Cronos Group Inc. 10-Q

Item 1. Financial Statements Table of Contents Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 202 3 4 Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023 (Unaudited) 5 Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2024 and 2023 (Unaudited) 6 Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (Unaudited) 9 Notes to Condensed Consolidated Financial Statements (Unaudited) 10 3 Cronos Group Inc. Condensed Consolidated Balance Sheets (In thousands of U.S. dollars, except share amounts, unaudited) Table of Contents As of September 30, 2024 As of December 31, 2023 Assets Current assets Cash and cash equivalents $ 862,034 $ 669,291 Short-term investments — 192,237 Accounts receivable, net 20,480 13,984 Interest receivable 7,190 10,012 Other receivables 5,690 6,341 Current portion of loans receivable, net 233 5,541 Inventory, net 47,250 30,495 Prepaids and other current assets 7,326 5,405 Held-for-sale assets 8,971 — Total current assets 959,174 933,306 Equity method investments, net — 19,488 Other investments 2,900 35,251 Non-current portion of loans receivable, net 16,086 69,036 Property, plant and equipment, net 162,516 59,468 Right-of-use assets 1,052 1,356 Goodwill 38,028 1,057 Intangible assets, net 4,247 21,078 Other assets 130 45 Total assets $ 1,184,133 $ 1,140,085 Liabilities Current liabilities Accounts payable $ 6,532 $ 12,130 Income taxes payable 94 64 Accrued liabilities 31,766 27,736 Current portion of lease obligation 980 994 Derivative liabilities 192 102 Current portion due to non-controlling interests — 373 Total current liabilities 39,564 41,399 Non-current portion due to non-controlling interests 1,243 1,003 Non-current portion of lease obligation 872 1,559 Deferred tax liability 11,143 — Total liabilities 52,822 43,961 Shareholders’ equity Share capital (authorized for issue as of September 30, 2024 and December 31, 2023: unlimited; shares outstanding as of September 30, 2024 and December 31, 2023: 382,294,707 and 381,298,853 , respectively) 616,403 613,725 Additional paid-in capital 51,523 48,449 Retained earnings 413,995 416,719 Accumulated other comprehensive gain (loss) ( 361 ) 20,678 Total equity attributable to shareholders of Cronos Group 1,081,560 1,099,571 Non-controlling interests 49,751 ( 3,447 ) Total shareholders’ equity 1,131,311 1,096,124 Total liabilities and shareholders’ equity $ 1,184,133 $ 1,140,085 See notes to condensed consolidated interim financial statements. 4 Cronos Group Inc. Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) (In thousands of U.S. dollars, except share and per share amounts, unaudited) Table of Contents Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Net revenue, before excise taxes $ 46,594 $ 33,912 $ 120,639 $ 86,264 Excise taxes ( 12,330 ) ( 9,102 ) ( 33,325 ) ( 22,938 ) Net revenue 34,264 24,810 87,314 63,326 Cost of sales 30,341 20,124 72,216 52,614 Inventory write-down 312 716 707 716 Gross profit 3,611 3,970 14,391 9,996 Operating expenses Sales and marketing 5,528 5,296 15,190 16,334 Research and development 1,242 1,246 3,201 4,392 General and administrative 12,760 14,366 34,434 39,673 Restructuring costs — 1,423 630 1,423 Share-based compensation 2,262 1,957 6,513 6,823 Depreciation and amortization 1,098 1,457 3,237 4,515 Impairment loss on long-lived assets 14,376 — 16,350 — Total operating expenses 37,266 25,745 79,555 73,160 Operating loss ( 33,655 ) ( 21,775 ) ( 65,164 ) ( 63,164 ) Other income Interest income, net 12,460 13,375 40,156 37,021 Share of income from equity method investments — 1,057 2,365 831 Gain on revaluation of loan receivable 11,804 — 11,804 — Gain on revaluation of equity method investment 32,469 — 32,469 — Loss on revaluation of financial instruments ( 293 ) ( 5,291 ) ( 6,550 ) ( 7,856 ) Impairment loss on other investments — — ( 25,650 ) — Foreign currency transaction gain (loss) ( 7,432 ) 8,816 12,370 3,999 Loss on held-for-sale assets ( 10,422 ) — ( 10,422 ) — Other, net ( 315 ) 974 ( 737 ) 1,011 Total other income 38,271 18,931 55,805 35,006 Income (loss) before income taxes 4,616 ( 2,844 ) ( 9,359 ) ( 28,158 ) Income tax benefit ( 2,708 ) ( 1,254 ) ( 5,440 ) ( 2,870 ) Income (loss) from continuing operations 7,324 ( 1,590 ) ( 3,919 ) ( 25,288 ) Loss from discontinued operations — ( 182 ) — ( 4,238 ) 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 income (loss) attributable to Cronos Group $ 8,349 $ ( 1,644 ) $ ( 2,649 ) $ ( 29,173 ) 5 Cronos Group Inc. Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) (In thousands of U.S. dollars, except share and per share amounts, unaudited) Table of Contents Comprehensive income (loss) Net income (loss) $ 7,324 $ ( 1,772 ) $ ( 3,919 ) $ ( 29,526 ) Other comprehensive income (loss) Foreign exchange gain (loss) on translation 12,408 ( 20,090 ) ( 20,113 ) ( 1,096 ) Comprehensive income (loss) 19,732 ( 21,862 ) ( 24,032 ) ( 30,622 ) Comprehensive loss attributable to non-controlling interests ( 269 ) ( 41 ) ( 344 ) ( 136 ) Comprehensive income (loss) attributable to Cronos Group $ 20,001 $ ( 21,821 ) $ ( 23,688 ) $ ( 30,486 ) Net income (loss) per share Basic - continuing operations $ 0.02 $ — $ ( 0.01 ) $ ( 0.07 ) Basic - discontinued operations — — — ( 0.01 ) Basic net income (loss) per share attributable to Cronos Group $ 0.02 $ — $ ( 0.01 ) $ ( 0.08 ) Diluted - continuing operations $ 0.02 $ — $ ( 0.01 ) $ ( 0.07 ) Diluted - discontinued operations — — — ( 0.01 ) Diluted net income (loss) per share attributable to Cronos Group $ 0.02 $ — $ ( 0.01 ) $ ( 0.08 ) See notes to condensed consolidated interim financial statements. 6 Cronos Group Inc. Condensed Consolidated Statements of Changes in Equity For the nine months ended September 30, 2024 and 2023 (In thousands of U.S. dollars, except share amounts, unaudited) Number of shares Share capital Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Non-controlling interests Total shareholders’ equity Balance as of December 31, 2023 381,298,853 $ 613,725 $ 48,449 $ 416,719 $ 20,678 $ ( 3,447 ) $ 1,096,124 Activities relating to share-based compensation 712,325 1,900 ( 401 ) — — — 1,499 Net loss — — — ( 2,241 ) — ( 243 ) ( 2,484 ) Foreign exchange gain (loss) on translation — — — — ( 22,471 ) 110 ( 22,361 ) Balance as of March 31, 2024 382,011,178 $ 615,625 $ 48,048 $ 414,478 $ ( 1,793 ) $ ( 3,580 ) $ 1,072,778 Activities relating to share-based compensation 269,547 754 1,250 ( 71 ) — — 1,933 Net loss — — — ( 8,757 ) — ( 2 ) ( 8,759 ) Foreign exchange gain (loss) on translation — — — — ( 10,220 ) 60 ( 10,160 ) Balance as of June 30, 2024 382,280,725 $ 616,379 $ 49,298 $ 405,650 $ ( 12,013 ) $ ( 3,522 ) $ 1,055,792 Non-controlling interest resulting from business combination — — — — — 53,542 53,542 Activities relating to share-based compensation 13,982 24 2,225 ( 4 ) — — 2,245 Net income (loss) — — — 8,349 — ( 1,025 ) 7,324 Foreign exchange gain on translation — — — — 11,652 756 12,408 Balance as of September 30, 2024 382,294,707 $ 616,403 $ 51,523 $ 413,995 $ ( 361 ) $ 49,751 $ 1,131,311 7 Cronos Group Inc. Condensed Consolidated Statements of Changes in Equity For the nine months ended September 30, 2024 and 2023 (In thousands of U.S. dollars, except share amounts, unaudited) Number of shares Share capital Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Non-controlling interests Total shareholders’ equity Balance as of December 31, 2022 380,575,403 $ 611,318 $ 42,682 $ 490,682 $ ( 797 ) $ ( 2,921 ) $ 1,140,964 Activities relating to share-based compensation 240,518 917 1,362 — — — 2,279 Net loss — — — ( 19,169 ) — ( 88 ) ( 19,257 ) Foreign exchange gain on translation — — — — 2,334 80 2,414 Balance as of March 31, 2023 380,815,921 $ 612,235 $ 44,044 $ 471,513 $ 1,537 $ ( 2,929 ) $ 1,126,400 Activities relating to share-based compensation 273,436 917 1,273 — — — 2,190 Net loss — — — ( 8,360 ) — ( 137 ) ( 8,497 ) Foreign exchange gain on translation — — — — 16,530 50 16,580 Balance as of June 30, 2023 381,089,357 $ 613,152 $ 45,317 $ 463,153 $ 18,067 $ ( 3,016 ) $ 1,136,673 Activities relating to share-based compensation 24,207 138 1,816 — — — 1,954 Net loss — — — ( 1,644 ) — ( 128 ) ( 1,772 ) Foreign exchange gain (loss) on translation — — — — ( 20,177 ) 87 ( 20,090 ) Balance as of September 30, 2023 381,113,564 $ 613,290 $ 47,133 $ 461,509 $ ( 2,110 ) $ ( 3,057 ) $ 1,116,765 See notes to condensed consolidated interim financial statements. 8 Cronos Group Inc. Condensed Consolidated Statements of Cash Flows (In thousands of U.S. dollars, except share amounts, unaudited) Table of Contents Nine months ended September 30, 2024 2023 Operating activities Net loss $ ( 3,919 ) $ ( 29,526 ) Adjustments to reconcile net loss to cash used in operating activities: Share-based compensation 6,513 6,840 Depreciation and amortization 6,811 6,933 Impairment loss on long-lived assets 16,350 205 Impairment loss on other investments 25,650 — Loss from investments 4,103 7,103 Changes in expected credit losses on long-term financial assets 1,026 ( 1,339 ) Revaluation of equity method investment ( 32,469 ) — Revaluation of loan receivable ( 11,804 ) — Loss on held-for-sale assets 10,422 — Inventory step-up recorded to cost of sales 7,116 — Foreign currency transaction gain ( 12,370 ) ( 3,999 ) Other non-cash operating activities, net ( 11 ) ( 1,904 ) Changes in operating assets and liabilities: Accounts receivable, net ( 5,402 ) 6,976 Interest receivable ( 1,018 ) ( 14,601 ) Other receivables 1,658 25 Prepaids and other current assets ( 1,217 ) 1,074 Inventory 7,162 976 Accounts payable ( 9,102 ) ( 7,595 ) Income taxes payable ( 9 ) ( 32,728 ) Accrued liabilities 1,633 1,910 Cash flows provided by (used in) operating activities 11,123 ( 59,650 ) Investing activities Purchase of short-term investments — ( 537,186 ) Proceeds from short-term investments 187,166 380,765 Cash acquired in business combinations 5,993 — Dividends received from equity method investment — 1,301 Dividend proceeds — 346 Advances on loans receivable ( 8,822 ) — Proceeds from repayment on loans receivable 5,290 14,151 Purchase of property, plant and equipment ( 8,868 ) ( 1,287 ) Purchase of intangible assets ( 578 ) ( 344 ) Other investing activities — 862 Cash flows provided by (used in) investing activities 180,181 ( 141,392 ) Financing activities Withholding taxes paid on share-based awards ( 918 ) ( 812 ) Cash flows used in financing activities ( 918 ) ( 812 ) Effect of foreign currency translation on cash and cash equivalents 2,357 8,866 Net change in cash and cash equivalents 192,743 ( 192,988 ) Cash and cash equivalents, beginning of period 669,291 764,644 Cash and cash equivalents, end of period $ 862,034 $ 571,656 Supplemental cash flow information Interest paid $ — $ — Interest received $ 38,965 $ 22,203 Income taxes paid $ 621 $ 33,013 See notes to condensed consolidated interim financial statements. 9 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents 1. Background, Basis of Presentation, and Summary of Significant Accounting Policies (a) Background Cronos Group Inc. (“Cronos” or the “Company”) is incorporated in the province of British Columbia under the Business Corporations Act (British Columbia) with principal executive offices at 4491 Concession Rd 12, Stayner, Ontario, L0M 1S0. The Company’s common shares are listed on the Toronto Stock Exchange (“TSX”) and Nasdaq Global Market (“Nasdaq”) under the ticker symbol “CRON.” Cronos is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio. Cronos’ diverse international brand portfolio includes Spinach ® , PEACE NATURALS ® and Lord Jones ® . (b) Basis of presentation These condensed consolidated interim financial statements of Cronos are unaudited. They have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”) for interim financial information and with applicable rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) relating to interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for any other reporting period. These condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”). Certain prior period amounts have been reclassified to conform to the current year presentation of our condensed consolidated interim financial statements. These reclassifications had no effect on the reported results of operations and ending shareholders’ equity. (c) Discontinued Operations In the second quarter of 2023, the Company exited its U.S. hemp-derived cannabinoid product operations. The exit of the U.S. operations represented a strategic shift that had a major effect on the Company’s operations and financial results, and as such, qualifies for reporting as discontinued operations in our condensed consolidated statements of net income (loss) and comprehensive income (loss). Prior period amounts have been reclassified to reflect the discontinued operations classification of the U.S. operations. For more information, see Note 3 “ Discontinued Operations. ” (d) Segment information Segment reporting is prepared on the same basis that the Company’s chief operating decision maker (the “CODM”) manages the business, makes operating decisions and assesses the Company’s performance. Prior to the second quarter of 2023, the Company reported results for two reportable segments, the U.S. and Rest of World. In the second quarter of 2023, as a result of the Company’s exit of its then-existing U.S. operations, the Company determined that it has one operating segment and therefore one reportable segment, which is comprised of operations in Canada and Israel and is involved in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets . All prior period segment disclosure information has been reclassified to conform to the current reporting structure in this Form 10-Q. These reclassifications had no effect on our consolidated financial statements in any period presented. (e) Revenue recognition The following tables present the Company’s revenue by major product category for continuing operations: Three months ended September 30, 2024 2023 Cannabis flower $ 26,328 $ 17,414 Cannabis extracts 7,789 7,268 Other 147 128 Net revenue $ 34,264 $ 24,810 10 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents Nine months ended September 30, 2024 2023 Cannabis flower $ 64,514 $ 44,556 Cannabis extracts 22,580 18,495 Other 220 275 Net revenue $ 87,314 $ 63,326 Net revenue attributed to a geographic region based on the location of the customer were as follows for continuing operations: Three months ended September 30, 2024 2023 Canada $ 24,067 $ 18,738 Israel 7,259 5,673 Other countries 2,938 399 Net revenue $ 34,264 $ 24,810 Nine months ended September 30, 2024 2023 Canada $ 62,781 $ 46,767 Israel 20,565 16,160 Other countries 3,968 399 Net revenue $ 87,314 $ 63,326 (f) Concentration of risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk from its operating activities, primarily accounts receivable and other receivables, and its investing activities, including cash held with banks and financial institutions, short-term investments and loans receivable. The Company’s maximum exposure to this risk is equal to the carrying amount of these financial assets, which amounted to $ 911,713 and $ 966,442 as of September 30, 2024 and December 31, 2023, respectively. An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on the days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Accounts receivable are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan and a failure to make contractual payments for a period of greater than 120 days past due. As of September 30, 2024 and December 31, 2023, the Company had $ 14 and $ 3 , respectively, in expected credit losses that have been recognized on receivables from contracts with customers. As of September 30, 2024, the Company assessed that there is a concentration of credit risk, as 29 % of the Company’s accounts receivable were due from one customer with an established credit history with the Company. As of December 31, 2023, 37 % of the Company’s accounts receivable were due from one customer with an established credit history with the Company. The Company sells products to a limited number of major customers. Major customers are defined as customers that each individually accounted for greater than 10% of the Company’s net revenue before excise taxes. During the three months ended September 30, 2024, the Company earned a total net revenue before excise taxes of $ 21,993 from two major customers, together accounting for 48 % of the Company’s total net revenue before excise taxes. During the three months ended September 30, 2023, the Company earned a total net revenue before excise taxes of $ 22,618 from three major customers, together accounting for 67 % of the Company’s total net revenue before excise taxes. During the nine months ended September 30, 2024, the Company earned a total net revenue before excise taxes of $ 71,846 from three customers, together accounting for 59 % of the Company’s total net revenue before excise taxes. During the nine months ended September 30, 2023, the Company earned a total net revenue before excise taxes of $ 57,398 from three major customers, together accounting for 67 % of the Company’s total net revenue before excise taxes. 11 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents (g) New accounting pronouncements not yet adopted In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 enhances reportable segment disclosures by requiring disclosures such as significant segment expenses, information on the CODM and disclosures for entities with a single reportable segment. Additionally, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, and contain other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and we expect to adopt ASU 2023-07 retrospectively. The Company does not expect the adoption of ASU 2023-07 to have a material impact on its consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 enhances the existing income tax disclosures to provide additional information to better assess how an entity’s operations, related tax risks and tax planning, and operational opportunities affect its tax rate and prospects for future cash flows. ASU 2023-09 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and we expect to adopt ASU 2023-09 prospectively. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements. (h) Adoption of new accounting pronouncements On January 1, 2024, the Company adopted ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered in measuring fair value. The amendments also require additional disclosures for equity securities subject to contractual sale restrictions. The adoption of ASU 2022-03 did not have a material impact on the Company’s condensed consolidated interim financial statements. With respect to the adoption of ASU 2022-03, see Note 5 “ Investments ” for discussion of the contractual restrictions related to the PharmaCann Option (as defined below). 2. Business Combination On July 1, 2024, the Company obtained majority control of the board of directors of Cronos Growing Company Inc. (“Cronos GrowCo”), a cannabis cultivation company, which qualified as a business combination under ASC 805 (the “Cronos GrowCo Transaction”). 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. Cronos GrowCo was formed under the Canada Business Corporations Act on June 14, 2018, with the objective of cultivating and commercializing cannabis and cannabis products. Cronos GrowCo is licensed to sell certain cannabis products to other license holders in the wholesale channel, as well as to provincial cannabis control authorities. It is also licensed to export dried flower to Israel. In connection with the Cronos GrowCo Transaction, the Company provided an approximately $ 51,000 secured non-revolving credit facility to Cronos GrowCo to fund the expansion of Cronos GrowCo’s cultivation and processing facilities (the “Phase 2 Expansion”), and the Company entered into a new supply agreement (the “Supply Agreement”) with Cronos GrowCo. Pursuant to the Supply Agreement, prior to the commencement of sales from Cronos GrowCo’s Phase 2 Expansion area, the Company and its controlled affiliates (other than Cronos GrowCo) have the right, but not the obligation, to purchase an aggregate total quantity of 80 % of Cronos GrowCo’s production. Thereafter, the Company 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. The Cronos GrowCo Transaction is intended to support the Company’s current and future biomass supply requirements. As there was no cash consideration paid, the Cronos GrowCo Transaction has been valued with reference to the fair value of our existing equity method investment of $ 53,542 , as well as the effective settlement of various preexisting relationships between the Company and Cronos GrowCo. These preexisting relationships are now classified as intercompany transactions and eliminated upon consolidation. In the three and nine months ended September 30, 2024, we recorded a gain of $ 32,469 on the condensed consolidated statements of net income (loss) and comprehensive income (loss) from remeasuring our equity method investment in Cronos GrowCo. We also recorded $ 11,804 to gain on revaluation of loan receivable on the condensed consolidated statements of net income (loss) and comprehensive income (loss) in the three and nine months ended September 30, 2024, from remeasuring our outstanding loans receivable with Cronos GrowCo. Additionally, the consideration also included the effective settlement of various preexisting trade receivables and payables and other related accounts that are now classified as intercompany transactions and eliminated upon consolidation. The effective settlement of the preexisting trade receivables, payables, and related accounts did not result in the recognition of any gain or loss on settlement. As of the date of the Cronos GrowCo Transaction, the fair value of the non-controlling interest in Cronos GrowCo was $ 53,542 . The Company used the income approach to estimate both the fair value of the Company’s equity method investment in Cronos GrowCo and the fair value of the non-controlling interest in Cronos GrowCo. Under the income 12 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents approach, significant assumptions used in the discounted cash flow method that required the use of judgment were the discount rate, growth rates and cash flow projections. The Company used the income approach to estimate the fair value of the Company’s loan receivable with Cronos GrowCo. Under the income approach, significant assumptions used that required the use of judgment were the credit spread and interest rate volatility. The table below summarizes the unaudited provisional estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Cronos GrowCo Transaction. The Company's preliminary estimates and the allocation of the purchase price to the assets acquired and liabilities assumed may change as the Company completes the valuation process, which may result in an adjustment, which could be material, to the preliminary values presented below. The Company expects to complete the purchase price allocation as soon as reasonably possible, but not to exceed one year from the date of completion of the Cronos GrowCo Transaction. Cash $ 5,993 Accounts receivable 2,437 Inventory 31,041 Prepaids and other current assets 795 Goodwill 36,421 Property, plant and equipment 119,600 Accounts payable ( 2,913 ) Accrued liabilities ( 2,757 ) Deferred income tax liability ( 11,738 ) Total purchase price $ 178,879 The inventory acquired in the Cronos GrowCo Transaction of $ 31,041 includes a step-up to fair value of $ 17,908 . For both the three and nine months ended September 30, 2024, the Company recognized $ 7,116 of this inventory step-up into cost of sales on the condensed consolidated statements of income (loss) and comprehensive income (loss). The following table presents details of the property, plant and equipment acquired by major category: Fair value at date of Cronos GrowCo Transaction Land $ 4,557 Building and leasehold improvements 49,356 Machinery and equipment 53,573 Furniture and fixtures 580 Construction in progress 11,534 Total $ 119,600 The Company’s results of operations for the three and nine months ended September 30, 2024, included three months of the operating results of Cronos GrowCo, which was comprised of revenue of $ 4,268 and loss before income taxes of $ 1,606 . Business combination-related costs of $ 334 and $ 530 were incurred in relation to the Cronos GrowCo Transaction in the three and nine months ended September 30, 2024, respectively, and were reported in general and administrative expenses on the condensed consolidated statements of net income (loss) and comprehensive income (loss). As part of the Cronos GrowCo Transaction, the Company preliminarily recorded goodwill of $ 36,421 , none of which is deductible for income tax purposes. The goodwill acquired was primarily attributable to the ability to secure a long-term supply of cannabis and to take advantage of growth opportunities from the expansion of Cronos GrowCo’s cultivation and processing facilities. The following table presents unaudited supplemental pro forma results for the three and nine months ended September 30, 2024 and 2023, respectively, as if the Cronos GrowCo Transaction had occurred as of January 1, 2023. The unaudited pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the business combination had taken place at such time. The unaudited pro forma results presented below include adjustments such as amortization of inventory step-up, amortization charges for acquired intangible assets, depreciation adjustments for property, plant and equipment that has been revalued, adjustment of interest expense and interest income resulting from the effective settlement of pre-existing debt financing in connection with the Cronos GrowCo Transaction and adjustments for certain business combination-related charges. 13 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Net revenue $ 34,264 $ 31,249 $ 94,788 $ 76,258 Gross profit ( 3,540 ) 3,686 14,124 ( 881 ) Operating expenses 37,266 27,036 82,715 77,107 Other income ( 6,002 ) 17,416 8,892 74,788 Net income (loss) attributable to Cronos Group $ ( 29,447 ) $ ( 3,914 ) $ ( 39,578 ) $ ( 10,786 ) Material nonrecurring pro forma adjustments directly attributable to the Cronos GrowCo Transactions include the following: • Acquired inventory fair value step-up of $ 18,283 is assumed to be recorded at January 1, 2023. As such, historical amortization of the acquired inventory step-up of $ 7,116 recognized in the historical three month period ended September 30, 2024 was removed from pro forma net income for the three months and nine months ended September 30, 2024. The entire inventory fair value step-up of $ 18,283 was recognized as an incremental product cost in the nine months ended September 30, 2023, with $ 4,583 recognized in the three months ended September 30, 2023 as the inventory acquired at the business combination date is expected to turnover within eight months. • Pre-business combination revenues for sales from Cronos GrowCo to the Company of $ 2,664 and $ 15,489 were adjusted out for the three months and nine months ended September 30, 2023, respectively, and $ 14,776 of pre-business combination revenues were adjusted out for the nine months ended September 30, 2024 as these amounts would have been eliminated in consolidation. Company pre-business combination cost of sales of $ 4,232 and $ 12,147 were adjusted out for the three and nine months ended September 30, 2023, respectively, and $ 11,386 of pre-business combination cost of sales were adjusted out for the nine months ended September 30, 2024, as these amounts would have been eliminated in consolidation. • The gain on the revaluation of the equity method investment and loan receivable relating to the Cronos GrowCo Transaction of $ 32,469 and $ 11,804 , respectively, were adjusted out for the three months and nine months ended September 30, 2024 and added into the nine months ended September 30, 2023 as this revaluation is assumed to have occurred on January 1, 2023. 3. Discontinued Operations In the second quarter of 2023, the Company exited its then-existing U.S. hemp-derived cannabinoid product operations. Accordingly, the net loss of the U.S. operations for the three and nine months ended September 30, 2023 are reported separately as loss from discontinued operations on the condensed consolidated statements of net income (loss) and comprehensive income (loss). There was no activity in discontinued operations for the three and nine months ended September 30, 2024. 14 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents The following table presents the major components comprising loss from discontinued operations in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023: Three months ended September 30, Nine months ended September 30, 2023 Net revenue $ — $ 1,029 Cost of sales — 2,044 Inventory write-down (i) — 839 Gross profit — ( 1,854 ) Operating expenses Sales and marketing — 518 Research and development — 20 General and administrative 190 926 Restructuring costs 28 562 Share-based compensation ( 4 ) 17 Depreciation and amortization — 13 Impairment loss on long-lived assets (ii) — 205 Total operating expenses 214 2,261 Interest income 1 9 Other, net (iii) 31 ( 132 ) Total other income (loss) 32 ( 123 ) Loss before income taxes ( 182 ) ( 4,238 ) Income tax expense (benefit) — — Net loss from discontinued operations $ ( 182 ) $ ( 4,238 ) (i) For the nine months ended September 30, 2023, Inventory write-down relates to the disposal of obsolete inventory as a result of the exit of the U.S. operations. (ii) During the nine months ended September 30, 2023, as a result of the exit of the U.S. operations, the Company recognized an impairment charge of $ 205 related to the right-of-use lease assets associated with the Company’s former U.S. manufacturing facility in Los Angeles, California. (iii) For the three and nine months ended September 30, 2023, Other, net related to loss on disposal of assets that were part of the U.S. operations. The following tables present the Company’s discontinued operations revenue by major product category: Three months ended September 30, Nine months ended September 30, 2023 Cannabis extracts — 1,029 Net revenue $ — $ 1,029 The following tables summarize the Company’s discontinued operations restructuring activity for the three and nine months ended September 30, 2023: Accrual as of June 30, 2023 Expenses Payments/Write-offs Accrual as of September 30, 2023 Employee Termination Benefits $ 219 $ 28 $ ( 169 ) $ 78 Other Restructuring Costs 92 — ( 92 ) — Total $ 311 $ 28 $ ( 261 ) $ 78 15 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents Accrual as of December 31, 2022 Expenses Payments/Write-offs Accrual as of September 30, 2023 Employee Termination Benefits $ — $ 470 $ ( 392 ) $ 78 Other Restructuring Costs — 92 ( 92 ) — Total $ — $ 562 $ ( 484 ) $ 78 The Company had no assets or liabilities presented in the condensed consolidated balance sheets related to its discontinued operations as of both September 30, 2024 and December 31, 2023. For the nine months ended September 30, 2024, there were no purchases of property plant and equipment related to discontinued operations. For the nine months ended September 30, 2023, purchases of property plant and equipment related to discontinued operations were $ 67 . 4. Inventory, net Inventory, net is comprised of the following items: As of September 30, 2024 As of December 31, 2023 Raw materials $ 5,133 $ 4,795 Work-in-progress 27,470 10,593 Finished goods 14,387 14,819 Supplies and consumables 260 288 Total $ 47,250 $ 30,495 As a result of the Cronos GrowCo Transaction, the Company recorded a step-up to Cronos GrowCo’s existing inventory of $ 17,908 to bring the inventory balance acquired by the Company to its fair value. For both the three and nine months ended September 30, 2024, the Company recognized $ 7,116 of this inventory step-up into cost of sales on the condensed consolidated statements of income (loss) and comprehensive income (loss). For more information, see Note 2 “ Business Combination. ” 5. Investments (a) Equity method investments, net As a result of the Cronos GrowCo Transaction, the existing equity method investment in Cronos GrowCo was remeasured at its fair value. In both the three and nine months ended September 30, 2024, we recorded a gain of $ 32,469 on the condensed consolidated statements of net income (loss) and comprehensive income (loss) from remeasuring our equity method investment in Cronos GrowCo. For more information, see Note 2 “ Business Combination ” 16 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents A reconciliation of the carrying amount of the investments in equity method investees, net is as follows: Ownership interest As of September 30, 2024 As of December 31, 2023 Cronos GrowCo (i) 50 % $ — $ 19,488 $ — $ 19,488 (i) The Company obtained control of Cronos GrowCo on July 1, 2024, and, as a result, the investment in Cronos GrowCo is now accounted for as an intercompany transaction and eliminated upon consolidation from the business combination date onwards. The following is a summary of the Company’s share of net income from equity investments accounted for under the equity method of accounting: For the three months ended September 30, For the nine months ended September 30, 2024 2023 2024 2023 Cronos GrowCo (i) $ — $ 1,057 $ 2,365 $ 831 $ — $ 1,057 $ 2,365 $ 831 (i) The Company obtained control of Cronos GrowCo on July 1, 2024, and, as a result, the investment in Cronos GrowCo is now accounted for as an intercompany transaction and eliminated upon consolidation from the business combination date onwards. (b) Other investments Other investments consist of investments in common shares and options of two companies in the cannabis industry. PharmaCann Option On June 14, 2021, the Company purchased an option (the “PharmaCann Option”) to acquire 473,787 shares of Class A Common Stock of PharmaCann, Inc. (“PharmaCann”), a vertically integrated cannabis company in the United States, at an exercise price of $ 0.0001 per share, representing approximately 10.5 % of PharmaCann’s issued and outstanding capital stock on a fully diluted basis as of the date of the PharmaCann Option, for an aggregate purchase price of approximately $ 110,392 . The PharmaCann Option is classified as an investment in an equity security without a readily determinable fair value. The Company measures the PharmaCann Option at cost less accumulated impairment charges, if any, and subsequently adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. As of September 30, 2024 and December 31, 2023, based on updated information provided by PharmaCann in the third quarter, the Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 5.8 % and 6.6 %, respectively. The decrease in the Company’s ownership percentage since acquisition does not materially affect the Company’s rights under the PharmaCann Option. The PharmaCann Option is measured at fair value on a non-recurring basis and is a level 3 asset. See Note 13 “ Fair Value Measurements ” for more information on the fair value hierarchy. The PharmaCann Option is reported as Other investments on the consolidated balance sheet as of September 30, 2024 and December 31, 2023. During the first and second quarters of 2024, the Company identified adverse forecast changes in the financial performance of PharmaCann as indicators of impairment related to the PharmaCann Option and conducted analyses comparing the PharmaCann Option’s carrying amount to its estimated fair value. The fair value was estimated using the market approach. Under the market approach, the key assumptions are the selected multiples and the discount for lack of marketability. As a result of these analyses, the Company recorded non-cash impairment charges of $ 12,734 and $ 12,916 in the first and second quarters of 2024, respectively, as the difference between the carrying amount of the PharmaCann Option and its estimated fair value, in the condensed consolidated statements of net income (loss) and comprehensive income (loss) for the nine months ended September 30, 2024. The Company may sell, transfer or dispose of the PharmaCann Option without PharmaCann’s prior written consent, subject to the following conditions: (i) any transferee of any part of the PharmaCann Option must comply with and commit to comply with all regulations issued by a governmental entity applicable to such transferee in all material respects; (ii) any transferee of any part of the PharmaCann Option must agree to be bound by the terms of the Option Purchase Agreement, dated as of June 14, 2021 (the “Option Purchase Agreement”), as a “Purchaser” thereunder; (iii) the Company may not split and/or transfer the PharmaCann Option, in the aggregate, to more than four persons (with certain exceptions); (iv) no transferee may be a Prohibited Assignee (as defined in the Option Purchase Agreement); and (v) subject to certain exceptions, in the event that the Company (or a Permitted Transferee of the whole PharmaCann Option) transfers less than all of the PharmaCann Option to any third party that is not a Permitted Transferee, certain governance and information rights terminate immediately, unless waived by the PharmaCann board of directors in its sole and absolute discretion. Additionally, in the event of an initial underwritten public offering of PharmaCann’s common stock pursuant to an effective registration statement, to the extent that holders of PharmaCann common stock are subject to any lock-up period imposed by the underwriter in connection therewith, the Company will, if applicable, execute a customary lock-up agreement on the same material 17 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents terms and conditions as the other holders of common stock are subject to or as otherwise agreed between PharmaCann and the Company, subject to certain conditions with respect to the duration of the lock-up period. Vitura Health Limited (formerly known as Cronos Australia) The Company owns approximately 10 % of the outstanding common shares of Vitura Health Limited (“Vitura”). The investment is considered an equity security with a readily determinable fair value. Changes in the fair value of the investment are recorded as gain (loss) on revaluation of financial instruments on the condensed consolidated statements of net income (loss) and comprehensive income (loss). The following table summarizes the Company’s other investments activity: As of June 30, 2024 Unrealized loss Impairment charges Foreign exchange effect As of September 30, 2024 PharmaCann $ — $ — $ — $ — $ — Vitura 3,168 ( 371 ) — 103 2,900 $ 3,168 $ ( 371 ) $ — $ 103 $ 2,900 As of December 31, 2023 Unrealized loss Impairment charges Foreign exchange effect As of September 30, 2024 PharmaCann $ 25,650 $ — $ ( 25,650 ) $ — $ — Vitura 9,601 ( 6,468 ) — ( 233 ) 2,900 $ 35,251 $ ( 6,468 ) $ ( 25,650 ) $ ( 233 ) $ 2,900 As of June 30, 2023 Unrealized loss Impairment charges Foreign exchange effect As of September 30, 2023 PharmaCann $ 49,000 $ — $ — $ — $ 49,000 Vitura 18,925 ( 5,204 ) — ( 578 ) 13,143 $ 67,925 $ ( 5,204 ) $ — $ ( 578 ) $ 62,143 As of December 31, 2022 Unrealized loss Impairment charges Foreign exchange effect As of September 30, 2023 PharmaCann $ 49,000 $ — $ — $ — $ 49,000 Vitura 21,993 ( 7,933 ) — ( 917 ) 13,143 $ 70,993 $ ( 7,933 ) $ — $ ( 917 ) $ 62,143 18 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents 6. Loans Receivable, net Loans receivable, net consists of the following: As of September 30, 2024 As of December 31, 2023 GrowCo Credit Facility (i) $ — $ 5,034 Add: Current portion of Mucci Promissory Note accrued interest 233 507 Total current portion of loans receivable, net 233 5,541 GrowCo Credit Facility (i) — 53,638 Mucci Promissory Note 14,081 13,379 Cannasoul Collaboration Loan 1,706 1,771 Add: Long-term portion of accrued interest 299 248 Total long-term portion of loans receivable, net 16,086 69,036 Total loans receivable, net (i) $ 16,319 $ 74,577 (i) The Company obtained control of Cronos GrowCo on July 1, 2024, and, as a result, the loans receivable from Cronos GrowCo are now accounted for as intercompany transactions and eliminated upon consolidation from the business combination date onwards. Cronos GrowCo Credit Facility On August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into a senior secured credit agreement for an aggregate principal amount of C$ 100,000 (the “GrowCo Credit Facility”). The GrowCo Credit Facility is secured by substantially all present and after-acquired personal and real property of Cronos GrowCo. In August 2021, the GrowCo Credit Facility was amended to increase the aggregate principal amount available to C$ 105,000 . In June 2024, the GrowCo Credit Facility was amended to increase the aggregate principal amount available by C$ 70,000 by providing a second secured non-revolving credit facility (“Term Loan B”). The funds from Term Loan B will be used to expand Cronos GrowCo’s purpose-built cannabis facility and Term Loan B will mature 10 years after the commencement of sales from the Phase 2 Expansion area. Principal will be repaid under Term Loan B on a quarterly basis after the commencement of sales from the Phase 2 Expansion area. Interest on Term Loan B is payable on a quarterly basis until maturity beginning after the first borrowing under Term Loan B. Prior to July 1, 2024, only C$ 12,000 of the C$ 70,000 increased principal availability could be drawn, which Cronos GrowCo drew in full on June 20, 2024. As of June 30, 2024 and December 31, 2023, Cronos GrowCo had drawn C$ 116,000 and C$ 104,000 ($ 84,833 and $ 78,532 , respectively), respectively from the GrowCo Credit Facility. For the six months ended June 30, 2024, Cronos GrowCo repaid C$ 3,333 ($ 2,447 ) in principal and C$ 3,862 ($ 2,835 ) in interest related to the GrowCo Credit Facility. As of June 30, 2024, Cronos GrowCo had repaid an aggregate C$ 14,833 ($ 10,848 ) and C$ 24,384 ($ 17,832 ) in principal and interest, respectively, under the terms of the GrowCo Credit Facility. As a result of the Cronos GrowCo Transaction on July 1, 2024, the existing loans receivable under the GrowCo Credit Facility were remeasured at their fair value and effectively settled. We recorded a gain of $ 11,804 to revaluation gain on loan receivable on the condensed consolidated statements of net income (loss) and comprehensive income (loss) in the three and nine months ended September 30, 2024, from remeasuring our outstanding loans receivable with GrowCo. For more information, see Note 2 “ Business Combination. ” Mucci Promissory Note On June 28, 2019, the Company entered into a promissory note receivable agreement (the “Mucci Promissory Note”) for C$ 16,350 (approximately $ 12,089 ) with the Cronos GrowCo joint venture partner (“Mucci”). The Mucci Promissory Note is secured by a general security agreement covering all the assets of Mucci. On September 30, 2022, the Mucci Promissory Note was amended and restated to increase the interest rate from 3.95 % to the Canadian Prime Rate plus 1.25 %, change the interest payments from quarterly to annual, and defer Mucci’s initial cash interest payment from September 30, 2022 to July 1, 2023. On June 20, 2024, the Mucci Promissory Note was amended and restated. As a result, interest accrued on the Mucci Promissory Note between July 1, 2023 and July 1, 2024 was capitalized as part of the principal balance. As of July 1, 2024, interest is accrued and to be paid in cash beginning on July 1, 2025. 19 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents Prior to July 1, 2022, interest accrued on the Mucci Promissory Note was capitalized as part of the principal balance. As of July 1, 2022, interest was accrued and to be paid in cash beginning on July 1, 2023. Prior to 2023, there were no repayments of principal or interest on the Mucci Promissory Note. For the three and nine months ended September 30, 2023, Mucci made a payment of C$ 1,750 (approximately $ 1,322 ) under the Mucci Promissory Note, with C$ 1,187 ($ 897 ) related to accrued interest and C$ 563 ($ 425 ) related to outstanding principal. For the three and nine months ended September 30, 2024, there were no repayments of principal or interest on the Mucci Promissory Note. Cannasoul Collaboration Loan As of both September 30, 2024 and December 31, 2023, Cannasoul Lab Services Ltd. has received ILS 8,297 (approximately $ 2,175 and $ 2,294 , respectively), from the Cannasoul Collaboration Loan. Expected credit loss allowances on the Company’s long-term financial assets for the nine months ended September 30, 2024 and 2023 were comprised of the following items: As of June 30, 2024 Increase (decrease) (ii) Foreign exchange effect As of September 30, 2024 GrowCo Credit Facility (i) $ 11,838 $ ( 11,804 ) $ ( 34 ) $ — Mucci Promissory Note 90 1 1 92 Cannasoul Collaboration Loan 506 4 10 520 $ 12,434 $ ( 11,799 ) $ ( 23 ) $ 612 As of December 31, 2023 Increase (decrease) (ii) Foreign exchange effect As of September 30, 2024 GrowCo Credit Facility (i) $ 11,176 $ ( 10,794 ) $ ( 382 ) $ — Mucci Promissory Note 89 4 ( 1 ) 92 Cannasoul Collaboration Loan 524 12 ( 16 ) 520 $ 11,789 $ ( 10,778 ) $ ( 399 ) $ 612 As of June 30, 2023 Increase (decrease) (iii) Foreign exchange effect As of September 30, 2023 GrowCo Credit Facility $ 11,579 $ ( 199 ) $ ( 283 ) $ 11,097 Mucci Promissory Note 86 2 ( 2 ) 86 Cannasoul Collaboration Loan 503 4 ( 14 ) 493 $ 12,168 $ ( 193 ) $ ( 299 ) $ 11,676 As of December 31, 2022 Increase (decrease) (iii) Foreign exchange effect As of September 30, 2023 GrowCo Credit Facility $ 12,455 $ ( 1,348 ) $ ( 10 ) $ 11,097 Mucci Promissory Note 89 ( 3 ) — 86 Cannasoul Collaboration Loan 522 12 ( 41 ) 493 $ 13,066 $ ( 1,339 ) $ ( 51 ) $ 11,676 (i) The Company obtained control of Cronos GrowCo on July 1, 2024, and, as a result, the loans receivable from Cronos GrowCo are now accounted for as intercompany transactions and eliminated upon consolidation from the business combination date onwards. (ii) During the three and nine months ended September 30, 2024, $ 5 and $ 1,026 , respectively, were recorded as increases to general and administrative expenses on the condensed consolidated statements of net income (loss) and comprehensive income (loss) as a result of adjustments to our expected credit losses. During both the three and nine months ended September 30, 2024, $ 11,804 was recorded as a gain on revaluation of loans receivable on the condensed consolidated statements of net income (loss) and comprehensive income (loss) from remeasuring our outstanding loans receivable with Cronos GrowCo as a result of the Cronos GrowCo Transaction. (iii) During the three and nine months ended September 30, 2023, $ 193 and $ 1,339 , respectively, were recorded as decreases to general and administrative expenses on the condensed consolidated statements of net income (loss) and comprehensive income (loss) as a result of adjustments to our expected credit losses. 20 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents 7. Property, plant and equipment, net Property, plant and equipment, net consisted of the following: As of September 30, 2024 December 31, 2023 Cost Land $ 6,656 $ 2,764 Building and leasehold improvements 198,016 168,498 Machinery and Equipment 70,719 21,322 Furniture and fixtures 2,700 3,385 Construction in progress 21,401 3,269 Total Cost 299,492 199,238 Less: accumulated depreciation ( 28,116 ) ( 30,707 ) Less: accumulated impairment charges ( 108,860 ) ( 109,063 ) Total $ 162,516 $ 59,468 During the first quarter of 2024, the Company ceased operations at its Winnipeg, Manitoba facility (“Cronos Fermentation”) and performed an assessment under ASC 360 of the recoverability of the carrying value of the Cronos Fermentation assets, and determined the carrying value of the assets was not fully recoverable. The fair value was estimated using a combination of the market and income approaches. As a result of this analysis, an impairment loss on long-lived assets of $ 1,631 was recorded to the condensed consolidated statements of net income loss and comprehensive loss in the nine months ended September 30, 2024. In addition, the Cronos Fermentation assets were classified as held-for-sale in the first quarter of 2024 at a fair value less costs to sell of $ 19,398 . For more information, see Note 9, “ Restructuring .” For the three and nine months ended September 30, 2024, depreciation expense on property, plant and equipment was $ 2,552 and $ 3,861 , respectively. For the three and nine months ended September 30, 2023, depreciation expense on property, plant and equipment was $ 1,158 and $ 3,766 , respectively. This depreciation expense was included in cost of sales as well as depreciation and amortization in operating expenses on the consolidated statements of net loss and comprehensive loss. The following table presents details of the property, plant and equipment acquired on July 1, 2024, in the Cronos GrowCo Transaction by major category: Fair value at date of Cronos GrowCo Transaction Land $ 4,557 Building and leasehold improvements 49,356 Machinery and Equipment 53,573 Furniture and fixtures 580 Construction in progress 11,534 Total $ 119,600 For more information, see Note 2 “ Business Combination. ” 21 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents 8. Goodwill and Intangible Assets, net (a) Goodwill As a result of the Cronos GrowCo Transaction, the Company preliminarily recorded goodwill of $ 36,421 , none of which is deductible for income tax purposes. The goodwill recognized was primarily attributable to the ability to secure a long-term supply of cannabis and to take advantage of growth opportunities from the expansion of Cronos GrowCo’s cultivation and processing facilities. See Note 2 “ Business Combination ” for additional information. Goodwill is comprised of the following items as of September 30, 2024 and December 31, 2023: September 30, 2024 Cost Accumulated impairment charges Net Peace Naturals $ 1,035 $ — $ 1,035 Cronos GrowCo 36,993 — 36,993 $ 38,028 $ — $ 38,028 As of December 31, 2023 Cost Accumulated impairment charges Net Peace Naturals $ 1,057 $ — $ 1,057 $ 1,057 $ — $ 1,057 (b) Intangible assets, net In the third quarter of 2024, the Company determined that it was no longer utilizing and had no current plans to utilize the intellectual property associated with its exclusive licenses with Ginkgo Bioworks Holdings, Inc. (“Ginkgo”). As a result, the remaining net book value of $ 14,258 was impaired and recorded to impairment loss on long-lived assets on the condensed consolidated statements of income (loss) and comprehensive income (loss) in both the three and nine months ended September 30, 2024. Intangible assets, net are comprised of the following items as of September 30, 2024 and December 31, 2023: Useful life (in years) As of September 30, 2024 Cost Accumulated amortization Accumulated impairment charges Net Software 5 $ 7,156 $ ( 4,538 ) $ ( 76 ) $ 2,542 Health Canada licenses 17 8,287 ( 1,775 ) ( 6,512 ) — Ginkgo exclusive licenses 10 27,736 ( 5,655 ) ( 22,081 ) — Israeli codes (i) 20 276 ( 71 ) — 205 Total definite-lived intangible assets 43,455 ( 12,039 ) ( 28,669 ) 2,747 Lord Jones ® brand N/A 64,000 — ( 62,500 ) 1,500 Trademarks N/A 142 — ( 142 ) — Total intangible assets $ 107,597 $ ( 12,039 ) $ ( 91,311 ) $ 4,247 22 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents Useful life (in years) As of December 31, 2023 Cost Accumulated amortization Accumulated impairment charges Net Software 5 $ 6,860 $ ( 3,508 ) $ ( 78 ) $ 3,274 Health Canada licenses 17 8,463 ( 1,813 ) ( 6,650 ) — Ginkgo exclusive licenses 10 28,326 ( 4,276 ) ( 7,968 ) 16,082 Israeli codes (i) 20 284 ( 62 ) — 222 Total definite-lived intangible assets 43,933 ( 9,659 ) ( 14,696 ) 19,578 Lord Jones ® brand N/A 64,000 — ( 62,500 ) 1,500 Trademarks N/A 142 — ( 142 ) — Total intangible assets $ 108,075 $ ( 9,659 ) $ ( 77,338 ) $ 21,078 (i) The Israeli codes were transferred by non-controlling interests to Cronos Israel in exchange for their equity interests in the Cronos Israel entities. As of September 30, 2024, the estimated future amortization of definite-lived intangible assets is as follows: As of September 30, 2024 Remainder of 2024 (3 months) $ 360 2025 1,275 2026 719 2027 215 2028 28 2029 24 Thereafter 126 $ 2,747 Impairment of Intangible Assets Accumulated impairment charges on intangible assets, net consist of: As of December 31, 2023 Impairment charges Foreign exchange effect As of September 30, 2024 Software $ ( 78 ) $ — $ 2 $ ( 76 ) Health Canada licenses ( 6,650 ) — 138 ( 6,512 ) Ginkgo exclusive license ( 7,968 ) ( 14,258 ) 145 ( 22,081 ) Lord Jones ® brand ( 62,500 ) — — ( 62,500 ) Trademarks ( 142 ) — — ( 142 ) $ ( 77,338 ) $ ( 14,258 ) $ 285 $ ( 91,311 ) As of December 31, 2022 Impairment charges Foreign exchange effect As of December 31, 2023 Software $ ( 76 ) $ — $ ( 2 ) $ ( 78 ) Health Canada licenses ( 6,498 ) — ( 152 ) ( 6,650 ) Ginkgo exclusive license ( 4,434 ) ( 3,366 ) ( 168 ) ( 7,968 ) Lord Jones ® brand ( 62,500 ) — — ( 62,500 ) Trademarks ( 142 ) — — ( 142 ) $ ( 73,650 ) $ ( 3,366 ) $ ( 322 ) $ ( 77,338 ) 23 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents 9. Restructuring In the first quarter of 2022, the Company initiated a strategic plan to realign the business around its brands, centralize functions and evaluate the Company’s supply chain (the “Realignment”). As part of the Realignment, on February 28, 2022, the Board approved plans to leverage the Company’s strategic partnerships to improve supply chain efficiencies and reduce manufacturing overhead by exiting its production facility in Stayner, Ontario, Canada (the “Peace Naturals Campus”). On February 27, 2023, the Board approved revisions to the Realignment, which were expected to result in the Company maintaining select components of its operations at the Peace Naturals Campus, namely distribution warehousing, certain research and development activities and manufacturing of certain of the Company’s products, while seeking to sell and lease back all or some of the Peace Naturals Campus or to lease certain portions of the Peace Naturals Campus to third parties. In the third quarter of 2023, the Board approved revisions to the Realignment to wind-down operations at Cronos Fermentation, list the Company’s Winnipeg, Manitoba facility (the “Cronos Fermentation Facility”) for sale, and implement additional organization-wide cost reductions as the Company continues its Realignment initiatives. The Realignment initiatives were intended to position the Company to drive profitable and sustainable growth over time. On November 26, 2023, the Company entered into an agreement with Future Farmco Canada Inc. for the sale and leaseback of the Peace Naturals Campus. This agreement was subsequently terminated pursuant to its terms during the second quarter of 2024. The Company is continuing to evaluate its strategic options for the Peace Naturals Campus, which may include continuing and expanding operations at the facility. During the first quarter of 2024, the Company ceased operations at Cronos Fermentation and performed an assessment under ASC 360 of the recoverability of the carrying value of the Cronos Fermentation assets, and determined the carrying value of the assets was not fully recoverable. The fair value was estimated using a combination of the market and income approaches. As a result of this analysis, an impairment loss on long-lived assets of $ 1,631 was recorded to the condensed consolidated statements of net loss and comprehensive loss in the nine months ended September 30, 2024. In addition, the Cronos Fermentation assets were classified as held-for-sale in the first quarter of 2024 at a fair value less costs to sell of $ 19,398 and continue to be classified as held-for-sale as of September 30, 2024. During the third quarter of 2024, the Company adjusted its sales strategy for the Cronos Fermentation assets to market the assets to a broader buyer pool, which resulted in the recognition of a loss on held-for-sale assets of $ 10,422 on the condensed consolidated statements of net income (loss) and comprehensive income (loss) in both the three and nine months ended September 30, 2024. During the three and nine months ended September 30, 2024, the Company incurred nil and $ 630 of restructuring costs in its continuing operations in connection with the Realignment. Charges related thereto include shutdown costs at the Cronos Fermentation Facility, as well as employee-related costs such as severance and other termination benefits. During both the three and nine months ended September 30, 2023, the Company incurred $ 1,423 of restructuring costs in its continuing operations in connection with the Realignment. Charges related thereto include employee-related costs such as severance and other termination benefits. Restructuring costs incurred in the Company’s discontinued operations during the three and nine months ended September 30, 2023 is presented in Note 3 “ Discontinued Operations .” 24 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents The following table summarizes the Company’s restructuring activity for the three and nine months ended September 30, 2024: Accrual as of June 30, 2024 Expenses Payments/Write-offs Accrual as of September 30, 2024 Employee Termination Benefits $ 24 $ — $ ( 24 ) $ — Other Restructuring Costs 547 — ( 547 ) — Total $ 571 $ — $ ( 571 ) $ — Accrual as of December 31, 2023 Expenses Payments/Write-offs Accrual as of September 30, 2024 Employee Termination Benefits $ 150 $ 62 $ ( 212 ) $ — Other Restructuring Costs — 568 ( 568 ) — Total $ 150 $ 630 $ ( 780 ) $ — Accrual as of June 30, 2023 Expenses Payments/Write-offs Accrual as of September 30, 2023 Employee Termination Benefits $ 61 $ 1,420 $ ( 947 ) $ 534 Other Restructuring Costs — 3 ( 3 ) — Total $ 61 $ 1,423 $ ( 950 ) $ 534 Accrual as of December 31, 2022 Expenses Payments/Write-offs Accrual as of September 30, 2023 Employee Termination Benefits $ 403 $ 1,420 $ ( 1,289 ) $ 534 Other Restructuring Costs 21 3 ( 24 ) — Total $ 424 $ 1,423 $ ( 1,313 ) $ 534 10. Share-based Compensation (a) Share-based award plans The Company has granted stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”) to employees and non-employee directors under the 2018 Stock Option Plan dated June 28, 2018 (the “2018 Stock Option Plan”), the Employment Inducement Award Plan #1 (the “Employment Inducement Award Plan”), the 2020 Omnibus Equity Incentive Plan dated March 29, 2020 (the “2020 Omnibus Plan”) and the DSU Plan dated August 10, 2019 (the “DSU Plan”). The Company can no longer make grants under the 2018 Stock Option Plan or the Employment Inducement Award Plan. The following table summarizes the total share-based compensation expense associated with the Company’s stock options and RSUs for the three and nine months ended September 30, 2024 and 2023: For the three months ended September 30, For the nine months ended September 30, 2024 2023 2024 2023 Stock options $ 34 $ 35 $ 101 $ 1,141 RSUs 2,228 1,922 6,412 5,682 Total share-based compensation $ 2,262 $ 1,957 $ 6,513 $ 6,823 (b) Stock options Vesting conditions for grants of options are determined by the Compensation Committee of the Company’s Board of Directors. The typical vesting for stock option grants made under the 2020 Omnibus Plan is annual vesting over three to five years with a maximum term of ten years . The typical vesting for stock option grants made under the 2018 Stock Option Plan is quarterly vesting over three to five years with a maximum term of seven years . The 2018 Stock Option Plan did not, and the 2020 Omnibus Plan does not, authorize grants of options with an exercise price below fair market value. 25 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents The following is a summary of the changes in stock options for the nine months ended September 30, 2024 and 2023: Weighted-average exercise price (C$) (i) Number of options Weighted-average remaining contractual term (years) Balance as of December 31, 2023 $ 14.50 2,103,201 1.84 Cancellation, forfeiture and expiry of options 19.05 ( 1,385,937 ) Balance as of September 30, 2024 $ 5.63 717,264 3.90 Exercisable as of September 30, 2024 $ 6.39 535,469 3.42 Weighted-average exercise price (C$) (i) Number of options Weighted-average remaining contractual term (years) Balance as of December 31, 2022 $ 10.57 5,350,600 0.73 Issuance of options 2.96 188,317 Cancellation, forfeiture and expiry of options 7.75 ( 3,435,716 ) Balance as of September 30, 2023 $ 14.50 2,103,201 2.09 Exercisable as of September 30, 2023 $ 16.02 1,845,841 1.50 (i) The weighted-average exercise price reflects the conversion of foreign currency-denominated stock options translated into C$ using the average foreign exchange rate as of the date of issuance. The following table summarizes stock options outstanding: As of September 30, 2024 As of December 31, 2023 2020 Omnibus Plan 702,264 702,264 2018 Stock Option Plan 15,000 1,400,937 Total stock options outstanding 717,264 2,103,201 (c) Restricted share units The following is a summary of the changes in RSUs for the nine months ended September 30, 2024 and 2023: Weighted-average grant date fair value (C$) (ii) Number of RSUs Balance as of December 31, 2023 $ 3.77 7,381,541 Granted (i) 2.95 2,503,835 Vested and issued 3.51 ( 1,364,864 ) Cancellation and forfeitures 2.99 ( 125,616 ) Balance as of September 30, 2024 $ 3.53 8,394,896 Weighted-average grant date fair value (C$) (ii) Number of RSUs Balance as of December 31, 2022 $ 4.63 5,725,470 Granted (i) 2.65 2,883,500 Vested and issued 5.13 ( 764,056 ) Cancellation and forfeitures 3.65 ( 510,342 ) Balance as of September 30, 2023 $ 3.86 7,334,572 (i) RSUs granted in the period vest annually in equal installments over a three-year period from either the grant date or after a three or five year “cliff-period.” All RSUs are subject to such holder’s continued employment through each vesting date. The vesting of such RSUs is not subject to the achievement of any performance criteria. (ii) The weighted-average grant date fair value reflects the conversion of foreign currency-denominated RSUs translated into C$ using the foreign exchange rate as of the date of issuance. 26 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents (d) Deferred share units The following is a summary of the changes in DSUs for the nine months ended September 30, 2024 and 2023: Financial liability Number of DSUs Balance as of December 31, 2023 $ 1,092 521,679 Granting and vesting of DSUs 450 193,965 DSU liabilities settled ( 359 ) ( 155,383 ) Loss on revaluation 59 — Balance as of September 30, 2024 $ 1,242 560,261 Financial liability Number of DSUs Balance as of December 31, 2022 $ 674 265,732 Granting and vesting of DSUs 450 255,947 Gain on revaluation ( 82 ) — Balance as of September 30, 2023 $ 1,042 521,679 27 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents 11. Income (Loss) per Share Basic and diluted income (loss) per share from continuing and discontinued operations are calculated as follows (in thousands, except share and per share amounts): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Basic income (loss) per share computation Net income (loss) from continuing operations attributable to the shareholders of Cronos Group $ 8,349 $ ( 1,462 ) $ ( 2,649 ) $ ( 24,935 ) Weighted-average number of common shares outstanding for computation for basic income (loss) per share 382,285,589 381,100,005 381,963,097 380,900,334 Basic income (loss) from continuing operations per share $ 0.02 $ ( 0.00 ) $ ( 0.01 ) $ ( 0.07 ) Loss from discontinued operations attributable to the shareholders of Cronos Group $ — $ ( 182 ) $ — $ ( 4,238 ) Weighted-average number of common shares outstanding for computation of basic loss from discontinued operations per share 382,285,589 381,100,005 381,963,097 380,900,334 Basic loss from discontinued operations per share $ — $ ( 0.00 ) $ — $ ( 0.01 ) Diluted income (loss) per share computation Net income (loss) from continuing operations attributable to the shareholders of Cronos Group $ 8,349 $ ( 1,462 ) $ ( 2,649 ) $ ( 24,935 ) Weighted-average number of common shares outstanding used in the computation of basic income (loss) per share 382,285,589 381,100,005 381,963,097 380,900,334 Dilutive effect of RSUs 3,408,093 — — — Dilutive effect of Top-up Rights – market price 290,725 — — — Weighted-average number of common shares for computation of diluted income (loss) from continuing operations per share (i) 385,984,407 381,100,005 381,963,097 380,900,334 Diluted income (loss) from continuing operations per share $ 0.02 $ ( 0.00 ) $ ( 0.01 ) $ ( 0.07 ) Loss from discontinued operations attributable to the shareholders of Cronos Group $ — $ ( 182 ) $ — $ ( 4,238 ) Weighted-average number of common shares for computation of diluted loss from discontinued operations per share 385,984,407 381,100,005 381,963,097 380,900,334 Diluted loss from discontinued operations per share $ 0.00 $ ( 0.00 ) $ 0.00 $ ( 0.01 ) (i) In computing diluted loss per share, incremental common shares are not considered in periods in which a net loss is reported as the inclusion of the common share equivalents would be anti-dilutive. For the three months ended September 30, 2024 and 2023, total securities of 15,065,666 and 23,340,811 , respectively, were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive. For the nine months ended September 30, 2024 and 2023, total securities of 20,926,402 and 27,399,000 , respectively, were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive. 12. Commitments and Contingencies (a) Commitments There have been no material changes in the information regarding commitments as disclosed in the Company’s Annual Report. 28 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents (b) Contingencies The Company is subject to various legal proceedings in the ordinary course of its business and in connection with its marketing, distribution and sale of its products. Many of these legal proceedings are in the early stages of litigation and seek damages that are unspecified or not quantified. Although the outcome of these matters cannot be predicted with certainty, the Company does not believe these legal proceedings, individually or in the aggregate, will have a material adverse effect on its financial condition but could be material to its results of operations for a quarterly period depending, in part, on its results for that quarter. (i) Class action complaints relating to restatement of 2019 interim financial statements On March 11 and 12, 2020, two alleged shareholders of the Company separately filed two putative class action complaints in the U.S. District Court for the Eastern District of New York against the Company and its Chief Executive Officer and former Chief Financial Officer. The court consolidated the cases, and the consolidated amended complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5, promulgated thereunder, against all defendants, and Section 20(a) of the Exchange Act against the individual defendants. The consolidated amended complaint generally alleges that certain of the Company’s prior public statements about revenue and internal controls were incorrect based on the Company’s disclosures relating to the Audit Committee of the Board of Directors’ review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel. The consolidated amended complaint does not quantify a damage request. The defendants moved to dismiss on February 8, 2021. On November 17, 2023, the court entered an order granting the motion and dismissed the case with prejudice. On December 1, 2023, the shareholder plaintiffs sought reconsideration of the dismissal, requesting that the court instead dismiss the action without prejudice and permit the plaintiffs to seek leave to further amend the complaint. The reconsideration motion is pending. On June 3, 2020, an alleged shareholder filed a Statement of Claim, as amended on August 12, 2020, in the Ontario Superior Court of Justice in Toronto, Ontario, Canada, seeking, among other things, an order certifying the action as a class action on behalf of a putative class of shareholders and damages of an unspecified amount. The Amended Statement of Claim named (i) the Company, (ii) its Chief Executive Officer, (iii) former Chief Financial Officer, (iv) former Chief Financial Officer and Chief Commercial Officer, and (v) current and former members of the Board as defendants and alleged breaches of the Ontario Securities Act, oppression under the Ontario Business Corporations Act and common law misrepresentation. The Amended Statement of Claim generally alleged that certain of the Company’s prior public statements about revenue and internal controls were misrepresentations based on the Company’s March 2, 2020 disclosure that the Audit Committee of the Board of Directors was conducting a review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel, and the Company’s subsequent restatement. The Amended Statement of Claim did not quantify a damage request. On June 28, 2021, the Court dismissed motions brought by the plaintiff for leave to commence a claim for misrepresentation under the Ontario Securities Act and for certification of the action as a class action. The plaintiff appealed the Court’s dismissal of the motions only with respect to the Company, the Chief Executive Officer, and the now former Chief Financial Officer; the remaining defendants were dismissed from the matter with prejudice and the Company and all individual defendants agreed not to seek costs from plaintiff in connection with the dismissal of the motions. On September 26, 2022, the Court of Appeal for Ontario reversed the Superior Court’s dismissal of the leave and certification motions, granted the plaintiff leave to proceed to bring a claim for misrepresentation under the Ontario Securities Act, and remitted the certification motion back to the Superior Court. On April 11, 2023, the plaintiff filed a Fresh as Amended Statement of Claim, which reflected the dismissal of the defendants for which an appeal was not sought, the removal of the claims for oppression under the Ontario Business Corporations Act and common law misrepresentation, as well as shortening the proposed class period. On October 10, 2023, the Superior Court certified the action on behalf of a class of persons or entities who acquired shares in the secondary market, including on the TSX and Nasdaq, during the period from May 9, 2019 to March 30, 2020, other than certain excluded persons. (ii) Regulatory reviews relating to restatements On October 24, 2022, the Company announced regulatory settlements as follows: SEC Settlement On October 24, 2022, the SEC issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8(a) of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21(c) of the Exchange Act, Making Findings, and Imposing a Cease-and-Desist Order (the “Settlement Order”) resolving the Restatements. The Company agreed to settle with the SEC, without admitting or denying the allegations described in the Settlement Order. The Settlement Order fully and finally disposed of the investigation of the Company by the SEC into the Restatements without the payment of any civil penalty or other amount. The Settlement Order required the Company to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 13a-13, 13a-15(a), 13a-16 and 12b-20 thereunder. 29 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents As a result of the Settlement Order, the Company (i) lost its status as a well-known seasoned issuer for a period of three years, (ii) is unable to rely on the private offering exemptions provided by Regulations A and D under the Securities Act for a period of five years and (iii) is unable to rely on the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 for a period of three years. OSC Settlement On October 24, 2022, the Ontario Capital Markets Tribunal approved a settlement agreement (the “Settlement Agreement”) between the Company and the staff of the Ontario Securities Commission (the “OSC”), resolving the Restatements. Pursuant to the terms of the Settlement Agreement, which fully and finally disposed the investigation of the Company by the OSC, Cronos agreed to pay a total of C$ 1.34 million to fully settle the matter, and acknowledged that it had failed to comply with the requirement under Section 77 of the Ontario Securities Act to file interim financial reports in the manner set out therein and had acted in a manner contrary to the public interest. (iii) Litigation and regulatory inquiries relating to marketing, distribution, import and sale of products On April 17, 2023, a group of plaintiffs led by the Green Leaf (Ale Yarok) political party filed a Statement of Claim and Request for Approval of a Class Action on behalf of a purported class of Israeli cannabis consumers in the District Court of Tel Aviv, Israel, against 26 cannabis-related parties, including three Cronos Israel entities. The Statement of Claim alleges that the defendants violated certain laws relating to the marketing of medical cannabis products, including marketing to unlicensed cannabis consumers. The lawsuit seeks a total of ILS 420 million. The Cronos Israel defendants moved to dismiss the action on August 13, 2023. The court granted the motion (and similar motions filed by other defendants) on May 16, 2024, dismissing the plaintiffs’ petition for class certification without prejudice and their individual claims with prejudice, and ordering the plaintiffs to pay ILS 10 thousand to each of the defendants for costs. On July 14, 2024, the plaintiffs appealed to the Supreme Court of Israel seeking to overturn both the dismissal of plaintiffs’ individual claims and the award of costs. The appeal is pending. On January 18, 2024, the Company was notified that the Trade Levies Commissioner of the Israel Ministry of Economy and Industry initiated a public investigation of alleged dumping of medical cannabis imports from Canada into Israel. On July 9, 2024, the Commissioner announced a preliminary determination proposing to impose an anti-dumping duty on Canadian licensed producers. Under the proposal, the Company would have been subject to a proposed duty of 369%. The Commissioner determined not to impose a provisional duty at that time pending the conclusion of the Ministry’s investigation. The Company responded to requests for information from the Ministry. On July 25, 2024, a group of cannabis cultivators filed an administrative petition in the District Court of Jerusalem, Israel against the Trade Levies Commissioner and certain Israeli and Canadian businesses. The administrative petition seeks a court order requiring the Trade Levies Commissioner to impose a temporary duty on cannabis imported from Canada during the pendency of the investigation until the date on which a final determination is made by the Ministry whether to impose a duty. On September 9, 2024, the Company filed a motion to join the litigation; the court granted the Company’s motion on September 23, 2024. On November 10, 2024, the Trade Levies Commissioner published final findings under which the Company would be subject to a proposed duty of 175%. A provisional duty is not being imposed at this time. The Commissioner’s findings will now be evaluated by an ad hoc advisory committee, which is expected to make recommendations to the Ministers of Economy and Finance and the Finance Committee of the Knesset of whether to impose a duty. The Company cannot predict the outcome of the ad hoc committee’s review or the determinations of the Ministers of Economy or Finance, or the Finance Committee of the Knesset. We expect litigation and regulatory proceedings relating to the marketing, distribution, import and sale of our products to increase. 13. Fair Value Measurements The Company complies with ASC 820 Fair Value Measurements for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. In general, fair values are determined by: • Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. • Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. • Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. 30 Cronos Group Inc. Notes to Condensed Consolidated Financial Statements (Unaudited) (In thousands of U.S. dollars, except share amounts) Table of Contents The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis: September 30, 2024 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 862,034 $ — $ — $ 862,034 Other investments (i) 2,900 — — 2,900 Derivative liabilities — — 192 192 December 31, 2023 Level 1 Level 2 Level 3 Total Cash and cash equivalents $ 669,291 $ — $ — $ 669,291 Short-term investments 192,237 — — 192,237 Other investments (i) 9,601 — — 9,601 Derivative liabilities — — 102 102 (i) As of September 30, 2024 and December 31, 2023, the Company’s influence on Vitura is deemed non-significant and the investment is considered an equity security with a readily determinable fair value. See Note 5 “ Investments ” for additional information. There were no transfers between fair value categories during the periods presented. The following tables present information about the Company’s assets that are measured at fair value on a non-recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value: As of December 31, 2023 Level 1 Level 2 Level 3 Total Other investments (i) $ — $ — $ 25,650 $ 25,650 (i) On June 14, 2021, the Company purchased an option to acquire 473,787 shares of Class A Common Stock of PharmaCann, a vertically integrated cannabis company in the United States, at an exercise price of $ 0.0001 per share, representing approximately 10.5 % of PharmaCann’s issued and outstanding capital stock on a fully diluted basis as of the date of the PharmaCann Option, for an aggregate purchase price of approximately $ 110,392 . As of September 30, 2024 and December 31, 2023, based on updated information provided by PharmaCann in the first quarter, the Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 5.8 % and 6.6 %. In the second quarter of, 2024, the PharmaCann Option was impaired to zero. See Note 5 “ Investments .” There were no transfers between fair value categories during the periods presented. 14. Related Party Transactions (a) Vendor Agreement In November 2022, the Company entered into an agreement with an external vendor whereby the vendor would provide certain manufacturing services to the Company. The vendor then subcontracted out a portion of those services to another company whose chief executive officer is an immediate family member of an executive of the Company. The Company purchased $ 406 and $ 1,842 of products and services under this subcontracted agreement for the three and nine months ended September 30, 2023. The Company had $ 0 and $ 28 in outstanding payables related to the subcontracted agreement as of September 30, 2024 and December 31, 2023, respectively. In November 2023, the Company negotiated a direct contract with the related-party vendor. During the three and nine months ended September 30, 2024, the Company purchased $ 410 and $ 1,346 of products and services under this agreement and had outstanding accounts payable related to the agreement of $ 82 and $ 11 as of September 30, 2024 and December 31, 2023, respectively. (b) Consulting Agreement In connection with the Cronos GrowCo Transaction, Cronos GrowCo entered into a consulting services agreement with a consulting firm managed by a member of the group of investors holding the remaining 50% ownership of Cronos GrowCo, pursuant to which the consulting firm provides management services to Cronos GrowCo. During both the three and nine months ended September 30, 2024, the Company incurred $ 220 of expense under this agreement. As of September 30, 2024, the Company had $ 665 in outstanding payables related to this agreement, which included $ 444 that were acquired in the Cronos GrowCo Transaction. 31 Table of Contents