Cronos Group Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis should be read together with other information, including the Company’s condensed consolidated interim financial statements and the related notes to those statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2025 (this “Quarterly Report”), consolidated financial statements appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the “Annual Report”), Part I, Item 1A, Risk Factors, of the Annual Report and Part II, Item 1A, Risk Factors, of this Quarterly Report. Forward-Looking Statements This Quarterly Report, the documents incorporated into this Quarterly Report by reference, other reports we file with, or furnish to, the SEC and other regulatory agencies, and statements by our directors, officers, other employees and other persons authorized to speak on our behalf contain information that may constitute forward-looking information and forward-looking statements within the meaning of applicable U.S. and Canadian securities laws and court decisions (collectively, “Forward-Looking Statements”), which are based upon our current internal expectations, estimates, projections, assumptions and beliefs. All information that is not clearly historical in nature may constitute Forward-Looking Statements. In some cases, Forward-Looking Statements can be identified by the use of forward-looking terminology, such as “expect,” “likely,” “may,” “will,” “should,” “intend,” “anticipate,” “potential,” “proposed,” “estimate” and other similar words, expressions and phrases, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussion of strategy. Forward-Looking Statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of historical fact. Forward-Looking Statements include, but are not limited to, statements with respect to: • the ongoing impact of the public investigation into Canadian licensed producers of alleged dumping of medical cannabis imports from Canada into Israel by the Trade Levies Commissioner of the Israel Ministry of Economy and Industry (the “Anti-Dumping Investigation”) and the proposed anti-dumping duty to which the Company’s imports would be subject; • expectations related to the conflict involving Israel, Hamas, Hezbollah, Houthis, Iran, Iran’s proxies 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 (“UK”) markets, including our strategic partnerships with Cansativa GmbH (“Cansativa”), Vitura Health Limited (“Vitura”), and other distributors, 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; • expectations related to the impact of our decision to exit our U.S. hemp-derived cannabinoid product operations and any future plans to re-enter the U.S. market; • the ongoing impact of our announced realignment (inclusive of any revisions thereto, 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; • our expectations as to the use and expansion of our facility in Stayner, Ontario (the “Peace Naturals Campus”); • our ability to acquire raw materials from suppliers, including Cronos Growing Company Inc. (“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; • expectations related to the transaction by which we obtained majority control of the board of directors of Cronos GrowCo (the “Cronos GrowCo Transaction”), which qualified as a business combination under Accounting Standards Codification (“ASC”) 805, and the expansion of Cronos GrowCo’s purpose-built 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; • expectations regarding our future production and manufacturing strategy and operations, the costs and timing associated therewith and the receipt of applicable production and sale licenses; 29 Table of Contents • the ongoing impact of the legalization of additional cannabis product types and forms for adult-use in Canada, including federal, provincial, territorial and municipal regulations pertaining thereto, the related timing and impact thereof and our intentions to participate in such markets; • the legalization of the use of cannabis for medical or adult-use in jurisdictions outside of Canada, including the 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; • our ability to successfully create and launch brands and cannabis products; • expectations related to the differentiation of our products, including through the utilization of rare cannabinoids; • the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, including CBD and other cannabinoids; • laws and regulations and any amendments thereto applicable to our business and the impact thereof, including uncertainty regarding the application of U.S. state and federal law to cannabis and U.S. hemp (including CBD and other U.S. hemp-derived cannabinoids) products and the scope of any regulations by the U.S. Food and Drug Administration (the “FDA”), the U.S. Drug Enforcement Administration (the “DEA”), the U.S. Federal Trade Commission (the “FTC”), the U.S. Patent and Trademark Office (the “PTO”) and any state equivalent regulatory agencies over cannabis and U.S. hemp (including CBD and other U.S. hemp-derived cannabinoids) products, including the possibility marijuana is moved from Schedule I to Schedule III under the U.S. Controlled Substances Act; • the anticipated benefits and impact of Altria Group, Inc.’s investment in the Company (the “Altria Investment”), pursuant to a subscription agreement dated December 7, 2018; • uncertainties as to our ability to exercise our option (the “PharmaCann Option”) in PharmaCann Inc. (“PharmaCann”) in the near term or the future, in full or in part, including the uncertainties as to the status and future development of federal legalization of cannabis in the U.S. and our ability to realize the anticipated benefits of the transaction with PharmaCann; • expectations regarding the implementation and effectiveness of key personnel changes; • expectations regarding 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 (the “Settlement Order”) with the SEC and the settlement agreement (the “Settlement Agreement”) with the Ontario Securities Commission (the “OSC”); and • the impact of the loss of our ability to rely on private offering exemptions under Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), and the loss of our status as a well-known seasoned issuer, each as a result of the Settlement Order. Certain of the Forward-Looking Statements contained herein concerning the industries in which we conduct our business are based on estimates prepared by us using data from publicly available governmental sources, market research, industry analysis and on assumptions based on data and knowledge of these industries, which we believe to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. The industries in which we conduct our business involve risks and uncertainties that are subject to change based on various factors, which are described further below. 30 Table of Contents The Forward-Looking Statements contained herein are based upon certain material assumptions that were applied in drawing a conclusion or making a forecast or projection, including: (i) our ability to effectively navigate developments related to the Anti-Dumping Investigation and the proposed anti-dumping duty to which the Company’s imports would be subject and its impact on our operations in Israel; (ii) our ability to effectively navigate developments related to the Middle East Conflict and its impact on our employees and operations in Israel, the supply of product in the market and demand for product by medical patients in Israel; (iii) our ability to efficiently and effectively distribute our PEACE NATURALS ® brand in Germany with our strategic partner Cansativa and in the UK 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) 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 manage our operations at our Peace Naturals Campus; (viii) our ability to efficiently and effectively acquire raw materials on a timely and cost-effective basis from third parties or Cronos GrowCo; (ix) 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; (x) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our business combinations and strategic investments; (xi) the production and manufacturing capabilities and output from our facilities and our joint ventures, strategic alliances and equity investments; (xii) government regulation of our activities and products including, but not limited to, the areas of cannabis taxation and environmental protection; (xiii) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (xiv) consumer interest in our products; (xv) our ability to differentiate our products, including through the utilization of rare cannabinoids; (xvi) competition; (xvii) anticipated and unanticipated costs; (xviii) our ability to generate cash flow from operations; (xix) our ability to conduct operations in a safe, efficient and effective manner; (xx) our ability to hire and retain qualified staff and acquire equipment and services in a timely and cost-efficient manner; (xxi) our ability to exercise the PharmaCann Option and realize the anticipated benefits of the transaction with PharmaCann; (xxii) our ability to complete planned dispositions, and, if completed, obtain our anticipated sales price; (xxiii) general economic, financial market, regulatory and political conditions in which we operate; (xxiv) management’s perceptions of historical trends, current conditions and expected future developments; and (xxv) 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. By their nature, Forward-Looking Statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct, and that objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the Forward-Looking Statements in this Quarterly Report and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf. Such factors include, without limitation, negative impacts on our business and operations in Israel due to the Anti-Dumping Investigation, including that we may not be able to produce, import or sell our products in Israel as a result thereof; negative impacts on our employees, business and operations in Israel due to the Middle East Conflict, including that we may not be able to produce, import or sell our products or protect our people or facilities in Israel during the Middle East Conflict, the supply of product in the market and the demand for product by medical patients in Israel; that we may not be able to successfully continue to distribute our products in Germany, Australia and the UK or generate material revenue from sales in those markets; that we may not be able to achieve the anticipated benefits of the wind-down of our operations at our Winnipeg, Manitoba facility; that we may be unable to further streamline our operations and reduce expenses; that we may not be able to effectively and efficiently re-enter the U.S. market in the future; that we may not be able to access raw materials on a timely and cost-effective basis from third-parties 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 credit facility provided by Cronos; the military conflict between Russia and Ukraine may disrupt our operations and those of our suppliers and distribution channels and negatively impact the demand for and use of our products; the risk that cost savings and any other synergies from the Altria Investment may not be fully realized or may take longer to realize than expected; failure to execute key personnel changes; that our Realignment and our further leveraging of our strategic partnerships will not result in the expected cost-savings, efficiencies and other benefits or will result in greater than anticipated turnover in personnel; that we may not be able to efficiently and effectively manage our operations, and any changes thereto, at our Peace Naturals Campus; lower levels of revenues; the lack of consumer demand for our products; our inability to manage disruptions in credit markets; unanticipated future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; failure to realize expected growth opportunities; the lack of cash flow necessary to execute our business plan (either within the expected timeframe or at all); difficulty raising capital; the potential adverse effects of judicial, regulatory or other proceedings, or threatened litigation or proceedings, on our business, financial condition, results of operations and cash flows; volatility in and/or degradation of general economic, market, industry or business conditions; compliance with applicable environmental, economic, health and safety, energy and other policies and regulations and in particular health concerns with respect to vaping and the use of cannabis and U.S. hemp products in vaping devices; the unexpected effects of actions of third parties such as competitors, activist investors or federal (including U.S. federal), state, provincial, territorial or local regulatory authorities or self-regulatory organizations; adverse changes in regulatory requirements in relation to our business and products; legal or regulatory obstacles that could prevent us from being able to exercise the PharmaCann Option and thereby realize the anticipated benefits of the transaction with PharmaCann; dilution of our fully diluted ownership of PharmaCann and the loss of our rights as a result of that dilution; our failure to improve our internal control environment and our 31 Table of Contents systems, processes and procedures; and the factors discussed under Part I, Item 1A “Risk Factors” in our Annual Report and under Part II, Item 1A “Risk Factors” in this Quarterly Report. Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on Forward-Looking Statements. Forward-Looking Statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as of and for periods ended on certain dates and to present information about management’s current expectations and plans relating to the future, and the reader is cautioned not to place undue reliance on these Forward-Looking Statements because of their inherent uncertainty and to appreciate the limited purposes for which they are being used by management. While we believe that the assumptions and expectations reflected in the Forward-Looking Statements are reasonable based on information currently available to management, there is no assurance that such assumptions and expectations will prove to have been correct. Forward-Looking Statements are made as of the date they are made and are based on the beliefs, estimates, expectations and opinions of management on that date. We undertake no obligation to update or revise any Forward-Looking Statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such Forward-Looking Statements. The Forward-Looking Statements contained in this Quarterly Report and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf are expressly qualified in their entirety by these cautionary statements. Foreign currency exchange rates All currency amounts in this Quarterly Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars. The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of March 31, 2025, March 31, 2024, and December 31, 2024. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates. The condensed consolidated statements of net income (loss) and comprehensive income (loss) and condensed consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period as reported on Bloomberg. The exchange rates used to translate from Canadian dollars (“C$”) to dollars is shown below: (Exchange rates are shown as C$ per $) As of March 31, 2025 March 31, 2024 December 31, 2024 Spot rate 1.4393 1.3532 1.4351 Average rate 1.4356 1.3479 N/A The exchange rates used to translate from New Israeli Shekels (“ILS”) to dollars is shown below: (Exchange rates are shown as ILS per $) As of March 31, 2025 March 31, 2024 December 31, 2023 Spot rate 3.7191 3.6887 3.6526 Average rate 3.6145 3.6617 N/A Business Overview Cronos is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio. Cronos’ diverse international brand portfolio includes Spinach ® , PEACE NATURALS ® and Lord Jones ® . Strategy Cronos seeks to create value for shareholders by focusing on four core strategic priorities: • growing a portfolio of iconic brands that responsibly elevate the consumer experience; • developing a diversified global sales and distribution network; • establishing an efficient global supply chain; and • creating and monetizing disruptive intellectual property. 32 Table of Contents Business Segment Cronos reports through one consolidated segment, which includes operations in both Canada and Israel. In Canada, Cronos operates one wholly owned license holder under the Cannabis Act (Canada) (the “Cannabis Act”), Peace Naturals Project Inc. (“Peace Naturals”), which has production facilities near Stayner, Ontario (the “Peace Naturals Campus”). On July 1, 2024, the Company obtained majority control of the board of directors of Cronos GrowCo, a license holder under the Cannabis Act, which qualified as a business combination under ASC 805. As a result, the Company now consolidates the results of operations of Cronos GrowCo in its consolidated financial statements. Cronos maintains its 50% equity interest in Cronos GrowCo. In Israel, the Company operates under the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production, distribution and marketing of medical cannabis products in Israel. Recent Developments Share Repurchase Authorization On May 7, 2025, the Company’s Board of Directors authorized a share repurchase program of up to $50 million. The share repurchase program is expected to commence on May 14, 2025 and terminate on May 13, 2026, unless earlier terminated. Repurchases under the program may be made from time to time, either through open market purchases at then-prevailing market prices through the facilities of the NASDAQ Global Market or other U.S. published markets, privately negotiated transactions or otherwise. Open market repurchases will not exceed 19,270,951 common shares, being 5% of the outstanding common shares as of May 7, 2025. The timing and amount of repurchases are subject to market conditions, compliance with applicable laws and regulations and any other factors management of the Company may deem relevant. The program does not obligate Cronos to acquire any specific dollar amount or number of shares and may be modified, suspended, or discontinued at any time. Brand and Product Portfolio Spinach ® Despite strong consumer demand for our flower products, we have been constrained by supply limitations that have restricted growth for the Spinach ® brand, which we believe to be temporary. In Q1 2025, the SOURZ by Spinach ® brand expanded its edible lineup with new launches. A key addition to our gummy portfolio has been the 1-piece, 10mg THC Fully Blasted SOURZ by Spinach ® gummies featuring rare cannabinoids, including Mango Lime with CBC, Peach Passionfruit with CBN and Strawberry Watermelon with CBG. In Q1 2025, we introduced two new Spinach ® 1-gram vapes, Cherry Crush and Cocoa Mintz, alongside new 1.2g cartridges, which extended our winning SOURZ by Spinach ® flavor profiles into this category with Mango Kiwi Haze CBC, Peach Passionfruit Kush CBN and Strawberry Watermelon OG CBG. Lord Jones ® In January 2025, the brand launched a Lord Jones Chocolate Fusions™ fudge brownie bite flavor, which features a 1:1:1 ratio of CBN, CBD and THC. Lord Jones Chocolate Fusions™ edibles highlight the brand’s commitment to innovation and craftsmanship, now offering four unique flavors: cookies and cream, dazzle berry pop, salted caramel crunch and fudge brownie bite. PEACE NATURALS ® New launches in Israel in Q1 2025 included two new PEACE NATURALS ® strain-based cannabis oils, designed to deliver the full benefits and essence of our best-selling strains in the market, Wedding Cake and GMO Cookies. In Germany and the United Kingdom (“UK”), we are experiencing strong traction with Cronos’ proprietary genetics, including GMO Cookies and Wedding Cake, under the PEACE NATURALS ® brand. The expansion of Cronos GrowCo is intended to help enable Cronos to execute on these growth opportunities and other international markets as they become available. Cronos GrowCo Expansion The construction of Cronos GrowCo’s expanded cultivation facilities is on track for completion in Q2 2025, with first harvests and sales beginning in the second half of the year. The Company believes this additional supply will fuel growth internationally and within the domestic Canadian market. Proposed Tariffs in Israel Following an investigation into allegations of dumping of Canadian medical cannabis imports into Israel—which Cronos firmly disputes—on April 10, Israel’s Minister of Economy approved an anti-dumping duty of up to 165% on Canadian medical cannabis, which would include Cronos’ imports. On April 25, Israel’s Minister of Finance vetoed the proposed duty. Despite the veto, on April 29, the Minister of Economy issued a memorandum stating that the Ministry of Economy and Industry intends to move forward with the duty process, including seeking final approval from the Knesset’s Finance Committee. Cronos agrees with the conclusions of Israel’s Ministry of Finance, Ministry of Health, and Competition Authority that the proposed duty is inappropriate and would 33 Table of Contents adversely impact the Israeli medical cannabis market by significantly raising prices and reducing product choice for patients. The Company intends to continue to advocate for a fair and equitable medical cannabis market in Israel. Appointments In March 2025, Cronos appointed Anna Shlimak as Chief Financial Officer. Ms. Shlimak, who previously served as Cronos’ Chief Strategy Officer, has been a key member of the leadership team for seven years, driving strategic initiatives such as cost optimization, revenue growth, and corporate branding, all of which have positioned the Company for long-term success. Prior to joining Cronos, Anna was the Head of Investor Relations at Quest Partners LLC, a research-driven alternative investment firm. Anna was responsible for business development, investor reporting, marketing, and communication initiatives for the fund. Before that, Anna held a range of roles at the New York Stock Exchange in both the New York and London offices. Consolidated Results of Operations The tables below set forth our condensed consolidated results of operations, expressed in thousands of U.S. dollars for the periods presented. Our condensed consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods . Three months ended March 31, 2025 2024 Net revenue, before excise taxes $ 41,898 $ 35,367 Excise taxes (9,636) (10,079) Net revenue 32,262 25,288 Cost of sales 18,528 20,805 Gross profit 13,734 4,483 Operating expenses Sales and marketing 4,565 5,332 Research and development 793 997 General and administrative 9,309 8,907 Restructuring costs 555 83 Share-based compensation 2,088 2,015 Depreciation and amortization 496 1,123 Impairment loss on long-lived assets — 1,974 Total operating expenses 17,806 20,431 Operating loss (4,072) (15,948) Other income 11,340 12,906 Income tax benefit (455) (558) Net income (loss) 7,723 (2,484) Net income (loss) attributable to non-controlling interest 1,601 (243) Net income (loss) attributable to Cronos Group $ 6,122 $ (2,241) 34 Table of Contents Summary of select financial results Three months ended March 31, Change 2025 2024 $ % Net revenue $ 32,262 $ 25,288 $ 6,974 28 % Cost of sales 18,528 20,805 (2,277) (11) % Gross profit 13,734 4,483 9,251 206 % Gross margin (i) 43 % 18 % N/A 25 pp (i) Gross margin is defined as gross profit divided by net revenue. Net revenue For the three months ended March 31, 2025, we reported consolidated net revenue of $32.3 million, representing an increase of $7.0 million from the three months ended March 31, 2024. The increase was primarily due to higher cannabis flower sales in Israel and other countries, which carry no excise taxes, and higher cannabis extract sales in the Canadian market. Due to the consolidation of Cronos GrowCo’s results of operations in our financial statements beginning July 1, 2024, Cronos GrowCo contributed $2.9 million of cannabis flower sales in the three months ended March 31, 2025. No such sales were recognized for the three months ended March 31, 2024. Cost of sales For the three months ended March 31, 2025, we reported consolidated cost of sales of $18.5 million, representing a decrease of $2.3 million from the three months ended March 31, 2024. The decrease was primarily due to lower direct costs and production efficiencies, partially offset by higher sales volumes and the impact of the inventory step-up from the Cronos GrowCo Transaction. For the three months ended March 31, 2025, we recognized $0.5 million of inventory step-up from the Cronos GrowCo Transaction into cost of sales. No such costs were recognized for the three months ended March 31, 2024. Gross profit For the three months ended March 31, 2025, we reported gross profit of $13.7 million, representing an increase of $9.3 million from the three months ended March 31, 2024. The increase was primarily due to higher sales volumes and average sales prices, lower direct costs, and production efficiencies, partially offset by the impact on cost of sales from the inventory step-up from the Cronos GrowCo Transaction. For the three months ended March 31, 2025, gross profit was reduced by $0.5 million as a result of the impact of the inventory step-up from the Cronos GrowCo Transaction that was recorded into cost of sales. No such costs were recognized for the three months ended March 31, 2024. Operating expenses Three months ended March 31, Change 2025 2024 $ % Sales and marketing $ 4,565 $ 5,332 $ (767) (14) % Research and development 793 997 (204) (20) % General and administrative 9,309 8,907 402 5 % Restructuring costs 555 83 472 569 % Share-based payments 2,088 2,015 73 4 % Depreciation and amortization 496 1,123 (627) (56) % Impairment loss on long-lived assets — 1,974 (1,974) N/A Total operating expenses $ 17,806 $ 20,431 $ (2,625) (13) % Sales and marketing For the three months ended March 31, 2025, sales and marketing expenses were $4.6 million, representing a decrease of $0.8 million compared to the three months ended March 31, 2024. The decrease was primarily due to lower marketing expenses and lower salaries and benefits. Research and development For the three months ended March 31, 2025, research and development expenses were $0.8 million, representing a decrease of $0.2 million compared to the three months ended March 31, 2024. 35 Table of Contents General and administrative For the three months ended March 31, 2025, general and administrative expenses were $9.3 million, representing an increase of $0.4 million from the three months ended March 31, 2024. The increase was primarily due to higher legal fees and the impact of the Cronos GrowCo Transaction, partially offset by lower salaries and benefits. The impact of the Cronos GrowCo Transaction increased general and administrative expenses by $0.8 million. No such costs were incurred in the three months ended March 31, 2024. Restructuring costs For the three months ended March 31, 2025, restructuring costs were $0.6 million, representing an increase of $0.5 million from the three months ended March 31, 2024. For further information, see Note 8 “ Restructuring ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report. Share-based compensation For the three months ended March 31, 2025, share-based compensation expense was $2.1 million, representing an increase of $0.1 million from the three months ended March 31, 2024. Depreciation and amortization For the three months ended March 31, 2025, depreciation and amortization expenses were $0.5 million, representing a decrease of $0.6 million from the three months ended March 31, 2024. The decrease was primarily due to lower amortization on intangible assets. Impairment loss on long-lived assets For the three months ended March 31, 2024, impairment loss on long-lived assets was $2.0 million and was primarily due to the cessation of operations at Cronos Fermentation during the first quarter of 2024. For the three months ended March 31, 2025, there were no such impairment losses. For further information, see Note 8 “ Restructuring ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report. Other income and income tax expense (benefit) Three months ended March 31, Change 2025 2024 $ % Interest income, net $ 9,665 $ 14,245 $ (4,580) (32) % Share of income from equity method investments — 1,448 (1,448) (100) % Gain (loss) on revaluation of financial instruments 49 (2,642) 2,691 102 % Impairment loss on other investments — (12,734) 12,734 N/M Foreign currency transaction gain 1,583 13,259 (11,676) (88) % Other, net 43 (670) 713 N/M Total other income 11,340 12,906 (1,566) (12) % Income tax expense (benefit) (455) (558) 103 18 % Net income (loss) $ 7,723 $ (2,484) $ 10,207 N/M (i) “N/M” is defined as not meaningful. Interest income, net For the three months ended March 31, 2025, interest income, net was $9.7 million, representing a decrease of $4.6 million from the three months ended March 31, 2024. The decrease in net interest income was primarily due to lower interest rates in the current period and the absence of income recognized on the Cronos GrowCo loan receivable, which is eliminated in consolidation, effective from and after July 1, 2024. Share of income from equity method investments For the three months ended March 31, 2025, we had no income from equity method investments, compared to $1.4 million for the three months ended March 31, 2024. 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 4 “ Investments ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report. 36 Table of Contents Gain (loss) on revaluation of financial instruments For the three months ended March 31, 2025, the income on revaluation of financial instruments was $49 thousand, representing an improvement of $2.7 million from the three months ended March 31, 2024. The change was primarily related to the change in fair value of our investment in Vitura. For further information, see Note 4 “ Investments ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report. Impairment loss on other investments For the three months ended March 31, 2024, we recognized $12.7 million of impairment loss on other investments, driven by an impairment charge recorded on our PharmaCann Option for the difference between its estimated fair value and its carrying amount. There was no such impairment loss on other investments for the three months ended March 31, 2025. For further information, see Note 4 “ Investments ” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report. Foreign currency transaction gain (loss) For the three months ended March 31, 2025, foreign currency transaction gain was $1.6 million, representing a deterioration of $11.7 million from the three months ended March 31, 2024. The change was primarily due to certain foreign currency-denominated cash equivalents and certain foreign currency-denominated intercompany loans anticipated to be settled in the foreseeable future. Other, net Other, net primarily includes gains and losses on the disposal of assets. Income tax benefit For the three months ended March 31, 2025, income tax benefit was $0.5 million, compared to a benefit of $0.6 million for the three months ended March 31, 2024. Non-GAAP Measures Cronos reports its financial results in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). This Quarterly Report refers to measures not recognized under U.S. GAAP (“non-GAAP measures”). These non-GAAP measures do not have a standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these non-GAAP measures are provided as a supplement to corresponding U.S. GAAP measures to provide additional information regarding the results of operations from management’s perspective. Accordingly, non-GAAP measures should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. All non-GAAP measures presented in this Quarterly Report are reconciled to their closest reported U.S. GAAP measure. Reconciliations of historical adjusted financial measures to corresponding U.S. GAAP measures are provided below. Adjusted EBITDA Management reviews Adjusted EBITDA, a non-GAAP measure, which excludes non-cash items and items that do not reflect management’s assessment of ongoing business performance. Management defines Adjusted EBITDA as net income (loss) before interest, tax expense (benefit), depreciation and amortization adjusted for: share of (income) loss from equity method investments; impairment loss on goodwill and intangible assets; impairment loss on long-lived assets; (gain) loss on revaluation of 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; foreign currency transaction (gain) loss; other, net; loss from discontinued operations; restructuring costs; inventory write-downs resulting from restructuring actions; share-based compensation; costs related to the Israel Ministry of Economy and Industry dumping inquiry; 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’s and the OSC’s investigations 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. Management believes that Adjusted EBITDA provides the most useful insight into underlying business trends and results and provides a more meaningful comparison of period-over-period results. Management uses Adjusted EBITDA for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets. 37 Table of Contents 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 March 31, 2025 Net income $ 7,723 Interest income, net (9,665) Income tax benefit (455) Depreciation and amortization 2,840 EBITDA 443 Gain on revaluation of financial instruments (ii) (49) Foreign currency transaction gain (1,583) Transaction costs (iv) 40 Other, net (v) (43) Restructuring costs (vi) 555 Share-based compensation (vii) 2,088 Financial statement review costs (viii) 47 Inventory step-up recorded to cost of sales (ix) 517 Israel Ministry of Economy and Industry dumping inquiry expense (x) 274 Adjusted EBITDA $ 2,289 Three months ended March 31, 2024 Net loss $ (2,484) Interest income, net (14,245) Income tax benefit (558) Depreciation and amortization 1,731 EBITDA (15,556) Share of income from equity method investments (1,448) Impairment loss on long-lived assets (i) 1,974 Loss on revaluation of financial instruments (ii) 2,642 Impairment loss on other investments (iii) 12,734 Foreign currency transaction gain (13,259) Other, net (v) 670 Restructuring costs (vi) 83 Share-based compensation (vii) 2,015 Financial statement review costs (viii) (524) Adjusted EBITDA $ (10,669) (i) For the three months ended March 31, 2024, impairment loss on long-lived assets was primarily the result of the cessation of operations at Cronos Fermentation during the quarter. (ii) For the three months ended March 31, 2025 and 2024, the (gain) loss on revaluation of financial instruments related primarily to the Company’s equity securities in Vitura. (iii) For the three months ended March 31, 2024, impairment loss on other investments represents the fair value change on the PharmaCann Option. (iv) For the three months ended March 31, 2025, transaction costs represented legal, financial and other advisory fees and expenses incurred in connection with the Cronos GrowCo Transaction. These costs are included in general and administrative expenses on the condensed consolidated statement of net income (loss) and comprehensive income (loss). (v) For the three months ended March 31, 2025 and 2024, other, net related to (gain) loss on disposal of assets and (gain) loss on revaluation of derivative liabilities. (vi) For the three months ended March 31, 2025, restructuring costs related to employee-related severance costs and IT infrastructure and finance transformation costs associated with the Realignment, as described in Note 8 “ Restructuring .” For the three months ended March 31, 2024, restructuring costs related to employee-related severance costs and other restructuring costs associated with the Realignment, as described in Note 8 “ Restructuring .” (vii) For the three months ended March 31, 2025 and 2024, 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 9 “ Share-based Compensation. ” 38 Table of Contents (viii) For the three months ended March 31, 2025 and 2024, financial statement review costs include costs and reserves taken related to the Restatements, costs related to the Company’s responses to requests for information from various regulatory authorities relating to the Restatements and legal costs incurred defending shareholder class action complaints brought against the Company as a result of the 2019 restatement. (ix) For the three months ended March 31, 2025, 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). (x) For the three months ended March 31, 2025, Israel Ministry of Economy and Industry dumping inquiry expense included expenditures relating to the regulatory inquiry about alleged dumping of medical cannabis products in Israel and related litigation and external relations expenses. 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 March 31, Change 2025 2024 $ % Net revenue $ 32,262 $ 25,288 $ 6,974 28 % Gross profit $ 13,734 $ 4,483 $ 9,251 206 % Inventory step-up recorded to cost of sales 517 — 517 N/A Adjusted Gross Profit $ 14,251 $ 4,483 $ 9,768 218 % Gross margin (i) 43 % 18 % N/A 25 pp Adjusted Gross Margin (ii) 44 % 18 % N/A 26 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 revenue, gross profit, gross profit margin, operating expenses, net income (loss) and Adjusted EBITDA for the three months ended March 31, 2025, as well as cash and cash equivalents and short-term investment balances as of March 31, 2025 compared to December 31, 2024, which are considered non-GAAP financial measures. We present constant currency information to provide a framework for assessing how our underlying operations performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period income statement results in currencies other than U.S. dollars are converted into U.S. dollars using the average exchange rates from the three month comparative period in 2024 rather than the actual average exchange rates in effect during the respective current period; constant currency current and prior comparative balance sheet information is translated at the prior year-end spot rate rather than the current period spot rate. All growth comparisons relate to the corresponding period in 2024. We have provided this non-GAAP financial information to aid investors in better understanding the performance of our operations. The non-GAAP financial measures presented in this Quarterly Report should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP. See further discussion on foreign currency risk as noted in Item 3 “Quantitative and Qualitative Disclosures About Market Risk.” 39 Table of Contents The table below sets forth certain measures of consolidated results from continuing operations on a constant currency basis for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 as well as cash and cash equivalents and short-term investments as of March 31, 2025 and December 31, 2024, both on an as-reported and constant currency basis (in thousands): As Reported As Adjusted for Constant Currency Three months ended March 31, As Reported Change Three months ended March 31, Constant Currency Change 2025 2024 $ % 2025 $ % Net revenue $ 32,262 $ 25,288 $ 6,974 28 % $ 33,622 $ 8,334 33 % Gross profit 13,734 4,483 9,251 206 % 14,224 9,741 217 % Gross margin 43 % 18 % N/A 25 pp 42 % N/A 24 pp Operating expenses 17,806 20,431 (2,625) (13) % 18,476 (1,955) (10) % Net income (loss) 7,723 (2,484) 10,207 N/M 7,321 9,805 N/M Adjusted EBITDA $ 2,289 $ (10,669) $ 12,958 N/M $ 2,333 $ 13,002 N/M As of March 31, As of December 31, As Reported Change As of March 31, Constant Currency Change 2025 2024 $ % 2025 $ % Cash and cash equivalents $ 797,819 $ 858,805 $ (60,986) (7) % $ 798,128 $ (60,677) (7) % Short-term investments 40,000 — 40,000 N/A 40,000 40,000 N/A Total cash and cash equivalents and short-term investments $ 837,819 $ 858,805 $ (20,986) (2) % $ 838,128 $ (20,677) (2) % 40 Table of Contents Net revenue As Reported As Adjusted for Constant Currency Three months ended March 31, As Reported Change Three months ended March 31, Constant Currency Change 2025 2024 $ % 2025 $ % Cannabis flower $ 23,344 $ 17,525 $ 5,819 33 % $ 24,165 $ 6,640 38 % Cannabis extracts 8,608 7,727 881 11 % 9,151 1,424 18 % Other 310 36 274 761 % 306 270 750 % Net revenue $ 32,262 $ 25,288 $ 6,974 28 % $ 33,622 $ 8,334 33 % As Reported As Adjusted for Constant Currency Three months ended March 31, As Reported Change Three months ended March 31, Constant Currency Change 2025 2024 $ % 2025 $ % Canada $ 20,130 $ 18,871 $ 1,259 7 % $ 21,471 $ 2,600 14 % Israel 9,229 6,417 2,812 44 % 9,093 2,676 42 % Other countries 2,903 — 2,903 N/A 3,058 3,058 N/A Net revenue $ 32,262 $ 25,288 $ 6,974 28 % $ 33,622 $ 8,334 33 % For the three months ended March 31, 2025, net revenue on a constant currency basis was $33.6 million, representing a 33% increase from the three months ended March 31, 2024. On a constant currency basis, net revenue increased for the three months ended March 31, 2025, primarily due to higher cannabis flower sales in Israel and other countries, which carry no excise taxes, and higher cannabis extract sales in the Canadian market. On a constant currency basis, the Cronos GrowCo Transaction contributed $3.1 million of cannabis flower sales in the three months ended March 31, 2025. No such sales were recognized for the three months ended March 31, 2024. Gross profit For the three months ended March 31, 2025, gross profit on a constant currency basis was $14.2 million, representing a 217% increase from the three months ended March 31, 2024. On a constant currency basis, gross profit increased for the three months ended March 31, 2025, primarily due to higher sales volumes and average sales prices, lower direct costs, and production efficiencies, partially offset by the impact on cost of sales from the inventory step-up from the Cronos GrowCo Transaction. On a constant currency basis, for the three months ended March 31, 2025, we recognized $0.6 million of inventory step-up from the Cronos GrowCo Transaction in cost of sales. No such costs were recognized for the three months ended March 31, 2024. Operating expenses For the three months ended March 31, 2025, operating expenses on a constant currency basis were $18.5 million, representing a 10% decrease from the three months ended March 31, 2024. On a constant currency basis, operating expenses decreased for the three months ended March 31, 2025, primarily due to lower impairment loss on long-lived assets, lower salaries and benefits, and lower amortization on intangible assets, partially offset by higher restructuring costs. Net income (loss) For the three months ended March 31, 2025, net income on a constant currency basis was $7.3 million, representing an improvement of $9.8 million from the three months ended March 31, 2024. Adjusted EBITDA For the three months ended March 31, 2025, Adjusted EBITDA on a constant currency basis was $2.3 million, representing a $13.0 million improvement from the three months ended March 31, 2024. The improvement in Adjusted EBITDA for the three months ended March 31, 2025 on a constant currency basis was driven by higher sales volumes and average sales prices, lower direct costs, production efficiencies, and lower operating expenses. Cash and cash equivalents & short-term investments Cash and cash equivalents and short-term investments on a constant currency basis decreased 2% to $838.1 million as of March 31, 2025, from $858.8 million as of December 31, 2024. The decrease in cash and cash equivalents and short-term investments on a constant currency basis is primarily due to purchases of property, plant and equipment in the three months ended March 31, 2025. 41 Table of Contents Liquidity and Capital Resources As of March 31, 2025, we had $798 million in cash and cash equivalents and $40 million in short-term investments. We believe that the existing cash and cash equivalents and short-term investments will be sufficient to fund the business operations and capital expenditures over the next twelve months. The following table summarizes the cash flows from operating, investing and financing activities: (In thousands of U.S. dollars) Three months ended March 31, 2025 2024 Net cash used in operating activities $ (2,096) $ (2,204) Net cash provided by (used in) investing activities (55,356) 189,556 Net cash used in financing activities (2,930) (645) Effect of foreign currency translation on cash and cash equivalents (604) (884) Net change in cash $ (60,986) $ 185,823 Comparison of cash flows between the three months ended March 31, 2025 and the three months ended March 31, 2024 Operating activities During the three months ended March 31, 2025, we used $2.1 million of cash from operating activities as compared to cash used of $2.2 million in the three months ended March 31, 2024, representing a decrease in cash used of $0.1 million. This change is primarily driven by a $7.9 million increase in net income after adjusting for non-cash items during the three months ended March 31, 2025 compared to the three months ended March 31, 2024, partially offset by increases in accounts receivable and other receivables and decreases in accrued liabilities. Investing activities During the three months ended March 31, 2025, we used $55.4 million of cash from investing activities, compared to $189.6 million of cash provided in investing activities during the three months ended March 31, 2024, representing a change of $244.9 million. This change was driven by the purchase of short-term investments and higher capital expenditures during the three months ended March 31, 2025, compared to the maturity of certain short-term investments, which were reinvested as cash equivalents upon maturity during the three months ended March 31, 2024. Financing activities During the three months ended March 31, 2025, cash used in financing activities was $2.9 million, compared to $0.6 million of cash used in financing activities during the three months ended March 31, 2024, representing an increase of $2.3 million. This change is primarily driven by an increase in withholding taxes paid on share-based awards during the three months ended March 31, 2025 compared to three months ended March 31, 2024. Cash Requirements The Company’s cash requirements have not changed significantly since the filing of the Annual Report. Critical Accounting Policies and Estimates Our critical accounting policies and estimates are discussed in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. Our critical accounting policies and estimates have not changed significantly since the filing of the Annual Report. 42 Table of Contents