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Cronos Group Inc. - Quarter Report: 2023 September (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023
or
☐    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .
Commission File No. 001-38403
__________________________
CRONOS GROUP INC.
(Exact name of registrant as specified in its charter)
__________________________
British Columbia, Canada
N/A
(State or other jurisdiction of(I.R.S. Employer
incorporation or organization)Identification No.)
111 Peter St. Suite 300
Toronto, Ontario
M5V 2H1
(Address of principal executive offices)(Zip Code)
416-504-0004
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares, no par valueCRONThe Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerxAccelerated filer☐
Non-accelerated fileroSmaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐ No x

As of November 3, 2023, there were 381,113,564 common shares of the registrant issued and outstanding.

1

Table of Contents
PART I
FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II
OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.

Unless otherwise noted or the context indicates otherwise, references in this Quarterly Report on Form 10-Q (this “Quarterly Report”) to the “Company”, “Cronos Group”, “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 term “hemp” in the United States (“U.S.”). Agricultural Improvement Act of 2018 (the “2018 Farm Bill”), including hemp-derived cannabidiol (“CBD”); and the term “U.S. Schedule I cannabis” means cannabis excluding U.S. hemp.
This Quarterly Report contains references to our trademarks and trade names and to trademarks and trade names belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trademarks or trade names to imply a relationship with, or endorsement or sponsorship of us or our business by, any other companies. In addition, this Quarterly Report includes website addresses. These website addresses are intended to provide inactive, textual references only. The information on or referred to on these websites is not part of or incorporated into this Quarterly Report.
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 “$” are to U.S. dollars; all references to “C$” are to Canadian dollars; all references to “A$” are to Australian dollars; and all references to “ILS” are to New Israeli Shekels.
(Exchange rates are shown as C$ per $)As of
September 30, 2023September 30, 2022December 31, 2022
Spot rate1.35771.38291.3554
Year-to-date average rate1.34551.2829N/A
(Exchange rates are shown as ILS per $)As of
September 30, 2023September 30, 2022December 31, 2022
Spot rate3.81383.56603.5178
Year-to-date average rate3.63853.3107N/A
All summaries of agreements described herein are qualified by the full text of such agreements (certain of which have been filed as exhibits with the U.S. Securities and Exchange Commission).


2

PART I
FINANCIAL INFORMATION
Table of Contents
Item 1. Financial Statements
Table of Contents
6

3
Cronos Group Inc.
Condensed Consolidated Balance Sheets
(In thousands of U.S. dollars, except share amounts)

As of September 30, 2023As of December 31, 2022
Assets
Current assets
Cash and cash equivalents$571,656 $764,644 
Short-term investments267,905 113,077 
Accounts receivable, net15,730 23,113 
Interest receivable11,723 2,469 
Other receivables4,707 3,298 
Current portion of loans receivable, net5,157 8,890 
Inventory, net35,847 37,559 
Prepaids and other current assets5,656 7,106 
Total current assets918,381 960,156 
Equity method investments, net18,258 18,755 
Other investments62,143 70,993 
Non-current portion of loans receivable, net68,301 72,345 
Property, plant and equipment, net55,604 60,557 
Right-of-use assets1,417 2,273 
Goodwill1,031 1,033 
Intangible assets, net24,236 26,704 
Deferred tax asset741 $193 
Total assets$1,150,112 $1,213,009 
Liabilities
Current liabilities
Accounts payable$4,749 $11,163 
Income taxes payable635 32,956 
Accrued liabilities23,868 22,268 
Current portion of lease obligation949 1,330 
Derivative liabilities29 15 
Current portion due to non-controlling interests354 384 
Total current liabilities30,584 68,116 
Non-current portion due to non-controlling interests1,009 1,383 
Non-current portion of lease obligation1,754 2,546 
Total liabilities33,347 72,045 
Shareholders’ equity
Share capital (authorized for issue as of September 30, 2023 and December 31, 2022: unlimited; shares outstanding as of September 30, 2023 and December 31, 2022: 381,113,564 and 380,575,403, respectively)
613,290 611,318 
Additional paid-in capital47,133 42,682 
Retained earnings461,509 490,682 
Accumulated other comprehensive loss
(2,110)(797)
Total equity attributable to shareholders of Cronos Group1,119,822 1,143,885 
Non-controlling interests(3,057)(2,921)
Total shareholders’ equity1,116,765 1,140,964 
Total liabilities and shareholders’ equity$1,150,112 $1,213,009 
See notes to condensed consolidated interim financial statements.
4
Cronos Group Inc.
Condensed Consolidated Statements of Net Loss and Comprehensive Loss
(In thousands of U.S dollars, except share and per share amounts, unaudited)

Three months ended September 30,Nine months ended September 30,
2023202220232022
Net revenue, before excise taxes$33,912 $26,070 $86,264 $80,243 
Excise taxes(9,102)(5,661)(22,938)(15,527)
Net revenue24,810 20,409 63,326 64,716 
Cost of sales20,124 17,265 52,614 50,540 
Inventory write-down716 — 716 — 
Gross profit3,970 3,144 9,996 14,176 
Operating expenses
Sales and marketing5,296 5,247 16,334 12,442 
Research and development1,246 2,541 4,392 10,656 
General and administrative14,366 16,354 39,673 53,771 
Restructuring costs1,423 387 1,423 3,396 
Share-based compensation1,957 4,247 6,823 10,446 
Depreciation and amortization1,457 1,702 4,515 4,368 
Impairment loss on long-lived assets— — — 3,493 
Total operating expenses25,745 30,478 73,160 98,572 
Operating loss(21,775)(27,334)(63,164)(84,396)
Other income (expense)
Interest income, net13,375 7,208 37,021 13,028 
Gain (loss) on revaluation of derivative liabilities8 375 (14)14,204 
Share of income (loss) from equity method investments1,057 (1,119)831 4,078 
Gain (loss) on revaluation of financial instruments(5,291)17,049 (7,856)19,205 
Impairment loss on other investments— (28,972)— (40,210)
Foreign currency transaction gain (loss)8,816 2,387 3,999 (2,337)
Other, net966 (581)1,025 (397)
Total other income (expense)18,931 (3,653)35,006 7,571 
Loss before income taxes(2,844)(30,987)(28,158)(76,825)
Income tax expense (benefit)(1,254)2,118 (2,870)2,172 
Loss from continuing operations(1,590)(33,105)(25,288)(78,997)
Loss from discontinued operations(182)(3,781)(4,238)(10,880)
Net loss(1,772)(36,886)(29,526)(89,877)
Net income (loss) attributable to non-controlling interest(128)105 (353)(27)
Net loss attributable to Cronos Group$(1,644)$(36,991)$(29,173)$(89,850)
Comprehensive loss
Net loss$(1,772)$(36,886)$(29,526)$(89,877)
Other comprehensive income (loss)
Foreign exchange loss on translation(20,090)(60,572)(1,096)(68,756)
Comprehensive loss(21,862)(97,458)(30,622)(158,633)
Comprehensive income (loss) attributable to non-controlling interests(41)201 (136)62 
Comprehensive loss attributable to Cronos Group$(21,821)$(97,659)$(30,486)$(158,695)
Net loss per share
Basic and diluted - continuing operations$(0.00)$(0.09)$(0.07)$(0.21)
Basic and diluted - discontinued operations(0.00)(0.01)(0.01)(0.03)
Basic and diluted - total
$(0.00)$(0.10)$(0.08)$(0.24)
See notes to condensed consolidated interim financial statements.
5
Cronos Group Inc.
Condensed Consolidated Statements of Changes in Equity
For the nine months ended September 30, 2023 and 2022
(In thousands of U.S. dollars, except share amounts, unaudited)
Number of sharesShare capitalAdditional paid-in capitalRetained earnings Accumulated other comprehensive income (loss)Non-controlling interestsTotal shareholders’ equity
Balance as of January 1, 2023380,575,403 $611,318 $42,682 $490,682 $(797)$(2,921)$1,140,964 
Activities relating to share-based compensation240,518 917 1,362 — — — 2,279 
Net loss— — — (19,169)— (88)(19,257)
Foreign exchange gain on translation— — — — 2,334 80 2,414 
Balance as of March 31, 2023380,815,921 $612,235 $44,044 $471,513 $1,537 $(2,929)$1,126,400 
Activities relating to share-based compensation273,436 917 1,273 — — — 2,190 
Net loss— — — (8,360)— (137)(8,497)
Foreign exchange gain on translation— — — — 16,530 50 16,580 
Balance as of June 30, 2023381,089,357 $613,152 $45,317 $463,153 $18,067 $(3,016)$1,136,673 
Activities relating to share-based compensation24,207 138 1,816 — — — 1,954 
Net loss— — — (1,644)— (128)(1,772)
Foreign exchange gain (loss) on translation— — — — (20,177)87 (20,090)
Balance as of September 30, 2023381,113,564 $613,290 $47,133 $461,509 $(2,110)$(3,057)$1,116,765 

6
Cronos Group Inc.
Condensed Consolidated Statements of Changes in Equity
For the nine months ended September 30, 2023 and 2022
(In thousands of U.S. dollars, except share amounts, unaudited)
Number of sharesShare capitalAdditional paid-in capitalRetained earnings Accumulated other comprehensive income (loss)Non-controlling interestsTotal shareholders’ equity
Balance as of January 1, 2022374,952,693 $595,497 $32,465 $659,416 $49,865 $(2,967)$1,334,276 
Activities relating to share-based compensation347,287 871 2,900 — — — 3,771 
Net loss— — — (32,638)— (15)(32,653)
Foreign exchange gain (loss) on translation— — — — 16,223 (246)15,977 
Balance as of March 31, 2022375,299,980 $596,368 $35,365 $626,778 $66,088 $(3,228)$1,321,371 
Activities relating to share-based compensation395,156 2,251 (167)— — — 2,084 
Share issuance pursuant to research and development milestones2,201,235 6,007 — — — — 6,007 
Net loss— — — (20,221)— (117)(20,338)
Foreign exchange gain (loss) on translation— — — — (24,400)239 (24,161)
Balance as of June 30, 2022377,896,371 $604,626 $35,198 $606,557 $41,688 $(3,106)$1,284,963 
Activities relating to share-based compensation449,889 603 3,124 — — — 3,727 
Net income (loss)— — — (36,991)— 105 (36,886)
Foreign exchange gain (loss) on translation— — — — (60,668)96 (60,572)
Balance as of September 30, 2022378,346,260 $605,229 38,322 569,566 (18,980)(2,905)1,191,232 

See notes to condensed consolidated interim financial statements.
7
Cronos Group Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands of U.S. dollars, except share amounts, unaudited)

Nine months ended September 30,
20232022
Operating activities
Net loss$(29,526)$(89,877)
 Adjustments to reconcile net loss to cash used in operating activities:
Share-based compensation6,840 10,567 
Depreciation and amortization6,933 10,499 
Impairment loss on long-lived assets205 3,493 
Impairment loss on other investments— 40,210 
Loss (gain) from investments7,103 (23,283)
Loss (gain) on revaluation of derivative liabilities14 (14,204)
Changes in expected credit losses on long-term financial assets(1,339)(577)
Foreign currency transaction (gain) loss
(3,999)2,337 
Other non-cash operating activities, net(1,918)3,680 
Changes in operating assets and liabilities:
Accounts receivable, net6,976 1,172 
Interest receivable(14,601)(5,332)
Other receivables25 3,601 
Prepaids and other current assets1,074 (904)
Inventory976 (4,241)
Accounts payable(7,595)(1,627)
Income taxes payable(32,728)— 
Accrued liabilities1,910 (90)
Cash flows used in operating activities(59,650)(64,576)
Investing activities
Purchase of short-term investments(537,186)(275,370)
Proceeds from short-term investments380,765 116,925 
Dividends received from equity method investment1,301 — 
Dividend proceeds
346 — 
Proceeds from repayment on loan receivables14,151 2,339 
Purchase of property, plant and equipment(1,287)(3,087)
Purchase of intangible assets(344)(1,177)
Other investing activities862 70 
Cash flows used in investing activities(141,392)(160,300)
Financing activities
Withholding taxes paid on share-based awards(812)(2,208)
Other financing activities, net— (69)
Cash flows used in financing activities(812)(2,277)
Effect of foreign currency translation on cash and cash equivalents8,866 (26,524)
Net change in cash and cash equivalents(192,988)(253,677)
Cash and cash equivalents, beginning of period764,644 886,973 
Cash and cash equivalents, end of period$571,656 $633,296 
Supplemental cash flow information
Interest paid$— $— 
Interest received$22,203 $7,734 
Income taxes paid$33,013 $158 

See notes to condensed consolidated interim financial statements.

8
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
1. Background, Basis of Presentation, and Summary of Significant Accounting Policies
(a)Background
Cronos Group Inc. (“Cronos” or the “Company”) is incorporated in the province of British Columbia under the Business Corporations Act (British Columbia) with principal executive offices at 111 Peter St., Suite 300, Toronto, Ontario, M5V 2H1. The Company’s common shares are currently listed on the Toronto Stock Exchange (“TSX”) and Nasdaq Global Market (“Nasdaq”) under the ticker symbol “CRON.”
Cronos is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio. Cronos’ diverse international brand portfolio includes Spinach®, PEACE NATURALS® and Lord Jones®.
The Company continues to monitor the conflict in Israel and potential impacts the conflict could have on the Company’s personnel and business in Israel and the recorded amounts of assets and liabilities related to the Company’s operations in Israel. The extent to which the conflict may impact the Company’s personnel, business and activities will depend on future developments which remain highly uncertain and cannot be predicted. It is possible that the recorded amounts of assets and liabilities related to the Company’s operations in Israel could change materially in the near term.
(b)Basis of presentation
These condensed consolidated interim financial statements of Cronos Group are unaudited. They have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”) for interim financial information and with applicable rules and regulations of the U.S. Securities and Exchange Commission relating to interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for any other reporting period.
These condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”).
Certain prior period amounts have been reclassified to conform to the current year presentation of our condensed consolidated interim financial statements. These reclassifications had no effect on the reported results of operations and ending shareholders’ equity.
(c)Discontinued Operations
In the second quarter of 2023, the Company exited its U.S. hemp-derived cannabinoid product operations. The exit of the U.S. operations represented a strategic shift that has a major effect on the Company’s operations and financial results, and as such, qualifies for reporting as discontinued operations in our condensed consolidated statements of net loss and comprehensive loss. Prior period amounts have been reclassified to reflect the discontinued operations classification of the U.S. operations. For more information, see Note 2 “Discontinued Operations”.
(d)Segment information
Segment reporting is prepared on the same basis that the Company’s chief operating decision maker (the “CODM”) manages the business, makes operating decisions and assesses the Company’s performance. Historically, the Company has reported results for two reportable segments, the U.S. and Rest of World. In the second quarter of 2023, as a result of the Company’s exit of its then-existing U.S. operations, the Company determined that it has one operating segment and therefore one reportable segment, which is comprised of operations in Canada and Israel and is involved in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets. All prior period segment disclosure information has been reclassified to conform to the current reporting structure in this Form 10-Q. These reclassifications had no effect on our consolidated financial statements in any period presented.
(e)Revenue recognition
The following tables present the Company's revenue by major product category for continuing operations:
9
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
Three months ended September 30,
20232022
Cannabis flower$17,414 $13,674 
Cannabis extracts7,268 6,627 
Other128 108 
Net revenue$24,810 $20,409 
Nine months ended September 30,
20232022
Cannabis flower$44,556 $48,038 
Cannabis extracts18,495 16,197 
Other275 481 
Net revenue$63,326 $64,716 
Net revenue attributed to a geographic region based on the location of the customer were as follows for continuing operations:
Three months ended September 30,
20232022
Canada$18,738 $13,370 
Israel5,673 7,039 
Other countries399 — 
Net revenue$24,810 $20,409 
Nine months ended September 30,
20232022
Canada$46,767 $41,335 
Israel16,160 23,381 
Other countries399 — 
Net revenue$63,326 $64,716 
(f)Concentration of risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk from its operating activities, primarily accounts receivable and other receivables, and its investing activities, including cash held with banks and financial institutions, short-term investments and loans receivable. The Company’s maximum exposure to this risk is equal to the carrying amount of these financial assets, which amounted to $945,179 and $987,836 as of September 30, 2023 and December 31, 2022, respectively.
An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on the days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Accounts receivable are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan and a failure to make contractual payments for a period of greater than 120 days past due. As of September 30, 2023 and December 31, 2022, the Company had $45 and $2, respectively, in expected credit losses that have been recognized on receivables from contracts with customers.
As of September 30, 2023, the Company assessed that there is a concentration of credit risk, as 43% of the Company’s accounts receivable were due from two customers with an established credit history with the Company. As of December 31, 2022, 56% of the Company’s accounts receivable were due from three customers with an established credit history with the Company.
10
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
The Company sells products to a limited number of major customers. Major customers are defined as customers that each individually accounted for greater than 10% of the Company’s revenue. During the three months ended September 30, 2023, the Company earned a total net revenue before excise taxes of $22,618 from three major customers, together accounting for 67% of the Company’s total net revenues before excise taxes. During the three months ended September 30, 2022, the Company earned a total net revenue before excise taxes of $12,094 from three major customers, together accounting for 60% of the Company’s total net revenues before excise taxes. During the nine months ended September 30, 2023, the Company earned a total net revenue before excise taxes of $57,398 from three major customers, together accounting for 67% of the Company’s total net revenues before excise taxes. During the nine months ended September 30, 2022, the Company earned a total net revenue before excise taxes of $36,564 from three major customers, together accounting for 58% of the Company’s total net revenues before excise taxes.
(g)Adoption of new accounting pronouncements
On January 1, 2023, the Company adopted ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”). ASU 2022-02 eliminates the existing troubled debt restructuring recognition and measurement guidance, and instead aligns the accounting treatment to that of other loan modifications. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU 2022-02 also requires that entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. The adoption of ASU 2022-02 did not have a material impact on the Company’s condensed consolidated interim financial statements.
(h)New accounting pronouncements not yet adopted
In June 2022, the Financial Accounting Standards Board (“FASB”) issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered in measuring fair value. The amendments also require additional disclosures for equity securities subject to contractual sale restrictions. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, and we expect to adopt ASU 2022-03 prospectively. The Company does not expect the adoption of ASU 2022-03 to have a material impact on its condensed consolidated interim financial statements.
2. Discontinued Operations
In the second quarter of 2023, the Company exited its then-existing U.S. hemp-derived cannabinoid product operations. Accordingly, the net loss of the U.S. operations for the three and nine months ended September 30, 2023 and 2022 are reported separately as loss from discontinued operations on the condensed consolidated statements of net loss and comprehensive loss.
11
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
The following table presents the major components comprising loss from discontinued operations in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022:
Three months ended September 30,Nine months ended September 30,
2023202220232022
Net revenue$— $514 $1,029 $4,301 
Cost of sales— 2,501 2,044 6,274 
Inventory write-down(i)
— — 839 — 
Gross profit— (1,987)(1,854)(1,973)
Operating expenses
Sales and marketing— 676 518 4,075 
Research and development
— 28 20 254 
General and administrative190 813 926 2,769 
Restructuring costs28 137 562 1,482 
Share-based compensation(4)18 17 121 
Depreciation and amortization— 11 13 49 
Impairment loss on long-lived assets(ii)
— — 205 — 
Total operating expenses214 1,683 2,261 8,750 
Interest income1 1 9 2 
Other, net(iii)
31 (112)(132)(159)
Total other income (loss)
32 (111)(123)(157)
Loss before income taxes(182)(3,781)(4,238)(10,880)
Income tax expense (benefit)— — — — 
Net loss from discontinued operations$(182)$(3,781)$(4,238)$(10,880)
(i)For the nine months ended September 30, 2023, Inventory write-down relates to the disposal of obsolete inventory as a result of the exit of the U.S. operations.
(ii)During the nine months ended September 30, 2023, as a result of the exit of the U.S. operations, the Company recognized an impairment charge of $205 related to the right-of-use lease assets associated with the Company’s former U.S. manufacturing facility in Los Angeles, California.
(iii)For the three and nine months ended September 30, 2023 and September 30, 2022, Other, net related to gain and loss on disposal of assets that were part of the U.S. operations.

The following tables present the Company's discontinued operations revenue by major product category:
Three months ended September 30,
20232022
Cannabis extracts— 514 
Net revenue$— $514 
Nine months ended September 30,
20232022
Cannabis extracts1,029 4,301 
Net revenue$1,029 $4,301 
12
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
The following tables summarize the Company’s discontinued operations restructuring activity for the three and nine months ended September 30, 2023 and 2022:
Accrual as of June 30, 2023ExpensesPayments/Write-offsAccrual as of September 30, 2023
Employee Termination Benefits$219 $28 $(169)$78 
Other Restructuring Costs92 — (92)— 
Total$311 $28 $(261)$78 
Accrual as of January 1, 2023ExpensesPayments/Write-offsAccrual as of September 30, 2023
Employee Termination Benefits$— $470 $(392)$78 
Other Restructuring Costs— 92 (92)— 
Total$— $562 $(484)$78 
Accrual as of June 30, 2022ExpensesPayments/Write-offsAccrual as of September 30, 2022
Employee Termination Benefits$66 $137 $(93)$110 
Total$66 $137 $(93)$110 
Accrual as of January 1, 2022ExpensesPayments/Write-offsAccrual as of September 30, 2022
Employee Termination Benefits$— $1,482 $(1,372)$110 
Total$— $1,482 $(1,372)$110 
The following table presents a reconciliation of assets and liabilities of the discontinued operations presented in the condensed consolidated balance sheets:
As of September 30, 2023As of December 31, 2022
Assets
Current assets
Cash and cash equivalents$900 $2,300 
Accounts receivable, net— 253 
Other receivables— 775 
Prepaids and other current assets5 464 
Inventory, net— 934 
Current assets of discontinued operations905 4,726 
Non-current assets
Property, plant and equipment, net— 254 
Right-of-use assets— 430 
Intangible assets, net— 1,594 
Non-current assets of discontinued operations— 2,278 
Liabilities
Current liabilities
Accounts payable— 166 
Accrued liabilities210 807 
Current portion of lease obligation— 415 
Current liabilities of discontinued operations$210 $1,388 
13
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
For the nine months ended September 30, 2023, purchases of property plant and equipment related to discontinued operations were $67. For the nine months ended September 30, 2022, purchases of property plant and equipment related to discontinued operations were $133.
3. Inventory, net
Inventory, net is comprised of the following items:
As of September 30, 2023As of December 31, 2022
Raw materials$6,739 $7,421 
Work-in-progress11,665 15,646 
Finished goods16,536 13,503 
Supplies and consumables907 989 
Total$35,847 $37,559 
4. Investments
(a)Equity method investments, net
A reconciliation of the carrying amount of the investments in equity method investees, net is as follows:
Ownership interestAs of September 30, 2023As of December 31, 2022
Cronos Growing Company Inc. (“Cronos GrowCo”)
50%$18,258 $18,755 
$18,258 $18,755 
The following is a summary of the Company’s share of net gain (loss) from equity method investments:
For the three months ended September 30,For the nine months ended September 30,
2023202220232022
Cronos GrowCo$1,057 $(1,119)$831 $4,078 
$1,057 $(1,119)$831 $4,078 
(b)Other investments
Other investments consist of investments in common shares and options of two companies in the cannabis industry.
PharmaCann, Inc.
In 2021, the Company purchased an option (the “PharmaCann Option”) to acquire 473,787 shares of Class A Common Stock of PharmaCann, Inc. (“PharmaCann”), a vertically integrated cannabis company in the United States, which represented an ownership interest of approximately 10.5% as of the purchase date of the PharmaCann Option, for an aggregate purchase price of approximately $110,392. The PharmaCann Option is classified as an equity security without a readily determinable fair value. The Company has elected to measure the fair value of the PharmaCann Option at cost less impairment, if any, and subsequently adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. As of September 30, 2023, the Company’s proforma ownership percentage in PharmaCann on a fully-diluted basis was approximately 6.3%. The decrease in the Company’s ownership percentage since acquisition does not materially affect the Company’s rights under the PharmaCann Option. The PharmaCann Option is measured at fair value on a non-recurring basis and is a level 3 asset. See Note 11 “Fair Value Measurements” for more information on the fair value hierarchy.
Vitura Health Limited (formerly known as Cronos Australia)
The Company owns approximately 10% of the outstanding common shares of Vitura Health Limited (“Vitura”). The investment is considered an equity security with a readily determinable fair value. Changes in the fair value of the investment are recorded as gain (loss) on revaluation of financial instruments on the condensed consolidated statements of net loss and comprehensive loss. During the three months ended September 30, 2023, Vitura declared a dividend of A$0.01 per ordinary share. Based on the Company’s holding of 55,176,065 ordinary shares in the capital of Vitura, the Company recorded dividend income of $346 within other, net on the condensed consolidated statements of net loss and comprehensive loss.
14
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
The following table summarizes the Company’s other investments activity:
As of July 1, 2023Unrealized lossImpairment chargesForeign exchange effectAs of September 30, 2023
PharmaCann$49,000 $— $— $— $49,000 
Vitura18,925 (5,204)— (578)13,143 
$67,925 $(5,204)$— $(578)$62,143 
As of January 1, 2023Unrealized lossImpairment chargesForeign exchange effectAs of September 30, 2023
PharmaCann$49,000 $— $— $— $49,000 
Vitura21,993 (7,933)— (917)13,143 
$70,993 $(7,933)$— $(917)$62,143 
As of July 1, 2022Unrealized gainImpairment chargesForeign exchange effectAs of September 30, 2022
PharmaCann$99,154 $— $(28,972)$— $70,182 
Vitura9,515 17,118 — (2,258)24,375 
$108,669 $17,118 $(28,972)$(2,258)$94,557 
As of January 1, 2022Unrealized gainImpairment chargesForeign exchange effectAs of September 30, 2022
PharmaCann$110,392 $— $(40,210)$— $70,182 
Vitura8,000 19,114 — (2,739)24,375 
$118,392 $19,114 $(40,210)$(2,739)$94,557 
During both the three months ended March 31, 2022, and the three months ended September 30, 2022, the Company identified adverse forecast changes in the financial performance of PharmaCann as indicators of impairment related to the PharmaCann Option and conducted analyses comparing the PharmaCann Option’s carrying amount to its estimated fair value. The fair value was estimated using a combination of the market and income approaches. Under the income approach, significant inputs used in the discounted cash flow method were the discount rate, growth rates, cash flow projections, and the timing of federal 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. As a result of this analysis, the Company recorded non-cash impairment charges of $11,238 and $28,972 during the three months ended March 31, 2022, and September 30, 2022, respectively, as the difference between the carrying amount of the PharmaCann Option and its estimated fair value in the condensed consolidated statements of net loss and comprehensive loss.
15
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
5. Loans Receivable, net
Loans receivable, net consists of the following:
As of September 30, 2023As of December 31, 2022
GrowCo Credit Facility
$4,911 $4,427 
Add: Current portion of accrued interest246 4,463 
Total current portion of loans receivable5,157 8,890 
GrowCo Credit Facility
53,350 56,898 
Mucci Promissory Note
13,051 13,438 
Cannasoul Collaboration Loan1,683 1,837 
Add: Long-term portion of accrued interest217 172 
Total long-term portion of loans receivable68,301 72,345 
Total loans receivable, net$73,458 $81,235 
Cronos GrowCo Credit Facility
On August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into a senior secured credit agreement for an aggregate principal amount of C$100,000 (the “GrowCo Credit Facility”). The GrowCo Credit Facility is secured by substantially all present and after-acquired personal and real property of Cronos GrowCo. In August 2021, the GrowCo Credit Facility was amended to increase the aggregate principal amount available to C$105,000. As of both September 30, 2023, and December 31, 2022, Cronos GrowCo had drawn C$104,000 ($76,600 and $76,730, respectively) from the GrowCo Credit Facility. The interest rate on the outstanding borrowings is the Canadian Prime Rate plus 1.25%, with interest payments due on December 2021, December 2022, and quarterly thereafter. Principal payments of C$1,000 commenced in March 2022 and are due quarterly thereafter. For the three months ended September 30, 2023, Cronos GrowCo repaid C$1,666 ($1,076) in principal and C$2,032 ($1,189) in interest related to the GrowCo Credit Facility. For the nine months ended September 30, 2023, Cronos GrowCo repaid C$5,833 ($4,170) in principal and C$11,458 ($8,430) in interest related to the GrowCo Credit Facility. As of September 30, 2023, Cronos GrowCo had repaid C$9,833 ($7,243) and C$18,518 ($13,639) in principal and interest, respectively, under the terms of the GrowCo Credit Facility.
Mucci Promissory Note
On June 28, 2019, the Company entered into a promissory note receivable agreement (the “Mucci Promissory Note”) for C$16,350 (approximately $12,042) with the Cronos GrowCo joint venture partner (“Mucci”). The Mucci Promissory Note is secured by a general security agreement covering all the assets of Mucci. On September 30, 2022, the Mucci Promissory Note was amended and restated to increase the interest rate from 3.95% to the Canadian Prime Rate plus 1.25%, change the interest payments from quarterly to annual, and defer Mucci’s initial cash interest payment from September 30, 2022 to July 1, 2023.
Prior to July 1, 2022, interest accrued on the Mucci Promissory Note was capitalized as part of the principal balance. As of July 1, 2022, interest was accrued and to be paid in cash beginning on July 1, 2023. Prior to 2023, there were no repayments of principal or interest on the Mucci Promissory Note. For the nine months ended September 30, 2023, Mucci repaid C$563 ($415) in principal and C$1,187 ($874) in interest related to the Mucci Promissory Note. For the three months ended September 30, 2023, there were no repayments of principal or interest on the Mucci Promissory Note.
Cannasoul Collaboration Loan
As of both September 30, 2023 and December 31, 2022, Cannasoul Lab Services Ltd. has received ILS 8,297 (approximately $2,175 and $2,359, respectively), from the Cannasoul Collaboration Loan.
16
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
Expected credit loss allowances on the Company’s long-term financial assets for the three and nine months ended September 30, 2023 and 2022 were comprised of the following items:
As of July 1, 2023
Increase (decrease)(i)
Foreign exchange effectAs of September 30, 2023
GrowCo Credit Facility$11,579 $(199)$(283)$11,097 
Mucci Promissory Note86 2 (2)86 
Cannasoul Collaboration Loan503 4 (14)493 
$12,168 $(193)$(299)$11,676 
As of July 1, 2022
Increase (decrease)(i)
Foreign exchange effectAs of September 30, 2022
GrowCo Credit Facility$13,293 $74 $(929)$12,438 
Mucci Promissory Note91 1 (6)86 
Cannasoul Collaboration Loan377 3 (8)372 
$13,761 $78 $(943)$12,896 
As of January 1, 2023
Increase (decrease)(i)
Foreign exchange effectAs of September 30, 2023
GrowCo Credit Facility$12,455 $(1,348)$(10)$11,097 
Mucci Promissory Note89 (3)— 86 
Cannasoul Collaboration Loan522 12 (41)493 
$13,066 $(1,339)$(51)$11,676 
As of January 1, 2022Increase (decrease)Foreign exchange effectAs of September 30, 2022
GrowCo Credit Facility$14,089 $(590)$(1,061)$12,438 
Mucci Promissory Note90 3 (7)86 
Cannasoul Collaboration Loan415 10 (53)372 
$14,594 $(577)$(1,121)$12,896 
(i)During the three and nine months ended September 30, 2023, $193 and $1,339, respectively, were recorded as decreases to general and administrative expenses on the condensed consolidated statements of net loss and comprehensive loss as a result of principal and interest payments made by Cronos GrowCo reducing our expected credit losses on loans receivable. During the three months ended September 30, 2022, $78 was recorded as an increase to general and administrative expenses on the condensed consolidated statements of net loss and comprehensive loss as a result of adjustments to our expected credit losses. During the nine months ended September 30, 2022, $577 was recorded as a decrease to general and administrative expenses on the condensed consolidated statements of net loss and comprehensive loss as a result of adjustments to our expected credit losses.
6. Derivative Liabilities
Pursuant to the investor rights agreement (the “Investor Rights Agreement”) between the Company and Altria Group Inc. (“Altria”), the Company granted Altria certain rights, among others, summarized in this note.
The summaries below are qualified entirely by the terms and conditions fully set out in the Investor Rights Agreement.
a.The Company granted to Altria, subject to certain qualifications and limitations, upon the occurrence of certain issuances of common shares of the Company executed by the Company (including issuances pursuant to the research and development (“R&D”) partnership with Ginkgo Bioworks Holdings, Inc. (“Ginkgo”)), the right to purchase up to such number of common shares of the Company in order to maintain its ownership percentage of issued and outstanding common shares of the Company immediately preceding any issuance of shares by the Company (“Pre-emptive Rights”), at the same price per common share of the Company at which the common shares are sold in the relevant issuance; provided that if the consideration paid in connection with any such issuance is non-cash, the price per common share of the Company that would have been received had such common shares been issued for cash consideration will be determined by an independent committee (acting reasonably and in good faith); provided further that the price per common share of the Company to be paid by Altria pursuant to its exercise of its Pre-emptive Rights related to the Ginkgo Collaboration Agreement will be C$16.25 per common share. These rights may not be exercised if Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20%.
17
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
b.In addition to (and without duplication of) the Pre-emptive Rights, the Company granted to Altria, subject to certain qualifications and limitations, the right to subscribe for common shares of the Company issuable in connection with the exercise, conversion or exchange of convertible securities of the Company issued prior to March 8, 2019 or thereafter (excluding any convertible securities of the Company owned by Altria or any of its subsidiaries), a share incentive plan of the Company, the exercise of any right granted by the Company pro rata to all shareholders of the Company to purchase additional common shares and/or securities of the Company, bona fide bank debt, equipment financing or non-equity interim financing transactions that contemplate an equity component or bona fide acquisitions (including acquisitions of assets or rights under a license or otherwise), mergers or similar business combination transactions or joint ventures involving the Company in order to maintain their ownership percentage of issued and outstanding common shares of the Company immediately preceding any such transactions (“Top-up Rights”).
The price per common share to be paid by Altria pursuant to the exercise of its Top-up Rights will be, subject to certain limited exceptions, the 10-day volume-weighted average price of the common shares of the Company on the TSX for the 10 full days preceding such exercise by Altria; provided that the price per common share of the Company to be paid by Altria pursuant to the exercise of its Top-up Rights in connection with the issuance of common shares of the Company pursuant to the exercise of options or warrants that were outstanding as of March 8, 2019 will be C$16.25 per common share without any set off, counterclaim, deduction, or withholding. These rights may not be exercised if Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20%. The Pre-emptive Rights, and fixed price Top-up Rights have been classified as derivative liabilities on the Company’s consolidated balance sheet.
As of September 30, 2023, Altria beneficially held 156,573,537 of the Company’s common shares, an approximate 41% ownership interest in the Company (calculated on a non-diluted basis).
Reconciliation of the Company’s derivative liabilities activity are as follows:
As of July 1, 2023Revaluation (gain) lossForeign exchange effectAs of September 30, 2023
Pre-emptive Rights$37 $(7)$(1)$29 
Top-up Rights— (1)1 — 
$37 $(8)$— $29 
As of July 1, 2022Revaluation gain
Foreign exchange effect
As of September 30, 2022
Altria Warrant$491 $(336)$(121)$34 
Pre-emptive Rights16 (18)2 — 
Top-up Rights67 (21)(7)39 
$574 $(375)$(126)$73 
As of January 1, 2023Revaluation (gain) lossForeign exchange effectAs of September 30, 2023
Pre-emptive Rights$— $29 — $29 
Top-up Rights15 (15)— — 
$15 $14 $— $29 
As of January 1, 2022Revaluation gainForeign exchange effectAs of September 30, 2022
Altria Warrant$13,720 $(13,592)$(94)$34 
Pre-emptive Rights180 (182)2 — 
Top-up Rights475 (430)(6)39 
$14,375 $(14,204)$(98)$73 
Fluctuations in the expected life of the derivative instruments and the Company’s share price are primary drivers for the changes in the derivative valuations during each reporting period. As the period of time that the derivative liability is expected to be outstanding decreases and the share price decreases, the fair value typically decreases for each related derivative instrument. Weighted-average expected life and share price are two of the significant observable inputs used in the fair value measurement of each of the Company’s derivative instruments.
18
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
The fair values of the derivative liabilities were determined using the Black-Scholes pricing model using the following inputs:
As of September 30, 2023
Pre-emptive RightsTop-up Rights
Share price at valuation date (per share in C$)$2.71$2.71
Subscription price (per share in C$)$16.25$16.25
Weighted-average risk-free interest rate(i)
5.01%5.03%
Weighted-average expected life (in years)(ii)
1.250.85
Expected annualized volatility(iii)
61%57%
Expected dividend yield—%—%
As of December 31, 2022
Pre-emptive RightsTop-up Rights
Share price at valuation date (per share in C$)$3.44$3.44
Subscription price (per share in C$)$16.25$16.25
Weighted-average risk-free interest rate(i)
4.14%4.28%
Weighted-average expected life (in years)(ii)
0.250.59
Expected annualized volatility(iii)
73%73%
Expected dividend yield—%—%
(i)The risk-free interest rate was based on Bank of Canada government treasury bills and bonds with a remaining term equal to the expected life of the derivative liabilities. As of September 30, 2023 and December 31, 2022, the risk-free interest rate uses a range of approximately 4.79% to 5.05% and 3.81% to 4.37%, respectively, for the Pre-emptive Rights and Top-up Rights.
(ii)The expected life represents the period of time, in years, that the derivative liabilities are expected to be outstanding. The expected life of the Pre-emptive Rights and Top-up Rights is determined based on the expected term of the underlying options, warrants, and shares, to which the Pre-emptive Rights and Top-up Rights are linked. As of September 30, 2023 and December 31, 2022, the expected life uses a range of approximately 0.75 years to 2.00 years and 0.25 years to 2.75 years, respectively, for the Pre-emptive Rights and Top-up Rights.
(iii)Volatility was based on an equally weighted blended historical and implied volatility level of the underlying equity securities of the Company.
7. Restructuring
In the first quarter of 2022, the Company initiated a strategic plan to realign the business around its brands, centralize functions and evaluate the Company’s supply chain (the “Realignment”). As part of the Realignment, on February 28, 2022, the Board approved plans to leverage the Company’s strategic partnerships to improve supply chain efficiencies and reduce manufacturing overhead by exiting its production facility in Stayner, Ontario, Canada (the “Peace Naturals Campus”). On February 27, 2023, the Board approved revisions to the Realignment, which are expected to result in the Company maintaining select components of its operations at the Peace Naturals Campus, namely distribution warehousing, certain research and development activities and manufacturing of certain of the Company’s products, while seeking to sell and lease back all or some of the Peace Naturals Campus or to lease certain portions of the Peace Naturals Campus to third parties. In the third quarter of 2023, the Board approved revisions to the Realignment to wind-down operations at its Winnipeg, Manitoba facility (“Cronos Fermentation”), list the Cronos Fermentation facility for sale, and implement additional organization-wide cost reductions as the Company continues its Realignment initiatives. The Realignment initiatives were intended to position the Company to drive profitable and sustainable growth over time. During the three months ended September 30, 2023, the Company performed an assessment under ASC 360, Property Plant and Equipment, of the recovery of the carrying value of the Canada asset group, which includes Cronos Fermentation, and determined the carrying value of the asset group was recoverable. As of September 30, 2023, Cronos Fermentation did not meet the criteria to be classified as held-for-sale.
During both the three and nine months ended September 30, 2023, the Company incurred $1,423 of restructuring costs in its continuing operations in connection with the Realignment. During the three and nine months ended September 30, 2022, the Company recognized $387 and $3,396, respectively, of restructuring costs in continuing operations in connection with the Realignment. Charges related thereto include employee-related costs such as severance, relocation and other termination benefits, as well as contract termination and other related costs. During the three and nine months ended September 30, 2023, as a result of the decision to wind down operations at Cronos Fermentation, the Company recognized an inventory write-down of $716 related to certain obsolete raw materials. Restructuring costs and inventory write-downs incurred in the Company’s discontinued operations during the three and nine months ended September 30, 2023 and 2022 is presented in Note 2 “Discontinued Operations.”
19
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
The following table summarizes the Company’s restructuring activity for the three and nine months ended September 30, 2023 and 2022:
Accrual as of July 1, 2023ExpensesPayments/Write-offsAccrual as of September 30, 2023
Employee Termination Benefits$61 $1,420 $(947)$534 
Other Restructuring Costs— 3 (3)— 
Total$61 $1,423 $(950)$534 
Accrual as of January 1, 2023ExpensesPayments/Write-offsAccrual as of September 30, 2023
Employee Termination Benefits$403 $1,420 $(1,289)$534 
Other Restructuring Costs21 3 (24)— 
Total$424 $1,423 $(1,313)$534 
Accrual as of July 1, 2022ExpensesPayments/Write-offsAccrual as of September 30, 2022
Employee Termination Benefits$822 $195 $(569)$448 
Other Restructuring Costs21 192 (192)21 
Total$843 $387 $(761)$469 
Accrual as of January 1, 2022ExpensesPayments/Write-offsAccrual as of September 30, 2022
Employee Termination Benefits$— $1,785 $(1,337)$448 
Other Restructuring Costs— 1,611 (1,590)21 
Total$— $3,396 $(2,927)$469 
8. Share-based Compensation
(a)Share-based award plans
The Company has granted stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”) to employees and non-employee directors under the Stock Option Plan dated May 26, 2015 (the “2015 Stock Option Plan”), the 2018 Stock Option Plan dated June 28, 2018 (the “2018 Stock Option Plan” and, together with the 2015 Stock Option Plan, the “Prior Option Plans”), the Employment Inducement Award Plan #1 (the “Employment Inducement Award Plan”), the 2020 Omnibus Equity Incentive Plan dated March 29, 2020 (the “2020 Omnibus Plan”) and the DSU Plan dated August 10, 2019 (the “DSU Plan”). The Company can no longer make grants under the Prior Option Plans or the Employment Inducement Award Plan.
The following table summarizes the total share-based compensation expense associated with the Company’s stock options, RSUs and liability-classified awards for the three and nine months ended September 30, 2023 and 2022:
Three months ended September 30,For the nine months ended September 30,
2023202220232022
Stock options$35 $1,077 $1,141 $3,947 
RSUs1,922 2,573 5,682 5,902 
Liability-classified awards(i)
— 597 — 597 
Total share-based compensation$1,957 $4,247 $6,823 $10,446 
(i)Represents share-based payment awards conditionally approved for grant in the three months ended September 30, 2022 to one of the Company’s former executives for a fixed monetary value, but a variable number of shares. These awards were liability-classified until the number of shares was determined.
Vesting conditions for grants of options are determined by the Compensation Committee of the Company’s Board of Directors. The typical vesting for stock option grants made under the 2020 Omnibus Plan is annual vesting over three to five years with a maximum term of ten years. The typical vesting for stock option grants made under the Prior Option Plans is quarterly vesting over three to five years with a maximum term of seven years. The Prior Option Plans did not, and the 2020 Omnibus Plan does not, authorize grants of options with an exercise price below fair market value.
20
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
The following is a summary of the changes in stock options for the nine months ended September 30, 2023 and 2022:
Weighted-average exercise price (C$) (i)
Number of optionsWeighted-average remaining contractual term (years)
Balance as of January 1, 2023$10.57 5,350,600 0.73
Issuance of options2.96 188,317 
Cancellation, forfeiture and expiry of options7.75 (3,435,716)
Balance as of September 30, 2023$14.50 2,103,201 2.09
Exercisable as of September 30, 2023$16.02 1,845,841 1.50
Weighted-average exercise price (C$) (i)
Number of optionsWeighted-average remaining contractual term (years)
Balance as of January 1, 2022$7.75 8,939,330 2.70
Exercise of options2.81 (2,583,692)
Cancellation, forfeiture and expiry of options11.26 (186,992)
Balance as of September 30, 2022$9.71 6,168,646 2.97
Exercisable as of September 30, 2022$9.99 4,037,319 1.99
(i)The weighted-average exercise price reflects the conversion of foreign currency-denominated stock options translated into C$ using the average foreign exchange rate as of the date of issuance.
For the nine months ended September 30, 2023, the weighted-average fair value per option at grant date was C$2.07. The fair value of the options issued during the period was determined using the Black-Scholes option pricing model, using the following inputs:
2023
Share price at grant date (per share)$2.96
Exercise price (per option)$2.96
Risk-free interest rate3.22%
Expected life of options (in years)7
Expected annualized volatility72.68%
Expected dividend yield—
Weighted average Black-Scholes value at grant date (per option)$2.07
Forfeiture rate—
The following table summarizes stock options outstanding:
As of September 30, 2023As of December 31, 2022
2020 Omnibus Plan702,264 2,788,947 
2018 Stock Option Plan 1,400,937 1,422,069 
2015 Stock Option Plan — 1,139,584 
Total stock options outstanding2,103,201 5,350,600 
21
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
(b)Restricted share units
The following is a summary of the changes in RSUs for the nine months ended September 30, 2023 and 2022:
Weighted-average grant date fair value (C$)(ii)
Number of RSUs
Balance as of January 1, 2023$4.63 5,725,470 
Granted(i)
2.65 2,883,500 
Vested and issued5.13 (764,056)
Cancellation and forfeitures3.65 (510,342)
Balance as of September 30, 2023$3.86 7,334,572 
Weighted-average grant date fair value (C$)(ii)
Number of RSUs
Balance as of January 1, 2022$9.22 1,225,870 
Granted(i)
4.34 5,042,316 
Vested and issued8.56 (771,682)
Cancellation and forfeitures6.91 (168,610)
Balance as of September 30, 2022$4.77 5,327,894 
(i)RSUs granted in the period vest annually in equal installments over a three-year period from either the grant date or after a three or five year “cliff-period.” All RSUs are subject to such holder’s continued employment through each vesting date. The vesting of such RSUs is not subject to the achievement of any performance criteria.
(ii)The weighted-average grant date fair value reflects the conversion of foreign currency-denominated RSUs translated into C$ using the foreign exchange rate as of the date of issuance.
(c)Deferred share units
The following is a summary of the changes in DSUs for the nine months ended September 30, 2023 and 2022:
Financial liabilityNumber of DSUs
Balance as of January 1, 2023$674 265,732 
Granting and vesting of DSUs450 255,947 
Gain on revaluation(82)— 
Balance as of September 30, 2023$1,042 521,679 
Financial liabilityNumber of DSUs
Balance as of January 1, 2022$408 104,442 
Gain on revaluation(116)— 
Balance as of September 30, 2022$292 104,442 

22
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
9. Loss per Share
Basic and diluted loss per share from continuing and discontinued operations are calculated as follows (in thousands, except share and per share amounts):
Three months ended September 30,Nine months ended September 30,
2023202220232022
Basic and diluted loss per share computation
Net loss from continuing operations attributable to the shareholders of Cronos Group$(1,462)$(33,210)$(24,935)$(78,970)
Weighted-average number of common shares outstanding for computation for basic and diluted loss per share(i)
381,100,005 378,114,160 380,900,334 376,400,902 
Basic earnings (loss) from continuing operations per share$(0.00)$(0.09)$(0.07)$(0.21)
Diluted earnings (loss) per share from continuing operations$(0.00)$(0.09)$(0.07)$(0.21)
Loss from discontinued operations attributable to the shareholders of Cronos Group$(182)$(3,781)$(4,238)$(10,880)
Weighted-average number of common shares outstanding for computation for basic and diluted loss per share(i)
381,100,005 378,114,160 380,900,334 376,400,902 
Basic loss from discontinued operations per share$(0.00)$(0.01)$(0.01)$(0.03)
Diluted loss from discontinued operations per share$(0.00)$(0.01)$(0.01)$(0.03)
(i)In computing diluted loss per share, incremental common shares are not considered in periods in which a net loss is reported as the inclusion of the common share equivalents would be anti-dilutive.
For the three months ended September 30, 2023 and 2022, total securities of 23,340,811 and 117,100,621, respectively, were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive. For the nine months ended September 30, 2023 and 2022, total securities of 27,399,000 and 118,304,608, respectively, were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive.
10. Commitments and Contingencies
(a)Commitments
There have been no material changes in the information regarding commitments as disclosed in the Company’s Annual Report.
(b)Contingencies
The Company is subject to various legal proceedings in the ordinary course of its business and in connection with its marketing, distribution and sale of its products. Many of these legal proceedings are in the early stages of litigation and seek damages that are unspecified or not quantified. Although the outcome of these matters cannot be predicted with certainty, the Company does not believe these legal proceedings, individually or in the aggregate, will have a material adverse effect on its financial condition but could be material to its results of operations for a quarterly period depending, in part, on its results for that quarter.
(i)Class action complaints relating to restatement of 2019 interim financial statements
On March 11 and 12, 2020, two alleged shareholders of the Company separately filed two putative class action complaints in the U.S. District Court for the Eastern District of New York against the Company and its Chief Executive Officer and now former Chief Financial Officer. The court has consolidated the cases, and the consolidated amended complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder against all defendants, and Section 20(a) of the Exchange Act against the individual defendants. The consolidated amended complaint generally alleges that certain of the Company’s prior public statements about revenues and internal control were incorrect based on the Company’s disclosures relating to the Audit Committee of the Board’s review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel. The consolidated amended complaint does not quantify a damage request. Defendants moved to dismiss on February 8, 2021.
23
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
On June 3, 2020, an alleged shareholder filed a Statement of Claim, as amended on August 12, 2020, in the Ontario Superior Court of Justice in Toronto, Ontario, Canada, seeking, among other things, an order certifying the action as a class action on behalf of a putative class of shareholders and damages of an unspecified amount. The Amended Statement of Claim names (i) the Company, (ii) its Chief Executive Officer, (iii) now former Chief Financial Officer, (iv) former Chief Financial Officer and Chief Commercial Officer, and (v) current and former members of the Board as defendants and alleges breaches of the Ontario Securities Act, oppression under the Ontario Business Corporations Act and common law misrepresentation. The Amended Statement of Claim generally alleges that certain of the Company’s prior public statements about revenues and internal control were misrepresentations based on the Company’s March 2, 2020 disclosure that the Audit Committee of the Board was conducting a review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel, and the Company’s subsequent restatement. The Amended Statement of Claim does not quantify a damage request. On June 28, 2021, the Court dismissed motions brought by the plaintiff for leave to commence a claim for misrepresentation under the Ontario Securities Act and for certification of the action as a class action. The plaintiff appealed the Court’s dismissal of the motions only with respect to the Company, the Chief Executive Officer, and the now former Chief Financial Officer; the remaining defendants were dismissed from the matter with prejudice, and the Company and all individual defendants agreed not to seek costs from plaintiff in connection with the dismissal of the motions. On September 26, 2022, the Court of Appeal for Ontario reversed the Superior Court’s dismissal of the leave and certification motions, granted the plaintiff leave to proceed to bring a claim for misrepresentation under the Ontario Securities Act, and remitted the certification motion back to the Superior Court. On October 10, 2023, the Superior Court certified a class that includes shareholders that acquired shares on the TSX and NASDAQ exchanges.
(ii)Regulatory reviews relating to restatements
The Company has been responding to requests for information from various regulatory authorities relating to its previously disclosed restatement of its financial statements for the first three quarters of 2019 as well as the previously disclosed restatement of the second quarter of 2021 interim financial statements (collectively, the “Restatements”). The Company has been responding to all such requests for information and cooperating with all regulatory authorities.
SEC Settlement
On October 24, 2022, the SEC issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8(a) of the Securities Act of 1933 (the “Securities Act”) and Section 21(c) of the Exchange Act, Making Findings, and Imposing a Cease-and-Desist Order (the “Settlement Order”) resolving the Restatements.
The Company has agreed to settle with the SEC, without admitting or denying the allegations described in the Settlement Order. The Settlement Order fully and finally disposes of the investigation of the Company by the SEC into the Restatements without the payment of any civil penalty or other amount.
The Settlement Order required the Company to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 13a-13, 13a-15(a), 13a-16 and 12b-20 thereunder. Additionally, the Company agreed to certain undertakings, which include, among other things, retaining a qualified independent consultant (the “Consultant”) to engage in a review of, and make recommendations with respect to, certain of the Company’s internal accounting controls and internal control over financing reporting. The Consultant’s review has been completed.
As a result of the Settlement Order, the Company (i) lost its status as a well-known seasoned issuer for a period of three years, (ii) is unable to rely on the private offering exemptions provided by Regulations A and D under the Securities Act for a period of five years and (iii) is unable to rely on the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995 for a period of three years.
OSC Settlement
On October 24, 2022, the Ontario Capital Markets Tribunal approved a settlement agreement (the “Settlement Agreement”) between the Company and the staff of the OSC, resolving the Restatements.
Pursuant to the terms of the Settlement Agreement, which fully and finally disposed the investigation of the Company by the OSC, Cronos agreed to pay a total of C$1.34 million to fully settle the matter, and acknowledged that it had failed to comply with the requirement under Section 77 of the Securities Act (Ontario) to file interim financial reports in the manner set out therein and had acted in a manner contrary to the public interest. Additionally, the Company agreed to retain the Consultant to engage in a review of, and make recommendations with respect to, certain of the Company’s internal accounting controls and internal control over financing reporting, on substantially the same terms as were required by the SEC pursuant the Settlement Agreement. The Consultant’s review has been completed.
24
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
(iii)Litigation relating to marketing, distribution and sale of products
On April 17, 2023, a group of plaintiffs led by the Green Leaf (Ale Yarok) political party filed a Statement of Claim and Request for Approval of a Class Action on behalf of a purported class of Israeli cannabis consumers in the District Court of Tel Aviv, Israel, against 26 cannabis-related parties, including three Cronos Israel entities. The Statement of Claim alleges that the defendants violated certain laws relating to the marketing of medical cannabis products, including marketing to unlicensed cannabis consumers. The lawsuit seeks a total of ILS 420 million. The Cronos Israel defendants moved to dismiss the action on August 13, 2023.
11. Fair Value Measurements
The Company complies with ASC 820 Fair Value Measurements for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. In general, fair values are determined by:
•Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.
•Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves.
•Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis:
September 30, 2023
Level 1Level 2Level 3Total
Cash and cash equivalents$571,656 $— $— $571,656 
Short-term investments267,905 — — 267,905 
Other investments(i)
13,143 — — 13,143 
Derivative liabilities— — 29 29 
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Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
December 31, 2022
Level 1Level 2Level 3Total
Cash and cash equivalents$764,644 $— $— $764,644 
Short-term investments113,077 — — 113,077 
Other investments(i)
21,993 — — 21,993 
Derivative liabilities— — 15 15 
(i)As of September 30, 2023 and December 31, 2022, the Company’s influence on Vitura is deemed non-significant and the investment is considered an equity security with a readily determinable fair value. See Note 4 “Investments” for additional information.
There were no transfers between fair value categories during the periods presented.
The following tables present information about the Company’s assets that are measured at fair value on a non-recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
As of September 30, 2023
Level 1Level 2Level 3Total
Other investments(i)
— — 49,000 49,000 
As of December 31, 2022
Level 1Level 2Level 3Total
Other investments(i)
— — 49,000 49,000 
(i)On June 14, 2021, the Company purchased an option to acquire 473,787 shares of Class A Common Stock of PharmaCann, a vertically integrated cannabis company in the United States, at an exercise price of $0.0001 per share, representing approximately 10.5% of PharmaCann’s issued and outstanding capital stock on a fully diluted basis as of the date of the PharmaCann Option, for an aggregate purchase price of approximately $110,392. On February 28, 2022, PharmaCann closed its previously announced transaction with LivWell Holdings Inc. (“LivWell”) pursuant to which PharmaCann acquired LivWell (“the LivWell Transaction”). LivWell is a multi-state cannabis cultivation and retail leader based in Colorado. As a result of the LivWell Transaction, the Company’s ownership percentage in PharmaCann on a fully diluted basis decreased to approximately 6.4%. As of both September 30, 2023 and December 31, 2022, the Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 6.3%. See Note 4 “Investments.”
There were no transfers between fair value categories during the periods presented.
12. Impairment Loss on Long-lived Assets
(a)Right-of-use assets and property, plant, and equipment, net
During the nine months ended September 30, 2022, the Company recognized an impairment charge of $1,986 related to the right-of-use lease asset associated with the Company’s corporate headquarters, encompassing approximately 29,000 square feet, in Toronto, Ontario, Canada, for which the Company determined it would seek a sublease. In addition, the Company recognized an impairment charge of $1,507 during the nine months ended September 30, 2022 related to leasehold improvements and other office equipment that it plans to include in any potential sublease agreement. The determination to seek a sublease of the property and include leasehold improvements and other office equipment in any potential sublease agreement triggered the impairment charges. Both of the impairment charges are recognized as impairment loss on long-lived assets on the condensed consolidated statements of net loss and comprehensive loss.
13. Related Party Transactions
(a)Cronos GrowCo
The Company holds a variable interest in Cronos GrowCo through its ownership of 50% of Cronos GrowCo’s common shares and senior secured debt in Cronos GrowCo. See Note 4 “Investments” for additional information.
The Company made the following purchases of cannabis products from Cronos GrowCo:
Three months ended September 30,Nine months ended September 30,
2023202220232022
Cronos GrowCo - purchases$2,939 $2,158 $16,954 $10,973 
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Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
As of September 30, 2023, and December 31, 2022, the Company had payables outstanding to Cronos GrowCo of $307 and $2,519, respectively.
During the third quarter of 2023, the Company, as supplier, entered into a cannabis germplasm supply agreement with Cronos GrowCo as buyer. For germplasm supplied to GrowCo whose cannabis Cronos expects to purchase, a deferred inventory liability is recorded and subsequently amortized into cost of goods sold. For germplasm supplied to GrowCo whose cannabis Cronos expects to be sold to unrelated third parties, revenue is recorded. In relation to this agreement, Cronos recognized $353 of revenue and a reduction to cost of goods sold of $181 during both the three and nine months ended September 30, 2023. Also in relation to this agreement, Cronos recorded $126 of deferred inventory liabilities and a reduction to inventory of $2 as of September 30, 2023.
Also during the third quarter of 2023, the Company sold certain held for sale assets with carrying value of $324 and certain other previously expensed assets with a zero net book value to Cronos GrowCo and recognized a $433 gain.
Additionally, on August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into the GrowCo Facility. See Note 5 “Loans Receivable, net” for additional information.
(b)Vendor Agreement
In November 2022, the Company entered into an agreement with an external vendor whereby the vendor would provide certain manufacturing services to the Company. The vendor then subcontracted out a portion of those services to another company whose chief executive officer is an immediate family member of an executive of the Company. In late October 2023, the Company was negotiating a direct contract with the related party subcontractor.
During the three and nine months ended September 30, 2023, the Company purchased $406 and $1,842, respectively, of products and services under this agreement and had outstanding accounts payable related to the agreement of $15 and $nil as of September 30, 2023 and December 31, 2022, respectively.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read together with other information, including Cronos Group’s condensed consolidated interim financial statements and the related notes to those statements, included in Part I, Item 1 of this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 (this “Quarterly Report”), consolidated financial statements appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (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 U.S. Securities and Exchange Commission (“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:
•expectations related to the war between Israel and Hamas (the “Israel-Hamas War”) and its impact on our operations in Israel, the supply of product in the market and the demand for product among medical patients in Israel;
•expectations related to the German and Australian markets, including our strategic partnerships with Cansativa GmbH (“Cansativa”) and Vitura Health Limited (“Vitura”), respectively, and our plans to distribute the PEACE NATURALS® brand in Germany;
•expectations related to our announcement of additional cost-cutting measures, including our decision to wind-down operations at our Winnipeg, Manitoba facility and list the facility for sale, the expected costs and benefits from the wind-down of production activities at the facility, challenges and effects related thereto as well as changes in strategy, metrics, investments, costs, operating expenses, employee turnover and other changes with respect thereto;
•expectations related to the impact of our decision to exit our U.S. hemp-derived cannabinoid product operations, including the costs, expenses and write-offs associated therewith, the impact on our operations and our financial statements and any future plans to re-enter the U.S. market;
•expectations related to our announced realignment (the “Realignment”) and any progress, challenges and effects related thereto as well as changes in strategy, metrics, investments, reporting structure, costs, operating expenses, employee turnover and other changes with respect thereto;
•the timing of the change in the nature of operations at our facility in Stayner, Ontario (the “Peace Naturals Campus”) and the expected costs and benefits from the wind-down of certain production activities at the Peace Naturals Campus;
•our ability to effectively wind-down certain production activities at the Peace Naturals Campus in an organized fashion and acquire raw materials from other 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, including the strategic partnership (the “Ginkgo Strategic Partnership”) with Ginkgo Bioworks Holdings, Inc. (“Ginkgo”);
•our ability or plans to identify, develop, commercialize or expand our technology and research and development (“R&D”) initiatives in cannabinoids, or the success thereof;
•expectations regarding revenues, expenses, gross margins and capital expenditures;
•expectations regarding our future production and manufacturing strategy and operations, the costs and timing associated therewith and the receipt of applicable production and sale licenses;
•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;
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•the legalization of the use of cannabis for medical or adult-use in jurisdictions outside of Canada, including the United States and Germany, the related timing and impact thereof and our intentions to participate in such markets, if and when such use is legalized;
•the grant, renewal, withdrawal, suspension, delay and impact of any license or supplemental license to conduct activities with cannabis or any amendments thereof;
•our ability to successfully create and launch brands and cannabis products;
•expectations related to the differentiation of our products, including through the utilization of rare cannabinoids;
•the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, including CBD and other cannabinoids;
•laws and regulations and any amendments thereto applicable to our business and the impact thereof, including uncertainty regarding the application of United States (“U.S.”) state and federal law 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;
•the anticipated benefits and impact of Altria Group Inc.’s investment in the Company (the “Altria Investment”), pursuant to a subscription agreement dated December 7, 2018;
•uncertainties as to our ability to exercise our option (the “PharmaCann Option”) in PharmaCann Inc. (“PharmaCann”), in the near term or the future, in full or in part, including the uncertainties as to the status and future development of federal legalization of cannabis in the U.S. and our ability to realize the anticipated benefits of the transaction with PharmaCann;
•expectations regarding the implementation and effectiveness of key personnel changes;
•expectations regarding acquisitions and dispositions and the anticipated benefits therefrom;
•our ability to timely and effectively remediate any material weaknesses in our internal control over financial reporting;
•expectations of the amount or frequency of impairment losses, including as a result of the write-down of intangible assets, including goodwill;
•the uncertainties associated with the COVID-19 pandemic, including our ability, and the abilities of our joint ventures and our suppliers and distributors, to effectively deal with the restrictions, limitations and health issues presented by the COVID-19 pandemic, the ability to continue our production, distribution and sale of our products, and demand for and the use of our products by consumers;
•the impact of the ongoing military conflict between Russia and Ukraine (and resulting sanctions) on our business, financial condition and results of operations or cash flows;
•our compliance with the terms of the settlement with the SEC (the “Settlement Order”) and the settlement agreement with the Ontario Securities Commission (“Settlement Agreement”), including complying with any recommendations made by the independent consultant appointed pursuant to the Settlement Order and Settlement Agreement; and
•the impact of the loss of our ability to rely on private offering exemptions under Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), and the loss of our status as a well-known seasoned issuer, each as a result of the Settlement Order.
Certain of the Forward-Looking Statements contained herein concerning the industries in which we conduct our business are based on estimates prepared by us using data from publicly available governmental sources, market research, industry analysis and on assumptions based on data and knowledge of these industries, which we believe to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. The industries in which we conduct our business involve risks and uncertainties that are subject to change based on various factors, which are described further below.
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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 in the Israel-Hamas War and its impact on our employees and operations in Israel, the supply of product in the market and demand for product among medical patients in Israel; (ii) our ability to efficiently and effectively distribute our PEACE NATURALS® brand in Germany with our strategic partner Cansativa and our ability to efficiently and effectively distribute products in Australia with our strategic partner Vitura; (iii) our ability to efficiently and effectively wind-down our operations at our Winnipeg, Manitoba facility and realize the expected cost-savings and other benefits related thereto, (iv) our ability to efficiently and effectively wind-down our operations in the U.S. and realize the expected cost-savings and other benefits related thereto, (v) our ability to realize the expected cost-savings, efficiencies and other benefits of our Realignment and other announced cost-cutting measures and employee turnover related thereto; (vi) our ability to efficiently and effectively wind-down certain production activities at the Peace Naturals Campus, receive the benefits of the change in the nature of our operations at our Peace Naturals Campus and acquire raw materials on a timely and cost-effective basis from third parties, including Cronos GrowCo; (vii) our ability to realize anticipated benefits, synergies or generate revenue, profits or value from our acquisitions and strategic investments; (viii) the production and manufacturing capabilities and output from our facilities and our joint ventures, strategic alliances and equity investments; (ix) government regulation of our activities and products including, but not limited to, the areas of cannabis taxation and environmental protection; (x) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (xi) consumer interest in our products; (xii) our ability to differentiate our products, including through the utilization of rare cannabinoids; (xiii) competition; (xiv) anticipated and unanticipated costs; (xv) our ability to generate cash flow from operations; (xvi) our ability to conduct operations in a safe, efficient and effective manner; (xvii) our ability to hire and retain qualified staff, and acquire equipment and services in a timely and cost-efficient manner; (xviii) our ability to exercise the PharmaCann Option and realize the anticipated benefits of the transaction with PharmaCann; (xix) our ability to complete planned dispositions, and, if completed, obtain our anticipated sales price; (xx) our ability, and the abilities of our joint ventures and our suppliers and distributors, to effectively deal with the restrictions, limitations and health issues presented by the COVID-19 pandemic and the ability to continue our production, distribution and sale of our products and customer demand for and use of our products; (xxi) general economic, financial market, regulatory and political conditions in which we operate; (xxii) management’s perceptions of historical trends, current conditions and expected future developments; and (xxiii) other considerations that management believes to be appropriate in the circumstances. While our management considers these assumptions to be reasonable based on information currently available to management, there is no assurance that such expectations will prove to be correct.

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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 employees, business and operations in Israel due to the Israel-Hamas War, including that we may not be able to produce, import or sell our products or protect our people or facilities in Israel during the Israel-Hamas War, the supply of product in the market and the demand for product among medical patients in Israel; that we may not be able to successfully continue to distribute our products in Germany and Australia or generate material revenue from sales in those markets; that we may not be able to wind-down our operations at our Winnipeg, Manitoba facility in a disciplined and cost-effective manner or achieve the anticipated benefits thereof or be able to access raw materials on a timely and cost-effective basis from third-parties; that we may be unable to further streamline our operations and reduce expenses; that we may not be able to wind-down our U.S. operations in a disciplined and cost-effective manner or achieve the anticipated benefits thereof or be able to effectively and efficiently re-enter the U.S. market in the future; that we may not able to wind-down certain production activities at the Peace Naturals Campus in a disciplined manner or achieve the anticipated benefits of the change in the nature of our operations or be able to access raw materials on a timely and cost-effective basis from third-parties, including Cronos GrowCo; the risk that the COVID-19 pandemic and the military conflict between Russia and Ukraine may disrupt our operations and those of our suppliers and distribution channels and negatively impact the demand for and use of our products; the risk that cost savings and any other synergies from the Altria Investment may not be fully realized or may take longer to realize than expected; failure to execute key personnel changes; the risks that our Realignment, the change in the nature of our operations at the Peace Naturals Campus and our further leveraging of our strategic partnerships will not result in the expected cost-savings, efficiencies and other benefits or will result in greater than anticipated turnover in personnel; lower levels of revenues; the lack of consumer demand for our cannabis products; our inability to reduce expenses at the level needed to meet our projected net change in cash and cash equivalents; our inability to manage disruptions in credit markets or changes to our credit ratings; unanticipated future levels of capital, environmental or maintenance expenditures, general and administrative and other expenses; growth opportunities not turning out as expected; the lack of cash flow necessary to execute our business plan (either within the expected timeframe or at all); difficulty raising capital; the potential adverse effects of judicial, regulatory or other proceedings, or threatened litigation or proceedings, on our business, financial condition, results of operations and cash flows; volatility in and/or degradation of general economic, market, industry or business conditions; compliance with applicable environmental, economic, health and safety, energy and other policies and regulations and in particular health concerns with respect to vaping and the use of cannabis 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 realizing 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; a delay in our remediation of a material weakness in our internal control over financial reporting and the improvement of our control environment and our systems, processes and procedures; and the factors discussed under Part I, Item 1A “Risk Factors” of the Annual Report and under Part II, Item 1A “Risk Factors” in our Quarterly Reports. Readers are cautioned to consider these and other factors, uncertainties and potential events carefully and not to put undue reliance on Forward-Looking Statements.
Forward-Looking Statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash flows as of and for periods ended on certain dates and to present information about management’s current expectations and plans relating to the future, and the reader is cautioned not to place undue reliance on these Forward-Looking Statements because of their inherent uncertainty and to appreciate the limited purposes for which they are being used by management. While we believe that the assumptions and expectations reflected in the Forward-Looking Statements are reasonable based on information currently available to management, there is no assurance that such assumptions and expectations will prove to have been correct. Forward-Looking Statements are made as of the date they are made and are based on the beliefs, estimates, expectations and opinions of management on that date. We undertake no obligation to update or revise any Forward-Looking Statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such Forward-Looking Statements. The Forward-Looking Statements contained in this Quarterly Report and other reports we file with, or furnish to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf are expressly qualified in their entirety by these cautionary statements.
Foreign currency exchange rates
All currency amounts in this Quarterly Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars. The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of September 30, 2023, September 30, 2022, and December 31, 2022. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates. The condensed consolidated statements of net loss and comprehensive loss and condensed consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the reporting period as reported on Bloomberg.
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The exchange rates used to translate from Canadian dollars (“C$”) to dollars is shown below:
(Exchange rates are shown as C$ per $)As of
September 30, 2023September 30, 2022December 31, 2022
Spot rate1.35771.38291.3554
Year-to-date average rate1.34551.2829N/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
September 30, 2023September 30, 2022December 31, 2022
Spot rate3.81383.56603.5178
Year-to-date average rate3.63853.3107N/A

Business Overview
Cronos is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio. Cronos’ diverse international brand portfolio includes Spinach®, PEACE NATURALS® and Lord Jones®.
Strategy
Cronos seeks to create value for shareholders by focusing on four core strategic priorities:
•growing a portfolio of iconic brands that responsibly elevate the consumer experience;
•developing a diversified global sales and distribution network;
•establishing an efficient global supply chain; and
•creating and monetizing disruptive intellectual property.
Discontinued Operations
In the second quarter of 2023, Cronos exited its U.S. hemp-derived cannabinoid product operations. The exit of the U.S. operations represented a strategic shift that has a major effect on Cronos’ operations and financial results, and as such, qualifies for reporting as discontinued operations in our condensed consolidated statements of net loss and comprehensive loss. Prior period amounts have been reclassified to reflect the discontinued operations classification of the U.S. operations. For further detail on the discontinuation of the U.S. operations, see Note 2 “Discontinued Operations” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.
Business segments
Beginning in the second quarter of 2023, following the exit of our U.S. operations, Cronos is reporting through one consolidated segment, which includes operations in both Canada and Israel. In Canada, Cronos operates two wholly owned license holders under the Cannabis Act (Canada) (the “Cannabis Act”), Peace Naturals Project Inc. (“Peace Naturals”), which has production facilities near Stayner, Ontario, and Thanos Holdings Ltd., known as Cronos Fermentation (“Cronos Fermentation”), which has a production facility in Winnipeg, Manitoba. In Israel, the Company operates under the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production and marketing of dried flower, pre-rolls and oils in the Israeli medical market.

Recent Developments
Israel-Hamas War
Cronos continues to monitor the conflict in Israel and potential impacts the conflict could have on the Company’s personnel and business in Israel and the recorded amounts of assets and liabilities related to the Company’s operations in Israel. The extent to which the conflict may impact the Company’s personnel, business and activities will depend on future developments which remain highly uncertain and cannot be predicted. It is possible that the recorded amounts of assets and liabilities related to the Company’s operations in Israel could change materially in the near term.
New Israeli Shekel Weakening
In October 2023, with the onset of the aforementioned Israel-Hamas war, the New Israeli Shekel has significantly weakened against the U.S. dollar and Canadian dollar. As of October 30, 2023, the New Israeli Shekel has weakened to a position of 4.019 per U.S. dollar and a position of 2.906 per Canadian dollar, representing decreases of 5% and 3.5%, respectively, from the rates as of
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September 30, 2023. We cannot predict when or if the currency will recover against the U.S. dollar and Canadian dollar and we have, as a result, experienced an adverse impact on our results of operations.
Brand and Product Portfolio
In the third quarter of 2023, the Company launched two new THCV-infused products under the Spinach FEELZ™ brand, the Full Tilt THC+THCV vape and gummy.

In November 2023, the Company launched Lord Jones® Hash Fusions, a line-up of premium ice water hash infused pre-rolls, in the Canadian adult-use market. The Company intends to launch additional products under the Lord Jones® brand, including live resin vapes and a differentiated chocolate offering.
In Israel, Cronos launched four new flower offerings under the PEACE NATURALS® brand, Sticky Ape, Raphael Gems, Purple Punch and Tangerine Twist. Driven by our best-in-class genetics program and high-quality cultivation capabilities we seek to meet the market demands as consumers continue to look for strain variety.
Global Supply Chain
In September 2023, Cronos successfully completed its first shipment of cannabis to Germany through a strategic partnership with Cansativa GmbH, a leading German cannabis company. We believe that re-establishing Cronos and its PEACE NATURALS® brand in the German market will position us to capitalize on this growing market, with additional growth potential from future legislative changes.
In the coming weeks, we plan to ship cannabis to Vitura Health Limited for sale in the Australian medical market. Cronos owns approximately 10% of the common shares of Vitura. Vitura has stated that it is the market-leading prescriber, patient, pharmacy and supplier online platform, focused on creating medicinal cannabis products and digital health solutions that connect and strengthen the cannabis ecosystem in the Australian medical cannabis market.
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Consolidated Results of Operations
The tables below set forth our condensed consolidated results of operations, expressed in thousands of U.S. dollars for the periods presented. Our condensed consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods.
(in thousands of USD)Three months ended September 30,Nine months ended September 30,
2023202220232022
Net revenue, before excise taxes$33,912$26,070$86,264$80,243
Excise taxes(9,102)(5,661)(22,938)(15,527)
Net revenue24,81020,40963,32664,716
Cost of sales20,12417,26552,61450,540
Inventory write-down716—716—
Gross profit3,9703,1449,99614,176
Operating expenses
Sales and marketing5,2965,24716,33412,442
Research and development1,2462,5414,39210,656
General and administrative14,36616,35439,67353,771
Restructuring costs1,4233871,4233,396
Share-based compensation1,9574,2476,82310,446
Depreciation and amortization1,4571,7024,5154,368
Impairment loss on long-lived assets———3,493
Total operating expenses25,74530,47873,16098,572
Operating loss(21,775)(27,334)(63,164)(84,396)
Other income (expense)18,931(3,653)35,0067,571
Income tax (expense) benefit1,254(2,118)2,870(2,172)
Loss from discontinued operations(182)(3,781)(4,238)(10,880)
Net loss(1,772)(36,886)(29,526)(89,877)
Net income (loss) attributable to non-controlling interest(128)105(353)(27)
Net loss attributable to Cronos Group$(1,644)$(36,991)$(29,173)$(89,850)
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Summary of select financial results
(in thousands of USD)Three months ended September 30,ChangeNine months ended September 30,Change
20232022$%20232022$%
Net revenue$24,810$20,409$4,401 22 %$63,326$64,716$(1,390)(2)%
Cost of sales20,12417,2652,859 17 %52,61450,5402,074 4 %
Inventory write-down716—716 N/A716—716 N/A
Gross profit3,9703,144826 26 %9,99614,176(4,180)(29)%
Gross margin(i)
16 %15 %N/A1 pp16 %22 %N/A(6)pp
(i)Gross margin is defined as gross profit divided by net revenue.
Net revenue
For the three months ended September 30, 2023, we reported consolidated net revenue of $24.8 million, representing an increase of $4.4 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, we reported consolidated net revenue of $63.3 million, representing a decrease of $1.4 million from the nine months ended September 30, 2022. For the three month comparative period, the increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, partially offset by lower cannabis flower sales in Israel driven by pricing pressure as a result of competitive activity, the slowdown in patient permit authorizations and geopolitical unrest, and an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue. Furthermore, the weakened Canadian dollar and New Israeli Shekel against the U.S. dollar during the period adversely impacted results. For the nine month comparative period, the decrease was primarily due to lower cannabis flower sales in Israel driven by pricing pressure as a result of competitive activity, the slowdown in patient permit authorizations and geopolitical unrest, and an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue, partially offset by higher cannabis flower and extract sales in the Canadian adult-use market. Furthermore, the weakened Canadian dollar and New Israeli Shekel against the U.S. dollar during the period adversely impacted results.
Cost of sales
For the three months ended September 30, 2023, we reported consolidated cost of sales of $20.1 million, representing an increase of $2.9 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, we reported consolidated cost of sales of $52.6 million, representing an increase of $2.1 million from the nine months ended September 30, 2022. For the three month comparative period, the increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, partially offset by lower biomass costs and the impact of the weakened Canadian dollar and New Israeli Shekel against the U.S. dollar during the period. For the nine month comparative period, the increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, partially offset by lower cannabis flower sales in the Israeli medical market, lower cannabis biomass costs and the impact of the weakened Canadian dollar and New Israeli Shekel against the U.S. dollar during the period.
Inventory write-down
For the three and nine months ended September 30, 2023, we reported inventory write-downs of $0.7 million as a result of the Company’s decision to wind down operations at Cronos Fermentation. For further information, see Note 7 “Restructuring” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.
Gross profit
For the three months ended September 30, 2023, we reported gross profit of $4.0 million, representing an increase of $0.8 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, we reported gross profit of $10.0 million, representing a decrease of $4.2 million from the nine months ended September 30, 2022. For the three month comparative period, the increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market and lower biomass costs, partially offset by lower cannabis flower sales in Israel, an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue and the inventory write-down recognized as a result of the decision to wind down operations at Cronos Fermentation. For the nine month comparative period, the decrease was primarily due to lower cannabis flower sales in the Israeli medical market, an adverse price/mix on cannabis flower sales in Canada resulting in higher excise taxes as a percentage of revenue and the inventory write-down recognized as a result of the decision to wind down operations at Cronos Fermentation, partially offset by higher cannabis flower and extract sales in the Canadian adult-use market.
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Operating expenses
Three months ended September 30,ChangeNine months ended September 30,Change
20232022$%20232022$%
Sales and marketing$5,296$5,247$49 1 %$16,334$12,442$3,892 31 %
Research and development1,2462,541(1,295)(51)%4,39210,656(6,264)(59)%
General and administrative14,36616,354(1,988)(12)%39,67353,771(14,098)(26)%
Restructuring costs1,4233871,036 268 %1,4233,396(1,973)(58)%
Share-based payments1,9574,247(2,290)(54)%6,82310,446(3,623)(35)%
Depreciation and amortization1,4571,702(245)(14)%4,5154,368147 3 %
Impairment loss on long-lived assets——— N/A—3,493(3,493)N/A
Total operating expenses$25,745$30,478$(4,733)(16)%$73,160$98,572$(25,412)(26)%
Sales and marketing
For the three months ended September 30, 2023, sales and marketing expenses were essentially flat at $5.3 million compared to the three months ended September 30, 2022. For the nine months ended September 30, 2023, sales and marketing expenses were $16.3 million, representing an increase of $3.9 million from the nine months ended September 30, 2022. For the nine month comparative period, the increase was primarily due to higher advertising and marketing spend.
Research and development
For the three months ended September 30, 2023, research and development expenses were $1.2 million, representing a decrease of $1.3 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, research and development expenses were $4.4 million, representing a decrease of $6.3 million from the nine months ended September 30, 2022. For both the three and nine month comparative periods, the decrease was primarily due to lower costs associated with the achievement of Ginkgo milestones.
General and administrative
For the three months ended September 30, 2023, general and administrative expenses were $14.4 million, representing a decrease of $2.0 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, general and administrative expenses were $39.7 million, representing a decrease of $14.1 million from the nine months ended September 30, 2022. For both the three and nine month comparative periods, the decrease was primarily due to lower professional fees, largely related to financial statement review costs, and lower bonus, payroll and insurance costs.
Restructuring costs
For both the three and nine months ended September 30, 2023, restructuring costs were $1.4 million, compared to $0.4 million and $3.4 million for the three and nine months ended September 30, 2022, respectively. For further information, see Note 7 “Restructuring” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.
Share-based compensation
For the three months ended September 30, 2023, share-based compensation expense was $2.0 million, representing a decrease of $2.3 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, share-based compensation expense was $6.8 million, representing a decrease of $3.6 million from the nine months ended September 30, 2022. For the three month comparative period, the decrease was primarily due to previously held-back equity awards granted to certain executives in the three months ended September 30, 2022. For the nine month comparative period, the decrease was primarily due to the acceleration of expense on equity awards granted to certain executive employees in connection with their separation from the Company, as well as previously held-back equity awards granted to certain executives in the nine months ended September 30, 2022.
Depreciation and amortization
For the three months ended September 30, 2023, depreciation and amortization expenses were $1.5 million, representing a decrease of $0.2 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, depreciation and amortization expenses were $4.5 million, representing an increase of $0.1 million from the nine months ended September 30, 2022. For the three month comparative period, the decrease was primarily due to the recognition of certain tax credits related to the company’s fixed assets. For the nine month comparative period, the increase was primarily due to higher amortization on Ginkgo-related intangible assets, partially offset by the recognition of certain tax credits related to the Company’s fixed assets.
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Impairment loss on long-lived assets
We recorded no impairment loss on long-lived assets for both the three months ended September 30, 2023 and September 30, 2022. For the nine months ended September 30, 2023, we recorded no impairment loss on long-lived assets, compared to $3.5 million in the nine months ended September 30, 2022. For further information, see Note 12 “Impairment Loss on Long-lived Assets” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.
Other income (loss) and income tax benefit (expense)
Three months ended September 30,ChangeNine months ended September 30,Change
20232022$%20232022$%
Interest income, net$13,375$7,208$6,167 86 %$37,021$13,028$23,993 184 %
Gain (loss) on revaluation of derivative liabilities8375(367)(98)%(14)14,204(14,218)N/M
Share of income (loss) from equity method investments1,057(1,119)2,176 194 %8314,078(3,247)N/M
Gain (loss) on revaluation of financial instruments(5,291)17,049(22,340)N/M(7,856)19,205(27,061)N/M
Impairment loss on other investments—(28,972)28,972 N/M—(40,210)40,210 N/M
Foreign currency transaction gain (loss)8,8162,3876,429 269 %3,999(2,337)6,336 271 %
Other, net966(581)1,547 N/M1,025(397)1,422 N/M
Total other income (loss)18,931(3,653)22,584 618 %35,0067,57127,435 362 %
Income tax benefit (expense)1,254(2,118)3,372 N/M2,870(2,172)5,042 N/M
Loss from continuing operations(1,590)(33,105)31,515 95 %(25,288)(78,997)53,709 68 %
Loss from discontinued operations(182)(3,781)3,599 95 %(4,238)(10,880)6,642 61 %
Net loss$(1,772)$(36,886)$35,114 95 %$(29,526)$(89,877)$60,351 67 %
(i)“N/M” is defined as not meaningful.
Interest income, net
For the three months ended September 30, 2023, interest income, net was $13.4 million, representing an increase of $6.2 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, interest income, net was $37.0 million, representing an increase of $24.0 million from the nine months ended September 30, 2022. For both the three and nine month comparative periods, the increase in net interest income was primarily due to higher interest rates and higher cash equivalents and short-term investment balances during the 2023 periods.
Gain (loss) on revaluation of derivative liabilities
For the three months ended September 30, 2023, the gain on revaluation of derivative liabilities was $8 thousand, representing a decrease of $0.4 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, the loss on revaluation of derivative liabilities was $14 thousand, representing a decreased gain of $14.2 million from the nine months ended September 30, 2022. We expect continued changes in derivative valuations as our share price fluctuates period to period and the remaining expected terms of our derivative instruments change over time. For further information, see Note 6 “Derivative Liabilities” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.
Share of income (loss) from equity method investments
For the three months ended September 30, 2023, our share of income from equity method investments was $1.1 million, representing an increase of $2.2 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, our share of income from equity method investments was $0.8 million, representing a decrease of $3.2 million from the nine months ended September 30, 2022. For the three month comparative period, the increase was primarily due to higher income pick-ups from our equity method investment in Cronos GrowCo. For the nine month comparative period, the decrease was primarily due to lower income pick-ups from our equity method investment in Cronos GrowCo. Periodic income and loss pickups from our equity method investment in Cronos GrowCo are impacted both by the profitability of Cronos GrowCo and any unsold inventory remaining at Cronos that originated from Cronos GrowCo.
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Gain (loss) on revaluation of financial instruments
For the three months ended September 30, 2023, the loss on revaluation of financial instruments was $5.3 million, representing an increased loss of $22.3 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, the loss on revaluation of financial instruments was $7.9 million, representing an increased loss of $27.1 million from the nine months ended September 30, 2022. For both the three and nine month comparative periods, the change was primarily related to the change in fair value of our investment in Vitura Health Limited (“Vitura”). For further information, see Note 4 “Investments” to the condensed consolidated interim financial statements under Item 1 of this Quarterly Report.
Impairment loss on other investments
There were no impairment losses on other investments during the three and nine months ended September 30, 2023. For the three and nine months ended September 30, 2022, impairment loss on other investments were $29.0 million and $40.2 million, respectively, due to impairment charges recorded on our PharmaCann Option for the difference between its estimated fair value and its carrying amount. For more information, see Note 4 “Investments” in our condensed consolidated interim financial statements under Item 1 of this Quarterly Report.
Foreign currency transaction gain (loss)
For the three months ended September 30, 2023, foreign currency translation gain was $8.8 million, representing an increased gain of $6.4 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, foreign currency translation gain was $4.0 million, representing an increased gain of $6.3 million from the nine months ended September 30, 2022. For both the three and nine month comparative periods, the change was primarily due to certain foreign currency-denominated cash equivalents and short-term investments and certain foreign currency-denominated intercompany loans anticipated to be settled in the foreseeable future.
Other, net    
Other, net primarily includes gains and losses on the disposal of assets.
Loss from discontinued operations
Three months ended September 30,Nine months ended September 30,
2023202220232022
Net revenue$— $514 $1,029 $4,301 
Cost of sales— 2,501 2,044 6,274 
Inventory write-down(i)
— — 839 — 
Gross profit— (1,987)(1,854)(1,973)
Operating expenses
Sales and marketing— 676 518 4,075 
Research and development
— 28 20 254 
General and administrative190 813 926 2,769 
Restructuring costs28 137 562 1,482 
Share-based compensation(4)18 17 121 
Depreciation and amortization— 11 13 49 
Impairment loss on long-lived assets(ii)
— — 205 — 
Total operating expenses214 1,683 2,261 8,750 
Interest income1 1 9 2 
Other, net(iii)
31 (112)(132)(159)
Total other loss32 (111)(123)(157)
Loss before income taxes(182)(3,781)(4,238)(10,880)
Income tax expense (benefit)— — — — 
Net loss from discontinued operations$(182)$(3,781)$(4,238)$(10,880)
(i)As of September 30, 2023, all inventory associated with our U.S. operations was $nil as a result of the $0.8 million inventory write-down of obsolete product in the second quarter of 2023.
(ii)During the nine months ended September 30, 2023, as a result of the exit of the U.S. operations, the Company recognized an impairment charge of $205 related to the right-of-use lease assets associated with the Company’s former U.S. manufacturing facility in Los Angeles, California.
(iii)For the three and nine months ended September 30, 2023 and September 30, 2022, Other, net related to loss on disposal of assets that were part of the U.S. operations.
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For the three months ended September 30, 2023, loss from discontinued operations was $0.2 million, representing a decreased loss of $3.6 million from the three months ended September 30, 2022. For the nine months ended September 30, 2023, loss from discontinued operations was $4.2 million, representing a decreased loss of $6.6 million from the nine months ended September 30, 2022. For the comparative three month period, the decreased loss was driven by the decrease in operating expense as a result of the exit of U.S. operations. For the comparative nine month period, the decreased loss was driven by negative gross margins and higher operating expenses in the nine months ended September 30, 2022. For more information, see Note 2 “Discontinued Operations” in our condensed consolidated interim financial statements under Item 1 of this Quarterly Report.
Non-GAAP Measures
Cronos Group reports its financial results in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). This Quarterly Report refers to measures not recognized under U.S. GAAP (“non-GAAP measures”). These non-GAAP measures do not have a standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these non-GAAP measures are provided as a supplement to corresponding U.S. GAAP measures to provide additional information regarding the results of operations from management’s perspective. Accordingly, non-GAAP measures should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. All non-GAAP measures presented in this Quarterly Report are reconciled to their closest reported U.S. GAAP measure. Reconciliations of historical adjusted financial measures to corresponding U.S. GAAP measures are provided below.
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; transaction costs related to strategic projects; impairment loss on other investments; foreign currency transaction loss; other, net; loss from discontinued operations; restructuring costs; inventory write-downs resulting from restructuring actions; share-based compensation; and financial statement review costs and reserves related to the restatements of our 2019 and 2021 interim financial statements (the “Restatements”), including the costs related to the settlement of the SEC’s and the Ontario Securities Commission’s (“OSC”) investigations of the Restatements and legal costs defending shareholder class action complaints brought against us as a result of the 2019 restatement (see Part II, Item 1 “Legal Proceedings” of this Quarterly Report for a discussion of the shareholder class action complaints relating to the restatement of the 2019 interim financial statements and the settlement of the SEC’s and the OSC’s investigations of the Restatements). Results are reported as total consolidated results, reflecting our reporting structure of one reportable segment.
Management believes that Adjusted EBITDA provides the most useful insight into underlying business trends and results and provides a more meaningful comparison of period-over-period results. Management uses Adjusted EBITDA for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets.
Adjusted EBITDA is reconciled to net income (loss) as follows:
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Three months ended September 30, 2023
Continuing OperationsDiscontinued OperationsTotal
Net loss$(1,590)$(182)$(1,772)
Interest income, net(13,375)(1)(13,376)
Income tax expense (benefit)
(1,254)— (1,254)
Depreciation and amortization2,148 — 2,148 
EBITDA(14,071)(183)(14,254)
Share of (income) loss from equity method investments
(1,057)— (1,057)
(Gain) loss on revaluation of derivative liabilities(ii)
(8)— (8)
(Gain) loss on revaluation of financial instruments(iii)
5,291 — 5,291 
Foreign currency transaction (gain) loss
(8,816)— (8,816)
Other, net(v)
(966)(31)(997)
Restructuring costs(vi)
1,423 28 1,451 
Share-based compensation(vii)
1,957 (4)1,953 
Financial statement review costs(viii)
344 — 344 
Inventory write-down(ix)
716 — 716 
Adjusted EBITDA$(15,187)$(190)$(15,377)
Three months ended September 30, 2022
Continuing OperationsDiscontinued OperationsTotal
Net loss$(33,105)$(3,781)$(36,886)
Interest income, net(7,208)(1)(7,209)
Income tax expense (benefit)
2,118 — 2,118 
Depreciation and amortization3,166 282 3,448 
EBITDA(35,029)(3,500)(38,529)
Share of (income) loss from equity method investments
1,119 — 1,119 
Impairment loss on long-lived assets(i)
28,972 — 28,972 
(Gain) loss on revaluation of derivative liabilities(ii)
(375)— (375)
(Gain) loss on revaluation of financial instruments(iii)
(17,049)— (17,049)
Foreign currency transaction (gain) loss
(2,387)— (2,387)
Other, net(v)
581 112 693 
Restructuring costs(vi)
387 137 524 
Share-based compensation(vii)
4,247 18 4,265 
Financial statement review costs(viii)
1,070 — 1,070 
Adjusted EBITDA$(18,464)$(3,233)$(21,697)
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Nine months ended September 30, 2023
Continuing OperationsDiscontinued OperationsTotal
Net loss$(25,288)$(4,238)$(29,526)
Interest income, net(37,021)(9)(37,030)
Income tax expense (benefit)
(2,870)— (2,870)
Depreciation and amortization6,689 244 6,933 
EBITDA(58,490)(4,003)(62,493)
Share of (income) loss from equity method investments
(831)— (831)
Impairment loss on long-lived assets(i)
— 205 205 
(Gain) loss on revaluation of derivative liabilities(ii)
14 — 14 
(Gain) loss on revaluation of financial instruments(iii)
7,856 — 7,856 
Foreign currency transaction (gain) loss
(3,999)— (3,999)
Other, net(v)
(1,025)132 (893)
Restructuring costs(vi)
1,423 562 1,985 
Share-based compensation(vii)
6,823 17 6,840 
Financial statement review costs(viii)
739 — 739 
Inventory write-down(ix)
716 839 1,555 
Adjusted EBITDA$(46,774)$(2,248)$(49,022)
Nine months ended September 30, 2022
Continuing OperationsDiscontinued OperationsTotal
Net loss$(78,997)$(10,880)$(89,877)
Interest income, net(13,028)(2)(13,030)
Income tax expense (benefit)
2,172 — 2,172 
Depreciation and amortization9,502 997 10,499 
EBITDA(80,351)(9,885)(90,236)
Share of (income) loss from equity method investments
(4,078)— (4,078)
Impairment loss on long-lived assets(i)
3,493 — 3,493 
(Gain) loss on revaluation of derivative liabilities(ii)
(14,204)— (14,204)
(Gain) loss on revaluation of financial instruments(iii)
(19,205)— (19,205)
Impairment loss on other investments(iv)
40,210 — 40,210 
Foreign currency transaction (gain) loss
2,337 — 2,337 
Other, net(v)
397 159 556 
Restructuring costs(vi)
3,396 1,482 4,878 
Share-based compensation(vii)
10,446 121 10,567 
Financial statement review costs(viii)
6,286 — 6,286 
Adjusted EBITDA$(51,273)$(8,123)$(59,396)

(i)For the nine months ended September 30, 2023, impairment loss on long-lived assets related to certain leased properties associated with the Company’s former U.S. operations. For the nine months ended September 30, 2022, impairment loss on long-lived assets related to the Company’s decision to seek a sublease for leased office space in Toronto, Ontario, Canada during the first quarter of 2022. See Note 12 “Impairment Loss on Long-lived Assets.”
(ii)For the three and nine months ended September 30, 2023 and 2022, (gain) loss on revaluation of derivative liabilities represents the fair value changes on the derivative liabilities. See Note 6 “Derivative Liabilities.”
(iii)For the three and nine months ended September 30, 2023 and 2022, (gain) loss on revaluation of financial instruments related primarily to the Company’s equity securities in Vitura.
(iv)For the three and nine months ended September 30, 2022, impairment loss on other investments related to the PharmaCann Option for the difference between its fair value and carrying amount. See Note 4 “Investments.”
(v)For the three and nine months ended September 30, 2023 and 2022, other, net related to (gain) loss on disposal of assets.
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(vi)For the three and nine months ended September 30, 2023, restructuring costs from continuing operations related to employee-related severance costs and other restructuring costs associated with the Realignment, as described in Note 7 “Restructuring. For the three and nine months ended September 30, 2023, restructuring costs from discontinued operations related to employee-related severance costs and other restructuring costs associated with the exit of our former U.S. operations, as described in Note 2 “Discontinued Operations.” For the three and nine months ended September 30, 2022, restructuring costs related to the employee-related severance costs and other restructuring costs associated with the Realignment. See Note 7 “Restructuring.”
(vii)For the three and nine months ended September 30, 2023 and 2022, 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 8 “Share-based Compensation.”
(viii)For the three and nine months ended September 30, 2023 and 2022, 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 nine months ended September 30, 2023, inventory write-downs from discontinued operations relate to product destruction and obsolescence associated with the exit of our U.S. operations as described in Note 2 “Discontinued Operations.” For the three and nine months ended September 30, 2023, inventory write-downs from continuing operations relate to product destruction and obsolescence associated with the planned exit of Cronos Fermentation as described in Note 7 “Restructuring.”
Constant Currency
To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented constant currency adjusted financial measures for net revenues, gross profit, gross profit margin, operating expenses, net income (loss) and Adjusted EBITDA for the three and nine months ended September 30, 2023, as well as cash and cash equivalents and short-term investment balances as of September 30, 2023 compared to December 31, 2022, 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 and nine month comparative periods in 2022 rather than the actual average exchange rates in effect during the respective current periods; constant currency current and prior comparative balance sheet information is translated at the prior year-end spot rate rather than the current period spot rate. All growth comparisons relate to the corresponding period in 2022. 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.”
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The table below sets forth certain measures of consolidated results from continuing operations on a constant currency basis for the three and nine months ended September 30, 2023 compared to the three and nine months ended September 30, 2022 as well as cash and cash equivalents and short-term investments as of September 30, 2023 and December 31, 2022, both on an as-reported and constant currency basis (in thousands):

As ReportedAs Adjusted for Constant Currency
Three months ended September 30,As Reported ChangeThree months ended September 30,Constant Currency Change
20232022$%2023$%
Net revenue$24,810 $20,409 $4,401 22 %$26,005 $5,596 27 %
Gross profit3,970 3,144 826 26 %4,216 1,072 34 %
Gross margin16 %15 %N/A1 pp16 %N/A1 pp
Operating expenses25,745 30,478 (4,733)(16)%25,905 (4,573)(15)%
Net loss from continuing operations
(1,590)(33,105)31,515 95 %(823)32,282 98 %
Adjusted EBITDA(15,187)(18,464)3,277 18 %(14,890)3,574 19 %
Nine months ended September 30,As Reported ChangeNine months ended September 30,Constant Currency Change
20232022$%2023$%
Net revenue$63,326 $64,716 $(1,390)(2)%$67,228 $2,512 4 %
Gross profit9,996 14,176 (4,180)(29)%10,736 (3,440)(24)%
Gross margin16 %22 %N/A(6)pp16 %N/A(6)pp
Operating expenses73,160 98,572 (25,412)(26)%76,476 (22,096)(22)%
Net loss from continuing operations
(25,288)(78,997)53,709 68 %(26,561)52,436 66 %
Adjusted EBITDA(46,774)(51,273)4,499 9 %(48,773)2,500 5 %
As of September 30,As of December 31,As Reported ChangeAs of September 30,Constant Currency Change
20232022$%2023$%
Cash and cash equivalents$571,656 $764,644 $(192,988)(25)%$572,797 $(191,847)(25)%
Short-term investments267,905 113,077 154,828 137 %268,359 155,282 137 %
Total cash and cash equivalents and short-term investments$839,561 $877,721 $(38,160)(4)%$841,156 $(36,565)(4)%

Net revenue
As ReportedAs Adjusted for Constant Currency
Three months ended September 30,As Reported ChangeThree months ended September 30,Constant Currency Change
20232022$%2023$%
Cannabis flower$17,414 $13,674 $3,740 27 %$18,362 $4,688 34 %
Cannabis extracts7,268 6,627 641 10 %7,510 883 13 %
Other128 108 20 19 %133 25 23 %
Net revenue$24,810 $20,409 $4,401 22 %$26,005 $5,596 27 %
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As ReportedAs Adjusted for Constant Currency
Nine months ended September 30,As Reported ChangeNine months ended September 30,Constant Currency Change
20232022$%2023$%
Cannabis flower$44,556 $48,038 $(3,482)(7)%$47,520 $(518)(1)%
Cannabis extracts18,495 16,197 2,298 14 %19,419 3,222 20 %
Other275 481 (206)(43)%289 (192)(40)%
Net revenue$63,326 $64,716 $(1,390)(2)%$67,228 $2,512 4 %
As ReportedAs Adjusted for Constant Currency
Three months ended September 30,As Reported ChangeThree months ended September 30,Constant Currency Change
20232022$%2023$%
Canada$18,738 $13,370 $5,368 40 %$19,348 $5,978 45 %
Israel5,673 7,039 (1,366)(19)%6,239 (800)(11)%
Other countries399 — 399 100 %418 418 100 %
Net revenue$24,810 $20,409 $4,401 22 %$26,005 $5,596 27 %
As ReportedAs Adjusted for Constant Currency
Nine months ended September 30,As Reported ChangeNine months ended September 30,Constant Currency Change
20232022$%2023$%
Canada$46,767 $41,335 $5,432 13 %$49,049 $7,714 19 %
Israel16,160 23,381 (7,221)(31)%17,761 (5,620)(24)%
Other countries399 — 399 100 %418 418 100 %
Net revenue$63,326 $64,716 $(1,390)(2)%$67,228 $2,512 4 %
For the three months ended September 30, 2023, net revenue on a constant currency basis was $26.0 million, representing a 27% increase from the three months ended September 30, 2022. For the nine months ended September 30, 2023, net revenue on a constant currency basis was $67.2 million, representing a 4% increase from the nine months ended September 30, 2022. On a constant currency basis, net revenue increased for both the three and nine months ended September 30, 2023 primarily due to higher cannabis flower and extracts sales in the Canadian adult-use market, partially offset by lower cannabis flower sales in Israel driven by pricing pressure as a result of competitive activity, the slowdown in patient permit authorizations and geopolitical unrest, and an adverse price/mix in Canada in the cannabis flower category driving increased excise tax payments as a percentage of revenue.
Gross profit
For the three months ended September 30, 2023, gross profit on a constant currency basis was $4.2 million, representing a 34% increase from the three months ended September 30, 2022. For the nine months ended September 30, 2023, gross profit on a constant currency basis was $10.7 million, representing a 24% decrease from the nine months ended September 30, 2022. On a constant currency basis, gross profit increased for the three months ended September 30, 2023 primarily due to higher cannabis flower and extract sales in the Canadian adult-use market and lower biomass costs, partially offset by lower cannabis flower sales in Israel, an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue and the inventory write-down recognized as a result of the decision to wind down operations at Cronos Fermentation. On a constant currency basis, gross profit decreased for the nine months ended September 30, 2023 primarily due to lower cannabis flower sales in the Israeli medical market, an adverse price/mix on cannabis flower sales in Canada resulting in higher excise taxes as a percentage of revenue and the inventory write-down recognized as a result of the decision to wind down operations at Cronos Fermentation, partially offset by higher cannabis flower and extract sales in the Canadian adult-use market.
Operating expenses
For the three months ended September 30, 2023, operating expenses on a constant currency basis were $25.9 million, representing a 15% decrease from the three months ended September 30, 2022. For the nine months ended September 30, 2023, operating expenses on a constant currency basis were $76.5 million, representing a 22% decrease from the nine months ended September 30, 2022. On a constant currency basis, operating expenses decreased for the three and nine months ended September 30, 2023, primarily due to lower professional fees, largely related to financial statement review costs, lower costs associated with the achievement of Ginkgo milestones, the acceleration of expense on equity awards granted to certain executive employees in connection with their separation from the Company, as well as previously held-back equity awards granted to certain executives in the prior year, impairment loss on long-lived assets recognized in the prior year, lower bonus expense, lower payroll costs and lower insurance costs, partially offset by higher sales and marketing expenses.
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Net loss
For the three months ended September 30, 2023, net loss on a constant currency basis was $0.8 million, representing a 98% reduction in net loss from the three months ended September 30, 2022. For the nine months ended September 30, 2023, net loss on a constant currency basis was $26.6 million, representing a 66% reduction in net loss from the nine months ended September 30, 2022.
Adjusted EBITDA
For the three months ended September 30, 2023, Adjusted EBITDA on a constant currency basis was $(14.9) million, representing a 19% improvement from the three months ended September 30, 2022. For the nine months ended September 30, 2023, Adjusted EBITDA on a constant currency basis was $(48.8) million, representing a 5% improvement from the nine months ended September 30, 2022. The increase in Adjusted EBITDA for the three and nine months ended September 30, 2023 on a constant currency basis was primarily driven by higher cannabis flower and extracts sales in the Canadian adult-use market, decreases in general and administrative expenses, lower costs associated with the achievement of Ginkgo milestones, partially offset by lower cannabis flower sales in Israel driven by pricing pressure as a result of competitive activity, the slowdown in patient permit authorizations and geopolitical unrest, an adverse price/mix in Canada in the cannabis flower category driving increased excise tax payments as a percentage of revenue and higher sales and marketing expenses.
Cash and cash equivalents & short-term investments
Cash and cash equivalents and short-term investments on a constant currency basis decreased 4% to $841.2 million as of September 30, 2023 from $877.7 million as of December 31, 2022. The decrease in cash and cash equivalents and short-term investments is primarily due to cash flows used in operating activities in the nine months ended September 30, 2023.
Liquidity and Capital Resources
As of September 30, 2023, we had $571.7 million in cash and cash equivalents and $267.9 million in short-term investments. We believe that the existing cash and cash equivalents and short-term investments will be sufficient to fund the business operations and capital expenditures over the next twelve months. The following table summarizes the cash flows from operating, investing and financing activities:
(In thousands of U.S. dollars)Nine months ended September 30, 2023
20232022
Cash flows used in operating activities$(59,650)$(64,576)
Cash flows used in investing activities(141,392)(160,300)
Cash flows used in financing activities(812)(2,277)
Effect of foreign currency translation on cash and cash equivalents8,866 (26,524)
Net change in cash$(192,988)$(253,677)
Comparison of cash flows between the nine months ended September 30, 2023 and the nine months ended September 30, 2022
Operating activities
During the nine months ended September 30, 2023, we used $59.7 million of cash in operating activities as compared to cash used of $64.6 million in the nine months ended September 30, 2022, representing a decrease in cash used of $4.9 million. This change is primarily driven by a $41.5 million increase in net income after adjusting for non-cash items during the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 and a decrease in accounts receivable, partially offset by a $32.8 million decrease in income taxes payable as a result of a tax payment connected to the previously disclosed relinquishment by Altria of its warrant to purchase additional shares of the Company, an increase in interest receivable and a decrease in accounts payable.
Investing activities
During the nine months ended September 30, 2023, we used $141.4 million of cash in investing activities, compared to $160.3 million of cash used in investing activities during the nine months ended September 30, 2022, representing a decrease of $18.9 million in cash used by investing activities. This change is primarily driven by an $11.9 million increase in proceeds from the repayment of loans receivable in the nine months ended September 30, 2023.
Financing activities
During the nine months ended September 30, 2023, cash used in financing activities was $0.8 million, compared to $2.3 million of cash used in financing activities during nine months ended September 30, 2022, representing a decrease of $1.5 million in cash used in financing activities. This change is primarily driven by a decrease of $1.4 million in withholding taxes paid on share-based awards during nine months ended September 30, 2023 compared to nine months ended September 30, 2022.
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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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to certain market risks, including changes from foreign currency exchange rates related to our international operations. Except as updated below, the Company’s market risks have not changed significantly from the market risk disclosed in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report.
Foreign currency risk
The Company’s condensed consolidated financial statements included in Part I, Item 1. “Financial Statements” of this Quarterly Report are expressed in U.S. dollars. The Company is exposed to foreign currency risk based on its net assets, liabilities, and revenues denominated in foreign currencies, including Canadian dollars and Israeli new shekels. As a result, we are exposed to foreign currency translation gains and losses. Revenue and expenses of all foreign operations are translated into U.S. dollars at the foreign currency exchange rates that approximate the rates in effect during the period when such items are recognized. Appreciating foreign currencies relative to the U.S. dollar will positively impact operating income and net earnings, while depreciating foreign currencies relative to the U.S. dollar will have an adverse impact.
A 10% change in the exchange rates for the Canadian dollar would have affected the carrying amount of the net assets by approximately $96.7 million and $77.4 million as of September 30, 2023 and December 31, 2022, respectively. The corresponding impact would be recorded in accumulated other comprehensive income. We have not historically engaged in hedging transactions and do not currently contemplate engaging in hedging transactions to mitigate foreign exchange risks. As we continue to recognize gains and losses in foreign currency transactions, depending upon changes in future currency rates, such gains and losses could have a significant, and potentially adverse, effect on the Company’s results of operations.
During the three and nine months ended September 30, 2023, the Company had foreign currency gain on translation of $20.1 million and $1.1 million, respectively. During the three and nine months ended September 30, 2022 the Company had foreign currency loss on translation of $60.6 million and $68.8 million, respectively.
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Item 4. Controls and Procedures.
(a)Evaluation of Disclosure Controls and Procedures.
The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, performed an evaluation of the disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of September 30, 2023. Based on that evaluation, management has concluded that, as of September 30, 2023, due to the existence of a material weakness in the Company’s internal control over financial reporting described below, the disclosure controls and procedures were not effective to provide reasonable assurance that the information required to be disclosed by us in reports we file or submit under the Exchange Act were recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act, is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Material Weakness in Internal Controls Over Financial Reporting
A material weakness is a deficiency, or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”), we have identified the following material weakness:
•ITGCs - User Access:
We did not design and maintain effective controls over Information Technology General Controls (“ITGC”), pertaining to user access management and the provisioning and monitoring of user access, including privileged access. We believe this weakness to be the result of ineffective monitoring of security administrator activities, insufficient retention of documentation to support access requests and lack of training on the importance of ITGC. This material weakness did not impact any information derived from information systems and did not result in any identified misstatements to our financial statements.
Remediation Plan and Status
As discussed above, we have identified a material weakness related to ITGCs in user access management and the provisioning and monitoring of privileged access. As of the filing date, the Company is in the process of implementing various initiatives intended to address the identified material weakness. In this regard, some of our key remedial initiatives include:
Material WeaknessControl, Control Enhancement or MitigantImplementation StatusManagement Testing StatusRemediation Status
ITGCs
•Train security administrators on access provisioning and approval protocols.
CompletedTestedNot Remediated
•Align approval requirements for all privileged access for consistency and appropriate visibility within the IT function.
CompletedTestedNot Remediated
•Implement a process to identify instances where privileged access roles or profiles are assigned and, when identified, review activities performed during the period of assigned privileged access.
CompletedIn ProgressNot Remediated
•Implement a periodic control to compare each user’s system access to their responsibilities.
CompletedIn ProgressNot Remediated
•Implement an oversight control over security administrator actions.
Completed
In Progress
Not Remediated
(b)Changes in Internal Control over Financial Reporting
Other than the material weakness identified above and measures described above to remediate such material weakness, there were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), that occurred during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II
OTHER INFORMATION

Item 1: Legal Proceedings.
The information set forth under 11(b), Contingencies, to the Company’s condensed consolidated interim financial statements included in Part I, Item 1. “Financial Statements” of this Quarterly Report is incorporated herein by reference.

Item 1A: Risk Factors.
An investment in us involves a number of risks. A detailed discussion of our risk factors appears in Part I, Item 1A. Risk Factors of the Annual Report. Any of the matters highlighted in the risk factors described in the Annual Report and the risk factors below could adversely affect our business, results of operations and financial condition, causing an investor to lose all, or part of, its, his or her investment. The risks and uncertainties described in the Annual Report and below are those we currently believe to be material, but they are not the only ones we face. If any of the risks described in the Annual Report, the following risk factors, or any other risks and uncertainties that we have not yet identified or that we currently consider not to be material, actually occur or become material risks, our business, prospects, financial condition, results of operations and cash flows and consequently the price of our securities could be materially and adversely affected.
Risks Related to Operations in Israel
Conditions in Israel could materially and adversely affect our business, financial condition, and results of operations.
We have operations in Israel through a strategic joint venture, Cronos Israel.
On October 7, 2023, Hamas terrorists from the Gaza Strip launched a rocket barrage against Israel and engaged in incursions into Israeli territory, breaching the Gaza-Israel border, attacking military bases and slaughtering and kidnapping civilians in neighboring Israeli communities. Israel formally declared war on October 8. The Israel-Hamas War may escalate, including due to an eruption of fighting between Hezbollah and Israel across Israel’s northern border, which would open a second front in the war, and may result in a broader conflict across the Middle East. The Israel-Hamas War (and any escalation) and any resulting regional political instability or interruption or curtailment of trade between Israel and its trading partners would likely materially and adversely affect our business, financial condition, and results of operations.
Our employees, including certain members of our management, operate from our offices located in Gan Shmuel, Israel and our manufacturing facilities located in Hadera, Israel. While our facilities have not been damaged by the war, rocket attacks continue, and our facilities could be damaged or destroyed. Imports into Israel have been severely restricted by the war, and we may be unable to import materials into Israel. Further, our sales have been, and likely will continue to be, adversely affected by the war.
Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Any losses or damages incurred by us could have an adverse effect on our business, financial condition, and results of operations.
Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict doing business with the State of Israel and with Israeli companies. A campaign of boycotts, divestment, and sanctions has been undertaken against Israel, which could also adversely impact our business, financial condition, and results of operations and the expansion of our business.
Our operations may be disrupted by the obligations of personnel to perform military service.
Some of our employees in Israel are obligated to perform annual reserve duty in the Israeli military for several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and are subject to being called for additional active duty under emergency circumstances. In response to the Israel-Hamas War, a number of our employees have been called up to serve in the Israeli military. We cannot predict the full impact of these conditions on us in the future, particularly if emergency circumstances or an escalation in the political or military situation occurs. If many of our employees are called for active duty, our operations in Israel and our business may not be able to function at profitable levels, or at all, and our business in, results of operations from, Israel would be adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.

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Item 3. Defaults Upon Senior Securities.
None.

Item 4. Mine Safety Disclosures.
Not applicable.

Item 5. Other Information.
Rule 10b5-1 Trading Plans

Securities Trading Plans of Directors and Executive Officers

During the three months ended September 30, 2023, no directors or executive officers entered into, modified or terminated, contracts, instructions or written plans for the sale or purchase of the Company’s securities that were intended to satisfy the affirmative defense conditions of Rule 10b5-1 or that constituted non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K).
Certain of our officers or directors have made, and may from time to time make, elections to have shares withheld to cover withholding taxes or pay the exercise price of options, which may be designed to satisfy the affirmative defense conditions of Rule 10b5-1 under the Exchange Act or may constitute non-Rule 10b5–1 trading arrangements (as defined in Item 408(c) of Regulation S-K).

Item 6. Exhibits
The exhibits listed in the Exhibit Index immediately below are filed as part of this Quarterly Report, which Exhibit Index is corporate by reference herein.
Exhibit NumberExhibit Index
3.1
31.1*
31.2*
32.1**
32.2**
101.INS*XBRL Instance Document.
101.SCH*XBRL Taxonomy Extension Schema Document.
101.CAL*XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*XBRL Taxonomy Extension Presentation Linkbase Document.
†    Management contract or compensatory plan or arrangement.
*    Filed herewith.
**    Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
CRONOS GROUP INC.
By:/s/ James Holm
James Holm
Chief Financial Officer
November 8, 2023
By:/s/ Jimmy McGinness
Jimmy McGinness
Vice President, Controller, and Principal Accounting Officer
November 8, 2023


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