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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 March 31, 2022
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 May 9, 2022, there were 375,579,171 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 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
March 31, 2022March 31, 2021December 31, 2021
Average rate1.26651.2665N/A
Spot rate1.25071.25631.2746
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 March 31, 2022As of December 31, 2021
Assets(Unaudited)(Audited)
Current assets
Cash and cash equivalents$861,535 $886,973 
Short-term investments119,933 117,684 
Accounts receivable, net25,814 22,067 
Other receivables3,297 5,765 
Current portion of loans receivable, net6,235 5,460 
Inventory, net37,054 32,802 
Prepaids and other current assets9,537 8,967 
Total current assets1,063,405 1,079,718 
Investments in equity accounted investees, net17,084 16,764 
Other investments111,761 118,392 
Non-current portion of loans receivable, net81,529 80,635 
Property, plant and equipment, net71,828 74,070 
Right-of-use assets6,325 8,882 
Goodwill1,119 1,098 
Intangible assets, net17,880 18,079 
Other assets70 100 
Total assets$1,371,001 $1,397,738 
Liabilities
Current liabilities
Accounts payable$10,904 $11,218 
Accrued liabilities23,076 26,069 
Current portion of lease obligation2,173 2,711 
Derivative liabilities4,099 14,375 
Total current liabilities40,252 54,373 
Due to non-controlling interests1,888 1,913 
Non-current portion of lease obligation7,094 7,095 
Deferred income tax liability396 81 
Total liabilities49,630 63,462 
Shareholders’ equity
Share capital (authorized for issue as of March 31, 2022 and December 31, 2021: unlimited; shares outstanding as of March 31, 2022 and December 31, 2021: 375,299,980 and 374,952,693, respectively)
596,368 595,497 
Additional paid-in capital35,365 32,465 
Retained earnings626,778 659,416 
Accumulated other comprehensive income66,088 49,865 
Total equity attributable to shareholders of Cronos Group1,324,599 1,337,243 
Non-controlling interests(3,228)(2,967)
Total shareholders’ equity1,321,371 1,334,276 
Total liabilities and shareholders’ equity$1,371,001 $1,397,738 
See notes to condensed consolidated interim financial statements.
4

Cronos Group Inc.
Condensed Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)
(In thousands of U.S dollars, except share and per share amounts, unaudited)

Three months ended March 31,
20222021
Net revenue, before excise taxes$29,406 $14,654 
Excise taxes(4,373)(2,043)
Net revenue25,033 12,611 
Cost of sales18,107 15,574 
Gross profit6,926 (2,963)
Operating expenses
Sales and marketing5,012 10,254 
Research and development4,039 5,102 
General and administrative22,368 21,906 
Restructuring costs3,084  
Share-based compensation3,686 2,499 
Depreciation and amortization1,293 735 
Impairment loss on long-lived assets3,493 1,741 
Total operating expenses42,975 42,237 
Operating loss(36,049)(45,200)
Other income (expense)
Interest income, net2,046 2,329 
Gain (loss) on revaluation of derivative liabilities10,419 (116,874)
Share of loss from equity accounted investments (1,643)
Gain (loss) on revaluation of financial instruments4,268 (200)
Impairment loss on other investments(11,238) 
Foreign currency transaction loss(1,872) 
Other, net135 (16)
Total other income (expense)3,758 (116,404)
Loss before income taxes(32,291)(161,604)
Income tax expense362  
Loss from continuing operations(32,653)(161,604)
Loss from discontinued operations (21)
Net loss(32,653)(161,625)
Net loss attributable to non-controlling interest(15)(313)
Net loss attributable to Cronos Group$(32,638)$(161,312)
Comprehensive loss
Net loss$(32,653)$(161,625)
Other comprehensive income
Foreign exchange gain on translation15,977 16,284 
Comprehensive loss(16,676)(145,341)
Comprehensive income (loss) attributable to non-controlling interests(261)826 
Comprehensive loss attributable to Cronos Group$(16,415)$(146,167)
Net loss from continuing operations per share
Basic - continuing operations$(0.09)$(0.44)
Diluted - continuing operations(0.09)(0.44)
See notes to condensed consolidated interim financial statements.
5

Cronos Group Inc.
Condensed Consolidated Statements of Changes in Equity
For the three months ended March 31, 2022 and 2021
(In thousands of U.S. dollars, except share amounts, unaudited)


Number of sharesShare capitalAdditional paid-in capitalRetained earningsAccumulated other comprehensive incomeNon-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 
Number of sharesShare capitalAdditional paid-in capitalRetained earningsAccumulated other comprehensive income (loss)Non-controlling interestsTotal shareholders’ equity
Balance as of January 1, 2021360,253,332 $569,260 $34,596 $1,064,509 $42,999 $(3,196)$1,708,168 
Activities relating to share-based compensation11,403,258 15,652 (2,506)(7,694)— — 5,452 
Net loss— — — (161,312)— (313)(161,625)
Foreign exchange gain on translation— — — — 15,145 1,139 16,284 
Balance as of March 31, 2021371,656,590 $584,912 $32,090 $895,503 $58,144 $(2,370)$1,568,279 

See notes to condensed consolidated interim financial statements.
6

Cronos Group Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands of U.S. dollars, except share amounts, unaudited)

Three months ended March 31,
20222021
Operating activities
Net loss$(32,653)$(161,625)
 Adjustments to reconcile net loss to cash used in operating activities:
Share-based compensation3,686 2,499 
Depreciation and amortization2,824 1,880 
Impairment loss on long-lived assets3,493 1,741 
Impairment loss on other investments11,238  
Share of loss from investments in equity accounted investees 1,643 
Gain (loss) on revaluation of derivative liabilities(10,419)116,874 
Expected credit losses on long-term financial assets 416 
Foreign currency transaction loss1,872  
Other non-cash operating activities, net(4,467)106 
Changes in operating assets and liabilities:
Accounts receivable, net(3,530)1,931 
Other receivables2,435 5,687 
Prepaids and other current assets(1,195)(3,737)
Inventory(3,867)(742)
Accounts payable(178)(3,119)
Accrued liabilities(3,150)(10,169)
Cash flows used in operating activities(33,911)(46,615)
Investing activities
Proceeds from dissolution of joint venture44  
Proceeds from repayment of loans receivable790  
Purchase of property, plant and equipment(711)(6,680)
Purchase of intangible assets(23)(392)
Advances on loans receivable (2,645)
Cash flows provided by (used in) investing activities100 (9,717)
Financing activities
Withholding taxes paid on share-based awards(534)(8,673)
Other financing activities, net70 10 
Cash flows used in financing activities(464)(8,663)
Effect of foreign currency translation on cash and cash equivalents8,837 11,422 
Net change in cash and cash equivalents(25,438)(53,573)
Cash and cash equivalents, beginning of period886,973 1,078,023 
Cash and cash equivalents, end of period$861,535 $1,024,450 
Supplemental cash flow information
Interest received822 1,157 
Income taxes paid66 624 
See notes to condensed consolidated interim financial statements.


7

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 Accounting Policies
(a)Background
Cronos Group Inc. (“Cronos Group” or the “Company”) is incorporated in the province of British Columbia and 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 Group is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development and is seeking to build an iconic brand portfolio. Cronos Group’s diverse international brand portfolio includes Spinach®, PEACE NATURALS®, Lord Jones®, Happy Dance® and PEACE+™.
(b)Basis of presentation
The interim condensed consolidated 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 accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for any other reporting period.
These condensed consolidated 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, 2021 (the “Annual Report”).
Certain prior year amounts have been reclassified to conform to the current year presentation of our condensed consolidated financial statements. These reclassifications had no effect on the reported results of operations and ending shareholders’ equity.
(c)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, loans receivable, and advances to joint ventures. The Company’s maximum exposure to this risk is equal to the carrying amount of these financial assets, which amounted to $1,098,413 and $1,118,684 as of March 31, 2022 and December 31, 2021, 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 March 31, 2022 and December 31, 2021, the Company had $9 and $8, respectively, in expected credit losses that have been recognized on receivables from contracts with customers in the Rest of World (“ROW”) segment. As of March 31, 2022 and December 31, 2021, the Company had $138 and $104, respectively, in expected credit losses that have been recognized on receivables from contracts with customers in the United States (“U.S.”) segment.
As of March 31, 2022, the Company assessed that there is a concentration of credit risk, as 72% of the Company’s accounts receivable were due from three customers with an established credit history with the Company. As of December 31, 2021, 88% of the Company’s accounts receivable were due from four customers with an established credit history with the Company.
The Company sells products to a limited number of major customers. Major customers are defined as customers that each individually accounted for greater than 10% of the Company’s revenue. During the three months ended March 31, 2022, the Company earned a total net revenue before excise taxes of $9,833 from two major customers in the ROW segment, together accounting for 33% of the Company’s total net revenue before excise taxes. During the three months ended March 31, 2021, the Rest of World segment earned a total net revenue before excise taxes of $8,963 from four major customers, together accounting for 61% of the Company’s total net revenues before excise taxes. During the three months ended March 31, 2022 and 2021, the U.S. segment had no major customers.
8

Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
(d)Segment information
Segment reporting is prepared on the same basis that the Company’s chief operating decision makers (the “CODMs”) manage the business, make operating decisions and assess the Company’s performance. The Company determined that it has the following two reportable segments: U.S. (the “U.S. segment”) and ROW (the “ROW segment”). The U.S. operating segment consists of the manufacture and distribution of U.S. hemp-derived cannabinoid infused products. The ROW operating segment is involved in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets. These two segments represent the geographic regions in which the Company operates and the different product offerings within each geographic region. The results of each segment are regularly reviewed by the CODMs to assess the performance of the segment and make decisions regarding the allocation of resources using Adjusted EBITDA (as defined below) as the measure of segment profit or loss. Adjusted EBITDA is defined as earnings before interest, tax, depreciation, non-cash items and items that do not reflect management’s assessment of ongoing business performance.
(e)Adoption of new accounting pronouncements
On January 1, 2022, the Company adopted ASU No. 2020-06, Debt –Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815–40) (“ASU No. 2020-06”). ASU No. 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU No. 2020-06 is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The adoption of ASU No. 2020-06 did not have an impact on the Company’s interim condensed consolidated financial statements.
(f)New accounting pronouncements not yet adopted
In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326) (“ASU No. 2022-02”). ASU No. 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 No. 2022-02 also requires that entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. ASU No. 2022-02 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, and is to be adopted prospectively. The Company does not expect the adoption of ASU No. 2022-02 to have a material impact on its condensed consolidated financial statements.

2. Inventory, net
Inventory, net is comprised of the following items:
As of March 31, 2022As of December 31, 2021
Raw materials$8,523 $9,211 
Work-in-progress12,353 12,405 
Finished goods15,587 10,778 
Supplies and consumables591 408 
Total$37,054 $32,802 

3. Investments
(a)Variable interest entities and investments in equity accounted investees, net
A reconciliation of the carrying amount of the investments in equity method investees, net is as follows:
Ownership interestAs of March 31, 2022As of December 31, 2021
Cronos Growing Company Inc. (“Cronos GrowCo”)
50%$17,084 $16,764 
NatuEra S.à.r.l. (“Natuera”)50%  
$17,084 $16,764 
9

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 Company’s share of net losses from equity investments accounted for under the equity method of accounting:
For the three months ended March 31,
20222021
Cronos GrowCo$ $(299)
Natuera (1,344)
$ $(1,643)
(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 December 31, 2021. 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. On February 28, 2022, PharmaCann closed the 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%. The decrease in ownership percentage does not materially affect the Company’s rights under the PharmaCann Option.
During the three months ended March 31, 2022, the Company identified indicators of impairment related to the PharmaCann Option and conducted an analysis 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 include discount rate, growth rates, and cash flow projections. As a result of this analysis, the Company recorded a non-cash impairment charge of $11,238, as the difference between the carrying amount of the PharmaCann Option and its estimated fair value in the condensed consolidated statements of net income (loss) and comprehensive income (loss).
Cronos Australia Limited
The Company owns approximately 10% of the outstanding common shares of Cronos Australia Limited (“Cronos Australia”). The investment is considered an equity security with a readily determinable fair value. Changes in the fair value of the investment are recorded as gain (loss) on revaluation of financial instruments on the condensed consolidated statements of net income (loss) and comprehensive income (loss).
The following table summarizes the Company’s other investments activity:
As of December 31, 2021Unrealized gainImpairment chargesForeign exchange effectAs of March 31, 2022
PharmaCann$110,392 $ $(11,238)$ $99,154 
Cronos Australia8,000 4,196  411 12,607 
$118,392 $4,196 $(11,238)$411 $111,761 
During the three months ended March 31, 2021, the Company had no gain or loss on revaluation of other investments. As of March 31, 2022 and December 31, 2021, the Company did not hold any additional other investments.

10

Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
4. Loans Receivable, net
Loans receivable, net consists of the following:
As of March 31, 2022As of December 31, 2021
GrowCo Facility(i)
$3,198 $3,138 
Add: Current portion of accrued interest3,037 2,322 
Total current portion of loans receivable6,235 5,460 
GrowCo Facility(i)
64,801 64,367 
Mucci Promissory Note
14,414 14,019 
Cannasoul Collaboration Loan(ii)
2,192 2,249 
Add: Long-term portion of accrued interest122  
Total long-term portion of loans receivable81,529 80,635 
Total loans receivable, net$87,764 $86,095 
(i)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 Facility”). In August 2021, the GrowCo Facility was amended to increase the aggregate principal amount available to C$105,000. As of March 31, 2022 and December 31, 2021, Cronos GrowCo had outstanding borrowings of C$103,000 ($82,354) and C$104,000 ($81,598), respectively, from the GrowCo Facility. As of March 31, 2022, Cronos GrowCo had repaid C$1,000 ($800) under the terms of the GrowCo Facility. The available borrowing capacity under the GrowCo Facility was C$1,000 ($800) at March 31, 2022 and December 31, 2021.
(ii)As of March 31, 2022 and December 31, 2021, CLS has received ILS 8,297 ($2,600) and ILS 8,297 ($2,664), respectively, from the Cannasoul Collaboration Loan.
Expected credit loss allowances on the Company’s long-term financial assets was comprised of the following items:
As of January 1, 2022
Increase (decrease)(i)
Foreign exchange effectAs of March 31, 2022
GrowCo Facility$14,089 $(4)$269 $14,354 
Mucci Promissory Note90 1 2 93 
Cannasoul Collaboration Loan415 3 (9)409 
$14,594 $ $262 $14,856 
As of January 1, 2021
Increase (decrease)(i)
Foreign exchange effectAs of March 31, 2021
GrowCo Facility$1,546 $ $23 $1,569 
Natuera Series A Loan(ii)
721 416 14 1,151 
Mucci Promissory Note270  4 274 
Cannasoul Collaboration Loan26   26 
$2,563 $416 $41 $3,020 
(i)During the three months ended March 31, 2022 and 2021, $nil and $416, respectively, were recorded to general and administrative expenses on the condensed consolidated statements of net income (loss) and comprehensive income (loss) as a result of adjustments to our expected credit losses.
(ii)As of March 31, 2022 and December 31, 2021, loans receivable, net for the Natuera Series A Loan was $nil.

5. Derivative Liabilities
As of March 31, 2022, Altria Group Inc. (“Altria”) beneficially held 156,573,537 of the Company’s common shares, an approximate 42% ownership interest in the Company (calculated on a non-diluted basis) and one warrant of the Company (the “Altria Warrant”). As summarized in this note, if exercised in full on such date, the exercise of the Altria Warrant would have resulted in Altria holding a total ownership interest in the Company of approximately 52% (calculated on a non-diluted basis). Pursuant to the investor rights agreement between the Company and Altria (the “Investor Rights Agreement”), entered into in connection with the closing of Altria’s investment in the Company (the “Altria Investment”) pursuant to a subscription agreement dated December 7, 2018, the Company granted Altria certain rights, among others, summarized in this note.
11

Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
The summaries below are qualified entirely by the terms and conditions fully set out in the Investor Rights Agreement and the Altria Warrant, as applicable.
a.The Altria Warrant entitles the holder, subject to certain qualifications and limitations, to subscribe for and purchase up to an additional 10% of the common shares of Cronos (83,399,995 common shares as of March 31, 2022) at a per share exercise price of C$19.00, which expires on March 8, 2023.
b.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 (the “Ginkgo Strategic 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 their 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 Strategic Partnership 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%.
c.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”).
Reconciliation of the Company’s derivative liabilities activity are as follows:
As of January 1, 2022Revaluation gainExercise of rightsForeign exchange effectAs of March 31, 2022
(a) Altria Warrant$13,720 $(10,011)$ $136 $3,845 
(b) Pre-emptive Rights180 (115) 2 67 
(c) Top-up Rights475 (293) 5 187 
$14,375 $(10,419)$ $143 $4,099 
As of January 1, 2021Revaluation lossExercise of rightsForeign exchange effectAs of March 31, 2021
(a) Altria Warrant$138,858 $92,964 $ $2,834 $234,656 
(b) Pre-emptive Rights12,095 7,833  245 20,173 
(c) Top-up Rights12,457 16,077 (11,278)215 17,471 
$163,410 $116,874 $(11,278)$3,294 $272,300 
Fluctuations in the Company’s share price are a primary driver for the changes in the derivative valuations during each reporting period. As the share price decreases for each of the related derivative instruments, the liability of the instrument generally decreases. Share price is one of the significant observable inputs used in the fair value measurement of each of the Company’s derivative instruments.
12

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 March 31, 2022
Altria WarrantPre-emptive RightsTop-up Rights
Share price at valuation date (per share in C$)$4.85$4.85$4.85
Subscription price (per share in C$)$19$16.25$16.25
Weighted-average risk-free interest rate(i)
1.84%1.31%1.38%
Weighted-average expected life (in years)(ii)
0.940.500.75
Expected annualized volatility(iii)
71%71%71%
Expected dividend yield%%%
As of December 31, 2021
Altria WarrantPre-emptive RightsTop-up Rights
Share price at valuation date (per share in C$)$4.98$4.98$4.98
Subscription price (per share in C$)$19.00$16.25$16.25
Weighted-average risk-free interest rate(i)
0.79%0.39%0.50%
Weighted-average expected life (in years)(ii)
1.180.500.80
Expected annualized volatility(iii)
80%80%80%
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 March 31, 2022 and December 31, 2021, the risk-free interest rate uses a range of approximately 0.60% to 2.28% and 0.16% to 1.10%, 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 March 31, 2022 and December 31, 2021, the expected life uses a range of approximately 0.25 years to 3.50 years and 0.25 years to 3.75 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.
The following table quantifies each of the significant inputs described above and provides a sensitivity analysis of the impact on the reported values of the derivative liabilities. The sensitivity analysis for each significant input is performed by assuming a 10% decrease in the input while other significant inputs remain constant at management’s best estimate as of the respective dates. While a decrease in the inputs noted below would cause a decrease in the carrying amount of the derivative liability, there would also be an equal and opposite impact on net income (loss).
10% decrease as of March 31, 2022
Altria WarrantPre-emptive RightsTop-up Rights
Share price$1,445 $34 $53 
Weighted-average expected life1,114 65 60 
Expected annualized volatility1,930 41 67 
10% decrease as of December 31, 2021
Altria WarrantPre-emptive RightsTop-up Rights
Share price$3,970 $80 $123 
Weighted-average expected life2,971 171 133 
Expected annualized volatility5,402 96 155 
These inputs are classified as Level 3 on the fair value hierarchy and are subject to volatility and several factors outside the Company’s control, which could significantly affect the fair value of these derivative liabilities in future periods.

13

Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
6. 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 “Stayner Facility”). The organizational and cost reduction initiatives being undertaken are intended to position the Company to drive profitable and sustainable growth over time.
The Company expects to spend approximately $5,800 in connection with the Realignment and the planned exit of the Stayner Facility, of which $3,084 has been incurred as of March 31, 2022. Estimated charges related to the exit of the Stayner Facility include employee-related costs such as severance, relocation and other termination benefits, as well as contract termination and other related costs. The Company expects to incur approximately $2,700 in additional charges related to the planned exit of the Stayner Facility, primarily in the second half of 2022.
In addition, the Company anticipates capital expenditures of approximately $2,500 to modernize information technology systems and build distribution capabilities. These anticipated charges and capital expenditures are subject to a number of assumptions, including product costs, the timing of certain events, market factors and others. As a result of these assumptions, actual results may differ materially.
The Company incurred the following restructuring costs by reportable segment:
Three months ended March 31,
20222021
Rest of World$2,031 $ 
United States1,053  
Total$3,084 $ 
The following table summarizes the Company’s restructuring activity for the three months ended March 31, 2022:
Accrual as of December 31, 2021Year-to-date expensePaymentsAccrual as of March 31, 2022
Employee termination benefits$ $2,503 $(1,249)$1,254 
Other restructuring costs 581 (437)144 
Total$ $3,084 $(1,686)$1,398 

7. 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 and RSUs:
Three months ended March 31,
20222021
Stock options$1,729 $2,064 
RSUs1,957 435 
Total share-based compensation$3,686 $2,499 

During the three months ended March 31, 2022, the Company recognized $1,583 of share-based compensation expense related to the severance of certain executives.
14

Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
(b)Stock options
Vesting conditions for grants of options are determined by the Compensation Committee of the Company’s Board of Directors. The typical vesting for stock option grants made under the 2020 Omnibus Plan is annual vesting over three to five years with a maximum term of ten years. The typical vesting for stock option grants made under the Prior Option Plans is quarterly vesting over three to five 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.
The following is a summary of the changes in stock options:
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 options3.14 (1,356,875)
Cancellation, forfeiture and expiry of options12.46 (55,791)
Balance as of March 31, 2022$8.55 7,526,664 1.72
Exercisable as of March 31, 2022$7.96 4,654,574 1.14
Weighted-average exercise price (C$) (i)
Number of optionsWeighted-average remaining contractual term (years)
Balance as of January 1, 2021$5.40 13,755,148 2.30
Exercise of options2.13 (5,230,550)
Cancellation, forfeiture and expiry of options14.71 (25,771)
Balance as of March 31, 2021$7.38 8,498,827 2.82
Exercisable as of March 31, 2021$5.75 4,896,820 1.46
(i)The weighted-average exercise price reflects the conversion of foreign currency-denominated stock options translated into C$ using the average foreign exchange rate as of the date of issuance.
The following table summarizes stock options outstanding:
As of March 31, 2022As of December 31, 2021
2020 Omnibus Plan2,900,000 2,900,000 
2018 Stock Option Plan 1,523,449 1,550,074 
2015 Stock Option Plan 3,103,215 4,489,256 
Total stock options outstanding7,526,664 8,939,330 
15

Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
(c)Restricted share units
The following is a summary of the changes in RSUs:
Weighted-average grant date fair value (C$)(i)
Number of RSUs
Balance as of January 1, 2022$9.22 1,225,870 
Granted(i)
3.52 3,950,334 
Vested and issued10.81 (78,631)
Cancellation and forfeitures7.92 (55,479)
Balance as of March 31, 2022$4.74 5,042,094 
Weighted-average grant date fair value (C$)(ii)
Number of RSUs
Balance as of January 1, 2021$7.66 948,357 
Granted(i)
13.27 265,904 
Balance as of March 31, 2021$8.89 1,214,261 
(i)RSUs granted in the period vest annually in equal installments over a three-year period from the grant date or vest after a three or five year “cliff-period.” All RSUs are subject to such holder’s continued employment through each vesting date. The vesting of such RSUs is not subject to the achievement of any performance criteria.
(ii)The weighted-average grant date fair value reflects the conversion of foreign currency-denominated RSUs translated into C$ using the foreign exchange rate as of the date of issuance.
(d)Deferred share units
The following is a summary of the changes in DSUs:
Financial liabilityNumber of DSUs
Balance as of January 1, 2022$408 104,442 
Gain on revaluation(66)— 
Balance as of March 31, 2022$<