What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-08 · 301 added, 215 removed, 344 unchanged (60% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read together with other information, including Cronos Group’s condensed consolidated interim financial statements and the related notes to those statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarterly period ended June 30, 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.

The following discussion and analysis should be read together with other information, including Cronos Group’s condensed consolidated interim financial statements and the related notes to those statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 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

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• 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 the German, Australian and United Kingdom (“UK”) markets, including our strategic partnerships with Cansativa GmbH (“Cansativa”), Vitura Health Limited (“Vitura”) and GROW ® Pharma, respectively, and our ability to successfully 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;

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• expectations related to our announced realignment (the “Realignment”) and any progress, challenges and effects related thereto as well as changes in strategy, metrics, investments, reporting structure, costs, operating expenses, employee turnover and other changes with respect thereto;

• the timing of the change in the nature of operations at our facility in Stayner, Ontario (the “Peace Naturals Campus”);

• our expectations as to the use of 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.

• expectations regarding the potential success of, and the costs and benefits associated with, our joint ventures, strategic alliances and equity investments;

• 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 related to the Cronos GrowCo Transaction and the expansion of its cultivation and processing facilities;

• our ability or plans to identify, develop, commercialize or expand our technology research and development (“R&D”) initiatives in cannabinoids, or the success thereof;

• expectations regarding revenues, expenses, gross margins and capital expenditures;

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• the ongoing impact of the legalization of additional cannabis product types and forms for adult-use in Canada, including federal, provincial, territorial and municipal regulations pertaining thereto, the related timing and impact thereof and our intentions to participate in such markets;

• the legalization of the use of cannabis for medical or adult-use in jurisdictions outside of Canada, including the United States and Germany, the related timing and impact thereof and our intentions to participate in such markets, if and when such use is legalized;

• the legalization of the use of cannabis for medical or adult-use in jurisdictions outside of Canada, including the U.S.

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;

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

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

• laws and regulations and any amendments thereto applicable to our business and the impact thereof, including uncertainty regarding the application of 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.

Food and Drug Administration, the U.S.

Drug Enforcement Administration, the U.S.

Federal Trade Commission, the U.S.

Patent and Trademark Office and any state equivalent regulatory agencies over cannabis and U.S.

hemp (including CBD and other U.S.

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• expectations regarding the implementation and effectiveness of key personnel changes;

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

• expectations regarding business combinations 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”);

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

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

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(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.

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

hemp-derived cannabinoid product operations;

(vi) 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;

(vii) our ability to efficiently and effectively change the nature of our operations at our Peace Naturals Campus and receive the benefits thereof and acquire raw materials on a timely and cost-effective basis from third parties or Cronos GrowCo;

(viii) the timely completion of the expansion of Cronos GrowCo’s purpose-built cannabis facility and the ability of Cronos GrowCo to repay the credit facility provided by Cronos;

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

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

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

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

(xiii) consumer interest in our products;

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

(xv) competition;

(xvi) anticipated and unanticipated costs;

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

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

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

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

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

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

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

and (xxiv) other considerations that management believes to be appropriate in the circumstances.

While our management considers these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct.

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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 not be able to achieve the anticipated benefits of the wind-down of our operations at our Winnipeg, Manitoba facility;

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

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market in the future;

that we may not 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;

that we may not be able to access raw materials on a timely and cost-effective basis from third-parties or 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 the Cronos GrowCo Credit Facility;

the military conflict between Russia and Ukraine may disrupt our operations and those of our suppliers and distribution channels and negatively impact the demand for and use of our products;

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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;

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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.

and the factors discussed under Part I, Item 1A “Risk Factors” of the Annual Report on Form 10-K for the year ended December 31, 2023 and under Part II, Item 1A “Risk Factors” in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2024 and June 30, 2024.

Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on Forward-Looking Statements.

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

The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of June 30, 2024, June 30, 2023, and December 31, 2023.

The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of September 30, 2024, September 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.

The condensed consolidated statements of net income (loss) and comprehensive income (loss) and condensed consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period as reported on Bloomberg.

The 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

September 30, 2024 September 30, 2023 December 31, 2023

Spot rate 1.3525 1.3577 1.3243

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

June 30, 2024 June 30, 2023 December 31, 2023

September 30, 2024 September 30, 2023 December 31, 2023

Spot rate 3.7269 3.8138 3.6163

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The exit of the U.S.

operations represented a strategic shift that has a major effect on Cronos’ operations and financial results, and as such, qualifies for reporting as discontinued operations in our condensed consolidated statements of net loss and comprehensive income (loss).

Prior period amounts have been reclassified to reflect the discontinued operations classification of the U.S.

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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:

Cronos GrowCo Transaction

On July 1, 2024, the Company obtained majority control of the board of directors of Cronos Growing Company Inc.

(“Cronos GrowCo”), a leading cannabis cultivation company, which qualified as a business combination under ASC 805 (the “Cronos GrowCo Transaction”).

As a result, the Company now consolidates the results of operations of Cronos GrowCo in our condensed consolidated

financial statements.

Prior to this date, our investment in Cronos GrowCo consisted of an investment accounted for under the equity method and loans receivable from Cronos GrowCo.

Key Highlights of the Cronos GrowCo Transaction:

• Increased Board Representation :

As of July 1, 2024, the Cronos GrowCo board of directors expanded to five members, three of whom are appointed by Cronos.

• Financial Consolidation :

Cronos now consolidates Cronos GrowCo’s results in its financial statements beginning in the third quarter of 2024.

• 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.

Cronos has provided an approximately $51 million ($70 million CAD) secured non-revolving credit facility to Cronos GrowCo to fund the expansion of Cronos GrowCo’s cultivation and processing facilities (the “Phase 2 Expansion”), enabling growth opportunities in the markets Cronos operates in today as well as enabling future growth into new markets that open.

• 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.

Prior to the commencement of sales from the Phase 2 Expansion area, Cronos and its controlled affiliates (other than Cronos GrowCo) will have the right, but not the obligation to purchase up to an aggregate total quantity of 80% of Cronos GrowCo’s production.

Thereafter, Cronos and its controlled affiliates (other than Cronos GrowCo) 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.

Consolidated Results of Operations

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Our condensed consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods .

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

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

2024 2023 2024 2023

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Income tax benefit (2,708) (1,254) (5,440) (2,870)

2,174 180 2,732 1,616

Loss from discontinued operations — (182) — (4,238)

Net loss (8,759) (8,497) (11,243) (27,754)

Net income (loss) 7,324 (1,772) (3,919) (29,526)

Net loss attributable to non-controlling interest (1,025) (128) (1,270) (353)

Net loss attributable to Cronos Group $ (8,757) $ (8,360) $ (10,998) $ (27,529)

Net income (loss) attributable to Cronos Group $ 8,349 $ (1,644) $ (2,649) $ (29,173)

Summary of select financial results

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

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

2024 2023 $ % 2024 2023 $ %

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Cost of sales 30,341 20,124 10,217 51 % 72,216 52,614 19,602 37 %

Inventory write-down 312 716 (404) (56) % 707 716 (9) (1) %

Gross profit 3,611 3,970 (359) (9) % 14,391 9,996 4,395 44 %

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

For the three months ended September 30, 2024, we reported consolidated net revenue of $34.3 million, representing an increase of $9.5 million from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, we reported consolidated net revenue of $87.3 million, representing an increase of $24.0 million from the nine months ended September 30, 2023.

For both the three and nine month comparative periods, the increase was primarily due to higher cannabis flower and extract sales in the Canadian 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 adult-use cannabis flower category driving increased excise tax payments as a percentage of net revenue.

The Cronos GrowCo Transaction contributed $4.3 million of cannabis flower sales in both the three and nine months ended September 30, 2024.

No such sales were recognized for the three and nine months ended September 30, 2023.

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.

For the three and nine months ended September 30, 2024, we reported inventory write-downs of $0.3 million and $0.7 million, compared to $0.7 million in both the three and nine months ended September 30, 2023.

For both the three and nine month comparative periods, the activity was primarily due to write-downs resulting from unusable inventory that was scrapped in the period.

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 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 the three months ended September 30, 2024, we reported consolidated cost of sales of $30.3 million, representing an increase of $10.2 million from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, we reported consolidated cost of sales of $72.2 million, representing an increase of $19.6 million from the nine months ended September 30, 2023.

For both the three and nine month comparative periods, the increase was primarily due to the impact of the inventory step-up from the Cronos GrowCo Transaction, higher cannabis flower and extract sales in the Canadian market, higher wholesale cannabis flower sales in Canada, higher cannabis flower sales in Israel and higher cannabis flower sales in other countries.

For both the three and nine months ended September 30, 2024, we recognized $7.1 million of inventory step-up from the Cronos GrowCo Transaction into cost of sales.

No such costs were recognized for the three and nine months ended September 30, 2023.

For the three months ended September 30, 2024, we reported gross profit of $3.6 million, representing a decrease of $0.4 million from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, we reported gross profit of $14.4 million, representing an increase of $4.4 million from the nine months ended September 30, 2023.

For the three month comparative periods, the decrease was primarily due to the impact on cost of sales from the inventory step-up from the Cronos GrowCo Transaction, partially offset by higher cannabis flower and extract sales in the Canadian market, higher cannabis flower sales in Israel and higher cannabis flower sales in other countries.

For the nine month comparative periods, the increase was primarily due to higher cannabis flower and extract sales in the Canadian market, higher cannabis flower sales in Israel and higher cannabis flower sales in other countries, partially offset by the impact on cost of sales from the inventory step-up from the Cronos GrowCo Transaction.

For both the three and nine months ended September 30, 2024, gross profit was reduced by $7.1 million as a result of the impact of the inventory step-up from the Cronos GrowCo Transaction that was recorded into cost of sales.

Operating expenses

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

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

2024 2023 $ % 2024 2023 $ %

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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.

For the three months ended September 30, 2024, sales and marketing expenses were $5.5 million, representing an increase of $0.2 million compared to the three months ended September 30, 2023.

For the nine months ended September 30, 2024, sales and marketing expenses were $15.2 million, representing a decrease of $1.1 million compared to the nine months ended September 30, 2023.

For the three month comparative periods, the increase was primarily due to higher salaries and benefits.

For the nine month comparative periods, the decrease was primarily due to lower salaries and benefits and favorable 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.

For the three months ended September 30, 2024, research and development expenses were $1.2 million, essentially unchanged from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, research and development expenses were $3.2 million, representing a decrease of $1.2 million from the nine months ended September 30, 2023.

The decrease for the nine months ended September 30, 2024, was primarily due to lower costs associated with the collaboration and license agreement between Ginkgo Bioworks Holdings, Inc.

(“Ginkgo”) and the Company.

General and administrative

For the three months ended 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.

For the three months ended September 30, 2024, general and administrative expenses were $12.8 million, representing a decrease of $1.6 million from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, general and administrative expenses were $34.4 million, representing a decrease of $5.2 million from the nine months ended September 30, 2023.

For the three month comparative periods, the decrease was primarily due to lower professional fees, largely related to financial statement review costs in the prior year period, and lower salaries and benefits, partially offset by the impact of the Cronos GrowCo Transaction, which increased general and administrative expenses by $1.6 million.

For the nine 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 the impact of the Cronos GrowCo Transaction, which increased general and administrative expenses by $1.6 million, and $1.2 million higher expected credit loss allowance on loans receivable related to the increased borrowings by Cronos GrowCo in the second quarter of 2024.

Restructuring costs

For the three and six months ended June 30, 2024, restructuring costs were $0.5 million and $0.6 million, respectively.

For the three months ended September 30, 2024, we did not incur any restructuring costs.

For the nine months ended September 30, 2024, restructuring costs were $0.6 million.

For the three and nine months ended September 30, 2023, restructuring costs were $1.4 million.

For further information, see Note 9 “ Restructuring ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

Share-based compensation

For the three months ended June 30, 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.

For the three months ended September 30, 2024, share-based compensation expense was $2.3 million, representing an increase of $0.3 million from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, share-based compensation expense was $6.5 million, representing a decrease of $0.3 million from the nine months ended September 30, 2023.

For the three month comparative periods, the increase was primarily due to new awards granted in the current year and higher forfeitures in the prior year period.

For the nine month comparative periods, the decrease was primarily due to headcount reductions that occurred in the prior year period.

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.

For the three months ended September 30, 2024, depreciation and amortization expenses were $1.1 million, representing a decrease of $0.4 million from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, depreciation and

amortization expenses were $3.2 million, representing a decrease of $1.3 million from the nine months ended September 30, 2023.

For both the three and nine month comparative periods, the decrease was primarily due to lower depreciation on property, plant and equipment as a result of the reclassification of the Cronos Fermentation Facility to held-for-sale in the first quarter of 2024.

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.

For the three months ended September 30, 2024, impairment loss on long-lived assets was $14.4 million and was primarily due to the impairment of the Ginkgo exclusive licenses.

For the nine months ended September 30, 2024, impairment loss on long-lived assets was $16.4 million and was primarily due to the impairment of the Ginkgo exclusive licenses and the cessation of operations at Cronos Fermentation.

There were no such impairment loss on long-lived assets for the three and nine months ended September 30, 2023.

For further information, see Note 9 “ Restructuring ” and Note 8 “ Goodwill and Intangible Assets, net ” 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

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

2024 2023 $ % 2024 2023 $ %

Interest income, net $ 12,460 $ 13,375 $ (915) (7) % $ 40,156 $ 37,021 $ 3,135 8 %

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) %

Share of income from equity method investments — 1,057 (1,057) (100) % 2,365 831 1,534 185 %

Gain on revaluation of loan receivable 11,804 — 11,804 N/M 11,804 — 11,804 N/M

Gain on revaluation of equity method investment 32,469 — 32,469 N/M 32,469 — 32,469 N/M

Loss on revaluation of financial instruments (293) (5,291) 4,998 94 % (6,550) (7,856) 1,306 17 %

Impairment loss on other investments — — — 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

Foreign currency transaction gain (loss) (7,432) 8,816 (16,248) N/M 12,370 3,999 8,371 209 %

Loss on held-for-sale assets (10,422) — (10,422) N/M (10,422) — (10,422) N/M

Other, net (315) 974 (1,289) N/M (737) 1,011 (1,748) N/M

Total other income 38,271 18,931 19,340 102 % 55,805 35,006 20,799 59 %

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 %

Income tax benefit (2,708) (1,254) (1,454) (116) % (5,440) (2,870) (2,570) (90) %

Income (loss) from continuing operations 7,324 (1,590) 8,914 561 % (3,919) (25,288) 21,369 85 %

Loss from discontinued operations — (182) 182 N/M — (4,238) 4,238 N/M

$ (8,759) $ (8,497) $ (262) (3) % $ (11,243) $ (27,754) $ 16,511 59 %

Net income (loss) $ 7,324 $ (1,772) $ 9,096 513 % $ (3,919) $ (29,526) $ 25,607 87 %

(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.

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.

For the three months ended September 30, 2024, interest income, net was $12.5 million, representing a decrease of $0.9 million from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, interest income, net was $40.2 million, representing an increase of $3.1 million from the nine months ended September 30, 2023.

For the three month comparative periods, the decrease in net interest income was primarily due to the absence of income recognized on the Cronos GrowCo loan receivable, which is eliminated in consolidation, effective July 1, 2024 and forward.

For the nine month comparative periods, the increase in net interest income was primarily due to higher interest rates in the current period compared to the prior period.

Share of income from equity method investments

For the three months ended September 30, 2024, we had no income from equity method investments, compared to $1.1 million for the three months ended September 30, 2023.

For the nine months ended September 30, 2024, our share of income from equity method investments was $2.4 million, representing an increase of $1.5 million from the nine months ended September 30, 2023.

For the three months ended September 30, 2023 and the nine months ended September 30, 2024 and 2023, the income from equity method investments was due to income pick-ups from our equity method investment in Cronos GrowCo.

As a result of the Cronos GrowCo Transaction on July 1, 2024, we now consolidate Cronos GrowCo and no longer account for our investment in Cronos GrowCo as an equity method investment.

For further information, see Note 5 “ Investments ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

Gain on revaluation of loans receivable

For both the three and nine months ended September 30, 2024, we recognized $11.8 million of gain on revaluation of loans receivable related to the remeasurement of the existing loans receivable under the credit facility as a result of the Cronos GrowCo Transaction.

No such gain was recognized for the three and nine months ended September 30, 2023.

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

Gain on revaluation of equity method investment

For both the three and nine months ended September 30, 2024, we recognized $32.5 million of gain on revaluation of equity method investment related to the remeasurement of the existing investment in Cronos GrowCo as a result of the Cronos GrowCo Transaction.

No such gain was recognized for the three and nine months ended September 30, 2023.

For further information, see Note 5 “ Investments” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

Loss on revaluation of financial instruments

For the three months ended September 30, 2024, the loss on revaluation of financial instruments was $0.3 million, representing an improvement of $5.0 million from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, the loss on revaluation of financial instruments was $6.6 million, representing an improvement of $1.3 million from the nine months ended September 30, 2023.

The change was primarily related to the change in fair value of our investment in Vitura Health Limited (“Vitura”).

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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 the nine months ended September 30, 2024, we recognized $25.7 million 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 months ended September 30, 2024 or the three and nine months ended September 30, 2023.

For further information, see Note 5 “ 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.

For the three months ended September 30, 2024, foreign currency transaction loss was $7.4 million, representing a deterioration of $16.2 million from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, foreign currency transaction gain was $12.4 million, representing an improvement of $8.4 million from the nine months ended September 30, 2023.

For both the three and nine 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.

Gain (loss) on held-for-sale assets

For both the three and nine months ended September 30, 2024, we recognized $10.4 million of loss on held-for-sale assets as a result of the change in the Company’s sales strategy for the Cronos Fermentation assets to market the assets to a broader buyer pool.

No such gain was recognized for the three and nine months ended September 30, 2023.

For further information, see Note 9 “ Restructuring ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

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.

For the three months ended September 30, 2024, income tax benefit was $2.7 million, compared to $1.3 million for the three months ended September 30, 2023.

For the nine months ended September 30, 2024, income tax benefit was $5.4 million, compared to $2.9 million for the nine months ended September 30, 2023.

For both the three and nine 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.

There was no activity in discontinued operations for the three and nine months ended September 30, 2024.

For the three and nine months ended September 30, 2023, loss from discontinued operations was due to the exit of U.S.

For more information, see Note 3 “ Discontinued Operations ” in our condensed consolidated interim financial statements under Item 1 of this Quarterly Report.

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impairment loss on long-lived assets;

(gain) loss on revaluation of derivative liabilities;

(gain) loss on revaluation of financial instruments;

gain on revaluation of loan receivable;

gain on revaluation of equity method investment;

transaction costs related to strategic projects;

loss on held-for-sale assets;

impairment loss on other investments;

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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).

purchase accounting adjustment-related inventory step-up adjustments recorded through cost of sales;

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 and the OSC investigation of the Restatements and legal costs of 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.

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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

The following tables set forth a reconciliation of Net income (loss) as determined in accordance with U.S.

GAAP to Adjusted EBITDA for the periods indicated:

Three months ended September 30, 2024

Continuing Operations Discontinued Operations Total

5 unchanged sentences

EBITDA (4,277) — (4,277)

Share of income from equity method investments

Impairment loss on long-lived assets (i)

14,376 — 14,376

Loss on revaluation of financial instruments (ii)

Revaluation gain on loan receivable (ii)

(11,804) — (11,804)

Impairment loss on other investments (iii)

Gain on revaluation of equity method investment (iii)

(32,469) — (32,469)

Foreign currency transaction gain (6,543) — (6,543)

Transaction costs (iv)

Other, net (v)

Loss on revaluation of financial instruments (iv)

Foreign currency transaction loss 7,432 — 7,432

Transaction costs (vi)

Loss on held-for-sale assets (vii)

10,422 — 10,422

Restructuring costs (vi)

Share-based compensation (vii)

Other, net (viii)

Share-based compensation (ix)

2,262 — 2,262

Financial statement review costs (viii)

Financial statement review costs (xi)

Inventory step-up recorded to cost of sales (xiii)

7,116 — 7,116

Adjusted EBITDA $ (6,019) $ — $ (6,019)

Three months ended June 30, 2023

Three months ended September 30, 2023

Continuing Operations Discontinued Operations Total

5 unchanged sentences

Share of income from equity method investments (1,057) — (1,057)

Impairment loss on long-lived assets (i)

Gain on revaluation of financial instruments (ii)

Loss on revaluation of financial instruments (iv)

5,291 — 5,291

Foreign currency transaction loss 3,174 — 3,174

Other, net (v)

Restructuring costs (vi)

Share-based compensation (vii)

Foreign currency transaction gain (8,816) — (8,816)

Other, net (viii)

(974) (31) (1,005)

Financial statement review costs (viii)

Inventory write-down (ix)

Restructuring costs (ix)

1,423 28 1,451

Share-based compensation (x)

1,957 (4) 1,953

Financial statement review costs (xi)

Inventory write-down (xii)

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

Six months ended June 30, 2024

Nine months ended September 30, 2024

Continuing Operations Discontinued Operations Total

8 unchanged sentences

16,350 — 16,350

Loss on revaluation of financial instruments (ii)

Revaluation gain on loan receivable (ii)

(11,804) — (11,804)

Impairment loss on other investments (iii)

Gain on revaluation of equity method investment (iii)

(32,469) — (32,469)

Loss on revaluation of financial instruments (iv)

6,550 — 6,550

Impairment loss on other investments (v)

25,650 — 25,650

Foreign currency transaction gain (12,370) — (12,370)

Transaction costs (iv)

Other, net (v)

Restructuring costs (vi)

Share-based compensation (vii)

Transaction costs (vi)

Loss on held-for-sale assets (vii)

10,422 — 10,422

Financial statement review costs (viii)

Other, net (viii)

Restructuring costs (ix)

Share-based compensation (x)

6,513 — 6,513

Financial statement review costs (xi)

(525) — (525)

Inventory step-up recorded to cost of sales (xiii)

7,116 — 7,116

Adjusted EBITDA $ (27,739) $ — $ (27,739)

Six months ended June 30, 2023

Nine months ended September 30, 2023

Continuing Operations Discontinued Operations Total

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

Share of loss from equity method investments 226 — 226

Share of income from equity method investments (831) — (831)

Impairment loss on long-lived assets (i)

Loss on revaluation of financial instruments (ii)

Loss on revaluation of financial instruments (iv)

7,856 — 7,856

Foreign currency transaction loss 4,817 — 4,817

Other, net (v)

Restructuring costs (vi)

Share-based compensation (vii)

Foreign currency transaction gain (3,999) — (3,999)

Other, net (viii)

(1,011) 132 (879)

Financial statement review costs (viii)

Inventory write-down (ix)

Restructuring costs (ix)

1,423 562 1,985

Share-based compensation (x)

6,823 17 6,840

Financial statement review costs (xi)

Inventory write-down (xii)

716 839 1,555

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

(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.

(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.

(i) For the three and nine months ended September 30, 2024, impairment loss on long-lived assets included $14,258 related to the write-down of our Ginkgo exclusive licenses.

For the nine months ended September 30, 2024, impairment loss on long-lived assets included $1,631 related to the winding down of operations at the Company’s Winnipeg, Manitoba facility (“Cronos Fermentation Facility”).

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

(ii) For the three and nine months ended September 30, 2024, a revaluation gain on loan receivable was recognized as a result of the Cronos GrowCo Transaction on July 1, 2024.

(iii) For the three and nine months ended September 30, 2024, the gain on revaluation of equity method investment was recognized as a result of the Cronos GrowCo Transaction on July 1, 2024.

(iv) For the three and nine months ended September 30, 2024 and 2023, loss on revaluation of financial instruments related primarily to the Company’s equity securities in Vitura.

(v) For the nine months ended September 30, 2024, impairment loss on other investments represents the fair value change on the PharmaCann Option.

(vi) For the three and nine months ended September 30, 2024, transaction costs represent professional fees associated with the Cronos GrowCo Transaction.

(vii) For the three and nine months ended September 30, 2024, a loss on held-for-sale assets was recognized as a result of the change in the Company’s sales strategy for the Cronos Fermentation Facility to market the assets to a broader buyer pool.

(viii) For the three and nine months ended September 30, 2024 and 2023, other, net related to (gain) loss on disposal of assets and (gain) loss on revaluation of derivative liabilities.

(ix) For the nine months ended September 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 9 “ Restructuring .” For the three and nine months ended September 30, 2023, restructuring costs related to employee-related severance costs and other restructuring costs associated with our U.S.

operations as described in Note 3 “ 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.

(x) For the three and nine months ended September 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 10 “ Share-based Compensation.

(xi) For the three and nine months ended September 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 three and nine months ended September 30, 2024, a credit balance is presented due to an insurance recovery.

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

operations as described in Note 3 “ Discontinued Operations.

(xiii) For the three and nine months ended September 30, 2024, inventory step-up recorded to cost of sales represents the portion of the inventory step-up from the Cronos GrowCo Transaction that was recorded through the condensed consolidated statements of income (loss) and comprehensive income (loss) in both periods.

Adjusted Gross Profit and Adjusted Gross Margin

To supplement the consolidated financial statements presented in accordance with U.S.

GAAP, we have presented Adjusted Gross Profit and Adjusted Gross Margin, non-GAAP measures that exclude the impacts of inventory-related purchase accounting adjustments from the calculations of gross profit and gross margin, which resulted from the Cronos GrowCo Transaction.

Results are reported as total consolidated results, reflecting our reporting structure of one reportable segment.

Management believes that Adjusted Gross Profit and Adjusted Gross Margin provide useful insight into underlying business trends to facilitate comparisons of period-over-period results by removing the impacts of inventory-related purchase accounting adjustments resulting from the Cronos GrowCo Transaction, which reflect a one-time event and do not reflect management’s assessment of ongoing business performance.

The following table sets forth a reconciliation of Gross profit and Gross margin, each as determined in accordance with U.S.

GAAP, to Adjusted Gross Profit and Adjusted Gross Margin, respectively, for the periods indicated:

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

2024 2023 $ % 2024 2023 $ %

$ 34,264 $ 24,810 $ 9,454 38 % $ 87,314 $ 63,326 $ 23,988 38 %

Gross profit $ 3,611 $ 3,970 $ (359) (9) % $ 14,391 $ 9,996 $ 4,395 44 %

Inventory step-up recorded to cost of sales 7,116 — 7,116 N/M 7,116 — 7,116 N/M

Adjusted Gross Profit

$ 10,727 $ 3,970 $ 6,757 170 % $ 21,507 $ 9,996 $ 11,511 115 %

Gross margin (i)

11 % 16 % N/A (5) pp 16 % 16 % N/A — pp

Adjusted Gross Margin (ii)

31 % 16 % N/A 15 pp 25 % 16 % N/A 9 pp

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

(ii) Adjusted Gross Margin is defined as Adjusted Gross Profit divided by net revenue.

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.

GAAP, we have presented constant currency adjusted financial measures for net revenue, gross profit, gross profit margin, operating expenses, net income (loss) and Adjusted EBITDA for the three and nine months ended September 30, 2024, as well as cash and cash equivalents and short-term investment balances as of September 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.

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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;

dollars using the average exchange rates from the three and nine months comparative periods in 2023 rather than the actual average exchange rates in effect during the respective current periods;

constant currency current and prior comparative balance sheet information is translated at the prior year-end spot rate rather than the current period spot rate.

3 unchanged sentences

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

The table below sets forth certain measures of consolidated results from continuing operations on a constant currency basis for the three and 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):

The table below sets forth certain measures of consolidated results from continuing operations on a constant currency basis for the three and nine months ended September 30, 2024 compared to the three and nine months ended September 30, 2023 as well as cash and cash equivalents and short-term investments as of September 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

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

2024 2023 $ % 2024 $ %

3 unchanged sentences

Operating expenses 37,266 25,745 11,521 45 % 38,079 12,334 48 %

Net loss from continuing operations

(8,759) (5,663) (3,096) (55) % (8,162) (2,499) (44) %

Net income (loss) from continuing operations

7,324 (1,590) 8,914 N/M 8,219 9,809 N/M

Adjusted EBITDA $ (6,019) $ (15,187) $ 9,168 60 % $ (6,514) $ 8,673 57 %

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

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

2024 2023 $ % 2024 $ %

6 unchanged sentences

Adjusted EBITDA $ (27,739) $ (46,774) $ 19,035 41 % $ (28,022) $ 18,752 40 %

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

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

2024 2023 $ % 2024 $ %

3 unchanged sentences

As Reported As Adjusted for Constant Currency

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

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

2024 2023 $ % 2024 $ %

4 unchanged sentences

As Reported As Adjusted for Constant Currency

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

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

2024 2023 $ % 2024 $ %

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As Reported As Adjusted for Constant Currency

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

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

2024 2023 $ % 2024 $ %

1 unchanged sentence

Israel 7,259 5,673 1,586 28 % 7,201 1,528 27 %

Other countries 1,029 — 1,029 N/M 1,044 1,044 N/M

Other countries 2,938 399 2,539 636 % 2,951 2,552 640 %

Net revenue $ 34,264 $ 24,810 $ 9,454 38 % $ 34,661 $ 9,851 40 %

As Reported As Adjusted for Constant Currency

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

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

2024 2023 $ % 2024 $ %

1 unchanged sentence

Israel 20,565 16,160 4,405 27 % 20,908 4,748 29 %

Other countries 1,029 — 1,029 N/M 1,044 1,044 N/M

Other countries 3,968 399 3,569 894 % 3,995 3,596 901 %

Net revenue $ 87,314 $ 63,326 $ 23,988 38 % $ 88,456 $ 25,130 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.

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.

For the three months ended September 30, 2024, net revenue on a constant currency basis was $34.7 million, representing a 40% increase from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, net revenue on a constant currency basis was $88.5 million, representing a 40% increase from the nine months ended September 30, 2023.

On a constant currency basis, net revenue increased for the three and nine months ended September 30, 2024, primarily due to higher cannabis flower and extract sales in the Canadian 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 adult-use cannabis flower category driving increased excise tax payments as a percentage of net revenue.

On a constant currency basis, the Cronos GrowCo Transaction contributed $4.3 million of cannabis flower sales in both the three and nine months ended September 30, 2024.

No such sales were recognized for the three and nine months ended September 30, 2023.

For the three months ended September 30, 2024, gross profit on a constant currency basis was $3.6 million, representing a 9% decrease from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, gross profit on a constant currency basis was $14.6 million, representing a 46% increase from the nine months ended September 30, 2023.

On a constant currency basis, gross profit decreased for the three month comparative periods primarily due to the impact on cost of sales from the inventory step-up from the Cronos GrowCo Transaction, partially offset by higher cannabis flower and extract sales in the Canadian market, higher cannabis flower sales in Israel and higher cannabis flower sales in other countries.

On a constant currency basis, for both the three and nine months ended September 30, 2024, we recognized $7.2 million of inventory step-up from the Cronos GrowCo Transaction in cost of sales.

No such costs were recognized for the three and nine months ended September 30, 2023.

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.

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.

For the three months ended September 30, 2024, operating expenses on a constant currency basis were $38.1 million, representing a 48% increase from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, operating expenses on a constant currency basis were $80.4 million, representing a 10% increase from the nine months ended September 30, 2023.

On a constant currency basis, operating expenses increased for the three and nine months ended September 30, 2024, primarily due to the impairment of the Ginkgo exclusive licenses, partially offset by lower salaries and benefits, professional fees and restructuring costs.

Net income (loss) from continuing operations

For the three months ended September 30, 2024, net income from continuing operations on a constant currency basis was $8.2 million, representing an improvement of $9.8 million from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, net loss from continuing operations on a constant currency basis was $2.4 million, representing an improvement of $22.9 million from the nine months ended September 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.

For the three months ended September 30, 2024, Adjusted EBITDA on a constant currency basis was $(6.5) million, representing a 57% improvement from the three months ended September 30, 2023.

For the nine months ended September 30, 2024, Adjusted EBITDA on a constant currency basis was $(28.0) million, representing a 40% improvement from the nine months ended September 30, 2023.

The improvement in Adjusted EBITDA for the three and nine months ended September 30, 2024 on a constant currency basis was driven by higher cannabis flower and extract sales in the Canadian market, higher cannabis flower sales in Israel and decreases in general and administrative expenses, partially offset by an adverse price/mix in Canada in the cannabis flower category driving increased excise tax payments as a percentage of net 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.

Cash and cash equivalents and short-term investments on a constant currency basis was essentially unchanged at $865.3 million as of September 30, 2024, compared to December 31, 2023.

Liquidity and Capital Resources

As of June 30, 2024, we had $848.2 million in cash and cash equivalents and no short-term investments.

As of September 30, 2024, we had $862 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.

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(In thousands of U.S.

dollars) Six months ended June 30, 2024

Cash flows used in operating activities $ (460) $ (59,467)

dollars) Nine months ended September 30, 2024

Cash flows provided by (used in) operating activities $ 11,123 $ (59,650)

Cash flows provided by (used in) investing activities

3 unchanged sentences

Net change in cash $ 192,743 $ (192,988)

Comparison of cash flows between the six months ended June 30, 2024 and the six months ended June 30, 2023

Comparison of cash flows between the nine months ended September 30, 2024 and the nine months ended September 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.

During the nine months ended September 30, 2024, we generated $11.1 million of cash from operating activities as compared to cash used of $59.7 million in the nine months ended September 30, 2023, representing a decrease in cash used of $70.8 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 $33.1 million increase in net income after adjusting for non-cash items during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, higher interest received, and higher decreases in inventory, partially offset by an increase in accounts receivable, net.

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.

During the nine months ended September 30, 2024, we generated $180.2 million of cash from investing activities, compared to $141.4 million of cash used in investing activities during the nine months ended September 30, 2023, representing a change of $321.6 million.

This change is primarily driven by the maturity of certain short-term investments, which were reinvested as cash equivalents upon maturity, as well as cash obtained from the business combination of Cronos GrowCo, partially offset by higher advances of loans receivable, lower loan repayments, and higher purchases of property, plant and equipment in the nine months ended September 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.

During the nine months ended September 30, 2024, cash used in financing activities was $0.9 million, compared to $0.8 million of cash used in financing activities during the nine months ended September 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 nine months ended September 30, 2024 compared to nine months ended September 30, 2023.

Cash Requirements

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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.

Aside from the item listed below, our critical accounting policies and estimates have not changed significantly since the filing of the Annual Report.

Business combinations

We account for business combinations using the acquisition method of accounting whereby the identifiable assets and liabilities of the acquired business, as well as any non-controlling interest in the acquired business, are recorded at their estimated fair values as of the date that we obtain control of the acquired business.

Determining the fair value of assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates and assumptions, including assumptions with respect to future cash inflows and outflows and discount rates, among other items.

We determine the fair values of intangible assets acquired generally in consultation with third-party valuation advisors.

The fair value determination requires a number of judgments, particularly around forecasted revenue and growth rates, obsolescence, royalty rates, tax rates and discount rates.

If actual results are materially different than the assumptions we used to determine the fair value of the assets and liabilities acquired through a business combination, it is possible that adjustments to the carrying values of such assets and liabilities will have an impact on net income.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis