Cronos Group Inc. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Business Overview 48 Recent Developments 48 Consolidated Results of Operations 51 Non-GAAP Measures 54 Liquidity and Capital Resources 61 Critical Accounting Estimates 62 Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and related notes, which are included in Item 8 of this Annual Report on Form 10-K (this “Annual Report”), to enhance the understanding of our operations and our present business environment. This discussion contains forward-looking statements that involve risks and uncertainties, see Part I, Item 1 “ Business — Special Note Regarding Forward-Looking Statements ” in this Annual Report for a discussion of the risks and uncertainties involved in the Forward-Looking Statements. For more information about our operations and the risks facing our business, see Part I, Item 1 “ Business ” and Part I, Item 1A “ Risk Factors, ” respectively, of this Annual Report. 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 ® , LIT™ and Lord Jones ® . Unless otherwise noted or the context indicates otherwise, references in this Annual Report to the “Company,” “Cronos,” “we,” “us,” and “our” refer to Cronos Group Inc., its direct and indirect wholly owned subsidiaries and, if applicable, its joint ventures and investments accounted for by the equity method; the term “cannabis” means the plant of any species or subspecies of genus Cannabis and any part of that plant, including all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers; the term “U.S. hemp” has the meaning given to the term “hemp” in the U.S. Agricultural Improvement Act of 2018, including hemp-derived cannabidiol (“CBD”). 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. Recent Developments CanAdelaar Acquisition On December 9, 2025, we entered into a definitive share sale and purchase agreement to acquire all of the issued and outstanding shares of CanAdelaar B.V. (“CanAdelaar”), one of ten licensed cannabis producers in the Dutch Controlled Cannabis Supply Chain Experiment. Closing of the proposed acquisition is subject to certain closing conditions, including obtaining required regulatory clearances in the Netherlands, receipt of confirmations relating to CanAdelaar’s licenses and Bibob review (a background check conducted by Dutch authorities), the accuracy of representations and warranties, and the absence of certain regulatory orders. Cronos GrowCo Expansion The expansion of the facility at Cronos Growing Company Inc. (“Cronos GrowCo”) is complete and sales from the expansion commenced in Fall 2025. Under the terms of our amended and restated supply agreement with Cronos GrowCo (the “Cronos GrowCo Supply Agreement”), Cronos has the option to purchase up to 70% of the total production from the expanded facility. Cronos GrowCo sells the remaining portion of its supply through the wholesale channel in Canada and across markets internationally. The Company believes this additional supply will fuel growth internationally and within the domestic Canadian market and the wholesale market in 48 Table of Contents 2026. As with any cultivation expansion, it typically takes time to fully optimize the new facility. U.S. Federal Cannabis Rescheduling In December 2025, President Trump issued an executive order (the “Executive Order”) directing the U.S. Attorney General to expedite the completion of the administrative process to reschedule marijuana from Schedule I to Schedule III under the U.S. Controlled Substances Act (the “CSA”). The Executive Order followed the U.S. Department of Health and Human Services’ August 2023 recommendation to reschedule marijuana and the DEA’s May 2024 notice of proposed rulemaking agreeing with that recommendation. Prior to the Executive Order, the rescheduling process had experienced procedural delays, including a hearing before a DEA administrative law judge and subsequent developments that slowed progress on the rulemaking. The Executive Order does not itself change the legal status of marijuana under U.S. federal law. Any rescheduling would require the completion of the DEA’s administrative rulemaking process and could be subject to further procedural steps and legal challenges. The Company continues to monitor developments related to U.S. federal cannabis policy, including the DEA’s rulemaking process and related legislative and regulatory activity, and will evaluate any potential implications for its business as additional information becomes available. Sale of Cronos Fermentation Facility In September 2025, we entered into a purchase and sale agreement to sell our fermentation and manufacturing facility in Winnipeg, Manitoba (the “Cronos Fermentation Facility”) for a purchase price of CAD $4.0 million, subject to customary adjustments. The sale, which closed on November 15, 2025, included the land, buildings and related chattels associated with the facility. Termination of Ginkgo Collaboration Agreement On December 15, 2025, Cronos and Ginkgo Bioworks Holdings, Inc. (“Ginkgo”) mutually terminated their collaboration and license agreement (the “Ginkgo Collaboration Agreement”). As a result of the termination, all rights and licenses granted to Cronos under the Ginkgo Collaboration Agreement, including licenses to Ginkgo intellectual property and collaboration strains, terminated as of that date, and neither party has any continuing obligations thereunder. Ginkgo paid Cronos nominal consideration for the termination of the licenses to the Ginkgo intellectual property and the collaboration strains. No payments or equity issuances were required by Cronos in connection with the termination, and Cronos has no further rights or obligations with respect to any patent families previously associated with the collaboration. In connection with the termination, Cronos exited fermentation-based cannabinoid manufacturing and no longer operates facilities leveraging intellectual property under the Ginkgo Collaboration Agreement. Spinach ® A key addition to our gummy portfolio in 2025 was 10mg THC Fully Blasted SOURZ by Spinach® gummies featuring rare cannabinoids, including Mango Lime with CBC, Peach Passionfruit with CBN and CBD and Strawberry Watermelon with CBG. In the fourth quarter of 2025, SOURZ by Spinach® Fully Blasted gummies launched in new multipack formats. The SOURZ by Spinach® Fully Blasted Multipacks with liquid diamond-infused gummies are now available in five popular flavors. In the first quarter of 2025, the brand introduced two new Spinach® 1g vapes, Cherry Crush and Cocoa Mintz, alongside new 1.2g cartridges, Mango Kiwi Haze CBC, Peach Passionfruit Kush CBN and Strawberry Watermelon OG CBG. These additions extend our popular SOURZ by Spinach® flavor profiles into the vape category. In the third quarter of 2025, the brand launched the limited-edition Spinach® Sweet Green Apple 1g vape, to complement its corresponding SOURZ by Spinach® Carmel Green Apple seasonal offering. PEACE NATURALS ® In 2025, new launches for the PEACE NATURALS® brand included strain‑specific oils and limited‑edition premium flower series, further strengthening the brand’s portfolio and patient appeal. In the third quarter of 2025, Cronos Israel introduced new PEACE NATURALS® strains ANML, OGC, and Do Si Do under a new premium limited-edition product series, and launched a limited-edition combo pack featuring Wedding CK and Blue Thai. Internationally, PEACE NATURALS® expanded its global footprint significantly. In the second quarter of 2025, the brand entered the medical cannabis markets in Australia and Malta, followed by launching in Switzerland in the third quarter. By mid‑2025, the brand’s medical presence spanned seven key markets: Canada, Israel, Germany, the United Kingdom (the “UK”), Australia, Switzerland, and Malta. 49 Table of Contents LIT™ The LIT™ brand continued to gain momentum by launching in the German and UK medical markets in 2025. The goal of this value-driven brand is to capitalize on market trends, combining local insights with product development to build loyalty in emerging medical markets. Germany and the UK’s growth environments helped LIT™ gain visibility and traction as demand for affordable, high‑quality flower products increased across clinics and distributors. Lord Jones ® In the first quarter of 2025, the brand launched a Lord Jones ® Chocolate Fusions™ fudge brownie bite in Canada, which features a 1:1:1 ratio of CBN, CBD and THC. The brand also expanded its presence in concentrates in Canada with the introduction of Lord Jones® Live Resin Caviar in the second quarter of 2025, reinforcing its positioning as a high‑quality, innovation‑driven brand. 2024 Compared to 2023 Results of Operations and Cash Flows For a discussion of our 2024 results of operations and cash flows compared to 2023, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2024. Foreign currency exchange rates All currency amounts in this Annual 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 December 31, 2025 and December 31, 2024, as reported on Bloomberg. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates. The consolidated statements of net income (loss) and comprehensive income (loss) and consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the years ended December 31, 2025, December 31, 2024, and December 31, 2023, as reported on Bloomberg. The exchange rates used to translate from Canadian dollars (“C$”) to dollars are shown below: (Exchange rates are shown as C$ per $) Year ended December 31, 2025 2024 2023 Average rate 1.3975 1.3700 1.3494 Spot rate 1.3698 1.4351 1.3243 The exchange rates used to translate from New Israeli Shekels (“ILS”) to dollars are shown below: (Exchange rates are shown as ILS per $) Year ended December 31, 2025 2024 2023 Average rate 3.4432 3.6997 3.6819 Spot rate 3.1863 3.6526 3.6163 50 Table of Contents Consolidated Results of Operations - 2025 Compared to 2024 The tables below set forth our consolidated results of operations, expressed in thousands of U.S. dollars for the periods presented. Our consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods . Year ended December 31, 2025 2024 Net revenue before excise taxes $ 193,363 $ 161,821 Excise taxes (46,776) (44,206) Net revenue 146,587 117,615 Cost of sales 83,174 91,710 Inventory write-down 654 707 Gross profit 62,759 25,198 Operating expenses: Sales and marketing 21,764 21,603 Research and development 4,449 4,229 General and administrative 41,999 46,514 Restructuring costs 2,037 630 Share-based compensation 7,050 8,700 Depreciation and amortization 2,119 3,701 Impairment loss on goodwill and indefinite-lived intangible assets 700 — Impairment loss on long-lived assets 36 16,350 Total operating expenses 80,154 101,727 Operating loss (17,395) (76,529) Other income 275 113,115 Income (loss) before income taxes (17,120) 36,586 Income tax benefit (14,191) (3,436) Net income (loss) (2,929) 40,022 Net income (loss) attributable to non-controlling interest 6,518 (1,058) Net income (loss) attributable to Cronos Group $ (9,447) $ 41,080 Summary of select financial results Year ended December 31, Change 2025 2024 $ % Net revenue $ 146,587 $ 117,615 $ 28,972 25 % Cost of sales 83,174 91,710 (8,536) (9) % Inventory write-down 654 707 (53) (7) % Gross profit $ 62,759 $ 25,198 $ 37,561 149 % Gross margin (i) 43 % 21 % N/A 22 pp (i) Gross margin is defined as gross profit divided by net revenue. Net revenue For 2025, we reported consolidated net revenue of $146.6 million, representing a $29.0 million increase from 2024. This change was primarily due to higher cannabis flower sales in Israel and other countries, which carry no excise taxes, the inclusion of a full year of Cronos GrowCo sales in the current period, and higher cannabis extract sales in the Canadian market, partially offset by a decrease in cannabis flower sales in the Canadian market due to supply constraints. Due to the consolidation of Cronos GrowCo’s results of operations in our financial statements beginning July 1, 2024, Cronos GrowCo contributed $10.3 million of cannabis flower sales to third parties in the year ended December 31, 2025, compared to $6.4 million of cannabis flower sales to third parties in the year ended December 31, 2024. 51 Table of Contents Cost of sales For 2025, we reported consolidated cost of sales of $83.2 million, representing a $8.5 million decrease from 2024. This decrease was primarily due to lower amounts of inventory step-up from the transaction by which we obtained majority control of the board of directors of Cronos GrowCo (the “Cronos GrowCo Transaction”) recognized into cost of sales, as well as the consolidation of Cronos GrowCo and production efficiencies, partially offset by higher sales volumes. For 2025 and 2024, we recognized $0.5 million and $5.3 million, respectively, of inventory step-up from the Cronos GrowCo Transaction into cost of sales. Inventory write-down For each of 2025 and 2024, we reported inventory write-downs of $0.7 million. The activity in both years was due to write-downs resulting from unusable inventory that was scrapped in the period. Gross profit For 2025, we reported consolidated gross profit of $62.8 million, representing a $37.6 million increase from 2024. The increase in gross profit was primarily due to lower amounts of inventory step-up from the Cronos GrowCo Transaction recognized into cost of sales, the consolidation of Cronos GrowCo, higher average sales prices driven primarily by a mix shift to Israel and other countries, higher sales volumes, and production efficiencies. For 2025 and 2024, gross profit was reduced $0.5 million and $5.3 million, respectively, as a result of the impact of the inventory step-up from the Cronos GrowCo Transaction that was recorded into cost of sales. Operating expenses Year ended December 31, Change 2025 2024 $ % Sales and marketing $ 21,764 $ 21,603 $ 161 1 % Research and development 4,449 4,229 220 5 % General and administrative 41,999 46,514 (4,515) (10) % Restructuring costs 2,037 630 1,407 223 % Share-based compensation 7,050 8,700 (1,650) (19) % Depreciation and amortization 2,119 3,701 (1,582) (43) % Impairment loss on goodwill and indefinite-lived intangible assets 700 — 700 N/A Impairment loss on long-lived assets 36 16,350 (16,314) (100) % Operating expenses $ 80,154 $ 101,727 $ (21,573) (21) % Sales and marketing For 2025, we reported sales and marketing expenses of $21.8 million, representing an increase of $0.2 million from 2024. The increase was primarily due to higher salaries and benefits, partially offset by lower marketing expenses. Research and development For 2025, we reported research and development expenses of $4.4 million, representing an increase of $0.2 million from 2024. The increase was primarily due to higher costs associated with genetics development, partially offset by lower salaries and benefits. General and administrative For 2025, we reported general and administrative expenses of $42.0 million, representing a decrease of $4.5 million from 2024. The decrease was primarily due to lower salaries and benefits and lower expected credit loss allowances on loans receivable, partially offset by the consolidation of Cronos GrowCo and higher transaction costs. For the year ended December 31, 2025, changes in expected credit loss allowances on loans receivable decreased general and administrative expenses by $16 thousand, compared to an increase to general and administrative expenses of $1.0 million for the year ended December 31, 2024. For the year ended December 31, 2025 and 2024, general and administrative expenses related to Cronos GrowCo were $4.2 million and $1.5 million, respectively. Restructuring costs For 2025, we reported restructuring costs of $2.0 million, representing an increase of $1.4 million from 2024. The restructuring costs in 2025 and 2024 were related to Realignment activities. See Note 18 “ Restructuring ” to the consolidated financial statements in Item 8 of this Annual Report for additional information. Share-based compensation For 2025, we reported share-based compensation expenses of $7.1 million, representing a decrease of $1.7 million compared to 2024. The decrease was primarily due to lower amounts of share-based compensation awards outstanding, partially offset by the inclusion of expense related to DSUs in share-based compensation in 2025, which was not included in share-based compensation in 2024. 52 Table of Contents Depreciation and amortization For 2025, depreciation and amortization expenses were $2.1 million, representing a decrease of $1.6 million from 2024. The decrease was primarily due to lower amortization of intangible assets. Impairment loss on goodwill and indefinite-lived intangible assets For 2025, impairment loss on goodwill and indefinite-lived intangible assets was $0.7 million and related to the Company’s Lord Jones® indefinite-lived intangible asset. There were no such impairment losses in 2024. See Note 8 “ Goodwill and Intangible Assets, net ” to the consolidated financial statements in Item 8 of this Annual Report for additional information. Impairment loss on long-lived assets For 2025, impairment loss on long-lived assets was $36 thousand, compared to $16.4 million in 2024. Impairment loss on long-lived assets in 2024 was primarily due to the impairment of the exclusive rights to use and commercialize the key patented intellectual property related to the production of the target cannabinoids (the “Ginkgo Exclusive Licenses”) globally and the cessation of operations of Thanos Holdings Ltd., known as Cronos Fermentation (“Cronos Fermentation”). See Note 8 “ Goodwill and Intangible Assets, net ” and Note 18 “ Restructuring ” to the consolidated financial statements in Item 8 of this Annual Report for additional information. Total other income, income tax expense (benefit) and loss from discontinued operations Year ended December 31, Change (i) 2025 2024 $ % Interest income, net $ 39,963 $ 52,019 $ (12,056) (23) % Share of income from equity method investments — 2,365 (2,365) (100) % Gain on revaluation of loan receivable — 11,804 (11,804) (100) % Gain on revaluation of equity method investment — 32,469 (32,469) (100) % Loss on revaluation of financial instruments (452) (6,248) 5,796 (93) % Impairment loss on other investments — (25,650) 25,650 (100) % Foreign currency transaction gain (loss) (28,588) 57,859 (86,447) N/M Loss on held-for-sale assets (5,532) (11,202) 5,670 (51) % Change in allowance for credit loss on non-operating loan (4,875) — (4,875) N/A Other, net (241) (301) 60 (20) % Total other income 275 113,115 (112,840) (100) % Income tax benefit (14,191) (3,436) (10,755) 313 % Net income (loss) $ (2,929) $ 40,022 $ (42,951) N/M (i) “N/M” is defined as not meaningful. Interest income, net For 2025, we reported interest income, net of $40.0 million, representing a decrease of $12.1 million from 2024, 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 2025, we had no income from equity method investments, compared to $2.4 million in 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. See Note 5 “ Investments ” to the consolidated financial statements in Item 8 of this Annual Report for additional information. Gain on revaluation of loans receivable For 2025, we reported no gain on revaluation of loans receivable. For 2024, we reported a gain on revaluation of loans receivable of $11.8 million. The gain related to the remeasurement of the outstanding loans receivable under the credit facility with Cronos GrowCo as a result of the Cronos GrowCo Transaction on July 1, 2024. See Note 6 “ Loans Receivable, net ” to the consolidated financial statements in Item 8 of this Annual Report for additional information. Gain on revaluation of equity method investment For 2025, we reported no gain on revaluation of equity method investment. For 2024, we reported a gain on revaluation of equity method investment of $32.5 million related to the remeasurement of the existing investment in Cronos GrowCo as a result of the 53 Table of Contents Cronos GrowCo Transaction. See Note 5 “ Investments ” to the consolidated financial statements in Item 8 of this Annual Report for additional information. Loss on revaluation of financial instruments For 2025, we reported a loss on revaluation of financial instruments of $0.5 million, compared to a loss of $6.2 million in 2024. The decreased loss was primarily related to the changes in fair value of our investment in Vitura Health Limited (“Vitura”) and the warrant (the “High Tide Warrant”) to purchase common shares of High Tide Inc. (“High Tide”). See Note 5 “ Investments ” to the consolidated financial statements in Item 8 of this Annual Report for additional information. Impairment loss on other investments For 2025, we recognized no impairment loss on other investments. For 2024, we recognized $25.7 million of impairment loss on other investments, driven by impairment charges recorded on our PharmaCann Option for the difference between its estimated fair value and its carrying amount. See Note 5 “ Investments ” to the consolidated financial statements in Item 8 of this Annual Report for additional information. Foreign currency transaction gain (loss) For 2025, foreign currency transaction loss was $28.6 million, representing a change of $86.4 million from 2024. The change was primarily due to the weakening of the U.S. dollar compared to the Canadian dollar impacting the revaluation of certain foreign currency-denominated cash equivalents and short-term investments held in Canada. Loss on held-for-sale assets For 2025, we recognized $5.5 million of loss on held-for-sale assets. For 2024, we recognized $11.2 million of loss on held-for-sale assets. The losses in both 2025 and 2024 relate to decreases in the fair value of the Cronos Fermentation Facility held-for-sale assets. See Note 18 “ Restructuring ” to the consolidated financial statements in Item 8 of this Annual Report for additional information. Change in allowance for credit loss on non-operating loan For 2025, change in allowance for credit loss on non-operating loan was $4.9 million. The expense relates to the change in the allowance for credit loss on the junior secured convertible debt (the “High Tide Loan”) from High Tide. For further information, see Note 6 “ Loans Receivable, net .” Other, net Other, net primarily includes gains and losses on the disposal of assets. Income tax benefit For 2025, we reported an income tax benefit of $14.2 million, compared to an income tax benefit of $3.4 million in 2024. The change was primarily driven by tax benefits realized on the termination of the Ginkgo Collaboration Agreement and the disposition of the Cronos Fermentation Facility assets in 2025. Net income (loss) For the year ended December 31, 2025, net loss was $2.9 million, compared to net income of $40.0 million for the year ended December 31, 2024. The change was mainly driven by foreign currency transaction loss, partially offset by higher gross profit and lower operating expenses. Non-GAAP Measures Cronos reports its financial results in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). This Annual 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 our 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 Annual 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. 54 Table of Contents Adjusted EBITDA Management reviews Adjusted EBITDA, a non-GAAP measure, which excludes non-cash items and items that do not reflect management’s assessment of ongoing business performance. Management defines Adjusted EBITDA as net income (loss) before interest, tax expense (benefit), depreciation and amortization adjusted for: share of (income) loss from equity method investments; impairment loss on goodwill and intangible assets; impairment loss on long-lived assets; (gain) loss on revaluation of 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; change in allowance for credit loss on non-operating loan; 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 Note 12(b) “ Contingencies ,” to the consolidated financial statements under Item 8 of this Annual 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. Beginning in 2025, the Company modified the composition of Adjusted EBITDA to exclude the impact of the provision for expected credit losses recognized under ASC 326 solely with respect to the High Tide Loan (see Note 6 “ Loans Receivable, net ” to the consolidated financial statements under Item 8 of this Annual Report for further information). Management determined that excluding this non-cash provision provides investors with additional insight into period-over-period operating performance by isolating credit-risk movements unrelated to the Company’s core operations. Management believes that this change provides additional information regarding the Company’s ongoing operational results and enhances comparability with peers that do not routinely extend credit to third parties. This change does not affect the Company’s GAAP financial statements. 55 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: (in thousands of U.S. dollars) For the year ended December 31, 2025 Continuing Operations Discontinued Operations Total Net loss $ (2,929) $ — $ (2,929) Interest income, net (39,963) — (39,963) Income tax benefit (14,191) — (14,191) Depreciation and amortization 14,231 — 14,231 EBITDA (42,852) — (42,852) Impairment loss on goodwill and indefinite-lived intangible assets (i) 700 — 700 Impairment loss on long-lived assets (ii) 36 — 36 Loss on revaluation of financial instruments (v) 452 — 452 Foreign currency transaction loss 28,588 — 28,588 Transaction costs (vii) 1,965 — 1,965 Loss on held-for-sale assets (viii) 5,532 — 5,532 Other, net (ix) 241 — 241 Restructuring costs (x) 2,037 — 2,037 Share-based compensation (xi) 7,050 — 7,050 Restatement litigation costs (xii) 275 — 275 Inventory step-up recorded to cost of sales (xiii) 517 — 517 Israel Ministry of Economy and Industry dumping inquiry (xiv) 694 — 694 Change in allowance for credit loss on non-operating loan (xv) 4,875 — 4,875 Adjusted EBITDA $ 10,110 $ — $ 10,110 (in thousands of U.S. dollars) For the year ended December 31, 2024 Continuing Operations Discontinued Operations Total Net income $ 40,022 $ — $ 40,022 Interest income, net (52,019) — (52,019) Income tax benefit (3,436) — (3,436) Depreciation and amortization 9,336 — 9,336 EBITDA (6,097) — (6,097) Share of income from equity method investments (2,365) — (2,365) Impairment loss on long-lived assets (ii) 16,350 — 16,350 Revaluation gain on loan receivable (iii) (11,804) — (11,804) Gain on revaluation of equity method investment (iv) (32,469) — (32,469) Loss on revaluation of financial instruments (v) 6,248 — 6,248 Impairment loss on other investments (vi) 25,650 — 25,650 Foreign currency transaction gain (57,859) — (57,859) Transaction costs (vii) 701 — 701 Loss on held-for-sale assets (viii) 11,202 — 11,202 Other, net (ix) 301 — 301 Restructuring costs (x) 630 — 630 Share-based compensation (xi) 8,700 — 8,700 Restatement litigation costs (xii) (1) — (1) Inventory step-up recorded to cost of sales (xiii) 5,284 — 5,284 Israel Ministry of Economy and Industry dumping inquiry (xiv) 587 — 587 Adjusted EBITDA $ (34,942) $ — $ (34,942) 56 Table of Contents (in thousands of U.S. dollars) For the year ended December 31, 2023 Continuing Operations Discontinued Operations Total Net loss $ (70,439) $ (4,114) $ (74,553) Interest income, net (51,235) (10) (51,245) Income tax benefit (3,230) — (3,230) Depreciation and amortization 7,866 244 8,110 EBITDA (117,038) (3,880) (120,918) Share of income from equity method investments (1,583) — (1,583) Impairment loss on long-lived assets (ii) 3,366 205 3,571 Loss on revaluation of financial instruments (v) 12,042 — 12,042 Impairment loss on other investments (vi) 23,350 — 23,350 Foreign currency transaction loss 7,324 — 7,324 Other, net (ix) (1,029) 118 (911) Restructuring costs (x) 1,524 523 2,047 Share-based compensation (xi) 8,756 13 8,769 Restatement litigation costs (xii) 919 — 919 Inventory write-down (xvi) 805 839 1,644 Adjusted EBITDA $ (61,564) $ (2,182) $ (63,746) (i) For the year ended December 31, 2025, impairment loss on goodwill and indefinite-lived intangible assets related to our Lord Jones ® brand intangible asset, which was assessed for impairment in the fourth quarter of 2025. There were no such losses in the years ended December 31, 2024 and 2023. See Note 8 “Goodwill and Intangible Assets, net” to the consolidated financial statements in Item 8 of this Annual Report. (ii) For the year ended December 31, 2025, impairment loss on long-lived assets related to equipment no longer in use. For the year ended December 31, 2024, impairment loss on long-lived assets included $14,258 related to the write-down of our Ginkgo Exclusive Licenses and $1,631 related to the winding down of operations at the Cronos Fermentation Facility. For the year ended December 31, 2023, impairment loss on long-lived assets related to certain leased properties associated with the Company’s former U.S. operations and impairment of the Ginkgo Collaboration Agreement’s CBCVA exclusive license. On December 15, 2025, Cronos and Ginkgo mutually terminated the Ginkgo Collaboration Agreement. See Note 7 “Property, Plant and Equipment, net” and Note 8 “Goodwill and Intangible Assets, net” to the consolidated financial statements in Item 8 of this Annual Report. (iii) For the year ended December 31, 2024, a revaluation gain on loan receivable was recognized as a result of the Cronos GrowCo Transaction on July 1, 2024. (iv) For the year ended December 31, 2024, a gain on revaluation of equity method investment was recognized as a result of the Cronos GrowCo Transaction on July 1, 2024. (v) For the year ended December 31, 2025, the loss on revaluation of financial instruments was driven by the Company’s equity securities in Vitura, partially offset by a gain related to the High Tide Warrant. For the years ended December 31, 2024 and 2023, loss on revaluation of financial instruments related primarily to the Company’s equity securities in Vitura. See Note 5 “ Investments ” to the consolidated financial statements in Item 8 of this Annual Report. (vi) For the years ended December 31, 2024 and 2023, impairment loss on other investments represented the fair value change on the PharmaCann Option. See Note 5 “ Investments” to the consolidated financial statements in Item 8 of this Annual Report. (vii) For the years ended December 31, 2025 and 2024, transaction costs represented legal, financial and other advisory fees and expenses incurred in connection with the Cronos GrowCo Transaction and the pending acquisition of CanAdelaar. These costs are included in general and administrative expenses on the consolidated statements of net income (loss) and comprehensive income (loss). (viii) For the years ended December 31, 2025 and 2024, loss on held-for-sale assets related to revaluations of the Cronos Fermentation Facility held-for-sale asset group. (ix) For the year ended December 31, 2025, other, net related to (gain) loss on disposal of assets and dividend income. For the years ended 2024 and 2023, other, net primarily related to (gain) loss on disposal of assets and (gain) loss on revaluation of derivative liabilities. (x) For the year ended December 31, 2025, restructuring costs from continuing operations related to employee-related severance costs and IT infrastructure and finance transformation costs associated with the Realignment, as described in Note 18 “ Restructuring ” to the consolidated financial statements in Item 8 of this Annual Report. For the year ended December 31, 2024, restructuring costs from continuing operations related to shutdown costs at the Cronos Fermentation Facility, as well as employee-related severance costs associated with the Realignment, as described in Note 18 “ Restructuring ” to the consolidated financial statements in Item 8 of this Annual Report. For the year ended December 31, 2023 restructuring costs related to the employee-related severance costs and other restructuring costs associated with the Realignment. (xi) For the year ended December 31, 2025, share-based compensation related to the expenses of share-based compensation awarded to employees and our DSUs issued to certain members of our Board of Directors, each under the Company’s share-based award plans, as described in Note 10 “ Share-based Compensation ” to the consolidated financial statements in Item 8 of this Annual Report. For the years ended December 31, 2024 and 2023, share-based compensation related to the vesting expenses of share-based compensation awarded to employees under our share-based award plans, as described in Note 10 “ Share-based Compensation ” to the consolidated financial statements in Item 8 of this Annual Report. (xii) For the years ended December 31, 2025, 2024 and 2023, restatement litigation costs included legal costs incurred defending shareholder class action complaints brought against the Company as a result of the 2019 restatement. (xiii) For the years ended December 31, 2025 and 2024, inventory step-up recorded to cost of sales represented the portion of the inventory step-up from the Cronos GrowCo Transaction that was recorded through the consolidated statements of income (loss) and comprehensive income (loss). (xiv) For the year ended December 31, 2024, 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. 57 Table of Contents (xv) For the year ended December 31, 2025, change in allowance for credit loss on non-operating loan represents the allowance recognized on the High Tide loan receivable and adjustments thereto, as described in Note 6, “ Loans Receivable, net ” to the consolidated financial statements in Item 8 of this Annual Report. (xvi) For the year ended December 31, 2023, inventory write-downs from discontinued operations related to product destruction and obsolescence associated with the exit of our U.S. operations as described in Note 3 “ Discontinued Operations ” to the consolidated financial statements in Item 8 of this Annual Report and inventory write-downs from continuing operations related to product destruction and obsolescence associated with the winding down of operations at the Cronos Fermentation Facility as described in Note 18 “ Restructuring ” to the consolidated financial statements in Item 8 of this Annual Report. For the year ended December 31, 2025, Adjusted EBITDA was $10.1 million, representing an improvement of $45.1 million from the year ended December 31, 2024. The improvement was primarily due to higher Adjusted Gross Profit and lower operating expenses due to a decline in general and administrative costs. 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) Year ended December 31, 2025 2024 2023 Net revenue $ 146,587 $ 117,615 $ 87,241 Gross profit $ 62,759 $ 25,198 $ 11,909 Inventory step-up recorded to cost of sales 517 5,284 — Adjusted Gross Profit $ 63,276 $ 30,482 $ 11,909 Gross margin (i) 43 % 21 % 14 % Adjusted Gross Margin (ii) 43 % 26 % 14 % (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. For the year ended December 31, 2025, Adjusted Gross Profit was $63.3 million, representing an increase of $32.8 million from the year ended December 31, 2024. The increase was primarily due to the consolidation of Cronos GrowCo, higher average sales prices driven primarily by a mix shift to Israel and other countries, higher sales volumes, and production efficiencies. Constant Currency To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented constant currency adjusted financial measures for net revenues, gross profit, gross profit margin, operating expenses, net income (loss) and Adjusted EBITDA for 2025, as well as cash and cash equivalents and short-term investment balances as of December 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 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 comparative period in 2024 rather than the actual average exchange rates in effect during 2025; constant currency current period balance sheet information is translated at the prior year-end spot rate rather than the current year-end 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 business. The non-GAAP financial measures presented in this Annual Report should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP. 58 Table of Contents The table below sets forth certain measures of consolidated results from continuing operations on an as-reported and constant currency basis for 2025 compared to 2024, as well as cash and cash equivalents and short-term investments as of December 31, 2025, compared to December 31, 2024, on an as-reported and constant currency basis (in thousands): As Reported As Adjusted for Constant Currency Year ended December 31, As Reported Change Year ended December 31, Constant Currency Change 2025 2024 $ % 2025 $ % Net revenue $ 146,587 $ 117,615 $ 28,972 25 % $ 145,402 $ 27,787 24 % Gross profit 62,759 25,198 37,561 149 % 61,802 36,604 145 % Gross margin 43 % 21 % N/A 22 pp 43 % N/A 22 pp Operating expenses 80,154 101,727 (21,573) (21) % 80,247 (21,480) (21) % Net income (loss) (2,929) 40,022 (42,951) N/M (4,289) (44,311) N/M Adjusted EBITDA 10,110 (34,942) 45,052 N/M 8,555 43,497 N/M As of December 31, As Reported Change As of December 31, Constant Currency Change 2025 2024 $ % 2025 $ % Cash and cash equivalents $ 791,794 $ 858,805 $ (67,011) (8) % $ 788,204 $ (70,601) (8) % Short-term investments 40,000 — 40,000 N/A 40,000 40,000 N/A Total cash and cash equivalents and short-term investments $ 831,794 $ 858,805 $ (27,011) (3) % $ 828,204 $ (30,601) (4) % 59 Table of Contents Net revenue As Reported As Adjusted for Constant Currency Year ended December 31, As Reported Change Year ended December 31, Constant Currency Change 2025 2024 $ % 2025 $ % Cannabis flower $ 108,476 $ 87,912 $ 20,564 23 % $ 106,677 $ 18,765 21 % Cannabis extracts 37,700 29,168 8,532 29 % 38,320 9,152 31 % Other 411 535 (124) (23) % 405 (130) (24) % Net revenue $ 146,587 $ 117,615 $ 28,972 25 % $ 145,402 $ 27,787 24 % As Reported As Adjusted for Constant Currency Year ended December 31, As Reported Change Year ended December 31, Constant Currency Change 2025 2024 $ % 2025 $ % Canada $ 90,330 $ 82,437 $ 7,893 10 % $ 91,840 $ 9,403 11 % Israel 41,796 28,368 13,428 47 % 38,773 10,405 37 % Other countries 14,461 6,810 7,651 112 % 14,789 7,979 117 % Net revenue $ 146,587 $ 117,615 $ 28,972 25 % $ 145,402 $ 27,787 24 % For 2025, net revenue on a constant currency basis was $145.4 million, representing a 24% increase from 2024. Net revenue increased on a constant currency basis primarily due to higher cannabis flower sales in Israel and other countries, which carry no excise taxes, the inclusion of a full year of Cronos GrowCo sales in the current period, and higher cannabis extract sales in the Canadian market, partially offset by a decrease in cannabis flower sales in the Canadian market due to supply constraints. Due to the consolidation of Cronos GrowCo’s results of operations in our financial statements beginning July 1, 2024, Cronos GrowCo contributed $10.5 million of cannabis flower sales to third parties in the year ended December 31, 2025, on a constant currency basis, compared to $6.4 million of cannabis flower sales to third parties in the year ended December 31, 2024. Gross profit For 2025, gross profit on a constant currency basis was $61.8 million, representing a 145% increase from 2024. Gross profit increased on a constant currency basis primarily due to lower amounts of inventory step-up from the Cronos GrowCo Transaction recognized into cost of sales, the consolidation of Cronos GrowCo for a full year, higher average sales prices driven primarily by a mix shift to Israel and other countries, higher sales volumes, and production efficiencies. For 2025 and 2024, gross profit on a constant currency basis was reduced $0.6 million and $5.3 million, respectively, as a result of the impact of the inventory step-up from the Cronos GrowCo Transaction that was recorded into cost of sales. Operating expenses For 2025, operating expenses on a constant currency basis were $80.2 million, representing a 21% decrease from 2024. Operating expenses decreased on a constant currency basis primarily due to the impairment of Ginkgo Exclusive Licenses in 2024, lower salaries and benefits, lower expected credit losses on loans receivable, lower depreciation and amortization and lower share-based compensation expense, partially offset by higher restructuring costs, transaction costs and impairment loss on goodwill and indefinite-lived intangible assets in 2025. Net income (loss) For 2025, net loss on a constant currency basis was $4.3 million, compared to net income of $40.0 million for 2024. The change on a constant currency basis was mainly driven by lower other income, partially offset by higher gross profit and lower operating expenses. Adjusted EBITDA For 2025, Adjusted EBITDA on a constant currency basis was $8.6 million, representing a $43.5 million improvement from 2024. Adjusted EBITDA improved on a constant currency basis primarily due to higher Adjusted Gross Profit and lower operating expenses due to a decline in general and administrative costs. Cash and cash equivalents & short-term investments Cash and cash equivalents and short-term investments on a constant currency basis decreased 4% to $828.2 million as of December 31, 2025 from $858.8 million as of December 31, 2024. The decrease in cash and cash equivalents and short-term investments is primarily due to cash flows used in investing and financing activities in 2025, partially offset by cash generated in operating activities in 2025. 60 Table of Contents Liquidity and Capital Resources We believe that our existing cash and cash equivalents and short-term investments will be sufficient to fund our business operations and capital expenditures over the next twelve months, including continuing to fund the expansion of Cronos GrowCo’s cultivation and processing facilities (the “Cronos GrowCo Phase 2 Expansion”). Our primary need for liquidity is to fund operations and capital expenditures. Our ability to fund operations and capital expenditures depends on, among other things, future operating performance and cash flows that are subject to general economic conditions and financial and other factors, including factors beyond our control. Since 2019, we have been funded by the C$2.4 billion (approximately $1.7 billion) Altria investment in us as further discussed under “ Business—Altria Strategic Investment ” in Part I, Item 1 of this Annual Report. As of December 31, 2025, we had $791.8 million in cash and cash equivalents and $40.0 million in short-term investments, compared to $858.8 million in cash and cash equivalents and no short-term investments as of December 31, 2024. As of both December 31, 2025 and December 31, 2024, we had no external debt financing. Cash flows (In thousands of U.S. dollars) Year ended December 31, 2025 2024 2023 Net cash provided by (used in) operating activities $ 25,866 $ 18,843 $ (42,835) Net cash provided by (used in) investing activities (76,559) 175,149 (59,499) Net cash used in financing activities (19,905) (1,231) (1,030) Effect of foreign currency translation on cash and cash equivalents 3,587 (3,247) 8,011 Net change in cash $ (67,011) $ 189,514 $ (95,353) 2025 cash flows vs. 2024 cash flows Operating activities During 2025, we generated $25.9 million of cash from operating activities, compared to cash generated of $18.8 million in 2024, representing an increase in cash generated of $7.0 million. This change is primarily driven by a $41.1 million increase in net income adjusted for non-cash items as well as higher accounts payable and lower interest receivable, partially offset by higher inventory, accounts receivable and other receivables. Investing activities During 2025, we used $76.6 million of cash in investing activities, compared to cash provided by investing activities of $175.1 million during 2024, representing a change of $251.7 million in net cash used. This change is primarily driven by the maturity of certain short-term investments, which were reinvested as cash equivalents upon maturity in 2024 that did not recur in 2025, as well as the purchase of short-term investments, higher purchases of property plant, and equipment, higher advances on loans receivable, the purchase of the High Tide Warrant in 2025 and cash obtained from the Cronos GrowCo Transaction in 2024. Financing activities During 2025, cash used in financing activities was $19.9 million, as compared to $1.2 million in 2024, representing an increase in net cash used of $18.7 million. This change is primarily driven by share repurchases and dividends paid to non-controlling interests in 2025 and an increase in withholding taxes paid on share-based awards. Cash requirements In the near term, we expect to use our available cash and investments to operate our core business and develop new ways to serve our customers as well as invest in our various strategic partnerships and in our investees. We believe we have adequate liquidity to meet working capital requirements. Our material cash requirements include the following contractual and other obligations as of December 31, 2025: Pending acquisition On December 9, 2025, the Company announced a definitive share sale and purchase agreement (the “Purchase Agreement”) to acquire all of the outstanding shares of CanAdelaar, one of ten licensed cannabis producers operating within the Netherlands’ adult-use cannabis pilot program. Under the terms of the Purchase Agreement, all of the issued and outstanding share capital of CanAdelaar will be acquired for up-front consideration of €57.5 million, or approximately $67.5 million, subject to certain customary adjustments, with additional contingent consideration payable in cash based on 0.5x of CanAdelaar’s normalized EBITDA in 2026 and 2027. As of December 31, 2025, the transaction has not closed and is subject to certain closing conditions, including obtaining required regulatory clearances in the Netherlands, receipt of confirmations relating to CanAdelaar’s licenses and Bibob review (a background check 61 Table of Contents conducted by Dutch authorities), the accuracy of representations and warranties, and the absence of certain regulatory orders. The up-front cash consideration is expected to be paid in the first half of 2026 and will be funded by available cash on hand. Leases We have operating leases for land, buildings and office and research space. As of December 31, 2025, the future minimum payments required under these leases totaled $1.9 million, with $0.5 million payable within 12 months. See Note 9 “ Leases ” to the consolidated financial statements in Item 8 of this Annual Report for further information. Loans receivable with related parties We have entered into two loan agreements with affiliates. The Mucci Promissory Note and Cannasoul Collaboration Loan (each as defined below) have been fully drawn. See Note 6 “ Loans Receivable, net ” to the consolidated financial statements in Item 8 of this Annual Report for further information. Purchase obligations Our purchase obligations primarily consist of contractual obligations for capital expenditures, computer software, agricultural supply services and data analytics and to maintain the ordinary course of business through information technology. As of December 31, 2025, the Company had purchase obligations of $40.0 million, with $27.6 million payable within 12 months. Other purchase obligations consist of noncancellable obligations related to maintenance, internet, and telecommunication service. As of December 31, 2025, we had other purchase obligations of $2.1 million, with $1.2 million payable within 12 months. 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$100.0 million (as amended, 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$105.0 million, and in June 2024, the GrowCo Credit Facility was amended to increase the aggregate principal amount available by C$70.0 million to C$175.0 million by providing a second secured non-revolving 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 for accounting purposes. Beginning in the third quarter of 2024, the GrowCo Credit Facility has been treated as an intercompany loan and eliminated upon consolidation. For the twelve months ended December 31, 2025, Cronos GrowCo repaid an aggregate C$17.7 million ($12.8 million) and C$7.9 million ($5.7 million) in principal and interest, respectively, under the terms of the GrowCo Credit Facility. As of December 31, 2025, Cronos GrowCo had repaid an aggregate C$35.8 million ($26.0 million) and C$36.4 million ($26.5 million) in principal and interest, respectively, under the terms of the GrowCo Credit Facility. As of December 31, 2025, the closing balance of the GrowCo Credit Facility was C$131.2 million ($95.8 million). Critical Accounting Estimates Estimates and critical judgments by management The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are reviewed periodically, and adjustments are made as appropriate in the year they become known. Items for which actual results may differ materially from these estimates are described in the following section. Refer to Note 1 “ Background, Basis of Presentation, and Summary of Significant Accounting Policies ” to the consolidated financial statements in Item 8 of this Annual Report for further information on our critical accounting estimates and policies, which are as follows: Revenue recognition Revenue is recognized at the point in time when the control of the promised goods is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for the performance obligation. Excise taxes remitted to tax authorities are government-imposed excise taxes on cannabis products. Excise taxes are recorded as a reduction of sales in net revenue in the consolidated statements of net income (loss) and comprehensive income (loss) and are recognized as a current liability within accrued liabilities on the consolidated balance sheets, with the liability subsequently reduced when the taxes are remitted to the tax authority. In addition, amounts disclosed as net revenue are net of allowances, discounts and rebates. In determining the transaction price for the sale of goods, the Company considers the effects of variable consideration and the existence of significant financing components, if 62 Table of Contents any. Some contracts for the sale of goods may provide customers with a right of return, most-favored-customer rights, or early payment discounts. In addition, the Company may provide, in certain circumstances, a retroactive price reduction to a customer based primarily on inventory movement. These items give rise to variable consideration. The Company uses the expected value method to estimate the variable consideration because this method best predicts the amount of variable consideration to which the Company will be entitled. The Company uses historical evidence, current information and forecasts to estimate the variable consideration. The Company reduces revenue and recognizes a contract liability equal to the amount expected to be refunded to the customer in the form of a future rebate or credit for a retroactive price reduction, representing its obligation to return the customer’s consideration. The estimate is updated at each reporting period date. Goodwill and indefinite-lived intangible assets Goodwill and indefinite-lived intangible assets are not subject to amortization. We test goodwill and indefinite-lived intangible assets for impairment annually, or more frequently if an event occurs or circumstances change that could indicate a potential impairment. We compare the fair value of our reporting units with their carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. We believe that the accounting estimate for goodwill and indefinite-lived intangible assets is a critical accounting estimate because of the judgment required in assessing the fair value of each of our reporting units. We estimate fair value through various valuation methods, including the use of discounted expected future cash flows of each reporting unit, as well as the use of the relief-from-royalty method on the Lord Jones ® brand. Significant inputs include discount rates, growth rates, and cash flow projections, and, for the Lord Jones ® brand, royalty rate. These valuation inputs are considered Level 3 inputs as defined by Accounting Standards Codification 820 Fair Value Measurement . The expected future cash flows for each reporting unit are significantly impacted by current market conditions. If these market conditions and resulting expected future cash flows for each reporting unit decline significantly, the actual results for each reporting unit could differ from our estimate, which could cause goodwill to be impaired. Our accounting for goodwill and indefinite-lived intangible assets represents our best estimate of future events. Inventory valuation We value our inventory at lower of cost or net realizable value. Cost is determined using standard cost, which approximates actual cost. Standard costs are reviewed periodically and adjusted to reflect current costs. Inventory is reflected at the lower of cost or net realizable value considering future demand, market conditions and market prices. Our estimates are based upon assumptions believed to be reasonable, but that are inherently uncertain and unpredictable. These valuations require the use of management’s assumptions that do not reflect unanticipated events and circumstances that may occur. We record an inventory valuation adjustment for excess, slow moving, and obsolete inventory that is equal to the excess of the cost of the inventory over the estimated net realizable value. We also experience inventory write-downs due to reduced market prices. The inventory valuation adjustment to net realizable value establishes a new cost basis of the inventory that cannot be subsequently reversed. Inventory valuation adjustments recorded during an interim period may be reversed, in whole or in part, in subsequent interim periods of the same fiscal year if the net realizable value recovers prior to the inventory being sold. Inventory valuation adjustments are based on inventory levels, expected product life, and estimated product demand. In assessing the ultimate realization of inventories, we are required to make judgments as to future demand requirements compared with inventory levels. Long-lived assets Long-lived assets are primarily comprised of property, plant, and equipment and definite-lived intangible assets. We evaluate long-lived assets for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying amount of such assets may not be recoverable. Long-lived asset recoverability is assessed on an asset group basis. We group assets and liabilities for our asset groups at the reporting unit level, which is the lowest level for which cash flows are separately identifiable. Long-lived asset recoverability is measured by comparing the carrying amount of the asset group with its estimated future undiscounted pre-tax cash flows over the remaining life of the primary long-lived asset of the asset group. If the carrying amount exceeds the estimated future undiscounted cash flows as part of the recoverability assessment, an impairment charge is recognized equal to the difference between the carrying amount and fair value of the asset group. The impairment charge is allocated to the underlying long-lived assets in the asset group on a relative carrying amount basis; however, carrying amount after allocated impairment is subject to a floor of fair value on an individual asset basis. We believe the accounting estimates used in the long-lived asset impairment assessment are critical accounting estimates because of the judgment required in identifying indicators of impairment, determining asset groups, assessing future undiscounted cash flows of the asset groups, and as applicable, evaluating the fair value of the determined asset groups as well as the underlying long-lived assets, once indicators of impairment have been identified. 63 Table of Contents We periodically evaluate whether impairment indicators related to our property, plant and equipment, operating leases and other long-lived assets are present. These impairment indicators may include a significant decrease in the market price of a long-lived asset or asset group, early termination of an operating lease, a significant adverse change to the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group. If impairment indicators are present, we estimate the fair value for the asset or group of assets. We estimate fair value of long-lived assets through various valuation methods, including the use of the indirect cost approach, income approach, and direct comparison approach. The indirect cost approach is based on the estimated cost to reproduce the asset as if new, adjusted for physical deterioration and consideration of functional and economic obsolescence. The income approach is based on estimated rental and capitalization rates. The direct comparison approach is based on recent observable transactions of comparable assets. The estimation of future undiscounted cash flows of the asset groups as well as each of these fair value approaches are significantly impacted by market conditions. A significant adverse change in market conditions could result in fair values that differ from our estimates, which could adversely impact whether an impairment exists and the extent to which an asset group and underlying assets are impaired. The difference between the fair value and the carrying amount of the asset group is recorded as an impairment charge. Refer to Note 7 “ Property, Plant and Equipment, net ” to the consolidated financial statements in Item 8 of this Annual Report. We periodically evaluate our long-lived assets that we plan to dispose of through sale for held-for-sale classification. To be classified as held-for-sale, management must have committed to a plan to sell, the asset (or asset group) must be available for immediate sale in its present condition, an active program to locate a buyer must have been initiated, the sale must be probable to close within one year, the asset (or asset group) must be marketed at a reasonable sales price, and it must be unlikely that significant changes to the plan will be made. Once an asset (or asset group) meets all of the above criteria, it is reclassified as assets held-for-sale on the consolidated balance sheet, and the asset(s) cease depreciation and are written down to their fair value, less costs to sell, if applicable. The Company completed a review of its global supply chain in 2023 and determined that it would wind down the Cronos Fermentation facility and list it for sale. This review involved significant complexities and judgments in making the accounting treatment determination. There were subjective and complex judgments in the determination of whether the Cronos Fermentation Facility met the criteria to be classified as held for sale, including: (1) whether the Cronos Fermentation Facility was available for sale in its then-present condition subject only to terms that are usual and customary for sales of such businesses, (2) whether the sale of the Cronos Fermentation Facility was probable and that the transfer of assets would be a completed sale within one year from period end, and (3) whether the Cronos Fermentation Facility was being actively marketed at a reasonable price. See Note 7 “ Property, plant and equipment, net ” to the consolidated financial statements in Item 8 of this Annual Report for discussion regarding our evaluation of the Cronos Fermentation Facility for held-for-sale classification as of December 31, 2024. We account for the cannabinoid exclusive licenses originating from the Ginkgo Strategic Partnership as definite-lived intangible assets in accordance with the acquisition method of accounting. The cost of cash and equity in Cronos issued in exchange for the cannabinoid exclusive licenses was initially recognized and measured at the date of acquisition. On the date of acquisition, we then tested each cannabinoid exclusive license for impairment by comparing the cost and fair value of each license. We believe that the accounting estimate for the cannabinoid exclusive licenses is a critical accounting estimate because of the judgment required in assessing their fair values and the expected future cash flows were significantly impacted by the future expectations for products containing each cannabinoid. We estimated the fair value using the relief-from-royalty method. Each cannabinoid exclusive license was subject to amortization. Refer to Note 8 “ Goodwill and Intangible Assets, net ” to the consolidated financial statements in Item 8 of this Annual Report. 64 Table of Contents Impairment of other investments without readily determinable fair values We hold other investments without readily determinable fair values that are measured under the cost method less impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same investee. Each reporting period, we qualitatively assess if indicators of impairment are present, and, if present, we estimate the fair value of the investments and record impairment charges on the consolidated statements of income if the carrying value exceeds fair value. To estimate the fair value of the investments, we use a combination of the income and market approaches. Under the income approach, significant assumptions used in the discounted cash flow method that require the use of judgment are the discount rate, growth rates, cash flow projections, and the expectation of federal rescheduling and individual state legalization of cannabis in the U.S. Under the market valuation approach, the key assumptions that require judgment under the Guideline Public Companies method are cash flow projections, selected multiples and the discount for lack of marketability. Share-based compensation We measure the fair value of services received in exchange for all stock options granted based on the fair market value of the award as of the grant date. We compute the fair value of stock options with time-based vesting using the Black-Scholes option-pricing model and recognize the cost of the equity awards over the period that services are provided to earn the award. The Black-Scholes option-pricing model includes assumptions regarding dividend yields, expected volatility, expected option term and risk-free interest rates. The assumptions used in computing the fair value of share-based compensation expense reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control. We estimate expected volatility based primarily on historical daily price changes of our stock and peers. The expected option term is the number of years that we estimate that the stock options will be outstanding prior to exercise. Loans receivable, net Loans receivable are presented net of an allowance for credit losses. The probability of default rate is adjusted for current conditions and reasonable and supportable forecasts of future losses as necessary. We may also record a specific reserve for individual accounts when we become aware of specific borrower circumstances, such as in the case of a bankruptcy filing or deterioration in the borrower’s operating results or financial condition. Assets held-for-sale We periodically evaluate our long-lived assets that we plan to dispose of through sale for held-for-sale classification. To be classified as held-for-sale, management must have committed to a plan to sell, the asset (or asset group) must be available for immediate sale in its present condition, an active program to locate a buyer must have been initiated, the sale must be probable to close within one year, the asset (or asset group) must be marketed at a reasonable sales price, and it must be unlikely that significant changes to the plan will be made. Once an asset (or asset group) meets all of the above criteria, it is reclassified as assets held-for-sale on the consolidated balance sheet, and the asset(s) cease depreciation and are written down to their fair value, less costs to sell, if applicable.