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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, 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 May 5, 2023, there were 380,815,921 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
March 31, 2023March 31, 2022December 31, 2022
Spot rate1.35161.25071.3554
Year-to-date average rate1.35201.2665N/A
(Exchange rates are shown as ILS per $)As of
March 31, 2023March 31, 2022December 31, 2022
Spot rate3.59663.19063.5178
Year-to-date average rate3.53193.1942N/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 March 31, 2023As of December 31, 2022
Assets
Current assets
Cash and cash equivalents$413,667 $764,644 
Short-term investments422,763 113,077 
Accounts receivable, net14,855 23,113 
Other receivables7,049 5,767 
Current portion of loans receivable, net5,570 8,890 
Inventory, net44,268 37,559 
Prepaids and other current assets7,967 7,106 
Total current assets916,139 960,156 
Equity method investments, net18,313 18,755 
Other investments62,833 70,993 
Non-current portion of loans receivable, net72,051 72,345 
Property, plant and equipment, net59,785 60,557 
Right-of-use assets2,038 2,273 
Goodwill1,036 1,033 
Intangible assets, net25,897 26,704 
Other1,483 193 
Total assets$1,159,575 $1,213,009 
Liabilities
Current liabilities
Accounts payable$12,842 $11,163 
Income taxes payable266 32,956 
Accrued liabilities14,332 22,268 
Current portion of lease obligation1,236 1,330 
Derivative liabilities80 15 
Current portion due to non-controlling interests375 384 
Total current liabilities29,131 68,116 
Non-current portion due to non-controlling interests1,370 1,383 
Non-current portion of lease obligation2,296 2,546 
Deferred income tax liability378  
Total liabilities33,175 72,045 
Shareholders’ equity
Share capital (authorized for issue as of March 31, 2023 and December 31, 2022: unlimited; shares outstanding as of March 31, 2023 and December 31, 2022: 380,815,921 and 380,575,403, respectively)
612,235 611,318 
Additional paid-in capital44,044 42,682 
Retained earnings471,513 490,682 
Accumulated other comprehensive income (loss)1,537 (797)
Total equity attributable to shareholders of Cronos Group1,129,329 1,143,885 
Non-controlling interests(2,929)(2,921)
Total shareholders’ equity1,126,400 1,140,964 
Total liabilities and shareholders’ equity$1,159,575 $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 March 31,
20232022
Net revenue, before excise taxes$27,203 $29,406 
Excise taxes(7,059)(4,373)
Net revenue20,144 25,033 
Cost of sales17,764 18,107 
Gross profit2,380 6,926 
Operating expenses
Sales and marketing5,872 5,012 
Research and development2,041 4,039 
General and administrative12,379 22,368 
Restructuring costs 3,084 
Share-based compensation2,551 3,686 
Depreciation and amortization1,533 1,293 
Impairment loss on long-lived assets 3,493 
Total operating expenses24,376 42,975 
Operating loss(21,996)(36,049)
Other income
Interest income, net11,180 2,046 
Gain (loss) on revaluation of derivative liabilities(65)10,419 
Share of loss from equity method investments(496) 
Gain (loss) on revaluation of financial instruments(7,758)4,268 
Impairment loss on other investments (11,238)
Foreign currency transaction loss(1,643)(1,872)
Other, net85 135 
Total other income1,303 3,758 
Loss before income taxes(20,693)(32,291)
Income tax expense (benefit)(1,436)362 
Net loss(19,257)(32,653)
Net loss attributable to non-controlling interest(88)(15)
Net loss attributable to Cronos Group$(19,169)$(32,638)
Comprehensive loss
Net loss$(19,257)$(32,653)
Other comprehensive income
Foreign exchange gain on translation2,414 15,977 
Comprehensive loss(16,843)(16,676)
Comprehensive loss attributable to non-controlling interests(8)(261)
Comprehensive loss attributable to Cronos Group$(16,835)$(16,415)
Net loss from continuing operations per share
Basic - continuing operations$(0.05)$(0.09)
Diluted - continuing operations$(0.05)$(0.09)
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, 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 
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 

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,
20232022
Operating activities
Net loss$(19,257)$(32,653)
 Adjustments to reconcile net loss to cash used in operating activities:
Share-based compensation2,551 3,686 
Depreciation and amortization2,405 2,824 
Impairment loss on long-lived assets 3,493 
Impairment loss on other investments 11,238 
Loss (gain) from investments8,419 (4,196)
Loss (gain) on revaluation of derivative liabilities65 (10,419)
Changes in expected credit losses on long-term financial assets(764) 
Foreign currency transaction loss1,643 1,872 
Other non-cash operating activities, net(2,850)(271)
Changes in operating assets and liabilities:
Accounts receivable, net8,201 (3,530)
Other receivables(1,282)2,435 
Prepaids and other current assets(848)(1,195)
Inventory(6,824)(3,867)
Accounts payable1,555 (178)
Income taxes payable(32,813) 
Accrued liabilities(7,894)(3,150)
Cash flows used in operating activities(47,693)(33,911)
Investing activities
Purchase of short-term investments(422,612) 
Proceeds from short-term investments113,355  
Proceeds from repayment on loan receivables6,249 790 
Purchase of property, plant and equipment(804)(711)
Purchase of intangible assets (23)
Other investing activities 44 
Cash flows provided by (used in) investing activities(303,812)100 
Financing activities
Withholding taxes paid on share-based awards(743)(534)
Other financing activities, net 70 
Cash flows used in financing activities(743)(464)
Effect of foreign currency translation on cash and cash equivalents1,271 8,837 
Net change in cash and cash equivalents(350,977)(25,438)
Cash and cash equivalents, beginning of period764,644 886,973 
Cash and cash equivalents, end of period$413,667 $861,535 
Supplemental cash flow information
Interest paid$ $ 
Interest received$7,558 $822 
Income taxes paid$32,932 $66 

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 Summary of Significant Accounting Policies
(a)Background
Cronos Group Inc. (“Cronos” 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 is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio. Cronos’ diverse international brand portfolio includes Spinach®, PEACE NATURALS® and Lord Jones®.
(b)Basis of presentation
These condensed consolidated interim financial statements of Cronos 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, 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)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. 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, which is predominantly composed of operations in Canada and Israel, 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 CODM 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.
(d)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 $935,955 and $987,442 as of March 31, 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 March 31, 2023 and December 31, 2022, the Company had $4 and $2, respectively, in expected credit losses that have been recognized on receivables from contracts with customers in the ROW segment. As of March 31, 2023 and December 31, 2022, the Company had $237 and $217, respectively, in expected credit losses that have been recognized on receivables from contracts with customers in the U.S. segment.
8

Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
As of March 31, 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, 55% of the Company’s accounts receivable were due from three 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, 2023, the Company earned a total net revenue before excise taxes of $15,168 from two major customers in the ROW segment, together accounting for 56% of the Company’s total net revenues before excise taxes. During the three months ended March 31, 2022, the ROW segment earned a total net revenue before excise taxes of $9,833 from two major customers, together accounting for 33% of the Company’s total net revenues before excise taxes. During the three months ended March 31, 2023 and 2022, the U.S. segment had no major customers.
(e)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 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. The adoption of ASU No. 2022-02 did not have a material impact on the Company’s condensed consolidated interim financial statements.
(f)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 No. 2022-03”). ASU No. 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 No. 2022-03 to have a material impact on its condensed consolidated interim financial statements.
2. Inventory, net
Inventory, net is comprised of the following items:
As of March 31, 2023As of December 31, 2022
Raw materials$8,540 $7,421 
Work-in-progress15,263 15,646 
Finished goods19,719 13,503 
Supplies and consumables746 989 
Total$44,268 $37,559 
9

Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
3. 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 March 31, 2023As of December 31, 2022
Cronos Growing Company Inc. (“Cronos GrowCo”)
50%$18,313 $18,755 
$18,313 $18,755 
The following is a summary of the Company’s share of net loss from equity method investments:
For the three months ended March 31,
20232022
Cronos GrowCo$(496)$ 
$(496)$ 
(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 March 31, 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.
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.
10

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 January 1, 2023Unrealized lossImpairment chargesForeign exchange effectAs of March 31, 2023
PharmaCann$49,000 $ $ $ $49,000 
Vitura21,993 (7,923) (237)13,833 
$70,993 $(7,923)$ $(237)$62,833 
As of January 1, 2022Unrealized gainImpairment chargesForeign exchange effectAs of March 31, 2022
PharmaCann$110,392 $ $(11,238)$ $99,154 
Vitura8,000 4,196  411 12,607 
$118,392 $4,196 $(11,238)$411 $111,761 
During the three months ended March 31, 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 a non-cash impairment charge of $11,238 during the three months ended March 31, 2022, 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.
4. Loans Receivable, net
Loans receivable, net consists of the following:
As of March 31, 2023As of December 31, 2022
GrowCo Credit Facility
$4,933 $4,427 
Add: Current portion of accrued interest637 4,463 
Total current portion of loans receivable5,570 8,890 
GrowCo Credit Facility
56,594 56,898 
Mucci Promissory Note
13,474 13,438 
Cannasoul Collaboration Loan1,793 1,837 
Add: Long-term portion of accrued interest190 172 
Total long-term portion of loans receivable72,051 72,345 
Total loans receivable, net$77,621 $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”). In August 2021, the GrowCo Credit Facility was amended to increase the aggregate principal amount available to C$105,000. As of March 31, 2023 and December 31, 2022, Cronos GrowCo had drawn C$104,000 ($76,946) and C$104,000 ($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. As of March 31, 2023, Cronos GrowCo had repaid C$5,000 ($3,699) and C$14,465 ($10,702) 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 $12,097) 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.
11

Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
Prior to July 1, 2022, interest accrued on the Mucci Promissory Note was capitalized as part of the principal balance. As of July 1, 2023, interest is to be paid in cash.
Cannasoul Collaboration Loan
As of both March 31, 2023 and December 31, 2022, Cannasoul Lab Services Ltd. has received ILS 8,297 (approximately $2,307 and $2,359, respectively), from the Cannasoul Collaboration Loan.
Expected credit loss allowances on the Company’s long-term financial assets for the three ended March 31, 2023 and 2022 were comprised of the following items:
As of January 1, 2023
Increase (decrease)(i)
Foreign exchange effectAs of March 31, 2023
GrowCo Credit Facility$12,455 $(770)$34 $11,719 
Mucci Promissory Note89 2  91 
Cannasoul Collaboration Loan522 4 (12)514 
$13,066 $(764)$22 $12,324 
As of January 1, 2022Increase (decrease)Foreign exchange effectAs of March 31, 2022
GrowCo Credit Facility$14,089 $(4)$269 $14,354 
Mucci Promissory Note90 1 2 93 
Cannasoul Collaboration Loan415 3 (9)409 
$14,594 $ $262 $14,856 
(i)During the three months ended March 31, 2023, $764 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 principal and interest payments made by Cronos GrowCo reducing our expected credit losses on loans receivable.
5. 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 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 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%.
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
12

Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
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$16.25 per common share without any set off, counterclaim, deduction, or withholding. These rights may not be exercised if Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20%. The Pre-emptive Rights, and fixed price Top-up Rights have been classified as derivative liabilities on the Company’s consolidated balance sheet.
As of March 31, 2023, Altria beneficially held 156,573,537 of the Company’s common shares, an approximate 41% ownership interest in the Company (calculated on a non-diluted basis).
Reconciliation of the Company’s derivative liabilities activity are as follows:
As of January 1, 2023Revaluation (gain) lossForeign exchange effectAs of March 31, 2023
Pre-emptive Rights$ $79 $ $79 
Top-up Rights15 (14) 1 
$15 $65 $ $80 
As of January 1, 2022Revaluation gain
Foreign exchange effect
As of March 31, 2022
Altria Warrant$13,720 $(10,011)$136 $3,845 
Pre-emptive Rights180 (115)2 67 
Top-up Rights475 (293)5 187 
$14,375 $(10,419)$143 $4,099 
Fluctuations in the expected life of the derivative instruments and the Company’s share price are primary drivers for the changes in the derivative valuations during each reporting period. As the period of time that the derivative liability is expected to be outstanding decreases and the share price decreases, the fair value typically decreases for each related derivative instrument. Weighted-average expected life and share price are two of the significant observable inputs used in the fair value measurement of each of the Company’s derivative instruments.
The fair values of the derivative liabilities were determined using the Black-Scholes pricing model using the following inputs:
As of March 31, 2023
Pre-emptive RightsTop-up Rights
Share price at valuation date (per share in C$)$2.60$2.60
Subscription price (per share in C$)$16.25$16.25
Weighted-average risk-free interest rate(i)
3.81%4.18%
Weighted-average expected life (in years)(ii)
1.750.46
Expected annualized volatility(iii)
60%50%
Expected dividend yield%%
As of December 31, 2022
Pre-emptive RightsTop-up Rights
Share price at valuation date (per share in C$)$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 March 31, 2023 and December 31, 2022, the risk-free interest rate uses a range of approximately 3.56% to 4.21% 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 March 31, 2023 and December 31, 2022, the expected life uses a range of approximately 0.25 years to 2.50 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.
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 “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. The Realignment initiatives were intended to position the Company to drive profitable and sustainable growth over time.
During the three months ended March 31, 2022, the Company recognized $3,084 of restructuring costs in connection with the Realignment, including the change in the nature of operations at the Peace Naturals Campus. Charges related thereto include employee-related costs such as severance, relocation and other termination benefits, as well as contract termination and other related costs. The Company incurred no restructuring costs during the three months ended March 31, 2023.
The Company incurred the following restructuring costs by reportable segment:
Three ended March 31,
20232022
Rest of World$ $2,031 
United States 1,053 
Total$ $3,084 
The following table summarizes the Company’s restructuring activity for the three months ended March 31, 2023:
As of January 1, 2023ExpensesPayments/Write-offsAs of March 31, 2023
Employee termination benefits$403 $ $(295)$108 
Other restructuring costs21  (21) 
Total$424 $ $(316)$108 
The following table summarizes the Company’s restructuring activity for the three months ended March 31, 2022:
As of January 1, 2022ExpensesPayments/Write-offsAs of March 31, 2022
Employee termination benefits$ $2,503 $(1,249)$1,254 
Other restructuring costs 581 (437)144 
Total$ $3,084 $(1,686)$1,398 
14

Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
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, RSUs and liability-classified awards for the three months ended March 31, 2023 and 2022:
Three months ended March 31,
20232022
Stock options$734 $1,729 
RSUs1,817 1,957 
Total share-based compensation$2,551 $3,686 
(b)Stock options
Vesting conditions for grants of options are determined by the Compensation Committee. The typical vesting for stock option grants made under the 2020 Omnibus Plan is annual vesting over three to five years with a maximum term of ten years. The typical vesting for stock option grants made under the Prior Option Plans is quarterly vesting over three to five years with a maximum term of seven years. The Prior Option Plans did not, and the 2020 Omnibus Plan does not, authorize grants of options with an exercise price below fair market value.
The following is a summary of the changes in stock options for the three months ended March 31, 2023 and 2022:
Weighted-average exercise price (C$) (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 options9.05 (335,091)
Balance as of March 31, 2023$10.40 5,203,826 0.75
Exercisable as of March 31, 2023$11.88 3,624,498 0.48
Weighted-average exercise price (C$) (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$7.96 4,654,574 1.14
(i)The weighted-average exercise price reflects the conversion of foreign currency-denominated stock options translated into C$ using the average foreign exchange rate as of the date of issuance.
15

Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
For the three months ended March 31, 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)C$2.96
Exercise price (per option)C$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)C$2.07
Forfeiture rate
The following table summarizes stock options outstanding:
As of March 31, 2023As of December 31, 2022
2020 Omnibus Plan2,977,264 2,788,947 
2018 Stock Option Plan