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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, 2024
or
☐    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.)
4491 Concession Rd 12
Stayner, Ontario
L0M 1S0
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Shares, no par valueCRONThe 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 fileroAccelerated filerx
Non-accelerated fileroSmaller 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 7, 2024, there were 382,294,707 common shares of the registrant issued and outstanding.

1


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, 2024September 30, 2023December 31, 2023
Spot rate1.35251.35771.3243
Year-to-date average rate1.36011.3455N/A
(Exchange rates are shown as ILS per $)As of
September 30, 2024September 30, 2023December 31, 2023
Spot rate3.72693.81383.6163
Year-to-date average rate3.69943.6385N/A
All summaries of agreements described herein are qualified by the full text of such agreements (certain of which have been filed as exhibits with the U.S. Securities and Exchange Commission).


2

PART I
FINANCIAL INFORMATION

3
Cronos Group Inc.
Condensed Consolidated Balance Sheets
(In thousands of U.S. dollars, except share amounts, unaudited)

As of September 30, 2024As of December 31, 2023
Assets
Current assets
Cash and cash equivalents$862,034 $669,291 
Short-term investments— 192,237 
Accounts receivable, net20,480 13,984 
Interest receivable7,190 10,012 
Other receivables5,690 6,341 
Current portion of loans receivable, net233 5,541 
Inventory, net47,250 30,495 
Prepaids and other current assets7,326 5,405 
Held-for-sale assets8,971 — 
Total current assets959,174 933,306 
Equity method investments, net— 19,488 
Other investments2,900 35,251 
Non-current portion of loans receivable, net16,086 69,036 
Property, plant and equipment, net162,516 59,468 
Right-of-use assets1,052 1,356 
Goodwill38,028 1,057 
Intangible assets, net4,247 21,078 
Other assets130 45 
Total assets$1,184,133 $1,140,085 
Liabilities
Current liabilities
Accounts payable$6,532 $12,130 
Income taxes payable94 64 
Accrued liabilities31,766 27,736 
Current portion of lease obligation980 994 
Derivative liabilities192 102 
Current portion due to non-controlling interests— 373 
Total current liabilities39,564 41,399 
Non-current portion due to non-controlling interests1,243 1,003 
Non-current portion of lease obligation872 1,559 
Deferred tax liability11,143 — 
Total liabilities52,822 43,961 
Shareholders’ equity
Share capital (authorized for issue as of September 30, 2024 and December 31, 2023: unlimited; shares outstanding as of September 30, 2024 and December 31, 2023: 382,294,707 and 381,298,853, respectively)
616,403 613,725 
Additional paid-in capital51,523 48,449 
Retained earnings413,995 416,719 
Accumulated other comprehensive gain (loss)(361)20,678 
Total equity attributable to shareholders of Cronos Group1,081,560 1,099,571 
Non-controlling interests49,751 (3,447)
Total shareholders’ equity1,131,311 1,096,124 
Total liabilities and shareholders’ equity$1,184,133 $1,140,085 
See notes to condensed consolidated interim financial statements.
4
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)

Three months ended September 30,Nine months ended September 30,
2024202320242023
Net revenue, before excise taxes$46,594 $33,912 $120,639 $86,264 
Excise taxes(12,330)(9,102)(33,325)(22,938)
Net revenue34,264 24,810 87,314 63,326 
Cost of sales30,341 20,124 72,216 52,614 
Inventory write-down312 716 707 716 
Gross profit3,611 3,970 14,391 9,996 
Operating expenses
Sales and marketing5,528 5,296 15,190 16,334 
Research and development1,242 1,246 3,201 4,392 
General and administrative12,760 14,366 34,434 39,673 
Restructuring costs— 1,423 630 1,423 
Share-based compensation2,262 1,957 6,513 6,823 
Depreciation and amortization1,098 1,457 3,237 4,515 
Impairment loss on long-lived assets14,376 — 16,350 — 
Total operating expenses37,266 25,745 79,555 73,160 
Operating loss(33,655)(21,775)(65,164)(63,164)
Other income
Interest income, net12,460 13,375 40,156 37,021 
Share of income from equity method investments— 1,057 2,365 831 
Gain on revaluation of loan receivable11,804 — 11,804 — 
Gain on revaluation of equity method investment32,469 — 32,469 — 
Loss on revaluation of financial instruments(293)(5,291)(6,550)(7,856)
Impairment loss on other investments— — (25,650)— 
Foreign currency transaction gain (loss)(7,432)8,816 12,370 3,999 
Loss on held-for-sale assets(10,422)— (10,422)— 
Other, net(315)974 (737)1,011 
Total other income38,271 18,931 55,805 35,006 
Income (loss) before income taxes4,616 (2,844)(9,359)(28,158)
Income tax benefit(2,708)(1,254)(5,440)(2,870)
Income (loss) from continuing operations7,324 (1,590)(3,919)(25,288)
Loss from discontinued operations— (182)— (4,238)
Net income (loss)7,324 (1,772)(3,919)(29,526)
Net loss attributable to non-controlling interest(1,025)(128)(1,270)(353)
Net income (loss) attributable to Cronos Group$8,349 $(1,644)$(2,649)$(29,173)
5
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)

Comprehensive income (loss)
Net income (loss)$7,324 $(1,772)$(3,919)$(29,526)
Other comprehensive income (loss)
Foreign exchange gain (loss) on translation12,408 (20,090)(20,113)(1,096)
Comprehensive income (loss)19,732 (21,862)(24,032)(30,622)
Comprehensive loss attributable to non-controlling interests(269)(41)(344)(136)
Comprehensive income (loss) attributable to Cronos Group$20,001 $(21,821)$(23,688)$(30,486)
Net income (loss) per share
Basic - continuing operations
$0.02 $— $(0.01)$(0.07)
Basic - discontinued operations
— — — (0.01)
Basic net income (loss) per share attributable to Cronos Group
$0.02 $— $(0.01)$(0.08)
Diluted - continuing operations
$0.02 $— $(0.01)$(0.07)
Diluted - discontinued operations
— — — (0.01)
Diluted net income (loss) per share attributable to Cronos Group
$0.02 $— $(0.01)$(0.08)
See notes to condensed consolidated interim financial statements.
6
Cronos Group Inc.
Condensed Consolidated Statements of Changes in Equity
For the nine months ended September 30, 2024 and 2023
(In thousands of U.S. dollars, except share amounts, unaudited)
Number of sharesShare capitalAdditional paid-in capitalRetained earnings Accumulated other comprehensive income (loss)Non-controlling interestsTotal shareholders’ equity
Balance as of December 31, 2023
381,298,853 $613,725 $48,449 $416,719 $20,678 $(3,447)$1,096,124 
Activities relating to share-based compensation712,325 1,900 (401)— — — 1,499 
Net loss— — — (2,241)— (243)(2,484)
Foreign exchange gain (loss) on translation— — — — (22,471)110 (22,361)
Balance as of March 31, 2024382,011,178 $615,625 $48,048 $414,478 $(1,793)$(3,580)$1,072,778 
Activities relating to share-based compensation269,547 754 1,250 (71)— — 1,933 
Net loss— — — (8,757)— (2)(8,759)
Foreign exchange gain (loss) on translation— — — — (10,220)60 (10,160)
Balance as of June 30, 2024382,280,725 $616,379 $49,298 $405,650 $(12,013)$(3,522)$1,055,792 
Non-controlling interest resulting from business combination
— — — — — 53,542 53,542 
Activities relating to share-based compensation13,982 24 2,225 (4)— — 2,245 
Net income (loss)— — — 8,349 — (1,025)7,324 
Foreign exchange gain on translation— — — — 11,652 756 12,408 
Balance as of September 30, 2024382,294,707 $616,403 $51,523 $413,995 $(361)$49,751 $1,131,311 


7
Cronos Group Inc.
Condensed Consolidated Statements of Changes in Equity
For the nine months ended September 30, 2024 and 2023
(In thousands of U.S. dollars, except share amounts, unaudited)
Number of sharesShare capitalAdditional paid-in capitalRetained earnings Accumulated other comprehensive income (loss)Non-controlling interestsTotal shareholders’ equity
Balance as of December 31, 2022
380,575,403 $611,318 $42,682 $490,682 $(797)$(2,921)$1,140,964 
Activities relating to share-based compensation240,518 917 1,362 — — — 2,279 
Net loss— — — (19,169)— (88)(19,257)
Foreign exchange gain on translation— — — — 2,334 80 2,414 
Balance as of March 31, 2023380,815,921 $612,235 $44,044 $471,513 $1,537 $(2,929)$1,126,400 
Activities relating to share-based compensation273,436 917 1,273 — — — 2,190 
Net loss— — — (8,360)— (137)(8,497)
Foreign exchange gain on translation— — — — 16,530 50 16,580 
Balance as of June 30, 2023381,089,357 $613,152 $45,317 $463,153 $18,067 $(3,016)$1,136,673 
Activities relating to share-based compensation24,207 138 1,816 — — — 1,954 
Net loss— — — (1,644)— (128)(1,772)
Foreign exchange gain (loss) on translation— — — — (20,177)87 (20,090)
Balance as of September 30, 2023381,113,564 $613,290 $47,133 $461,509 $(2,110)$(3,057)$1,116,765 

See notes to condensed consolidated interim financial statements.
8
Cronos Group Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands of U.S. dollars, except share amounts, unaudited)

Nine months ended September 30,
20242023
Operating activities
Net loss$(3,919)$(29,526)
 Adjustments to reconcile net loss to cash used in operating activities:
Share-based compensation6,513 6,840 
Depreciation and amortization6,811 6,933 
Impairment loss on long-lived assets16,350 205 
Impairment loss on other investments25,650 — 
Loss from investments
4,103 7,103 
Changes in expected credit losses on long-term financial assets1,026 (1,339)
Revaluation of equity method investment(32,469)— 
Revaluation of loan receivable(11,804)— 
Loss on held-for-sale assets
10,422 — 
Inventory step-up recorded to cost of sales
7,116 — 
Foreign currency transaction gain
(12,370)(3,999)
Other non-cash operating activities, net(11)(1,904)
Changes in operating assets and liabilities:
Accounts receivable, net(5,402)6,976 
Interest receivable(1,018)(14,601)
Other receivables1,658 25 
Prepaids and other current assets(1,217)1,074 
Inventory7,162 976 
Accounts payable(9,102)(7,595)
Income taxes payable(9)(32,728)
Accrued liabilities1,633 1,910 
Cash flows provided by (used in) operating activities11,123 (59,650)
Investing activities
Purchase of short-term investments— (537,186)
Proceeds from short-term investments187,166 380,765 
Cash acquired in business combinations
5,993 — 
Dividends received from equity method investment— 1,301 
Dividend proceeds
— 346 
Advances on loans receivable
(8,822)— 
Proceeds from repayment on loans receivable5,290 14,151 
Purchase of property, plant and equipment(8,868)(1,287)
Purchase of intangible assets(578)(344)
Other investing activities— 862 
Cash flows provided by (used in) investing activities180,181 (141,392)
Financing activities
Withholding taxes paid on share-based awards(918)(812)
Cash flows used in financing activities(918)(812)
Effect of foreign currency translation on cash and cash equivalents2,357 8,866 
Net change in cash and cash equivalents192,743 (192,988)
Cash and cash equivalents, beginning of period669,291 764,644 
Cash and cash equivalents, end of period$862,034 $571,656 
Supplemental cash flow information
Interest paid$— $— 
Interest received$38,965 $22,203 
Income taxes paid$621 $33,013 
See notes to condensed consolidated interim financial statements.

9
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
1. Background, Basis of Presentation, and Summary of Significant Accounting Policies
(a)Background
Cronos Group Inc. (“Cronos” or the “Company”) is incorporated in the province of British Columbia under the Business Corporations Act (British Columbia) with principal executive offices at 4491 Concession Rd 12, Stayner, Ontario, L0M 1S0. The Company’s common shares are listed on the Toronto Stock Exchange (“TSX”) and Nasdaq Global Market (“Nasdaq”) under the ticker symbol “CRON.”
Cronos is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio. Cronos’ diverse international brand portfolio includes Spinach®, PEACE NATURALS® and Lord Jones®.
(b)Basis of presentation
These condensed consolidated interim financial statements of Cronos 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 (the “SEC”) 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 adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2024 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, 2023 (the “Annual Report”).
Certain prior period amounts have been reclassified to conform to the current year presentation of our condensed consolidated interim financial statements. These reclassifications had no effect on the reported results of operations and ending shareholders’ equity.
(c)Discontinued Operations
In the second quarter of 2023, the Company exited its U.S. hemp-derived cannabinoid product operations. The exit of the U.S. operations represented a strategic shift that had a major effect on the Company’s operations and financial results, and as such, qualifies for reporting as discontinued operations in our condensed consolidated statements of net income (loss) and comprehensive income (loss). Prior period amounts have been reclassified to reflect the discontinued operations classification of the U.S. operations. For more information, see Note 3 “Discontinued Operations.”
(d)Segment information
Segment reporting is prepared on the same basis that the Company’s chief operating decision maker (the “CODM”) manages the business, makes operating decisions and assesses the Company’s performance. Prior to the second quarter of 2023, the Company reported results for two reportable segments, the U.S. and Rest of World. In the second quarter of 2023, as a result of the Company’s exit of its then-existing U.S. operations, the Company determined that it has one operating segment and therefore one reportable segment, which is comprised of operations in Canada and Israel and is involved in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products for the medical and adult-use markets. All prior period segment disclosure information has been reclassified to conform to the current reporting structure in this Form 10-Q. These reclassifications had no effect on our consolidated financial statements in any period presented.
(e)Revenue recognition
The following tables present the Company’s revenue by major product category for continuing operations:
Three months ended September 30,
20242023
Cannabis flower$26,328 $17,414 
Cannabis extracts7,789 7,268 
Other147 128 
Net revenue$34,264 $24,810 
10
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
Nine months ended September 30,
20242023
Cannabis flower$64,514 $44,556 
Cannabis extracts22,580 18,495 
Other220 275 
Net revenue$87,314 $63,326 
Net revenue attributed to a geographic region based on the location of the customer were as follows for continuing operations:
Three months ended September 30,
20242023
Canada$24,067 $18,738 
Israel7,259 5,673 
Other countries2,938 399 
Net revenue$34,264 $24,810 
Nine months ended September 30,
20242023
Canada$62,781 $46,767 
Israel20,565 16,160 
Other countries3,968 399 
Net revenue$87,314 $63,326 
(f)Concentration of risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company is exposed to credit risk from its operating activities, primarily accounts receivable and other receivables, and its investing activities, including cash held with banks and financial institutions, short-term investments and loans receivable. The Company’s maximum exposure to this risk is equal to the carrying amount of these financial assets, which amounted to $911,713 and $966,442 as of September 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, the Company had $14 and $3, respectively, in expected credit losses that have been recognized on receivables from contracts with customers.
As of September 30, 2024, the Company assessed that there is a concentration of credit risk, as 29% of the Company’s accounts receivable were due from one customer with an established credit history with the Company. As of December 31, 2023, 37% of the Company’s accounts receivable were due from one customer 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 net revenue before excise taxes. During the three months ended September 30, 2024, the Company earned a total net revenue before excise taxes of $21,993 from two major customers, together accounting for 48% of the Company’s total net revenue before excise taxes. During the three months ended September 30, 2023, the Company earned a total net revenue before excise taxes of $22,618 from three major customers, together accounting for 67% of the Company’s total net revenue before excise taxes. During the nine months ended September 30, 2024, the Company earned a total net revenue before excise taxes of $71,846 from three customers, together accounting for 59% of the Company’s total net revenue before excise taxes. During the nine months ended September 30, 2023, the Company earned a total net revenue before excise taxes of $57,398 from three major customers, together accounting for 67% of the Company’s total net revenue before excise taxes.
11
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
(g)New accounting pronouncements not yet adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 enhances reportable segment disclosures by requiring disclosures such as significant segment expenses, information on the CODM and disclosures for entities with a single reportable segment. Additionally, the amendments enhance interim disclosure requirements, clarify circumstances in which an entity can disclose multiple segment measures of profit or loss, and contain other disclosure requirements. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and we expect to adopt ASU 2023-07 retrospectively. The Company does not expect the adoption of ASU 2023-07 to have a material impact on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 enhances the existing income tax disclosures to provide additional information to better assess how an entity’s operations, related tax risks and tax planning, and operational opportunities affect its tax rate and prospects for future cash flows. ASU 2023-09 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and we expect to adopt ASU 2023-09 prospectively. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements.
(h)Adoption of new accounting pronouncements
On January 1, 2024, the Company adopted ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 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. The adoption of ASU 2022-03 did not have a material impact on the Company’s condensed consolidated interim financial statements. With respect to the adoption of ASU 2022-03, see Note 5 “Investments” for discussion of the contractual restrictions related to the PharmaCann Option (as defined below).
2. Business Combination
On July 1, 2024, the Company obtained majority control of the board of directors of Cronos Growing Company Inc. (“Cronos GrowCo”), a cannabis cultivation company, which qualified as a business combination under ASC 805 (the “Cronos GrowCo Transaction”). Prior to this date, our investment in Cronos GrowCo consisted of an investment accounted for under the equity method and loans receivable from Cronos GrowCo.
Cronos GrowCo was formed under the Canada Business Corporations Act on June 14, 2018, with the objective of cultivating and commercializing cannabis and cannabis products. Cronos GrowCo is licensed to sell certain cannabis products to other license holders in the wholesale channel, as well as to provincial cannabis control authorities. It is also licensed to export dried flower to Israel.
In connection with the Cronos GrowCo Transaction, the Company provided an approximately $51,000 secured non-revolving credit facility to Cronos GrowCo to fund the expansion of Cronos GrowCo’s cultivation and processing facilities (the “Phase 2 Expansion”), and the Company entered into a new supply agreement (the “Supply Agreement”) with Cronos GrowCo. Pursuant to the Supply Agreement, prior to the commencement of sales from Cronos GrowCo’s Phase 2 Expansion area, the Company and its controlled affiliates (other than Cronos GrowCo) have the right, but not the obligation, to purchase an aggregate total quantity of 80% of Cronos GrowCo’s production. Thereafter, the Company and its controlled affiliates (other than Cronos GrowCo) will have the right, but not the obligation, to purchase 70% of Cronos GrowCo’s forecasted production capacity over a given period and 70% of Cronos GrowCo’s actual production in a given month. The Cronos GrowCo Transaction is intended to support the Company’s current and future biomass supply requirements.
As there was no cash consideration paid, the Cronos GrowCo Transaction has been valued with reference to the fair value of our existing equity method investment of $53,542, as well as the effective settlement of various preexisting relationships between the Company and Cronos GrowCo. These preexisting relationships are now classified as intercompany transactions and eliminated upon consolidation. In the three and nine months ended September 30, 2024, we recorded a gain of $32,469 on the condensed consolidated statements of net income (loss) and comprehensive income (loss) from remeasuring our equity method investment in Cronos GrowCo. We also recorded $11,804 to gain on revaluation of loan receivable on the condensed consolidated statements of net income (loss) and comprehensive income (loss) in the three and nine months ended September 30, 2024, from remeasuring our outstanding loans receivable with Cronos GrowCo. Additionally, the consideration also included the effective settlement of various preexisting trade receivables and payables and other related accounts that are now classified as intercompany transactions and eliminated upon consolidation. The effective settlement of the preexisting trade receivables, payables, and related accounts did not result in the recognition of any gain or loss on settlement. As of the date of the Cronos GrowCo Transaction, the fair value of the non-controlling interest in Cronos GrowCo was $53,542. The Company used the income approach to estimate both the fair value of the Company’s equity method investment in Cronos GrowCo and the fair value of the non-controlling interest in Cronos GrowCo. Under the income
12
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
approach, significant assumptions used in the discounted cash flow method that required the use of judgment were the discount rate, growth rates and cash flow projections. The Company used the income approach to estimate the fair value of the Company’s loan receivable with Cronos GrowCo. Under the income approach, significant assumptions used that required the use of judgment were the credit spread and interest rate volatility.
The table below summarizes the unaudited provisional estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Cronos GrowCo Transaction. The Company's preliminary estimates and the allocation of the purchase price to the assets acquired and liabilities assumed may change as the Company completes the valuation process, which may result in an adjustment, which could be material, to the preliminary values presented below. The Company expects to complete the purchase price allocation as soon as reasonably possible, but not to exceed one year from the date of completion of the Cronos GrowCo Transaction.
Cash$5,993 
Accounts receivable2,437 
Inventory31,041 
Prepaids and other current assets795 
Goodwill36,421 
Property, plant and equipment119,600 
Accounts payable(2,913)
Accrued liabilities(2,757)
Deferred income tax liability(11,738)
Total purchase price
$178,879 
The inventory acquired in the Cronos GrowCo Transaction of $31,041 includes a step-up to fair value of $17,908. For both the three and nine months ended September 30, 2024, the Company recognized $7,116 of this inventory step-up into cost of sales on the condensed consolidated statements of income (loss) and comprehensive income (loss).
The following table presents details of the property, plant and equipment acquired by major category:
Fair value at date of Cronos GrowCo Transaction
Land$4,557 
Building and leasehold improvements49,356 
Machinery and equipment
53,573 
Furniture and fixtures580 
Construction in progress
11,534 
Total
$119,600 
The Company’s results of operations for the three and nine months ended September 30, 2024, included three months of the operating results of Cronos GrowCo, which was comprised of revenue of $4,268 and loss before income taxes of $1,606. Business combination-related costs of $334 and $530 were incurred in relation to the Cronos GrowCo Transaction in the three and nine months ended September 30, 2024, respectively, and were reported in general and administrative expenses on the condensed consolidated statements of net income (loss) and comprehensive income (loss).
As part of the Cronos GrowCo Transaction, the Company preliminarily recorded goodwill of $36,421, none of which is deductible for income tax purposes. The goodwill acquired was primarily attributable to the ability to secure a long-term supply of cannabis and to take advantage of growth opportunities from the expansion of Cronos GrowCo’s cultivation and processing facilities.
The following table presents unaudited supplemental pro forma results for the three and nine months ended September 30, 2024 and 2023, respectively, as if the Cronos GrowCo Transaction had occurred as of January 1, 2023. The unaudited pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the business combination had taken place at such time. The unaudited pro forma results presented below include adjustments such as amortization of inventory step-up, amortization charges for acquired intangible assets, depreciation adjustments for property, plant and equipment that has been revalued, adjustment of interest expense and interest income resulting from the effective settlement of pre-existing debt financing in connection with the Cronos GrowCo Transaction and adjustments for certain business combination-related charges.
13
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
Three months ended September 30,Nine months ended September 30,
2024202320242023
Net revenue
$34,264 $31,249 $94,788 $76,258 
Gross profit
(3,540)3,686 14,124 (881)
Operating expenses
37,266 27,036 82,715 77,107 
Other income
(6,002)17,416 8,892 74,788 
Net income (loss) attributable to Cronos Group $(29,447)$(3,914)$(39,578)$(10,786)
Material nonrecurring pro forma adjustments directly attributable to the Cronos GrowCo Transactions include the following:
•Acquired inventory fair value step-up of $18,283 is assumed to be recorded at January 1, 2023. As such, historical amortization of the acquired inventory step-up of $7,116 recognized in the historical three month period ended September 30, 2024 was removed from pro forma net income for the three months and nine months ended September 30, 2024. The entire inventory fair value step-up of $18,283 was recognized as an incremental product cost in the nine months ended September 30, 2023, with $4,583 recognized in the three months ended September 30, 2023 as the inventory acquired at the business combination date is expected to turnover within eight months.
•Pre-business combination revenues for sales from Cronos GrowCo to the Company of $2,664 and $15,489 were adjusted out for the three months and nine months ended September 30, 2023, respectively, and $14,776 of pre-business combination revenues were adjusted out for the nine months ended September 30, 2024 as these amounts would have been eliminated in consolidation. Company pre-business combination cost of sales of $4,232 and $12,147 were adjusted out for the three and nine months ended September 30, 2023, respectively, and $11,386 of pre-business combination cost of sales were adjusted out for the nine months ended September 30, 2024, as these amounts would have been eliminated in consolidation.
•The gain on the revaluation of the equity method investment and loan receivable relating to the Cronos GrowCo Transaction of $32,469 and $11,804, respectively, were adjusted out for the three months and nine months ended September 30, 2024 and added into the nine months ended September 30, 2023 as this revaluation is assumed to have occurred on January 1, 2023.
3. Discontinued Operations
In the second quarter of 2023, the Company exited its then-existing U.S. hemp-derived cannabinoid product operations. Accordingly, the net loss of the U.S. operations for the three and nine months ended September 30, 2023 are reported separately as loss from discontinued operations on the condensed consolidated statements of net income (loss) and comprehensive income (loss). There was no activity in discontinued operations for the three and nine months ended September 30, 2024.
14
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
The following table presents the major components comprising loss from discontinued operations in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023:
Three months ended September 30,Nine months ended September 30,
2023
Net revenue$— $1,029 
Cost of sales— 2,044 
Inventory write-down(i)
— 839 
Gross profit— (1,854)
Operating expenses
Sales and marketing— 518 
Research and development
— 20 
General and administrative190 926 
Restructuring costs28 562 
Share-based compensation(4)17 
Depreciation and amortization— 13 
Impairment loss on long-lived assets(ii)
— 205 
Total operating expenses214 2,261 
Interest income1 9 
Other, net(iii)
31 (132)
Total other income (loss)
32 (123)
Loss before income taxes(182)(4,238)
Income tax expense (benefit)— — 
Net loss from discontinued operations$(182)$(4,238)
(i)For the nine months ended September 30, 2023, Inventory write-down relates to the disposal of obsolete inventory as a result of the exit of the U.S. operations.
(ii)During the nine months ended September 30, 2023, as a result of the exit of the U.S. operations, the Company recognized an impairment charge of $205 related to the right-of-use lease assets associated with the Company’s former U.S. manufacturing facility in Los Angeles, California.
(iii)For the three and nine months ended September 30, 2023, Other, net related to loss on disposal of assets that were part of the U.S. operations.

The following tables present the Company’s discontinued operations revenue by major product category:
Three months ended September 30,Nine months ended September 30,
2023
Cannabis extracts— 1,029 
Net revenue$— $1,029 

The following tables summarize the Company’s discontinued operations restructuring activity for the three and nine months ended September 30, 2023:
Accrual as of June 30, 2023ExpensesPayments/Write-offsAccrual as of September 30, 2023
Employee Termination Benefits$219 $28 $(169)$78 
Other Restructuring Costs92 — (92)— 
Total$311 $28 $(261)$78 

15
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
Accrual as of December 31, 2022ExpensesPayments/Write-offsAccrual as of September 30, 2023
Employee Termination Benefits$— $470 $(392)$78 
Other Restructuring Costs— 92 (92)— 
Total$— $562 $(484)$78 

The Company had no assets or liabilities presented in the condensed consolidated balance sheets related to its discontinued operations as of both September 30, 2024 and December 31, 2023.
For the nine months ended September 30, 2024, there were no purchases of property plant and equipment related to discontinued operations. For the nine months ended September 30, 2023, purchases of property plant and equipment related to discontinued operations were $67.
4. Inventory, net
Inventory, net is comprised of the following items:
As of September 30, 2024As of December 31, 2023
Raw materials$5,133 $4,795 
Work-in-progress27,470 10,593 
Finished goods14,387 14,819 
Supplies and consumables260 288 
Total$47,250 $30,495 
As a result of the Cronos GrowCo Transaction, the Company recorded a step-up to Cronos GrowCo’s existing inventory of $17,908 to bring the inventory balance acquired by the Company to its fair value. For both the three and nine months ended September 30, 2024, the Company recognized $7,116 of this inventory step-up into cost of sales on the condensed consolidated statements of income (loss) and comprehensive income (loss). For more information, see Note 2 “Business Combination.”
5. Investments
(a)Equity method investments, net
As a result of the Cronos GrowCo Transaction, the existing equity method investment in Cronos GrowCo was remeasured at its fair value. In both the three and nine months ended September 30, 2024, we recorded a gain of $32,469 on the condensed consolidated statements of net income (loss) and comprehensive income (loss) from remeasuring our equity method investment in Cronos GrowCo. For more information, see Note 2 “Business Combination”
16
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
A reconciliation of the carrying amount of the investments in equity method investees, net is as follows:
Ownership interestAs of September 30, 2024As of December 31, 2023
Cronos GrowCo(i)
50%$— $19,488 
$— $19,488 
(i)The Company obtained control of Cronos GrowCo on July 1, 2024, and, as a result, the investment in Cronos GrowCo is now accounted for as an intercompany transaction and eliminated upon consolidation from the business combination date onwards.
The following is a summary of the Company’s share of net income from equity investments accounted for under the equity method of accounting:
For the three months ended September 30,For the nine months ended September 30,
2024202320242023
Cronos GrowCo(i)
$— $1,057 $2,365 $831 
$— $1,057 $2,365 $831 
(i)The Company obtained control of Cronos GrowCo on July 1, 2024, and, as a result, the investment in Cronos GrowCo is now accounted for as an intercompany transaction and eliminated upon consolidation from the business combination date onwards.
(b)Other investments
Other investments consist of investments in common shares and options of two companies in the cannabis industry.
PharmaCann Option
On June 14, 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, at an exercise price of $0.0001 per share, representing approximately 10.5% of PharmaCann’s issued and outstanding capital stock on a fully diluted basis as of the date of the PharmaCann Option, for an aggregate purchase price of approximately $110,392. The PharmaCann Option is classified as an investment in an equity security without a readily determinable fair value. The Company measures the PharmaCann Option at cost less accumulated impairment charges, if any, and subsequently adjusted for observable price changes in orderly transactions for the identical or a similar investment of the same issuer. As of September 30, 2024 and December 31, 2023, based on updated information provided by PharmaCann in the third quarter, the Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 5.8% and 6.6%, respectively. The decrease in the Company’s ownership percentage since acquisition does not materially affect the Company’s rights under the PharmaCann Option. The PharmaCann Option is measured at fair value on a non-recurring basis and is a level 3 asset. See Note 13 “Fair Value Measurements” for more information on the fair value hierarchy. The PharmaCann Option is reported as Other investments on the consolidated balance sheet as of September 30, 2024 and December 31, 2023.
During the first and second quarters of 2024, the Company identified adverse forecast changes in the financial performance of PharmaCann as indicators of impairment related to the PharmaCann Option and conducted analyses comparing the PharmaCann Option’s carrying amount to its estimated fair value. The fair value was estimated using the market approach. Under the market approach, the key assumptions are the selected multiples and the discount for lack of marketability. As a result of these analyses, the Company recorded non-cash impairment charges of $12,734 and $12,916 in the first and second quarters of 2024, 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) for the nine months ended September 30, 2024.
The Company may sell, transfer or dispose of the PharmaCann Option without PharmaCann’s prior written consent, subject to the following conditions: (i) any transferee of any part of the PharmaCann Option must comply with and commit to comply with all regulations issued by a governmental entity applicable to such transferee in all material respects; (ii) any transferee of any part of the PharmaCann Option must agree to be bound by the terms of the Option Purchase Agreement, dated as of June 14, 2021 (the “Option Purchase Agreement”), as a “Purchaser” thereunder; (iii) the Company may not split and/or transfer the PharmaCann Option, in the aggregate, to more than four persons (with certain exceptions); (iv) no transferee may be a Prohibited Assignee (as defined in the Option Purchase Agreement); and (v) subject to certain exceptions, in the event that the Company (or a Permitted Transferee of the whole PharmaCann Option) transfers less than all of the PharmaCann Option to any third party that is not a Permitted Transferee, certain governance and information rights terminate immediately, unless waived by the PharmaCann board of directors in its sole and absolute discretion.
Additionally, in the event of an initial underwritten public offering of PharmaCann’s common stock pursuant to an effective registration statement, to the extent that holders of PharmaCann common stock are subject to any lock-up period imposed by the underwriter in connection therewith, the Company will, if applicable, execute a customary lock-up agreement on the same material
17
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
terms and conditions as the other holders of common stock are subject to or as otherwise agreed between PharmaCann and the Company, subject to certain conditions with respect to the duration of the lock-up period.
Vitura Health Limited (formerly known as Cronos Australia)
The Company owns approximately 10% of the outstanding common shares of Vitura Health Limited (“Vitura”). The investment is considered an equity security with a readily determinable fair value. Changes in the fair value of the investment are recorded as gain (loss) on revaluation of financial instruments on the condensed consolidated statements of net income (loss) and comprehensive income (loss).
The following table summarizes the Company’s other investments activity:
As of June 30, 2024Unrealized lossImpairment chargesForeign exchange effectAs of September 30, 2024
PharmaCann$— $— $— $— $— 
Vitura3,168 (371)— 103 2,900 
$3,168 $(371)$— $103 $2,900 
As of December 31, 2023Unrealized lossImpairment chargesForeign exchange effectAs of September 30, 2024
PharmaCann$25,650 $— $(25,650)$— $— 
Vitura9,601 (6,468)— (233)2,900 
$35,251 $(6,468)$(25,650)$(233)$2,900 
As of June 30, 2023Unrealized lossImpairment chargesForeign exchange effectAs of September 30, 2023
PharmaCann$49,000 $— $— $— $49,000 
Vitura18,925 (5,204)— (578)13,143 
$67,925 $(5,204)$— $(578)$62,143 
As of December 31, 2022Unrealized lossImpairment chargesForeign exchange effectAs of September 30, 2023
PharmaCann$49,000 $— $— $— $49,000 
Vitura21,993 (7,933)— (917)13,143 
$70,993 $(7,933)$— $(917)$62,143 
18
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
6. Loans Receivable, net
Loans receivable, net consists of the following:
As of September 30, 2024As of December 31, 2023
GrowCo Credit Facility(i)
$— $5,034 
Add: Current portion of Mucci Promissory Note accrued interest233 507 
Total current portion of loans receivable, net
233 5,541 
GrowCo Credit Facility(i)
— 53,638 
Mucci Promissory Note
14,081 13,379 
Cannasoul Collaboration Loan1,706 1,771 
Add: Long-term portion of accrued interest299 248 
Total long-term portion of loans receivable, net
16,086 69,036 
Total loans receivable, net(i)
$16,319 $74,577 
(i)The Company obtained control of Cronos GrowCo on July 1, 2024, and, as a result, the loans receivable from Cronos GrowCo are now accounted for as intercompany transactions and eliminated upon consolidation from the business combination date onwards.
Cronos GrowCo Credit Facility
On August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into a senior secured credit agreement for an aggregate principal amount of C$100,000 (the “GrowCo Credit Facility”). The GrowCo Credit Facility is secured by substantially all present and after-acquired personal and real property of Cronos GrowCo. In August 2021, the GrowCo Credit Facility was amended to increase the aggregate principal amount available to C$105,000.
In June 2024, the GrowCo Credit Facility was amended to increase the aggregate principal amount available by C$70,000 by providing a second secured non-revolving credit facility (“Term Loan B”). The funds from Term Loan B will be used to expand Cronos GrowCo’s purpose-built cannabis facility and Term Loan B will mature 10 years after the commencement of sales from the Phase 2 Expansion area. Principal will be repaid under Term Loan B on a quarterly basis after the commencement of sales from the Phase 2 Expansion area. Interest on Term Loan B is payable on a quarterly basis until maturity beginning after the first borrowing under Term Loan B. Prior to July 1, 2024, only C$12,000 of the C$70,000 increased principal availability could be drawn, which Cronos GrowCo drew in full on June 20, 2024.
As of June 30, 2024 and December 31, 2023, Cronos GrowCo had drawn C$116,000 and C$104,000 ($84,833 and $78,532, respectively), respectively from the GrowCo Credit Facility. For the six months ended June 30, 2024, Cronos GrowCo repaid C$3,333 ($2,447) in principal and C$3,862 ($2,835) in interest related to the GrowCo Credit Facility. As of June 30, 2024, Cronos GrowCo had repaid an aggregate C$14,833 ($10,848) and C$24,384 ($17,832) in principal and interest, respectively, under the terms of the GrowCo Credit Facility.
As a result of the Cronos GrowCo Transaction on July 1, 2024, the existing loans receivable under the GrowCo Credit Facility were remeasured at their fair value and effectively settled. We recorded a gain of $11,804 to revaluation gain on loan receivable on the condensed consolidated statements of net income (loss) and comprehensive income (loss) in the three and nine months ended September 30, 2024, from remeasuring our outstanding loans receivable with GrowCo. For more information, see Note 2 “Business Combination.”
Mucci Promissory Note
On June 28, 2019, the Company entered into a promissory note receivable agreement (the “Mucci Promissory Note”) for C$16,350 (approximately $12,089) with the Cronos GrowCo joint venture partner (“Mucci”). The Mucci Promissory Note is secured by a general security agreement covering all the assets of Mucci. On September 30, 2022, the Mucci Promissory Note was amended and restated to increase the interest rate from 3.95% to the Canadian Prime Rate plus 1.25%, change the interest payments from quarterly to annual, and defer Mucci’s initial cash interest payment from September 30, 2022 to July 1, 2023. On June 20, 2024, the Mucci Promissory Note was amended and restated. As a result, interest accrued on the Mucci Promissory Note between July 1, 2023 and July 1, 2024 was capitalized as part of the principal balance. As of July 1, 2024, interest is accrued and to be paid in cash beginning on July 1, 2025.
19
Cronos Group Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
(In thousands of U.S. dollars, except share amounts)
Prior to July 1, 2022, interest accrued on the Mucci Promissory Note was capitalized as part of the principal balance. As of July 1, 2022, interest was accrued and to be paid in cash beginning on July 1, 2023. Prior to 2023, there were no repayments of principal or interest on the Mucci Promissory Note. For the three and nine months ended September 30, 2023, Mucci made a payment of C$1,750 (approximately $1,322) under the Mucci Promissory Note, with C$1,187 ($897) related to accrued interest and C$563 ($425) related to outstanding principal. For the three and nine months ended September 30, 2024, there were no repayments of principal or interest on the Mucci Promissory Note.
Cannasoul Collaboration Loan
As of both September 30, 2024 and December 31, 2023, Cannasoul Lab Services Ltd. has received ILS 8,297 (approximately $2,175 and $2,294, respectively), from the Cannasoul Collaboration Loan.
Expected credit loss allowances on the Company’s long-term financial assets for the nine months ended September 30, 2024 and 2023 were comprised of the following items:
As of June 30, 2024
Increase (decrease)(ii)
Foreign exchange effectAs of September 30, 2024
GrowCo Credit Facility(i)
$11,838 $(11,804)$(34)$— 
Mucci Promissory Note90 1 1 92 
Cannasoul Collaboration Loan506 4 10 520 
$12,434 $(11,799)$(23)$612 
As of December 31, 2023
Increase (decrease)(ii)
Foreign exchange effectAs of September 30, 2024
GrowCo Credit Facility(i)
$11,176 $(10,794)$(382)$—