Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File No. 001-38403

__________________________

CRONOS GROUP INC.

(Exact name of registrant as specified in its charter)

__________________________


British Columbia, Canada						N/A
(State or other jurisdiction of						(I.R.S. Employer
incorporation or organization)						Identification No.)

111 Peter St. Suite 300
Toronto, Ontario						M5V 2H1
(Address of principal executive offices)						(Zip Code)

416-504-0004

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, no par value

CRON

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of November 3, 2022, there were 378,467,867 common shares of the registrant issued and outstanding.

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1.

Financial Statements.

Item 2.

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

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Item 4.

Controls and Procedures.

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings.

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Item 3.

Defaults upon Senior Securities.

Item 4.

Mine Safety Disclosures.

Item 5.

Other Information.

Item 6.

Exhibits.

Unless otherwise noted or the context indicates otherwise, references in this Quarterly Report on Form 10-Q (this “Quarterly Report”) to the “Company”, “Cronos Group”, “we”, “us” and “our” refer to Cronos Group Inc., its direct and indirect wholly owned subsidiaries and, if applicable, its joint ventures and investments accounted for by the equity method; the term “cannabis” means the plant of any species or subspecies of genus Cannabis and any part of that plant, including all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers; the term “U.S. hemp” has the meaning given to term “hemp” in the United States (“U.S.”). Agricultural Improvement Act of 2018 (the “2018 Farm Bill”), including hemp-derived cannabidiol (“CBD”); and the term “U.S. Schedule I cannabis” means cannabis excluding U.S. hemp.

This Quarterly Report contains references to our trademarks and trade names and to trademarks and trade names belonging to other entities. Solely for convenience, trademarks and trade names referred to in this Quarterly Report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trademarks or trade names to imply a relationship with, or endorsement or sponsorship of us or our business by, any other companies. In addition, this Quarterly Report includes website addresses. These website addresses are intended to provide inactive, textual references only. The information on or referred to on these websites is not part of or incorporated into this Quarterly Report.

All currency amounts in this Quarterly Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars; all references to “C$” are to Canadian dollars; all references to “A$” are to Australian dollars; and all references to “ILS” are to New Israeli Shekels.


(Exchange rates are shown as C$ per $)	As of
	September 30, 2022	September 30, 2021	December 31, 2021
Quarter-to-date average rate	1.3053	1.2593	N/A
Spot rate	1.3829	1.2680	1.2746
Year-to-date average rate	1.2829	1.2519	1.2541

All summaries of agreements described herein are qualified by the full text of such agreements (certain of which have been filed as exhibits with the U.S. Securities and Exchange Commission).

PART I
FINANCIAL INFORMATION

Table of Contents

Item 1. Financial Statements


Table of Contents

Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021			4
Condensed Consolidated Statements of Net Income (Loss ) and Comprehensive Income (Loss ) for the three and nine months ended September 30, 2022 and 2021 (Unaudited)			5
Condensed Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2022 and 2021 (Unaudited)			6
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (Unaudited)			8
Notes to Condensed Consolidated Financial Statements (Unaudited)			9


Cronos Group Inc.
Condensed Consolidated Balance Sheets

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


	As of September 30, 2022		As of December 31, 2021
Assets	(Unaudited)		(Audited)
Current assets
Cash and cash equivalents	$	633,296	$	886,973
Short-term investments	255,452		117,684
Accounts receivable, net	19,092		22,067
Other receivables	3,742		5,765
Current portion of loans receivable, net	8,739		5,460
Inventory, net	34,094		32,802
Prepaids and other current assets	8,896		8,967

Total current assets	963,311		1,079,718
Equity method investments, net	19,234		16,764
Other investments	94,557		118,392
Non-current portion of loans receivable, net	72,064		80,635
Property, plant and equipment, net	60,582		74,070
Right-of-use assets	5,103		8,882
Goodwill	1,012		1,098
Intangible assets, net	21,428		18,079
Other	168		100
Total assets	$	1,237,459	$	1,397,738

Liabilities
Current liabilities
Accounts payable	$	9,989	$	11,218
Accrued liabilities	25,629		26,069
Current portion of lease obligation	1,900		2,278
Derivative liabilities	73		14,375
Current portion due to non-controlling interests	379		433
Total current liabilities	37,970		54,373
Non-current portion due to non-controlling interests	1,346		1,913
Non-current portion of lease obligation	4,994		7,095
Deferred income tax liability	1,917		81
Total liabilities	46,227		63,462


Shareholders’ equity
Share capital (authorized for issue as of September 30, 2022 and December 31, 2021: unlimited; shares outstanding as of September 30, 2022 and December 31, 2021: 378,346,260 and 374,952,693, respectively)	605,229		595,497
Additional paid-in capital	38,322		32,465
Retained earnings	569,566		659,416
Accumulated other comprehensive income (loss)	(18,980)		49,865
Total equity attributable to shareholders of Cronos Group	1,194,137		1,337,243
Non-controlling interests	(2,905)		(2,967)
Total shareholders’ equity	1,191,232		1,334,276
Total liabilities and shareholders’ equity	$	1,237,459	$	1,397,738

See notes to condensed consolidated interim financial statements.


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

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


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Net revenue, before excise taxes	$	26,584	$	24,590	$	84,544	$	58,092
Excise taxes	(5,661)		(4,183)		(15,527)		(9,452)
Net revenue	20,923		20,407		69,017		48,640
Cost of sales	19,766		21,137		56,814		56,156
Inventory write-down	—		—		—		11,961
Gross profit	1,157		(730)		12,203		(19,477)
Operating expenses
Sales and marketing	5,923		10,821		16,517		34,284
Research and development	2,569		6,473		10,910		16,774
General and administrative	17,167		32,546		56,540		76,869
Restructuring costs	524		—		4,878		—
Share-based compensation	4,265		2,667		10,567		7,731
Depreciation and amortization	1,713		1,251		4,417		3,029
Impairment loss on goodwill and indefinite-lived intangible assets	—		142		—		235,056
Impairment loss on long-lived assets	—		1,784		3,493		4,739
Total operating expenses	32,161		55,684		107,322		378,482
Operating loss	(31,004)		(56,414)		(95,119)		(397,959)
Other income (expense)
Interest income, net	7,209		2,064		13,030		6,686
Gain on revaluation of derivative liabilities	375		132,916		14,204		131,290
Share of income (loss) from equity method investments	(1,119)		(1,414)		4,078		(4,172)
Gain on revaluation of financial instruments	17,049		266		19,205		143
Impairment loss on other investments	(28,972)		—		(40,210)		—
Foreign currency transaction gain (loss)	2,387		—		(2,337)		—
Other, net	(693)		7		(556)		1,041
Total other income (expense)	(3,764)		133,839		7,414		134,988
Income (loss) before income taxes	(34,768)		77,425		(87,705)		(262,971)
Income tax expense (benefit)	2,118		(159)		2,172		(159)
Income (loss) from continuing operations	(36,886)		77,584		(89,877)		(262,812)
Income (loss) from discontinued operations	—		82		—		(500)
Net income (loss)	(36,886)		77,666		(89,877)		(263,312)
Net income (loss) attributable to non-controlling interest	105		(250)		(27)		(842)
Net income (loss) attributable to Cronos Group	$	(36,991)	$	77,916	$	(89,850)	$	(262,470)

Comprehensive income (loss)
Net income (loss)	$	(36,886)	$	77,666	$	(89,877)	$	(263,312)
Other comprehensive income (loss)
Foreign exchange gain (loss) on translation	(60,572)		(22,818)		(68,756)		6,936
Comprehensive income (loss)	(97,458)		54,848		(158,633)		(256,376)
Comprehensive income (loss) attributable to non-controlling interests	201		(265)		62		167
Comprehensive income (loss) attributable to Cronos Group	$	(97,659)	$	55,113	$	(158,695)	$	(256,543)

Net income (loss) from continuing operations per share
Basic - continuing operations	$	(0.10)	$	0.21	$	(0.24)	$	(0.71)
Diluted - continuing operations	$	(0.10)	$	0.21	$	(0.24)	$	(0.71)

See notes to condensed consolidated interim financial statements.


Cronos Group Inc.
Condensed Consolidated Statements of Changes in Equity
For the three and nine months ended September 30, 2022 and 2021
(In thousands of U.S. dollars, except share amounts, unaudited)


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


Activities relating to share-based compensation	347,287	871		2,900		—		—		—		3,771
Net loss	—	—		—		(32,638)		—		(15)		(32,653)
Foreign exchange gain (loss) on translation	—	—		—		—		16,223		(246)		15,977
Balance as of March 31, 2022	375,299,980	$	596,368	$	35,365	$	626,778	$	66,088	$	(3,228)	$	1,321,371


Activities relating to share-based compensation	395,156	2,251		(167)		—		—		—		2,084
Share issuance pursuant to research and development milestones	2,201,235	6,007		—		—		—		—		6,007
Net loss	—	—		—		(20,221)		—		(117)		(20,338)
Foreign exchange gain (loss) on translation	—	—		—		—		(24,400)		239		(24,161)
Balance as of June 30, 2022	377,896,371	$	604,626	$	35,198	$	606,557	$	41,688	$	(3,106)	$	1,284,963


Activities relating to share-based compensation	449,889	603		3,124		—		—		—		3,727
Net income (loss)	—	—		—		(36,991)		—		105		(36,886)
Foreign exchange gain (loss) on translation	—	—		—		—		(60,668)		96		(60,572)
Balance as of September 30, 2022	378,346,260	$	605,229	$	38,322	$	569,566	$	(18,980)	$	(2,905)	$	1,191,232

See notes to condensed consolidated interim financial statements.


Cronos Group Inc.
Condensed Consolidated Statements of Changes in Equity
For the three and nine months ended September 30, 2022 and 2021
(In thousands of U.S. dollars, except share amounts, unaudited)


	Number of shares	Share capital		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Non-controlling interests		Total shareholders’ equity
Balance as of January 1, 2021	360,253,332	$	569,260	$	34,596	$	1,064,509	$	42,999	$	(3,196)	$	1,708,168


Activities relating to share-based compensation	11,403,258	15,652		(2,506)		(7,694)		—		—		5,452
Net loss	—	—		—		(161,312)		—		(313)		(161,625)
Foreign exchange gain on translation	—	—		—		—		15,145		1,139		16,284
Balance as of March 31, 2021	371,656,590	$	584,912	$	32,090	$	895,503	$	58,144	$	(2,370)	$	1,568,279


Activities relating to share-based compensation	148,957	2,451		278		(63)		—		—		2,666
Top-up rights out-of-period adjustment	—	(14,505)		—		3,227		—		—		(11,278)
Net loss	—	—		—		(179,074)		—		(279)		(179,353)
Foreign exchange gain (loss) on translation	—	—		—		—		13,585		(115)		13,470
Balance as of June 30, 2021	371,805,547	$	572,858	$	32,368	$	719,593	$	71,729	$	(2,764)	$	1,393,784


Activities relating to share-based compensation	1,497,314	14,020		(1,995)		(4,232)		—		—		7,793
Net income (loss)	—	—		—		77,916		—		(250)		77,666
Foreign exchange loss on translation	—	—		—		—		(22,803)		(15)		(22,818)
Balance as of September 30, 2021	373,302,861	$	586,878	$	30,373	$	793,277	$	48,926	$	(3,029)	$	1,456,425

See notes to condensed consolidated interim financial statements.


Cronos Group Inc.
Condensed Consolidated Statements of Cash Flows

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


	Nine months ended September 30,
	2022		2021
Operating activities
Net loss	$	(89,877)	$	(263,312)
Adjustments to reconcile net loss to cash used in operating activities:
Share-based compensation	10,567		7,731
Depreciation and amortization	10,499		8,911
Impairment loss on goodwill and indefinite-lived intangible assets	—		235,056
Impairment loss on long-lived assets	3,493		4,739
Impairment loss on other investments	40,210		—
(Income) loss from investments	(23,283)		4,172
Gain on revaluation of derivative liabilities	(14,204)		(131,290)

Changes in expected credit losses on long-term financial assets	(577)		13,162
Foreign currency transaction loss	2,337		—
Other non-cash operating activities, net	233		(2,831)
Changes in operating assets and liabilities:
Accounts receivable, net	1,172		(5,747)
Other receivables	1,716		7,431
Prepaids and other current assets	(904)		1,054
Inventory	(4,241)		14,335
Accounts payable and accrued liabilities	(1,717)		(11,089)

Cash flows used in operating activities	(64,576)		(117,678)
Investing activities
Purchase of short-term investments	(275,370)		(119,820)
Proceeds from short-term investments	116,925		135,801
Purchase of other investments	—		(110,392)

(Advances) repayments on loan receivables	2,339		(6,905)
Purchase of property, plant and equipment	(3,087)		(10,651)
Purchase of intangible assets	(1,177)		(1,044)
Other investing activities	70		2,775
Cash flows used in investing activities	(160,300)		(110,236)
Financing activities
Withholding taxes paid on share-based awards	(2,208)		(13,182)
Other financing activities, net	(69)		18
Cash flows used in financing activities	(2,277)		(13,164)
Effect of foreign currency translation on cash and cash equivalents	(26,524)		5,622
Net change in cash and cash equivalents	(253,677)		(235,456)
Cash and cash equivalents, beginning of period	886,973		1,078,023
Cash and cash equivalents, end of period	$	633,296	$	842,567
Supplemental cash flow information
Interest paid	$	—	$	—
Interest received	7,734		4,025
Income taxes paid	158		873

See notes to condensed consolidated interim financial statements.


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

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

1. Background, Basis of Presentation and Accounting Policies

(a)Background

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

Cronos Group is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development and is seeking to build an iconic brand portfolio. Cronos Group’s diverse international brand portfolio includes Spinach®, PEACE NATURALS®, Lord Jones®, Happy Dance® and PEACE+®.

(b)Basis of presentation

The condensed consolidated interim financial statements of Cronos Group are unaudited. They have been prepared in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”) for interim financial information and with applicable rules and regulations of the U.S. Securities and Exchange Commission relating to interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for any other reporting period.

These condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes included in its Annual Report on Form 10-K for the year ended December 31, 2021 (the “Annual Report”).

Certain prior year amounts have been reclassified to conform to the current year presentation of our condensed consolidated interim financial statements. These reclassifications had no effect on the reported results of operations and ending shareholders’ equity.

(c)Segment information

Segment reporting is prepared on the same basis that the Company’s chief operating decision maker (the “CODM”) manages the business, makes operating decisions and assesses the Company’s performance. The Company determined that it has the following two reportable segments: U.S. (the “U.S. segment”) and ROW (the “ROW segment”). The U.S. operating segment consists of the manufacture and distribution of U.S. hemp-derived cannabinoid infused products. The ROW operating segment is involved in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets. These two segments represent the geographic regions in which the Company operates and the different product offerings within each geographic region. The results of each segment are regularly reviewed by the CODM to assess the performance of the segment and make decisions regarding the allocation of resources using Adjusted EBITDA (as defined below) as the measure of segment profit or loss. Adjusted EBITDA is defined as earnings before interest, tax, depreciation, non-cash items and items that do not reflect management’s assessment of ongoing business performance.

(d)Concentration of risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk from its operating activities, primarily accounts receivable and other receivables, and its investing activities, including cash held with banks and financial institutions, short-term investments, loans receivable, and advances to joint ventures. The Company’s maximum exposure to this risk is equal to the carrying amount of these financial assets, which amounted to $992,385 and $1,118,684 as of September 30, 2022 and December 31, 2021, respectively.

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on the days past due for groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. Accounts receivable are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan and a failure to make contractual payments for a period of greater than 120 days past due. As of September 30, 2022 and December 31, 2021, the Company had $2 and $8, respectively, in expected credit losses that have been recognized on receivables from contracts with customers in the ROW segment. As of September 30, 2022 and December 31, 2021, the Company had $457 and $104, respectively, in expected credit losses that have been recognized on receivables from contracts with customers in the U.S. segment.


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

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

As of September 30, 2022, the Company assessed that there is a concentration of credit risk, as 68% of the Company’s accounts receivable were due from three customers with an established credit history with the Company. As of December 31, 2021, 88% of the Company’s accounts receivable were due from four customers with an established credit history with the Company.

The Company sells products to a limited number of major customers. Major customers are defined as customers that each individually accounted for greater than 10% of the Company’s revenue. During the three months ended September 30, 2022, the Company earned a total net revenue before excise taxes of $12,094 from three major customers in the ROW segment, together accounting for 56% of the Company’s total net revenues before excise taxes. During the three months ended September 30, 2021, the ROW segment earned a total net revenue before excise taxes of $12,256 from three major customers, together accounting for 60% of the Company’s total net revenues before excise taxes. During the nine months ended September 30, 2022, the Company earned a total net revenue before excise taxes of $36,564 from three major customers in the ROW segment, together accounting for 54% of the Company’s total net revenue before excise taxes. During the nine months ended September 30, 2021, the ROW segment earned a total net revenue before excise taxes of $25,667 from three major customers, together accounting for 53% of the Company’s total net revenues before excise taxes. During the three and nine months ended September 30, 2022 and 2021, the U.S. segment had no major customers.

(e)Adoption of new accounting pronouncements

On January 1, 2022, the Company adopted ASU No. 2020-06, Debt –Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815–40) (“ASU No. 2020-06”). ASU No. 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU No. 2020-06 is part of the Financial Accounting Standards Board’s (“FASB”) simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The adoption of ASU No. 2020-06 did not have an impact on the Company’s condensed consolidated interim financial statements.

(f)New accounting pronouncements not yet adopted

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU No. 2022-02”). ASU No. 2022-02 eliminates the existing troubled debt restructuring recognition and measurement guidance, and instead aligns the accounting treatment to that of other loan modifications. The amendments enhance existing disclosure requirements and introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU No. 2022-02 also requires that entities disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. ASU No. 2022-02 is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years, and is to be adopted prospectively. The Company does not expect the adoption of ASU No. 2022-02 to have a material impact on its condensed consolidated interim financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU No. 2022-03”). ASU No. 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered in measuring fair value. The amendments also require additional disclosures for equity securities subject to contractual sale restrictions. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, and is to be adopted prospectively. The Company does not expect the adoption of ASU No. 2022-03 to have a material impact on its condensed consolidated interim financial statements.

2. Inventory, net

Inventory, net is comprised of the following items:


	As of September 30, 2022		As of December 31, 2021
Raw materials	$	7,863	$	9,211
Work-in-progress	11,021		12,405
Finished goods	14,205		10,778
Supplies and consumables	1,005		408
Total	$	34,094	$	32,802


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

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

3. Investments

(a)Variable interest entities and equity method investments, net

A reconciliation of the carrying amount of the investments in equity method investees, net is as follows:


	Ownership interest	As of September 30, 2022		As of December 31, 2021

Cronos Growing Company Inc. (“Cronos GrowCo”)	50%	$	19,234	$	16,764
NatuEra S.à.r.l. (“Natuera”)	50%	—		—

		$	19,234	$	16,764

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


	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021



Cronos GrowCo	$	(1,119)	$	(1,214)	$	4,078	$	(1,972)

Natuera	—		(200)		—		(2,200)

	$	(1,119)	$	(1,414)	$	4,078	$	(4,172)

(b)Other investments

Other investments consist of investments in common shares and options of two companies in the cannabis industry.

PharmaCann, Inc.

In 2021, the Company purchased an option (the “PharmaCann Option”) to acquire 473,787 shares of Class A Common Stock of PharmaCann Inc. (“PharmaCann”), a vertically integrated cannabis company in the United States, which represented an ownership interest of approximately 10.5% as of December 31, 2021. The PharmaCann Option is classified as an equity security without a readily determinable fair value. The Company has elected to measure the fair value of the PharmaCann Option at cost less impairment, if any, and subsequently adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. On February 28, 2022, PharmaCann closed the previously announced transaction with LivWell Holdings, Inc. (“LivWell”) pursuant to which PharmaCann acquired LivWell (the “LivWell Transaction”). LivWell is a multi-state cannabis cultivation and retail leader based in Colorado. As a result of the LivWell Transaction, the Company’s ownership percentage in PharmaCann on a fully-diluted basis decreased to approximately 6.4%. As of September 30, 2022, the Company’s ownership percentage in PharmaCann on a fully-diluted basis was approximately 6.3%. The decrease in the Company’s ownership percentage since acquisition does not materially affect the Company’s rights under the PharmaCann Option.

Cronos Australia Limited

The Company owns approximately 10% of the outstanding common shares of Cronos Australia Limited (“Cronos Australia”). The investment is considered an equity security with a readily determinable fair value. Changes in the fair value of the investment are recorded as gain (loss) on revaluation of financial instruments on the condensed consolidated statements of net income (loss) and comprehensive income (loss). During the three months ended September 30, 2022, Cronos Australia declared a dividend of AUD $0.01 per ordinary share. Based on the Company’s holding of 55,176,065 ordinary shares in the capital of Cronos Australia, the Company recorded dividend income of $390 within other, net on the condensed consolidated statements of net income (loss) and comprehensive income (loss).


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

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

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


	As of July 1, 2022		Unrealized gain		Impairment charges		Foreign exchange effect		As of September 30, 2022
PharmaCann	$	99,154	$	—	$	(28,972)	$	—	$	70,182
Cronos Australia	9,515		17,118		—		(2,258)		24,375
	$	108,669	$	17,118	$	(28,972)	$	(2,258)	$	94,557


	As of January 1, 2022		Unrealized gain		Impairment charges		Foreign exchange effect		As of September 30, 2022
PharmaCann	$	110,392	$	—	$	(40,210)	$	—	$	70,182
Cronos Australia	8,000		19,114		—		(2,739)		24,375
	$	118,392	$	19,114	$	(40,210)	$	(2,739)	$	94,557

During both the three months ended March 31, 2022 and the three months ended September 30, 2022, the Company identified adverse forecast changes in the financial performance of PharmaCann as indicators of impairment related to the PharmaCann Option and conducted analyses comparing the PharmaCann Option’s carrying amount to its estimated fair value. The fair value for the three months ended March 31, 2022 was estimated using a combination of the market and income approaches, and the fair value for the three months ended September 30, 2022 was estimated using the income approach. Under the income approach, significant inputs used in the discounted cash flow method include discount rate, growth rates, and cash flow projections. As a result of these analyses, the Company recorded non-cash impairment charges of $11,238 and $28,972 during the three months ended March 31, 2022 and September 30, 2022, respectively, as the difference between the carrying amount of the PharmaCann Option and its estimated fair value in the condensed consolidated statements of net income (loss) and comprehensive income (loss).

During the three and nine months ended September 30, 2021, the Company had no gain or loss on revaluation of other investments. As of September 30, 2022 and December 31, 2021, the Company did not hold any additional other investments.

4. Loans Receivable, net

Loans receivable, net consists of the following:


	As of September 30, 2022		As of December 31, 2021

GrowCo Facility(i)	$	3,857	$	3,138
Add: Current portion of accrued interest	4,882		2,322
Total current portion of loans receivable	8,739		5,460
GrowCo Facility(i)	56,740		64,367
Mucci Promissory Note(ii)	13,219		14,019
Cannasoul Collaboration Loan(iii)	1,955		2,249
Add: Long-term portion of accrued interest	150		—
Total long-term portion of loans receivable	72,064		80,635
Total loans receivable, net	$	80,803	$	86,095

(i)On August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into a senior secured credit agreement for an aggregate principal amount of C$100,000 (the “GrowCo Facility”). In August 2021, the GrowCo Facility was amended to increase the aggregate principal amount available to C$105,000. As of September 30, 2022 and December 31, 2021, Cronos GrowCo had outstanding borrowings of C$101,000 ($73,035) and C$104,000 ($81,598), respectively, from the GrowCo Facility. As of September 30, 2022, Cronos GrowCo had repaid C$3,000 ($2,169) under the terms of the GrowCo Facility. The available borrowing capacity under the GrowCo Facility was C$1,000 ($723) at both September 30, 2022 and December 31, 2021.

(ii)On June 26, 2019, the Company, and the Cronos GrowCo joint venture partner (“Mucci”), entered into a demand promissory note agreement for an aggregate principal amount of C$16,350 (the “Mucci Promissory Note”). On September 30, 2022, the Mucci Promissory Note was amended and restated to increase the interest rate from 3.95% to the Canadian Prime Rate plus 1.25%, changed the interest payments from quarterly to annual, and deferred Mucci’s initial cash interest payment from September 30, 2022 to July 1, 2023. This debt modification resulted in an increase of approximately C$180 ($140) in interest income.

(iii)As of September 30, 2022 and December 31, 2021, Cannasoul Lab Services Ltd. has received ILS 8,297 ($2,327) and ILS 8,297 ($2,664), respectively, from the Cannasoul Collaboration Loan.


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

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

Expected credit loss allowances on the Company’s long-term financial assets for the three and nine months ended September 30, 2022 and 2021 were comprised of the following items:


	As of July 1, 2022		Increase (decrease)(i)		Foreign exchange effect		As of September 30, 2022
GrowCo Facility	$	13,293	$	74	$	(929)	$	12,438

Mucci Promissory Note	91		1		(6)		86
Cannasoul Collaboration Loan	377		3		(8)		372
	$	13,761	$	78	$	(943)	$	12,896


	As of July 1, 2021		Increase (decrease)		Foreign exchange effect		As of September 30, 2021
GrowCo Facility	$	1,590	$	13,074	$	(202)	$	14,462

Mucci Promissory Note	278		(184)		(4)		90
Cannasoul Collaboration Loan	39		272		(9)		302
	$	1,907	$	13,162	$	(215)	$	14,854


	As of January 1, 2022		Increase (decrease)(i)		Foreign exchange effect		As of September 30, 2022
GrowCo Facility	$	14,089	$	(590)	$	(1,061)	$	12,438

Mucci Promissory Note	90		3		(7)		86
Cannasoul Collaboration Loan	415		10		(53)		372
	$	14,594	$	(577)	$	(1,121)	$	12,896


	As of January 1, 2021		Increase (decrease)		Foreign exchange effect		As of September 30, 2021
GrowCo Facility	$	1,546	$	13,074	$	(158)	$	14,462
Natuera Series A Loan(ii)	721		(737)		16		—
Mucci Promissory Note	270		(184)		4		90
Cannasoul Collaboration Loan	26		272		4		302
	$	2,563	$	12,425	$	(134)	$	14,854

(i)During the three months ended September 30, 2022, $78 was recorded as an increase to general and administrative expenses on the condensed consolidated statements of net income (loss) and comprehensive income (loss) as a result of adjustments to our expected credit losses. During the nine months ended September 30, 2022, $577 was recorded as a decrease to general and administrative expenses on the condensed consolidated statements of net income (loss) and comprehensive income (loss) as a result of adjustments to our expected credit losses. During the three and nine months ended September 30, 2021, $13,162 and $12,425, respectively, were recorded as an increase to general and administrative expenses on the condensed consolidated statements of net income (loss) and comprehensive income (loss) as a result of adjustments to our expected credit losses.

(ii)On April 1, 2021, the Company and an affiliate of Agroidea, the other joint venture partner of Natuera, converted all advances made to Natuera under the master loan agreement entered into with Natuera on September 27, 2019, plus accrued interest, into equity of Natuera. As a result, the Company decreased its credit loss allowances by $737 for the nine months ended September 30, 2021. As of September 30, 2022 and December 31, 2021, loans receivable, net for the Natuera Series A Loan was $nil.

5. Intangible Assets, net

Intangible assets, net are comprised of the following items as of September 30, 2022 and December 31, 2021:


	Useful life (in years)	As of September 30, 2022
		Cost		Accumulated amortization		Accumulated impairment charges		Net
Software	5	$	5,567	$	(2,120)	$	(75)	$	3,372
Health Canada licenses	17	8,104		(1,736)		(6,368)		—
Ginkgo exclusive licenses(i)	10	22,022		(1,362)		(4,347)		16,313
Israeli codes(ii)	20	288		(45)		—		243
Total definite-lived intangible assets		35,981		(5,263)		(10,790)		19,928
Lord Jones® brand	N/A	1,500		—		—		1,500

Total intangible assets		$	37,481	$	(5,263)	$	(10,790)	$	21,428


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

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


	Useful life (in years)	As of December 31, 2021
		Cost		Accumulated amortization		Accumulated impairment charges		Net
Software	5	$	5,644	$	(1,595)	$	(4)	$	4,045
Health Canada licenses	17	8,793		(1,883)		(6,910)		—
Ginkgo exclusive licenses	10	17,330		(335)		(4,752)		12,243
Israeli codes(ii)	20	330		(39)		—		291
Total definite-lived intangible assets		32,097		(3,852)		(11,666)		16,579
Lord Jones® brand	N/A	64,000		—		(62,500)		1,500
Trademarks	N/A	142		—		(142)		—
Total intangible assets		$	96,239	$	(3,852)	$	(74,308)	$	18,079

(i)In June 2022, the Company announced the achievement of the final productivity target in respect of tetrahydrocannabivarin (“THCV”) under its collaboration and license agreement (the “Ginkgo Collaboration Agreement”) with Ginkgo Bioworks Holdings, Inc. (“Ginkgo”). As a result of the achievement of the final productivity target for THCV, the Company issued 2,201,236 common shares at a share price of C$3.47, and made a cash payment of $600, for total consideration of C$8,412 ($6,522) to Ginkgo through the Ginkgo Collaboration Agreement. The definite-lived intangible asset is being amortized using the straight-line method over its estimated useful life of ten years.

(ii)The Israeli codes were transferred by non-controlling interests to Cronos Israel in exchange for their equity interests in the Cronos Israel entities.

Amortization expense was $893 and $641 for the three months ended September 30, 2022 and 2021, respectively and $2,014 and $1,084 for the nine months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022, the estimated future amortization of definite-lived intangible assets is as follows:


	As of September 30, 2022
Remainder of 2022 (3 months)	$	751
2023	2,843
2024	2,830
2025	2,545
2026	1,981
2027	1,811
Thereafter	7,167
	$	19,928

For the three and nine months ended September 30, 2021, the Company recorded an impairment charge of $1,784 related to the Ginkgo exclusive licenses intangible assets. Additionally, for the nine months ended September 30, 2021, the Company recorded an impairment charge of $56,500 on its Lord Jones® brand intangible asset. There were no impairment charges on intangible assets for the three and nine months ended September 30, 2022.

6. Derivative Liabilities

As of September 30, 2022, Altria Group Inc. (“Altria”) beneficially held 156,573,537 of the Company’s common shares, an approximate 41% ownership interest in the Company (calculated on a non-diluted basis) and one warrant of the Company (the “Altria Warrant”). As summarized in this note, if exercised in full on such date, the exercise of the Altria Warrant would have resulted in Altria holding a total ownership interest in the Company of approximately 52% (calculated on a non-diluted basis). Pursuant to the investor rights agreement between the Company and Altria (the “Investor Rights Agreement”), entered into in connection with the closing of Altria’s investment in the Company (the “Altria Investment”) pursuant to a subscription agreement dated December 7, 2018, the Company granted Altria certain rights, among others, summarized in this note.


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

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

The summaries below are qualified entirely by the terms and conditions fully set out in the Investor Rights Agreement and the Altria Warrant, as applicable.

a.The Altria Warrant entitles the holder, subject to certain qualifications and limitations, to subscribe for and purchase up to approximately an additional 10% of the common shares of Cronos (84,076,946 common shares as of September 30, 2022) at a per share exercise price of C$19.00, which expires on March 8, 2023.

b.The Company granted to Altria, subject to certain qualifications and limitations, upon the occurrence of certain issuances of common shares of the Company executed by the Company (including issuances pursuant to the research and development (“R&D”) partnership (the “Ginkgo Strategic Partnership”) with Ginkgo), the right to purchase up to such number of common shares of the Company in order to maintain their ownership percentage of issued and outstanding common shares of the Company immediately preceding any issuance of shares by the Company (“Pre-emptive Rights”), at the same price per common share of the Company at which the common shares are sold in the relevant issuance; provided that if the consideration paid in connection with any such issuance is non-cash, the price per common share of the Company that would have been received had such common shares been issued for cash consideration will be determined by an independent committee (acting reasonably and in good faith); provided further that the price per common share of the Company to be paid by Altria pursuant to its exercise of its Pre-emptive Rights related to the Ginkgo Strategic Partnership will be C$16.25 per common share. These rights may not be exercised if Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20%.

c.In addition to (and without duplication of) the Pre-emptive Rights, the Company granted to Altria, subject to certain qualifications and limitations, the right to subscribe for common shares of the Company issuable in connection with the exercise, conversion or exchange of convertible securities of the Company issued prior to March 8, 2019 or thereafter (excluding any convertible securities of the Company owned by Altria or any of its subsidiaries), a share incentive plan of the Company, the exercise of any right granted by the Company pro rata to all shareholders of the Company to purchase additional common shares and/or securities of the Company, bona fide bank debt, equipment financing or non-equity interim financing transactions that contemplate an equity component or bona fide acquisitions (including acquisitions of assets or rights under a license or otherwise), mergers or similar business combination transactions or joint ventures involving the Company in order to maintain their ownership percentage of issued and outstanding common shares of the Company immediately preceding any such transactions (“Top-up Rights”).

Reconciliation of the Company’s derivative liabilities activity are as follows:


	As of July 1, 2022		Revaluation gain		Foreign exchange effect		As of September 30, 2022
(a) Altria Warrant	$	491	$	(336)	$	(121)	$	34
(b) Pre-emptive Rights	16		(18)		2		—
(c) Top-up Rights	67		(21)		(7)		39
	$	574	$	(375)	$	(126)	$	73


	As of July 1, 2021		Revaluation gain		Foreign exchange effect		As of September 30, 2021
(a) Altria Warrant	$	150,083	$	(116,285)	$	(1,736)	$	32,062
(b) Pre-emptive Rights	13,926		(12,430)		(148)		1,348
(c) Top-up Rights	5,554		(4,201)		(235)		1,118
	$	169,563	$	(132,916)	$	(2,119)	$	34,528


	As of January 1, 2022		Revaluation gain		Foreign exchange effect		As of September 30, 2022
(a) Altria Warrant	$	13,720	$	(13,592)	$	(94)	$	34
(b) Pre-emptive Rights	180		(182)		2		—
(c) Top-up Rights	475		(430)		(6)		39
	$	14,375	$	(14,204)	$	(98)	$	73


	As of January 1, 2021		Revaluation gain		Foreign exchange effect		As of September 30, 2021
(a) Altria Warrant	$	138,858	$	(109,099)	$	2,303	$	32,062
(b) Pre-emptive Rights	12,095		(10,957)		210		1,348
(c) Top-up Rights	12,457		(11,234)		(105)		1,118
	$	163,410	$	(131,290)	$	2,408	$	34,528


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

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

Fluctuations in the expected life of the derivative instruments and the Company’s share price are primary drivers for the changes in the derivative valuations during each reporting period. As the expected period of time the derivative liability is expected to be outstanding decreases and the share price decreases, the fair value typically decreases for each related derivative instrument. Weighted-average expected life and share price are two of the significant observable inputs used in the fair value measurement of each of the Company’s derivative instruments.

The fair values of the derivative liabilities were determined using the Black-Scholes pricing model using the following inputs:


	As of September 30, 2022
	Altria Warrant	Pre-emptive Rights	Top-up Rights
Share price at valuation date (per share in C$)	$3.87	$3.87	$3.87
Subscription price (per share in C$)	$19.00	$16.25	$16.25
Weighted-average risk-free interest rate(i)	3.67%	3.52%	3.64%
Weighted-average expected life (in years)(ii)	0.44	0.25	0.58
Expected annualized volatility(iii)	73%	73%	73%
Expected dividend yield	—%	—%	—%


	As of December 31, 2021
	Altria Warrant	Pre-emptive Rights	Top-up Rights
Share price at valuation date (per share in C$)	$4.98	$4.98	$4.98
Subscription price (per share in C$)	$19.00	$16.25	$16.25
Weighted-average risk-free interest rate(i)	0.79%	0.39%	0.50%
Weighted-average expected life (in years)(ii)	1.18	0.50	0.80
Expected annualized volatility(iii)	80%	80%	80%
Expected dividend yield	—%	—%	—%

(i)The risk-free interest rate was based on Bank of Canada government treasury bills and bonds with a remaining term equal to the expected life of the derivative liabilities. As of September 30, 2022 and December 31, 2021, the risk-free interest rate uses a range of approximately 3.52% to 3.80% and 0.16% to 1.10%, respectively, for the Pre-emptive Rights and Top-up Rights.

(ii)The expected life represents the period of time, in years, that the derivative liabilities are expected to be outstanding. The expected life of the Pre-emptive Rights and Top-up Rights is determined based on the expected term of the underlying options, warrants, and shares, to which the Pre-emptive Rights and Top-up Rights are linked. As of September 30, 2022 and December 31, 2021, the expected life uses a range of approximately 0.25 years to 3.00 years and 0.25 years to 3.75 years, respectively, for the Pre-emptive Rights and Top-up Rights.

(iii)Volatility was based on an equally weighted blended historical and implied volatility level of the underlying equity securities of the Company.

The following table quantifies each of the significant inputs described above and provides a sensitivity analysis of the impact on the reported values of the derivative liabilities. The sensitivity analysis for each significant input is performed by assuming a 10% decrease in the input while other significant inputs remain constant at management’s best estimate as of the respective dates. While a decrease in the inputs noted below would cause a decrease in the carrying amount of the derivative liability, there would also be an equal and opposite impact on net income (loss).


	10% decrease as of September 30, 2022
	Altria Warrant		Pre-emptive Rights		Top-up Rights
Share price	$	20	$	—	$	12
Weighted-average expected life	18		—		15
Expected annualized volatility	27		—		15


	10% decrease as of December 31, 2021
	Altria Warrant		Pre-emptive Rights		Top-up Rights
Share price	$	3,970	$	80	$	123
Weighted-average expected life	2,971		171		133
Expected annualized volatility	5,402		96		155

These inputs are classified as Level 3 on the fair value hierarchy and are subject to volatility and several factors outside the Company’s control, which could significantly affect the fair value of these derivative liabilities in future periods.


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

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

7. Restructuring

In the first quarter of 2022, the Company initiated a strategic plan to realign the business around its brands, centralize functions and evaluate the Company’s supply chain (the “Realignment”). As part of the Realignment, on February 28, 2022, the Company’s Board of Directors (the “Board”) approved plans to leverage the Company’s strategic partnerships to improve supply chain efficiencies and reduce manufacturing overhead by exiting its production facility in Stayner, Ontario, Canada (the “Stayner Facility”). The Realignment initiatives being undertaken are intended to position the Company to drive profitable and sustainable growth over time.

The Company expects to incur approximately $6,100 in connection with the Realignment, including the planned exit of the Stayner Facility, of which $4,878 has been incurred as of September 30, 2022. Estimated charges related to the exit of the Stayner Facility include employee-related costs such as severance, relocation and other termination benefits, as well as contract termination and other related costs. The Company expects to incur approximately $1,200 in additional charges related to the Realignment, including the planned exit of the Stayner Facility.

The Company incurred the following restructuring costs by reportable segment:


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Rest of World	$	387	$	—	$	3,396	$	—
United States	137		—		1,482		—
Total	$	524	$	—	$	4,878	$	—

The following table summarizes the Company’s restructuring activity for the three and nine months ended September 30, 2022:


	Accrual as of July 1, 2022		Expenses		Payments/Write-offs		Accrual as of September 30, 2022
Employee termination benefits	$	888	$	332	$	(662)	$	558

Other restructuring costs	21		192		(192)		21
Total	$	909	$	524	$	(854)	$	579


	Accrual as of January 1, 2022		Expenses		Payments/Write-offs		Accrual as of September 30, 2022
Employee termination benefits	$	—	$	3,267	$	(2,709)	$	558

Other restructuring costs	—		1,611		(1,590)		21
Total	$	—	$	4,878	$	(4,299)	$	579


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

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

8. Share-based Compensation

(a)Share-based award plans

The Company has granted stock options, restricted share units (“RSUs”) and deferred share units (“DSUs”) to employees and non-employee directors under the Stock Option Plan dated May 26, 2015 (the “2015 Stock Option Plan”), the 2018 Stock Option Plan dated June 28, 2018 (the “2018 Stock Option Plan” and, together with the 2015 Stock Option Plan, the “Prior Option Plans”), the Employment Inducement Award Plan #1 (the “Employment Inducement Award Plan”), the 2020 Omnibus Equity Incentive Plan dated March 29, 2020 (the “2020 Omnibus Plan”) and the DSU Plan dated August 10, 2019 (the “DSU Plan”). The Company can no longer make grants under the Prior Option Plans or the Employment Inducement Award Plan.

The following table summarizes the total share-based compensation expense associated with the Company’s stock options, RSUs and liability-classified awards for the three and nine months ended September 30, 2022 and 2021:


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Stock options	$	1,077	$	1,886	$	3,947	$	5,814
RSUs	2,591		781		6,023		1,917
Liability-classified awards(i)	597		—		597		—
Total share-based compensation	$	4,265	$	2,667	$	10,567	$	7,731

(i)Represents share-based payment awards conditionally approved for grant in the three months ended September 30, 2022 to one of the Company’s former executives for a fixed monetary value, but a variable number of shares. These awards are liability-classified until the number of shares is determined.

(b)Stock options

Vesting conditions for grants of options are determined by the Compensation Committee. The typical vesting for stock option grants made under the 2020 Omnibus Plan is annual vesting over three to five years with a maximum term of ten years. The typical vesting for stock option grants made under the Prior Option Plans is quarterly vesting over three to five years with a maximum term of seven years. The Prior Option Plans did not, and the 2020 Omnibus Plan does not, authorize grants of options with an exercise price below fair market value.


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

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

The following is a summary of the changes in stock options for the nine months ended September 30, 2022 and 2021:


	Weighted-average exercise price (C$) (i)		Number of options	Weighted-average remaining contractual term (years)
Balance as of January 1, 2022	$	7.75	8,939,330	2.70

Exercise of options	2.81		(2,583,692)
Cancellation, forfeiture and expiry of options	11.26		(186,992)
Balance as of September 30, 2022	$	9.71	6,168,646	2.97
Exercisable as of September 30, 2022	$	9.99	4,037,319	1.99


	Weighted-average exercise price (C$) (i)		Number of options	Weighted-average remaining contractual term (years)
Balance as of January 1, 2021	$	5.40	13,755,148	2.30
Issuance of options	9.19		900,000
Exercise of options	2.14		(5,360,050)
Cancellation, forfeiture and expiry of options	10.73		(90,274)
Balance as of September 30, 2021	$	7.62	9,204,824	3.15
Exercisable as of September 30, 2021	$	6.25	5,844,094	1.46

(i)The weighted-average exercise price reflects the conversion of foreign currency-denominated stock options translated into C$ using the average foreign exchange rate as of the date of issuance.

The following table summarizes stock options outstanding:


	As of September 30, 2022	As of December 31, 2021
2020 Omnibus Plan	2,900,000	2,900,000
2018 Stock Option Plan	1,464,269	1,550,074
2015 Stock Option Plan	1,804,377	4,489,256
Total stock options outstanding	6,168,646	8,939,330


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

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

(c)Restricted share units

The following is a summary of the changes in RSUs for the nine months ended September 30, 2022 and 2021:


	Weighted-average grant date fair value (C$)(iii)		Number of RSUs
Balance as of January 1, 2022	$	9.22	1,225,870
Granted(i)(ii)	4.34		5,042,316
Vested and issued	8.56		(771,682)
Cancellation and forfeitures	6.91		(168,610)
Balance as of September 30, 2022	$	4.77	5,327,894


	Weighted-average grant date fair value (C$)(iii)		Number of RSUs
Balance as of January 1, 2021	$	7.66	948,357
Granted(i)	11.06		576,718
Vested and issued	7.11		(115,500)
Cancellation and forfeitures	8.04		(36,971)
Balance as of September 30, 2021	$	9.12	1,372,604

(i)Except as noted below, RSUs granted in the period vest annually in equal installments over a three-year period from the grant date or vest after a three or five year “cliff-period.” All RSUs are subject to such holder’s continued employment through each vesting date. The vesting of such RSUs is not subject to the achievement of any performance criteria.

(ii)Equity grants for 2020, 2021, and 2022 were held back for certain executives of the Company in connection with ongoing investigations by the Securities and Exchange Commission (the “SEC”) and the Ontario Securities Commission (the “OSC”), which were subsequently settled on October 24, 2022. On August 5, 2022, the Compensation Committee approved the release of these held-back equity grants upon the settlement of the SEC and OSC investigations. These RSUs vest in equal installments over a period of three-years from what would have been their original grant dates had the grants not been withheld.

(iii)The weighted-average grant date fair value reflects the conversion of foreign currency-denominated RSUs translated into C$ using the foreign exchange rate as of the date of issuance.

(d)Deferred share units

The following is a summary of the changes in DSUs for the nine months ended September 30, 2022 and 2021:


	Financial liability		Number of DSUs
Balance as of January 1, 2022	$	408	104,442


Gain on revaluation	(116)		—
Balance as of September 30, 2022	$	292	104,442


	Financial liability		Number of DSUs
Balance as of January 1, 2021	$	577	83,293
Granting and vesting of DSUs	354		48,913
DSU liabilities settled	(203)		(27,764)
Gain on revaluation	(139)		—
Balance as of September 30, 2021	$	589	104,442

(e)Warrants

The following is a summary of the changes in warrants for the nine months ended September 30, 2021:


	Weighted-average exercise price (C$)		Number of warrants
Balance as of January 1, 2021	$	0.25	7,987,349
Exercise of warrants	0.25		(7,987,349)

Balance as of September 30, 2021	$	—	—

As of September 30, 2022, there are no warrants outstanding other than the Altria Warrant. See Note 6 “Derivative Liabilities” for further description of the Altria Warrant.


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

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

(f)Liability-classified awards

During the three months ended September 30, 2022, the Compensation Committee conditionally approved the grant to one of the Company’s former executives of share-based compensation awards for a fixed monetary amount, but a variable number of shares. These awards are liability-classified until the number of shares is determined.


	Financial liability
Balance as of January 1, 2022	$	—
Grants	597


Balance as of September 30, 2022	$	597

As of September 30, 2021, there were no liability-classified awards outstanding.

9. Earnings (Loss) per Share

Basic and diluted earnings (loss) per share from continuing and discontinued operations are calculated as follows (in thousands, except share and per share amounts):


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Basic and diluted earnings (loss) per share computation
Net income (loss) from continuing operations attributable to the shareholders of Cronos Group	$	(36,991)	$	77,834	$	(89,850)	$	(261,970)
Weighted-average number of common shares outstanding for computation for basic earnings per share(i)	378,114,160		372,456,354		376,400,902		369,097,920
Basic earnings (loss) from continuing operations per share	$	(0.10)	$	0.21	$	(0.24)	$	(0.71)


Loss from discontinued operations attributable to the shareholders of Cronos Group	$	—	$	82	$	—	$	(500)
Weighted-average number of common shares outstanding from computation for basic earnings per share	378,114,160		372,456,354		376,400,902		369,097,920
Basic earnings (loss) from discontinued operations per share	$	0.00	$	0.00	$	0.00	$	0.00

Diluted earnings (loss) per share computation
Net income (loss) used in the computation of basic earnings (loss) from continuing operations per share	$	(36,991)	$	77,834	$	(89,850)	$	(261,970)
Adjustment for exercise of rights on derivative liabilities	—		—		—		—
Net income (loss) used in the computation of diluted earnings (loss) from continuing operations per share	$	(36,991)	$	77,834	$	(89,850)	$	(261,970)

Weighted-average number of common shares outstanding used in the computation of basic earnings (loss) per share	378,114,160		372,456,354		376,400,902		369,097,920

Dilutive effect of stock options	—		2,507,471		—		—
Dilutive effect of RSUs	—		581,481		—		—

Dilutive effect of Top-up Rights – market price	—		107,942		—		—
Weighted-average number of common shares for computation of diluted earnings (loss) from continuing operations per share(i)	378,114,160		375,653,248		376,400,902		369,097,920
Diluted earnings (loss) per share from continuing operations	$	(0.10)	$	0.21	$	(0.24)	$	(0.71)

Income (loss) from discontinued operations attributable to the shareholders of Cronos Group	$	—	$	82	$	—	$	(500)
Weighted-average number of common shares for computation of diluted earnings (loss) from discontinued operations per share	378,114,160		375,653,248		376,400,902		369,097,920
Diluted loss from discontinued operations per share	$	0.00	$	0.00	$	0.00	$	0.00

(i)In computing diluted earnings per share, incremental common shares are not considered in periods in which a net loss is reported as the inclusion of the common share equivalents would be anti-dilutive.


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

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

For the three months ended September 30, 2022 and 2021, total securities of 117,100,621 and 118,255,677, respectively, and for the nine months ended September 30, 2022 and 2021, total securities of 118,304,608 and 127,137,014, respectively, were not included in the computation of diluted shares outstanding, because the effect would be anti-dilutive.

10. Segment Information

The tables below set forth our condensed consolidated results of operations by segment. The Company’s condensed consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that the Company will achieve in future periods. Segment data was as follows for the three and nine months ended September 30, 2022 and 2021:


	Three months ended September 30, 2022
	United States		Rest of World		Corporate		Total
Cannabis flower	$	—	$	13,674	$	—	$	13,674
Cannabis extracts	514		6,627		—		7,141
Other	—		108		—		108
Net revenue	$	514	$	20,409	$	—	$	20,923

Share of loss from equity method investments	$	—	$	(1,119)	$	—	$	(1,119)

Total assets	$	395,732	$	277,165	$	564,562	$	1,237,459
Depreciation and amortization	84		1,629		—		1,713



Adjusted EBITDA	(4,864)		(11,423)		(5,410)		(21,697)


	Three months ended September 30, 2021
	United States		Rest of World		Corporate		Total
Cannabis flower	$	—	$	15,306	$	—	$	15,306
Cannabis extracts	2,100		2,786		—		4,886
Other	—		215		—		215
Net revenue	$	2,100	$	18,307	$	—	$	20,407

Share of loss from equity method investments	$	—	$	(1,414)	$	—	$	(1,414)

Total assets	$	474,915	$	376,569	$	683,715	$	1,535,199
Depreciation and amortization	70		1,181		—		1,251



Adjusted EBITDA	(12,200)		(29,760)		(4,813)		(46,773)


	Nine months ended September 30, 2022
	United States		Rest of World		Corporate		Total
Cannabis flower	$	—	$	48,038	$	—	$	48,038
Cannabis extracts	4,301		16,197		—		20,498
Other	—		481		—		481
Net revenue	$	4,301	$	64,716	$	—	$	69,017

Boards:

Quotes:

CRON