SEC Filing | The Cronos Group

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cron-20230630

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 June 30, 2023

☐ 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 class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, no par value

CRON

The 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 filer

Accelerated filer

☐

Non-accelerated filer

Smaller 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 August 4, 2023, there were 381,089,357 common shares of the registrant issued and outstanding.

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Item 4.

Controls and Procedures.

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings.

Item 1A.

Risk Factors.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Item 3.

Defaults upon Senior Securities.

Item 4.

Mine Safety Disclosures.

Item 5.

Other Information.

Item 6.

Exhibits.

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

June 30, 2023

June 30, 2022

December 31, 2022

Spot rate

1.3242

1.2874

1.3554

Year-to-date average rate

1.3474

1.2715

N/A

(Exchange rates are shown as ILS per $)

As of

June 30, 2023

June 30, 2022

December 31, 2022

Spot rate

3.7051

3.4936

3.5178

Year-to-date average rate

3.5892

3.2670

N/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).

PART I
FINANCIAL INFORMATION

Table of Contents

Item 1. Financial Statements


Table of Contents

Condensed Consolidated Balance Sheets as of June 30 , 2023 (Unaudited) and December 31, 2022			4
Condensed Consolidated Statements of Net Loss and Comprehensive Loss for the three and six months ended June 30 , 2023 and 2022 (Unaudited)			5
Condensed Consolidated Statements of Changes in Equity for the three and six months ended June 30, 2023 and 2022 (Unaudited)			6
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (Unaudited)			7
Notes to Condensed Consolidated Financial Statements (Unaudited)			8


Cronos Group Inc.
Condensed Consolidated Balance Sheets

(In thousands of U.S. dollars, except share amounts)			Table of Contents


	As of June 30, 2023		As of December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	409,428	$	764,644
Short-term investments	431,510		113,077
Accounts receivable, net	12,540		23,113
Interest receivable	9,452		2,469
Other receivables	4,839		3,298
Current portion of loans receivable, net	5,035		8,890
Inventory, net	45,190		37,559
Prepaids and other current assets	6,780		7,106

Total current assets	924,774		960,156
Equity method investments, net	17,646		18,755
Other investments	67,925		70,993
Non-current portion of loans receivable, net	71,080		72,345
Property, plant and equipment, net	57,695		60,557
Right-of-use assets	1,571		2,273
Goodwill	1,057		1,033
Intangible assets, net	25,462		26,704
Deferred tax asset	1,137		$	193
Total assets	$	1,168,347	$	1,213,009

Liabilities
Current liabilities
Accounts payable	$	9,340	$	11,163
Income taxes payable	438		32,956
Accrued liabilities	16,573		22,268
Current portion of lease obligation	1,174		1,330
Derivative liabilities	37		15
Current portion due to non-controlling interests	364		384
Total current liabilities	27,926		68,116
Non-current portion due to non-controlling interests	1,023		1,383
Non-current portion of lease obligation	2,050		2,546
Deferred tax liability	675		—
Total liabilities	31,674		72,045


Shareholders’ equity
Share capital (authorized for issue as of June 30, 2023 and December 31, 2022: unlimited; shares outstanding as of June 30, 2023 and December 31, 2022: 381,089,357 and 380,575,403, respectively)	613,152		611,318
Additional paid-in capital	45,317		42,682
Retained earnings	463,153		490,682
Accumulated other comprehensive income (loss)	18,067		(797)
Total equity attributable to shareholders of Cronos Group	1,139,689		1,143,885
Non-controlling interests	(3,016)		(2,921)
Total shareholders’ equity	1,136,673		1,140,964
Total liabilities and shareholders’ equity	$	1,168,347	$	1,213,009

See notes to condensed consolidated interim financial statements.


Cronos Group Inc.
Condensed Consolidated Statements of Net Loss and Comprehensive Income (Loss)

(In thousands of U.S dollars, except share and per share amounts, unaudited)			Table of Contents


	Three months ended June 30,				Six months ended June 30,
	2023		2022		2023		2022
Net revenue, before excise taxes	$	25,798	$	27,095	$	52,352	$	54,173
Excise taxes	(6,777)		(5,493)		(13,836)		(9,866)
Net revenue	19,021		21,602		38,516		44,307
Cost of sales	15,922		17,280		32,490		33,275

Gross profit	3,099		4,322		6,026		11,032
Operating expenses
Sales and marketing	5,297		4,185		11,038		7,195
Research and development	1,107		4,194		3,146		8,115
General and administrative	13,451		16,286		25,307		37,417
Restructuring costs	—		978		—		3,009
Share-based compensation	2,331		2,583		4,866		6,199
Depreciation and amortization	1,533		1,398		3,058		2,666

Impairment loss on long-lived assets	—		—		—		3,493
Total operating expenses	23,719		29,624		47,415		68,094
Operating loss	(20,620)		(25,302)		(41,389)		(57,062)
Other income
Interest income, net	12,471		3,775		23,646		5,820
Gain (loss) on revaluation of derivative liabilities	43		3,410		(22)		13,829
Share of income (loss) from equity method investments	270		5,197		(226)		5,197
Gain (loss) on revaluation of financial instruments	5,193		(2,112)		(2,565)		2,156
Impairment loss on other investments	—		—		—		(11,238)
Foreign currency transaction loss	(3,174)		(2,852)		(4,817)		(4,724)
Other, net	(26)		49		59		184
Total other income	14,777		7,467		16,075		11,224
Loss before income taxes	(5,843)		(17,835)		(25,314)		(45,838)
Income tax expense (benefit)	(180)		(308)		(1,616)		54
Loss from continuing operations	(5,663)		(17,527)		(23,698)		(45,892)
Loss from discontinued operations	(2,834)		(2,811)		(4,056)		(7,099)
Net loss	(8,497)		(20,338)		(27,754)		(52,991)
Net loss attributable to non-controlling interest	(137)		(117)		(225)		(132)
Net loss attributable to Cronos Group	$	(8,360)	$	(20,221)	$	(27,529)	$	(52,859)

Comprehensive income (loss)
Net loss	$	(8,497)	$	(20,338)	$	(27,754)	$	(52,991)
Other comprehensive income (loss)
Foreign exchange gain (loss) on translation	16,580		(24,161)		18,994		(8,184)
Comprehensive income (loss)	8,083		(44,499)		(8,760)		(61,175)
Comprehensive income (loss) attributable to non-controlling interests	(87)		122		(95)		(139)
Comprehensive income (loss) attributable to Cronos Group	$	8,170	$	(44,621)	$	(8,665)	$	(61,036)

Net loss per share
Basic and diluted - continuing operations	$	(0.01)	$	(0.05)	$	(0.06)	$	(0.12)
Basic and diluted - discontinued operations	(0.01)		—		(0.01)		(0.02)
Basic and diluted	$	(0.02)	$	(0.05)	$	(0.07)	$	(0.14)

See notes to condensed consolidated interim financial statements.


Cronos Group Inc.
Condensed Consolidated Statements of Changes in Equity
For the six months ended June 30, 2023 and 2022
(In thousands of U.S. dollars, except share amounts, unaudited)


	Number of shares	Share capital		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Non-controlling interests		Total shareholders’ equity
Balance as of January 1, 2023	380,575,403	$	611,318	$	42,682	$	490,682	$	(797)	$	(2,921)	$	1,140,964


Activities relating to share-based compensation	240,518	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, 2023	380,815,921	$	612,235	$	44,044	$	471,513	$	1,537	$	(2,929)	$	1,126,400
Activities relating to share-based compensation	273,436	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, 2023	381,089,357	$	613,152	$	45,317	$	463,153	$	18,067	$	(3,016)	$	1,136,673


	Number of shares	Share capital		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Non-controlling interests		Total shareholders’ equity
Balance as of January 1, 2022	374,952,693	$	595,497	$	32,465	$	659,416	$	49,865	$	(2,967)	$	1,334,276


Activities relating to share-based compensation	347,287	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, 2022	375,299,980	$	596,368	$	35,365	$	626,778	$	66,088	$	(3,228)	$	1,321,371
Activities relating to share-based compensation	395,156	2,251		(167)		—		—		—		2,084
Share issuance pursuant to research and development milestones	2,201,235	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, 2022	377,896,371	$	604,626	$	35,198	$	606,557	$	41,688	$	(3,106)	$	1,284,963

See notes to condensed consolidated interim financial statements.


Cronos Group Inc.
Condensed Consolidated Statements of Cash Flows

(In thousands of U.S. dollars, except share amounts, unaudited)			Table of Contents


	Six months ended June 30,
	2023		2022
Operating activities
Net loss	$	(27,754)	$	(52,991)
Adjustments to reconcile net loss to cash used in operating activities:
Share-based compensation	4,887		6,302
Depreciation and amortization	4,785		7,051

Impairment loss on long-lived assets	205		3,493
Impairment loss on other investments	—		11,238
Loss (gain) from investments	2,955		(7,193)
Loss (gain) on revaluation of derivative liabilities	22		(13,829)

Changes in expected credit losses on long-term financial assets	(1,146)		(655)
Foreign currency transaction loss	4,817		4,724
Other non-cash operating activities, net	(4,012)		(1,956)
Changes in operating assets and liabilities:
Accounts receivable, net	10,623		1,981
Interest receivable	(6,807)		(383)
Other receivables	(200)		3,973
Prepaids and other current assets	480		(3,759)
Inventory	(7,259)		(8,145)
Accounts payable	(2,478)		481
Income taxes payable	(32,801)		—
Accrued liabilities	(5,784)		(1,523)
Cash flows used in operating activities	(59,467)		(51,191)
Investing activities
Purchase of short-term investments	(479,763)		(157,300)
Proceeds from short-term investments	169,418		117,975


Dividends received from equity method investment	1,299		—
Proceeds from repayment on loan receivables	11,388		1,573
Purchase of property, plant and equipment	(1,298)		(2,218)
Purchase of intangible assets	(8)		(421)
Other investing activities	—		70
Cash flows used in investing activities	(298,964)		(40,321)
Financing activities
Withholding taxes paid on share-based awards	(782)		(2,080)
Other financing activities, net	—		46
Cash flows used in financing activities	(782)		(2,034)
Effect of foreign currency translation on cash and cash equivalents	3,997		(3,884)
Net change in cash and cash equivalents	(355,216)		(97,430)
Cash and cash equivalents, beginning of period	764,644		886,973
Cash and cash equivalents, end of period	$	409,428	$	789,543
Supplemental cash flow information
Interest paid	$	—	$	—
Interest received	$	13,385	$	3,490
Income taxes paid	$	32,995	$	140

See notes to condensed consolidated interim financial statements.


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

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®.

(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 and six months ended June 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 income (loss). Prior period amounts have been reclassified to reflect the discontinued operations classification of the U.S. 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:


	Three months ended June 30,
	2023		2022
Cannabis flower	$	14,014	$	15,739
Cannabis extracts	4,926		5,582
Other	81		281
Net revenue	$	19,021	$	21,602


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents


	Six months ended June 30,
	2023		2022
Cannabis flower	$	27,142	$	34,364
Cannabis extracts	11,227		9,570
Other	147		373
Net revenue	$	38,516	$	44,307

Net revenue attributed to a geographic region based on the location of the customer were as follows for continuing operations:


	Three months ended June 30,
	2023		2022
Canada	$	13,595	$	14,389
Israel	5,426		7,213


Net revenue	$	19,021	$	21,602


	Six months ended June 30,
	2023		2022
Canada	$	28,029	$	27,965
Israel	10,487		16,342


Net revenue	$	38,516	$	44,307

(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 $943,884 and $987,836 as of June 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 June 30, 2023 and December 31, 2022, the Company had $69 and $219, respectively, in expected credit losses that have been recognized on receivables from contracts with customers.

As of June 30, 2023, the Company assessed that there is a concentration of credit risk, as 41% 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 June 30, 2023, the Company earned a total net revenue before excise taxes of $16,839 from three major customers, together accounting for 67% of the Company’s total net revenues before excise taxes. During the three months ended June 30, 2022, the Company earned a total net revenue before excise taxes of $12,767 from three major customers, together accounting for 59% of the Company’s total net revenues before excise taxes. During the six months ended June 30, 2023, the Company earned a total net revenue before excise taxes of $34,732 from three major customers, together accounting for 67% of the Company’s total net revenues before excise taxes. During the six months ended June 30, 2022, the Company earned a total net revenue before excise taxes of $24,690 from three major customers, together accounting for 56% of the Company’s total net revenues before excise taxes.


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

(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 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.

(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 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. 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 six months ended June 30, 2023 and 2022 are reported separately as loss from discontinued operations on the condensed consolidated statements of net loss and comprehensive income (loss).

The following table presents the major components comprising loss from discontinued operations in the condensed consolidated statements of operations for the three and six months ended June 30, 2023 and 2022:


	Three months ended June 30,			Six months ended June 30,
		2023		2022		2023		2022
Net revenue		$	380	$	1,459	$	1,029	$	3,787
Cost of sales		848		1,661		2,044		3,773
Inventory write-down		839		—		839		—
Gross profit		(1,307)		(202)		(1,854)		14
Operating expenses
Sales and marketing		387		1,397		518		3,399
Research and development		18		108		20		226
General and administrative		213		719		736		1,956
Restructuring costs		534		292		534		1,345
Share-based compensation		5		33		21		103
Depreciation and amortization		5		13		13		38

Impairment loss on long-lived assets(ii)		205		—		205		—
Total operating expenses		1,367		2,562		2,047		7,067
Interest income		3		—		8		1
Other, net(i)		(163)		(47)		(163)		(47)
Total other loss		(160)		(47)		(155)		(46)
Loss before income taxes		(2,834)		(2,811)		(4,056)		(7,099)
Income tax expense (benefit)		—		—		—		—
Net loss from discontinued operations		$	(2,834)	$	(2,811)	$	(4,056)	$	(7,099)

(i)For the three and six months ended June 30, 2023 and June 30, 2022, Other, net related to loss on disposal of assets that were part of the U.S. operations.

(ii)During the three and six months ended June 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.

The following tables present the Company's discontinued operations revenue by major product category:


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents


	Three months ended June 30, 2023
	2023		2022
Cannabis extracts	$	380	$	1,459
Net revenue	$	380	$	1,459


	Six months ended June 30,
	2023		2022
Cannabis extracts	$	1,029	$	3,787
Net revenue	$	1,029	$	3,787

The following tables summarize the Company’s discontinued operations restructuring activity for the three and six months ended June 30, 2023 and 2022:


	Accrual as of April 1, 2023		Expenses		Payments/Write-offs		Accrual as of June 30, 2023
Employee Termination Benefits	$	—	$	442	$	(223)	$	219

Other Restructuring Costs	—		92		—		92
Total	$	—	$	534	$	(223)	$	311


	Accrual as of January 1, 2023		Expenses		Payments/Write-offs		Accrual as of June 30, 2023
Employee Termination Benefits	$	—	$	442	$	(223)	$	219

Other Restructuring Costs	—		92		—		92
Total	$	—	$	534	$	(223)	$	311


	Accrual as of April 1, 2022		Expenses		Payments/Write-offs		Accrual as of June 30, 2022
Employee Termination Benefits	$	102	$	292	$	(328)	$	66


Total	$	102	$	292	$	(328)	$	66


	Accrual as of January 1, 2022		Expenses		Payments/Write-offs		Accrual as of June 30, 2022
Employee Termination Benefits	$	—	$	1,345	$	(1,279)	$	66


Total	$	—	$	1,345	$	(1,279)	$	66


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

The following table presents a reconciliation of assets and liabilities of the discontinued operations presented in the condensed consolidated balance sheets:


	As of June 30, 2023		As of December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	1,918	$	2,300

Accounts receivable, net	7		253
Other receivables	—		775

Prepaids and other current assets	53		464
Inventory, net	—		934
Current assets of discontinued operations	1,978		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	131		166

Accrued liabilities	621		807
Current portion of lease obligation	216		415


Current liabilities of discontinued operations	$	968	$	1,388

For the six months ended June 30, 2023, purchases of property plant and equipment related to discontinued operations were $67. For the six months ended June 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 June 30, 2023		As of December 31, 2022
Raw materials	$	7,419	$	7,421
Work-in-progress	15,926		15,646
Finished goods	20,730		13,503
Supplies and consumables	1,115		989
Total	$	45,190	$	37,559


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

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 interest	As of June 30, 2023		As of December 31, 2022

Cronos Growing Company Inc. (“Cronos GrowCo”)	50%	$	17,646	$	18,755

		$	17,646	$	18,755

On June 30, 2023, the Company received a dividend of C$1,750 ($1,322) from Cronos GrowCo, which reduced the Company’s carrying amount in the investment.

The following is a summary of the Company’s share of net gain (loss) from equity method investments:


	For the three months ended June 30,				For the six months ended June 30,
	2023		2022		2023		2022
Cronos GrowCo	$	270	$	5,197	$	(226)	$	5,197

	$	270	$	5,197	$	(226)	$	5,197

(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 June 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.

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 income (loss). 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.


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

The following table summarizes the Company’s other investments activity:


	As of April 1, 2023		Unrealized gain		Impairment charges		Foreign exchange effect		As of June 30, 2023
PharmaCann	$	49,000	$	—	$	—	$	—	$	49,000
Vitura	13,833		5,194		—		(102)		18,925
	$	62,833	$	5,194	$	—	$	(102)	$	67,925


	As of January 1, 2023		Unrealized loss		Impairment charges		Foreign exchange effect		As of June 30, 2023
PharmaCann	$	49,000	$	—	$	—	$	—	$	49,000
Vitura	21,993		(2,729)		—		(339)		18,925
	$	70,993	$	(2,729)	$	—	$	(339)	$	67,925


	As of April 1, 2022		Unrealized loss		Impairment charges		Foreign exchange effect		As of June 30, 2022
PharmaCann	$	99,154	$	—	$	—	$	—	$	99,154
Vitura	12,607		(2,200)		—		(892)		9,515
	$	111,761	$	(2,200)	$	—	$	(892)	$	108,669


	As of January 1, 2022		Unrealized gain		Impairment charges		Foreign exchange effect		As of June 30, 2022
PharmaCann	$	110,392	$	—	$	(11,238)	$	—	$	99,154
Vitura	8,000		1,996		—		(481)		9,515
	$	118,392	$	1,996	$	(11,238)	$	(481)	$	108,669

During the six months ended June 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 a non-cash impairment charge of $11,238 during the six months ended June 30, 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 income (loss).


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

5. Loans Receivable, net

Loans receivable, net consists of the following:


	As of June 30, 2023		As of December 31, 2022

GrowCo Credit Facility	$	5,035	$	4,427
Add: Current portion of accrued interest	—		4,463
Total current portion of loans receivable	5,035		8,890
GrowCo Credit Facility	55,757		56,898
Mucci Promissory Note	13,383		13,438
Cannasoul Collaboration Loan	1,736		1,837
Add: Long-term portion of accrued interest	204		172
Total long-term portion of loans receivable	71,080		72,345
Total loans receivable, net	$	76,115	$	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 both June 30, 2023 and December 31, 2022, Cronos GrowCo had drawn C$104,000 ($78,538 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. As of June 30, 2023, Cronos GrowCo had repaid C$8,167 ($6,167) and C$16,486 ($12,450) 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 $12,347) 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. On June 30, 2023, Mucci made a payment of C$1,750 (approximately $1,322) under the Mucci Promissory Note, with C$1,187 ($897) related to accrued interest and C$563 ($425) related to outstanding principal.

Cannasoul Collaboration Loan

As of both June 30, 2023 and December 31, 2022, Cannasoul Lab Services Ltd. has received ILS 8,297 (approximately $2,239 and $2,359, respectively), from the Cannasoul Collaboration Loan.


Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)

(In thousands of U.S. dollars, except share amounts)			Table of Contents

Expected credit loss allowances on the Company’s long-term financial assets for the three and six months ended June 30, 2023 and 2022 were comprised of the following items:


	As of April 1, 2023		Increase (decrease)(i)		Foreign exchange effect		As of June 30, 2023
GrowCo Credit Facility	$	11,719	$	(379)	$	239	$	11,579

Mucci Promissory Note	91		(7)		2		86
Cannasoul Collaboration Loan	514		4		(15)		503
	$	12,324	$	(382)	$	226	$	12,168


	As of April 1, 2022		Increase (decrease)(i)		Foreign exchange effect		As of June 30, 2022
GrowCo Credit Facility	$	14,354	$	(660)	$	(401)	$	13,293

Mucci Promissory Note	93		1		(3)		91
Cannasoul Collaboration Loan	409		4		(36)		377
	$	14,856	$	(655)	$	(440)	$	13,761


	As of January 1, 2023		Increase (decrease)(i)		Foreign exchange effect		As of June 30, 2023
GrowCo Credit Facility	$	12,455	$	(1,149)	$	273	$	11,579

Mucci Promissory Note	89		(5)		2		86
Cannasoul Collaboration Loan	522		8		(27)		503
	$	13,066	$	(1,146)	$	248	$	12,168


	As of January 1, 2022		Increase (decrease)		Foreign exchange effect		As of June 30, 2022
GrowCo Credit Facility	$	14,089	$	(664)	$	(132)	$	13,293

Mucci Promissory Note	90		2		(1)		91
Cannasoul Collaboration Loan	415		7		(45)		377
	$	14,594	$	(655)	$	(178)	$	13,761

(i)During the three and six months ended June 30, 2023, $382 and $1,146, respectively, were recorded as decreases to general and administrative expenses on the condensed consolidated statements of net loss and comprehensive income (loss) as a result of principal and interest payments made by Cronos GrowCo reducing our expected credit losses on loans receivable. During both the three and six months ended June 30, 2022, $655 was recorded as a decrease to general and administrative expenses on the condensed consolidated statements of net loss and comprehensive income (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 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 shar