Cronos Group Inc

Israel-Hamas War

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

New Israeli Shekel Fluctuation

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

2023 Business Highlights

Brand and Product Portfolio

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

Branded Product Portfolio Expansion in Canada:

•Q2 2023:

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

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

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

◦SOURZ by Spinach® Pink Lemonade gummy

◦Spinach® 28g Frosted Cream Puffs dried flower

•Q3 2023:

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

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

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

◦Spinach® Atomic Sour Grapefruit 7g dried flower

◦Spinach® 3.5g Peach Gelato dried flower

•Q4 2023:

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

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

◦Spinach FEELZ™ Deep Dreamz THC:CBN Drops infused oil

◦Spinach® 14g GMO Cookies dried flower

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

Branded Product Portfolio Expansion in Israel:

•Q1 2023:

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

•Q2 2023:

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

•Q3 2023:

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

•Q4 2023

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

International Growth:

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

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

Strategic and Organizational Update

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

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

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

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

2022 Compared to 2021

Cash Flows

For a discussion of our 2022 cash flows compared to 2021, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Annual Report on Form 10-K for the year ended December 31, 2022.

Foreign currency exchange rates

All currency amounts in this Annual Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or “$” are to U.S. dollars. The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of December 31, 2023 and December 31, 2022, as reported on Bloomberg. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates. The consolidated statements of net loss and comprehensive loss and consolidated statements of cash flows of our foreign operations are translated into dollars by applying the average foreign exchange rate in effect for the years ended December 31, 2023, December 31, 2022, and December 31, 2021, as reported on Bloomberg.

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

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