Cronos Group Inc

Consolidated Results of Operations - 2024 Compared to 2023

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

Summary of select financial results

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

Net revenue

For 2024, we reported consolidated net revenue of $117.6 million, representing a $30.4 million increase from 2023. This change was primarily due to higher cannabis flower and extract sales in the Canadian market and higher cannabis flower sales in Israel and other countries. Due to the consolidation of Cronos GrowCo’s results of operations in our financial statements beginning July 1, 2024, Cronos GrowCo contributed $6.4 million of cannabis flower sales in the year ended December 31, 2024. No such sales were recognized for the year ended December 31, 2023.

Cost of sales

For 2024, we reported consolidated cost of sales of $91.7 million, representing a $17.2 million increase from 2023. This increase was primarily due to the impact of the inventory step-up from the Cronos GrowCo Transaction, higher cannabis flower and extract sales in the Canadian market, and higher cannabis flower sales in Israel and other countries, partially offset by production cost improvements. For 2024, we recognized $5.3 million of inventory step-up from the Cronos GrowCo Transaction into cost of sales since July 1, 2024. No such costs were recognized for 2023.

Inventory write-down

For 2024, we reported inventory write-downs of $0.7 million, representing a $0.1 million decrease from 2023. The activity in both periods was primarily due to write-downs resulting from unusable inventory that was scrapped in the period.

Gross profit

For 2024, we reported consolidated gross profit of $25.2 million, representing an $13.3 million increase from 2023. The increase in gross profit was primarily due to higher cannabis flower and extract sales in the Canadian market, higher cannabis flower sales in Israel and other countries, and production cost improvements, partially offset by the impact on cost of sales from the inventory step-up from the Cronos GrowCo Transaction. For 2024, gross profit was reduced $5.3 million as a result of the impact of the inventory step-up from the Cronos GrowCo Transaction that was recorded into cost of sales since July 1, 2024. No such costs were recognized for 2023.

Operating expenses

Sales and marketing

For 2024, we reported sales and marketing expenses of $21.6 million, representing a decrease of $1.1 million from 2023. The decrease was primarily due to lower salaries and benefits and reduced advertising and marketing spend.

Research and development

For 2024, we reported research and development expenses of $4.2 million, representing a decrease of $1.6 million from 2023. This decrease was primarily due to lower costs associated with the collaboration and license agreement between Ginkgo Bioworks Holdings, Inc. (“Ginkgo”) and the Company (the “Ginkgo Collaboration Agreement”).

General and administrative

For 2024, we reported general and administrative expenses of $46.5 million, representing a decrease of $3.0 million from 2023. The decrease was primarily due to lower professional fees, largely related to financial statement review costs in the prior year period, and lower salaries and benefits and insurance costs, partially offset by the impact of the Cronos GrowCo Transaction, which increased general and administrative expenses by $1.5 million, and $1.2 million higher expected credit loss allowance on loans receivable related to the increased borrowings by Cronos GrowCo in the second quarter of 2024.

Restructuring costs

For 2024, we reported restructuring costs of $0.6 million, representing a decrease of $0.9 million from 2023. The restructuring costs in 2024 and 2023 were related to Realignment activities. See Note 18 “Restructuring” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

Share-based compensation

For 2024, we reported share-based compensation expenses of $8.7 million, essentially flat compared to 2023, as decreases related to headcount reductions that occurred in the prior year period were offset by expenses on new grants in the current year.

Depreciation and amortization

For 2024, depreciation and amortization expenses were $3.7 million, representing a decrease of $1.3 million from 2023. The decrease was primarily due to lower depreciation on property, plant and equipment as a result of the reclassification of the Company’s production facility in Winnipeg, Manitoba (the “Cronos Fermentation Facility”) to held-for-sale in the first quarter of 2024.

Impairment loss on long-lived assets

For 2024, impairment loss on long-lived assets was $16.4 million and was primarily due to the impairment of the exclusive rights to use and commercialize the key patented intellectual property related to the production of the target cannabinoids globally (the “Ginkgo Exclusive Licenses”) and the cessation of operations of Thanos Holdings Ltd., known as Cronos Fermentation (“Cronos Fermentation”). For 2023, we recorded $3.4 million of impairment charges related to one of our Ginkgo Exclusive Licenses. See Note 8 “Goodwill and Intangible Assets, net” and Note 18 “Restructuring” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

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

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

Interest income, net

For 2024, we reported interest income, net of $52.0 million, representing an increase of $0.8 million from 2023, primarily due to higher interest rates in the current period compared to the prior period.

Share of income from equity method investments

For 2024, we reported share of income from equity method investments of $2.4 million, representing an increase of $0.8 million from 2023. The increase was primarily due to income pick-ups from our equity method investment in Cronos GrowCo. As a result of the Cronos GrowCo Transaction on July 1, 2024, we now consolidate Cronos GrowCo and no longer account for our investment in Cronos GrowCo as an equity method investment. See Note 5 “Investments” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

Gain on revaluation of loans receivable

For 2024, we reported a gain on revaluation of loans receivable of $11.8 million. The gain related to the remeasurement of the outstanding loans receivable under the credit facility as a result of the Cronos GrowCo Transaction on July 1, 2024. No such gain was recognized for 2023. See Note 6 “Loans Receivable, net” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

Gain on revaluation of equity method investment

For 2024, we reported a gain on revaluation of equity method investment of $32.5 million. The gain related to the remeasurement of the existing investment in Cronos GrowCo as a result of the Cronos GrowCo Transaction. No such gain was recognized for 2023. See Note 5 “Investments” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

Loss on revaluation of financial instruments

For 2024, we reported a loss on revaluation of financial instruments of $6.2 million, compared to a loss of $12.0 million in 2023. The change was primarily due to the change in fair value of our investment in Vitura. See Note 5 “Investments” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

Impairment loss on other investments

For 2024 and 2023, we recognized $25.7 million and $23.4 million, respectively, of impairment loss on other investments, driven by impairment charges recorded on our PharmaCann Option for the difference between its estimated fair value and its carrying amount. See Note 5 “Investments” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

Foreign currency transaction gain (loss)

For 2024, foreign currency transaction gain was $57.9 million, representing an increased gain of $65.2 million from 2023. The change was primarily due to certain foreign currency-denominated cash equivalents and short-term investments and certain foreign currency-denominated intercompany loans anticipated to be settled in the foreseeable future.

Loss on held-for-sale assets

For 2024, we recognized $11.2 million of loss on held-for-sale assets as a result of the change in the Company’s sales strategy for the Cronos Fermentation assets to market the assets to a broader buyer pool. No such loss was recognized for 2023. See Note 18 “Restructuring” to the consolidated financial statements in Item 8 of this Annual Report for additional information.

Other, net

For 2024, other, net was a loss of $0.4 million, compared to income of $1.1 million in 2023. The activity for both the current and prior period relates primarily to gains and losses on the disposal of assets.

Income tax benefit

For 2024, we reported an income tax benefit of $3.4 million, compared to an income tax benefit of $3.2 million in 2023. The change was due primarily due to an increase in the income tax benefits recorded on the losses that will be carried back to prior years to recover income taxes paid in 2022, partially offset by an increase in income tax expense caused by recognizing a liability related to prior years’ income taxes.

Loss from discontinued operations

For 2024, there was no activity in discontinued operations, compared to a loss from discontinued operations of $4.1 million in 2023. For 2023, loss from discontinued operations was due to the exit of U.S. operations. See Note 3 “Discontinued Operations” to the consolidated financial statements in Item 8 of this Annual Report for additional information.