SEC Filing | The Cronos Group

CRONOS GROUP INC.

Date: May 15, 2018

/s/ Michael Gorenstein

Michael Gorenstein

President and Chief Executive Officer

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6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 6-K

Report of Foreign Private Issuer

Pursuant to Section 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the month of: May 2018

Commission File Number: 001-38403

CRONOS GROUP INC.

(Name of registrant)

720 King Street W., Suite 320

Toronto, Ontario

M5V 2T3

(Address of principal executive office)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ☐ Form 40-F ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

EXHIBIT INDEX


Exhibit		Description of Exhibit

99.1		Unaudited Condensed Interim Consolidated Financial Statements dated May 14, 2018

99.2		Management’s Discussion and Analysis dated May 14, 2018

99.3		Form 52-109F2 – IPO/RTO Certification of Interim Filings Following an Initial Public Offering, Reverse Takeover or Becoming a Non-Venture Issuer – Chief Executive Officer dated May 15, 2018

99.4		Form 52-109F2 – IPO/RTO Certification of Interim Filings Following an Initial Public Offering, Reverse Takeover or Becoming a Non-Venture Issuer – Chief Financial Officer dated May 15, 2018

EX-99.1

Exhibit 99.1

LOGO

CRONOS GROUP INC.

UNAUDITED CONDENSED INTERIM

CONSOLIDATED FINANCIAL STATEMENTS

For the Three Month Periods Ended March 31, 2018 and March 31, 2017

(in thousands of Canadian dollars)

Cronos Group Inc.

Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017


Contents

Unaudited Condensed Interim Consolidated Financial Statements:

Unaudited Condensed Interim Consolidated Statements of Financial Position			1

Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Loss			2

Unaudited Condensed Interim Consolidated Statements of Changes in Equity			3

Unaudited Condensed Interim Consolidated Statements of Cash Flows			4

Notes to Unaudited Condensed Interim Consolidated Financial Statements			5-25

Cronos Group Inc.

Unaudited Condensed Interim Consolidated Statements of Financial Position

As at March 31, 2018 and December 31, 2017

(Unaudited)

(in thousands of CDN $)


	Notes		As at March 31, 2018			As at December 31, 2017
Assets
Current
Cash			$	32,368		$	9,208
Accounts receivable		23(i)		2,526			1,140
Sales taxes receivable				4,266			3,114
Prepaids and other receivables				4,656			790
Promissory note receivable		6		926			—
Biological assets		7		4,490			3,722
Inventory		7		9,014			8,416
Loan receivable		8		314			314

				58,560			26,704
Investment in Whistler		9		3,848			3,807
Other investments		10		987			1,347
Property, plant and equipment		11		63,862			56,172
Intangible assets		12		11,190			11,207
Goodwill		13		1,792			1,792

			$	140,239		$	101,029

Liabilities
Current
Accounts payable and other liabilities		23(ii)	$	2,800		$	7,878
Current portion of finance lease obligation		15		39			—

				2,839			7,878
Finance lease obligation		15		150			—
Construction loan payable		14		5,405			5,367
Deferred income tax liability		22		555			1,416

				8,949			14,661

Shareholders’ Equity
Share capital		16(a)		128,550			83,559
Shares to be issued		16(c)		961			—
Warrants		16(b)		2,678			3,364
Share-based reserve		17		3,030			2,289
Accumulated deficit				(4,774	)		(3,724	)
Accumulated other comprehensive income				845			880

				131,290			86,368

			$	140,239		$	101,029

Commitments and contingencies		21
Subsequent events		26

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements

Approved on behalf of the Board of Directors:


“Michael Gorenstein”				“Jim Rudyk”
Director				Director

Cronos Group Inc.

Unaudited Condensed Interim Consolidated Statements of Operations and Comprehensive Loss

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except share amounts)


			Three months ended March 31,
	Notes		2018			2017
Product sales		18	$	2,945		$	514

Cost of sales
Inventory expensed to cost of sales		11		3,761			1,056
Production costs				1,714			235
Unrealized gain on revaluation of biological assets		7		(4,458	)		(1,813	)

Total cost of sales (recovery)				1,017			(522	)

Gross profit				1,928			1,036

Operating expenses
Sales and marketing				586			44
General and administration				2,461			1,336
Stock-based payments		17,20		774			192
Depreciation and amortization		11,12		285			201

Total operating expenses				4,106			1,773

Operating loss				(2,178	)		(737	)
Other income (expense)
Interest expense				(22	)		(150	)
Share of income from Whistler investment		9		41			103
Gain (loss) on other investments		10		221			(59	)

Total other income (expense)				240			(106	)

Loss before income taxes				(1,938	)		(843	)
Income tax expense (recovery)		22		(888	)		1

Net loss			$	(1,050	)	$	(844	)

Other comprehensive income
Gain (loss) on revaluation of other investments, net of tax		10,22		(35	)		683

Comprehensive loss			$	(1,085	)	$	(161	)

Net loss per share
Basic and diluted		19	$	(0.01	)	$	(0.01	)

Weighted average number of outstanding shares
Basic and diluted		19		157,054,891			125,256,010

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements

Cronos Group Inc.

Unaudited Condensed Interim Consolidated Statements of Changes in Equity

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except share amounts)


	Notes		Number of shares		Share capital			Shares to be issued		Warrants			Share-based reserve			Accumulated deficit			Accumulated other comprehensive income			Total
Balance at January 1, 2017				121,725,748	$	33,590		$	—	$	3,983		$	735		$	(6,215	)	$	1,585			33,678
Shares issued		16(a)		7,705,000		17,336			—		—			—			—			—			17,336
Share issuance costs				—		(1,322	)		—		—			—			—			—			(1,322	)
Vesting of options		17		—		—			—		—			192			—			—			192
Options exercised		17		235,704		398			—		—			(141	)		—			—			257
Warrants exercised		16(b)		1,813,982		924			—		(280	)		—			—			—			644
Unrealized gains reclassified to net income		10		—		—			—		—			—			—			(16	)		(16	)
Net loss				—		—			—		—			—			(844	)		—			(844	)
Other comprehensive income		10		—		—			—		—			—			—			683			683

Balance at March 31 2017				131,480,434	$	50,926		$	—	$	3,703		$	786		$	(7,059	)	$	2,252		$	50,608

Balance at January 1, 2018				149,360,603	$	83,559		$	—	$	3,364		$	2,289		$	(3,724	)	$	880		$	86,368
Shares issued		16(a)		5,257,143		46,000			—		—			—			—			—			46,000
Share issuance costs				—		(3,081	)		—		—			—			—			—			(3,081	)
Vesting of options		17		—		—			—		—			774			—			—			774
Options exercised		17		42,256		106			—		—			(33	)		—			—			73
Warrants exercised		16(b)		6,972,479		1,966			—		(686	)		—			—			—			1,280
Shares to be issued		16(c)		—		—			961		—			—			—			—			961
Net loss				—		—			—		—			—			(1,050	)		—			(1,050	)
Other comprehensive loss		10		—		—			—		—			—			—			(35	)		(35	)

Balance at March 31, 2018				161,632,481	$	128,550		$	961	$	2,678		$	3,030		$	(4,774	)	$	845		$	131,290

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements

Cronos Group Inc.

Unaudited Condensed Interim Consolidated Statements of Cash Flows

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $)


			Three months ended March 31,
	Notes		2018		2017
Operating activities
Net loss			$	(1,050)	$	(844)
Items not affecting cash:
Stock-based payments		17,20		774		192
Depreciation and amortization		11,12		540		201
Share of income from investment in Whistler		9		(41)		(103)
Loss (gain) on other investments		10		(221)		59
Deferred income tax expense (recovery)		22		(888)		1
Foreign exchange gain				(16)		—

				(902)		(494)
Net changes in non-cash working capital:
Increase in accounts receivable				(1,386)		(136)
Increase in sales taxes receivable				(1,152)		—
Increase in prepaids and other receivables				(3,866)		(65)
Increase in biological assets				(768)		(947)
Increase in inventory				(598)		(351)
Increase in accrued interest on loan receivable				—		(5)
Increase (decrease) in accounts payable and other liabilities				(5,078)		73

Cash flows used in operating activities				(13,750)		(1,925)

Investing activities
Repayment of purchase price liability				—		(1,299)
Proceeds from sale of other investments		10		687		88
Payment to exercise AbCann warrants		10		(113)		—
Payment of promissory note receivable		6		(926)		—
Purchase of property, plant and equipment		11		(7,642)		(2,036)
Purchase of intangible assets		12		(131)		—

Cash flows used in investing activities				(8,125)		(3,247)

Financing activities
Proceeds from exercise of warrants		16(b)		1,280		644
Proceeds received for shares to be issued		16(c)		961		—
Proceeds from exercise of options		17		73		257
Proceeds from share issuance		16(a)		46,000		17,336
Share issuance costs				(3,081)		(1,322)
Payment of accrued interest on construction loan		14		(185)		—
Repayment of finance lease obligation		15		(13)		—

Cash flows provided by financing activities				45,035		16,915

Net change in cash				23,160		11,743
Cash—beginning of period				9,208		3,464

Cash—end of period			$	32,368	$	15,207

Supplemental cash flow information
Interest paid			$	307	$	120

The accompanying notes are an integral part of these unaudited condensed interim consolidated financial statements

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

1.	Nature of business

Cronos Group Inc. (“Cronos” or the “Company”), was incorporated under the Business Corporations Act (Ontario). Cronos is a publicly traded corporation, with its head office located at 720 King Street West, Suite 320, Toronto, Ontario, M5V 2T3. The Company’s common shares are currently listed on the TSX Venture Exchange (“TSX-V”) and Nasdaq Global Market under the trading symbol “CRON”.

Hortican Inc. (“Hortican”), is a wholly owned subsidiary of Cronos, incorporated under the Canada Business Corporations Act (“CBCA”).

Cronos operates two wholly owned licensed producers and sellers (“Licensed Producers”) of medical cannabis pursuant to the provisions of the Controlled Drugs and Substances Act (“CDSA”) and its relevant regulation, the Access to Cannabis for Medical Purposes Regulations (“ACMPR”), namely Peace Naturals Project Inc. (“Peace Naturals”), which has production facilities near Stayner, Ontario, and Original BC Ltd. (“OGBC”), which has a production facility in Armstrong, British Columbia. Currently, Cronos sells dried cannabis flower and cannabis oils under its medical cannabis brand, Peace Naturals.

OGBC was incorporated as In the Zone Produce Ltd. (“In the Zone”) under the Business Corporations Act (British Columbia) and was acquired by Hortican on November 5, 2014. In the Zone changed its name to OGBC on October 16, 2017, and was continued under the CBCA on the same day. OGBC is a Licensed Producer pursuant to the provisions of the ACMPR and the CDSA. On February 26, 2014, Health Canada issued an initial cultivation license to OGBC under the ACMPR which has since been amended and supplemented. OGBC’s current license has an effective term from February 28, 2017 to February 28, 2020 and grants OGBC the authority to engage in the production and sale of dried cannabis flower. The license was amended to reflect its name change on October 20, 2017.

Peace Naturals was incorporated under the CBCA, and was acquired by Hortican on September 6, 2016. Peace Naturals is a Licensed Producer pursuant to the provisions of the ACMPR and the CDSA. On October 31, 2013, Health Canada issued an initial license to Peace Naturals for activities related to the production and sale of dried cannabis flower under the ACMPR, which has since been amended and supplemented. Peace Naturals’ current license has an effective term from November 1, 2016 to November 1, 2019 and grants Peace Naturals the authority to engage in, among other things, the production and sale of dried cannabis flower, cannabis resin, cannabis seeds, cannabis plants, and cannabis oils. On January 22, 2018, the Company announced that Peace Naturals received a dealer’s license pursuant to the Narcotic Control Regulations and CDSA from Health Canada, which allows Peace Naturals to export medical cannabis extracts, including concentrated oil and resin products, internationally.

Cronos Australia PTY Ltd. (“Cronos Australia”) was incorporated under the Corporations Act 2001 (Australia) on December 6, 2016 by Cronos. Cronos holds 50% of the outstanding shares of Cronos Australia.

Indigenous Roots Inc. and Cronos Indigenous Holdings Inc. were incorporated under the CBCA on December 14, 2016 and March 16, 2017, respectively. Both corporations are wholly owned by Hortican. These two corporations, along with a third party limited partnership, formed Indigenous Roots LP on April 18, 2017.

Cronos Global Holdings Inc. (“Cronos Global”) was incorporated under the CBCA on April 25, 2017 by Hortican. Cronos Global will be the holding company for the Company’s future global operations.

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

2.	Basis of presentation

The unaudited condensed interim consolidated financial statements for the three month periods ended March 31, 2018 and March 31, 2017, have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting. The accounting policies adopted in the preparation of the unaudited condensed interim consolidated financial statements are consistent with those followed in the preparation of the Company’s audited annual consolidated financial statements for the year ended December 31, 2017, except for the adoption of new standards effective as of January 1, 2018. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective. The Company applies, for the first time, International Financial Reporting Standard (“IFRS”) 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments. As required by IAS 34, the nature and effect of these changes are disclosed in Note 3.

The unaudited condensed interim consolidated financial statements do not conform in all respects to the requirements of IFRS as issued by the International Accounting Standards Board (“IASB”) for annual financial statements. Accordingly, these unaudited condensed interim consolidated financial statements should be read in conjunction with the December 31, 2017 audited consolidated financial statements and notes.

These unaudited condensed interim consolidated financial statements were approved by the Board of Directors on May 14, 2018.

(a)	Basis of consolidation

These unaudited condensed interim consolidated financial statements include the accounts of Cronos Group Inc., and its wholly owned subsidiaries, Hortican Inc., OGBC, Peace Naturals, Indigenous Roots Inc., Cronos Indigenous Holdings Inc., and Cronos Global. All intercompany transactions, balances, revenues and expenses have been eliminated on consolidation. The Company applies the acquisition method to account for business combinations. Acquisition related costs are expensed as incurred.

(b)	Basis of measurement

Apart from certain assets and liabilities measured at fair value as required under certain IFRSs, the unaudited condensed interim consolidated financial statements have been presented and prepared on the basis of historical cost.

(c)	Functional and presentation currency

These unaudited condensed interim consolidated financial statements are presented in Canadian dollars, which is the functional currency of the Company and all of its subsidiaries.

(d)	Estimates and critical judgments by management

The preparation of these unaudited condensed interim consolidated financial statements in conformity with IAS 34 requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are reviewed periodically and adjustments are made as appropriate in the year they become known. Items for which actual results may differ materially from these estimates are described in the following section.

(i)	Warrants and options

Warrants and options are initially valued at fair value, based on the application of the Black-Scholes option pricing model. This pricing model requires management to make various assumptions and estimates which are susceptible to uncertainty, including the volatility of the share price, expected dividend yield, expected term of the warrant or option and expected risk-free interest rate.

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

2.	Basis of presentation (continued)

(d)	Estimates and critical judgments by management (continued)

(ii)	Useful lives and impairment of long-lived assets

Long-lived assets are defined as property, plant and equipment and intangible assets with finite lives. Depreciation and amortization are dependent upon estimates of useful lives and impairment is dependent upon estimates of recoverable amounts. These are determined through the exercise of judgment, and are dependent upon estimates that take into account factors such as economic and market conditions, frequency of use, anticipated changes in laws, and technological improvements.

(iii)

Impairment of cash-generating units and goodwill

The impairment test for cash generating units (“CGUs”) to which goodwill is allocated is based on the value in use of the CGU, determined in accordance with the expected cash flow approach. The calculation is based on assumptions used to estimate future cash flows, the cash flow growth rate and the discount rate.

(iv)	Fair value of privately held financial assets classified as fair value through other comprehensive income

The Company’s management considers specific information about the investee companies, trends in general market conditions, and the share performance of similar publicly traded companies when valuing the Company’s privately held investments.

Management considers the following factors to indicate a change in the fair value, or impairment of, a privately held investment, and may adjust the value if:

a. there has been significant subsequent equity financing provided by outside investors at a value which differs from the current recorded value of the investee company, in which case the fair value of the investment is adjusted to equal the value at which that financing took place;

b. there have been significant corporate, political, legal, or operating events affecting the investee company such that management believes they will materially impact the investee company’s prospects and therefore its fair value. In these circumstances, the adjustment to fair value of the investment will be based on management’s judgment;

c. the investee company is placed into receivership or bankruptcy;

d. based on financial information received from the investee company, it is evident that the investee company is unlikely to be able to continue as a going concern;

e. receipt or denial by the investee company of medical marijuana licenses from Health Canada, which allow the investee company to initiate or continue operations; and

f. management changes by the investee company that the Company’s management believes will have an impact on the investee company’s ability to achieve its objectives and build value for shareholders.

(v)	Income taxes

Income taxes and tax exposures recognized in the unaudited condensed interim consolidated financial statements reflect management’s best estimate of the outcome based on facts known at the reporting date. When the Company anticipates a future income tax payment based on its estimates, it recognizes a liability. The difference between the expected amount and the final tax outcome has an impact on current and deferred taxes when the Company becomes aware of this difference.

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

2.	Basis of presentation (continued)

(d)	Estimates and critical judgments by management (continued)

(v)	Income taxes (continued)

In addition, when the Company incurs losses for income tax purposes, it assesses the probability of taxable income being available in the future based on its budgeted forecasts. These forecasts are adjusted to take into account certain non-taxable income and expenses and specific rules on the use of unused credits and tax losses. When the forecasts indicate that sufficient future taxable income will be available to deduct the temporary differences, a deferred tax asset is recognized for all deductible temporary differences.

(vi)	Biological assets and inventory

Biological assets, consisting of cannabis plants, are measured at fair value less costs to sell. At the point of harvest, the biological assets are transferred to inventory at fair value less costs to sell. As a result, critical estimates related to the valuation of biological assets are also applicable to inventory.

Determining the fair value less costs to sell requires the Company to make assumptions about the expected future yield from the cannabis plants, the value associated with each stage of the plants’ growth cycle, estimated selling price, costs to convert harvested cannabis into finished goods, and costs to sell. The Company’s estimates are, by their nature, subject to change.

3.	Adoption of new accounting pronouncements

(a)	AMENDMENTS TO IFRS 2 SHARE-BASED PAYMENTS

The amendments to IFRS 2 clarify how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments, share-based payment transactions with a net settlement feature for withholding tax obligations, and a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. The effective date of these amendments was January 1, 2018. The Company has adopted these amendments as of the effective date and has assessed no significant changes as a result of the adoption of these amendments on the current or prior periods.

(b)	IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS

IFRS 15 was issued by the IASB in May 2014 and specifies how and when revenue should be recognized based on a five-step model, which is applied to all contracts with customers. IFRS 15 became effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The Company has adopted this new standard as of its effective date using the full retrospective method of adoption, and have assessed no significant changes as a result of the adoption of this new standard on the current or prior periods.

Under IFRS 15, the revenue recognition model has changed from one based on the transfer of risks and rewards of ownership to the transfer of control. The Company’s contracts with customers for the sales of dried cannabis and cannabis oil include one performance obligation. As the transfer of risks and rewards generally coincides with the transfer of control at a point in time, upon delivery, the timing and amount of revenue considering discounts, rebates, and variable consideration, recognized from this principal revenue stream has not changed as a result of the adoption of this new standard.

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

3.	Adoption of new accounting pronouncements (continued)

(b)	IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS (continued)

The following is the Company’s revenue recognition policy in accordance with IFRS 15:

(i)	Revenue recognition

Revenue is recognized at the transaction price, which is the amount of consideration to which the Company expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. The Company’s contracts with customers for the sales of dried cannabis and cannabis oil include one performance obligation. The Company has concluded that revenue from the sale of these products should be recognized at the point in time when control of the assets is transferred to the customer, generally on delivery.

(c)	IFRS 9 FINANCIAL INSTRUMENTS

IFRS 9 addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income. The effective date of this standard was January 1, 2018. The Company has adopted this new standard as of its effective date on a retrospective basis with the exception of financial assets that were derecognized at the date of initial application, January 1, 2018. The 2017 comparatives were not restated. As a result of the new classification model and measurement requirements under IFRS 9, the Company has elected to classify the available-for-sale investments as fair value through other comprehensive income investments. Under this classification, there is no recycling of gains or losses from accumulated other comprehensive income to profit or loss. Due to the adoption of IFRS 9, during the three months ended March 31, 2018, a gain of approximately $518 on the disposal of investments classified as fair value through other comprehensive income was recorded in other comprehensive income rather than profit or loss during the period. The new classification and measurement of the Company’s financial assets are as follows:

(i)	Equity instruments at fair value through other comprehensive income (“FVOCI”)

This category only includes equity instruments, which the Company intends to hold for the foreseeable future and which the Company has irrevocably elected to so classify upon initial recognition or transition. The Company classified its unquoted equity instruments as equity instruments at FVOCI. Equity instruments in this category are subsequently measured at fair value with changes recognized in other comprehensive income, with no recycling of gains or losses to profit or loss upon derecognition. Equity instruments at FVOCI are not subject to an impairment assessment under IFRS 9.

(ii)	Amortized cost

This category includes financial assets that are held within a business model with the objective to hold the financial assets in order to collect contractual cash flows that meet the solely principal and interest (“SPPI”) criterion. Financial assets classified in this category are carried at amortized cost using the effective interest method.

(iii)

Fair value through profit or loss

This category includes derivative instruments and quoted equity instruments which the Company has not irrevocably elected, at initial recognition or transition, to classify at FVOCI. This category would also include debt instruments whose cash flow characteristics fail the SPPI criterion or are not held within a business model whose objective is either to collect contractual cash flows, or to both collect contractual cash flows and sell. Financial assets in this category are recorded at fair value with changes recognized in profit or loss.

The assessment of the Company’s business models was made as of the date of initial application, January 1, 2018, and then applied retrospectively to those financial assets that were not derecognized before January 1, 2018.

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

3.	Adoption of new accounting pronouncements (continued)

(c)	IFRS 9 FINANCIAL INSTRUMENTS (continued)


	IAS 39	IFRS 9
Financial assets
Cash and cash equivalents	Fair value through profit or loss	Fair value through profit or loss
Accounts receivable	Amortized cost	Amortized cost
Promissory note receivable	Amortized cost	Amortized cost
Loan receivable	Amortized cost	Amortized cost
Other investments	Available-for-sale	FVOCI

(iv)	Impairment of financial assets

The adoption of IFRS 9 has fundamentally changed the Company’s accounting of impairment losses for financial assets by replacing IAS 39’s incurred loss approach with a forward-looking expected credit loss (“ECL”) approach. IFRS 9 requires the Company to record an allowance for ECLs for all debt financial assets not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive. The shortfall is then discounted at an approximation to the asset’s original effective interest rate.

4.	New and revised standards and interpretations issued but not yet effective

(a)	IFRS 16 LEASES

IFRS 16 was issued in January 2016 and replaces the previous guidance on leases. This standard provides a single recognition and measurement model to be applied by lessees to leases, with required recognition of assets and liabilities for most leases. This standard is effective for annual periods beginning on or after January 1, 2019, with early adoption permitted if the Company is also applying IFRS 15, Revenue from Contracts with Customers. The Company will adopt this new standard as of its effective date. The Company is currently evaluating the impact of the adoption of this new standard on its consolidated financial statements.

5.	Change in estimate

The Company has revised its estimate of the useful life of the Health Canada Licenses, described in Note 12. Previously, the Company estimated that the licenses had an indefinite life. During the three month period ended March 31, 2018, the Company has revised its estimate, and assessed that the licenses have an estimated useful life equal to the remaining useful life of the corresponding facilities.

6.	Promissory note receivable

The Company announced a strategic joint venture in Israel (“Cronos Israel”) with the Israeli agricultural collective settlement Kibbutz Gan Shmuel (“Gan Shmuel”) for the production, manufacture and distribution of medical cannabis. Following transfer of the preliminary cannabis licenses from the Israeli Ministry of Health (the “Israeli Codes”) from Gan Shmuel. The Company will hold a 70% interest in each of the nursery and cultivation operations and a 90% interest in each of the manufacturing and distribution operations. Until the successful transfer of the Israeli Codes take place, Gan Shmuel has provided the Company a promissory note for monies advanced from the Company up to the sum of 2,700 Israeli Shekels. The promissory note shall be returned to Gan Shmuel on the date that is 12 months after the date of receipt of the final cannabis cultivation license.

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

7.	Biological assets and inventory

The Company’s biological assets consist of cannabis plants. The changes in the carrying amount of the biological assets are as follows:


	Three months ended March 31,
	2018			2017
Biological assets—beginning of period	$	3,722		$	1,795
Gain on revaluation of biological assets		4,458			1,813
Transferred to inventory upon harvest		(3,690	)		(866	)

Biological assets—end of period	$	4,490		$	2,742

The effect of changes in the fair value of biological assets and inventory during the period include:


	Three months ended March 31,
	2018			2017
Unrealized change in fair value of biological assets	$	(4,458	)	$	(1,813	)
Realized fair value increments on inventory sold in the period		3,240			989

Net effect of changes in fair value of biological assets and inventory	$	(1,218	)	$	(824	)

The Company estimates the harvest yields for the plants varies at different stages of growth. On average, the growth cycle is 15 weeks. All of the plants are to be harvested into medical cannabis and as at March 31, 2018, on average, the plants were 38% complete (December 31, 2017—46%). As of March 31, 2018, it is expected that the Company’s biological assets will ultimately yield approximately 1,742 kg of medical cannabis (December 31, 2017—1,695 kg). As at March 31, 2018, the Company has 9,965 plants that are biological assets (December 31, 2017—7,353 plants).

The estimates of growing cycle, harvest yield, and costs per gram are based on the Company’s historical results. The estimate of the selling price per gram is based on the Company’s historical sales in addition to the Company’s expected sales price going forward.

These inputs are level 3 on the fair value hierarchy, and are subject to volatility and several uncontrollable factors, which could significantly affect the fair value of biological assets in future periods.

Inventory consisted of the following:


	As at March 31, 2018		As at December 31, 2017
Dry cannabis
Finished goods	$	6,430	$	6,145
Work-in-process		1,751		1,630

		8,181		7,775
Cannabis oils
Finished goods		279		332
Work-in-process		169		—

		448		332
Raw materials		171		183
Supplies and consumables		214		126

	$	9,014	$	8,416

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

7.	Biological assets and inventory (continued)

As at March 31, 2018, the Company held 822 kg of dry cannabis and 106 L of cannabis oil as finished goods (December 31, 2017—815 kg and 137 L, respectively). In addition, the Company held 249 kg (December 31, 2017—243 kg) of harvested cannabis in the processing stage, and 90 L (December 31, 2017—nil) of harvested cannabis in the oil extraction processing stage, classified as work-in-process as at March 31, 2018. Finally, 0.27 kg of seeds were held by the Company as raw materials (December 31, 2017—0.288 kg).

8.	Loan receivable


	As at March 31, 2018		As at December 31, 2017
Loan receivable from Evergreen Medicinal Supply Inc. (“Evergreen”) (i)	$	265	$	265
Add: Accrued interest		49		49

Loan receivable	$	314	$	314

(i)	The loan is due on demand, bearing interest at 8% per year, calculated and payable annually in arrears.

9.	Investment in Whistler

As at March 31, 2018, the investment represents an approximate 20.2% (December 31, 2017—20.3%) ownership in Whistler Medical Marijuana Company (“Whistler”), incorporated in Canada. Whistler is a licensed producer and seller of medical marijuana with operations in British Columbia, Canada.

A reconciliation of the carrying amount of the investment is as follows:


	Three months ended March 31,
	2018		2017
Balance—beginning of period	$	3,807		$2,565
Company’s share of income		41		103

Balance—end of period	$	3,848		$2,668

10.

Other investments

Other investments consist of investments in common shares and warrants of several companies in the medical cannabis industry. These investments, with the exception of shares of Evergreen Medicinal Supply Inc. and warrants of AbCann Global Corp., are traded in an active market and, as a result, have a reliably measurable fair value.


Fair value through other comprehensive income investments	As at March 31, 2018		As at December 31, 2017
Canopy Growth Corporation (“Canopy”) (i)	$	372	$	877
AbCann Global Corp. (“AbCann”) (ii)		315		—
Evergreen (iii)		300		300

	$	987	$	1,177

Fair value through profit or loss investment

AbCann—share warrants (ii)		—		170

	$	987	$	1,347

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

10.

Other investments (continued)

The gains (losses) recognized upon the increase (decrease) in the fair value of other investments was as follows:


	Three months ended March 31,
	2018			2017
Canopy (i)	$	—		$	36
AbCann—share warrants (ii)		221			(95	)

Gain (loss) recognized in net loss	$	221		$	(59	)


	Three months ended March 31,
	2018			2017
The Hydropothecary Corporation (iv)	$	—		$	638
Canopy (i)		182			45
AbCann—shares (ii)		(190	)		—

Gain (loss) recognized through other comprehensive income	$	(8	)		$683

(i)	During the period ended March 31, 2018, the Company sold some of its shares of Canopy for proceeds of $687 (2017 -$88).

(ii)	As at March 31, 2017, the fair value of the share warrants were estimated using the Black-Scholes option pricing model, after considering valuation of the investee’s peer group as the investee was not publicly listed yet for the period ended March 31, 2017.

During the period ended March 31, 2018, the Company exercised 182,927 share warrants for $113, for additional shares of AbCann. Prior to the exercise, the share warrants were revalued to fair value using the Black-Scholes option pricing model. The remaining shares were revalued to their fair value at the end of the period.

(iii)

On March 16, 2017, Evergreen received a cultivation license under the ACMPR. As a result, the Company completed its subscription for a second tranche of shares of Evergreen for $100 and exercised its option to acquire an additional 5% of the equity of Evergreen for $500, for a total additional investment of $600. However, Evergreen, through its counsel, has indicated that the Company is not entitled to any interest in Evergreen and has rejected the payment. The Company filed a statement of claim in the Supreme Court of British Columbia and Evergreen has filed a statement of defence. The Company intends to vigorously pursue the enforcement of its rights to acquire equity in Evergreen.

(iv)

During the three month period ended March 31, 2017, BFK Capital Corp. acquired all of the outstanding shares of Hydropothecary Corporation, and began trading as Hydropothecary Corporation, (TSX-V:THCX). As a result of this transaction, Hydropothecary Corporation executed a 6:1 stock split, and the fair value of the investment held by the Company was revalued to its fair value as of March 31, 2017, with the gain recognized in other comprehensive income.

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

11.

Property, plant and equipment


Cost	Balance at January 1, 2018		Additions		As at March 31, 2018
Land	$	1,558	$	19	$	1,577
Building structures		11,518		1,134		12,652
Furniture and equipment		134		229		363
Computer equipment		148		57		205
Security equipment		886		10		896
Production equipment		2,481		181		2,662
Road		137		—		137
Leasehold improvements		1,497		49		1,546
Equipment under finance lease		—		217		217
Construction in progress		39,337		6,186		45,523

	$	57,696	$	8,082	$	65,778

During the three months ended March 31, 2018, there were non-cash additions from the capitalization of transaction costs on construction in progress amounting to $223 (March 31, 2017—$Nil), refer to Note 14. The net carrying amount of property, plant, and equipment includes equipment held under finance lease with a net carrying amount of $194 (March 31, 2017 -$Nil), refer to Note 15.


Accumulated depreciation	Balance at January 1, 2018		Additions		As at March 31, 2018
Building structures	$	433	$	152	$	585
Furniture and equipment		43		13		56
Computer equipment		75		13		88
Security equipment		196		45		241
Production equipment		431		104		535
Road		10		1		11
Leasehold improvements		336		41		377
Equipment under finance lease		—		23		23

	$	1,524	$	392	$	1,916

Net book value	$	56,172			$	63,862

During the three months ended March 31, 2018, $334 (2017—$Nil) of depreciation expense is recorded as part of inventory expensed to cost of sales and production costs. An additional $58 of depreciation expense remained capitalized in inventory at the end of the period (December 31, 2017—$Nil).

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

11.

Property, plant and equipment (continued)


Cost	Balance at January 1, 2017		Additions		As at March 31, 2017
Land	$	1,558	$	—	$	1,558
Building structures		2,761		842		3,603
Furniture and equipment		63		59		122
Computer equipment		88		—		88
Security equipment		475		163		638
Production equipment		2,105		293		2,398
Road		137		—		137
Leasehold improvements		1,429		—		1,429
Construction in progress		6,034		680		6,714

	$	14,650	$	2,037	$	16,687


Accumulated depreciation	Balance at January 1, 2017		Additions		As at March 31, 2017
Building structures	$	120	$	40	$	160
Furniture and equipment		18		6		24
Computer equipment		36		8		44
Security equipment		60		28		88
Production equipment		103		80		183
Road		6		1		7
Leasehold improvements		186		37		223

	$	529	$	200	$	729

Net book value	$	14,121			$	15,958

12.

Intangible assets


Cost	Balance at January 1, 2018		Additions		Balance at March 31, 2018
Software	$	—	$	131	$	131
Health Canada Licenses—OGBC		1,611		—		1,611
Health Canada Licenses—Peace		9,596		—		9,596

	$	11,207	$	131	$	11,338


Accumulated amortization	Balance at January 1, 2018		Additions		Balance at March 31, 2018
Software	$	—	$	8	$	8
Health Canada Licenses—OGBC		—		20		20
Health Canada Licenses—Peace		—		120		120

	$	—	$	148	$	148

Net book value	$	11,207			$	11,190

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

12.

Intangible assets (continued)


Cost	Balance at January 1, 2017		Additions		Balance at March 31, 2017
Health Canada Licenses—OGBC	$	1,611	$	—	$	1,611
Health Canada Licenses—Peace		9,596		—		9,596

	$	11,207	$	—	$	11,207

13.

Goodwill


	Balance at January 1, 2018		Additions		Balance at March 31, 2018
OGBC	$	392	$	—	$	392
Peace Naturals		1,400		—		1,400

	$	1,792	$	—	$	1,792


	Balance at January 1, 2017		Additions		Balance at March 31, 2017
OGBC	$	392	$	—	$	392
Peace Naturals		1,400		—		1,400

	$	1,792	$	—	$	1,792

14.

Construction loan payable


	As at March 31, 2018			As at December 31, 2017
First advance	$	6,304		$	6,304
Less: transaction costs (net of amortization)		(962	)		(1,122	)
Add: accrued interest		63			185

	$	5,405		$	5,367

On August 23, 2017, Peace Naturals, as borrower, signed a construction loan agreement with Romspen Investment Corporation as lender, to borrow $40,000, to be funded by way of multiple advances. The aggregate advances are limited to $35,000 until the lender receives an appraisal valuing the property in British Columbia at an amount of not less than $8,000. The loan bears interest at a rate of 12% per annum, calculated and compounded monthly, in arrears, on the amounts advanced from the date of each advance. The term of the loan is two years, with the borrower’s option to extend for another twelve months. The loan is guaranteed by Cronos Group, Hortican, OGBC, the responsible-person-in-charge and the senior-person-in-charge of OGBC and Peace Naturals. The loan is secured as follows:

(a)	first-ranking charge on the land owned by OGBC, Peace Naturals, and Hortican, (the “Property”) with a net book value of approximately $1,577 as at March 31, 2018 (December 31, 2017—$1,558);

(b)	first-ranking general assignment of all present and future leases of each Property;

(c)	general security agreements creating first-ranking security interests on all the personal property of Peace Naturals and the corporate guarantors including without limitation, goods, chattels, paper, documents, accounts, intangible assets, securities, monies, books and records;

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

14.

Construction loan payable (continued)

(d)	specific assignment of each Property’s right, title, and interest in the construction project for which the loan is being used to fund, including licenses, permits, plans and specifications, development approvals and agreements;

(e)

acknowledgement of the status and terms of any contracts affecting or with respect to each Property including without limitation, any pertaining to ownership, insurance, shared facilities, passageway agreements, or similar matters, confirming the good status of such contracts, and the rights of the lender under such contracts;

(f)	the subordination of all other indebtedness of Peace Naturals;

(g)	an unconditional, joint and several covenant by the guarantors as principal debtor for the performance of obligations by Peace Naturals, it being understood that the lender is not obliged to proceed against Peace Naturals or exhaust any security before proceeding against the guarantors;

(h)	assignment, postponement, and subordination by the corporate guarantors in favour of the lender;

(i)	assignment of all insurance policies with respect to each Property and the construction project;

(j)	pledge of the shares of Peace Naturals, OGBC, and Hortican;

(k)	an environmental indemnity from Peace Naturals and the corporate guarantors; and

(l)	deficiency and completion guarantee from Peace Naturals and the corporate guarantors.

15.

Finance lease obligation

The Company has equipment under finance, classified as a finance lease as the Company has the right to purchase the asset at the end of the lease term at a nominal amount. The lease has monthly payments of $4 due at the beginning of each month, bears 8% interest per annum, has a maturity date of June 2022, and is secured by the corresponding equipment (which has a net carrying amount of $194 as at March 31, 2018). The following is a summary of the Company’s minimum payments due in future fiscal years:


2018	$	40
2019		53
2020		53
2021		53
2022		26

		225
Less: interest		(36	)

	$	189

16.

Share capital and reserves

(a)	Share capital

(i)	Common Shares

The Company is authorized to issue an unlimited number of no par value common shares.

The holders of the common shares are entitled to receive dividends which may be declared from time to time, and are entitled to one vote per share at meetings of the Company. All shares are ranked equally with regards to the Company’s residual assets.

During the three months ended March 31, 2018, the Company issued 5,257,143 (2017—7,705,000) common shares for aggregate gross proceeds of $46,000 (2017—$17,336) through a bought deal.

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

16. Share capital and reserves (continued)

(a)	Share capital (continued)

(ii)	Special Shares

The Company is authorized to issue an unlimited number of special shares, issuable in series.

The special shares may be issued in one or more series and the directors are authorized to fix the number of shares in each series and to determine the designation, rights, privileges, restrictions and conditions attached to the shares in each series. No special shares have been issued since the Company’s inception.

(b)

Warrants

The following is a summary of the changes in warrants for the period from January 1, 2017 to March 31, 2017:


	Grant date		Exercise price		Number of warrants			Amount
Balance at January 1, 2017						45,885,172		$	3,983
Exercise of warrants
January		January 30, 2014	$	0.71		(375,565	)		(164	)
January		January 18, 2013		0.08		(298,066	)		—
March		October 8, 2015		0.31		(1,140,351	)		(116	)
Expiry of warrants						(19,210	)		—

Balance at March 31, 2017						44,051,980		$	3,703

The following is a summary of the changes in warrants for the period from January 1, 2018 to March 31, 2018:


	Grant date		Exercise price		Number of warrants			Amount
Balance at January 1, 2018						38,654,654		$	3,364
Exercise of warrants
January		January 18, 2013	$	0.08		(2,898,784	)		—
February		May 27, 2016		0.245		(2,128,112	)		(391	)
March		October 8, 2015		0.31		(766,086	)		(78	)
March		May 27, 2016		0.245		(1,179,497	)		(217	)
Expiry of warrants						(82,695	)		—

Balance at March 31, 2018						31,599,481		$	2,678

As at March 31, 2018, the Company had outstanding warrants as follows:


Grant date	Number of warrants		Exercise price		Expiry
October 8, 2015		3,335,594	$	0.31	October 8, 2020
October 23, 2015		1,478,245		0.31	October 23, 2020
October 28, 2015		9,548		0.31	October 28, 2020
May 13, 2016		8,510,813		0.245	May 13, 2021
May 27, 2016		18,265,281		0.245	May 27, 2021

		31,599,481	$	0.255

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

16.

Share capital and reserves (continued)

(c)	Shares to be issued

The Company received cash for the exercise of warrants and options, for which common shares were not issued yet as of March 31, 2018. Refer to Note 16(b) and Note 17, respectively.

17.

Stock-based payments

(a)	Option plan details

The Company has an incentive stock option plan, under which non-transferrable options to purchase common shares of the Company may be granted to directors, officers, or service providers of the Company. The terms of the plan provide that Directors have the right to grant options to acquire common shares of the Company at not less than the discounted market price (as set out in the plan) with the market price deemed to be the closing price on the day preceding the grant at varying terms. The maximum number of common shares reserved for issuance for options that may be granted under the plan is 10% of the common shares outstanding. No amounts are paid or payable by the recipient on receipt of the option, and the options granted are not dependent on any performance-based criteria.

(b)	Summary of changes

The following is a summary of the changes in options for the period from January 1, 2017 to March 31, 2017:


	Grant date		Exercise price		Number of options			Amount
Balance at January 1, 2017						6,177,594		$	735
Exercise of options
January		January 30, 2014		0.71		(32,009	)		(14	)
February		August 5, 2014		1.15		(32,000	)		(23	)
March		September 19, December 17, 2014		1.15		(171,695	)		(104	)
Vesting of issued options						—			192

Balance at March 31, 2017						5,941,890		$	786

The following is a summary of the changes in options for the period from January 1, 2018 to March 31, 2018:


	Grant date		Exercise price		Number of options			Amount
Balance at January 1, 2018						11,603,750		$	2,289
Issuance of options
January		January 30, 2018		8.40		280,000			—
January		January 31, 2018		9.00		150,000			—
Exercise of options
January		October 6, 2016		1.23		(8,333	)		(4	)
January		April 12, 2017		3.14		(2,291	)		(4	)
January		August 23, 2017		2.42		(1,041	)		(1	)
February		October 6, 2016		1.23		(20,800	)		(10	)
February		April 12, 2017		3.14		(2,500	)		(4	)
February		August 23, 2017		2.42		(2,291	)		(3	)
March		April 12, 2017		3.14		(2,000	)		(3	)
March		August 23, 2017		2.42		(3,000	)		(4	)
Vesting of issued options						—			774

Balance at March 31, 2018						11,991,494		$	3,030

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

17.

Stock-based payments (continued)

(b)	Summary of changes (continued)

The weighted average share price at the dates the options were exercised during the period ended March 31, 2018 was $9.58 (2017—$2.55).

As at March 31, 2018, the Company had outstanding and exercisable options as follows:


					Weighted average
Grant date	Vesting terms		Number of options		Exercise price		Remaining contractual life (years)
August 5, 2016		Evenly over 48 months		1,141,666	$	0.50		3.35
October 6, 2016		Evenly over 48 months		3,548,951		1.23		3.52
November 16, 2016		On May 15, 2017		300,000		1.50		3.63
November 21, 2016		Evenly over 48 months		182,000		1.84		3.65
April 12, 2017		Evenly over 48 months		3,292,209		3.14		4.04
August 23, 2017		Evenly over 48 months		2,896,668		2.42		4.40
November 9, 2017		Evenly over 48 months		200,000		3.32		4.61
January 30, 2018		Evenly over 48 months		280,000		8.40		4.84
January 31, 2018		Evenly over 48 months		150,000		9.00		4.84

Outstanding at March 31, 2018				11,991,494	$	2.29		3.93

Exercisable at March 31, 2018				3,417,158	$	1.80		3.75

These options shall expire at the earlier of 180 days of the death, disability or incapacity of the holder or five years after the date of issue, and can only be settled in equity.

As at March 31, 2018, the weighted average exercise price of options outstanding is $2.29 (December 31, 2017—$2.05). The weighted average exercise price of options exercisable was $1.80 (December 31, 2017—$1.71).

(c)	Fair Value of Options Issued During the Period

The fair value of the options issued during the period was determined using the Black-Scholes option pricing model, using


	Three months ended
	March 31,
	2018	2017
Share price at grant date	$8.40 - $9.00		—
Exercise price	$8.40 - $9.00		—
Risk free interest rate	2.01%		—
Expected life of options (years)	5		—
Expected annualized volatility	55%		—
Expected dividend yield	0%		—
Weighted average Black-Scholes value at grant date	$4.20		—

No options were issued during the three month period ended March 31, 2017.

(d)	Expenses Arising from Stock-based Payments

The total expenses arising from stock-based payments recognized during the period ended March 31, 2018 were $774 (2017 - $192).

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

18.

Revenue from contracts with customers

The following is the disaggregation of the Company’s revenue from contracts with customers:


	For the three months ended March 31, 2018
	Direct-to- consumer		Business·to· business		Total
Dry cannabis	$	615	$	2,005	$	2,620
Cannabis oils		255		—		255
Other		20		50		70

Total revenue from contracts with customers	$	890	$	2,055	$	2,945


	For the three months ended March 31, 20 17
	Direct-to- consumer		Business-to- business		Total
Dry cannabis	$	388	$	126	$	514

Total revenue from contracts with customers	$	388	$	126	$	514

19.

Earnings (loss) per share

Basic and diluted loss per share are calculated using the following numerators and denominators:


	Three months ended
	March 31,
Numerator	2018			2017
Net loss attributable to common shareholders	$	(1,050	)	$	(844	)

Net loss used in the computation of basic and diluted loss per share	$	(1,050	)	$	(844	)

Denominator
Weighted average number of common shares outstanding for computation of basic and diluted loss per share		157,054,891			125,256,010

As at March 31, 2018 and 2017, all instruments were anti-dilutive.

20.

Related party transactions and balances

The following is a summary of the Company’s related party transactions during the period:

(a)	Key management compensation

Key management personnel are persons responsible for planning, directing and controlling activities of an entity, and include executive and non-executive directors. Compensation provided to key management is as follows:


	Three months ended
	March 31,
	2018		2017
Short-term employee benefits, including salaries and fees	$	109	$	106
Professional fees		58		71
Stock-based payments		339		67

	$	506	$	244

As at March 31, 2018, there was a balance payable of $95 to members of key management (December 31, 2017—$Nil).

21.

Commitments and contingencies

(a) The following is a summary of the Company’s minimum operating lease obligations for its premises due in future fiscal years:


2018	$	66
2019		112
2020		96
2021		92
2022		95
2023		8

	$	469

In addition to the minimum lease payments, the Company is required to pay realty taxes and other occupancy costs.

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

(b)	The following contingencies are related to Peace Naturals:

(i)

MedCann Access Acquisition Claim. 8437718 Canada Inc., 8437726 Canada Inc., Michael Blaine Dowdle, Rade Kovacevic, Kevin Furet and 9388036 Canada Inc. (collectively, the “Plaintiffs”) commenced a claim against Peace Naturals and a number of other parties, for $15,000 in damages as a result of an alleged breach of obligations to them by terminating a share purchase transaction for the acquisition of the Plaintiffs’ company, MedCann Access. The Company believes that the allegations contained in the statement of claim are without merit and plans to vigorously defend itself; accordingly, no provision for loss has been recognized. On February 21, 2018, the parties began the discovery phase of the proceedings.

(ii)

Warrants Claim. Jeffrey Gobuty, brother to Mark Gobuty, former CEO of Peace Naturals, brought a claim against Peace Naturals for warrants valued at $250 that were purportedly issued by Mark Gobuty, on behalf of Peace Naturals. The Company believes that the allegations contained in the statement of claim are without merit and plans to vigorously defend this claim. The plaintiff has not actively pursued this claim in over a year.

(iii)

Former Employees’ Unlawful Termination Claims. Peace Naturals, Cronos and certain directors were served with claims by a former employee for damages of $580 and 30,000 options of the Company, and the former CEO of Peace Naturals for approximately $12,682 and a 10% equity interest in Peace Naturals, in connection with alleged claims of wrongful termination. Both plaintiffs have amended their pleadings to discontinue the claims against the individual directors. The Company believes that the allegations contained in the statement of claim are without merit and plans to vigorously defend itself; accordingly, no provision for loss has been recognized.

(iv)

Illingworth Claim. On March 9, 2018, Philip Illingworth filed a claim in the Supreme Court of British Columbia against Evergreen, its directors, Welton Construction Limited, 0611389 B.C. Ltd. and Hortican, claiming among other things, declarations and an order for specific performance that the plaintiff is the owner of 50% of the shares of Evergreen. It is the opinion of the Company that the plaintiff has not stated a valid claim against Hortican, and the Company intends to vigorously defend this claim.

22.

Income taxes

The Company’s combined Canadian federal and provincial statutory income tax rate is 26.5% for the three month periods ended March 31, 2018 and March 31, 2017, expected to apply for the full year, applied to the pre-tax income of the three month periods.

Deferred tax assets and liabilities have been offset where they relate to income taxes levied by the same taxation authority and the Company has the legal right and intent to offset.

The changes in the net deferred tax liability are provided below:


	Three months ended
	March 31,
	2018			2017
Balance—beginning of period	$	1,416		$	1,457
Recognized in income		(888	)		1
Recognized in other comprehensive income		27			—

Balance—end of period	$	555		$	1,458

23.

Financial instruments

(i)	Credit 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, and arises principally from the Company’s accounts receivable and loan receivable. The maximum exposure to credit risk is the carrying value of these financial assets. The Company provides credit to its customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk. As at March 31, 2018 and December 31, 2017 there were no impairment losses recognized on the loan receivable or on receivables from contracts with customers.

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

23.

Financial instruments (continued)

(i)	Credit risk (continued)

As at March 31, 2018, the value of its loan receivable was $314 (December 31, 2017—$314) and the value of its accounts receivable was $2,526 (December 31, 2017—$1,140). The Company is not significantly exposed to credit risk, as these receivables comprise 2.0% (December 31, 2017—1.4%) of the Company’s total assets. As at March 31, 2018 70.5% (December 31, 2017—89.3%) of the Company’s trade receivables were due from 1 customer (December 31, 2017—2 customers).

The following represents an analysis of the age of trade receivables:


			As at
	As at		December 31,
	March 31, 2018		2017
Current	$	1,848	$	—
Less than 30 days past billing date		164		1,020
31 to 60 days past billing date		257		85
61 to 90 days past billing date		11		35
Over 90 days past billing date		246		—

	$	2,526	$	1,140

(ii)	Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company’s policy is to review liquidity resources and ensure that sufficient funds are available to meet financial obligations as they become due. Further, the Company’s management is responsible for ensuring funds exist and are readily accessible to support business opportunities as they arise. The Company’s funding is primarily provided in the form of capital raised through the issuance of shares and warrants.

The following represents an analysis of the age of trade accounts payable:


	As at March 31, 2018		As at December 31, 2017
Current	$	—	$	5,922
Less than 30 days past billing date		1,646		803
31 to 60 days past billing date		90		113
61 to 90 days past billing date		73		66
Over 90 days past billing date		176		172

	$	1,985	$	7,076

(iii)

Market risk

(1)	Price risk

Price risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will significantly fluctuate due to changes in market prices. The value of the financial instruments can be affected by changes in interest rates, market and economic conditions, and equity and commodity prices. The Company is exposed to price risk in divesting its investments, in that, unfavourable market conditions could result in dispositions of investments at less than favourable prices. Further, in the revaluation of securities classified as fair value through other comprehensive income, this could result in significant write-downs of the Company’s investments, which would have an adverse impact on the Company’s financial position.

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

23.

Financial instruments (continued)

(iii)

Market risk (continued)

(1)	Price risk (continued)

The Company manages price risk by having a portfolio of securities from multiple issuers, such that the Company is not singularly exposed to any one issuer. The Company also has set thresholds on purchases of investments over which the approval of the Board of Directors is required.

(2)	Concentration risk

Concentration risk is the risk that any single investment or group thereof, has the potential to materially affect the operating results of the Company. The Company is exposed to this risk as all of its investments are currently within the medical marijuana industry. As such, the Company’s financial results may be adversely affected by the unfavourable performance of those investments or the industry in which they operate.

It is management’s opinion that the Company is not subject to significant interest rate risk.

24.

Fair value hierarchy

Assets recorded at fair value on the unaudited condensed interim consolidated statements of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level 1—valuation based on quoted prices (unadjusted) in active markets for identical assets and liabilities. In these unaudited condensed interim consolidated financial statements, cash and other investments (Canopy and AbCann shares) are included in this category.

Level 2—valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. In these unaudited condensed interim consolidated financial statements, and AbCann share purchase warrants.

Level 3—valuation techniques using the inputs for the asset or liability that are not based on observable market data. In these unaudited condensed interim consolidated financial statements, other investments (Evergreen), and biological assets are included in this category.

The Company’s policy for determining when transfers between levels of the fair value hierarchy occur is based on the date of the event or changes in circumstances that caused the transfer.

During the three month period ended March 31, 2017, Hydropothecary became publicly traded. Due to this event, the investment in Hydropothecary was transferred out of Level 3 as the inputs for the valuation of the investment were no longer unobservable. The investment in Hydropothecary was transferred into Level 1 of the fair value hierarchy, as the valuation of the investment was based on quoted prices in an active market.

During the three month period ended March 31, 2018, there were no transfers between levels.

25.

Capital management

The Company’s objectives when managing its capital are to maintain sufficient capital base to: (i) meet its short-term obligations, (ii) sustain future operations and expansions, (iii) ensure its ability to continue as a going concern, and (iv) retain stakeholder confidence. The Company defines capital as its net assets, total assets less total liabilities. Currently, there are no quantitative criteria established as the Company is experiencing significant growth.

As at March 31, 2018, the Company managed net assets of $131,290 (December 31, 2017—$86,368).

Cronos Group Inc.

Notes to Unaudited Condensed Interim Consolidated Financial Statements

For the three month periods ended March 31, 2018 and March 31, 2017

(Unaudited)

(in thousands of CDN $, except gram and share amounts)

26.

Subsequent events

(a)	Subsequent to March 31, 2018, 3,851,316 warrants were exercised in exchange for $944 in cash. These warrants had an exercise price of $0.245 per common share.

(b)	Subsequent to March 31, 2018, a total of 300,250 options were exercised in exchange for $451 in cash. These options had a weighted average exercise price of $1.50 per common share.

(c)	Subsequent to March 31, 2018, the Company closed a bought deal public offering, including the full exercise of the over-allotment option. A total of 10,420,000 common shares of the Company were issued at a price of $9.60 per share for aggregate gross proceeds of approximately $100,000.

(d)	On May 10, 2018, the Israeli Codes were successfully transferred from Gan Shmuel to Cronos Israel and the equity interests in each operation of Cronos Israel will be issued to the Company. Refer to Note 6.

EX-99.2

Exhibit 99.2

LOGO

CRONOS GROUP INC.

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

For the First Quarter Ended March 31, 2018

(in thousands of Canadian dollars)

GENERAL MATTERS

This management’s discussion and analysis of the financial condition and results of operations (“MD&A”) of Cronos Group Inc. is current as of May 14, 2018 and provides financial information for the three-month period ended March 31, 2018. This MD&A should be read in conjunction with the unaudited condensed interim consolidated financial statements for the three-month periods ended March 31, 2018 and March 31, 2017, including the related notes thereto (“Interim Financial Statements”), and the audited consolidated financial statements for the year ended December 31, 2017, including the related notes thereto and the related MD&A.

Unless otherwise noted or the context indicates otherwise, the “Company”, “Cronos”, “we”, “us” and “our” refer to Cronos Group Inc., its direct and indirect subsidiaries and, if applicable, its joint ventures.

Basis of Presentation

Our financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Certain totals, subtotals and percentages throughout this MD&A are calculated using the rounded numbers as they appear in the tables. All currency amounts herein are expressed in thousands of Canadian dollars, unless otherwise noted.

All references in this MD&A to “Q1 2018” and “Q1 2017” are to our fiscal quarters for the three-month periods ended March 31, 2018 and March 31, 2017, respectively.

Dry flower equivalent grams or kilograms refers to the equivalent number of dried grams or kilograms of cannabis required to produce extracted cannabis in the form of cannabis oil. The Company estimates and converts its cannabis oil inventory to equivalent grams using a standard conversion ratio of the number of grams of dry flower used to produce the extracted cannabis products. Any reference to “grams” or “kilograms” in this MD&A includes both equivalent grams and dried grams, unless otherwise noted and identified as dried grams or equivalent grams for extracts.

Our board of directors, on the recommendation of the audit committee, approved the Interim Financial Statements and this MD&A on May 14, 2018.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This MD&A contains certain information that may constitute forward-looking information and forward-looking statements (collectively, “Forward-Looking Statements”), which are based upon the Company’s current internal expectations, estimates, projections, assumptions and beliefs. Such statements can be identified by the use of forward-looking terminology such as “expect,” “likely,” “may,” “will,” “should,” “intend,” “anticipate,” “potential,” “proposed,” “estimate” and other similar words, including negative and grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussions of strategy. Forward-Looking Statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance, or other statements that are not statements of fact. Forward-Looking Statements in this MD&A include, but are not limited to, statements with respect to:

•

the performance of our business and operations;

•

our expectations regarding revenues, expenses, and anticipated cash needs;

•

our expectations regarding cash flow, liquidity and sources of funding;

•

the intended expansion of our facilities, the costs and timing associated therewith and the receipt of approval from Health Canada to increase the maximum production limits and sales from the expanded facilities;

•

the expected growth in our growing and production capacities;

•

expectations with respect to future production costs;

•

the expected methods to be used by us to distribute cannabis;

•

the competitive conditions of the industry;

•

the legalization of cannabis for recreational use in Canada, including federal and provincial regulations pertaining thereto, the related timing and impact thereof and our intentions to participate in such market, if and when it is legalized;

•

the legalization of the use of cannabis for medical or recreational use in jurisdictions outside of Canada, the related timing and impact thereof and our intentions to participate in such markets outside of Canada, if and when such use is legalized;

•

laws and regulations and any amendments thereto applicable to the business;

•

the competitive advantages and business strategies of the Company;

•

the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis;

•

the Company’s future product offerings;

•

the anticipated future gross margins of the Company’s operations;

•

expectations regarding the use of proceeds of equity financings;

•

expectations regarding capital expenditures;

•

accounting standards and estimates; and

•

the grant, renewal and impact of any license or supplemental license to conduct activities with cannabis or any amendments thereof.

Certain of the Forward-Looking Statements contained herein concerning the cannabis industry and our general expectations concerning the cannabis industry are based on estimates prepared by us using data from publicly available governmental sources, market research, industry analysis and on assumptions based on data and knowledge of this industry, which we believe to be reasonable. However, although generally indicative of relative market positions, market shares and performance characteristics, such data is inherently imprecise. While we are not aware of any misstatement regarding any industry or government data presented herein or information presented herein which is based on such data, the cannabis industry involves risks and uncertainties that are subject to change based on various factors, which factors are described further below.

With respect to the Forward-Looking Statements contained in this MD&A, we have made assumptions regarding, among other things: (i) our ability to generate cash flow from operations and obtain necessary financing on acceptable terms; (ii) general economic, financial market, regulatory and political conditions in which we operate; (iii) the output from operations of Peace Naturals Project Inc. (“Peace Naturals”), Original BC Ltd. (“OGBC”) and our operations in Israel and Australia; (iv) consumer interest in our products; (v) competition; (vi) anticipated and unanticipated costs; (vii) government regulation of our activities and products and in the areas of taxation and environmental protection; (viii) the timely receipt of any required regulatory approvals; (ix) our ability to obtain qualified staff, equipment and services in a timely and cost efficient manner; (x) our ability to conduct operations in a safe, efficient and effective manner; and (xi) our construction plans and timeframe for completion of such plans.

Readers are cautioned that the above list of cautionary statements is not exhaustive. Known and unknown risks, many of which are beyond our control, could cause actual results to differ materially from the Forward-Looking Statements in this MD&A. Such factors include, without limitation, those discussed in the “Risk and Uncertainties” section of this MD&A, and those discussed under the heading “Risk Factors” in our latest Annual Information Form (“AIF”). The purpose of Forward-Looking Statements is to provide the reader with a description of management’s expectations, and such Forward-Looking Statements may not be appropriate for any other purpose. You should not place undue reliance on Forward-Looking Statements contained in this MD&A. Although we believe that the expectations reflected in such Forward-Looking Statements are reasonable, there is no assurance that such expectations will prove to have been correct. Forward-Looking Statements contained herein are made as of the date of this MD&A and are based on the beliefs, estimates, expectations and opinions of management on the date such Forward-Looking Statements are made. The Company undertakes no obligation to update or revise any Forward-Looking Statements, whether as a result of new information, estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such Forward-Looking Statements, except as required by applicable law. The Forward-Looking Statements contained in this MD&A are expressly qualified in their entirety by this cautionary statement.

COMPANY OVERVIEW

General

Cronos is a geographically diversified and vertically integrated global cannabis company, with a presence across four continents, whose principal activities are the production and sale of cannabis in federally legal jurisdictions, including Canada and Germany. Currently, Cronos sells dried cannabis and cannabis oils through wholesale and direct-to-consumer channels under our medical cannabis brand, Peace Naturals. We operate two wholly-owned licensed producers of medical cannabis (“Licensed Producers”) pursuant to the provisions of the Controlled Drugs and Substances Act (Canada) (“CDSA”) and its relevant regulation, the Access to Cannabis for Medical Purposes Regulations (Canada) (“ACMPR”). Our Licensed Producers are Peace Naturals, which has production facilities near Stayner, Ontario, and OGBC, which has a production facility in Armstrong, British Columbia.

We have also entered into four strategic joint ventures, including in Israel and Australia, and hold minority interests in cannabis-related companies and Licensed Producers.

Cronos’ common shares are listed on the Nasdaq Global Market (“NASDAQ”) and on the TSX Venture Exchange (“TSX-V”) under the symbol “CRON”.

Strategy

Cronos is committed to being one of the world’s leading global cannabis companies. In pursuing this goal, we seek to create value for shareholders by focusing on four core strategic priorities:

•

establishing an efficient global production footprint;

•

developing a diversified revenue base through a global sales and distribution network;

•

creating disruptive intellectual property to ensure margin durability and monetize new use cases; and

•

growing a portfolio of iconic brands to build strong customer loyalty and lifetime value.

Production Facilities

Facility

Location

Grow Type

Square
Footage

Estimated
Annual
Capacity
(in kg)

Existing Capacity ⁽¹⁾

Peace Naturals – Buildings 1, 2, 3

Stayner, ON, Canada

Indoor

39,000

5,000

Peace Naturals – Greenhouse

Stayner, ON, Canada

Greenhouse

28,000

1,500

OGBC

Armstrong, BC, Canada

Indoor

2,500

150

Existing Capacity

69,500

6,650

Capacity in Progress but not yet Completed

Peace Naturals – Building 4

Stayner, ON, Canada

Indoor

286,000

33,500

Cronos Israel – Phase I⁽²⁾

Hadera, Israel

Greenhouse

45,000

5,000

Cronos Australia – Phase I ⁽³⁾

Melbourne, VIC, Australia

Indoor

20,000

2,000

Capacity in Progress but not yet Completed

351,000

40,500

Pro Forma Capacity

420,500

47,150

⁽¹⁾

Existing capacity is defined as facilities where construction is substantially complete, regulatory approvals required to commence operations have been received and cannabis cultivation has commenced.

⁽²⁾

Cronos will hold a 70% equity interest in the nursery cultivation operations of Cronos Israel (as defined herein) and a 90% equity interest in the manufacturing and distribution operations of Cronos Israel.

⁽³⁾

Cronos owns a 50% equity interest in Cronos Australia (as defined herein).

Peace Naturals

Situated on approximately 90 acres of land zoned and licensed for cannabis production, Peace Naturals operates four completed production buildings (Building 1, Building 2, Building 3 and the Peace Naturals greenhouse) and is constructing additional capacity via a 286,000 sq. ft. production facility (“Building 4”). Peace Naturals’ production processes are Good Manufacturing Practices (“GMP”) certified under relevant European Economic Area GMP directives by the national competent authority of Germany. Cultivation of cannabis in the Peace Naturals greenhouse commenced in the first quarter of 2018 and the facility is now fully operational.

On October 31, 2013, Health Canada issued a license to Peace Naturals for activities related to the production and sale of dried cannabis flower under the ACMPR, which license has since been amended and supplemented. Peace Naturals’ current license has an effective term from November 1, 2016 to November 1, 2019, and grants Peace Naturals the authority to engage in, among other things, the production and sale of dried cannabis flower, cannabis resin, cannabis seeds, cannabis plants and cannabis oil.

On January 22, 2018, the Company announced that Peace Naturals received a dealer’s license (the “Peace Naturals Dealer’s License”) pursuant to the Narcotic Control Regulations (“NCR”) and CDSA from Health Canada for the possession, sale, transportation and delivery of controlled substances under the CDSA, including cannabis, tetrahydrocannabinol (“THC”) and cannabidiol (“CBD”). The Peace Naturals Dealer’s License allows Peace Naturals to export medical cannabis extracts, including concentrated oil and resin products, internationally in accordance with an export permit issued under section 103 of the ACMPR or section 10 of the NCR. The Peace Naturals Dealer’s License has an effective term from January 29, 2018 to December 31, 2018.

OGBC

Situated on 30 acres of land, 13 acres of which are zoned and licensed for cannabis production, OGBC’s facility primarily engages in cultivation and processing operations. OGBC has completed several inter-company bulk transfers of dried cannabis to Peace Naturals, to be sold under the Peace Naturals brand.

On February 26, 2014, Health Canada issued a cultivation license to OGBC under the ACMPR, which license has since been amended and supplemented. OGBC’s current license has an effective term from February 28, 2017 to February 28, 2020 and grants OGBC the authority to engage in the production and sale of dried cannabis flower.

Joint Ventures and International Activities

We have entered into four strategic joint ventures to produce and sell cannabis:

•

MedMen Canada Joint Venture. In March 2018, the Company announced a strategic joint venture with MedMen Enterprises USA, LLC (“MedMen”). The Company and MedMen each owns a 50% equity interest in the joint venture, MedMen Canada Inc. (“MedMen Canada”), and have equal board representation. MedMen Canada holds the exclusive license of the MedMen brand in Canada for a minimum term of 20 years. Each of Cronos and MedMen will contribute capital equally to MedMen Canada for working capital purposes. MedMen Canada is focused on branded products, research and development (“R&D”) activities in Canada and creating a Canadian branded retail chain in provinces that permit private retailers. MedMen Canada will have access to our production facilities while leveraging MedMen’s brand recognition. In addition, the Company will be leveraging its regulatory expertise and know-how to obtain the requisite licenses, approvals and permits from Health Canada for MedMen Canada to commence its operations.

•

Australia Joint Venture (“Cronos Australia”). In February 2018, the Company announced a strategic joint venture in Australia with NewSouthern Capital Pty Ltd. (“NewSouthern”) for the research, production, manufacture and distribution of medical cannabis. The Company and NewSouthern each owns a 50% equity interest in Cronos Australia and have equal board representation. The Company believes that Cronos Australia will serve as its hub for Australia, New Zealand and Southeast Asia, bolstering the Company’s supply capabilities and distribution network. In the initial phase of construction, Cronos Australia is planning to construct a 20,000 sq. ft. purpose-built indoor facility that is expected to produce up to 2,000 kilograms of cannabis annually. The Company expects construction to commence in the summer of 2018 and to be complete in the first half of 2019. Cronos Australia has also been granted a medicinal cannabis cultivation license and a research license by the Therapeutic Goods Administration and the Office of Drug Control (the “ODC”). Cronos Australia has also applied for a manufacturing license for the manufacturing and processing of cannabis-related products and an import license to import Peace Naturals branded medical products for sale in the Australian market while the initial phase of construction of Cronos Australia is being completed. Cronos is awaiting the approval of the ODC for the manufacturing and import licenses. The Company’s activities in respect of Cronos Australia have been approved by the TSX-V.

•

Israel Joint Venture (“Cronos Israel”). In September 2017, the Company announced a strategic joint venture in Israel with the Israeli agricultural collective settlement Kibbutz Gan Shmuel (“Gan Shmuel”) for the production, manufacture and distribution of medical cannabis. Following transfer of the Israeli licenses from Gan Shmuel to Cronos Israel, the Company will hold a 70% interest in each of the nursery and cultivation operations and a 90% interest in each of the manufacturing and distribution operations of Cronos Israel. The Israeli licenses were successfully transferred on May 10, 2018 and the equity interests are expected to be issued to Cronos shortly. Cronos will have three board member nominees on the board of directors of each of the cultivation, manufacturing, distribution and pharmacies companies, while Gan Shmuel will have one board member nominee on the board of directors of each such entity. In the initial phase of construction, Cronos Israel is planning to construct a 45,000 sq. ft. greenhouse that is expected to produce up to 5,000 kilograms of cannabis annually and a 17,000 sq. ft. manufacturing facility that will be utilized for analytics, formulation development and research. Cronos will contribute intellectual property, management expertise, access to its current and future distribution channels and capital to Cronos Israel. Gan Shmuel will contribute the Israeli licenses, agricultural and industrial expertise, land, capital and access to the skilled Gan Shmuel labor force to Cronos Israel. Until exports are permitted under applicable Israeli law, products from Cronos Israel will be distributed domestically in the local Israeli market. The Company’s activities in respect of Cronos Israel have been approved by the TSX-V.

•

Indigenous Roots Joint Venture (“Indigenous Roots”). In December 2016, the Company launched a strategic joint venture led by Phil Fontaine, former National Chief of the Assembly of First Nations. Indigenous Roots will work cooperatively with Canadian First Nations towards building and operating licensed facilities and providing medical cannabis to First Nations communities in Canada. We will own a 49.9% stake in Indigenous Roots upon closing of the investment which is expected to be led by a First Nation. The Company believes that Indigenous Roots will provide Cronos with optionality for nontraditional distribution channels, incremental production capacity without dilution and a strong brand for our portfolio. Indigenous Roots has commanded significant interest, having met with over 100 indigenous communities and leaders across Canada. Indigenous Roots is in the process of finalizing its capital raise. Once completed, Indigenous Roots is anticipated to commence construction of a 30,000 sq. ft. production facility at the premises of OGBC. The Company is awaiting definitive regulatory clarity on provincial distribution frameworks prior to finalization of the capital raise.

Minority Investments

We hold minority interests in other Licensed Producers. As at March 31, 2018, the Company held a 20.2% equity interest in Whistler Medical Marijuana Company (“Whistler”) and minority equity investments in Evergreen Medicinal Supply Inc. (“Evergreen”), AbCann Global Corporation (“AbCann”) and Canopy Growth Corp. (“Canopy”).

INDUSTRY AND MARKET TRENDS

Medical Cannabis Regulatory Framework in Canada

On August 24, 2016, the Government of Canada introduced the ACMPR, new regulations to govern the production, sale and distribution of medical cannabis and related oil extracts. The ACMPR effectively combines the regulations and requirements of the Marihuana for Medical Purposes Regulations, the Marihuana Medical Access Regulations and the section 56 exemptions relating to cannabis oil under the CDSA into one set of regulations. In addition, among other things, the ACMPR sets out the process patients are required to follow to obtain authorization from Health Canada to grow cannabis and to acquire seeds or plants from Licensed Producers to grow their own cannabis. Under the ACMPR, patients have three options for obtaining cannabis:

•

they can continue to access quality-controlled cannabis by registering with Licensed Producers;

•

they can register with Health Canada to produce a limited amount of cannabis for their own medical purposes; or

•

they can designate someone else to produce it for them.

Health Canada recently reported that there were over 269,000 active client registrations with Licensed Producers under the ACMPR program by December 31, 2017.¹

Legalization of Regulated Recreational Cannabis in Canada

On December 13, 2016, the Task Force on Cannabis Legalization and Regulation, which was established by the Canadian federal government to seek input on the design of a new system to legalize, strictly regulate and restrict access to cannabis, published its report outlining its recommendations. On April 13, 2017, the Government of Canada released Bill C-45, An Act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and other Acts (“Bill C-45”), which proposes the enactment of the Cannabis Act (Canada) (the “Cannabis Act”) to regulate the production, distribution and sale of cannabis for medical and unqualified adult use. On November 27, 2017, the House of Commons passed Bill C-45, and on December 20, 2017, the Prime Minister communicated that the Government of Canada intended to legalize cannabis in the summer of 2018, despite previous reports of a July 1, 2018 deadline. Bill C-45 is currently before the Senate of Canada. On March 22, 2018, Bill C-45 passed a second reading in the Senate. However, as of May 14, 2018, it is being studied by various committees of the Senate, and Bill C-45 must also pass a third reading in order for it to become law.

On February 6, 2018, Public Safety Minister Ralph Goodale announced that, while Bill C-45 was still on schedule to receive royal assent in July 2018, implementation of various aspects of the regime, including preparing markets for retail sales, could take another eight to twelve weeks from such date.

The introduction of a recreational model for cannabis production and distribution may impact the medical cannabis market. The impact of this development may be negative for the Company and could result in increased levels of competition in its existing medical market and/or the entry of new competitors in the overall cannabis market in which the Company operates.

¹	https://www.canada.ca/en/health-canada/services/drugs-health-products/medical-use-marijuana/licensed-producers/market-data.html

Provincial Distribution Frameworks for Regulated Recreational Cannabis

While the Cannabis Act provides for the regulation of the commercial production of cannabis for recreational purposes and related matters by the federal government, the Cannabis Act proposes that the provinces and territories of Canada will have authority to regulate other aspects of recreational cannabis (similar to what is currently the case for liquor and tobacco products), such as sale and distribution, minimum age requirements, places where cannabis can be consumed, and a range of other matters.

The governments of every Canadian province and territory have, to varying degrees, announced proposed regulatory regimes for the distribution and sale of cannabis for recreational purposes within those jurisdictions. Most of these Canadian jurisdictions have announced a minimum age of 19 years, except for Québec and Alberta, where the minimum age will be 18.

QUARTERLY BUSINESS HIGHLIGHTS AND RECENT DEVELOPMENTS POST QUARTER-END

Sales increased 473% in Q1 2018 as compared to Q1 2017

Sales increased by $2.4 million, or 473%, from $0.5 million in Q1 2017 to $2.9 million in Q1 2018 as we continue to scale production. Additionally, since November 2017 when Health Canada approved our new extraction laboratory at Peace Naturals, we have ramped-up production of strain-specific cannabis oils that have been received favorably by customers. In Q1 2018, cannabis oil sales accounted for 29% of domestic direct-to-consumer sales, representing an increase of 105% in Q1 2018 as compared to cannabis oil sales in the fourth quarter of 2017.

First Licensed Producer to list on a major United States stock exchange

On February 27, 2018, Cronos became the first pure-play cannabis company to trade on a major United States (“U.S.”) stock exchange. The Company’s common shares trade on the NASDAQ under the trading symbol “CRON”. On March 5, 2018, the Company announced that it was changing its ticker symbol on the TSX-V from “MJN” to “CRON”.

Expanding capacity and establishing an efficient global production footprint

Cronos Australia

In February 2018, we announced a strategic joint venture in Australia for the research, production, manufacture and distribution of medical cannabis. We own a 50% equity interest in Cronos Australia. We believe that Cronos Australia will serve as our hub for Australia, New Zealand and Southeast Asia, bolstering the Company’s supply capabilities and distribution network. In the initial phase of construction, Cronos Australia is planning to construct a 20,000 sq. ft. purpose-built indoor facility that is expected to produce up to 2,000 kilograms of cannabis annually.

Peace Naturals Capacity Expansion

In the first quarter of 2018, we completed construction of, received the required regulatory approvals for and commenced cultivation of cannabis in Peace Naturals’ 28,000 sq. ft. greenhouse. The greenhouse’s first harvest is expected to occur in the second quarter of 2018. Construction of Building 4, a 286,000 sq. ft. production facility, remains on schedule and production is expected to commence in the second half of 2018.

Broadened global sales and distribution network capabilities

MedMen Canada

In March 2018, we announced a strategic joint venture with MedMen. We own a 50% equity interest in the joint venture, MedMen Canada. MedMen Canada is focused on branded products, R&D activities in Canada and creating a Canadian branded retail chain in provinces that permit private retailers. MedMen Canada will have access to our production facilities and future expansions while leveraging MedMen’s brand recognition. In addition, we will be leveraging our regulatory expertise and know-how to obtain the requisite licenses, approvals and permits from Health Canada for MedMen Canada to commence its operations.

Peace Naturals Dealer’s License

In January 2018, Peace Naturals received the Peace Naturals Dealer’s License pursuant to the NCR and CDSA from Health Canada for the possession, sale, transportation and delivery of controlled substances under the CDSA, including cannabis, THC and CBD. The Peace Naturals Dealer’s License allows Peace Naturals to export medical cannabis extracts, including concentrated oil and resin products, internationally in accordance with an export permit issued under section 103 of the ACMPR or section 10 of the NCR.

Peace Naturals rebrand

Cronos is committed to building an iconic international brand portfolio and the Company initiated a rebrand of Peace Naturals in 2017. The objective was to create a new visual identity system that emphasized the brand’s reputation as a trusted and dependable medical cannabis company appealing to both men and women. The transition began in October of 2017 and was completed in the first quarter of 2018. The project included new proprietary packaging, an evolution of the brand’s logo, new marketing materials, a revised website, a new shopping portal experience and new products, such as strain-specific oils. Peace Naturals also established a new classification

system for products that helped educate patients on key product differences. Overall, sales and patient growth significantly accelerated upon completion of the project.

Strengthened liquidity

During 2018 through the date of this MD&A, we have raised $146.0 million in gross proceeds (not taking in account any commissions, fees or expenses) from the sale of equity securities to fund our growth plans. As of March 31, 2018, pro forma for $94.8 million in net proceeds from the April 2018 Bought Deal (as defined herein), total liquidity amounted to $155.9 million, comprised of $127.2 million in pro forma cash and $28.7 million of additional borrowings available under the Construction Loan (as defined herein).

Enhanced board of directors with appointment of chief financial officer of Roots Corporation

In February 2018, we announced the appointment of Mr. James D. Rudyk to the board of directors. Mr. Rudyk serves as the chair of the audit committee and is a member of the compensation committee. He is currently the chief financial officer of Roots Corporation, a position he has held since January 2016. James is an experienced and proven financial executive with more than 25 years of financial and operating experience and a track record of supporting ambitious growth plans. Prior to joining Roots, James served as the chief financial officer of Shred-It International Inc. from 2009 to 2015. While there, he was instrumental in helping the company grow revenue from $200 million to more than $700 million and expand to more than 17 countries. Mr. Rudyk also served as chief financial officer and chief operating officer of Canada Cartage Systems Ltd. from 2004 to 2009.

RESULTS OF OPERATIONS

Selected Financial Results

The following table summarizes the selected financial results for the periods indicated.


($ in 000s)	Three Months Ended March 31,						Change
	2018			2017			$			%
Sales	$	2,945		$	514		$	2,431			473	%
Cost of Sales (Recovery)		1,017			(522	)		1,539			(295	%)

Gross Profit		1,928			1,036			892			86	%
Operating Expenses		4,106			1,773			2,333			132	%

Operating Loss		(2,178	)		(737	)		(1,441	)		196	%
Other Income (Expense)		240			(106	)		346			(326	%)

Loss before Income Taxes		(1,938	)		(843	)		(1,095	)		130	%
Income Tax Expense (Recovery)		(888	)		1			(889	)		NM

Net Loss		(1,050	)		(844	)		(206	)		24	%
Other Comprehensive Income (Loss)		(35	)		683			(718	)		(105	%)

Comprehensive Loss		(1,085	)		(161	)		(924	)		574	%

Sales

Results for Q1 2018 compared to Q1 2017

For Q1 2018, the Company reported sales of $2.9 million as compared to $0.5 million for Q1 2017, representing an increase of $2.4 million, or 473%. This increase was primarily due to:

•

the ramping up of production at Peace Naturals resulting from the resumption of production in Building 1 and increased production from Building 3, thus increasing the volume of product on hand;

•

the continued business-to-business sales in Q1 2018, specifically to other Licensed Producers and sellers in Canada and abroad; and

•

the ramping up of sales of cannabis oil in Q1 2018.

Sales for Q1 2018 consisted of: (i) $0.9 million of domestic direct-to-consumer sales, representing 30% of total revenue, (ii) $1.9 million of domestic business-to-business sales, representing 64% of total revenue, and (iii) $0.2 million of international export sales, representing 6% of total revenue and consisting of a supply price and royalty component. The royalty component represents approximately two-thirds of revenue and was associated with international exports that occurred in Q4 2017.

Sales volumes of dry flower equivalent sold in Q1 2018 increased 672% to 501 kilograms, compared to 65 kilograms in Q1 2017. Sales volumes of dry flower equivalent sold to domestic direct-to-consumer in Q1 2018 of 88 kilograms resulted in an average selling price of $10.09 per gram equivalent. Sales volume of dry flower equivalent sold to domestic business-to-business in Q1 2018 of 388 kilograms resulted in an average selling price of $4.87 per gram equivalent.

Average selling price overall during Q1 2018 was $5.88 per gram due to the high percentage of business-to-business sales. The business-to-business sales were driven by vault capacity constraints during the quarter as the recently completed Peace Naturals greenhouse vault was licensed in late Q1 2018.

Cost of Sales

Cost of sales for the periods indicated are as follows:


($ in 000s)	Three Months Ended March 31,						Change
	2018			2017			$			%
Cost of Sales
Inventory Expensed to Cost of Sales	$	3,761		$	1,056		$	2,705			256	%
Production Costs		1,714			235			1,479			629	%
Gain on Revaluation of Biological Assets		(4,458	)		(1,813	)		(2,645	)		146	%

Total Cost of Sales (Recovery)		1,017			(522	)		1,539			(295	%)

Results for Q1 2018 compared to Q1 2017

Total cost of sales were $1.0 million in Q1 2018 as compared to a recovery of $0.5 million in Q1 2017, representing an increase in expenses of $1.5 million. This change is largely driven by:

•

an increase in production costs required to grow the plants;

•

an increase in the inventory expensed to cost of sales, which increases as sales increases; and

•

partially offset by the larger volume of plants in their life cycle during Q1 2018, thereby generating a larger gain on revaluation.

Production costs represent the actual growing costs associated with cannabis cultivation during the period, including labor, material, consumables, supplies, utilities, overhead allocation, and amortization relating to the production equipment and facilities. In Q1 2018, total production costs were $1.7 million and 788 kilograms of dry flower were harvested, resulting in a cost to produce dry cannabis of $2.18 per gram. Management anticipates the cost to produce dry cannabis will continue to decrease as production output increases now that Buildings 1, 2, 3 and the Peace Naturals greenhouse are fully operational. Operational costs in Q1 2018 included expenditures related to the Peace Naturals greenhouse, however no product was harvested from the greenhouse during the period.

The cost to produce dry cannabis per gram is used by management to measure the estimated amount of production costs (including growing costs, overhead allocation, and amortization associated with the cultivation of cannabis) on a per gram basis, that are required to produce dry cannabis during the reporting period. Management uses this measure to track production cost trends. Management believes this measure provides useful information by providing the total estimated growing costs (excluding all post-harvest production costs), and dividing such amount by the approximate number of grams of cannabis harvested during the period. Post-harvest production costs include drying and curing direct expenses, quality control and testing expenses, shipping and packaging expenses, and other order fulfillment costs.

Operating Expenses

Operating expenses for the periods indicated are as follows:


($ in 000s)	Three Months Ended March 31,						Change
	2018			2017			$		%
Operating Expenses
Sales and Marketing	$	586		$	44		$	542		1,232	%
General and Administrative		2,461			1,336			1,125		84	%
Stock-Based Payments		774			192			582		303	%
Depreciation		285			201			84		42	%

Total Operating Expenses		4,106			1,773			2,333		132	%

As a Percentage of Sales
Sales and Marketing		20	%		9	%
General and Administrative		84	%		260	%
Stock-Based Payments		26	%		37	%
Depreciation		10	%		39	%

Total Operating Expenses		139	%		345	%

Results for Q1 2018 compared to Q1 2017

For Q1 2018, the Company reported total operating expenses of $4.1 million as compared to $1.8 million for Q1 2017, representing an increase of $2.3 million, or 132%. This increase was primarily due to:

•

an increase in professional and consulting fees for services rendered in connection with various strategic initiatives (including the Company’s NASDAQ listing);

•

the vesting of stock options issued to employees, directors and service providers; and

•

increase in depreciation expense allocated to operating expenses, the remainder of which is allocated to growing costs and capitalized to inventory.

Other Income (Expense)

Other income (expense) for the periods indicated are as follows:


($ in 000s)	Three Months Ended March 31,						Change
	2018			2017			$			%
Other Income (Expense)
Interest Expense	$	(22	)	$	(150	)	$	128			(85	%)
Share of Income from Whistler Investment		41			103			(62	)		(60	%)
Gain (Loss) on Other Investments		221			(59	)		280			(475	%)

Total Other Income (Expense)		240			(106	)		346			(326	%)

Results for Q1 2018 compared to Q1 2017

For Q1 2018, the Company reported total other income of $0.2 million as compared to total other expenses of $0.1 million for Q1 2017, representing an increase of $0.3 million, or 326%. This increase was primarily due to an increase in the gain on other investments, as investments were disposed during the quarter. This resulted in the gain on disposal and the previously recorded revaluation gains in other comprehensive income to be recycled through net income.

Income Tax Expense

Results for Q1 2018 compared to Q1 2017

The Company recorded an income tax recovery of $0.9 million in Q1 2018 as compared to an income tax expense of $0.0 million in Q1 2017. The effective tax rate for Q1 2018 was 46% as compared to 0% in Q1 2017. The change in effective tax rate in Q1 2018 is mainly attributable to an increase in deductible temporary differences not recognized, specifically for property, plant, and equipment, share and debt issuance costs, and losses carried forward.

Other Comprehensive Income (Loss)

Other comprehensive income (loss) for the periods indicated are as follows:


($ in 000s)	Three Months Ended March 31,					Change
	2018			2017		$			%
Other Comprehensive Income (Loss)
Gain on Revaluation of Other Investments	$	(35	)	$	683	$	(718	)		(105	%)

Total Other Comprehensive Income (Loss)		(35	)		683		(718	)		(105	%)

Results for Q1 2018 compared to Q1 2017

For Q1 2018, the Company reported total other comprehensive loss of $0.04 million as compared to income of $0.7 million for Q1 2017, representing a decrease of $0.7 million, or 105%. This decrease was primarily due to the disposition of investments classified as fair value through other comprehensive income. The gain on revaluation of other investments represents only the revaluation of investments held by the Company as at March 31, 2018, which only includes the shares held in Canopy Growth Corporation. The remainder of the investments were sold prior to Q1 2018, and thus, there would be no amount in this component of other comprehensive income related to those investments. For Q1 2018, the Company also reported $0.1 million in unrealized gains reclassified to net income as compared to $0.0 in Q1 2017. There were no available-for-sale investments sold during Q1 2017.

Comprehensive Loss

Comprehensive loss for the periods indicated are as follows:


($ in 000s)	Three Months Ended March 31,						Change
	2018			2017			$			%
Comprehensive Loss	$	(1,085	)	$	(161	)	$	(924	)		574	%

Results for Q1 2018 compared to Q1 2017

For Q1 2018, the Company reported comprehensive loss of $1.1 million as compared to $0.2 million for Q1 2017, representing an increase of $0.9 million. The increase in total comprehensive loss results from the factors described above.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are cash, availability under the Construction Loan (as defined herein) and proceeds from equity financings. As of March 31, 2018, total liquidity amounted to $61.1 million, comprised of $32.4 million in cash and $28.7 million of additional borrowings available under the Construction Loan (as defined herein). Subsequent to the end of Q1 2018, we raised aggregate gross proceeds of $100.0 million (not taking into account any commissions, fees or expenses) from the April 2018 Bought Deal (as defined herein) to support our growth plans. In consultation with the Company’s auditors, the Company believes that with its existing capital, and the availability of additional liquidity under the Construction Loan, any shortfall in its operational cash flows over the next twelve-month period subsequent to March 31, 2018 is expected to be mitigated, as a result the Company has removed the previously reported going concern note in the financial statements.

Summary of Cash Flows

Our cash flows for the periods indicated are as follows.


($ in 000s)	Three Months Ended March 31,
	2018			2017			$ Change
Cash used in Operating Activities	$	(13,750	)	$	(1,925	)	$	(11,825	)
Cash used in Investing Activities		(8,125	)		(3,247	)		(4,878	)
Cash provided by Financing Activities		45,035			16,915			28,120

Net Change in Cash		23,160			11,743			11,417

Analysis of Q1 2018 Cash Flows

Operating Activities. During Q1 2018, the Company used $13.8 million of cash in operating activities as compared to $1.9 million in Q1 2017, representing an increase of $11.8 million. This increase is primarily driven by a $0.4 million decrease in net income adjusted for non-cash items offset by a $11.4 million decrease in the net change in non-cash working capital from ($1.4 million) in Q1 2017 to ($12.8 million) in Q1 2018.

Investing Activities. During Q1 2018, the Company used $8.1 million of cash in investing activities, primarily due to $7.6 million in capital expenditures that were used to fund expansion efforts at Peace Naturals, namely Building 4 and the Peace Naturals greenhouse.

Financing Activities. During Q1 2018, cash provided by financing activities was $45.0 million, primarily due to the $42.9 million in net proceeds from the January 2018 Bought Deal (as defined herein) and the expenses related thereto.

Capital Resources

Debt

In August 2017, we entered into a senior secured loan, to be funded by way of multiple advances, for up to $40.0 million in committed capital (the “Construction Loan”) with Romspen Investment Corporation (“Romspen”). Each advance is subject to certain conditions, including, among other things, Romspen’s approval of construction progress. The Construction Loan is secured by a first ranking charge on the real estate of each of Peace Naturals and OGBC. OGBC, Hortican Inc. (“Hortican”), and the Company are also guarantors of the Construction Loan. Under the terms of the Construction Loan, Peace Naturals, OGBC, Hortican and the Company retain the ability to enter into equipment financing arrangements, and the Company retains the ability to raise capital by issuing common shares. Aggregate loan advances are limited to $35.0 million until Romspen receives an appraisal value of the OGBC property of at least $8.0 million. The Construction Loan bears a 12% annual interest rate and carries a two-year term, with a one-year extension option in favour of the Company subject to certain terms and conditions. The Construction Loan contains customary affirmative and negative covenants and events of default. As at March 31, 2018, we were in material compliance with all covenants contained in the Construction Loan. See note 14 “Construction loan payable” in the notes to the Interim Financial Statements for additional information.

As of March 31, 2018, $6.3 million has been funded under the Construction Loan, resulting in at least an additional $28.6 million of additional borrowings available to us under the loan subject to certain terms and conditions, plus an additional $5.0 million in additional borrowings if the OGBC property appraisal value in excess of $8.0 million is completed.

Contractual Obligations

The Company has the following contractual obligations relating to debt financing, equipment, vehicle and office leases.


($ in 000s)	Total		Less than 1 year		1-3 years		4-5 years
Long Term Debt Obligations	$	6,304	$	nil	$	6,304	$	nil
Capital (Finance) Lease Obligations		211		53		158		nil

Operating Lease Obligations		869		194		531		144
Purchase Obligations		7,355		7,355		nil		nil

Total		14,739		7,602		6,993		144

Long term debt obligations relate to the outstanding balance under the Construction Loan due in August 2019. The capital (finance) lease obligations relate to equipment leases maturing in June 2022. Operating lease obligations relate to office equipment and vehicle leases as well as the Company’s headquarters office space lease that terminates in February 2023. The purchase obligations relate to equipment purchase commitments associated with the construction of Building 4 at Peace Naturals.

Equity

The Company has historically funded operations and financed production capacity expansion primarily through the sale of equity securities. During 2018, through the date of this MD&A, we have raised an additional $146.0 million in gross proceeds (not taking into account any commissions, fees or expenses) through two common share offerings:

•

On January 24, 2018, the Company announced the closing of a bought deal offering (the “January 2018 Bought Deal”) pursuant to which the Company sold a total of 5,257,143 common shares at a price of $8.75 per common share for aggregate gross proceeds of approximately $46.0 million. The bought deal was completed by way of a short form prospectus offering in Canada.

•

On April 6, 2018, the Company announced the closing of a bought deal offering (the “April 2018 Bought Deal”) pursuant to which the Company sold a total of 10,420,000 common shares at a price of $9.60 per common share for aggregate gross proceeds of approximately $100.0 million. The common shares were offered in the U.S. pursuant to the Company’s effective registration statement on Form F-10 filed with the U.S. Securities and Exchange Commission (“SEC”) and in Canada by way of a short form prospectus offering.

Use of Proceeds

Below is a reconciliation of the manner in which the net proceeds from the April 2018 Bought Deal were used by the Company compared to the disclosure in the Company’s final short form prospectus dated March 29, 2018 (the “March 2018 Final Prospectus”).


Disclosure in the March 2018 Final Prospectus		Use of Proceeds
$10,000,000 for its proportionate share of capital expenditures relating to construction and operating expenses of Cronos Australia in connection with Phase I of Cronos Australia.		The Company has not yet applied any of the proceeds in connection with the construction or operating expenses of Cronos Australia and expects to apply such remaining proceedings in 2018. Operating expenses of Cronos Australia have so far been funded through the Company’s joint venture partner.

$5,000,000 to purchase equipment for use in Cronos Israel’s greenhouse and manufacturing facility for Phase I of Cronos Israel.		The Company has not yet applied any of the proceeds in connection with the equipment purchase for use in Cronos Israel. The $5 million has been set aside for future equipment purchases for Phase I of Cronos Israel.

The remaining net proceeds for general working capital purposes, including working capital for the Company’s international operations, and as capital on hand for potential new investment opportunities.		The Company has not applied any remaining net proceeds to date.

Below is a reconciliation of the manner in which the net proceeds from the January 2018 Bought Deal were used by the Company compared to the disclosure in the Company’s final short form prospectus dated January 18, 2018 (the “January 2018 Final Prospectus”).


Disclosure in the January 2018 Final Prospectus		Use of Proceeds
$5,000,000 for R&D initiatives, including cannabinoid production research and clinical trials.		The Company applied approximately $0.5 million of the net proceeds of the January 2018 Bought Deal to R&D initiatives, including cannabinoid production research. The remaining approximately $4.5 million allocated for R&D initiatives in the January 2018 Final Prospectus has been set aside for ongoing research in product formulation, clinical trials, and cannabinoid production research and are expected to be applied in 2018.

$30,000,000 for expanding production capacity, including: (i) the continued expansion of production capacity at Building 4 and the Peace Naturals greenhouse; and (ii) the construction of Cronos Israel’s production facilities and general working capital for Cronos Israel operations.		The Company applied approximately $13.4 million of the net proceeds of the January 2018 Bought Deal for expanding production capacity, including $12.3 million on general construction costs and deposits on equipment for the continued construction of Building 4 and the greenhouse, $1.0 million on clearing the land, and deposits on the greenhouse and equipment relating to


Disclosure in the January 2018 Final Prospectus		Use of Proceeds
		Cronos Israel’s production facilities and $0.1 million on general working capital for Cronos Israel operations. The remaining approximately $16.6 million allocated for expanding production capacity in the January 2018 Final Prospectus has been set aside for the continued construction of Building 4, and the ongoing construction costs for Cronos Israel.

The remaining net proceeds for general working capital purposes which may include establishing new international distribution channels in jurisdictions where there is a federal legal framework for medical cannabis and the associated costs of compliance with applicable regulatory requirements.		The Company applied approximately $1.8 million of the net proceeds of the January 2018 Bought Deal to general working capital. The remaining approximately $6.3 million (which does not account for the Company’s expenses in relation to the January 2018 Bought Deal) has been set aside for continued general working capital purposes.

Below is a reconciliation of the manner in which the net proceeds from the bought deal offering of common shares in November 2017 (“November 2017 Bought Deal”) were used by the Company compared to the disclosure in the Company’s final short form prospectus dated November 3, 2017 (the “November 2017 Final Prospectus”).


Disclosure in the November 2017 Final Prospectus		Use of Proceeds
$7,000,000 for expanding production at Peace Naturals. This includes general construction costs, the contractor’s management fees, labor costs, material (e.g. structural steel, roofing material, and paneling) and equipment (e.g. irrigation, generators) for the continued construction of Building 4 and Peace Naturals’ greenhouse.		The Company applied approximately $10.1 million of the net proceeds of the November 2017 Bought Deal plus an additional $0.6 million from operations, for a total of $10.7 million to general construction costs and deposits on equipment for the continued construction of Building 4 and Peace Naturals’ greenhouse. Such amount represents the $7.0 million allocated for such use in the November 2017 Final Prospectus, plus an additional amount equal to approximately $3.1 million from the net proceeds allocated to general working capital purposes in the November 2017 Final Prospectus (including approximately $2.1 million of the net proceeds from the exercise of the November 2017 Bought Deal over-allotment option) and an additional $0.6 million from operations.

$3,000,000 for R&D initiatives, including product formulation and the purchase of associated production equipment.		The Company applied approximately $0.5 million for R&D initiatives associated with plant and process productivity. The remaining approximately $2.5 million allocated for R&D initiatives in the November 2017 Final Prospectus has been set aside for ongoing research in product formulation, clinical trials, and plant process productivity and are expected to be applied in 2018.

$3,000,000 for investment in the development of infrastructure for the anticipated distribution of cannabis pursuant to the Cannabis Act, including the development of branding and market positioning.		The Company applied approximately $1.0 million in branding and new packaging, and consulting support for the development of infrastructure for distribution of cannabis pursuant to the Cannabis Act. The remaining approximately $2.0 million, allocated for investment in the development of infrastructure for the anticipated distribution of cannabis pursuant to the Cannabis Act has been set aside for costs associated with obtaining distribution licenses in various provinces, hiring additional sales staff in connection with such anticipated expanded distribution and additional product offerings anticipated with recreational use in Canada (e.g., edibles).

Disclosure in the November 2017 Final

Prospectus

Use of Proceeds

The remaining net proceeds for general working capital purposes which may include establishing new international distribution channels in jurisdictions where there is a legal framework for medical cannabis and the associated costs of compliance with Health Canada and other regulatory requirements.

The Company reallocated approximately $3.1 million (which does not account for the Company’s expenses in relation to the November 2017 Bought Deal) originally allocated for general working capital purposes in the November 2017 Final Prospectus (including approximately $2.1 million of the net proceeds from the exercise of the November 2017 Bought Deal over-allotment option), plus an additional $0.6 million from operations, for a total reallocated amount of $3.7 million to general construction costs and deposits on equipment for the continued construction of Building 4 and Peace Naturals’ greenhouse. As a result, no net proceeds from the November 2017 Bought Deal were allocated to general working capital purposes.

Financial Condition

We currently anticipate that our cash flow from operations, cash and additional borrowings available under the Construction Loan will be sufficient to satisfy our operational cash needs through at least the next 12 months.

However, any projections of future cash needs and cash flows are subject to substantial uncertainty. Our ability to fund operating expenses and capital expenditures will depend on, among other things, our future operating performance, which will be affected by general economic, financial and other factors, including factors beyond our control.

The Company, from time to time, may need or want to raise additional capital to strengthen its financial position, facilitate expansion, pursue strategic acquisitions and investments, and take advantage of business opportunities as they arise. Although we have been successful in the past in obtaining financing, there can be no assurance that such additional capital will be available in amounts or on terms acceptable to us, if at all. If we cannot raise additional funds when we need or want them, our operations and prospects could be negatively affected. See “Risks and Uncertainties” in this MD&A for additional information.

SELECTED QUARTERLY FINANCIAL INFORMATION

The following table summarizes selected quarterly financial information for the last eight quarters.


($ in 000s, except per share data)	FY 2018			FY 2017									FY 2016
	Q1			Q4		Q3		Q2		Q1			Q4		Q3			Q2
Income Statement Data:
Sales	$	2,945		$	1,610	$	1,314	$	644	$	514		$	431	$	124		$	—
Net Income (Loss)		(1,050	)		2,063		1,097		175		(844	)		1,370		(228	)		(1,842	)
Total Comprehensive Income (Loss)		(1,085	)		2,025		1,095		187		(161	)		2,737		(10	)		(1,842	)

Basic Earnings Per Share	$	(0.01	)	$	0.01	$	0.01	$	—	$	(0.01	)	$	0.01	$	—		$	(0.04	)
Diluted Earnings Per Share		(0.01	)		0.01		0.01		—		(0.01	)		0.01		—			(0.04	)

The Company does not exhibit any material seasonality over its fiscal year. For further information on changes in income statement data, please see “Results of Operations” in this MD&A.

SHARE INFORMATION

The issued and outstanding common shares, along with shares potentially issuable, are as follows as of the date indicated below.


(Actual shares)	As at May 14, 2018
Issued and Outstanding Shares
Common Shares		176,204,047

Total Issued and Outstanding Shares		176,204,047

Potentially Issuable Shares
Stock Options		11,691,245
Warrants		27,748,165

Total Potentially Issuable Shares		39,439,410
Total Outstanding and Potentially Issuable Shares		215,643,457

LEGAL PROCEEDINGS

As of the date of this MD&A, we are subject to four ongoing claims for damages. See note 20 “Commitments and contingencies” to the Interim Financial Statements for further discussions on our legal proceedings. We believe that all allegations in each proceeding are without merit and plan to vigorously defend ourselves; accordingly, no provision for loss has been recognized.

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this MD&A, we have no off-balance sheet arrangements.

FINANCIAL INSTRUMENTS

As of the date of this MD&A, we have no financial instruments or other instruments, such as hedging.

TRANSACTIONS BETWEEN RELATED PARTIES

The Company has engaged in transactions with related parties as follows:


($ in 000s)	Three Months Ended March 31,
	2018		2017
Key Management Compensation
Short-Term Employee Benefits, Including Salaries and Fees	$	109	$	106
Professional Fees		58		71
Stock-Based Payments		339		67

Total Key Management Compensation		506		244

Key management personnel are persons responsible for planning, directing and controlling activities of an entity, and include management executives of the Company. The vesting of options resulted in stock-based payments of $0.3 million in Q1 2018 as compared to $0.1 million in Q1 2017. Key management is compensated for providing planning, directing and controlling activities to the Company.

As of March 31, 2017 there was a balance payable of $95 to members of key management.

NEW ACCOUNTING PRONOUNCEMENTS

The IASB has not issued any new standards, amendments to standards, or interpretations that impact the Company during Q1 2018.

Adoption of New Accounting Pronouncements

Our adoption of previously issued new standards, amendments to standards, and interpretations are set forth below.

Amendments to IFRS 2 Share-based Payments

IFRS 2 clarifies how to account for certain types of share-based payment transactions. The amendments provide requirements on the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments, share-based payment transactions with a net settlement feature for withholding tax obligations, and a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. The effective date of these amendments is January 1, 2018. The Company has adopted the amendments as of its effective date and has assessed no significant change as a result of these amendments on the current or prior periods.

IFRS 9 Financial Instruments

IFRS 9 addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a new mixed measurement model having only two categories: amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income. The effective date of this standard is January 1, 2018. The Company has adopted this new standard as of its effective date. As a result of the new classification model and measurement requirements under IFRS 9, the Company has elected to classify the available-for-sale investments as fair value through other comprehensive income investments. Under this classification, there is no recycling of gains or losses from accumulated other comprehensive income to profit or loss. Due to the adoption of IFRS 9, during the three-months ended March 31, 2018, a gain of approximately $518 on the disposal of investments classified as fair value through other comprehensive income was recorded in other comprehensive income rather than profit or loss during the period.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued by the IASB in May 2014 and specifies how and when revenue should be recognized based on a five-step model, which is applied to all contracts with customers. IFRS 15 becomes effective for annual periods beginning on or after January 1, 2018 with early adoption permitted. The Company has adopted this new standard as of its effective date and has assessed no significant changes as a result of the adoption of this new standard on the current or prior periods.

Under IFRS 15, the revenue recognition model will change from one based on the transfer of risks and rewards of ownership to the transfer of control. The Company’s contracts with customers for the sales of dried cannabis and cannabis oil include one performance obligation. As the transfer of risks and rewards generally coincides with the transfer of control at a point in time, upon delivery, the timing and amount of revenue considering discounts, rebates, and variable considerations, recognized from this principal revenue stream has not changed as a result of the adoption of this new standard.

ESTIMATES AND CRITICAL JUDGMENTS BY MANAGEMENT

The preparation of the Interim Financial Statements in conformity with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of Interim Financial Statements and the reported amounts of revenues and expenses during the current year. These estimates are reviewed periodically, and adjustments are made to income as appropriate in the year they become known. Items for which actual results may differ materially from these estimates are described in the following section.

Warrants and options

In calculating the value of the warrants and options, management is required to make various assumptions and estimates that are susceptible to uncertainty, including the volatility of the share price, expected dividend yield and expected risk-free interest rate.

Useful lives and impairment of long-lived assets

Long-lived assets are defined as property, plant and equipment and intangible assets. Depreciation is dependent upon estimates of useful lives and impairment is dependent upon estimates of recoverable amounts. These are determined through the exercise of judgment, and are dependent upon estimates that take into account factors such as economic and market conditions, frequency of use, anticipated changes in laws, and technological improvements.

Impairment of cash-generating units and goodwill

The impairment test for cash-generating units (“CGUs”) to which goodwill is allocated is based on the value in use of the CGU, determined in accordance with the expected cash flow approach. The calculation is based primarily on assumptions used to estimate future cash flows, the cash flow growth rate and the discount rate.

Fair value of privately held financial assets available-for-sale

Determination of the fair values of privately held investments requires us to make various assumptions about the future prospects of the investees, the economic, legal, and political environment in which the investees operate, and the ability of the investees to obtain financing to support their operations. As a result, any value estimated may not be realized or realizable, and the values may differ from values that would be realized if a ready market existed. The determination of fair value of our privately held investments is subject to inherent limitations. Financial information for private companies may not be available or may be unreliable. Use of the valuation approach involves uncertainties and management judgments, and any value estimated from the approach may not be realized or realizable.

Income taxes

Income taxes and tax exposures recognized in the consolidated financial statements reflect management’s best estimate of the outcome based on facts known at the reporting date. When the Company anticipates a future income tax payment based on its estimates, we recognize a liability. The difference between the expected amount and the final tax outcome has an impact on current and deferred taxes when the Company becomes aware of this difference.

Biological assets and inventory

The Company values its biological assets at the end of each reporting period at fair value less costs to sell. This is determined using a valuation model to estimate the expected harvest yield per plant applied to the estimated price per gram less processing and selling costs. This model also considers the progress in the plant life cycle. The estimates of growing cycle, harvest yield and costs per gram are based on the Company’s historical results. The estimate of the selling price per gram is based on the Company’s historical sales in addition to the Company’s expected sales price going forward.

RISKS AND UNCERTAINTIES

We are subject to various risks that could have a material impact on us, our financial performance, condition and outlook. These risks could cause actual results to differ materially from those expressed or implied in Forward-Looking Statements included in this MD&A, our financial statements and our other reports and documents. These risks include but are not limited to, the following risks:

•

We are reliant on our licenses for our ability to grow, store and sell medical cannabis and other products derived therefrom and such licenses are subject to ongoing compliance, reporting and renewal requirements.

•

We operate in a highly regulated sector and may not always succeed in complying fully with applicable regulatory requirements in all jurisdictions where we carry on business.

•

Licensed Producers, including us, are constrained by law in our ability to market our products.

•

The laws, regulations and guidelines generally applicable to the cannabis industry domestically are changing and may change in ways currently unforeseen by us.

•

Changes in the regulations governing medical cannabis outside of Canada may adversely impact our business.

•

There can be no assurance that the legalization of recreational cannabis by the Government of Canada will occur and the legislative framework pertaining to the Canadian recreational cannabis market is uncertain.

•

Future clinical research studies on the effects of medical cannabis may lead to conclusions that dispute or conflict with our understanding and belief regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis.

•

Our expansion into jurisdictions outside of Canada is subject to risks.

•

We may not receive the interests in Cronos Israel and may not realize the expected benefits of Cronos Israel.

•

Investments and joint ventures outside of Canada are subject to the risks normally associated with any conduct of business in foreign countries including varying degrees of political, legal and economic risk.

•

If we choose to engage in research and development activities outside of Canada, controlled substance legislation may restrict or limit our ability to research, manufacture and develop a commercial market for our products.

•

Our use of joint ventures may expose us to risks associated with jointly owned investments.

•

There can be no assurance that our current and future strategic alliances or expansions of scope of existing relationships will have a beneficial impact on our business, financial condition and results of operations.

•

We and certain of our subsidiaries have limited operating history and therefore we are subject to many of the risks common to early-stage enterprises.

•

Our existing facilities in Canada are integral to our operations and any adverse changes or developments affecting any facility may impact our business, financial condition and results of operations.

•

We may not successfully execute our production capacity expansion strategy.

•

The cannabis industry and markets are relatively new in Canada and in other jurisdictions, and this industry and market may not continue to exist or grow as anticipated or we may ultimately be unable to succeed in this industry and market.

•

We are dependent on our senior management.

•

We may be subject to product liability claims.

•

Our products may be subject to recalls.

•

We may be unable to attract or retain skilled labor and personnel with experience in the cannabis sector, and may be unable to attract, develop and retain additional employees required for our operations and future developments.

•

We, or the cannabis industry more generally, may receive unfavorable publicity or become subject to negative consumer perception.

•

We may not be able to successfully develop new products or find a market for their sale.

•

The technologies, process and formulations we use may face competition or become obsolete.

•

Clinical trials of cannabis-based medical products and treatments are novel terrain with very limited or non-existing clinical trials history; we face a significant risk that any trials will not result in commercially viable products and treatments.

•

We may fail to retain existing patients as clients or acquire new patients as clients.

•

We may not be able to achieve or maintain profitability and may continue to incur losses in the future.

•

We may not be able to secure adequate or reliable sources of funding required to operate our business.

•

We must rely largely on our own market research to forecast sales and market demand which may not materialize.

•

We may experience breaches of security at our facilities or in respect of electronic documents and data storage and may face risks related to breaches of applicable privacy laws.

•

If we are not able to comply with all safety, health and environmental regulations applicable to our operations and industry, we may be held liable for any breaches thereof.

•

We may become involved in regulatory or agency proceedings, investigations and audits.

•

We are subject to litigation in the ordinary course of business.

•

We may not be able to successfully manage our growth.

•

The expected growth in the number of patients using the Company’s medical cannabis.

•

The Company’s international activities and joint venture interests, including required regulatory approvals and licensing, anticipated costs and timing, and expected impact.

•

We may compete for market share with other companies, both domestically and internationally, which may have longer operating histories and more financial resources, manufacturing and marketing experience than us.

•

Third parties with whom we do business may perceive themselves as being exposed to reputational risk as a result of their relationship with us and may, as a result, refuse to do business with us.

•

Our cannabis cultivation operations are subject to risks inherent in an agricultural business.

•

Our cannabis cultivation operations are vulnerable to rising energy costs and dependent upon key inputs.

•

We are vulnerable to third party transportation risks.

•

We may become subject to liability arising from any fraudulent or illegal activity by our employees, contractors and consultants.

•

We will seek to maintain adequate insurance coverage in respect of the risks faced by us, however, insurance premiums for such insurance may not continue to be commercially justifiable and there may be coverage limitations and other exclusions which may not be sufficient to cover potential liabilities faced by us.

•

Our debt imposes limitations on the type of transactions or financial arrangements in which we may engage.

•

We are subject to certain restrictions of the TSX-V which may constrain our ability to expand our business internationally.

•

We may be subject to risks related to the protection and enforcement of our intellectual property rights, and may become subject to allegations that we are in violation of intellectual property rights of third parties.

•

Conflicts of interest may arise between us and our directors and officers.

•

Tax and accounting requirements may change in ways that are unforeseen to us and we may face difficulty or be unable to implement or comply with any such changes.

•

Our financial performance is subject to risks of foreign exchange rate fluctuation which could result in foreign exchange losses.

•

The inability for counterparties and customers to meet their financial obligations to us may result in financial losses.

•

Natural disasters, unusual weather, pandemic outbreaks, boycotts and geo-political events or acts of terrorism could adversely affect our operations and financial results.

A more detailed description of the various risks associated with the Company can be found under the heading “Risk Factors” in our latest AIF.

ADDITIONAL INFORMATION

Our Canadian filings, including our latest AIF, are available on the System for Electronic Document Analysis and Retrieval at www.sedar.com. Our reports and other information filed with the SEC are available on the SEC’s Electronic Document Gathering and Retrieval System at www.sec.gov.

EX-99.3

EXHIBIT 99.3

FORM 52-109F2 – IPO/RTO

CERTIFICATION OF INTERIM FILINGS FOLLOWING

AN INITIAL PUBLIC OFFERING, REVERSE TAKEOVER OR

BECOMING A NON-VENTURE ISSUER

I, Michael Gorenstein, Chief Executive Officer of Cronos Group Inc.. certify the following:

1.	*Review:* I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Cronos Group Inc. (the “issuer”) for the interim period ended March 31, 2018.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Date: May 15, 2018

/s/ Michael Gorenstein

Name: Michael Gorenstein

Title: Chief Executive Officer

NOTE TO READER

In contrast to the usual certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109), namely, Form 52-109F2, this Form 52-109F2 — IPO/RTO does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of

i.)

controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

ii.)

a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

The issuer’s certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate.

Investors should be aware that inherent limitations on the ability of certifying officers of an issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 in the first financial period following

•

completion of the issuer’s initial public offering in the circumstances described in s. 5.3 of NI 52-109;

•

completion of a reverse takeover in the circumstances described in s. 5.4 of NI 52-109; or

•

the issuer becoming a non-venture issuer in the circumstances described in s. 5.5 of NI 52-109;

may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.

EX-99.4

EXHIBIT 99.4

FORM 52-109F2 – IPO/RTO

CERTIFICATION OF INTERIM FILINGS FOLLOWING

AN INITIAL PUBLIC OFFERING, REVERSE TAKEOVER OR

BECOMING A NON-VENTURE ISSUER

I, William Hilson, Chief Financial Officer of Cronos Group Inc.. certify the following:

1.	*Review:* I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Cronos Group Inc. (the “issuer”) for the interim period ended March 31, 2018.

Date: May 15, 2018

/s/ William Hilson

Name: William Hilson

Title: Chief Financial Officer

NOTE TO READER

i.)

ii.)

a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

•

completion of the issuer’s initial public offering in the circumstances described in s. 5.3 of NI 52-109;

•

completion of a reverse takeover in the circumstances described in s. 5.4 of NI 52-109; or

•

the issuer becoming a non-venture issuer in the circumstances described in s. 5.5 of NI 52-109;

may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.