federal, provincial, territorial and municipal regulations pertaining thereto, the related timing and impact thereof and our intentions to participate in such markets; • the legalization of the use of cannabis for medical or adult-use in jurisdictions outside of Canada, including the United States and Germany, the related timing and impact thereof and our intentions to participate in such markets, if and when such use is legalized; • the grant, renewal, withdrawal, suspension, delay and impact of any license or supplemental license to conduct activities with cannabis or any amendments thereof; • our ability to successfully create and launch brands and cannabis products; • expectations related to the differentiation of our products, including through the utilization of rare cannabinoids; • the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, including CBD and other cannabinoids; • 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 to cannabis and 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. Drug Enforcement Administration (the “DEA”), the U.S. Federal Trade Commission (the “FTC”), the U.S. Patent and Trademark Office (the “PTO”) and any state equivalent regulatory agencies 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; • uncertainties as to our ability to exercise our option (the “PharmaCann Option”) in PharmaCann Inc. (“PharmaCann”), in the near term or the future, in full or in part, including the uncertainties as to the status and future development of federal legalization of cannabis in the U.S. and our ability to realize the anticipated benefits of the transaction with PharmaCann; • expectations regarding the implementation and effectiveness of key personnel changes; • expectations regarding acquisitions and dispositions and the anticipated benefits therefrom; • expectations of the amount or frequency of impairment losses, including as a result of the write-down of intangible assets, including goodwill; • 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 (the “Settlement Agreement”); and • the impact of the loss of our ability to rely on private offering exemptions under Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), and the loss of our status as a well-known seasoned issuer, each as a result of the Settlement Order. Certain of the Forward-Looking Statements contained herein concerning the industries in which we conduct our business are based on estimates prepared by us using data from publicly available governmental sources, market research, industry analysis and on assumptions based on data and knowledge of these industries, which we believe to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. The industries in which we conduct our business involve risks and uncertainties that are subject to change based on various factors, which are described further below. 25 Table of Contents 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 related to the Anti-Dumping Investigation and its impact on our operations in Israel; (ii) 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; (iii) 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; (iv) our ability to realize the expected cost-savings and other benefits related to the wind-down of our operations at our Winnipeg, Manitoba facility, (v) our ability to realize the expected cost-savings, efficiencies and other benefits of our Realignment and other announced cost-cutting measures and employee turnover related thereto; (vi) our ability to efficiently and effectively wind down certain production activities at the Peace Naturals Campus, receive the benefits of the change in the nature of our operations at our Peace Naturals Campus and acquire raw materials on a timely and cost-effective basis from third parties, including Cronos GrowCo; (vii) the timely completion of the expansion of Cronos GrowCo’s purpose-built cannabis facility and the ability of Cronos GrowCo to repay the Term Loan B; (viii) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our acquisitions and strategic investments; (ix) the production and manufacturing capabilities and output from our facilities and our joint ventures, strategic alliances and equity investments; (x) government regulation of our activities and products including, but not limited to, the areas of cannabis taxation and environmental protection; (xi) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (xii) consumer interest in our products; (xiii) our ability to differentiate our products, including through the utilization of rare cannabinoids; (xiv) competition; (xv) anticipated and unanticipated costs; (xvi) our ability to generate cash flow from operations; (xvii) our ability to conduct operations in a safe, efficient and effective manner; (xviii) our ability to hire and retain qualified staff, and acquire equipment and services in a timely and cost-efficient manner; (xix) our ability to exercise the PharmaCann Option and realize the anticipated benefits of the transaction with PharmaCann; (xx) our ability to complete planned dispositions, and, if completed, obtain our anticipated sales price; (xxi) general economic, financial market, regulatory and political conditions in which we operate; (xxii) management’s perceptions of historical trends, current conditions and expected future developments; and (xxiii) other considerations that management believes to be appropriate in the circumstances. While our management considers these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct. 26 Table of Contents By their nature, Forward-Looking Statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct, and that objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the Forward-Looking Statements in this Quarterly Report and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf. Such factors include, without limitation, negative impacts on our business and operations in Israel due to the Anti-Dumping Investigation, including that we may not be able to produce, import or sell our products in Israel as a result thereof; 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 effectively and efficiently re-enter the U.S. market in the future; that we may not be able to access raw materials on a timely and cost-effective basis from third-parties, including Cronos GrowCo; that Cronos GrowCo may not be able to complete the expansion of its purpose-built cannabis facility within a reasonable time or repay its borrowings under Term Loan B; the military conflict between Russia and Ukraine may disrupt our operations and those of our suppliers and distribution channels and negatively impact the demand for and use of our products; the risk that cost savings and any other synergies from the Altria Investment may not be fully realized or may take longer to realize than expected; failure to execute key personnel changes; the risks that our Realignment, the change in the nature of our operations at the Peace Naturals Campus and our further leveraging of our strategic partnerships will not result in the expected cost-savings, efficiencies and other benefits or will result in greater than anticipated turnover in personnel; lower levels of revenues; the lack of consumer demand for our 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; unanticipated future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; growth opportunities not turning out as expected; the lack of cash flow necessary to execute our business plan (either within the expected timeframe or at all); difficulty raising capital; the potential adverse effects of judicial, regulatory or other proceedings, or threatened litigation or proceedings, on our business, financial condition, results of operations and cash flows; volatility in and/or degradation of general economic, market, industry or business conditions; compliance with applicable environmental, economic, health and safety, energy and other policies and regulations and in particular health concerns with respect to vaping and the use of cannabis and U.S. hemp products in vaping devices; the unexpected effects of actions of third parties such as competitors, activist investors or federal (including U.S. federal), state, provincial, territorial or local regulatory authorities or self-regulatory organizations; adverse changes in regulatory requirements in relation to our business and products; legal or regulatory obstacles that could prevent us from being able to exercise the PharmaCann Option and thereby 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; 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. Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on Forward-Looking Statements. Forward-Looking Statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as of and for periods ended on certain dates and to present information about management’s current expectations and plans relating to the future, and the reader is cautioned not to place undue reliance on these Forward-Looking Statements because of their inherent uncertainty and to appreciate the limited purposes for which they are being used by management. While we believe that the assumptions and expectations reflected in the Forward-Looking Statements are reasonable based on information currently available to management, there is no assurance that such assumptions and expectations will prove to have been correct. Forward-Looking Statements are made as of the date they are made and are based on the beliefs, estimates, expectations and opinions of management on that date. We undertake no obligation to update or revise any Forward-Looking Statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such Forward-Looking Statements. The Forward-Looking Statements contained in this Quarterly Report and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf are expressly qualified in their entirety by these cautionary statements. Foreign currency exchange rates All currency amounts in this Quarterly Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars. The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of June 30, 2024, June 30, 2023, and December 31, 2023. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates. The condensed consolidated statements of net loss and comprehensive income (loss) and condensed consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period as reported on Bloomberg. 27 Table of Contents The exchange rates used to translate from Canadian dollars (“C$”) to dollars is shown below: (Exchange rates are shown as C$ per $) As of June 30, 2024 June 30, 2023 December 31, 2023 Spot rate 1.3674 1.3242 1.3243 Year-to-date average rate 1.3581 1.3474 N/A The exchange rates used to translate from New Israeli Shekels (“ILS”) to dollars is shown below: (Exchange rates are shown as ILS per $) As of June 30, 2024 June 30, 2023 December 31, 2023 Spot rate 3.7742 3.7051 3.6163 Year-to-date average rate 3.6950 3.5892 N/A Business Overview Cronos is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio. Cronos’ diverse international brand portfolio includes Spinach ® , PEACE NATURALS ® and Lord Jones ® . Strategy Cronos seeks to create value for shareholders by focusing on four core strategic priorities: • growing a portfolio of iconic brands that responsibly elevate the consumer experience; • developing a diversified global sales and distribution network; • establishing an efficient global supply chain; and • creating and monetizing disruptive intellectual property. Discontinued Operations In the second quarter of 2023, Cronos exited its U.S. hemp-derived cannabinoid product operations. The exit of the U.S. operations represented a strategic shift that has a major effect on Cronos’ operations and financial results, and as such, qualifies for reporting as discontinued operations in our condensed consolidated statements of net loss and comprehensive income (loss). Prior period amounts have been reclassified to reflect the discontinued operations classification of the U.S. operations. For further detail on the discontinuation of the U.S. operations, see Note 2 “ Discontinued Operations ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report. Business Segments Beginning in the second quarter of 2023, following the exit of our U.S. operations, Cronos is reporting through one consolidated segment, which includes operations in both Canada and Israel. In Canada, Cronos operates 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. 28 Table of Contents Recent Developments 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. Transaction with Cronos GrowCo On June 20, 2024, Cronos announced an expansion of Cronos GrowCo. The investment will be funded by an additional credit facility provided by Cronos and is intended to assist GrowCo’s expansion of its purpose-built cannabis facility to address the increased global market demand for high-quality cannabis flower. Key highlights of the investment: • Investment in Expansion : Cronos has provided an approximately $51 million ($70 million CAD) secured non-revolving credit facility to Cronos GrowCo to fund facility expansion, enabling growth opportunities in the markets Cronos operates in today as well as potentially enabling Cronos GrowCo to take advantage of future growth into new markets that open. • Enhanced Governance : As of July 1, 2024, the GrowCo board of directors expanded to five members, three of whom are appointed by Cronos. • New Supply Agreement : Prior to the commencement of sales from the expanded facility, Cronos will have the option to purchase up to 80% of Cronos GrowCo’s total production. Thereafter, Cronos will have the option to purchase up to 70% of the total production from the expanded facility. • Financial Consolidation : Cronos will consolidate Cronos GrowCo’s results in its financial statements beginning in the third quarter of 2024. The Canadian cannabis market has a shortage of high quality biomass and we anticipate the expansion will aid our ability to supply markets we operate in, while also fueling the potential for additional expansion. See “ Risk Factors – We are anticipating shortages in raw materials and may be unable to obtain adequate supplies of raw materials in a timely manner and at commercially reasonable prices, ” for further discussion of the potential impact of this shortage on our business, results of operations and financial condition. Termination of Agreement for Sale and Leaseback of Peace Naturals Campus On May 28, 2024, the Company’s agreement with Future Farmco Canada Inc. for the sale and leaseback of the Peace Naturals Campus was terminated pursuant to its terms. The Company is continuing to evaluate its strategic options for the Peace Naturals Campus, which may include continuing and expanding operations at the facility. 29 Table of Contents Consolidated Results of Operations The tables below set forth our condensed consolidated results of operations, expressed in thousands of U.S. dollars for the periods presented. Our condensed consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods . (in thousands of USD) Three months ended June 30, Six months ended June 30, 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 4,628 14,777 17,534 16,075 Income tax benefit 2,174 180 2,732 1,616 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) Summary of select financial results (in thousands of USD) Three months ended June 30, Change Six months ended June 30, Change 2024 2023 $ % 2024 2023 $ % Net revenue $ 27,762 $ 19,021 $ 8,741 46 % $ 53,050 $ 38,516 $ 14,534 38 % Cost of sales 21,070 15,922 5,148 32 % 41,875 32,490 9,385 29 % Gross profit 6,297 3,099 3,198 103 % 10,780 6,026 4,754 79 % Gross margin (i) 23 % 16 % N/A 7 pp 20 % 16 % N/A 4 pp (i) Gross margin is defined as gross profit divided by net revenue. Net revenue For the three months ended June 30, 2024, we reported consolidated net revenue of $27.8 million, representing an increase of $8.7 million from the three months ended June 30, 2023. For the six months ended June 30, 2024, we reported consolidated net revenue of $53.1 million, representing an increase of $14.5 million from the six months ended June 30, 2023. For both the three and six month comparative periods, 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 higher cannabis flower sales in other countries, partially offset by an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue. Inventory write-down For both the three and six months ended June 30, 2024, we reported inventory write-downs of $0.4 million, compared to no inventory write-downs in the the three and six months ended June 30, 2023. For both the three and six month comparative periods, the increase was primarily due to write-downs resulting from unusable inventory that was scrapped in the period. 30 Table of Contents Cost of sales For the three months ended June 30, 2024, we reported consolidated cost of sales of $21.1 million, representing an increase of $5.1 million from the three months ended June 30, 2023. For the six months ended June 30, 2024, we reported consolidated cost of sales of $41.9 million, representing an increase of $9.4 million from the six months ended June 30, 2023. For both the three and six month comparative periods, 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 higher cannabis flower sales in other countries. Gross profit For the three months ended June 30, 2024, we reported gross profit of $6.3 million, representing an increase of $3.2 million from the three months ended June 30, 2023. For the six months ended June 30, 2024, we reported gross profit of $10.8 million, representing an increase of $4.8 million from the six months ended June 30, 2023. For both the three and six month comparative periods, 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 higher cannabis flower sales in other countries, partially offset by an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue and higher inventory write-downs. Operating expenses Three months ended June 30, Change Six months ended June 30, Change 2024 2023 $ % 2024 2023 $ % Sales and marketing $ 4,330 $ 5,297 $ (967) (18) % $ 9,662 $ 11,038 $ (1,376) (12) % Research and development 962 1,107 (145) (13) % 1,959 3,146 (1,187) (38) % General and administrative 12,767 13,451 (684) (5) % 21,674 25,307 (3,633) (14) % Restructuring costs 547 — 547 N/M 630 — 630 N/M Share-based payments 2,236 2,331 (95) (4) % 4,251 4,866 (615) (13) % Depreciation and amortization 1,016 1,533 (517) (34) % 2,139 3,058 (919) (30) % Impairment loss on long-lived assets — — — N/A 1,974 — 1,974 N/A Total operating expenses $ 21,858 $ 23,719 $ (1,861) (8) % $ 42,289 $ 47,415 $ (5,126) (11) % Sales and marketing For the three months ended June 30, 2024, sales and marketing expenses were $4.3 million, representing a decrease of $1.0 million compared to the three months ended June 30, 2023. For the six months ended June 30, 2024, sales and marketing expenses were $9.7 million, representing a decrease of $1.4 million compared to the six months ended June 30, 2023. For both the three and six month comparative periods, the decrease was primarily due to lower advertising and marketing spend. Research and development For the three months ended June 30, 2024, research and development expenses were $1.0 million, essentially unchanged from the three months ended June 30, 2023. For the six months ended June 30, 2024, research and development expenses were $2.0 million, representing a decrease of $1.2 million from the six months ended June 30, 2023. The decrease for the six months ended June 30, 2024, was primarily due to lower costs associated with the collaboration and license agreement between Ginkgo Bioworks Holdings, Inc. and the Company. General and administrative For the three months ended June 30, 2024, general and administrative expenses were $12.8 million, representing a decrease of $0.7 million from the three months ended June 30, 2023. For the six months ended June 30, 2024, general and administrative expenses were $21.7 million, representing a decrease of $3.6 million from the six months ended June 30, 2023. For both the three and six month comparative periods, the decrease was primarily due to lower professional fees, largely related to financial statement review costs, and lower salaries and benefits and insurance costs, partially offset by an increase in the expected credit loss allowance on loans receivable. Restructuring costs For the three and six months ended June 30, 2024, restructuring costs were $0.5 million and $0.6 million, respectively. For further information, see Note 6 “ Restructuring ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report. 31 Table of Contents Share-based compensation For the three months ended June 30, 2024, share-based compensation expense was $2.2 million, essentially unchanged from the three months ended June 30, 2023. For the six months ended June 30, 2024, share-based compensation expense was $4.3 million, representing a decrease of $0.6 million from the six months ended June 30, 2023. The decrease for the six months ended June 30, 2024 was primarily due to headcount reductions that occurred in the prior year. Depreciation and amortization For the three months ended June 30, 2024, depreciation and amortization expenses were $1.0 million, representing a decrease of $0.5 million from the three months ended June 30, 2023. For the six months ended June 30, 2024, depreciation and amortization expenses were $2.1 million, representing a decrease of $0.9 million from the six months ended June 30, 2023. For both the three and six month comparative periods, 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 For the six months ended June 30, 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 June 30, 2024, or the three and six months ended June 30, 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 June 30, Change Six months ended June 30, Change 2024 2023 $ % 2024 2023 $ % Interest income, net $ 13,451 $ 12,471 $ 980 8 % $ 27,696 $ 23,646 $ 4,050 17 % Share of income (loss) from equity method investments 917 270 647 240 % 2,365 (226) 2,591 N/M Gain (loss) on revaluation of financial instruments (3,615) 5,193 (8,808) N/M (6,257) (2,565) (3,692) (144) % Impairment loss on other investments (12,916) — (12,916) N/M (25,650) — (25,650) N/M Foreign currency transaction gain (loss) 6,543 (3,174) 9,717 N/M 19,802 (4,817) 24,619 N/M Other, net 248 17 231 N/M (422) 37 (459) N/M Total other income 4,628 14,777 (10,149) (69) % 17,534 16,075 1,459 9 % Income tax benefit 2,174 180 1,994 N/M 2,732 1,616 1,116 69 % Loss from continuing operations (8,759) (5,663) (3,096) (55) % (11,243) (23,698) 12,455 53 % Loss from discontinued operations — (2,834) 2,834 N/M — (4,056) 4,056 N/M Net loss $ (8,759) $ (8,497) $ (262) (3) % $ (11,243) $ (27,754) $ 16,511 59 % (i) “N/M” is defined as not meaningful. Interest income, net For the three months ended June 30, 2024, interest income, net was $13.5 million, representing an increase of $1.0 million from the three months ended June 30, 2023. For the six months ended June 30, 2024, interest income, net was $27.7 million, representing an increase of $4.1 million from the six months ended June 30, 2023. For both the three and six month comparative periods, the increase in net interest income was primarily due to higher interest rates in the current period compared to the prior periods. Share of income (loss) from equity method investments For the three months ended June 30, 2024, our share of income from equity method investments was $0.9 million, representing an increase of $0.6 million from the three months ended June 30, 2023. For the six months ended June 30, 2024, our share of income from equity method investments was $2.4 million, representing an increase of $2.6 million from the six months ended June 30, 2023. For both the three and six month comparative periods, 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. 32 Table of Contents Gain (loss) on revaluation of financial instruments For the three months ended June 30, 2024, the loss on revaluation of financial instruments was $3.6 million, representing a deterioration of $8.8 million from the three months ended June 30, 2023. For the six months ended June 30, 2024, the loss on revaluation of financial instruments was $6.3 million, representing a deterioration of $3.7 million from the six months ended June 30, 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 For the three and six months ended June 30, 2024, we recognized $12.9 million and $25.7 million, respectively, of impairment loss on other investments, driven by impairment charges 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 and six months ended June 30, 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 June 30, 2024, foreign currency translation gain was $6.5 million, representing an improvement of $9.7 million from the three months ended June 30, 2023. For the six months ended June 30, 2024, foreign currency translation gain was $19.8 million, representing an improvement of $24.6 million from the six months ended June 30, 2023. For both the three and six month comparative periods, 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 Other, net primarily includes gains and losses on the disposal of assets. Income tax benefit For the three months ended June 30, 2024, income tax benefit was $2.2 million, compared to $0.2 million for the three months ended June 30, 2023. For the six months ended June 30, 2024, income tax benefit was $2.7 million, compared to $1.6 million for the six months ended June 30, 2023. For both the three and six month comparative periods, the increased benefit was driven by higher current income tax benefits recorded on the losses that will be carried back to recover taxes paid in prior years. Loss from discontinued operations There was no activity in discontinued operations for the three and six months ended June 30, 2024. For the three and six months ended June 30, 2023, loss from discontinued operations was due to the exit of U.S. operations. For more information, see Note 2 “ Discontinued Operations ” in our condensed consolidated interim financial statements under Item 1 of this Quarterly Report. Non-GAAP Measures Cronos Group reports its financial results in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). This Quarterly Report refers to measures not recognized under U.S. GAAP (“non-GAAP measures”). These non-GAAP measures do not have a standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these non-GAAP measures are provided as a supplement to corresponding U.S. GAAP measures to provide additional information regarding the results of operations from management’s perspective. Accordingly, non-GAAP measures should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. All non-GAAP measures presented in this Quarterly Report are reconciled to their closest reported U.S. GAAP measure. Reconciliations of historical adjusted financial measures to corresponding U.S. GAAP measures are provided below. 33 Table of Contents Adjusted EBITDA Management reviews Adjusted EBITDA, a non-GAAP measure, which excludes non-cash items and items that do not reflect management’s assessment of ongoing business performance. Management defines Adjusted EBITDA as net income (loss) before interest, tax expense (benefit), depreciation and amortization adjusted for: share of (income) loss from equity method investments; impairment loss on goodwill and intangible assets; impairment loss on long-lived assets; -(gain) loss on revaluation of financial instruments; transaction costs related to strategic projects; impairment loss on other investments; foreign currency transaction loss; other, net; loss from discontinued operations; restructuring costs; inventory write-downs resulting from restructuring actions; share-based compensation; and financial statement review costs and reserves related to the restatements of our 2019 and 2021 interim financial statements (the “Restatements”), including the costs related to the settlement of the SEC’s and the Ontario Securities Commission’s (“OSC”) investigations of the Restatements and legal costs defending shareholder class action complaints brought against us as a result of the 2019 restatement (see Part II, Item 1 “Legal Proceedings” of this Quarterly Report for a discussion of the shareholder class action complaints relating to the restatement of the 2019 interim financial statements and the settlement of the SEC’s and the OSC’s investigations of the Restatements). Results are reported as total consolidated results, reflecting our reporting structure of one reportable segment. Management believes that Adjusted EBITDA provides the most useful insight into underlying business trends and results and provides a more meaningful comparison of period-over-period results. Management uses Adjusted EBITDA for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets. Adjusted EBITDA is reconciled to net income (loss) as follows: Three months ended June 30, 2024 Continuing Operations Discontinued Operations Total Net loss $ (8,759) $ — $ (8,759) Interest income, net (13,451) — (13,451) Income tax benefit (2,174) — (2,174) Depreciation and amortization 1,513 — 1,513 EBITDA (22,871) — (22,871) Share of income from equity method investments (917) — (917) Loss on revaluation of financial instruments (ii) 3,615 — 3,615 Impairment loss on other investments (iii) 12,916 — 12,916 Foreign currency transaction gain (6,543) — (6,543) Transaction costs (iv) 196 — 196 Other, net (v) (248) — (248) Restructuring costs (vi) 547 — 547 Share-based compensation (vii) 2,236 — 2,236 Financial statement review costs (viii) 18 — 18 Adjusted EBITDA $ (11,051) $ — $ (11,051) 34 Table of Contents Three months ended June 30, 2023 Continuing Operations Discontinued Operations Total Net loss $ (5,663) $ (2,834) $ (8,497) Interest income, net (12,471) (3) (12,474) Income tax benefit (180) — (180) Depreciation and amortization 2,265 115 2,380 EBITDA (16,049) (2,722) (18,771) Share of income from equity method investments (270) — (270) Impairment loss on long-lived assets (i) — 205 205 Gain on revaluation of financial instruments (ii) (5,193) — (5,193) Foreign currency transaction loss 3,174 — 3,174 Other, net (v) (17) 163 146 Restructuring costs (vi) — 534 534 Share-based compensation (vii) 2,331 5 2,336 Financial statement review costs (viii) 119 — 119 Inventory write-down (ix) $ — $ 839 839 Adjusted EBITDA $ (15,905) $ (976) $ (16,881) Six months ended June 30, 2024 Continuing Operations Discontinued Operations Total Net loss $ (11,243) $ — $ (11,243) Interest income, net (27,696) — (27,696) Income tax benefit (2,732) — (2,732) Depreciation and amortization 3,244 — 3,244 EBITDA (38,427) — (38,427) Share of income from equity method investments (2,365) — (2,365) Impairment loss on long-lived assets (i) 1,974 — 1,974 Loss on revaluation of financial instruments (ii) 6,257 — 6,257 Impairment loss on other investments (iii) 25,650 — 25,650 Foreign currency transaction gain (19,802) — (19,802) Transaction costs (iv) 196 — 196 Other, net (v) 422 — 422 Restructuring costs (vi) 630 — 630 Share-based compensation (vii) 4,251 — 4,251 Financial statement review costs (viii) (506) — (506) Adjusted EBITDA $ (21,720) $ — $ (21,720) 35 Table of Contents Six months ended June 30, 2023 Continuing Operations Discontinued Operations Total Net loss $ (23,698) $ (4,056) $ (27,754) Interest income, net (23,646) (8) (23,654) Income tax benefit (1,616) — (1,616) Depreciation and amortization 4,541 244 4,785 EBITDA (44,419) (3,820) (48,239) Share of loss from equity method investments 226 — 226 Impairment loss on long-lived assets (i) — 205 205 Loss on revaluation of financial instruments (ii) 2,565 — 2,565 Foreign currency transaction loss 4,817 — 4,817 Other, net (v) (37) 163 126 Restructuring costs (vi) — 534 534 Share-based compensation (vii) 4,866 21 4,887 Financial statement review costs (viii) 395 — 395 Inventory write-down (ix) — 839 839 Adjusted EBITDA $ (31,587) $ (2,058) $ (33,645) (i) For the three and six months ended June 30, 2024, impairment loss on long-lived assets related to the winding down of operations at Cronos Fermentation. For the three and six months ended June 30, 2023, impairment loss on long-lived assets related to certain leased properties associated with the Company’s U.S. operations. (ii) For the three and six months ended June 30, 2024 and 2023, (gain) loss on revaluation of financial instruments related primarily to the Company’s equity securities in Vitura. (iii) For the three and six months ended June 30, 2024, impairment loss on other investments represents the fair value change on the PharmaCann Option. (iv) For the three and six months ended June 30, 2024, transactions costs represent advisory fees associated with the Cronos GrowCo expansion transaction. (v) For the three and six months ended June 30, 2024 and 2023, other, net related to (gain) loss on disposal of assets and (gain) loss on revaluation of derivative liabilities. (vi) For the three and six months ended June 30, 2024, restructuring costs from continuing operations related to shutdown costs at the Cronos Fermentation facility, as well as employee-related severance costs associated with the Realignment, as described in Note 6 “ Restructuring .” For the three and six months ended June 30, 2023, restructuring costs related to employee-related severance costs and other restructuring costs associated with our U.S. operations as described in Note 2 “ Discontinued Operations .” (vii) For the three and six months ended June 30, 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. ” (viii) For the three and six months ended June 30, 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 six months ended June 30, 2024, a credit balance is presented due to an insurance recovery. (ix) For the three and six months ended June 30, 2023, inventory write-downs relate to product destruction and obsolescence associated with the exit of our U.S. operations as described in Note 2 “ Discontinued Operations. ” Constant Currency To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented constant currency adjusted financial measures for net revenues, gross profit, gross profit margin, operating expenses, net income (loss) and Adjusted EBITDA for the three and six months ended June 30, 2024, as well as cash and cash equivalents and short-term investment balances as of June 30, 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. To present this information, current and comparative prior period income statement results in currencies other than U.S. dollars are converted into U.S. dollars using the average exchange rates from the three 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. All growth comparisons relate to the corresponding period in 2023. We have provided this non-GAAP financial information to aid investors in better understanding the performance of our operations. The non-GAAP financial measures presented in this Quarterly Report should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP. See further discussion on foreign currency risk as noted in Item 3 “Quantitative and Qualitative Disclosures About Market Risk.” 36 Table of Contents The table below sets forth certain measures of consolidated results from continuing operations on a constant currency basis for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 as well as cash and cash equivalents and short-term investments as of June 30, 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 June 30, As Reported Change Three months ended June 30, Constant Currency Change 2024 2023 $ % 2024 $ % Net revenue $ 27,762 $ 19,021 $ 8,741 46 % $ 28,290 $ 9,269 49 % Gross profit 6,297 3,099 3,198 103 % 6,434 3,335 108 % Gross margin 23 % 16 % N/A 7 pp 23 % N/A 7 pp Operating expenses 21,858 23,719 (1,861) (8) % 21,861 (1,858) (8) % Net loss from continuing operations (8,759) (5,663) (3,096) (55) % (8,162) (2,499) (44) % Adjusted EBITDA (11,051) (15,905) 4,854 31 % (10,863) 5,042 32 % Six months ended June 30, As Reported Change Six months ended June 30, Constant Currency Change 2024 2023 $ % 2024 $ % Net revenue $ 53,050 $ 38,516 $ 14,534 38 % $ 53,795 $ 15,279 40 % Gross profit 10,780 6,026 4,754 79 % 10,983 4,957 82 % Gross margin 20 % 16 % N/A 4 pp 20 % N/A 4 pp Operating expenses 42,289 47,415 (5,126) (11) % 42,336 (5,079) (11) % Net loss from continuing operations (11,243) (23,698) 12,455 53 % (10,643) 13,055 55 % Adjusted EBITDA (21,720) (31,587) 9,867 31 % (21,508) 10,079 32 % As of June 30, As of December 31, As Reported Change As of June 30, Constant Currency Change 2024 2023 $ % 2024 $ % Cash and cash equivalents $ 848,189 $ 669,291 $ 178,898 27 % $ 852,752 $ 183,461 27 % Short-term investments — 192,237 (192,237) (100) % — (192,237) (100) % Total cash and cash equivalents and short-term investments $ 848,189 $ 861,528 $ (13,339) (2) % $ 852,752 $ (8,776) (1) % Net revenue As Reported As Adjusted for Constant Currency Three months ended June 30, As Reported Change Three months ended June 30, Constant Currency Change 2024 2023 $ % 2024 $ % Cannabis flower $ 20,661 $ 14,014 $ 6,647 47 % $ 21,058 $ 7,044 50 % Cannabis extracts 7,064 4,926 2,138 43 % 7,195 2,269 46 % Other 37 81 (44) (54) % 37 (44) (54) % Net revenue $ 27,762 $ 19,021 $ 8,741 46 % $ 28,290 $ 9,269 49 % 37 Table of Contents As Reported As Adjusted for Constant Currency Six months ended June 30, As Reported Change Six months ended June 30, Constant Currency Change 2024 2023 $ % 2024 $ % Cannabis flower $ 38,186 $ 27,142 $ 11,044 41 % $ 38,812 $ 11,670 43 % Cannabis extracts 14,791 11,227 3,564 32 % 14,909 3,682 33 % Other 73 147 (74) (50) % 74 (73) (50) % Net revenue $ 53,050 $ 38,516 $ 14,534 38 % $ 53,795 $ 15,279 40 % As Reported As Adjusted for Constant Currency Three months ended June 30, As Reported Change Three months ended June 30, Constant Currency Change 2024 2023 $ % 2024 $ % Canada $ 19,844 $ 13,595 $ 6,249 46 % $ 20,210 $ 6,615 49 % Israel 6,889 5,426 1,463 27 % 7,036 1,610 30 % Other countries 1,029 — 1,029 N/M 1,044 1,044 N/M Net revenue $ 27,762 $ 19,021 $ 8,741 46 % $ 28,290 $ 9,269 49 % As Reported As Adjusted for Constant Currency Six months ended June 30, As Reported Change Six months ended June 30, Constant Currency Change 2024 2023 $ % 2024 $ % Canada $ 38,715 $ 28,029 $ 10,686 38 % $ 39,044 $ 11,015 39 % Israel 13,306 10,487 2,819 27 % 13,707 3,220 31 % Other countries 1,029 — 1,029 N/M 1,044 1,044 N/M Net revenue $ 53,050 $ 38,516 $ 14,534 38 % $ 53,795 $ 15,279 40 % For the three months ended June 30, 2024, net revenue on a constant currency basis was $28.3 million, representing a 49% increase from the three months ended June 30, 2023. For the six months ended June 30, 2024, net revenue on a constant currency basis was $53.8 million, representing a 40% increase from the six months ended June 30, 2023. On a constant currency basis, net revenue increased for the three and six months ended June 30, 2024, primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, higher cannabis flower sales in Israel and higher cannabis flower sales in other countries, partially offset by an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue. Gross profit For the three months ended June 30, 2024, gross profit on a constant currency basis was $6.4 million, representing a 108% increase from the three months ended June 30, 2023. For the six months ended June 30, 2024, gross profit on a constant currency basis was $11.0 million, representing an 82% increase from the six months ended June 30, 2023. On a constant currency basis, gross profit increased for the three and six months ended June 30, 2024, primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, higher cannabis flower sales in Israel and higher cannabis flower sales in other countries, partially offset by an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue and higher inventory write-downs. Operating expenses For the three months ended June 30, 2024, operating expenses on a constant currency basis were $21.9 million, representing an 8% decrease from the three months ended June 30, 2023. For the six months ended June 30, 2024, operating expenses on a constant currency basis was $42.3 million, representing an 11% decrease from the six months ended June 30, 2023. On a constant currency basis, operating expenses decreased for the three and six months ended June 30, 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 salaries and benefits and insurance costs. 38 Table of Contents Net loss from continuing operations For the three months ended June 30, 2024, net loss from continuing operations on a constant currency basis was $8.2 million, representing an increased loss of $2.5 million from the three months ended June 30, 2023. For the six months ended June 30, 2024, net loss from continuing operations on a constant currency basis was $10.6 million, representing an improvement of $13.1 million from the six months ended June 30, 2023. Adjusted EBITDA For the three months ended June 30, 2024, Adjusted EBITDA on a constant currency basis was $(10.9) million, representing a 32% improvement from the three months ended June 30, 2023. For the six months ended June 30, 2024, Adjusted EBITDA on a constant currency basis was $(21.5) million, representing a 32% improvement from the six months ended June 30, 2023. The improvement in Adjusted EBITDA for the three and six months ended June 30, 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 1% to $852.8 million as of June 30, 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 advances of loans receivable and purchases of property, plant and equipment in the six months ended June 30, 2024. Liquidity and Capital Resources As of June 30, 2024, we had $848.2 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. The following table summarizes the cash flows from operating, investing and financing activities: (In thousands of U.S. dollars) Six months ended June 30, 2024 2024 2023 Cash flows used in operating activities $ (460) $ (59,467) Cash flows provided by (used in) investing activities 180,999 (298,964) 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 $ 178,898 $ (355,216) Comparison of cash flows between the six months ended June 30, 2024 and the six months ended June 30, 2023 Operating activities During the six months ended June 30, 2024, we used $0.5 million of cash in operating activities as compared to cash used of $59.5 million in the six months ended June 30, 2023, representing a decrease in cash used of $59.0 million. This change is primarily driven by 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, a $21.5 million increase in net income after adjusting for non-cash items during the six months ended June 30, 2024 compared to the six months ended June 30, 2023, 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 six months ended June 30, 2024, we generated $181.0 million of cash in investing activities, compared to $299.0 million of cash used in investing activities during the six months ended June 30, 2023, representing a change of $480.0 million. This change is primarily driven by the maturity of certain short-term investments, which were reinvested as cash equivalents upon maturity in the six months ended June 30, 2024, partially offset by higher advances of loans receivable and lower loan repayments in the six months ended June 30, 2024. Financing activities During the six months ended June 30, 2024, cash used in financing activities was $0.9 million, compared to $0.8 million of cash used in financing activities during the six months ended June 30, 2023, representing an increase of $0.1 million. This change is primarily driven by an increase of $0.1 million in withholding taxes paid on share-based awards during the six months ended June 30, 2024 compared to six months ended June 30, 2023. 39 Table of Contents Cash Requirements The Company’s cash requirements have not changed significantly since the filing of the Annual Report. Critical Accounting Policies and Estimates Our critical accounting policies and estimates are discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. Our critical accounting policies and estimates have not changed significantly since the filing of the Annual Report.