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

Business Overview 52

Recent Developments 53

Consolidated Results of Operations 55

Non-GAAP Measures 63

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, see Part I, Item 1 “Business—Special Note Regarding Forward-Looking Statements” in this Annual Report for a discussion of the risks and uncertainties involved in the Forward-Looking Statements.

For more information about our operations and the risks facing our business, see Part I, Item 1 “Business” and Part I, 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 the 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.

Discontinued Operations

In the second quarter of 2023, Cronos exited its U.S. hemp-derived cannabinoid product operations. The exit of the U.S. operations represented a strategic shift that has a major effect on Cronos’ operations and financial results, and as such, qualifies for reporting as discontinued operations in our consolidated statements of net loss and comprehensive loss. Prior period amounts have been reclassified to reflect the discontinued operations classification of the U.S. operations. For further detail on the discontinuation of the U.S. operations, see Note 2 “Discontinued Operations” to the consolidated financial statements under Item 8 of this Annual Report.

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Business Segments

Beginning in the second quarter of 2023, following the exit of our U.S. operations, Cronos is reporting through one consolidated segment, which includes operations in both Canada and Israel. In Canada, Cronos operates two wholly owned license holder 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.

Recent Developments

Israel-Hamas War

Cronos continues to monitor the conflict in Israel (the “Israel-Hamas War”) and potential impacts the conflict could have on the Company’s personnel and business in Israel and the recorded amounts of assets and liabilities related to the Company’s operations in Israel. The extent to which the conflict may impact the Company’s personnel, business and activities will depend on future developments which remain highly uncertain and cannot be predicted. It is possible that the recorded amounts of assets and liabilities related to the Company’s operations in Israel could change materially in the near term.

New Israeli Shekel Fluctuation

In October 2023, with the onset of the aforementioned Israel-Hamas war, the New Israeli Shekel has fluctuated significantly against the U.S. dollar and Canadian dollar. As of January 31, 2024, the New Israeli Shekel has weakened to a position of 3.657 per U.S. dollar and a position of 2.729 per Canadian dollar, representing exchange rate increases of 4% and 3%, respectively, from the rates as of September 30, 2023. We cannot predict when or how the currency will fluctuate against the U.S. dollar and Canadian dollar and we have, as a result, experienced a volatile impact on our results of operations.

2023 Business Highlights

Brand and Product Portfolio

Throughout 2023, the Company expanded its brand and product portfolio globally with the following select new products:

Branded Product Portfolio Expansion in Canada:

•Q2 2023:

◦Spinach FEELZTM Higher Dayz Mango Kiwi Haze THC:CBC pre-roll, infused with high potency cold filtered extract

◦Spinach FEELZTM Deep Dreamz Blackberry Kush THC:CBN pre-roll, infused with high potency cold filtered extract

◦Spinach® Sonic Lemon fuel 3x0.5g pre-rolls & 3.5g dried flower

◦SOURZ by Spinach® Pink Lemonade gummy

◦Spinach® 28g Frosted Cream Puffs dried flower

•Q3 2023:

◦Six new Spinach® 1.2 gram vapes offerings, Peach Punch, Pink Lemonade, Strawberry Slurricane, Wavy Watermelon, Cotton Dandy Kush and Rocket Icicle

◦Spinach FEELZ® Full Tilt Blue Razz Durban THC:THCV vape and Spinach FEELZTM Full Tilt Blue Raspberry Lemonade THC:THCV gummy products

◦Three new Spinach® Fully Charged infused pre-roll offerings, Peach Punch, Pink Lemonade and Strawberry Slurricane

◦Spinach® Atomic Sour Grapefruit 7g dried flower

◦Spinach® 3.5g Peach Gelato dried flower

•Q4 2023:

◦Lord Jones® Hash FusionsTM, a line-up of premium ice water hash infused pre-rolls

◦SOURZ by Spinach® Strawberry Kiwi 5:1 CBD:THC 10-pack

◦Spinach FEELZTM Deep Dreamz THC:CBN Drops infused oil

◦Spinach® 14g GMO Cookies dried flower

◦Spinach FEELZTM Full Tilt Blue Razz Durban THC + THCV infused pre-roll

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Branded Product Portfolio Expansion in Israel:

•Q1 2023:

◦Two new PEACE NATURALS® flower offerings - Atomic Sour Grapefruit and Lemon Berry Cookies

•Q2 2023:

◦Two new PEACE NATURALS® pre-roll offerings - Wedding Rolls and Cocoa Bomba

•Q3 2023:

◦Five new PEACE NATURALS® flower offerings - Space Cake, Sticky Ape, Purple Punch, T-twist and Kobe OG

•Q4 2023

◦Three new PEACE NATURALS® flower offerings - Rockstar, Dancehall and Sonic Fuel

International Growth:

•Q3 2023: Cronos successfully completed its first shipment of PEACE NATURALS® branded cannabis to Germany through a strategic partnership with Cansativa GmbH, a leading German cannabis company.

•Q4 2023: Cronos successfully shipped cannabis flower to Vitura Health Limited for sale in the Australian medical market.

Strategic and Organizational Update

In May 2023, Cronos simultaneously announced the discontinuation of the U.S. segment and the planned repurposing of the Lord Jones® brand by bringing the brand back to its adult-use roots in Canada. We launched the Lord Jones® brand in Canada in the fourth quarter of 2023.

In August 2023, following a careful evaluation of the Company’s global supply chain, the Company announced the planned wind-down of Thanos Holdings Ltd., known as Cronos Fermentation. The Company incurred $0.7 million in the year ended December 31, 2023, related to the wind-down of Cronos Fermentation and expects to incur charges of approximately $0.1 million of additional costs in connection with the ongoing exit. These charges include employee-related costs, such as severance, relocation and other termination benefits, as well as contract termination and other related costs. Cronos expects to continue to operate the Cronos Fermentation facility with a phased reduction and planned exit by the end of the first quarter 2024.

Also in August 2023, the Company announced organization-wide cost reductions. The Company incurred $0.8 million in the year ended December 31, 2023, related to the cost reductions and expects to incur additional restructuring costs of approximately $0.1 million in connection with the cost reductions, which include mostly one-time employee-related severance charges.

In the fourth quarter of 2023, the Company entered into an agreement for the sale and leaseback of the Peace Naturals Campus for an aggregate purchase price of C$23 million in cash, subject to certain terms and conditions. At closing the parties expect to enter into a lease agreement with respect to portions of Building 4 and Building 3 on the Peace Naturals Campus. The lease will have an initial term of five years with one five-year renewal option that may be exercised by the Company.

2022 Compared to 2021

Cash Flows

For a discussion of our 2022 cash flows compared to 2021, 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, 2022.

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, 2023 and December 31, 2022, as reported on Bloomberg. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates. The consolidated statements of net loss and comprehensive 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, 2023, December 31, 2022, and December 31, 2021, 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,

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The exchange rates used to translate from New Israeli Shekels (“ILS”) to dollars are shown below:

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

Consolidated Results of Operations - 2023 Compared to 2022

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 805 —

Operating expenses:

Depreciation and amortization 5,044 5,967

Impairment loss on long-lived assets 3,366 3,493

Loss from discontinued operations (4,114) (13,556)

Net loss attributable to non-controlling interest (590) —

Net loss attributable to Cronos Group $ (73,963) $ (168,734)

Summary of select financial results

Year ended December 31, Change

Inventory write-down 805 — 805 N/M

Gross margin(i) 14 % 18 % N/A (4) pp

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

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Net revenue

For 2023, we reported consolidated net revenue of $87.2 million, representing a $0.5 million increase from 2022. This change was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market and the initiation of sales in Germany and Australia, partially offset by lower cannabis flower sales in Israel driven by pricing pressure as a result of competitive activity, the slowdown in patient permit authorizations and the Israel-Hamas War, an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue, and the impact of the weakened Canadian dollar and New Israeli Shekel against the U.S. dollar during the period.

Cost of sales

For 2023, we reported consolidated cost of sales of $74.5 million, representing a $3.2 million increase from 2022. This was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, partially offset by lower cannabis flower sales in the Israeli medical market, lower inventory reserves, lower cannabis biomass costs and the impact of the weakened Canadian dollar and New Israeli Shekel against the U.S. dollar during the period.

Inventory write-down

For 2023, we reported inventory write-downs of $0.8 million, as a result of the Company’s decision to wind down operations at a production facility in Winnipeg, Manitoba, held by license holder Cronos Fermentation. For further information, see Note 16 “Restructuring” to the consolidated financial statements in Item 8 of this Annual Report.

Gross profit

For 2023, we reported consolidated gross profit of $11.9 million, representing a $3.5 million decrease from 2022. The decrease in gross profit was primarily due to lower cannabis flower sales in the Israeli medical market, an adverse price/mix on cannabis flower sales in Canada resulting in higher excise taxes as a percentage of revenue and the inventory write-down recognized as a result of the decision to wind down operations at Cronos Fermentation, partially offset by higher cannabis flower and extract sales in the Canadian adult-use market.

Operating expenses

Year ended December 31, Change

Sales and marketing

For 2023, we reported sales and marketing expenses of $22.7 million, representing an increase of $4.7 million from 2022. The increase was primarily due to higher advertising and marketing spend.

Research and development

For 2023, we reported research and development expenses of $5.8 million, representing a decrease of $7.3 million from 2022. This decrease was primarily due to lower costs associated with the collaboration and license agreement between Ginkgo Bioworks Holdings, Inc. (“Ginkgo”) and the Company (the “Ginkgo Collaboration Agreement”).

General and administrative

For 2023, we reported general and administrative expenses of $49.5 million, representing a decrease of $18.2 million from 2022. The decrease was primarily due to lower professional fees, largely related to lower financial statement review costs, and lower bonus, payroll and insurance costs.

Restructuring costs

For 2023, we reported restructuring costs of $1.5 million, representing a decrease of $2.0 million from 2022. The restructuring costs in 2023 and 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.

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Share-based compensation

For 2023, we reported share-based compensation expenses of $8.8 million, representing a decrease of $6.3 million from 2022. The decrease was primarily due to the 2022 acceleration of expense on equity awards granted to certain executive employees in connection with their separation from the Company as well as the approval of the grant of previously held-back equity awards granted in 2022 to certain executives in connection with the settlements with the Securities and Exchange Commission (the “SEC”) and the Ontario Securities Commission (the “OSC”). For further information, see Note 11 “Share-based Compensation” to the consolidated financial statements in Item 8 of this Annual Report.

Depreciation and amortization

For 2023, depreciation and amortization expenses were $5.0 million, representing a decrease of $0.9 million from 2022. The decrease was primarily due to the recognition of certain tax credits related to the Company’s fixed assets, partially offset by higher amortization on Ginkgo-related intangible assets.

Impairment loss on long-lived assets

During 2023, we recorded a $3.4 million impairment charge related to our Ginkgo exclusive license for cannabichromevarinic acid (“CBCVA”). For 2022, we recorded $3.5 million of impairment charges related to the right-of-use lease asset and leasehold improvements associated with our corporate headquarters in Toronto, Ontario, Canada, which the Company has subleased in part. See Note 7 “Goodwill and Intangible Assets, net”, Note 6 “Property, plant and equipment, net” and Note 8 “Leases” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

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

Year ended December 31, Change(i)

Gain (loss) on revaluation of derivative liabilities (85) 14,060 (14,145) N/M

Share of income from equity method investments 1,583 3,114 (1,531) (49) %

Gain (loss) on revaluation of financial instruments (12,042) 14,739 (26,781) N/M

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

Interest income, net

For 2023, we reported interest income, net of $51.2 million, representing an increase of $28.7 million from 2022 primarily due to higher interest rates and higher short-term investment balances during 2023.

Gain (loss) on revaluation of derivative liabilities

For 2023, we reported a loss on revaluation of derivative liabilities of $0.1 million, representing a change of $14.1 million compared to a gain in 2022 related to the irrevocable relinquishment by Altria of its warrant on December 16, 2022. We expect continued changes in derivative valuations as our share price fluctuates period to period and the remaining expected terms of our derivative instruments change over time. For further information, see Note 9 “Derivative Liabilities” to the consolidated financial statements in Item 8 of this Annual Report.

Impairment loss on other investments

For 2023, we recognized $23.4 million of impairment loss on other investments, driven by an impairment charge recorded on our PharmaCann Option for the difference between its estimated fair value and its carrying amount. 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. For more information, see Note 4 “Investments” to the consolidated financial statements in Item 8 of this Annual Report.

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Share of income from equity method investments

For 2023, we reported share of income from equity method investments of $1.6 million, representing a decrease of $1.5 million from 2022. The decrease was primarily due to lower income pick-ups from our equity method investment in Cronos GrowCo. Periodic income and loss pickups from our equity method investment in Cronos GrowCo are impacted both by the profitability of Cronos GrowCo and any unsold inventory remaining at Cronos at the end of the period that originated from Cronos GrowCo.

Gain (loss) on revaluation of financial instruments

For 2023, we reported a loss on revaluation of financial instruments of $12.0 million, compared to a gain of $14.7 million in 2022. The change was due to the change in fair value of our investment in Vitura. See Note 4 “Investments” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

Foreign currency transaction loss

For 2023, foreign currency transaction loss was $7.3 million, representing an increased loss of $5.0 million from 2022. The change was primarily due to certain foreign currency-denominated cash equivalents and short-term investments and certain foreign currency-denominated intercompany loans anticipated to be settled in the foreseeable future.

Other, net

For 2023, other, net was income of $1.1 million, compared to a loss of $0.3 million in 2022. The change was primarily driven by gains on the disposal of assets.

Income tax benefit (expense)

For 2023, we reported an income tax benefit of $3.2 million, compared to an income tax expense of $34.2 million in 2022. 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.

Loss from discontinued operations

Year ended December 31, Change

Inventory write-down 839 — 839 N/M

Operating expenses

Depreciation and amortization 13 58 (45) (78)%

Impairment loss on long-lived assets 205 — 205 N/M

Income tax expense (benefit) — — — N/M

For 2023, we reported a loss from discontinued operations of $4.1 million, compared to a loss from discontinued operations of $13.6 million in 2022. The decreased loss was driven by the decrease in operating expenses as a result of the exit of U.S. operations in the second quarter of 2023. See Note 2 “Discontinued Operations” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

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Consolidated Results of Operations - 2022 Compared to 2021

Year ended December 31,

Inventory write-down — 11,961

Operating expenses:

Restructuring costs 3,545 —

Depreciation and amortization 5,967 4,413

Impairment loss on goodwill and indefinite-lived intangible assets — 37

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

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

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

Summary of select financial results

Year ended December 31, Change

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

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

Net revenue

For 2022, we reported consolidated net revenue of $86.7 million, representing a $22.2 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 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.

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Cost of sales

For 2022, we reported consolidated cost of sales of $71.3 million, representing a $1.1 million increase from 2021, despite a 34% increase in net revenue. This was primarily due to lower cannabis biomass costs and the impact of the weakening Canadian dollar against the U.S. dollar during the period, partially offset by 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.

Inventory write-down

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 $15.4 million, representing a $33.0 million improvement 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, higher 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 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 $18.0 million, representing a decrease of $2.9 million from 2021. The decrease was primarily due to lower advertising and marketing spend.

Research and development

For 2022, we reported research and development expenses of $13.1 million, representing a decrease of $8.7 million from 2021. This decrease was primarily due to lower costs associated with the Ginkgo Collaboration Agreement.

General and administrative

For 2022, we reported general and administrative expenses of $67.7 million, representing a decrease of $23.2 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 $3.5 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.

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Share-based compensation

For 2022, we reported share-based compensation expenses of $15.0 million, representing an increase of $5.2 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 of the grant of previously held-back equity awards granted to certain executives in connection with the SEC and OSC settlements. For further information, see Note 11 “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 $1.6 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 $37 thousand due to impairment charges on our PEACE+TM trademark. For 2022, we reported no such impairment losses. For further information, see Note 7 “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 has subleased in part. 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. See Note 6 “Property, plant and equipment, net”, Note 7 “Goodwill and Intangible Assets, net” and Note 8 “Leases” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

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

(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 $13.4 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 4 “Investments” to the consolidated financial statements in Item 8 of this Annual Report.

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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 4 “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 $0.3 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 its warrant on December 16, 2022.

Loss from discontinued operations

Year ended December 31, Change(i)

Gross margin (67)% —% N/A (67) pp

Operating expenses

Depreciation and amortization 58 71 (13) (18) %

Impairment loss on long-lived assets — 1,214 (1,214) N/M

Income tax expense (benefit) — — — N/M

For 2022, we reported loss from discontinued operations of $13.6 million, compared to a loss from discontinued operations of $269.1 million in 2021. The decreased loss was driven by the $236.0 impairment loss on goodwill and indefinite-lived intangible assets in 2021. See Note 2 “Discontinued Operations” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

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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 U.S. 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 and items that do not reflect management’s assessment of ongoing business performance. 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; inventory write-downs resulting from restructuring actions; 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 Note 10(b) “Contingencies,” to the consolidated financial statements under Item 8 of this Annual Report for a discussion of the shareholder class action complaints relating to the restatement of the 2019 interim financial statements and the settlement of the SEC’s and the OSC’s investigations of the Restatements). Results are reported as total consolidated results, reflecting our reporting structure of one reportable segment.

Management believes that Adjusted EBITDA provides the most useful insight into underlying business trends and results and provides a more meaningful comparison of period-over-period 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.

Adjusted EBITDA is reconciled to net loss as follows:

(in thousands of U.S. dollars) For the year ended December 31, 2023

Continuing Operations Discontinued Operations Total

Income tax expense (benefit) (3,230) — (3,230)

Share of (income) loss from equity method investments (1,583) — (1,583)

Impairment loss on long-lived assets(ii) 3,366 205 3,571

Loss on revaluation of derivative liabilities(iii) 85 — 85

Loss on revaluation of financial instruments(iv) 12,042 — 12,042

Impairment loss on other investments(ix) 23,350 — 23,350

Foreign currency transaction loss 7,324 — 7,324

Financial statement review costs(viii) 919 — 919

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(in thousands of U.S. dollars) For the year ended December 31, 2022

Continuing Operations Discontinued Operations Total

Share of income from equity method 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(ix) 61,392 — 61,392

Foreign currency transaction loss 2,286 — 2,286

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

(in thousands of U.S. dollars) For the year ended December 31, 2021

Continuing Operations Discontinued Operations Total

Income tax expense (benefit) (431) — (431)

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)

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

(i)For the year ended December 31, 2021, impairment loss on goodwill and indefinite-lived intangible assets relates primarily to impairment on goodwill and intangible assets related to our U.S. operations. See Note 7 “Goodwill and Intangible Assets, net” to the consolidated financial statements under Item 8 of this Annual Report.

(ii)For the year ended December 31, 2023, impairment loss on long-lived assets related to certain leased properties associated with the Company’s former U.S. operations and impairment of the Ginkgo Collaboration Agreement’s CBCVA exclusive license. 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. See Note 6 “Property, plant and equipment, net” and Note 7 “Goodwill and Intangible Assets, net” to the consolidated financial statements in Item 8 of this Annual Report.

(iii)For the years ended December 31, 2023, 2022 and 2021, the (gain) loss on revaluation of derivative liabilities represents the fair value changes on the derivative liabilities. See Note 9 “Derivative Liabilities” to the consolidated financial statements in Item 8 of this Annual Report.

(iv)For the years ended December 31, 2023, 2022 and 2021, (gain) loss 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. See Note 4 “Investments” and Note 11 “Share-based Compensation” to the consolidated financial statements in Item 8 of this Annual Report.

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(v)For the year ended December 31, 2021, 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 loss and comprehensive loss.

(vi)For the years ended December 31, 2023 and 2022, other, net primarily related to related to (gain) loss on disposal of assets. For the year ended December 31, 2021, other, net is primarily related to (gain) loss on reclassification of held-for-sale assets and (gain) loss on disposal of assets.

(vii)For the years ended December 31, 2023, 2022 and 2021, 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 11 “Share-based Compensation” to the consolidated financial statements in Item 8 of this Annual Report.

(viii)For the years ended December 31, 2023, 2022 and 2021, financial statement review costs include costs related to the Restatement, costs related to the Company’s responses to requests for information from various regulatory authorities relating to the 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 2019 restatement.

(ix)For the years ended December 31, 2023 and 2022, impairment loss on other investments related to the PharmaCann Option for the difference between its fair value and carrying amount. See Note 4 “Investments” to the consolidated financial statements in Item 8 of this Annual Report.

(x)For the years ended December 31, 2023 and 2022, restructuring costs related to the employee-related severance costs and other restructuring costs associated with the Realignment. See Note 16 “Restructuring” to the consolidated financial statements in Item 8 of this Annual Report.

(xi)For the year ended December 31, 2023, inventory write-downs from discontinued operations relate to product destruction and obsolescence associated with the exit of our U.S. operations as described in Note 2 “Discontinued Operations” and inventory write-downs from continuing operations relate to product destruction and obsolescence associated with the planned exit of Cronos Fermentation as described in Note 16 “Restructuring.”

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 2023, as well as cash and cash equivalents and short-term investment balances as of December 31, 2023 compared to December 31, 2022, 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 2022 rather than the actual average exchange rates in effect during 2023; 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 2022. We have provided this non-GAAP financial information to aid investors in better understanding the performance of our business. 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 2023 compared to 2022, as well as cash and cash equivalents and short-term investments as of December 31, 2023, compared to December 31, 2022, on an as-reported and constant currency basis (in thousands):

As Reported As Adjusted for Constant Currency

Gross margin 14 % 18 % N/A (4) pp 14 % N/A (4) pp

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Net revenue

As Reported As Adjusted for Constant Currency

Net Revenue

For 2023, net revenue on a constant currency basis was $91.7 million, representing a 6% increase from 2022. Net revenue increased on a constant currency basis primarily due to higher cannabis flower and extracts sales in the Canadian adult-use market, partially offset by lower cannabis flower sales in Israel driven by pricing pressure as a result of competitive activity, the slowdown in patient permit authorizations and the Israel-Hamas War, and an adverse price/mix in Canada in the cannabis flower category driving increased excise tax payments as a percentage of revenue.

Gross profit

For 2023, gross profit on a constant currency basis was $12.7 million, representing an 18% decrease from 2022. Gross profit decreased on a constant currency basis primarily due to lower cannabis flower sales in the Israeli medical market, an adverse price/mix on cannabis flower sales in Canada resulting in higher excise taxes as a percentage of revenue and the inventory write-down recognized as a result of the decision to wind down operations at Cronos Fermentation, partially offset by higher cannabis flower and extract sales in the Canadian adult-use market.

Operating expenses

For 2023, operating expenses on a constant currency basis was $101.1 million, representing a 20% decrease from 2022. Operating expenses decreased on a constant currency basis primarily due to lower professional fees, largely related to financial statement review costs, lower costs associated with the achievement of Ginkgo milestones, the 2022 acceleration of expense on equity awards granted to certain executive employees in connection with their separation from the Company, as well as previously held-back equity awards granted in 2022 to certain executives, impairment loss on long-lived assets recognized in the prior year, lower bonus expense, lower payroll costs and lower insurance costs, partially offset by higher sales and marketing expenses.

Net loss

For 2023, net loss on a constant currency basis was $73.2 million, representing a 53% improvement from 2022.

Adjusted EBITDA

For 2023, Adjusted EBITDA on a constant currency basis was $64.5 million, representing an 8% improvement from 2022. Adjusted EBITDA increased on a constant currency basis primarily due to higher cannabis flower and extracts sales in the Canadian adult-use market, decreases in general and administrative expenses and lower costs associated with the achievement of Ginkgo milestones, partially offset by lower cannabis flower sales in Israel driven by pricing pressure as a result of competitive activity, the slowdown in patient permit authorizations and the Israel-Hamas War, an adverse price/mix in Canada in the cannabis flower category driving increased excise tax payments as a percentage of revenue and higher sales and marketing expenses.

Cash and cash equivalents & short-term investments

Cash and cash equivalents and short-term investments on a constant currency basis decreased 4% to $844.5 million as of December 31, 2023 from $877.7 million as of December 31, 2022. The decrease in cash and cash equivalents and short-term investments is primarily due to cash flows used in operating activities in 2023.

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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 as further discussed under “Business—Altria Strategic Investment” in Part I, Item 1 of this Annual Report. As of December 31, 2023, we had $669.3 million in cash and cash equivalents and $192.2 million in short term investments, compared to $764.6 million in cash and cash equivalents and $113.1 million in short term investments as of December 31, 2022. As of both December 31, 2023 and December 31, 2022, we had no external financing.

Cash flows

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

2023 cash flows vs 2022 cash flows

Operating activities

During 2023, we used $42.8 million of cash in operating activities, compared to $88.9 million in 2022, representing a decrease in cash used of $46.1 million. This change is primarily driven by an $88.3 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, partially offset by and a net decrease in changes in operating assets and liabilities of $42.2 million related to payments for income taxes, the timing of collections of receivables, payments for accruals and payables, and purchases of inventory.

Investing activities

During 2023, we used $59.5 million of cash in investing activities, compared to $1.8 million during 2022, representing an increase of $57.7 million in net cash used. This change is primarily driven by higher net purchases of short-term investments, partially offset by higher net repayments on loan receivables and lower purchases of property, plant and equipment.

Financing activities

During 2023, cash used in financing activities was $1.0 million, as compared to $2.9 million in 2022, representing a decrease in net cash used of $1.9 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 believe we have adequate liquidity to meet working capital requirements.

Our material cash requirements include the following contractual and other obligations as of December 31, 2023:

Leases

We have operating leases for land, buildings and office space. As of December 31, 2023, the future minimum payments required under these leases totaled $3.0 million, with $1.1 million payable within 12 months. Refer to Note 8 “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, 2023, Cronos GrowCo had approximately $0.8 million undrawn on its credit facility, with no amounts expected to be drawn within 12 months. The Mucci Promissory Note and Cannasoul Collaboration Loan (each as defined below) have been fully drawn. Refer to Note 5 “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. As of December 31, 2023, the Company had purchase obligations of $13.0 million, with $10.1 million payable within 12 months. Other purchase obligations consist of noncancellable obligations related to maintenance, internet, and telecommunication service. As of December 31, 2023, we had other purchase obligations of $4.4 million, with $2.2 million payable within 12 months.

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 at the point in time 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 Accounting Standards Codification 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 reporting unit 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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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. Refer to Note 6 “Property, plant and equipment, net” to the consolidated financial statements in Item 8 of this Annual Report.

We periodically evaluate our long-lived assets that we plan to dispose of through sale for held-for-sale classification. To be classified as held-for-sale, management must have committed to a plan to sell, the asset (or asset group) must be available for immediate sale in its present condition, an active program to locate a buyer must have been initiated, the sale must be probable to close within one year, the asset (or asset group) must be marketed at a reasonable sales price, and it must be unlikely that significant changes to the plan will be made. Once an asset (or asset group) meets all of the above criteria, it is reclassified as assets held for sale on the consolidated balance sheet, and the asset(s) cease depreciation and are written down to their fair value, less costs to sell, if applicable.

The Company completed a review of its global supply chain and determined that it would wind down the Cronos Fermentation facility and list it for sale. This review involves significant complexities and judgments in making the accounting treatment determination. There are subjective and complex judgments in the determination of whether the Cronos Fermentation facility meets the criteria to be classified as held for sale, including: (1) whether the Cronos Fermentation facility is available for sale in its present condition subject only to terms that are usual and customary for sales of such businesses, (2) whether the sale of the Cronos Fermentation facility is probable and that the transfer of assets will be a completed sale within one year from period end, and (3) whether the Cronos Fermentation facility is being actively marketed at a reasonable price. See Note 6 “Property, plant and equipment, net” to the consolidated financial statements in Item 8 of this Annual Report for discussion regarding our evaluation of the Peace Naturals Campus and the Cronos Fermentation facility for held-for-sale classification as of December 31, 2023.

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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. Refer to Note 7 “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 warrant issued to Altria, as well as Altria’s 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 its 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, 2023, 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 loss and comprehensive 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 9 “Derivative Liabilities” to the consolidated financial statements in Item 8 of this Annual Report.

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 expectation of federal rescheduling and individual state 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.

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. 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.

Assets held for sale

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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 years ended December 31, 2023 and December 31, 2022, we had interest income, net of $51.2 million and $22.5 million, respectively. A 10% change in the interest rate in effect on December 31, 2023 would not have a material effect on the fair value of our cash equivalents and short-term investments as the majority of the portfolio had a maturity date of three months or less. A 10% change in the interest rate in effect for 2023 would have an effect of $5.4 million on interest income, net earned on our cash equivalents, short-term investments. A 10% change in the interest rate in effect on December 31, 2022, would not have a material effect on (i) fair value of the cash equivalents and short-term investments as the majority of the portfolio had 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, 2023, our average variable interest rate increased by approximately 1.45%. During the year ended December 31, 2022, our average variable interest rate did not materially change.

Foreign currency risk

Our consolidated financial statements included in Part II, Item 8 “Financial Statements and Supplementary Data” of this 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, 2023 and December 31, 2022, we had foreign currency gain (loss) on translation of $21.5 million and $(50.6) million, respectively. A 10% change in the exchange rates for the Canadian dollar would affect the carrying amount of the net assets by approximately $97.7 million and $77.4 million as of December 31, 2023 and December 31, 2022, 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 76

Consolidated Statements of Net Loss and Comprehensive Loss 77

Consolidated Statements of Changes in Shareholders’ Equity 78

Consolidated Statements of Cash Flows 79

Notes to Consolidated Financial Statements 81

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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, 2023 and 2022, the related consolidated statements of net loss and comprehensive loss, changes in shareholders’ equity, and cash flows for each of the years in the three‐year period ended December 31, 2023 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, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three‐year period ended December 31, 2023, 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, 2023, 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 29, 2024 expressed an unqualified 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 Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate 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 critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate

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 loss and comprehensive loss. As disclosed in note 4(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 expectation of federal rescheduling and individual state 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 $25,650 thousand as of December 31, 2023.

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 expectation of federal rescheduling and individual state 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, and;

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

Assessment of held for sale classification for the Cronos Fermentation facility

As discussed in Note 1(s) of the consolidated financial statements, the Company periodically evaluates its long-lived assets that it plans to dispose of through sale for held-for-sale classification. To be classified as held-for-sale, management must have committed to a plan to sell, the asset (or asset group) must be available for immediate sale in its present condition, an active program to locate a buyer must have been initiated, the sale must be probable to close within one year, the asset (or asset group) must be marketed at a reasonable sales price, and it must be unlikely that significant changes to the plan will be made. Once an asset (or asset group) meets all the above criteria, it is reclassified as assets held for sale on the consolidated balance sheet, and the assets cease depreciation and are written down to their fair value, less costs to sell, if applicable.

As discussed in Note 6 of the consolidated financial statements, the Company has $59,468 thousand of property, plant and equipment, which includes the Fermentation facility located in Winnipeg, Manitoba, Canada. The Company completed a review of its global supply chain and determined that it would wind-down the Fermentation facility and list it for sale. This review involves significant complexities and judgments in making the accounting treatment determination. There are subjective and complex judgments in the determination of whether the Fermentation facility meets the criteria to be classified as held for sale, including: (1) whether the Fermentation facility is available for sale in its present condition subject only to terms that are usual and customary for sales of such businesses, (2) whether the sale of the Fermentation facility is probable and that the transfer of assets will be a completed sale within one year from period end, and (3) whether the Fermentation facility is being actively marketed at a reasonable price.

We identified the assessment of held for sale classification for the Fermentation facility as a critical audit matter because of the degree of subjectivity associated with significant judgments made in determining whether events have occurred indicating that the Fermentation facility should be presented as held for sale. This required a high degree of auditor judgment when performing audit procedures to evaluate whether management appropriately classified the assets of the Fermentation facility.

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 evaluated the Company’s assessment of held for sale criteria as it relates to the Fermentation facility, which included:

•interviewing key members of management, their real estate agents and the Board of Directors to obtain an understanding of the plans to sell the Fermentation facility, including the marketing efforts and pricing strategy, and;

•reading minutes from meetings of the Board of Directors and reading communications regarding the status of the sales process.

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

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

Vaughan, Canada

February 29, 2024

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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, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on 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, 2023 and 2022, the related consolidated statements of net loss and comprehensive loss, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023 and the related notes (collectively, the consolidated financial statements), and our report dated February 29, 2024 expressed an unqualified opinion 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 29, 2024

CRONOS GROUP INC.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2023 AND 2022

Cronos Group Inc.

Consolidated Balance Sheets

As of December 31, 2023 and 2022

(In thousands of U.S. dollars)

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As of December 31,

Assets

Current assets

Current portion of loans receivable, net 5,541 8,890

Prepaids and other current assets 5,405 7,106

Non-current portion of loans receivable, net 69,036 72,345

Liabilities

Current liabilities

Current portion of lease obligation 994 1,330

Derivative liabilities 102 15

Current portion due to non-controlling interests 373 384

Non-current portion due to non-controlling interests 1,003 1,383

Non-current portion of lease obligation 1,559 2,546

Shareholders’ equity

Accumulated other comprehensive income (loss) 20,678 (797)

Total equity attributable to shareholders of Cronos Group 1,099,571 1,143,885

Non-controlling interests (3,447) (2,921)

See notes to consolidated financial statements.

Cronos Group Inc.

Consolidated Statements of Net Loss and Comprehensive Loss

For the years ended December 31, 2023, 2022, and 2021

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

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Year ended December 31,

Operating expenses

Impairment loss on goodwill and indefinite-lived intangible assets — — 37

Other income (expense)

Gain (loss) on revaluation of derivative liabilities (85) 14,060 151,360

Share of income (loss) from equity method investments 1,583 3,114 (6,313)

Gain (loss) on revaluation of financial instruments (12,042) 14,739 8,611

Impairment loss on other investments (23,350) (61,392) —

Foreign currency transaction loss (7,324) (2,286) —

Net loss attributable to non-controlling interest (590) — (1,097)

Comprehensive income (loss)

Net loss per share

Basic and diluted - continuing operations $ (0.18) $ (0.41) $ (0.34)

Basic and diluted - discontinued operations $ (0.01) $ (0.04) $ (0.73)

Basic and diluted - total $ (0.19) $ (0.45) $ (1.07)

See notes to consolidated financial statements.

Cronos Group Inc.

Consolidated Statements of Changes in Shareholders’ Equity

For the years ended December 31, 2023, 2022, and 2021

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

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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 on translation — — — — (50,662) 46 (50,616)

Foreign exchange gain on translation — — — — 21,475 64 21,539

See notes to consolidated financial statements.

Cronos Group Inc.

Consolidated Statements of Cash Flows

For the years ended December 31, 2023, 2022, and 2021

(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 goodwill and indefinite-lived intangible assets — — 236,056

Impairment loss on other investments 23,350 61,392 —

Loss (gain) on revaluation of derivative liabilities 85 (14,060) (151,360)

Foreign currency transaction loss 7,324 2,286 —

Other non-cash operating activities, net (2,008) 1,294 335

Changes in operating assets and liabilities:

Investing activities

Dividends received from equity method investee 1,297 — —

Purchase of investments — — (110,392)

Purchase of intangible assets, net of disposals (918) (1,581) (1,118)

Cronos Group Inc.

Consolidated Statements of Cash Flows (continued)

For the years ended December 31, 2023, 2022, and 2021

(In thousands of U.S dollars)

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Year ended December 31,

Financing activities

Other financing activities, net — (68) 16

Supplementary cash flow information(i):

Interest paid $ — $ — $ —

(i)See Note 2 “Discontinued Operations” and Note 8 “Leases” for supplementary cash flow information related to the Company’s operating leases.

See notes to consolidated financial statements.

Cronos Group Inc.

Notes to Consolidated Financial Statements

For the years ended December 31, 2023, 2022, and 2021

(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.”

(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, which includes discontinued operations. 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 loss and comprehensive loss, net loss and comprehensive 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, 2023, 2022, and 2021

(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 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 loss and comprehensive 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 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 loss and comprehensive 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, 2023, 2022, and 2021

(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 loss and comprehensive 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.

CRON US Equity

CRON · 10-K · period ended 2023-12-31

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

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CRON US Equity☆

CRON · 10-K · period ended 2023-12-31

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

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CRON US Equity