CRON US Equity☆

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview 54

Recent Developments 55

Consolidated Results of Operations 57

Summary of financial results – ROW 61

Summary of financial results – U.S. 62

Non-GAAP Measures 62

Liquidity and Capital Resources 67

Critical Accounting Estimates 68

Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and related notes, which are included in Item 8 of this Annual Report on Form 10-K (this “Annual Report”), to enhance the understanding of our operations and our present business environment.

This discussion contains Forward-Looking Statements that involve risks and uncertainties.

For more information about our operations and the risks facing our business, see Item 1 “Business” and Item 1A “Risk Factors”, respectively, of this Annual Report.

Business Overview

Cronos is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio. Cronos’ diverse international brand portfolio includes Spinach®, PEACE NATURALS® and Lord Jones®.

Unless otherwise noted or the context indicates otherwise, references in this Annual Report to the “Company”, “Cronos”, “we”, “us” and “our” refer to Cronos Group Inc., its direct and indirect wholly owned subsidiaries and, if applicable, its joint ventures and investments accounted for by the equity method; the term “cannabis” means the plant of any species or subspecies of genus Cannabis and any part of that plant, including all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers; the term “U.S. hemp” has the meaning given to term “hemp” in the U.S. Agricultural Improvement Act of 2018, including hemp-derived cannabidiol (“CBD”).

Strategy

Cronos seeks to create value for shareholders by focusing on four core strategic priorities:

•growing a portfolio of iconic brands that responsibly elevate the consumer experience;

•developing a diversified global sales and distribution network;

•establishing an efficient global supply chain; and

•creating and monetizing disruptive intellectual property.

Business Segments

We report through two segments: “United States” (the “U.S. segment”) and “Rest of World” (the “ROW segment”). These two segments represent the geographic regions in which we operate and the different product offerings within each geographic region.

The U.S. segment manufactures, markets and distributes U.S. hemp-derived products through e-commerce, retail and hospitality partner channels in the United States under the Lord Jones® brand.

The ROW segment is involved in the cultivation, manufacturing, and marketing of cannabis products for the medical and adult-use markets. In Canada, Cronos operates two wholly owned license holders under the Cannabis Act (Canada) (the “Cannabis Act”), Peace Naturals Project Inc. (“Peace Naturals”), which has production facilities near Stayner, Ontario (the “Peace Naturals Campus”), and Thanos Holdings Ltd., known as Cronos Fermentation (“Cronos Fermentation”), which has a production facility in Winnipeg, Manitoba. In Israel, the Company operates under the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production and marketing of dried flower, pre-rolls and oils in the Israeli medical market. Cronos has established two strategic joint ventures in Canada and Israel. Additionally, as of December 31, 2022, Cronos held approximately 10% of the issued capital of Vitura Health Limited (“Vitura”), formerly known as Cronos Australia Limited, which is listed on the Australian Securities Exchange under the trading symbol “VIT” and approximately 13.7% of the issued capital of Natuera.

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Recent Developments

COVID-19

In December 2019, an outbreak of a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. Since then, COVID-19 has spread across the globe, including the U.S., Canada and Israel, and other countries in which Cronos or its affiliates operate, and was recognized as a pandemic by the World Health Organization. The COVID-19 pandemic resulted in a sharp contraction in many areas of the global economy and increased volatility and uncertainty in the capital markets. In response to the pandemic, the governments of many countries, provinces, states, municipalities, and other geographic regions took preventative or protective actions, including closures of certain businesses, mandatory quarantines, limits on individuals’ time outside of their homes, travel restrictions and social distancing or other preventative measures. Such measures have been eased or lifted in varying degrees by different governments of various countries, states and municipalities since implementation in 2020, but the continued spread of COVID-19 and increased infection rates has caused, and may continue to cause, some jurisdictions to roll back reopening plans that had been underway and re-impose quarantines, border closures, closure of certain businesses and stay-at-home orders.

The COVID-19 pandemic continues to impact the global economy and, specifically, the U.S., Canada, Israel, and the other countries in which Cronos or its affiliates operate. We continue to closely monitor and respond, where possible, to the ongoing COVID-19 pandemic. As the global situation continues to change rapidly, ensuring the health and safety of our employees remains one of our top priorities.

In the U.S., numerous states have continued to remove their COVID-19 related restrictions. This has resulted in the re-opening of, and increased occupancy capacities in, retail outlets, including those that sell our products. Any reinstatement of restrictions on the operations of retail outlets could negatively impact our short-term results of operations in the U.S. Additionally, in the U.S., there have been a number of supply chain challenges, such as container ships facing delays due to congestion in ports, impacting many industries, including the industries in which we operate. Although we have not yet seen a significant impact from supply chain disruptions, we continue to monitor our supply chain closely.

In Canada, COVID-19 restrictions began gradually easing at the end of June 2021 as the vaccination rate increased. The lockdown measures taken in the first six months of 2021 to slow infection rates negatively impacted our short-term revenue growth in Canada in 2021. The increase in cases related to the Omicron variant of COVID-19 beginning in December 2021 caused the reinstatement of some restrictions on non-essential retail stores in some provinces, including Quebec, in early 2022; however, those restrictions have eased in most other provinces. Each province is responsible for implementing re-opening plans and certain provinces, including Ontario, are progressing through phases of re-opening which may permit continued increases to the allowance of in-person shopping, typically in the form of percentage of store capacity. All provinces have some form of cannabis retail open to consumers, and most provinces have lifted the requirement that retail shoppers show proof of vaccination before entering retail stores. The potential for recurring retail restrictions is ongoing, which could negatively impact our results of operations.

In Israel, most COVID-19 restrictions have been removed as vaccination rates have increased. Occupancy limitations in retail outlets have been removed, including those that sell our products. We do not expect the remaining COVID-19 restrictions to have a material impact on our short-term revenue growth in Israel.

Collectively, the effects of the COVID-19 pandemic have adversely affected our results of operations and, if the effects continue unabated, could continue to do so as long as measures to combat the COVID-19 pandemic remain in effect or supply chains continue to be challenged. At this time, neither the duration nor scope of the disruption can be predicted; therefore, the ultimate impact to our business cannot be reasonably estimated, but such impact could materially adversely affect our business, financial condition and results of operations.

Despite the impacts of the COVID-19 pandemic, we believe that our significant cash on hand and short-term investments will be adequate to meet liquidity and capital requirements for at least the next twelve months.

2022 Business Highlights

Spinach®Branded Product Portfolio Expansion in Canada

Throughout 2022, the Company expanded its Spinach® gummies portfolio under both SOURZ by Spinach® and Spinach FEELZTM, with the following new products:

•April 2022: SOURZ by Spinach® Cherry Lime (Hybrid), 10mg of THC per pack

•July 2022: Spinach FEELZTM DEEP DREAMZ CBN, 10mg of THC and 5mg of CBN per pack

•October 2022: SOURZ by Spinach® Tropical Triple Berry 2:1 CBD:THC, 20mg of CBD and 10mg of THC per pack

•December 2022: Spinach FEELZTM 1:3 THC+CBC Mango Lime, 10mg of THC and 30mg of CBC per pack

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In 2022, Cronos was also focused on renovating both its vape and pre-roll offerings and launched the products below in those categories in 2022:

Vape:

•August 2022: Spinach FEELZTM Deep Dreamz Blackberry Kush (7:1 THC|CBN) 1-gram vape

•May 2022: Spinach® Cosmic Green Apple and Polar Mint Vortex (800 mg/g THC) 1-gram vapes

In November, 2022, Cronos launched two infused pre-rolls in Canada. The first, Fully Charged Atomic GMO, was launched under the Spinach® brand and is offered in a 5-pack with 0.5 grams per pre-roll. Second, Cronos launched Tropical Diesel CBG, a 3-pack of CBG infused pre-rolls with 0.5 grams per pre-roll under the Spinach FEELZTM sub-brand.

Intellectual property initiatives

In 2022, we continued to progress our fermentation initiative in partnership with Ginkgo. We achieved equity milestones for the following cannabinoids in 2022:

•June 2022: tetrahydrocannabivaric acid (“THCVA”)

•November 2022: cannabichromenic acid (“CBCA”)

•December 2022: cannabichromevarinic acid (“CBCVA”)

Strategic and Organizational Update

In February 2023, the Company announced a shift in its strategic plans for the Realignment, with the intent to retain select components of its operations at the Peace Naturals Campus, namely distribution and warehousing, certain research and development activities and manufacturing of certain of the Company’s proprietary innovation products.

Appointments

In March 2022, the Board of Directors appointed Cronos’s founder, Mike Gorenstein, as Chairman, President and Chief Executive Officer. Mr. Gorenstein previously served as Chairman, President and Chief Executive Officer of Cronos until September 2020, when he transitioned to the Executive Chairman role.

In April 2022, the Company appointed Terry Doucet as Senior Vice President, Legal, Regulatory Affairs and Corporate Secretary, after serving in an interim capacity since December 2021. Mr. Doucet has been with Cronos since 2018 and has guided Cronos through significant growth over the last few years, including the build-out of the Company’s Legal and Regulatory Affairs teams, the Altria Investment, the Ginkgo Strategic Partnership, the PharmaCann Option and various product commercialization initiatives.

In August 2022, the Company appointed Arye Weigensberg as Senior Vice President, Head of Research & Development, after serving in an interim capacity since November 2021. Prior to serving as interim Head of Research and Development, Mr. Weigensberg was the General Manager and Vice President of Research and Technology at Cronos Research Labs. Before joining the Company, Mr. Weigensberg was the CEO of Altria Israel Ltd (an Altria research and development hub). Since joining Cronos, Mr. Weigensberg has played a foundational role developing the scope of our rare cannabinoid work, while advancing our research capabilities to forge new strategies for differentiated cannabis products.

In October 2022, Jeff Jacobson was appointed Chief Growth Officer. Mr. Jacobson previously served as the Company’s Senior Vice President, Head of Growth (North America). Mr. Jacobson has been with Cronos since December 2016 and was a co-founder of Peace Naturals Project Inc. Mr. Jacobson’s expertise and experience in licensing and compliance, new business development, project management and resource management assist Cronos in developing and penetrating domestic and international markets.

In November 2022, the Company appointed James Holm as Chief Financial Officer after nearly two decades of finance and accounting experience at leading companies across industries. He most recently served as the Global Vice President of Finance Transformation at Vertiv, a global provider of critical digital infrastructure and continuity solutions, where he led the company’s centralization, standardization and optimization to a Global Shared Service hub for finance processes. Before joining Vertiv, Mr. Holm served as Finance Leader, Finance Solutions & Process Transformation Organization at Worldpay, one of the largest global payment processors. There he drove financial reporting accuracy, capabilities and enhancements across the company. Earlier in his career, he held multiple positions of increasing seniority in the finance department during his eight-year tenure at Procter and Gamble.

2021 Compared to 2020

Results of Operations

For a discussion of our 2021 results of operations compared to 2020, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Cash Flows

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For a discussion of our 2021 cash flows compared to 2020, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2021.

Foreign currency exchange rates

All currency amounts in this Annual Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars. The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of December 31, 2022 and December 31, 2021, as reported on Bloomberg. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates. The consolidated statements of net income (loss) and comprehensive income (loss) and consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the years ended December 31, 2022, December 31, 2021, and December 31, 2020, as reported on Bloomberg.

The exchange rates used to translate from Canadian dollars (“C$”) to dollars are shown below:

(Exchange rates are shown as C$ per $) Year ended December 31,

Consolidated Results of Operations

The tables below set forth our consolidated results of operations, expressed in thousands of U.S. dollars for the periods presented. Our consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods.

Year ended December 31,

Inventory write-down — 11,961

Operating expenses:

Restructuring costs 5,333 —

Depreciation and amortization 6,025 4,484

Impairment loss on goodwill and indefinite-lived intangible assets — 236,056

Income tax benefit (expense) (34,175) 431

Loss from discontinued operations — (500)

Net loss attributable to non-controlling interest — (1,097)

Net loss attributable to Cronos Group $ (168,734) $ (396,107)

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Summary of select financial results

Year ended December 31, Change

Gross margin(i) 13 % (24) % N/A 37 pp

(i)Gross margin is defined as gross profit divided by net revenue.

Net revenue

For 2022, we reported consolidated net revenue of $91.9 million, representing a $17.5 million increase from 2021. This change was primarily due to higher cannabis flower sales in the Israeli medical market and higher cannabis extract sales in the Canadian adult-use market, partially offset by a reduction in revenue in the U.S. segment, lower cannabis flower sales in the Canadian adult-use market driven by an unfavorable price/mix shift and the impact of the weakening Canadian dollar against the U.S. dollar during 2022.

Cost of sales

For 2022, we reported consolidated cost of sales of $79.9 million, essentially flat with 2021, despite a 23% increase in net revenue. This was primarily due to lower cannabis biomass costs, lower sales volumes in the U.S. segment and the impact of the weakening Canadian dollar against the U.S. dollar during the period, partially offset by higher sales volumes in the ROW segment and lower fixed cost absorption due to the timing of the wind-down of cultivation and certain production activities associated with the change in the nature of operations at the Peace Naturals Campus.

Inventory write-downs

For 2021, we reported inventory write-downs of $12.0 million, primarily related to cannabis strains and potency levels that were no longer in-line with consumer preferences in the Canadian market and adjustments for obsolete inventory in Canada. We reported no inventory write-downs for 2022.

Gross profit

For 2022, we reported consolidated gross profit of $12.0 million, representing a $29.5 million improvement from 2021. The improvement in gross profit is primarily due to increased revenue in the ROW segment driven mainly by a favorable mix of cannabis extract products, which carry a higher gross profit and gross margin than other product categories, higher sales of cannabis flower in Israel, the absence of inventory write-downs in 2022, and lower cannabis biomass costs, partially offset by lower revenue in the U.S. segment and lower fixed cost absorption due to the timing of the wind-down of cultivation and certain production activities associated with the change in the nature of operations at the Peace Naturals Campus.

Operating expenses

Year ended December 31, Change

Sales and marketing

For 2022, we reported sales and marketing expenses of $22.3 million, representing a decrease of $22.7 million from 2021. The decrease was primarily due to lower advertising and marketing spend and lower personnel-related costs in the U.S. segment as a result of the Realignment.

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Research and development

For 2022, we reported research and development expenses of $13.4 million, representing a decrease of $10.0 million from 2021. This decrease was primarily due to lower costs associated with the Ginkgo Collaboration Agreement and cancellation of beauty-focused product development spending in the U.S. segment.

General and administrative

For 2022, we reported general and administrative expenses of $71.2 million, representing a decrease of $25.3 million from 2021. The decrease was primarily due to lower expected credit losses on our loans to joint venture partners when compared to 2021, lower legal and advisory fees associated with strategic initiatives and lower personnel-related costs associated with the Realignment.

Restructuring costs

For 2022, we reported restructuring costs of $5.3 million, compared to no restructuring costs in 2021. The restructuring costs in 2022 were related to Realignment activities. For further information, see Note 16 “Restructuring” to the consolidated financial statements in Item 8 of this Annual Report.

Share-based compensation

For 2022, we reported share-based compensation expenses of $15.1 million, representing an increase of $5.0 million from 2021. The increase was primarily due to the acceleration of expense on equity awards granted to certain executive employees in connection with their separation from the Company as well as the approval for grant of previously held-back equity awards granted to certain executives in connection with the SEC and OSC settlements. For further information, see Note 10 “Share-based Compensation” to the consolidated financial statements in Item 8 of this Annual Report.

Depreciation and amortization

For 2022, depreciation and amortization expenses were $6.0 million, representing an increase of $1.5 million from 2021. The increase was primarily due to higher amortization on our Ginkgo exclusive license intangible assets.

Impairment loss on goodwill and indefinite-lived intangible assets

For 2021, we reported impairment loss on goodwill and intangible assets of $236.1 million due to impairment charges on the goodwill associated with our U.S. reporting unit and impairment on our Lord Jones® brand. For 2022, we reported no such impairment losses. For further information, see Note 6 “Goodwill and Intangible Assets, net” to the consolidated financial statements in Item 8 of this Annual Report.

Impairment loss on long-lived assets

During 2022, we recorded impairment charges of $3.5 million related to the right-of-use lease asset and leasehold improvements associated with our corporate headquarters in Toronto, Ontario, Canada, which the Company plans to sublease. For 2021, we recorded an impairment charge of $119.9 million on long-lived assets related to the previously announced planned exit from the Peace Naturals Campus. Additionally, in 2021, we recorded impairment charges of $4.8 million related to our Ginkgo exclusive licenses for cannabigerolic acid (“CBGA”) and cannabigerovarinic acid (“CBGVA”) for the difference between the fair value of the licenses and the consideration paid. Furthermore, in 2021, our U.S. segment recorded impairment charges of $1.2 million on property, plant, and equipment where the carrying value of those assets was not recoverable and a $1.7 million impairment charge related to ceasing use of certain leased premise and the derecognition of the associated right-of-use asset. See Note 5 “Property, plant and equipment, net” Note 6, “Goodwill and Intangible Assets, net” and Note 7 “Leases” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

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Total other income, income tax benefit (expense) and loss from discontinued operations

Year ended December 31, Change(i)

Impairment loss on other investments (61,392) — (61,392) N/M

Share of income (loss) from equity method investments 3,114 (6,313) 9,427 149 %

Foreign currency transaction loss (2,286) — (2,286) N/M

Loss from discontinued operations — (500) 500 (100) %

(i)“N/M” is defined as not meaningful.

Interest income, net

For 2022, we reported interest income, net of $22.5 million, representing an increase of $13.5 million from 2021 primarily due to higher short-term investment balances and higher interest rates in 2022 when compared to 2021.

Gain on revaluation of derivative liabilities

For 2022, we reported a gain on revaluation of derivative liabilities of $14.1 million, representing a decrease of $137.3 million from 2021 primarily due to the greater impact on the derivative liabilities in 2021 from the decreased estimated term of the derivative instruments and the decreased price of Cronos common shares.

Impairment loss on other investments

For 2022, impairment loss on other investments was $61.4 million, driven by impairment charges recorded on our PharmaCann Option for the difference between its estimated fair value and its carrying amount. There were no such impairment losses on other investments during 2021. For more information, see Note 3 “Investments” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

Share of income (loss) from equity method investments

For 2022, we reported share of income from equity method investments of $3.1 million, representing an increase of $9.4 million from 2021. The change was primarily due to improved results from our equity method investment in Cronos GrowCo.

Gain (loss) on revaluation of financial instruments

For 2022, we reported a gain on revaluation of financial instruments of $14.7 million, representing an increase of $6.1 million from 2021. The increase was due to the change in fair value of our investment in Vitura. See Note 3 “Investments” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

Foreign currency transaction loss

For 2022, foreign currency transaction loss was $2.3 million, which related to certain foreign currency-denominated intercompany loans anticipated to be settled in the foreseeable future. There were no such foreign currency transaction gains or losses during 2021.

Other, net

For 2022, other, net was a loss of $0.5 million, compared to income of $0.7 million in 2021. The change was primarily due to loss on disposal of assets associated with the Realignment, partially offset by $0.4 million of dividend income from our Vitura investment during 2022.

Income tax benefit (expense)

For 2022, we reported income tax expense of $34.2 million, compared to an income tax benefit of $0.4 million in 2021. The change was due primarily to a capital gain for tax purposes of $479.8 million, which resulted in an income tax liability of $34.2 million, related to the irrevocable relinquishment by Altria of the Warrant on December 16, 2022.

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Loss from discontinued operations

For 2021, we reported loss from discontinued operations of $0.5 million. There was no such loss from discontinued operations in 2022.

Results of Operations by Business Segment: 2022 compared with 2021

The tables below set forth our consolidated results of operations by our two business segments: the ROW segment and the U.S. segment, expressed in U.S. dollars and in thousands for the periods presented. Our consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods. Certain totals in the tables below will not sum to exactly 100% due to rounding.

Summary of financial results – ROW

Year ended December 31, Change

Gross margin 18 % (27) % N/A 45 pp

Net revenue – ROW

Year ended December 31, Change

For 2022, the ROW segment reported net revenue of $86.7 million, representing an increase of $22.2 million from 2021. This increase was primarily due to higher cannabis extract sales in the Canadian adult-use market and higher cannabis flower sales in the Israeli medical market, partially offset by lower cannabis flower sales in the Canadian adult-use market driven by an unfavorable price/mix shift and the impact of the weakening Canadian dollar against the U.S. dollar during 2022.

Cost of sales - ROW

For 2022, the ROW segment reported a year-over-year increase in cost of sales of 2%, while net revenue increased 34%. This increase was primarily due to higher sales volumes and lower fixed cost absorption due to the timing of the wind-down of cultivation and certain production activities associated with the change in the nature of operations at the Peace Naturals Campus, partially offset by lower cannabis biomass costs and the impact of the weakening Canadian dollar against the U.S. dollar during 2022.

Inventory write-downs - ROW

We reported no inventory write-downs for 2022. For 2021, we reported inventory write-downs of $12.0 million, primarily related to cannabis strains and potency levels that were no longer in-line with consumer preferences in the Canadian market and adjustments for obsolete inventory in Canada.

Gross profit - ROW

For 2022, the ROW segment reported gross profit of $15.4 million, representing an increase of $33.0 million from 2021. The improvement in gross profit is primarily due to increased revenue driven mainly by a favorable mix of cannabis extract products, which carry a higher gross profit and gross margin than other product categories, sales of cannabis flower in Israel, the absence of inventory write-downs in 2022, and lower cannabis biomass costs, partially offset by lower fixed cost absorption due to the timing of the wind-down of cultivation and certain production activities at the Peace Naturals Campus.

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Summary of financial results – U.S.

Year ended December 31, Change

Gross margin (67) % 1 % N/A (68) pp

Net revenue – U.S.

For 2022, the U.S. segment reported net revenue of $5.2 million, representing a decrease of $4.7 million from 2021. The decrease in sales was driven by the decision to exit the adult beauty business, a decrease in promotional spending and SKU rationalization efforts as the Company implements the Realignment in the U.S. segment.

Cost of sales – U.S.

For 2022, the U.S. segment reported cost of sales of $8.6 million, representing a decrease of $1.2 million from 2021. This decrease was primarily due to lower sales volumes due to the decision to exit the adult beauty business, partially offset by higher inventory reserves associated with discontinued products.

Gross profit – U.S.

For 2022, the U.S. segment reported negative gross profit of $3.5 million, representing a decrease in gross profit of $3.5 million from 2021. This decrease was primarily due to the decision to exit the adult beauty business and higher inventory reserves associated with discontinued products.

Non-GAAP Measures

Cronos reports its financial results in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). This Annual Report refers to measures not recognized under U.S. GAAP (“non-GAAP measures”). These non-GAAP measures do not have a standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these non-GAAP measures are provided as a supplement to corresponding U.S. GAAP measures to provide additional information regarding our results of operations from management’s perspective. Accordingly, non-GAAP measures should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP. All non-GAAP measures presented in this Annual Report are reconciled to their closest reported GAAP measure. Reconciliations of historical adjusted financial measures to corresponding U.S. GAAP measures are provided below.

Adjusted EBITDA

Management reviews Adjusted EBITDA, a non-GAAP measure which excludes non-cash items or items that do not reflect management’s assessment of ongoing business performance of our operating segments. Management defines Adjusted EBITDA as net income (loss) before interest, tax expense (benefit), depreciation and amortization adjusted for: share of income (loss) from equity method investments; impairment loss on goodwill and intangible assets; impairment loss on long-lived assets; (gain) loss on revaluation of derivative liabilities; (gain) loss on revaluation of financial instruments; transaction costs related to strategic projects; impairment loss on other investments; foreign currency transaction loss; other, net; loss from discontinued operations; restructuring costs; share-based compensation; and financial statement review costs and reserves related to the restatements of our 2019 and 2021 interim financial statements (the “Restatements”), including the costs related to the settlement of the SEC’s and the OSC’s investigations of the Restatements and legal costs defending shareholder class action complaints brought against us as a result of the 2019 restatement (see Part I, Item 3, Legal Proceedings, of this Annual Report for a discussion of the settlement of the SEC’s and OSC’s regulatory reviews relating to the Restatements and shareholder class action complaints relating to the restatement of the 2019 interim financial statements).

Management believes that Adjusted EBITDA provides the most useful insight into underlying business trends and results and provides a more meaningful comparison of year-over-year results. Management uses Adjusted EBITDA for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets.

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Adjusted EBITDA is reconciled to net income (loss) as follows:

(in thousands of U.S. dollars) Year ended December 31, 2022

US ROW Corporate Total

Share of income from equity accounted investments — (3,114) — (3,114)

Impairment loss on long-lived assets(ii) — 3,493 — 3,493

Gain on revaluation of derivative liabilities(iii) — (14,060) — (14,060)

Gain on revaluation of financial instruments(iv) — (14,739) — (14,739)

Impairment loss on other investments(vi) 61,392 — — 61,392

Foreign currency transaction loss — 2,286 — 2,286

Financial statement review costs(xi) — — 7,167 7,167

(in thousands of U.S. dollars) Year ended December 31, 2021

US ROW Corporate Total

Share of loss from equity method investments — 6,313 — 6,313

Gain on revaluation of derivative liabilities(iii) — (151,360) — (151,360)

Gain on revaluation of financial instruments(iv) — (8,611) — (8,611)

Loss from discontinued operations(viii) — 500 — 500

Financial statement review costs(xi) — — 7,102 7,102

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(in thousands of U.S. dollars) Year ended December 31, 2020

US ROW Corporate Total

Share of loss from equity accounted investments — 4,510 — 4,510

Gain on revaluation of derivative liabilities(iii) — (129,254) — (129,254)

Loss on revaluation of financial instruments(iv) — 9 — 9

Transaction costs(v) 40 — — 40

Loss from discontinued operations(viii) — 650 — 650

Financial statement review costs(xi) — — 9,688 9,688

Gain on disposal of investments(xii) — (4,789) — (4,789)

(i)For the year ended December 31, 2021, impairment loss on goodwill and indefinite-lived intangible assets relates to impairment on goodwill and intangible assets related to our U.S. segment and impairment on an indefinite-lived trademark related to our ROW segment. For the year ended December 31, 2020, impairment loss on goodwill and indefinite-lived intangible assets relates to impairment on goodwill and intangible assets related to our U.S. segment. See Note 6 “Goodwill and Intangible Assets, net” to the consolidated financial statements under Item 8 of this Annual Report.

(ii)For the year ended December 31, 2022, impairment loss on long-lived assets relates to the Company’s decision to seek a sublease for leased office space in Toronto, Ontario, Canada during the first quarter of 2022. For the year ended December 31, 2021, impairment loss on long-lived assets relates to impairment charges on property, plant and equipment and definite-lived intangible assets in the Canadian asset group, impairment charges for the differences between the consideration paid to Ginkgo for the achievement of two equity milestones in connection with the Ginkgo Collaboration Agreement and the fair values of the CBGA exclusive license and CBGVA exclusive license as well as impairment on leased premises in the U.S. segment. See Note 5 “Property, Plant and Equipment, net” and Note 6 “Goodwill and Intangible Assets, net” to the consolidated financial statements in Item 8 of this Annual Report.

(iii)For the years ended December 31, 2022, 2021 and 2020, the gain on revaluation of derivative liabilities represents the fair value changes on the derivative liabilities. See Note 8 “Derivative Liabilities” to the consolidated financial statements in Item 8 of this Annual Report.

(iv)For the years ended December 31, 2022 and 2021, gain on revaluation of financial instruments relates primarily to our unrealized holding gain on our mark-to-market investment in Vitura as well as revaluations of financial liabilities resulting from deferred share units (“DSUs”) granted to directors. For the year ended December 31, 2020, loss on revaluation of financial instruments relates to revaluations of financial liabilities resulting from DSUs. See Note 3 “Investments” and Note 10 “Share-based Compensation” to the consolidated financial statements in Item 8 of this Annual Report.

(v)For the years ended December 31, 2021 and 2020, transaction costs represent legal, financial and other advisory fees and expenses incurred in connection with various strategic investments. These costs are included in general and administrative expenses on the consolidated statements of net income (loss) and comprehensive income (loss).

(vi)For the year ended December 31, 2022, impairment loss on other investments related to the PharmaCann Option for the difference between its fair value and carrying amount. See Note 3 “Investments” to the consolidated financial statements in Item 8 of this Annual Report.

(vii)For the year ended December 31, 2022, other, net primarily related to related to $646 loss on disposal of assets and $390 of dividends declared by Vitura on the Company’s 55,176,065 ordinary shares in the capital of Vitura. For the years ended December 31, 2021 and 2020, other, net is primarily related to (gain) loss on reclassification of held-for-sale assets and (gain) loss on disposal of assets.

(viii)For the years ended December 31, 2021 and 2020, loss from discontinued operations relates to the discontinuance of Original B.C. Ltd. (“OGBC”).

(ix)For the year ended December 31, 2022, restructuring costs related to the employee-related severance costs and other restructuring costs associated with the Realignment, including the change in the nature of operations at the Peace Naturals Campus. See Note 16 “Restructuring” to the consolidated financial statements in Item 8 of this Annual Report.

(x)For the years ended December 31, 2022, 2021 and 2020, share-based compensation relates to the vesting expenses of share-based compensation awarded to employees under our share-based award plans as described in Note 10 “Share-based Compensation” to the consolidated financial statements in Item 8 of this Annual Report.

(xi)For the years ended December 31, 2022, 2021 and 2020, financial statement review costs include costs related to the restatements of the Company’s 2019 interim financial statements and second quarter 2021 interim financial statements, costs related to the Company’s responses to requests for information from various regulatory authorities relating to such restatements, the costs related to the Settlement Order and Settlement Agreement and legal costs defending shareholder class action complaints brought against the Company as a result of the 2021 and 2019 restatements.

(xii)For the year ended December 31, 2020, gain on disposal of investments is primarily comprised of the gain recorded related to the sale of common shares of Aurora, which were received in connection with the achievement of a milestone related to Aurora’s acquisition of Whistler (“Whistler Transaction”) in 2020 and as a result of the closing of the Whistler Transaction in 2019. There were no disposals of investments during the years ended December 31, 2022 and 2021. See Note 3 “Investments” to the consolidated financial statements in Item 8 of this Annual Report.

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Constant Currency

To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented constant currency adjusted financial measures for net revenues, gross profit, gross profit margin, operating expenses, net income (loss) and Adjusted EBITDA for 2022, as well as cash and cash equivalents and short-term investment balances as of December 31, 2022 compared to December 31, 2021, which are considered non-GAAP financial measures. We present constant currency information to provide a framework for assessing how our underlying operations performed excluding the effect of foreign currency rate fluctuations. To present this information, current and prior period income statement results in currencies other than U.S. dollars are converted into U.S. dollars using the average exchange rates from the comparative period in 2021 rather than the actual average exchange rates in effect during 2022; constant currency current period balance sheet information is translated at the prior year-end spot rate rather than the current year-end spot rate. All growth comparisons relate to the corresponding period in 2021. We have provided this non-GAAP financial information to aid investors in better understanding the performance of our segments. The non-GAAP financial measures presented in this Annual Report should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP.

The table below sets forth certain measures of consolidated results from continuing operations on an as-reported and constant currency basis for 2022 compared to 2021, as well as cash and cash equivalents and short-term investments as of December 31, 2022, compared to December 31, 2021, on an as-reported and constant currency basis (in thousands):

As Reported As Adjusted for Constant Currency

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Net revenue

As Reported As Adjusted for Constant Currency

As Reported As Adjusted for Constant Currency

Net Revenue

For 2022, net revenue on a constant currency basis was $95.2 million, representing a 28% increase from 2021. Net revenue increased on a constant currency basis primarily due to higher cannabis extract sales in the Canadian adult-use market and higher cannabis flower sales in the Israeli medical market, partially offset by a reduction in revenue in the U.S. segment and lower cannabis flower sales in the Canadian adult-use market driven by an adverse price/mix shift.

Gross profit

For 2022, gross profit on a constant currency basis was $12.6 million, representing a 172% increase from 2021. Gross profit increased on a constant currency basis primarily due to increased revenue in the ROW segment driven mainly by a favorable mix of cannabis extract products, which carry a higher gross profit and gross margin than other product categories, higher sales of cannabis flower in Israel, the absence of inventory write-downs in 2022, and lower cannabis biomass costs, partially offset by lower revenue in the U.S. segment and lower fixed cost absorption due to the timing of the wind-down of cultivation and certain production activities associated with the change in the nature of operations at the Peace Naturals Campus.

Operating expenses

For 2022, operating expenses on a constant currency basis was $140.1 million, representing a 74% decrease from 2021. Operating expenses decreased on a constant currency basis primarily due to lower advertising and marketing spend and lower payroll-related costs in the U.S. segment as a result of the Realignment, reduced costs associated with the timing of Ginkgo milestones, cancellation of beauty-focused product development spending in the U.S. segment, and an expected credit loss allowance revaluation recognized in 2021, partially offset by higher restructuring costs related to the Realignment.

Net loss

For 2022, net loss on a constant currency basis was $170.9 million, representing a 57% improvement from 2021. Net loss improved primarily due to lower impairment charges, higher gross profit, lower operating expenses, higher interest income and higher income from equity method investments, partially offset by lower gain on revaluation of derivative liabilities and higher share-based compensation expense in 2022.

Adjusted EBITDA

For 2022, adjusted EBITDA on a constant currency basis was $82.1 million, representing a 49% improvement from 2021. Adjusted EBITDA increased on a constant currency basis primarily due to decreases in general and administrative expenses, sales and marketing expenses, and research and development expenses as a result of the Realignment, and an improvement in gross profit.

Cash and cash equivalents & short-term investments

Cash and cash equivalents and short-term investments on a constant currency basis decreased 9% to $913.8 million as of December 31, 2022 from $1,004.7 million as of December 31, 2021. The decrease in cash and cash equivalents and short-term investments is primarily due to cash flows used in operating activities in 2022.

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Liquidity and Capital Resources

We believe that our existing cash and cash equivalents and short-term investments will be sufficient to fund our business operations and capital expenditures over the next twelve months. Our primary need for liquidity is to fund operations and capital expenditures. Our ability to fund operations and capital expenditures depends on, among other things, future operating performance and cash flows that are subject to general economic conditions and financial and other factors, including factors beyond our control. Since 2019, we have been funded by the C$2.4 billion (approximately $1.8 billion) Altria investment in us, pursuant to which we issued to certain wholly owned subsidiaries of Altria 149,831,154 of our common shares and one warrant, as further discussed under “Altria Strategic Investment” in Item 1 of this Annual Report. As of December 31, 2022, we had $764.6 million in cash and cash equivalents and $113.1 million in short term investments, compared to $887.0 million in cash and cash equivalents and $117.7 million in short term investments as of December 31, 2021. As of both December 31, 2022 and December 31, 2021, we had no external financing.

Cash flows

(In thousands of U.S. dollars) Year ended December 31,

Net cash provided by (used in) investing activities (1,842) (28,898) 20,150

2022 cash flows vs 2021 cash flows

Operating activities

During 2022, we used $88.9 million of cash in operating activities, compared to $153.6 million in 2021, representing a decrease in net cash used of $66.8 million. This change is primarily driven by a $42.0 million increase in net income after adjusting for non-cash items, such as impairment charges, share-based payments, depreciation and amortization, and share of loss from investments in equity method investments in 2022, and a net increase in changes in operating assets and liabilities of $22.7 million related to the timing of collections of accounts receivables, payments for income taxes, payments for accruals and payables, and purchases of inventory.

Investing activities

During 2022, we used $1.8 million of cash in investing activities, compared to $28.9 million during 2021, representing a decrease of $27.1 million in net cash used. This change is primarily driven by the purchase of the PharmaCann Option during 2021, lower purchases of property, plant and equipment and greater repayments than disbursements on loans receivable during 2022, partially offset by a higher level of short-term investments during 2022.

Financing activities

During 2022, cash used in financing activities was $2.9 million, as compared to $13.4 million in 2021, representing a decrease of $10.5 million. This change is primarily driven by a decrease in withholding taxes paid on share-based awards.

Cash requirements

In the near-term, we expect to use our available cash and investments to operate our core business and develop new ways to serve our customers as well as invest in our various strategic partnerships and in our investees. We have maintained adequate liquidity to meet working capital requirements.

Our material cash requirements include the following contractual and other obligations as of December 31, 2022:

Leases

We have operating leases for buildings and office space, vehicles and land, and a finance lease relating to equipment. As of December 31, 2022, the future minimum payments required under these leases totaled $4.8 million, with $1.6 million payable within 12 months. Refer to Note 7 “Leases” to the consolidated financial statements in Item 8 of this Annual Report for further information.

Loans receivable with related parties

We have entered into three loan agreements with affiliates. As of December 31, 2022, Cronos GrowCo had approximately $0.7 million undrawn on its loan receivable, with no amounts expected to be drawn within 12 months. All other loans receivable have been fully drawn. Refer to Note 4 “Loans Receivable, net” to the consolidated financial statement in Item 8 of this Annual Report for further information.

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Purchase obligations

Our purchase obligations primarily consist of contractual obligations to maintain the ordinary course of business through information technology and capital expenditures related to computer software, agricultural supply services and data analytics. Other purchase obligations consist of noncancellable obligations related to maintenance, internet, and telecommunication service. As of December 31, 2022, we had purchase obligations of $13.5 million, with $10.6 million payable within 12 months.

Research and development obligations

We have entered into multiple R&D contracts with partners such as Ginkgo Bioworks Holdings, Inc. (“Ginkgo”), as well as maintained internal cash requirements related to R&D activities, to continue to improve processes and gain knowledge on the cannabinoid industry. As of December 31, 2022, we had approximately $1.7 million in cash requirements related to R&D, with $1.7 million payable within 12 months. Refer to Note 9 “Commitments and Contingencies” to the consolidated financial statements in Item 8 of this Annual Report for further information.

Critical Accounting Estimates

Estimates and critical judgments by management

The preparation of the consolidated financial statements in conformity with U.S. GAAP 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 consolidated 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.

Refer to Note 1 “Background, Basis of Presentation, and Summary of Significant Accounting Policies” to the consolidated financial statements in Item 8 of this Annual Report for further information on our critical accounting estimates and policies, which are as follows:

Revenue recognition

Revenue is recognized when the control of the promised goods is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for the performance obligation. Excise taxes remitted to tax authorities are government-imposed excise taxes on cannabis products. Excise taxes are recorded as a reduction of sales in net revenue in the consolidated statements of income (loss) and comprehensive income (loss) and are recognized as a current liability within accrued liabilities on the consolidated balance sheets, with the liability subsequently reduced when the taxes are remitted to the tax authority.

In addition, amounts disclosed as net revenue are net of allowances, discounts and rebates. In determining the transaction price for the sale of goods, the Company considers the effects of variable consideration and the existence of significant financing components, if any. Some contracts for the sale of goods may provide customers with a right of return, most-favored-customer rights, or early payment discounts. In addition, the Company may provide, in certain circumstances, a retroactive price reduction to a customer based primarily on inventory movement. These items give rise to variable consideration. The Company uses the expected value method to estimate the variable consideration because this method best predicts the amount of variable consideration to which the Company will be entitled. The Company uses historical evidence, current information and forecasts to estimate the variable consideration. The Company reduces revenue and recognizes a contract liability equal to the amount expected to be refunded to the customer in the form of a future rebate or credit for a retroactive price reduction, representing its obligation to return the customer’s consideration. The estimate is updated at each reporting period date.

Goodwill and indefinite-lived intangible assets

Goodwill and indefinite-lived intangible assets are not subject to amortization. We test goodwill and indefinite-lived intangible assets for impairment annually, or more frequently if an event occurs or circumstances change that could indicate a potential impairment. We compare the fair value of our reporting units with their carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

We believe that the accounting estimate for goodwill and indefinite-lived intangible assets is a critical accounting estimate because of the judgment required in assessing the fair value of each of our reporting units. We estimate fair value through various valuation methods, including the use of discounted expected future cash flows of each reporting unit, as well as the use of the relief-from-royalty method on the Lord Jones® brand. Significant inputs include discount rates, growth rates, and cash flow projections, and, for the Lord Jones® brand, royalty rate. These valuation inputs are considered Level 3 inputs as defined by ASC 820 Fair Value Measurement.The expected future cash flows for each reporting unit are significantly impacted by current market conditions. If these market conditions and resulting expected future cash flows for each reporting unit decline significantly, the actual results for each segment could differ from our estimate, which would cause goodwill to be impaired. Our accounting for goodwill and indefinite-lived intangible assets represents our best estimate of future events.

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In the second quarter of 2021, we recognized impairment losses related to goodwill and indefinite-lived intangible assets of $178.4 million and $56.5 million, respectively, in the U.S. reporting unit. During our annual quantitative impairment test in the fourth quarter of 2021, an additional impairment of $1.0 million was recognized on the Lord Jones® brand due to the U.S. segment’s sustained operating losses and lack of revenue growth. In 2020, based on our assessments and after considering potential triggering events, including COVID-19, we recognized an impairment loss related to goodwill and indefinite-lived intangible assets of $35 million and $5 million, respectively, in the U.S. reporting unit. During our annual quantitative impairment test in the fourth quarter of 2020, no further impairment was recorded as both fair values of the goodwill as well as the Lord Jones® brand exceeded carrying amount by more than 10%.

Inventory valuation

We value our inventory at lower of cost or net realizable value determined using weighted average cost. Inventory is reflected at the lower of cost or net realizable value considering future demand, market conditions and market prices. Our estimates are based upon assumptions believed to be reasonable, but that are inherently uncertain and unpredictable. These valuations require the use of management’s assumptions that do not reflect unanticipated events and circumstances that may occur. We record an inventory valuation adjustment for excess, slow moving, and obsolete inventory that is equal to the excess of the cost of the inventory over the estimated net realizable value. We also experience inventory write-downs due to reduced market prices. The inventory valuation adjustment to net realizable value establishes a new cost basis of the inventory that cannot be subsequently reversed. Inventory valuation adjustments are based on inventory levels, expected product life, and estimated product demand. In assessing the ultimate realization of inventories, we are required to make judgments as to future demand requirements compared with inventory levels.

Long-lived assets

Long-lived assets are primarily comprised of property, plant, and equipment and definite-lived intangible assets. We evaluate long-lived assets for impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying amount of such assets may not be recoverable. Long-lived asset recoverability is assessed on an asset group basis. We group assets and liabilities for our asset groups at the reporting unit level, which is the lowest level for which cash flows are separately identifiable. Long-lived asset recoverability is measured by comparing the carrying amount of the asset group with its estimated future undiscounted pre-tax cash flows over the remaining life of the primary long-lived asset of the asset group. If the carrying amount exceeds the estimated future undiscounted cash flows as part of the recoverability assessment, an impairment charge is recognized equal to the difference between the carrying amount and fair value of the asset group. The impairment charge is allocated to the underlying long-lived assets in the asset group on a relative carrying amount basis; however, carrying amount after allocated impairment is subject to a floor of fair value on an individual asset basis.

We believe the accounting estimates used in the long-lived asset impairment assessment are critical accounting estimates because of the judgment required in identifying indicators of impairment, determining asset groups, assessing future undiscounted cash flows of the asset groups, and as applicable, evaluating the fair value of the determined asset groups as well as the underlying long-lived assets, once indicators of impairment have been identified.

We periodically evaluate whether impairment indicators related to our property, plant and equipment, operating leases and other long-lived assets are present. These impairment indicators may include a significant decrease in the market price of a long-lived asset or asset group, early termination of an operating lease, a significant adverse change to the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group. If impairment indicators are present, we estimate the fair value for the asset or group of assets. We estimate fair value of long-lived assets through various valuation methods, including the use of the indirect cost approach, income approach, and direct comparison approach. The indirect cost approach is based on the estimated cost to reproduce the asset as if new, adjusted for physical deterioration and consideration of functional and economic obsolescence. The income approach is based on estimated rental and capitalization rates. The direct comparison approach is based on recent observable transactions of comparable assets. The estimation of future undiscounted cash flows of the asset groups as well as each of these fair value approaches are significantly impacted by market conditions. A significant adverse change in market conditions could result in fair values that differ from our estimates, which could adversely impact whether an impairment exists and the extent to which an asset group and underlying assets are impaired. The difference between the fair value and the carrying amount of the asset group is recorded as an impairment charge.

During the first quarter of 2022, we concluded that indicators of impairment were present with respect to our corporate headquarters, for which we determined we would seek a sublease. As a result, we recognized an impairment charge of $2.0 million related to the right-of-use lease asset associated with our corporate headquarters. In addition, we recognized an impairment charge of $1.5 million during the year ended December 31, 2022 related to leasehold improvements and other office equipment that we plan to include in any potential sublease agreement. The determination to seek a sublease of the property and include leasehold improvements and other office equipment in any potential sublease agreement triggered the impairment charges. Both of the impairment charges are recognized as impairment loss on long-lived assets on the consolidated statements of net income (loss) and comprehensive income (loss).

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During the fourth quarter of 2021, we concluded that indicators of impairment were present with respect to our Canadian asset group. As a result, we estimated the undiscounted cash flows for the Canadian asset group and found that the carrying amount exceeded its undiscounted cash flows. Subsequently, we estimated the fair values of all long-lived assets in the Canadian asset group using the indirect cost approach for personal property, the income and direct comparison approaches for our facility in Stayner, Ontario, Canada, and the indirect cost approach for our facility in Winnipeg, Manitoba Canada, and compared the fair values attributable to the Canadian asset group to their respective carrying amounts and recorded a non-cash impairment charge on long-lived assets of $119.9 million. Refer to Note 5 “Property, plant and equipment, net” to the consolidated financial statements in Item 8 of this Annual Report.

We account for the cannabinoid exclusive licenses originating from the Ginkgo Strategic Partnership as definite-lived intangible assets in accordance with the acquisition method of accounting. The cost of cash and equity in Cronos issued in exchange for the cannabinoid exclusive licenses is initially recognized and measured at the date of acquisition. On the date of acquisition, we then test each cannabinoid exclusive license for impairment by comparing the cost and fair value of each license. We believe that the accounting estimate for the cannabinoid exclusive licenses is a critical accounting estimate because of the judgment required in assessing their fair values and the expected future cash flows are significantly impacted by the future expectations for products containing each cannabinoid. We estimate the fair value using the relief-from-royalty method. Each cannabinoid exclusive license is subject to amortization.

In August 2021, the Ginkgo Equity Milestone was achieved related to cannabigerolic acid (“CBGA”). At that time, we issued 1.5 million common shares valued at $9.0 million based on the observable market price of the shares. In exchange, we received process and background intellectual property related to CBGA, as well as the CBGA exclusive license, which is a perpetual license with exclusivity for 10 years from the date the license is granted. An impairment of $1.8 million was recognized to record the CBGA exclusive license at its fair value of $7.3 million.

In November 2021, the Ginkgo Equity Milestone was achieved related to cannabigerovarinic acid (“CBGVA”). At that time, we issued 1.5 million common shares valued at $8.2 million based on the observable market price of the shares. In exchange, we received process and background intellectual property related to CBGVA, as well as the CBGVA exclusive license, which is a perpetual license with exclusivity for 10 years from the date the license is granted. An impairment of $3.0 million, was recognized to record the CBGVA exclusive license at its fair value of $5.3 million.

In June 2022, the Ginkgo Equity Milestone was achieved related to tetrahydrocannabivaric acid (“THCVA”). At that time, we issued 2.2 million common shares and paid cash of $600, for total consideration of $8.4 million based on the observable market price of the shares. In exchange, we received process and background intellectual property related to THCVA, as well as an exclusive license with respect to THCVA, which is a perpetual license with exclusivity for 10 years from the date the license is granted. No impairment was recorded with respect to the THCVA exclusive license.

In November 2022, the Ginkgo Equity Milestone was achieved related to the early commercialization of cannabichromenic acid (“CBCA”). At the time we issued 0.5 million common shares valued at $1.5 million based on the observable market price of the shares. In exchange, we received process and background intellectual property related to CBCA, as well as an exclusive license with respect to CBCA, which is a perpetual license with exclusivity for 10 years from the date the license is granted. No impairment was recorded with respect to the CBCA exclusive license.

In December 2022, the Ginkgo Equity Milestone was achieved related to cannabichromevarinic acid (“CBCVA”). At the time we issued 1.5 million common shares valued at $3.7 million based on the observable market price of the shares. In exchange, we received process and background intellectual property related to CBCVA, as well as an exclusive license with respect to CBCVA, which is a perpetual license with exclusivity for 10 years from the date the license is granted. No impairment was recorded with respect to the CBCVA exclusive license.

Refer to Note 6 “Goodwill and Intangible Assets, net” to the consolidated financial statements in Item 8 of this Annual Report.

Valuation of derivative liabilities

Prior to December 16, 2022, derivative liabilities consisted of the Altria Warrant, Pre-emptive Rights, and certain Top-up Rights. On December 16, 2022, Altria notified us that its wholly owned subsidiary, Altria Summit LLC, irrevocably relinquished the Warrant and all rights that it may have held in the Warrant or any common shares underlying the Warrant for no consideration. As of December 31, 2022, derivative liabilities consisted of Pre-emptive Rights and certain Top-up Rights. We measure derivative liabilities at fair value at each reporting date until settlement with the re-measurement gain or loss being recognized immediately in net income (loss) and comprehensive income (loss). We calculate fair value of the derivative liabilities using the Black-Scholes model. Significant assumptions are used in the valuation of derivative liabilities, including the expected term and our stock price. The assumptions used in computing the fair value of derivative liabilities reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control. Sensitivity is performed on various inputs, refer to Note 8 “Derivative Liabilities” to the consolidated financial statements in Item 8 of this Annual Report.

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Impairment of other investments without readily determinable fair values

We hold other investments without readily determinable fair values that are measured under the cost method less impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same investee. Each reporting period, we qualitatively assess if indicators of impairment are present, and, if present, we estimate the fair value of the investments and record impairment charges on the consolidated statements of income if the carrying value exceeds fair value. To estimate the fair value of the investments, we use a combination of the income and market approaches. Under the income approach, significant assumptions used in the discounted cash flow method that require the use of judgment are the discount rate, growth rates, cash flow projections, and the timing of federal legalization of cannabis in the U.S. Under the market valuation approach, the key assumptions that require judgment under the Guideline Public Companies method are cash flow projections, selected multiples and the discount for lack of marketability. As a result of our analysis, we recorded non-cash impairment charges of $11.2 million, $29.0 million and $21.2 million in the first, third and fourth quarters of 2022, respectively, related to the PharmaCann Option. No such impairments were recorded during the year ended December 31, 2021, as no indicators of impairment were present.

Share-based compensation

We measure the fair value of services received in exchange for all stock options granted based on the fair market value of the award as of the grant date. We compute the fair value of stock options with time-based vesting using the Black-Scholes option-pricing model and recognize the cost of the equity awards over the period that services are provided to earn the award. The Black-Scholes option-pricing model includes assumptions regarding dividend yields, expected volatility, expected option term and risk-free interest rates. The assumptions used in computing the fair value of share-based compensation expense reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control. We estimate expected volatility based primarily on historical daily price changes of our stock and peers. The expected option term is the number of years that we estimate that the stock options will be outstanding prior to exercise.

Loans receivable, net

Loans receivable are presented net of an allowance for credit losses. In the third quarter of 2021, we changed methodologies for estimating the allowance for credit loss on loans receivable from the historical credit loss method to the probability of default method. The probability of default rate is adjusted for current conditions and reasonable and supportable forecasts of future losses as necessary. We may also record a specific reserve for individual accounts when we become aware of specific customer circumstances, such as in the case of a bankruptcy filing or deterioration in the borrower’s operating results or financial condition. The allowance for credit loss accrual balance was $13.1 million and $14.6 million as of December 31, 2022 and 2021, respectively.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest rate risk

Interest rate risk is the risk that the value or yield of fixed-income investments may decline if interest rates change. Fluctuations in interest rates may impact the level of income and expense recorded on the cash equivalents and short-term investments, and the market value of all interest-earning assets, other than those which possess a short-term to maturity. During the year ended December 31, 2022 and December 31, 2021, we had interest income, net of $22.5 million and $9.1 million, respectively. A 10% change in the interest rate in effect on December 31, 2022 and December 31, 2021, would not have a material effect on (i) fair value of the cash equivalents and short-term investments as the majority of the portfolio has a maturity date of three months or less, or (ii) interest income, net. Management continues to monitor external interest rates and revise our investment strategy as a result.

During the year ended December 31, 2022, our average variable interest rate increased by approximately 3.5%. During the year ended December 31, 2021, our average variable interest rate did not materially change.

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Foreign currency risk

Our consolidated financial statements included in Part II, Item 8 “Financial Statements and Supplementary Data” of the annual report are expressed in U.S. dollars. In addition, we have net assets, liabilities, and revenues denominated in foreign currencies, including Canadian dollars and Israeli new shekels. As a result, we are exposed to foreign currency translation gains and losses. Revenue and expenses of all foreign operations are translated into U.S. dollars at the foreign currency exchange rates that approximate the rates in effect during the period when such items are recognized. Appreciating foreign currencies relative to the U.S. dollar will adversely impact operating income and net earnings, while depreciating foreign currencies relative to the U.S. dollar will have a positive impact.

For the years ended December 31, 2022 and December 31, 2021, we had foreign currency gain (loss) on translation of $(50.6) million and $8.2 million, respectively. A 10% change in the exchange rates for the Canadian dollar would affect the carrying amount of the net assets by approximately $77.4 million and $87.7 million as of December 31, 2022 and December 31, 2021, respectively. The corresponding impact would be recorded in accumulated other comprehensive income. We have not historically engaged in hedging transactions and do not currently contemplate engaging in hedging transactions to mitigate foreign exchange risks. As we continue to recognize gains and losses in foreign currency transactions, depending upon changes in future currency rates, such gains and losses could have a significant, and potentially adverse, effect on our results of operations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Consolidated Balance Sheets 77

Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) 78

Consolidated Statements of Changes in Shareholders’ Equity 79

Consolidated Statements of Cash Flows 80

Notes to Consolidated Financial Statements 82

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Cronos Group Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Cronos Group Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of net income (loss) and comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three‐year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three‐year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2023 expressed an adverse opinion on the effectiveness of the Company’s internal control over financial reporting

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of an option to purchase equity securities without a readily determinable fair value

As disclosed in note 1(g) of the consolidated financial statements, the Company records its other investments without a readily determinable fair value using the cost method, and assesses such investments for observable price changes and other than temporary impairment on a periodic basis. Changes in the reported value of other investments are reported in the consolidated statements of net income (loss) and comprehensive income (loss). As disclosed in note 3(b) to the consolidated financial statements, the Company’s investment in an option to purchase equity securities of PharmaCann, Inc. (the “PharmaCann Option”) is accounted for as an other investment without a readily determinable fair value. To estimate the fair value of the PharmaCann Option, management uses a combination of the income and market approaches. Under the income approach, significant assumptions used in the discounted cash flow method that require the use of judgment are the discount rate, terminal growth rate, cash flow projections, and the timing of federal legalization of cannabis in the United States. Under the market valuation approach, the key assumptions which require judgment under the Guideline Public Companies method are cash flow projections, selected multiples and the discount for lack of marketability. As disclosed in note 14(a) of the consolidated financial statements, the Company’s other investment in PharmaCann Option amounted to $49,000 thousand as of December 31, 2022.

We identified the evaluation of the impairment assessment of PharmaCann Option as a critical audit matter. As the original cash flow projections of the investee were not prepared by management, a high degree of challenging auditor judgement was required to evaluate fair value of the investment. These assumptions were challenging to test as they represented subjective determinations of future market, economic, and legal conditions that are sensitive to variation. Minor changes to these assumptions could have had a significant

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impact on the Company’s assessment of the fair value of the PharmaCann Option. Additionally, the audit effort associated with this estimate required specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of an internal control related to the critical audit matter. We compared the historical cash flow projections of PharmaCann to actual results to assess the Company’s ability to accurately project PharmaCann cash flows. We evaluated the reasonableness of the cash flow projections by comparing them to historical actual results, planned business initiatives, external industry reports, and peer data. We evaluated the reasonableness of the timing of federal legalization of cannabis in the United States by comparing management’s estimated timing with external industry reports and market information. In addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:

•assessing the discount rate used in the income approach and the multiples used in the market approach against ranges that were independently developed using peer data

•evaluating the terminal growth rate used in the income approach by comparing management’s assumption against external market information

•independently developing a discount for lack of marketability and comparing to management’s assumption used in the market approach.

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

We have served as the Company’s auditor since 2018.

Vaughan, Canada

February 28, 2023

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Cronos Group Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Cronos Group Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of net income (loss) and comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated February 28, 2023 expressed an unqualified opinion on those consolidated financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness related to the design and maintenance of effective controls over Information Technology General Controls, pertaining to user access management and the provisioning and monitoring of user access, including privileged access was identified by management. This material weakness did not impact any information derived from information systems and did not result in any identified misstatements in the financial statements. The material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 consolidated financial statements, and this report does not affect our report on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

Vaughan, Canada

February 28, 2023

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CRONOS GROUP INC.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Cronos Group Inc.

Consolidated Balance Sheets

As of December 31, 2022 and 2021

(In thousands of U.S. dollars)

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As of December 31,

Assets

Current assets

Current portion of loans receivable, net 8,890 5,460

Prepaids and other current assets 7,106 8,967

Non-current portion of loans receivable, net 72,345 80,635

Liabilities

Current liabilities

Current portion of lease obligation 1,330 2,711

Current portion due to non-controlling interests 384 433

Non-current portion due to non-controlling interests 1,383 1,913

Non-current portion of lease obligation 2,546 7,095

Deferred income tax liability — 81

Shareholders’ equity

Accumulated other comprehensive income (loss) (797) 49,865

Total equity attributable to shareholders of Cronos Group 1,143,885 1,337,243

Non-controlling interests (2,921) (2,967)

See notes to consolidated financial statements.

Cronos Group Inc.

Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)

For the years ended December 31, 2022, 2021, and 2020

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

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Year ended December 31,

Operating expenses

Restructuring costs 5,333 — —

Impairment loss on long-lived assets 3,493 127,619 —

Other income (expense)

Share of income (loss) from equity method investments 3,114 (6,313) (4,510)

Gain (loss) on revaluation of financial instruments 14,739 8,611 (9)

Impairment loss on other investments (61,392) — —

Foreign currency transaction loss (2,286) — —

Gain on disposal of investments — — 4,789

Loss from discontinued operations — (500) (650)

Net loss attributable to non-controlling interest — (1,097) (2,133)

Comprehensive income (loss)

Net loss from continuing operations per share

See notes to consolidated financial statements.

Cronos Group Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the years ended December 31, 2022, 2021, and 2020

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

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Shares issued — — — — — — —

Share issuance costs — — — — — — —

Foreign exchange gain (loss) on translation — — — — 15,161 (210) 14,951

Shares issued — — — — — — —

Share issuance costs — — — — — — —

Top-up rights out-of-period adjustment — (3,227) — 3,227 — — —

Foreign exchange gain on translation — — — — 6,866 1,326 8,192

Foreign exchange gain (loss) on translation — — — — (50,662) 46 (50,616)

See notes to consolidated financial statements.

Cronos Group Inc.

Consolidated Statements of Cash Flows

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S dollars)

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Year ended December 31,

Operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Impairment loss on long-lived assets 3,493 127,619 —

Impairment loss on other investments 61,392 — —

Gain on disposal of investments — — (4,789)

Foreign currency transaction loss 2,286 — —

Other non-cash operating activities, net (4,051) (3,886) (123)

Changes in operating assets and liabilities:

Prepaids and other current assets 996 3,102 —

Investing activities

Purchase of investments — (110,392) —

Dividend proceeds 384 — —

Purchase of intangible assets, net of disposals (1,581) (1,118) (3,979)

Net cash provided by (used in) investing activities (1,842) (28,898) 20,150

Cronos Group Inc.

Consolidated Statements of Cash Flows (continued)

For the years ended December 31, 2022, 2021, and 2020

(In thousands of U.S dollars)

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Year ended December 31,

Financing activities

Advance to non-controlling interests — — (1,019)

Other financing activities, net (68) 16 116

Supplementary cash flow information:

See notes to consolidated financial statements.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

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

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1. Background, Basis of Presentation, and Summary of Significant Accounting Policies

(a)Background

Cronos Group Inc. (“Cronos” or the “Company”) is incorporated in the province of British Columbia and under the Business Corporations Act (British Columbia) with principal executive offices at 111 Peter St., Suite 300, Toronto, Ontario, M5V 2H1. The Company’s common shares are currently listed on the Toronto Stock Exchange (“TSX”) and Nasdaq Global Market (“Nasdaq”) under the ticker symbol “CRON.”

Cronos is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio. Cronos’ diverse international brand portfolio includes Spinach®, PEACE NATURALS® and Lord Jones®.

(b)Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Certain prior year amounts have been reclassified to conform to the current year presentation of our consolidated financial statements. These reclassifications had no effect on reported results of operations and ending shareholders’ equity.

(c)Basis of consolidation

The accompanying consolidated financial statements include the accounts of the Company, and all entities in which the Company has a controlling voting interest or is the primary beneficiary of a variable interest as of and for the reporting periods. The Company assesses control under the variable interest entity (“VIE”) model to determine whether the Company is the primary beneficiary of that entity’s operations. If an entity is not deemed to be a VIE, the Company consolidates the entity if the Company has a controlling voting interest. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are deconsolidated from the date that control ceases. Investments in which the Company has the ability to exercise significant influence over the operating and financial policies of the investee, but does not have control, are accounted for under the equity method of accounting.The Company consolidates the financial results of the following entities, which the Company controls but does not wholly own:

Cronos Israel G.S. Cultivation Ltd.(i) Israel February 4, 2018 70%

Cronos Israel G.S. Manufacturing Ltd.(i) Israel September 4, 2018 90%

Cronos Israel G.S. Store Ltd.(i) Israel June 28, 2018 90%

Cronos Israel G.S. Pharmacy Ltd.(i) Israel February 15, 2018 90%

(i)These Israeli entities are collectively referred to as “Cronos Israel.”

(ii)“Ownership interest” is defined as the proportionate share of net income to which the Company is entitled; equity interest may differ from ownership interest as described herein.

In the consolidated statements of net income (loss) and comprehensive income (loss), net income (loss) and comprehensive income (loss) are attributed to the equity holders of the Company and to the non-controlling interests. Non-controlling interests in the equity of Cronos Israel are presented separately in the shareholders’ equity section of the consolidated balance sheets and consolidated statements of shareholders’ equity. All intercompany transactions and balances are eliminated upon consolidation.

(d)Use of estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Significant estimates and assumptions include, among other things, valuation of derivative liabilities, expected credit losses on long-term financial assets, impairment losses on goodwill and indefinite-lived intangible assets, impairment losses on long-lived assets,

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

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

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inventory write-downs, share-bared payments, valuation allowance on deferred income tax assets and uncertain tax liabilities. Actual results could differ from those estimates.

(e)Cash and cash equivalents and short-term investments

Cash and cash equivalents are comprised of cash and highly liquid short-term investments that are readily convertible into known amounts of cash, generally with original maturities of three months or less. Cash and cash equivalents include amounts held in dollars, C$ and ILS and security deposits. Short-term investments consist of debt securities that (i) generally have original maturities of greater than three months and (ii) the Company has the ability to convert into cash within one year.

Short-term investments are classified as either available-for-sale or held-to-maturity and recorded at cost. Interest earned on short-term investments is recorded in other receivables on the consolidated balance sheets and interest income, net on the consolidated statements of net income (loss) and comprehensive income (loss). Cash inflows and outflows related to the purchase and maturity of short-term investments are classified as investing activities in the Company’s consolidated statements of cash flows.

(f)Inventory

Inventory is comprised of raw materials, finished goods and work-in-progress, such as pre-harvested cannabis plants, dried cannabis flower, by-products to be extracted, cannabis extracts and by-products, dry cannabis and cannabis extract containers, and boxes. When the Company cultivated cannabis, costs capitalized into inventory until the time of harvest included, but were not limited to, labor, utilities, nutrition and irrigation.

Inventory is stated at the lower of cost and net realizable value, determined using weighted average cost. Cost includes expenditures directly related to manufacturing and distribution of the products. Primary costs include consumables (insect control, fertilizers, soil), packaging, shipping, direct labor, contract manufacturer fees, overhead, supplies and small tools, and the depreciation of manufacturing equipment and production facilities determined at normal capacity. Manufacturing overhead and related expenses include salaries, wages, employee benefits, rent, utilities, security, and property taxes. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. At the end of each reporting period, the Company performs an assessment to measure inventory at the lower of cost and net realizable value. Factors considered in the determination of net realizable value include slow-moving or non-marketable products.

(g)Investments

Variable interest entities

A variable interest entity is an entity having either a total equity investment that is insufficient to finance its activities without additional subordinated financial support or equity investors at risk that lack the ability to control the entity’s activities. Variable interests are investments or other interests that will absorb portions of a VIE’s expected losses or receive portions of the VIE’s expected residual returns. The Company evaluates whether it is the primary beneficiary of each VIE it identifies on a periodic basis and considers the impact of any reconsideration events. The primary beneficiary is the party that has both the power to direct the activities that most significantly impact the VIE and holds a variable interest that could potentially be significant to the VIE. To make this determination, the Company considers both quantitative and qualitative factors regarding the nature, size and form of its involvement with the VIE. The Company consolidates a VIE when it is determined that it is the primary beneficiary of the VIE.

Equity method investments

The Company accounts for investments in companies over which it has the ability to exercise significant influence but does not hold a controlling financial interest using the equity method. Under the equity method, the Company records its proportionate share of income or loss in share of income (loss) from equity method investments within the consolidated statements of net income (loss) and comprehensive income (loss). Cash payments to equity method investees such as additional investments or expenses incurred on behalf of investees, as well as income earned and payments from equity method investees such as dividends and distributions are recorded as adjustments to investment balances. If the current fair value of an investment falls below its carrying amount, this may indicate that an impairment loss should be recorded. Any impairment losses recognized in one period cannot be reversed in subsequent periods.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

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

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Other investments

Other investments include common stock and options in third party entities in which the Company’s influence is deemed non-significant. The Company holds other investments with and without readily determinable fair values. Other investments with readily determinable fair values are recorded using the fair value method of accounting as of period-end on the consolidated balance sheets. Other investments without readily determinable fair values are recorded using the cost method of accounting on the consolidated balance sheets. Other investments without readily determinable fair values are assessed for observable price changes and other than temporary impairment on a periodic basis. Changes in the reported value of other investments are reported in the consolidated statements of net income (loss) and comprehensive income (loss).

(h)Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Rate

Building and leasehold improvements 15 to 20 years

Machinery and equipment 5 to 7 years

Furniture and fixtures 5 years

When assets are disposed of, the cost and accumulated depreciation are removed from the respective accounts and any related gain or loss is recognized. Maintenance and repairs are charged to expense as incurred. Significant expenditures, which increase productivity or extend the useful life of the asset, are capitalized.

Available for use is defined as the point at which the related property, plant and equipment is operational, including the possession of any requisite licenses. Depreciation commences at the point the assets are available for use.

(i)Definite-lived intangible assets

Intangible assets are recorded at cost less any accumulated amortization and accumulated impairment losses. Intangible assets acquired through a business combination are measured at fair value at the acquisition date.

The Company capitalizes certain costs incurred in connection with its enterprise software, which include external direct costs of materials and services consumed in developing or obtaining internal-use software and payroll and payroll-related costs for employees who are directly associated with and who devote time to the development of the software for the function intended. All other costs are expensed as incurred.

Intangible assets with definite useful lives are amortized over their estimated useful lives using the following methods and rates:

Method Rate

Software Straight-line 5 years

Health Canada licenses Straight-line Useful life of corresponding facilities

Ginkgo exclusive licenses Straight-line 10 years

Israeli codes(i) Straight-line Useful life of corresponding facilities

(i) The preliminary licenses granted to Kibbutz Gan Shmuel (the Cronos Israel joint venture partner) by the Medical Cannabis Unit of the Israeli Ministry of Health in early 2017 (the “Israeli codes”) were transferred by non-controlling interests to Cronos Israel in exchange for equity interests in the Cronos Israel entities specified above.

Amortization begins when assets become available for use. The estimated useful life, amortization method, and rate are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Intangible assets originating from the strategic partnership (the “Ginkgo Strategic Partnership”) with Ginkgo Bioworks Holdings, Inc. (“Ginkgo”) are accounted for in accordance with the acquisition method of accounting. Equity interests issued in exchange for an asset are initially recognized and measured at the date of acquisition at fair value. We estimate fair value using the relief-from-royalty method and key assumptions include the discount rate and estimated life. Definite-lived intangible assets, including intangible assets originating from the Ginkgo Strategic Partnership, are subject to amortization and reviewed for impairment annually or more frequently when events or changes in circumstances indicate that fair value has been reduced to less than its carrying amount.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

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

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(j)Accrued liabilities

Accrued liabilities consist of the following:

As of December 31,

Accrued payroll and related expenses $ 11,492 $ 12,875

Accrued payroll and related expenses include salaries and wages, bonuses, and other related payroll expenses associated with the Company’s employees. Accrued professional fees include fees for legal expenses, litigation, consulting, marketing, and other related expenses. Accrued taxes include sales, excise and other taxes owed. Other accrued expenses include the fair value of deferred share units outstanding to directors and other general expenses.

(k)Leases

The Company enters into leases in the normal course of business, primarily for the land-use rights, office premises, and equipment used in the production of its products. At the inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company performs an analysis over the classification of the lease agreement as either an operating lease or finance lease.

A right-of-use asset and the related lease obligation associated with the lease are recorded at the inception of the lease. The right-of-use asset’s recorded amount is based on the present value of future lease payments over the lease term at the commencement date plus any initial direct costs incurred. If the rate implicit in the lease is not readily determinable for the Company’s operating leases, an incremental borrowing rate is generally used based on information available at the lease commencement date to determine the present value of future lease payments. Subsequent changes to these lease payments due to rate updates are recorded as lease expense in the period incurred. Leases with a term of 12 months or less are not recorded on the balance sheet as a lease.

The right-of-use asset is subject to impairment testing whenever events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. The leased asset is amortized over the shorter of the lease term or its estimated useful life if title does not transfer to the Company, while the leased asset is depreciated in accordance with the Company’s depreciation policy if the title is to eventually transfer to the Company.

The Company’s lease agreements generally exclude non-lease components. As a result, non-lease components are accounted for separately for all classes of assets and expensed as incurred. In addition, the Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. For finance leases, from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term, the right-of-use asset is amortized on a straight-line basis and the interest expense is recognized on the lease liability using the effective interest method. For operating leases, lease expense is recognized on a straight-line basis over the term of the lease and presented as a single charge in the consolidated statements of net income (loss) and comprehensive income (loss).

(l)Derivative liabilities

For financial instruments classified as derivatives that are not designated as hedging instruments or do not qualify for hedge accounting, changes in fair value are recorded in the consolidated statements of net income (loss) and comprehensive income (loss) each period. The Company does not enter into or hold derivative financial instruments for trading or speculative purposes. Derivative liabilities are initially recognized at fair value at the date on which the derivative contract was entered into. Any attributable transaction costs are recognized in net income (loss) as incurred. Subsequent to initial recognition, derivative liabilities are measured at fair value at each reporting date until settlement with the re-measurement gain or loss being recognized immediately in net income (loss) and comprehensive income (loss). For more details on derivative liabilities consisting of the Altria Warrant, Pre-emptive Rights, and certain Top-up Rights, see Note 8 “Derivative Liabilities.”

(m)Capital stock

Capital stock is presented at the fair value at the time of issuance of the shares issued. Costs related to the issuance of shares are reported in equity, net of tax, as a deduction from the issuance proceeds.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

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

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(n)Revenue recognition

Revenue is recognized in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” and is measured based on the consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer. The Company’s contracts with customers for the sale of dried cannabis, cannabis oil, cannabinoid-derived products and “hemp” (as defined in the U.S. Agricultural Improvement Act of 2018 “U.S. hemp”) derived products consist of a single performance obligation.

The Company has concluded that revenue from the sale of these products should be recognized at the point in time when control is transferred to the customer, depending on the specific contractual terms. The Company has determined that the most definitive demonstration that control has transferred to a customer is physical shipment or delivery, depending on the contractual shipping terms, except for consignment transactions. Consignment transactions are arrangements where the Company transfers product to a customer or third-party location but retains ownership and control of such product until it is used by the customer. Revenue for consignment arrangements is recognized upon the customer’s usage.

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 to a customer. Net revenue before excise taxes from sale of goods, as presented in the consolidated statements of net income (loss) and comprehensive income (loss), represents revenue from the sale of goods less expected price discounts, allowances for customer returns and other forms of variable consideration. Within the Company’s Rest of World segment (the “ROW segment”), dried cannabis sales outside of Canada may include commission arrangements with distributors that give rise to variable consideration. If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable consideration is estimated using the expected value method, based on the Company’s historical information, at contract inception. The Company’s payment terms vary by customer and product type. Refer to Note 12 “Segment Information and Disaggregated Revenue”for information on disaggregated revenue.

The Company treats shipping and handling activities as a fulfillment cost, classified as cost of sales. Accordingly, the Company accrues all fulfillment costs related to the shipping and handling of consumer goods at the time of shipment.

(o)Research and development

The Company has a research and development center in Canada that performs scientific research on the interaction of cannabinoids as well as strain development, growing conditions, extraction technology, and biosynthesis. Fermentation and production related research is performed to further strategic initiatives around rare cannabinoids. In addition, the Company has a collaboration and license agreement with Ginkgo (the “Ginkgo Collaboration Agreement”) to research, produce, and commercialize cultured cannabinoids. Technological feasibility is considered to be established once productivity targets or commercialization are achieved, at which point the exclusive license is recognized at cost less impairment charges. As of the acquisition date of each exclusive license, cost less impairment charges is equal to the fair value. Refer to Note 6“Goodwill and Intangible Assets, net”for more information on the Ginkgo Collaboration Arrangement. Research and development costs associated with these collective efforts are expensed as incurred as part of operating expenses in the Company’s consolidated statements of net income (loss) and comprehensive income (loss).

(p)Advertising costs

Advertising costs include costs to sell the Company’s products and are expensed as incurred through sales and marketing expenses in the consolidated statements of net income (loss) and comprehensive income (loss). Advertising costs were $928, $11,514 and $6,087 for the years ended December 31, 2022, 2021, and 2020, respectively.

(q)Share-based compensation

As described in more detail below, the Company has five share-based compensation plans under which awards have been made: the 2020 Omnibus Plan, the 2018 Stock Option Plan, the 2015 Stock Option Plan, the Employment Inducement Award Plan and the DSU Plan (each as defined below).

Share-based awards consists of equity-settled share-based awards such as stock options and restricted share units (“RSUs”) that are issued to eligible employees, non-executive directors, and non-employees. Cash-settled deferred share units (“DSUs”) that are issued to non-executive directors under the DSU Plan are recorded in accrued liabilities with the fair value adjustment recorded in other income.

Equity instruments granted are initially measured at fair value on the grant date. The fair value of stock options is determined using the Black-Scholes option pricing model. The fair value of RSUs and DSUs are determined using the market price of the Company’s common shares. This is recognized on a straight-line basis in the consolidated statements of net income (loss) and comprehensive

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

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

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income (loss) over the vesting period for employees, and over the contractual term for non-employees. The fair value of the payout of cash-settled DSUs is determined at each reporting date based on the fair value of the Company’s common shares at the reporting date and is recorded within other liabilities. The related costs for all equity-settled share-based awards are reflected in additional paid-in capital until the awards are settled or exercised. Upon settlement or exercise, shares are issued and the amount previously reflected in additional paid-in capital is, along with any proceeds paid upon settlement or exercise, credited to a combination of share capital and additional paid-in capital. Forfeitures of share-based compensation awards are accounted for as reductions to share-based compensation and additional paid-in capital as they occur.

(r)Impairment of long-lived assets

The Company reviews its long-lived assets, such as property, plant and equipment and definite-lived intangible assets, for impairment in accordance with ASC Topic 360, Property, Plant, and Equipment. In accordance with ASC Topic 360, long-lived assets to be held are reviewed for events or changes in circumstances that indicate that their carrying amount may not be recoverable. The Company periodically reviews for indicators and, if indicators are present, tests the carrying amount of long-lived assets, assessing their fair values based on estimated undiscounted cash flows over their remaining estimated useful lives. The Company groups assets at the lowest level for which cash flows are separately identifiable, referred to as an asset group. If the carrying amount of an asset (or asset group) exceeds its estimated undiscounted future cash flows, an impairment charge is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset group, based on discounted cash flows.

(s)Impairment of goodwill and indefinite-lived intangible assets

Goodwill and indefinite-lived intangible assets are not amortized. Goodwill and indefinite-lived intangible assets are reviewed for impairment annually or more frequently when events or changes in circumstances indicate that fair value of the reporting unit has been reduced to less than its carrying amount in accordance with the provisions of ASC Topic 350, Intangibles—Goodwill and Other. The Company performs an impairment test annually in the fourth quarter by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is not considered to be impaired. An impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value.

(t)Income taxes

The Company uses the liability method of accounting for income taxes, under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when such assets and liabilities are recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the year that includes the enactment date. The Company determines deferred tax assets including net operating losses and liabilities, based on temporary differences between the book and tax bases of assets and liabilities.

A valuation allowance is established to reduce some or all net deferred tax assets to amounts that are more likely than not to be realized. The Company considers all available evidence, both positive and negative, including past operating results, estimates of future taxable income, and the feasibility of tax planning strategies, in assessing the need for a valuation allowance.

A valuation allowance against some or all of the net deferred tax assets does not in any way impact the Company’s ability to use future tax deductions such as the Company’s net operating loss carryforwards; rather, the valuation allowance indicates, according to the provisions of Accounting Standards Codification (“ASC”) 740, Income Taxes, it is more likely than not that the deferred tax assets will not be realized. The valuation allowance that was established will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that the net deferred tax assets will be realized. The Company’s income tax expense for future periods will be reduced to the extent of corresponding decreases in our valuation allowance. There is uncertainty regarding any future realization of the benefit by the Company of all or part of our net deferred tax assets.

Judgment is required to determine the recognition and measurement attributes prescribed in the accounting guidance for uncertainty in income taxes. The Company uses a two-step approach for evaluating uncertain tax positions. Step one, recognition, requires us to determine whether the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. If a tax position is not considered “more likely than not” to be sustained, no benefits of the position are recognized. If we determine that a position is “more likely than not” to be sustained, then we proceed to step two, measurement, which is based on the largest amount of benefit which is more likely than not to be realized on effective settlement. This process involves estimating our actual current tax exposure, including assessing the risks associated with income tax audits, together with assessing temporary differences resulting from the different treatment of items for tax and financial reporting purposes. If actual results differ from our estimates, our net operating loss and credit carryforwards, to the extent not covered by a valuation allowance, could be materially impacted in the period which such determination is made.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2022, 2021, and 2020

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

Table of Contents

The Company recognizes uncertain income tax positions at the largest amount that is more-likely-than-not to be sustained upon examination by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Recognition or measurement is reflected in the period in which the likelihood changes. Any interest and penalties related to unrecognized tax liabilities are presented within income tax expense in the consolidated statements of net income (loss) and comprehensive income (loss). Accrued interest and penalties are included in accounts payable and other liabilities in the consolidated balance sheets.

(u)Foreign currency

The Company’s functional currency is the Canadian dollar (“C$”) and its reporting currency is the U.S. dollar. Functional currencies for the entities in these consolidated financial statements are their respective local currencies, including C$, U.S. dollar and Israeli New Shekel (“ILS”). All assets and liabilities of operations with a functional currency other than the Canadian dollar are translated into Canadian dollars at the period-end currency exchange rates and subsequently translated into U.S. dollars at period-end currency exchange rates. The resulting translation adjustments are recorded in accumulated other comprehensive income (loss), net of tax. Revenues and expenses of operations, as well as all cash flows, with a functional currency other than the Canadian dollar are translated into Canadian dollars at the average exchange rates for the period and subsequently translated into U.S. dollars at the average exchange rates for the period. Transaction gains and losses resulting from changes in foreign currency exchange rates are recorded in either cost of sales, general and administrative expenses, or foreign currency transaction gain (loss) in the consolidated statements of net income (loss) and comprehensive income (loss).

(v)Segments

Cronos reports through two segments: the U.S. segment and the ROW segment. These two segments represent the geographic regions in which the Company operates and the different product offerings within each geographic region. Refer to Note 12 “Segment Information and Disaggregated Revenue” for additional information.

(w)Earnings (loss) per share

The Company presents basic and diluted earnings (loss) per share data for its common shares. Basic earnings (loss) per share is calculated by dividing the profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of common shares outstanding for the effects of all potentially dilutive common shares.

(x)Fair value measurements

The carrying amount of the Company’s cash and cash equivalents, accounts receivable, other receivables, loans receivable, account payables and other liabilities approximate fair value, given their short-term nature. Cronos uses a fair value hierarchy, which gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities, noted as Level 1 measurements, and the lowest priority to unobservable inputs, noted as Level 3 measurements.