Financial Data and Key Metrics Changes - Cronos Group reported its financial results for Q3 2024, with specific metrics detailed in the earnings release [3][4]. - The company may refer to non-GAAP financial measures during the call, which are subject to risks and uncertainties [4][5]. Business Line Data and Key Metrics Changes - Specific performance metrics for each business line were not detailed in the provided content [3]. Market Data and Key Metrics Changes - Market performance data and key metrics were not provided in the available content [3]. Company Strategy and Development Direction and Industry Competition - The company is focused on strategic initiatives as discussed by the Chief Strategy Officer, but specific strategies were not detailed in the provided content [3]. Management's Comments on Operating Environment and Future Outlook - Management may provide insights on the operating environment and future outlook, but specific comments were not included in the available content [4][5]. Other Important Information - The earnings materials and SEC filings are available on the company's website for further details [5]. Q&A Session All Questions and Answers - No specific questions and answers from the Q&A session were provided in the available content [3].

Operational Changes - The company is undergoing a wind-down of operations at its Winnipeg facility, which is expected to yield cost savings and operational efficiencies [98]. - The company has exited its U.S. hemp-derived cannabinoid product operations, incurring associated costs and write-offs [98]. - The company is focusing on expanding Cronos GrowCo's purpose-built cannabis facility to enhance production capabilities [102]. - The company is exploring the potential success of joint ventures and strategic alliances to drive revenue growth [102]. - The company is assessing the impact of the ongoing Middle East Conflict on its operations and product demand in Israel [98]. - The company is evaluating the effects of the Anti-Dumping Investigation on its operations in Israel [102]. - The company is implementing cost-cutting measures as part of a broader realignment strategy to improve financial performance [98]. - The company is committed to differentiating its products through the utilization of rare cannabinoids [100]. - The company is monitoring regulatory developments that may affect its ability to operate in various markets, including potential changes in U.S. cannabis laws [100]. Financial Performance - For the three months ended September 30, 2024, consolidated net revenue was $34.3 million, an increase of $9.5 million (38%) from $24.8 million in the same period of 2023 [123]. - For the nine months ended September 30, 2024, consolidated net revenue reached $87.3 million, representing a $24.0 million (38%) increase from $63.3 million in the same period of 2023 [123]. - The cost of sales for the three months ended September 30, 2024, was $30.3 million, an increase of $10.2 million (51%) from $20.1 million in the same period of 2023 [125]. - The gross profit for the three months ended September 30, 2024, was $3.6 million, a decrease of $0.4 million (9%) from $4.0 million in the same period of 2023 [126]. - The company reported an operating loss of $33.7 million for the three months ended September 30, 2024, compared to a loss of $21.8 million in the same period of 2023 [120]. - The gross margin for the three months ended September 30, 2024, was 11%, down from 16% in the same period of 2023 [122]. - For the three months ended September 30, 2024, total operating expenses were $37.3 million, an increase of 45% compared to $25.7 million for the same period in 2023 [128]. - Sales and marketing expenses for the three months ended September 30, 2024, were $5.5 million, a 4% increase from $5.3 million in the same period last year [129]. - Research and development expenses remained stable at $1.2 million for the three months ended September 30, 2024, but decreased by 27% to $3.2 million for the nine months ended September 30, 2024, compared to $4.4 million in 2023 [130]. - General and administrative expenses decreased by 11% to $12.8 million for the three months ended September 30, 2024, and by 13% to $34.4 million for the nine months ended September 30, 2024, compared to the previous year [131]. - The company recognized an impairment loss on long-lived assets of $14.4 million for the three months ended September 30, 2024, primarily due to the impairment of exclusive licenses [135]. - Interest income, net for the three months ended September 30, 2024, was $12.5 million, a decrease of 7% from $13.4 million in the same period last year, while it increased by 8% to $40.2 million for the nine months ended September 30, 2024 [137]. - The company reported a net income of $7.3 million for the three months ended September 30, 2024, compared to a net loss of $1.8 million in the same period last year, marking a 513% increase [136]. - The gain on revaluation of equity method investment was $32.5 million for both the three and nine months ended September 30, 2024, due to the remeasurement of the investment in Cronos GrowCo [141]. - The company recognized a loss of $10.4 million on held-for-sale assets for both the three and nine months ended September 30, 2024, with no such loss in the same periods of 2023 [145]. - Income tax benefit for the three months ended September 30, 2024, was $2.7 million, up from $1.3 million in the same period of 2023 [146]. - For the nine months ended September 30, 2024, income tax benefit was $5.4 million, compared to $2.9 million for the same period in 2023 [146]. - Adjusted EBITDA for the three months ended September 30, 2024, was $(6.0) million, reflecting ongoing business performance adjustments [149]. - The net loss for the nine months ended September 30, 2024, was $(3.9) million, with total losses including discontinued operations amounting to $(3.9) million [154]. - The company reported a revaluation gain on loan receivable and equity method investment as a result of the Cronos GrowCo Transaction on July 1, 2024 [155]. - The total net loss for the three months ended September 30, 2023, was $(1.8) million, with a significant portion attributed to interest income and depreciation [152]. - Adjusted Gross Profit for the three months ended September 30, 2024, was $10,727,000, a significant increase of 170% compared to $3,970,000 in the prior year [159]. - Gross margin for the three months ended September 30, 2024, decreased to 11% from 16% in the same period of 2023, while Adjusted Gross Margin improved to 31% from 16% [159]. - Operating expenses for the three months ended September 30, 2024, increased by 45% to $37,266,000 from $25,745,000 in the prior year [161]. - Net income from continuing operations for the three months ended September 30, 2024, was $7,324,000, compared to a loss of $1,590,000 in the same period of 2023 [161]. - For the nine months ended September 30, 2024, net revenue was $87,314,000, reflecting a 38% increase from $63,326,000 in the same period of 2023 [163]. - Adjusted EBITDA for the nine months ended September 30, 2024, improved to $(27,739,000) from $(46,774,000) in the prior year, indicating a 41% improvement [163]. - The company recorded an inventory step-up of $7,116,000 related to the Cronos GrowCo Transaction for both the three and nine months ended September 30, 2024 [159]. - For the three months ended September 30, 2024, net revenue was $34.3 million, a 40% increase from $24.8 million in the same period of 2023 [169]. - For the nine months ended September 30, 2024, net revenue was $88.5 million, representing a 40% increase from $63.3 million in the same period of 2023 [169]. - Cannabis flower sales for the three months ended September 30, 2024, were $26.3 million, a 51% increase from $17.4 million in the same period of 2023 [167]. - Gross profit for the three months ended September 30, 2024, was $3.6 million, a 9% decrease from the same period in 2023 [171]. - Operating expenses for the three months ended September 30, 2024, were $38.1 million, a 48% increase from the same period in 2023 [172]. - Net income from continuing operations for the three months ended September 30, 2024, was $8.2 million, an improvement of $9.8 million from the same period in 2023 [173]. - Adjusted EBITDA for the three months ended September 30, 2024, was $(6.5) million, a 57% improvement from the same period in 2023 [174]. - Cash and cash equivalents as of September 30, 2024, were $862 million, sufficient to fund operations over the next twelve months [175]. - Cash generated from operating activities for the nine months ended September 30, 2024, was $11.1 million, compared to cash used of $59.7 million in the same period of 2023 [178]. - Cash generated from investing activities for the nine months ended September 30, 2024, was $180.2 million, a change of $321.6 million from cash used in the same period of 2023 [179]. - A 10% decrease in the interest rate would impact net interest income by $1.4 million for the three months and $4.5 million for the nine months ended September 30, 2024 [187]. - The company reported an Adjusted EBITDA loss of $6.0 million for the three months ended September 30, 2024, an improvement from a loss of $15.2 million in the same period of 2023 [162]. - Constant currency measures indicate a 40% increase in net revenue for the three months ended September 30, 2024, when adjusted for foreign currency fluctuations [161]. - For the nine months ended September 30, 2024, net revenue was $88.5 million, a 40% increase from $63.3 million in the same period of 2023 [169]. - Gross profit for the nine months ended September 30, 2024, was $14.6 million, representing a 46% increase from $10 million in the same period of 2023 [171]. - Operating expenses for the nine months ended September 30, 2024, were $80.4 million, a 10% increase from $73.1 million in the same period of 2023 [172]. - Net income from continuing operations for the three months ended September 30, 2024, was $8.2 million, an improvement of $9.8 million from a loss in the same period of 2023 [173]. - Adjusted EBITDA for the three months ended September 30, 2024, was $(6.5) million, a 57% improvement from $(15.1) million in the same period of 2023 [174]. - Cash and cash equivalents as of September 30, 2024, were $862 million, sufficient to fund operations and capital expenditures for the next twelve months [175]. - Cash generated from operating activities for the nine months ended September 30, 2024, was $11.1 million, compared to cash used of $59.7 million in the same period of 2023 [178]. - Cash generated from investing activities for the nine months ended September 30, 2024, was $180.2 million, a change of $321.6 million from cash used in the same period of 2023 [179]. - The Cronos GrowCo Transaction contributed $4.3 million in cannabis flower sales for both the three and nine months ended September 30, 2024 [169]. - Foreign currency translation resulted in a gain of $12.4 million for the three months ended September 30, 2024, compared to a loss of $20.1 million in the same period of 2023 [186].

Financial Performance - Net revenue in Q3 2024 increased by 38% year-over-year to $34.3 million, driven by higher cannabis flower and extract sales in Canada and international markets[1][7] - Gross profit for Q3 2024 was $3.6 million, a decrease of $0.4 million from Q3 2023, primarily due to inventory-related purchase accounting adjustments[7] - Adjusted Gross Profit rose to $10.7 million in Q3 2024, an increase of 170% year-over-year, reflecting higher sales across various markets[7] - The company reported a net income of $7.3 million in Q3 2024, compared to a net loss of $1.6 million in Q3 2023, marking a significant improvement[6][7] - Net revenue for the three months ended September 30, 2024, was $34,264, a 38% increase from $24,810 in the same period of 2023[41] - For the nine months ended September 30, 2024, net revenue was $87.3 million, a 38% increase from $63.3 million in the same period of 2023[46] - Cannabis flower sales in Canada for the three months ended September 30, 2024, were $26.3 million, up from $17.4 million, representing a 51% increase[44] Cash and Assets - Cash and cash equivalents stood at $862 million as of the end of Q3 2024, an increase of 51% from the previous year[6][7] - Total current assets increased to $959,174 thousand as of September 30, 2024, compared to $933,306 thousand as of December 31, 2023, reflecting a growth of 2.8%[29] - Cash and cash equivalents rose to $862,034 thousand as of September 30, 2024, up from $669,291 thousand as of December 31, 2023, an increase of 28.9%[29] - Cash and cash equivalents at the end of the period were $862,034 million, up from $571,656 million at the end of September 30, 2023[32] Operating Expenses and Losses - Operating expenses for the three months ended September 30, 2024, increased to $37,266, a 45% rise from $25,745 in the same period of 2023[43] - Operating expenses for the three months ended September 30, 2024, were $38.1 million, a 48% increase from the same period in 2023[48] - Net loss from continuing operations for the nine months ended September 30, 2024, was $(3,919), an improvement of 85% compared to $(25,288) in the same period of 2023[43] - Comprehensive loss attributable to Cronos Group for the three months ended September 30, 2023, was $(21,821) thousand, compared to $(30,486) thousand in the same period of the previous year, indicating an improvement[31] Investments and Growth Strategy - Cronos GrowCo contributed $4.3 million in cannabis flower sales in Q3 2024, following the consolidation of its results into Cronos' financial statements[4][9] - Cronos has invested approximately $51 million to expand Cronos GrowCo's cultivation and processing facilities, enhancing its supply capabilities[10][11] - The expansion of Cronos GrowCo's purpose-built cannabis facility is anticipated to enhance production capabilities[23] - The anticipated benefits of the Altria Investment are under evaluation, with potential synergies expected[23] - The Company aims to successfully distribute the PEACE NATURALS brand in Germany and the UK through strategic partnerships[22] Market Position and Demand - Spinach became the number one cannabis brand in Canada, with a 17.2% market share in the edibles category and a 6.0% market share in the flower category[3][13] - The company continues to experience strong demand in international markets, particularly in Germany, the UK, and Australia, reinforcing its growth strategy[3][8] Cost-Cutting Measures - The company aims to achieve operating expense savings of $5 to $10 million in 2024, focusing on general and administrative, sales and marketing, and R&D expenses[17] - The Company is undergoing cost-cutting measures, including winding down operations at the Winnipeg facility and listing it for sale[22] Regulatory and Operational Challenges - Expectations regarding the impact of the Middle East Conflict on operations in Israel and product supply and demand[22] - Ongoing military conflicts and regulatory changes may impact the Company's operations and market conditions[26] Research and Development - Cronos is focused on building disruptive intellectual property through cannabis research, technology, and product development[20] - Research and development expenses for the three months ended September 30, 2023, were $1,246 thousand, down from $4,392 thousand in the same period of the previous year, a decrease of 71.6%[30] - The company is focused on differentiating its products through the utilization of rare cannabinoids[23]

Core Viewpoint - Cronos Group Inc. will hold its third quarter earnings conference call on November 12, 2024, at 8:30 a.m. ET to discuss financial results and answer questions from the investment community [1]. Group 1: Earnings Call Details - The earnings conference call will take place on November 12, 2024, at 8:30 a.m. ET [1]. - Participants can register for the conference call or webcast online and are encouraged to dial in fifteen minutes early to avoid delays [2]. - The webcast will be archived for replay on the Company's website [2]. Group 2: Company Overview - Cronos is a global cannabinoid company focused on advancing cannabis research, technology, and product development [3]. - The Company aims to build a disruptive intellectual property portfolio and elevate the consumer experience through its brand portfolio [3]. - Cronos' brand portfolio includes Spinach®, PEACE NATURALS®, and Lord Jones® [3].

Industry Overview - Recent momentum in marijuana stocks is attributed to increased support for cannabis legalization in the USA, particularly from political figures like Trump [1][2] - Despite federal illegality, over half of the US and other global regions have legalized cannabis, indicating the industry's legitimacy and growth potential [2] Investment Opportunities - The current volatility in marijuana stocks presents opportunities for investors to capitalize on price fluctuations, especially during downtrends [3] - Identifying the best marijuana stocks to buy can lead to significant future profits, particularly when positions are acquired at lower prices [3] Key Companies to Watch - **Tilray Brands, Inc. (NASDAQ: TLRY)**: Engages in research, cultivation, processing, and distribution of medical cannabis products. Recent studies on Fibromyalgia have shown positive results, enhancing its market position [4][5] - **SNDL Inc. (NASDAQ: SNDL)**: Focuses on the production, distribution, and sale of cannabis products in Canada. Recently announced the retirement of its liquor segment president, indicating potential leadership changes [6][7] - **Cronos Group Inc. (NASDAQ: CRON)**: Operates in the cultivation, production, and marketing of cannabis products across Canada, Israel, and Germany. Recently launched new products, including Lord Jones live resin vapes and hash prerolls [7][8][9]

Core Viewpoint - Cannabis investors are concerned that the DEA's decision to delay the public meeting on cannabis rescheduling until December 2, 2024, may indicate that marijuana rescheduling is unlikely before the next presidential election [1][2]. Group 1: Impact on Cronos Group - Shares of Cronos Group fell by 4.1% and reached a decline of 5.7% earlier in the day following the DEA's announcement [1]. - Despite not currently selling cannabis products in the U.S. and having exited the U.S. hemp-derived CBD market, Cronos Group is interested in entering the U.S. cannabis market in the future [3][4]. - The DEA's timeline raises concerns that cannabis may not be rescheduled before the next president takes office in January 2025, which could hinder Cronos Group's potential market entry [4]. Group 2: Financial Performance and Investment Outlook - Cronos Group reported a net loss of $8.7 million in its latest quarter, indicating ongoing unprofitability [5]. - The company has opportunities in Europe; however, the absence of a U.S. presence limits its growth prospects [5]. - Investors seeking to profit from the cannabis market may find better alternatives that are already profitable and have stronger growth prospects compared to Cronos Group [5].

Market Overview - The S&P 500 index reached a high of 5,670 in July but has shown volatility with a downward trend recently due to geopolitical tensions and sluggish GDP growth [1] - The U.S. Federal Reserve is expected to implement expansionary policies before the end of 2024, potentially leading to multiple rate cuts next year, which will support GDP growth [2] Li Auto (LI) - Li Auto's stock has corrected by 48% year-to-date, driven by negative sentiment in the EV industry and bearish views on Chinese stocks, but is considered undervalued with a forward P/E of 16.7 [4] - The company reported a cash buffer of $13.7 billion as of Q1 2024, allowing for investment in innovation and expansion [5] - Li Auto achieved a vehicle margin of 19.3% and reported a 25.5% year-on-year growth in vehicle deliveries for Q2 2024, indicating potential for a rally from oversold levels [6] Miniso Group (MNSO) - Miniso's stock has declined by 22% year-to-date, but is viewed as a buy with a forward P/E of 12.7 and a dividend yield of 2.6% [8] - The company reported a revenue growth of 26% for Q1 2024, reaching $515.7 million, with an adjusted EBITDA margin increase of 200 basis points to 25.9% [9] - Miniso plans to open 900 to 1,100 new stores annually from 2024 to 2028, expecting revenue growth at a CAGR of over 20% during this period [10] Marathon Digital (MARA) - Marathon Digital's stock is considered undervalued with a strong growth outlook, reporting a 78% year-on-year revenue growth to $145.1 million for Q2 2024 [12] - The company has an energized hash rate of 31.5 EH/s, which increased by 78% year-on-year, and expects to reach a capacity of 50 EH/s by year-end [13] - Marathon reported a liquidity buffer of $1.4 billion as of Q2 2024, providing flexibility for aggressive investments [13] IAMGOLD (IAG) - IAMGOLD's stock has surged by 110% in the last 12 months, with a forward P/E of 11, indicating attractive valuations [16] - The company is expected to benefit from higher gold prices, with gold trading at $2,460 an ounce and potential to reach $3,000 in the next 6 to 18 months [15] - IAMGOLD commenced production at the Côté Gold assets, with expectations for revenue and cash flow growth [16] Tempus AI (TEM) - Tempus AI is a new player in healthcare technology, reporting a 25% year-on-year revenue growth to $166 million for Q2 2024, with data licensing revenue increasing by 40% [19] - The company has expanded its immune-oncology portfolio and received approval for its next-generation sequencing analysis, positioning it for future growth [20] PACS Group (PACS) - PACS Group reported a 31% year-on-year revenue growth to $1.9 billion for the first half of 2024, with increased revenue and adjusted EBITDA guidance [22] - The company added 167 skilled nursing beds in Q2, and its mature facilities have an occupancy rate of 94.2%, supporting robust revenue growth [23] Cronos (CRON) - Cronos reported a 46% year-on-year revenue growth to $27.8 million for Q2 2024, supported by new market expansions [25] - The company has a cash buffer of $848 million, providing flexibility for growth initiatives [24] - Cronos is expected to achieve EBITDA break-even by 2025, indicating potential for significant stock appreciation [26]

Investors were clearly impressed by one particular metric in the company's freshly issued quarterly earnings report. The market caught a nice buzz from Cronos Group (CRON 4.50%) on the second-to-last day of the trading week. The Canadian pot company unveiled its second-quarter results, and investors found them encouraging enough to send Cronos stock nearly 5% higher. By comparison, the benchmark S&P 500 index increased by 2.3%. Lighting up in Canada For its second quarter, Cronos -- which reports in U.S. do ...

Financial Data and Key Metrics Changes - The company reported consolidated net revenue of $27.8 million, a 46% increase from the prior year, with constant currency revenue increasing by 49% to $28.3 million [10] - Gross profit was $6.3 million, equating to a 23% gross margin, representing a $3.2 million improvement in gross profit and roughly a 600 basis point improvement in gross margin [10] - Consolidated adjusted EBITDA was negative $11.1 million, representing a $4.9 million improvement from the prior year period [10] Business Line Data and Key Metrics Changes - Spinach brand achieved a 6.2% market share in the flower category in Canada, with successful product launches like Spinach Grindz [6] - In the edibles category, Spinach had a 15.6% market share, with new product launches such as SOURZ by Spinach Tropical Party Pack [7] - The vape category saw Spinach holding a number four market position with 6.8% of retail sales [8] Market Data and Key Metrics Changes - The Canadian market has experienced significant supply and demand imbalances, leading to price compression and a shortage of high-quality cannabis [4][5] - International markets, particularly Israel and the UK, have shown growth potential, with successful product launches and improved pricing strategies [9] Company Strategy and Development Direction - The company is focusing on expanding GrowCo to meet global demand for high-quality cannabis flower, with an investment of approximately $51 million [5] - There is a strategic emphasis on developing a borderless product portfolio and entering new markets as they become available [9][12] - The company aims to achieve operational cost savings of $5 million to $10 million on a standalone basis [11] Management's Comments on Operating Environment and Future Outlook - Management highlighted the shift in supply dynamics, indicating a shortage of high-quality flower and the potential for pricing increases as international markets expand [14] - The company remains confident in its trajectory of growing revenue, improving margins, and reducing costs while innovating [12] Other Important Information - The company ended the quarter with $848 million in cash and cash equivalents, down by $6.9 million from Q1, but cash flow from operations was positive $1.7 million [12] - The consolidation of GrowCo's results in Q3 is expected to highlight its performance and advantages to the overall business [11] Q&A Session Summary Question: Regarding the GrowCo investment and cost-benefit analysis - Management explained that the investment in GrowCo is strategic due to the consistent production of high-quality flower and the expanding international markets, which present a good risk-reward scenario [14] Question: Plans for PEACE NATURALS Campus and its operational impact - Management clarified that PEACE NATURALS is not idle and is actively used for producing edibles and packaging, thus not causing any operational drag [16]

PART I FINANCIAL INFORMATION [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements.) This section presents Cronos Group Inc.'s unaudited condensed consolidated financial statements and detailed notes on accounting policies and financial items [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to **$1,091,048 thousand** by June 30, 2024, from **$1,140,085 thousand** at year-end 2023, with reduced liabilities and equity Condensed Consolidated Balance Sheets (in thousands of U.S. dollars) | Metric | As of June 30, 2024 (in thousands of U.S. dollars) | As of December 31, 2023 (in thousands of U.S. dollars) | | :--------------------------------- | :------------------------------------------------- | :---------------------------------------------------- | | Total assets | $1,091,048 | $1,140,085 | | Total current assets | $935,278 | $933,306 | | Cash and cash equivalents | $848,189 | $669,291 | | Short-term investments | — | $192,237 | | Total liabilities | $35,256 | $43,961 | | Total shareholders' equity | $1,055,792 | $1,096,124 | [Condensed Consolidated Statements of Net Loss and Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Net%20Loss%20and%20Comprehensive%20Income%20%28Loss%29) Net loss for the six months ended June 30, 2024, improved to **$11,243 thousand** from **$27,754 thousand** in the prior year, driven by revenue growth and expense reduction Condensed Consolidated Statements of Net Loss and Comprehensive Income (Loss) (in thousands of U.S. dollars) | Metric (in thousands of U.S. dollars) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net revenue | $27,762 | $19,021 | $53,050 | $38,516 | | Gross profit | $6,297 | $3,099 | $10,780 | $6,026 | | Operating loss | $(15,561) | $(20,620) | $(31,509) | $(41,389) | | Total other income | $4,628 | $14,777 | $17,534 | $16,075 | | Net loss | $(8,759) | $(8,497) | $(11,243) | $(27,754) | | Basic and diluted net loss per share | $(0.02) | $(0.02) | $(0.03) | $(0.07) | [Condensed Consolidated Statements of Changes in Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) Total shareholders' equity decreased to **$1,055,792 thousand** by June 30, 2024, primarily due to net loss and foreign exchange impacts Condensed Consolidated Statements of Changes in Equity (in thousands of U.S. dollars) | Metric (in thousands of U.S. dollars) | As of January 1, 2024 | As of June 30, 2024 | | :------------------------------------ | :-------------------- | :------------------ | | Share capital | $613,725 | $616,379 | | Additional paid-in capital | $48,449 | $49,298 | | Retained earnings | $416,719 | $405,650 | | Accumulated other comprehensive (loss)| $20,678 | $(12,013) | | Total shareholders' equity | $1,096,124 | $1,055,792 | [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash outflow significantly improved to **$460 thousand** for six months ended June 30, 2024, while investing activities generated **$180,999 thousand** Condensed Consolidated Statements of Cash Flows (in thousands of U.S. dollars) | Metric (in thousands of U.S. dollars) | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Cash flows used in operating activities | $(460) | $(59,467) | | Cash flows provided by (used in) investing activities | $180,999 | $(298,964) | | Cash flows used in financing activities | $(905) | $(782) | | Net change in cash and cash equivalents | $178,898 | $(355,216) | | Cash and cash equivalents, end of period | $848,189 | $409,428 | [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20(Unaudited)) Detailed notes cover background, accounting policies, segment information, revenue recognition, and specific financial items including discontinued operations and investments [1. Background, Basis of Presentation, and Summary of Significant Accounting Policies](index=8&type=section&id=1.%20Background,%20Basis%20of%20Presentation,%20and%20Summary%20of%20Significant%20Accounting%20Policies) Cronos Group, a global cannabinoid company, exited U.S. hemp operations in Q2 2023, now operating as a single segment in Canada and Israel, with revenue from cannabis flower and extracts - Cronos Group Inc. is an innovative global cannabinoid company focused on building disruptive intellectual property through cannabis research, technology, and product development, with a portfolio including Spinach®, PEACE NATURALS®, and Lord Jones®[15](index=15&type=chunk) - In Q2 2023, the Company exited its U.S. hemp-derived cannabinoid product operations, which are now reported as discontinued operations[16](index=16&type=chunk) - The Company now operates as a single reportable segment, comprising operations in Canada and Israel, involved in the cultivation, manufacture, and marketing of cannabis and cannabis-derived products[16](index=16&type=chunk) Revenue by Category (in thousands of U.S. dollars) | Revenue Category (in thousands of U.S. dollars) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cannabis flower | $20,661 | $14,014 | $38,186 | $27,142 | | Cannabis extracts | $7,064 | $4,926 | $14,791 | $11,227 | | Other | $37 | $81 | $73 | $147 | | **Net revenue** | **$27,762** | **$19,021** | **$53,050** | **$38,516** | - As of June 30, 2024, **30%** of the Company's accounts receivable were due from one major customer, indicating a concentration of credit risk[19](index=19&type=chunk) [2. Discontinued Operations](index=11&type=section&id=2.%20Discontinued%20Operations) Cronos Group exited U.S. hemp-derived cannabinoid operations in Q2 2023, classifying them as discontinued, with no activity reported in 2024 - The Company exited its U.S. hemp-derived cannabinoid product operations in Q2 2023, classifying them as discontinued operations[22](index=22&type=chunk) - No activity was reported in discontinued operations for the three and six months ended June 30, 2024[22](index=22&type=chunk) Net Loss from Discontinued Operations (in thousands of U.S. dollars) | Metric (in thousands of U.S. dollars) | Three months ended June 30, 2023 | Six months ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :----------------------------- | | Net revenue | $380 | $1,029 | | Gross profit | $(1,307) | $(1,854) | | Total operating expenses | $1,367 | $2,047 | | Net loss from discontinued operations | $(2,834) | $(4,056) | [3. Inventory, net](index=13&type=section&id=3.%20Inventory,%20net) Net inventory decreased slightly to **$29,182 thousand** by June 30, 2024, from **$30,495 thousand** at year-end 2023, with finished goods as the largest component Inventory by Category (in thousands of U.S. dollars) | Inventory Category (in thousands of U.S. dollars) | As of June 30, 2024 | As of December 31, 2023 | | :------------------------------------------------ | :------------------ | :---------------------- | | Raw materials | $5,351 | $4,795 | | Work-in-progress | $9,116 | $10,593 | | Finished goods | $14,367 | $14,819 | | Supplies and consumables | $348 | $288 | | **Total** | **$29,182** | **$30,495** | [4. Investments](index=13&type=section&id=4.%20Investments) Equity investment in Cronos GrowCo increased to **$21,226 thousand**, while other investments decreased significantly due to **$25,650 thousand** impairment charges on the PharmaCann Option Investments (in thousands of U.S. dollars) | Investment (in thousands of U.S. dollars) | As of June 30, 2024 | As of December 31, 2023 | | :---------------------------------------- | :------------------ | :---------------------- | | Equity method investments, net | $21,226 | $19,488 | | Other investments | $3,168 | $35,251 | Share of Income (Loss) from Equity Method Investments (in thousands of U.S. dollars) | Share of Income (Loss) from Equity Method Investments (in thousands of U.S. dollars) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :----------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cronos GrowCo | $917 | $270 | $2,365 | $(226) | - The PharmaCann Option, an investment in a U.S. cannabis company, incurred non-cash impairment charges of **$12,734 thousand** in Q1 2024 and **$12,916 thousand** in Q2 2024, totaling **$25,650 thousand** for the six months ended June 30, 2024, due to adverse forecast changes in PharmaCann's financial performance[32](index=32&type=chunk)[33](index=33&type=chunk) - Beginning in Q3 2024, Cronos GrowCo's results will be consolidated into the Company's financial statements, and the investment will be reclassified as an intercompany transaction[30](index=30&type=chunk) [5. Loans Receivable, net](index=15&type=section&id=5.%20Loans%20Receivable,%20net) Total loans receivable, net, increased to **$78,040 thousand** by June 30, 2024, driven by a **C$70,000 thousand** (approximately **$51 million**) increase in the GrowCo Credit Facility Loans Receivable, net (in thousands of U.S. dollars) | Loan Type (in thousands of U.S. dollars) | As of June 30, 2024 | As of December 31, 2023 | | :--------------------------------------- | :------------------ | :---------------------- | | GrowCo Credit Facility | $62,146 | $58,679 | | Mucci Promissory Note | $13,929 | $13,379 | | Cannasoul Collaboration Loan | $1,692 | $1,771 | | Accrued interest | $273 | $755 | | **Total loans receivable, net** | **$78,040** | **$74,577** | - The GrowCo Credit Facility was amended in June 2024 to increase the aggregate principal amount by **C$70,000 thousand** (approximately **$51 million**) through a second secured non-revolving credit facility (Term Loan B) to fund facility expansion[35](index=35&type=chunk) - Expected credit loss allowances on long-term financial assets increased by **$1,021 thousand** for the six months ended June 30, 2024, primarily due to increased loans under the GrowCo Credit Facility[37](index=37&type=chunk)[38](index=38&type=chunk) [6. Restructuring](index=17&type=section&id=6.%20Restructuring) Cronos Fermentation operations ceased in Q1 2024, incurring **$1,631 thousand** impairment and **$445 thousand** loss, while the Peace Naturals Campus sale agreement was terminated - The Company ceased operations at Cronos Fermentation in Q1 2024, leading to a **$1,631 thousand** impairment loss on long-lived assets and a **$445 thousand** loss for estimated costs to sell[40](index=40&type=chunk) Restructuring Costs (in thousands of U.S. dollars) | Restructuring Costs (in thousands of U.S. dollars) | Three months ended June 30, 2024 | Six months ended June 30, 2024 | | :------------------------------------------------- | :------------------------------- | :----------------------------- | | Employee Termination Benefits | $24 | $24 | | Other Restructuring Costs | $547 | $547 | | **Total Restructuring Costs** | **$571** | **$571** | - The agreement for the sale and leaseback of the Peace Naturals Campus was terminated in Q2 2024, and the Company is exploring other strategic options for the facility[40](index=40&type=chunk) [7. Share-based Compensation](index=18&type=section&id=7.%20Share-based%20Compensation) Share-based compensation expense decreased to **$4,251 thousand** for the six months ended June 30, 2024, due to headcount reductions, with stock options decreasing and RSUs increasing Share-based Compensation Expense (in thousands of U.S. dollars) | Share-based Compensation Expense (in thousands of U.S. dollars) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :-------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock options | $33 | $372 | $67 | $1,106 | | RSUs | $2,203 | $1,959 | $4,184 | $3,760 | | **Total share-based compensation** | **$2,236** | **$2,331** | **$4,251** | **$4,866** | Share-based Awards | Share-based Awards | As of June 30, 2024 | As of December 31, 2023 | | :----------------- | :------------------ | :---------------------- | | Stock options | 721,505 | 2,103,201 | | RSUs | 8,450,225 | 7,381,541 | | DSUs | 366,296 | 521,679 | [8. Loss per Share](index=20&type=section&id=8.%20Loss%20per%20Share) Basic and diluted loss per share from continuing operations was **$(0.03)** for the six months ended June 30, 2024, with no discontinued operations loss Loss per Share (in thousands of U.S. dollars) | Metric | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------------------------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss from continuing operations attributable to Cronos Group shareholders (in thousands of USD) | $(8,757) | $(5,526) | $(10,998) | $(23,473) | | Basic and diluted loss from continuing operations per share | $(0.02) | $(0.01) | $(0.03) | $(0.06) | | Net loss from discontinued operations attributable to Cronos Group shareholders (in thousands of USD) | — | $(2,834) | — | $(4,056) | | Basic and diluted loss from discontinued operations per share | — | $(0.01) | — | $(0.01) | - Total securities of **19,434,059** and **22,007,363** were not included in the computation of diluted shares outstanding for the three and six months ended June 30, 2024, respectively, as their inclusion would be anti-dilutive[49](index=49&type=chunk) [9. Commitments and Contingencies](index=20&type=section&id=9.%20Commitments%20and%20Contingencies) The company faces ongoing legal proceedings, including class actions and regulatory reviews, with new litigation and a proposed **369%** anti-dumping duty on Canadian medical cannabis imports into Israel - The Company is subject to ongoing class action complaints in the U.S. and Canada related to the restatement of its 2019 interim financial statements, with a reconsideration motion pending in the U.S. and a class action certified in Canada[52](index=52&type=chunk)[53](index=53&type=chunk) - Regulatory settlements with the SEC and OSC in October 2022 resolved investigations into the restatements, with the SEC settlement resulting in the loss of well-known seasoned issuer status for three years and restrictions on private offering exemptions for five years[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) - A class action lawsuit in Israel alleging violations in medical cannabis marketing was dismissed by the District Court of Tel Aviv, but the plaintiffs have appealed to the Supreme Court of Israel[58](index=58&type=chunk) - The Israel Ministry of Economy and Industry initiated an anti-dumping investigation into Canadian medical cannabis imports, with a preliminary determination proposing a **369%** duty on Canadian licensed producers, which could materially impact the Company's Israeli business[58](index=58&type=chunk) [10. Fair Value Measurements](index=22&type=section&id=10.%20Fair%20Value%20Measurements) Financial assets and liabilities are measured using a three-level fair value hierarchy, with the PharmaCann Option, a Level 3 asset, impaired to zero for the six months ended June 30, 2024 Fair Value Measurements (in thousands of U.S. dollars) | Asset/Liability (in thousands of U.S. dollars) | Level 1 | Level 2 | Level 3 | Total | | :--------------------------------------------- | :------ | :------ | :------ | :---- | | Cash and cash equivalents (June 30, 2024) | $848,189| — | — | $848,189| | Other investments (June 30, 2024) | $3,168 | — | — | $3,168 | | Derivative liabilities (June 30, 2024) | — | — | $21 | $21 | | Short-term investments (Dec 31, 2023) | $192,237| — | — | $192,237| - The PharmaCann Option, a Level 3 asset measured on a non-recurring basis, was impaired to zero for the six months ended June 30, 2024, following impairment charges in the first and second quarters[62](index=62&type=chunk) [11. Related Party Transactions](index=23&type=section&id=11.%20Related%20Party%20Transactions) Significant related party transactions with Cronos GrowCo include **$16,952 thousand** in purchases and a new supply agreement for 70-80% of GrowCo's production Related Party Transactions (in thousands of U.S. dollars) | Related Party Transaction (in thousands of U.S. dollars) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cronos GrowCo – purchases | $9,942 | $6,549 | $16,952 | $14,015 | | Cronos GrowCo – germplasm supply agreement revenue | $266 | — | $627 | — | | Related-party vendor – purchases | $260 | $603 | $936 | $1,436 | - An amended and restated supply agreement with Cronos GrowCo grants Cronos the right to purchase **70-80%** of Cronos GrowCo's forecasted and actual production capacity[64](index=64&type=chunk) - Beginning in Q3 2024, Cronos GrowCo's results will be consolidated into the Company's financial statements, and all transactions will be eliminated upon consolidation[64](index=64&type=chunk) [12. Subsequent Events](index=24&type=section&id=12.%20Subsequent%20Events) Effective July 1, 2024, Cronos Group gained majority control of Cronos GrowCo, leading to consolidation of GrowCo's financial results starting in Q3 2024 - As of July 1, 2024, Cronos Group gained majority control of Cronos GrowCo's board, leading to the consolidation of Cronos GrowCo's financial results starting in Q3 2024[66](index=66&type=chunk) - The consolidation of Cronos GrowCo is a business combination under ASC 805, with **$196 thousand** in acquisition costs recorded in Q2 2024[66](index=66&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) Management discusses financial condition and results for Q2 2024, covering forward-looking statements, currency, business overview, strategy, recent developments, consolidated results, non-GAAP measures, and liquidity [Forward-Looking Statements](index=25&type=section&id=Forward-Looking%20Statements) The report contains forward-looking statements subject to risks and uncertainties, covering impacts of the Anti-Dumping Investigation, Middle East Conflict, market expansion, and Cronos GrowCo expansion - Forward-looking statements are based on current expectations and assumptions, covering topics such as the Anti-Dumping Investigation, Middle East Conflict, market expansion, cost-cutting, U.S. hemp exit, and Cronos GrowCo expansion[69](index=69&type=chunk)[71](index=71&type=chunk)[73](index=73&type=chunk) - Key risks include potential negative impacts from the Anti-Dumping Investigation and Middle East Conflict on Israeli operations, challenges in market distribution, inability to achieve anticipated benefits from restructuring, raw material shortages, and regulatory obstacles[75](index=75&type=chunk) [Foreign currency exchange rates](index=28&type=section&id=Foreign%20currency%20exchange%20rates) The company reports in U.S. dollars, translating foreign operations' assets and liabilities at period-end rates and income/cash flows at average rates, impacting reported financial results - The Company's reporting currency is U.S. dollars. Foreign operations' assets and liabilities are translated at period-end exchange rates, while income statements and cash flows use average rates[76](index=76&type=chunk) Canadian Dollar Exchange Rate (C$ per $) | Currency Exchange Rate (C$ per $) | As of June 30, 2024 | As of June 30, 2023 | As of December 31, 2023 | | :-------------------------------- | :------------------ | :------------------ | :---------------------- | | Spot rate | 1.3674 | 1.3242 | 1.3243 | | Year-to-date average rate | 1.3581 | 1.3474 | N/A | New Israeli Shekel Exchange Rate (ILS per $) | Currency Exchange Rate (ILS per $) | As of June 30, 2024 | As of June 30, 2023 | As of December 31, 2023 | | :--------------------------------- | :------------------ | :------------------ | :---------------------- | | Spot rate | 3.7742 | 3.7051 | 3.6163 | | Year-to-date average rate | 3.6950 | 3.5892 | N/A | [Business Overview](index=29&type=section&id=Business%20Overview) Cronos Group is a global cannabinoid company focused on cannabis research, technology, and product development, building an iconic brand portfolio including Spinach®, PEACE NATURALS®, and Lord Jones® - Cronos is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology, and product development[79](index=79&type=chunk) - The company's brand portfolio includes Spinach®, PEACE NATURALS®, and Lord Jones®[79](index=79&type=chunk) [Strategy](index=29&type=section&id=Strategy) Cronos Group's strategy focuses on growing iconic brands, developing a global sales network, establishing an efficient supply chain, and monetizing disruptive intellectual property - Cronos's strategy includes four core priorities[81](index=81&type=chunk) - Growing a portfolio of iconic brands that responsibly elevate the consumer experience[81](index=81&type=chunk) - Developing a diversified global sales and distribution network[81](index=81&type=chunk) - Establishing an efficient global supply chain[81](index=81&type=chunk) - Creating and monetizing disruptive intellectual property[81](index=81&type=chunk) [Discontinued Operations](index=29&type=section&id=Discontinued%20Operations) Cronos exited U.S. hemp-derived cannabinoid operations in Q2 2023, classifying them as discontinued due to a strategic shift impacting operations and financial results - Cronos exited its U.S. hemp-derived cannabinoid product operations in Q2 2023, classifying them as discontinued operations due to a strategic shift[81](index=81&type=chunk) [Business Segments](index=29&type=section&id=Business%20Segments) After exiting U.S. operations in Q2 2023, Cronos now reports as a single segment encompassing Canadian and Israeli operations, adhering to medical cannabis certifications - Cronos now reports through one consolidated segment, encompassing operations in Canada and Israel, after exiting U.S. operations in Q2 2023[82](index=82&type=chunk) - Canadian operations are conducted through Peace Naturals Project Inc. in Stayner, Ontario, while Israeli operations adhere to IMC-GAP, IMC-GMP, and IMC-GDP certifications for medical cannabis[82](index=82&type=chunk) [Recent Developments](index=30&type=section&id=Recent%20Developments) Recent developments include monitoring the Middle East Conflict, expanding investment in Cronos GrowCo with a **$51 million** credit facility, and terminating the Peace Naturals Campus sale agreement [Middle East Conflict](index=30&type=section&id=Middle%20East%20Conflict) Cronos monitors the Middle East Conflict for potential impacts on Israeli personnel, business, and financial assets, acknowledging high uncertainty and material change possibility - Cronos is monitoring the Middle East Conflict for potential impacts on its Israeli personnel, business, and financial assets/liabilities, acknowledging high uncertainty and potential material changes[84](index=84&type=chunk) [Transaction with Cronos GrowCo](index=30&type=section&id=Transaction%20with%20Cronos%20GrowCo) Cronos provided a **$51 million** (C**$70 million**) credit facility to Cronos GrowCo for expansion, gained enhanced governance, and will consolidate results from Q3 2024, with a new supply agreement for 70-80% of production - Cronos provided an approximately **$51 million** (C**$70 million**) secured non-revolving credit facility to Cronos GrowCo for facility expansion, aiming to meet global demand for high-quality cannabis flower[85](index=85&type=chunk) - As of July 1, 2024, Cronos gained enhanced governance over GrowCo, appointing three of five board members, and will consolidate GrowCo's financial results starting in Q3 2024[85](index=85&type=chunk)[87](index=87&type=chunk) - A new supply agreement grants Cronos the option to purchase up to **80%** of GrowCo's total production before expansion sales, and **70%** thereafter[86](index=86&type=chunk) [Termination of Agreement for Sale and Leaseback of Peace Naturals Campus](index=30&type=section&id=Termination%20of%20Agreement%20for%20Sale%20and%20Leaseback%20of%20Peace%20Naturals%20Campus) The Peace Naturals Campus sale and leaseback agreement was terminated on May 28, 2024, prompting evaluation of alternative strategic options for the facility - The sale and leaseback agreement for the Peace Naturals Campus was terminated on May 28, 2024[87](index=87&type=chunk) - The Company is now evaluating strategic options for the Peace Naturals Campus, including potentially continuing and expanding operations at the facility[87](index=87&type=chunk) [Consolidated Results of Operations](index=31&type=section&id=Consolidated%20Results%20of%20Operations) Net revenue and gross profit significantly improved for Q2 2024, driven by increased cannabis sales and reduced operating expenses, despite impairment losses leading to a net loss [Summary of select financial results](index=31&type=section&id=Summary%20of%20select%20financial%20results) Net revenue increased by **46%** to **$27.8 million** for three months and **38%** to **$53.1 million** for six months ended June 30, 2024, with gross profit growing **103%** and **79%** respectively Summary of Select Financial Results (in thousands of U.S. dollars) | Metric (in thousands of U.S. dollars) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Change $ | Change % | | :------------------------------------ | :------------------------------- | :------------------------------- | :------- | :------- | | Net revenue | $27,762 | $19,021 | $8,741 | 46 % | | Cost of sales | $21,070 | $15,922 | $5,148 | 32 % | | Gross profit | $6,297 | $3,099 | $3,198 | 103 % | | Gross margin | 23 % | 16 % | N/A | 7 pp | Summary of Select Financial Results (in thousands of U.S. dollars) | Metric (in thousands of U.S. dollars) | Six months ended June 30, 2024 | Six months ended June 30, 2023 | Change $ | Change % | | :------------------------------------ | :----------------------------- | :----------------------------- | :------- | :------- | | Net revenue | $53,050 | $38,516 | $14,534 | 38 % | | Cost of sales | $41,875 | $32,490 | $9,385 | 29 % | | Gross profit | $10,780 | $6,026 | $4,754 | 79 % | | Gross margin | 20 % | 16 % | N/A | 4 pp | [Net revenue](index=31&type=section&id=Net%20revenue) Consolidated net revenue increased by **$8.7 million (46%)** for three months and **$14.5 million (38%)** for six months ended June 30, 2024, driven by higher cannabis sales in Canada and Israel - Net revenue increased by **$8.7 million (46%)** for the three months and **$14.5 million (38%)** for the six months ended June 30, 2024[91](index=91&type=chunk) - The increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, higher cannabis flower sales in Israel, and sales in other countries[91](index=91&type=chunk) - This growth was partially offset by an adverse price/mix in the Canadian cannabis flower category, leading to increased excise tax payments as a percentage of revenue[91](index=91&type=chunk) [Inventory write-down](index=31&type=section&id=Inventory%20write-down) Inventory write-downs of **$0.4 million** were reported for both three and six months ended June 30, 2024, primarily due to scrapped unusable inventory Inventory Write-down (in thousands of U.S. dollars) | Metric (in thousands of U.S. dollars) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Inventory write-down | $395 | — | $395 | — | - The increase in inventory write-downs was primarily due to unusable inventory that was scrapped in the period[92](index=92&type=chunk) [Cost of sales](index=32&type=section&id=Cost%20of%20sales) Consolidated cost of sales increased by **$5.1 million (32%)** for three months and **$9.4 million (29%)** for six months ended June 30, 2024, driven by higher cannabis sales volumes Cost of Sales (in thousands of U.S. dollars) | Metric (in thousands of U.S. dollars) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of sales | $21,070 | $15,922 | $41,875 | $32,490 | - The increase in cost of sales was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, and higher cannabis flower sales in Israel and other countries[93](index=93&type=chunk) [Gross profit](index=32&type=section&id=Gross%20profit) Gross profit increased by **$3.2 million (103%)** for three months and **$4.8 million (79%)** for six months ended June 30, 2024, driven by higher cannabis sales volumes Gross Profit (in thousands of U.S. dollars) | Metric (in thousands of U.S. dollars) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gross profit | $6,297 | $3,099 | $10,780 | $6,026 | - The increase in gross profit was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, higher cannabis flower sales in Israel, and sales in other countries[93](index=93&type=chunk) - This was partially offset by an adverse price/mix in the Canadian cannabis flower category, driving increased excise tax payments as a percentage of revenue, and higher inventory write-downs[93](index=93&type=chunk) [Operating expenses](index=32&type=section&id=Operating%20expenses) Total operating expenses decreased by **$1.9 million (8%)** for three months and **$5.1 million (11%)** for six months ended June 30, 2024, due to reduced sales, marketing, R&D, and G&A Operating Expenses (in thousands of U.S. dollars) | Operating Expense (in thousands of U.S. dollars) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Change $ | Change % | | :----------------------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Sales and marketing | $4,330 | $5,297 | $(967) | (18)% | | Research and development | $962 | $1,107 | $(145) | (13)% | | General and administrative | $12,767 | $13,451 | $(684) | (5)% | | Restructuring costs | $547 | — | $547 | N/M | | Share-based compensation | $2,236 | $2,331 | $(95) | (4)% | | Depreciation and amortization | $1,016 | $1,533 | $(517) | (34)% | | Impairment loss on long-lived assets | — | — | — | N/A | | **Total operating expenses** | **$21,858** | **$23,719** | **$(1,861)** | **(8)%** | Operating Expenses (in thousands of U.S. dollars) | Operating Expense (in thousands of U.S. dollars) | Six months ended June 30, 2024 | Six months ended June 30, 2023 | Change $ | Change % | | :----------------------------------------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Sales and marketing | $9,662 | $11,038 | $(1,376) | (12)% | | Research and development | $1,959 | $3,146 | $(1,187) | (38)% | | General and administrative | $21,674 | $25,307 | $(3,633) | (14)% | | Restructuring costs | $630 | — | $630 | N/M | | Share-based compensation | $4,251 | $4,866 | $(615) | (13)% | | Depreciation and amortization | $2,139 | $3,058 | $(919) | (30)% | | Impairment loss on long-lived assets | $1,974 | — | $1,974 | N/A | | **Total operating expenses** | **$42,289** | **$47,415** | **$(5,126)** | **(11)%**| [Other income and income tax benefit](index=33&type=section&id=Other%20income%20and%20income%20tax%20benefit) Total other income decreased by **$10.1 million (69%)** for three months but increased by **$1.5 million (9%)** for six months, impacted by impairment losses and foreign currency gains Other Income/Benefit (in thousands of U.S. dollars) | Other Income/Benefit (in thousands of U.S. dollars) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | Change $ | Change % | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | :------- | :------- | | Interest income, net | $13,451 | $12,471 | $980 | 8 % | | Share of income (loss) from equity method investments | $917 | $270 | $647 | 240 % | | Gain (loss) on revaluation of financial instruments | $(3,615) | $5,193 | $(8,808) | N/M | | Impairment loss on other investments | $(12,916) | — | $(12,916)| N/M | | Foreign currency transaction gain (loss) | $6,543 | $(3,174) | $9,717 | N/M | | Other, net | $248 | $17 | $231 | N/M | | **Total other income** | **$4,628** | **$14,777** | **$(10,149)**| **(69)%**| | Income tax benefit | $2,174 | $180 | $1,994 | N/M | | Loss from discontinued operations | — | $(2,834) | $2,834 | N/M | Other Income/Benefit (in thousands of U.S. dollars) | Other Income/Benefit (in thousands of U.S. dollars) | Six months ended June 30, 2024 | Six months ended June 30, 2023 | Change $ | Change % | | :-------------------------------------------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Interest income, net | $27,696 | $23,646 | $4,050 | 17 % | | Share of income (loss) from equity method investments | $2,365 | $(226) | $2,591 | N/M | | Gain (loss) on revaluation of financial instruments | $(6,257) | $(2,565) | $(3,692) | (144)% |\ | Impairment loss on other investments | $(25,650) | — | $(25,650)| N/M | | Foreign currency transaction gain (loss) | $19,802 | $(4,817) | $24,619 | N/M | | Other, net | $(422) | $37 | $(459) | N/M | | **Total other income** | **$17,534** | **$16,075** | **$1,459** | **9 %** | | Income tax benefit | $2,732 | $1,616 | $1,116 | 69 % | | Loss from discontinued operations | — | $(4,056) | $4,056 | N/M | [Non-GAAP Measures](index=34&type=section&id=Non-GAAP%20Measures) Non-GAAP measures, including Adjusted EBITDA and constant currency, provide insights into operational performance, showing improvement for both three and six months ended June 30, 2024 [Adjusted EBITDA](index=35&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA improved to **$(11,051) thousand** for three months and **$(21,720) thousand** for six months ended June 30, 2024, reflecting adjustments for non-cash and non-recurring items - Adjusted EBITDA is a non-GAAP measure that excludes non-cash items and items not reflecting management's assessment of ongoing business performance[111](index=111&type=chunk) Adjusted EBITDA (in thousands of U.S. dollars) | Metric (in thousands of U.S. dollars) | Three months ended June 30, 2024 | Three months ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net loss | $(8,759) | $(8,497) | | EBITDA | $(22,871) | $(18,771) | | Adjustments (total) | $11,820 | $1,890 | | **Adjusted EBITDA** | **$(11,051)** | **$(16,881)** | Adjusted EBITDA (in thousands of U.S. dollars) | Metric (in thousands of U.S. dollars) | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(11,243) | $(27,754) | | EBITDA | $(38,427) | $(48,239) | | Adjustments (total) | $16,707 | $14,594 |\ | **Adjusted EBITDA** | **$(21,720)** | **$(33,645)** | [Constant Currency](index=37&type=section&id=Constant%20Currency) Constant currency adjustments show net revenue increased by **49%** for three months and **40%** for six months, with Adjusted EBITDA improving by **32%** due to higher sales and reduced expenses - Constant currency measures are used to assess underlying operational performance by excluding the effect of foreign currency rate fluctuations[119](index=119&type=chunk) Constant Currency Performance (in thousands of U.S. dollars) | Metric (Constant Currency, in thousands of U.S. dollars) | Three months ended June 30, 2024 | Change % (YoY) | | :------------------------------------------------------- | :------------------------------- | :------------- | | Net revenue | $28,290 | 49 % | | Gross profit | $6,434 | 108 % | | Gross margin | 23 % | 7 pp | | Operating expenses | $21,861 | (8)% | | Net loss from continuing operations | $(8,162) | (44)% | | Adjusted EBITDA | $(10,863) | 32 % | Constant Currency Performance (in thousands of U.S. dollars) | Metric (Constant Currency, in thousands of U.S. dollars) | Six months ended June 30, 2024 | Change % (YoY) | | :------------------------------------------------------- | :----------------------------- | :------------- | | Net revenue | $53,795 | 40 % | | Gross profit | $10,983 | 82 % | | Gross margin | 20 % | 4 pp | | Operating expenses | $42,336 | (11)% | | Net loss from continuing operations | $(10,643) | 55 % | | Adjusted EBITDA | $(21,508) | 32 % | - The improvement in Adjusted EBITDA on a constant currency basis was driven by higher cannabis flower and extract sales in Canada and Israel, decreases in general and administrative expenses, and lower costs associated with Ginkgo milestones[130](index=130&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2024, Cronos held **$848.2 million** in cash, with significantly decreased operating cash outflow and substantial cash generated from investing activities - As of June 30, 2024, the Company had **$848.2 million** in cash and cash equivalents and no short-term investments, which is believed to be sufficient for the next twelve months[132](index=132&type=chunk) Cash Flow Activity (in thousands of U.S. dollars) | Cash Flow Activity (in thousands of U.S. dollars) | Six months ended June 30, 2024 | Six months ended June 30, 2023 | | :------------------------------------------------ | :----------------------------- | :----------------------------- | | Cash flows used in operating activities | $(460) | $(59,467) | | Cash flows provided by (used in) investing activities | $180,999 | $(298,964) | | Cash flows used in financing activities | $(905) | $(782) | | Net change in cash | $178,898 | $(355,216) | - The **$59.0 million** decrease in cash used in operating activities was driven by a **$32.8 million** decrease in income taxes payable in the prior period, a **$21.5 million** increase in net income (after non-cash adjustments), higher interest received, and lower inventory increases[133](index=133&type=chunk) - Investing activities generated **$181.0 million**, a **$480.0 million** change from the prior year, primarily due to the maturity of short-term investments reinvested as cash equivalents[134](index=134&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The company faces foreign currency risk from Canadian and Israeli operations; a **10%** CAD exchange rate change would impact net assets by **$103.4 million**, with no hedging in place [Foreign currency risk](index=41&type=section&id=Foreign%20currency%20risk) Cronos Group faces foreign currency risk from Canadian and Israeli operations; a **10%** CAD exchange rate change would impact net assets by **$103.4 million**, with no hedging leading to potential significant gains or losses - The Company is exposed to foreign currency risk from its Canadian and Israeli operations, with assets, liabilities, and revenues denominated in Canadian dollars and Israeli new shekels[139](index=139&type=chunk) - A **10%** change in the Canadian dollar exchange rate would affect the carrying amount of net assets by approximately **$103.4 million** as of June 30, 2024[139](index=139&type=chunk) - The Company does not engage in hedging transactions, making it susceptible to significant foreign currency translation gains and losses, such as the **$32.5 million** loss for the six months ended June 30, 2024[139](index=139&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures.) Management concluded disclosure controls and procedures were effective as of June 30, 2024, with no material changes in internal control over financial reporting during the quarter [Evaluation of Disclosure Controls and Procedures](index=42&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures.) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of June 30, 2024, ensuring timely and accurate SEC reporting - As of June 30, 2024, the Company's disclosure controls and procedures were deemed effective by management, including the CEO and CFO[141](index=141&type=chunk) - These controls provide reasonable assurance that information for SEC reports is recorded, processed, summarized, and reported timely, and communicated to management for disclosure decisions[141](index=141&type=chunk) [Changes in Internal Control over Financial Reporting](index=42&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the three months ended June 30, 2024 - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2024[141](index=141&type=chunk) PART II OTHER INFORMATION [Item 1: Legal Proceedings](index=43&type=section&id=Item%201:%20Legal%20Proceedings.) Legal proceedings information is incorporated by reference from Note 9(b) of the condensed consolidated interim financial statements, detailing ongoing legal and regulatory matters - Information regarding legal proceedings is incorporated by reference from Note 9(b), 'Contingencies,' in the financial statements[143](index=143&type=chunk) [Item 1A: Risk Factors](index=43&type=section&id=Item%201A:%20Risk%20Factors.) Key risks include potential auditor delays, raw material shortages, and a proposed **369%** anti-dumping duty on Canadian medical cannabis imports into Israel, which could materially impact operations - The new auditor, Davidson & Company LLP, may not complete the review of Q3 2024 financial statements on time, potentially delaying the filing of the Quarterly Report on Form 10-Q[144](index=144&type=chunk) - The Company anticipates shortages in raw materials, particularly biomass, and may face challenges in obtaining adequate supplies at commercially reasonable prices, potentially leading to product shortages, delays, and reputational damage[145](index=145&type=chunk) - A proposed **369%** anti-dumping duty on Canadian medical cannabis imports into Israel, following a preliminary determination by the Trade Levies Commissioner, could materially and negatively impact the Company's Israeli business and financial results[146](index=146&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) No unregistered sales of equity securities or use of proceeds were reported for the period - No unregistered sales of equity securities or use of proceeds to report[147](index=147&type=chunk) [Item 3. Defaults Upon Senior Securities](index=44&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) No defaults upon senior securities were reported - No defaults upon senior securities to report[147](index=147&type=chunk) [Item 4. Mine Safety Disclosures](index=44&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) Mine Safety Disclosures are not applicable to the company's operations - Mine Safety Disclosures are not applicable[147](index=147&type=chunk) [Item 5. Other Information](index=44&type=section&id=Item%205.%20Other%20Information.) No directors or executive officers entered, modified, or terminated Rule 10b5-1 trading plans during Q2 2024, though share withholding elections may occur [Rule 10b5-1 Trading Plans](index=44&type=section&id=Rule%2010b5-1%20Trading%20Plans) No directors or executive officers entered, modified, or terminated Rule 10b5-1 trading plans during Q2 2024, though share withholding elections may occur - No directors or executive officers entered into, modified, or terminated Rule 10b5-1 trading plans during the three months ended June 30, 2024[147](index=147&type=chunk) - Officers or directors may elect to have shares withheld for taxes or option exercise prices, which may or may not satisfy Rule 10b5-1 conditions[147](index=147&type=chunk) [Item 6. Exhibits](index=45&type=section&id=Item%206.%20Exhibits) Exhibits filed with the Quarterly Report include the Certificate of Continuance, Credit and Supply Agreements, and various CEO/CFO certifications - Exhibits include the Certificate of Continuance and Articles, Amended and Restated Credit Agreement, Amended and Restated Supply Agreement, and various certifications (e.g., CEO/CFO certifications under Sarbanes-Oxley Act)[149](index=149&type=chunk)