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What changed in Cronos Group Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Cronos Group Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+573 added−644 removedSource: 10-K (2024-02-29) vs 10-K (2023-02-28)

Top changes in Cronos Group Inc.'s 2023 10-K

573 paragraphs added · 644 removed · 393 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

80 edited+36 added−73 removed79 unchanged
Biggest changeWith a passion to responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio. Our employees are critical to achieving this mission. In order to compete and succeed in our highly competitive and rapidly evolving industry, it is crucial that we continue to attract, develop, motivate and retain skilled, talented and passionate employees.
Biggest changeIn order to compete and succeed in our highly competitive and rapidly evolving industry, it is crucial that we continue to attract, develop, motivate and retain skilled, talented and passionate employees. The Company’s people strategy seeks to build a winning team and to foster a community where everyone feels included and empowered to do their best work.
We believe we are positioned to enter certain markets in Europe in a meaningful way while continuing to operate and penetrate the markets we currently serve, such as in Israel, due to our strong capitalization resulting from the Altria Investment, extensive experience and expertise in the highly regulated cannabis industry in Canada, which can be leveraged when entering new markets or growing existing operations, and strong partnerships with local distributors.
We believe we are positioned to enter certain markets in Europe in a meaningful way while continuing to operate and penetrate the markets we currently serve, such as in Israel and Germany, due to our strong capitalization resulting from the Altria Investment, extensive experience and expertise in the highly regulated cannabis industry in Canada, which can be leveraged when entering new markets or growing existing operations, and strong partnerships with local distributors.
The SQDC has also placed significant restrictions on the types of edibles that may be sold through its channels, prohibiting edibles that are sweet, confectionary, dessert, chocolate or any other product attractive to persons under 21 years of age. Similarly, the Prince Edward Island Cannabis Management Corporation does not allow cannabis vaporizers to be sold through its channels.
The SQDC has also placed significant restrictions on the types of edibles that may be sold through its channels, prohibiting edibles that are sweet, confectionary, dessert, chocolate or any other product SQDC considers attractive to persons under 21 years of age. Similarly, the Prince Edward Island Cannabis Management Corporation does not allow cannabis vaporizers to be sold through its channels.
In the ordinary course of our business, we enter into spot market purchase agreements and supply agreements with suppliers of dried cannabis and other cannabis products. Our supply agreements, for the most part, do not obligate us to purchase minimum quantities of products and generally contain provisions permitting cancellation of orders or termination on notice.
In the ordinary course of our business, we enter into spot market purchase agreements and supply agreements with suppliers of dried flower and other cannabis products. Our supply agreements, for the most part, do not obligate us to purchase minimum quantities of products and generally contain provisions permitting cancellation of orders or termination on notice.
Research and Development Activities and Intellectual Property Ginkgo The collaboration and license agreement between Ginkgo and the Company (the “Ginkgo Collaboration Agreement”) has enabled us to produce certain cultured cannabinoids at commercial scale at a fraction of the cost compared to traditional cultivation practices.
Research and Development Activities and Intellectual Property Ginkgo The collaboration and license agreement between Ginkgo and the Company (the “Ginkgo Collaboration Agreement”) enabled us to produce certain cultured cannabinoids at commercial scale at a fraction of the cost compared to traditional cultivation practices.
We believe these factors will enable us to develop greater market penetration, provide a greater variety of quality consumer products and enter into new markets and strengthen our existing market position in Europe and Israel.
We believe these factors will enable us to develop greater market penetration, provide a greater variety of quality consumer products and enter into new markets and strengthen our existing market position in Europe, Australia and Israel.
“Top-Up Securities” means any of our common shares issued: 11 Table of Contents • on the exercise, conversion or exchange of our convertible securities issued prior to the date of the Investor Rights Agreement or on the exercise, conversion or exchange of our convertible securities issued after the date of the Investor Rights Agreement in compliance with the terms of the Investor Rights Agreement, in each case, excluding any of our convertible securities owned by any member of the Altria Group; • pursuant to any share incentive plan of the Company; • on the exercise of any right granted by us pro rata to all shareholders to purchase additional common shares and/or other securities of the Company (other than a right issued in a rights offering in which Altria had the right to participate); • in connection with bona fide bank debt, equipment financing or non-equity interim financing transactions with our lenders, in each case, with an equity component; or • in connection with bona fide acquisitions (including acquisitions of assets or rights under a license or otherwise), mergers or similar business combination transactions or joint ventures undertaken and completed by us, in each case, other than (A) common shares issued pursuant to Altria’s pre-emptive right and (B) common shares issued pursuant to the Ginkgo Collaboration Agreement.
“Top-Up Securities” means any of our common shares issued: • on the exercise, conversion or exchange of our convertible securities issued prior to the date of the Investor Rights Agreement or on the exercise, conversion or exchange of our convertible securities issued after the date of the Investor Rights Agreement in compliance with the terms of the Investor Rights Agreement, in each case, excluding any of our convertible securities owned by any member of the Altria Group; • pursuant to any share incentive plan of the Company; • on the exercise of any right granted by us pro rata to all shareholders to purchase additional common shares and/or other securities of the Company (other than a right issued in a rights offering in which Altria had the right to participate); • in connection with bona fide bank debt, equipment financing or non-equity interim financing transactions with our lenders, in each case, with an equity component; or • in connection with bona fide acquisitions (including acquisitions of assets or rights under a license or otherwise), mergers or similar business combination transactions or joint ventures undertaken and completed by us, in each case, other than (A) common shares issued pursuant to Altria’s pre-emptive right and (B) common shares issued pursuant to the Ginkgo Collaboration Agreement.
Commercial Arrangements In connection with the Altria Investment, we and Altria have entered into certain commercial arrangements (the “Commercial Arrangements”), pursuant to which Altria provides us with consulting services on matters which may include R&D, marketing, advertising and brand management, government relations and regulatory affairs, finance, tax planning, logistics and other corporate administrative matters.
Commercial Arrangements In connection with the Altria Investment, we and Altria have entered into certain commercial arrangements (the “Commercial Arrangements”), pursuant to which Altria may provide us with consulting services on matters which may include R&D, marketing, advertising and brand management, government relations and regulatory affairs, finance, tax planning, logistics and other corporate administrative matters.
Cronos Fermentation The production facility at Cronos Fermentation is licensed by Health Canada under the Cannabis Act to engage in the processing and distribution and sale of cannabis seeds and cannabis plants, among other prescribed activities, which includes the production of cultured cannabinoids. The facility also holds a license for Analytical Testing under the Cannabis Regulations.
Cronos Fermentation The production facility at Cronos Fermentation is licensed by Health Canada under the Cannabis Act to engage in the processing and distribution and sale of dried flower, cannabis seeds, and cannabis plants, among other prescribed activities, which includes the production of cultured cannabinoids. The facility also holds a license for Analytical Testing under the Cannabis Regulations.
The Investor Rights Agreement also provides that, subject to certain exceptions, for so long as Altria is entitled to designate one or more Altria Nominees, we agree to appoint to each committee established by the Board such number of Altria Nominees that represents Altria’s proportionate share of the number of directors comprising the applicable Board committee (rounded up to the next 10 Table of Contents whole number) based on the percentage of our issued and outstanding common shares beneficially owned by the Altria Group at the relevant time.
The Investor Rights Agreement also provides that, subject to certain exceptions, for so long as Altria is entitled to designate one or more Altria Nominees, we agree to appoint to each committee established by the Board such number of Altria Nominees that represents Altria’s proportionate share of the number of directors comprising the applicable Board committee (rounded up to the next whole number) based on the percentage of our issued and outstanding common shares beneficially owned by the Altria Group at the relevant time.
As of January 2023, no final order was issued, and CBD has yet to be excluded from the Ordinance. On January 31, 2022, the Economic Affairs Committee of the Israeli Parliament held a discussion regarding the adverse effect on the local cannabis industry of significant import of medical cannabis.
As of January 2024, no final order was issued, and CBD has yet to be excluded from the Ordinance. On January 31, 2022, the Economic Affairs Committee of the Israeli Parliament held a discussion regarding the adverse effect on the local cannabis industry of significant import of medical cannabis.
In addition, for so long as the Altria Group continues to beneficially own greater than 10% but less than 40% of our issued and outstanding common shares, Altria shall be entitled to nominate a number of Altria Nominees that represents its proportionate share of the number of directors comprising the Board (rounded up to the next whole number) based on the percentage of our issued and outstanding common shares beneficially owned by the Altria Group at the relevant time.
In addition, for so long as the Altria Group continues to beneficially own greater than 10% but less than 40% of our issued and outstanding common shares, Altria is entitled to nominate a number of Altria Nominees that represents its proportionate share of the number of directors comprising the Board (rounded up to the next whole number) based on the percentage of our issued and outstanding common shares beneficially owned by the Altria Group at the relevant time.
We mitigate credit risk through verification of the customers’ liquidity prior to the authorization of material transactions. 8 Table of Contents Government Contracts In Canada, we sell cannabis products to cannabis control authorities in all provinces of Canada and the Yukon territory, except for Saskatchewan (where we sell to private-sector retailers), where each such cannabis control authority is the sole wholesale distributor and in certain provinces, the sole retailer, of cannabis products.
We mitigate credit risk through verification of the customers’ liquidity prior to the authorization of material transactions. 8 T able of Contents Government Contracts In Canada, we sell cannabis products to cannabis control authorities in all provinces of Canada and the Yukon territory, except for Saskatchewan (where we sell to private-sector retailers), where each such cannabis control authority is the sole wholesale distributor and in certain provinces, the sole retailer, of cannabis products.
In March 2022, the Israeli MOH adopted the conclusions of the CBD Committee and published a draft order for public comments which excludes CBD from the Ordinance while setting the threshold of aggregate concentration of THC (or any structural derivative of THC) in any product, to 0.3%. Cosmetics and food products be handled by specific regulations in such fields.
In March 2022, the Israeli MOH adopted the conclusions of the CBD Committee and published a draft order for public comments which excludes CBD from the Ordinance while setting the threshold of aggregate concentration of THC (or any structural derivative of THC) in any product, at 0.3%. Cosmetics and food products would be handled by specific regulations in such fields.
We have agreed that, among other things, we will not (and will use our commercially reasonable efforts to cause our affiliates not to), without the prior written consent of Altria: • consolidate or merge into or with another person or enter into any similar business combination; • acquire any shares or similar equity interests, instruments convertible into or exchangeable for shares or similar equity interests, assets, business or operations with an aggregate value of more than C$100,000,000, in a single transaction or a series of related transactions; • sell, transfer, cause to be transferred, exclusively license, lease, pledge or otherwise dispose of any of our or any of our significant subsidiaries’ assets, business or operations in the aggregate with a value of more than C$60,000,000; • except as required by applicable law, make any changes to our policy with respect to the declaration and payment of any dividends on our common shares; • subject to certain exceptions, enter into any contract or other agreement, arrangement, or understanding with respect to, or consummate, any transaction or series of related transactions between us or any of our subsidiaries, on the one hand, and any related parties, on the other hand, involving consideration or any other transfer of value required to be disclosed pursuant to Item 404 of Regulation S-K promulgated pursuant to the United States Securities Act of 1933, as amended (the “Securities Act”); or • engage in the production, cultivation, advertisement, marketing, promotion, sale or distribution of cannabis or any Related Products and Services (as defined in the Investor Rights Agreement) in any jurisdiction, including the U.S., where such activity is prohibited by applicable law as of the date of the Investor Rights Agreement (subject to certain limitations).
We have agreed that, among other things, we will not (and will use our commercially reasonable efforts to cause our affiliates not to), without the prior written consent of Altria: • consolidate or merge into or with another person or enter into any similar business combination; • acquire any shares or similar equity interests, instruments convertible into or exchangeable for shares or similar equity interests, assets, business or operations with an aggregate value of more than C$100,000,000, in a single transaction or a series of related transactions; • sell, transfer, cause to be transferred, exclusively license, lease, pledge or otherwise dispose of any of our or any of our significant subsidiaries’ assets, business or operations in the aggregate with a value of more than C$60,000,000; • except as required by applicable law, make any changes to our policy with respect to the declaration and payment of any dividends on our common shares; 10 T able of Contents • subject to certain exceptions, enter into any contract or other agreement, arrangement, or understanding with respect to, or consummate, any transaction or series of related transactions between us or any of our subsidiaries, on the one hand, and any related parties, on the other hand, involving consideration or any other transfer of value required to be disclosed pursuant to Item 404 of Regulation S-K promulgated pursuant to the Securities Act; or • engage in the production, cultivation, advertisement, marketing, promotion, sale or distribution of cannabis or any Related Products and Services (as defined in the Investor Rights Agreement) in any jurisdiction, including the U.S., where such activity is prohibited by applicable law as of the date of the Investor Rights Agreement (subject to certain limitations).
Under the terms of the Company’s investment in PharmaCann, the Company’s rights to nominate an observer or a director to the PharmaCann board of directors could be lost if the Company’s ownership drops below 6% on a fully diluted basis and it sells or transfers all or any portion of the option (subject to certain exceptions).
Under the terms of the Company’s investment in PharmaCann, the Company’s rights to nominate an observer or a director to the PharmaCann board of directors could be lost if the Company’s ownership drops below 6% on a fully diluted basis and it sells or transfers all or any portion of the option (subject to certain exceptions). No U.S.
Between June and September 2019, Health Canada held a public consultation titled “Potential Market for Cannabis Health Products (CHPs) that would not Require Practitioner Oversight”. The consultation sought feedback from Canadians on the kinds of cannabis health products they would be interested in if such products were made available in Canada.
Between June and September 2019, Health Canada held a public consultation titled “Potential Market for Cannabis Health Products (CHPs) that would not Require Practitioner Oversight.” The consultation sought feedback from Canadians on the kinds of cannabis health products they would be interested in if such products were made available in Canada.
Cronos Israel Licenses Cronos Israel maintains the following certificates and corresponding permits: (1) full Good Agricultural Practices (“GAP”) certification, including a permit to propagate and cultivate at the full capacity of the greenhouse; and (2) GMP and Good Distribution Practices (“GDP”) certificates and permits to produce and distribute dried flower, cannabis oils and pre-rolls.
Cronos Israel Licenses Cronos Israel maintains the following certificates and corresponding permits: (1) full Good Agricultural Practices (“GAP”) certification, including a permit to propagate and cultivate at the full capacity of the greenhouse; and (2) Good Manufacturing Practices (“GMP”) and Good Distribution Practices (“GDP”) certificates and permits to produce and distribute dried flower, cannabis oils and pre-rolls.
Peace Naturals Campus / Cronos GrowCo The production facilities at the Peace Naturals Campus and the production facilities of Cronos GrowCo are licensed by Health Canada under the Cannabis Act to engage in the cultivation, processing, distribution and sale of dried cannabis flower, cannabis resin, cannabis seeds, cannabis plants, cannabis extracts, cannabis topicals and cannabis edibles, among other prescribed activities.
Operations and Investments Peace Naturals Campus / Cronos GrowCo The production facilities at the Peace Naturals Campus and the production facilities of Cronos GrowCo are licensed by Health Canada under the Cannabis Act to engage in the cultivation, processing, distribution and sale of dried flower, cannabis seeds, cannabis plants, cannabis extracts, cannabis topicals and cannabis edibles, among other prescribed activities.
Cronos Israel distributes PEACE NATURALS ® branded cannabis products to the Israeli medical market. See “ - Licenses and Regulatory Framework in Israel. ” Major Customers Major customers are customers for which sales equaled or exceeded 10% of our consolidated net revenues for the year.
Cronos Israel distributes PEACE NATURALS ® branded cannabis products to the Israeli medical market. See “ —Licenses and Regulatory Framework in Israel ” for more information on our licenses in Israel. Major Customers Major customers are customers for which sales equaled or exceeded 10% of our consolidated net revenues for the year.
In December 2021, the Director General of the Israeli MOH announced the appointment of a committee (the “CBD Committee”) intended to examine the possibility of excluding CBD from being considered a “dangerous drug” under the Israeli Dangerous Drugs Ordinance (the “Ordinance”). In February 2022, the CBD Committee published its recommendations.
In December 2021, the Director General of the Israeli MOH announced the appointment of a committee (the “CBD Committee”) intended to examine the possibility of excluding CBD from being considered a “dangerous drug” under the Ordinance. In February 2022, the CBD Committee published its recommendations.
Altria Strategic Investment Altria Investment and Investor Rights Agreement As of December 31, 2022, Altria beneficially owned 41% of our common shares and had the right to acquire additional common shares under its pre-emptive and top-up rights as discussed under “ Pre-Emptive Rights and Top-Up Rights ” below.
Altria Strategic Investment Altria Investment and Investor Rights Agreement As of December 31, 2023, Altria beneficially owned 41.1% of our common shares and had the right to acquire additional common shares under its pre-emptive and top-up rights as discussed under “ Pre-Emptive Rights and Top-Up Rights ” below.
Provincial and Territorial Developments While the Cannabis Act provides for the regulation by the Canadian federal government of, among other things, the commercial production of cannabis and the sale of medical cannabis, the various provinces and territories of Canada regulate certain aspects of adult-use cannabis, including but not limited to distribution, sale, minimum age requirements and places where cannabis can be consumed.
Provincial and Territorial Developments While the Cannabis Act provides for the regulation by the Canadian federal government of, among other things, the commercial production of cannabis and the sale of medical cannabis, the various provinces and territories of Canada regulate certain aspects of adult-use cannabis, including the distribution, sale, minimum age requirements and places where cannabis can be consumed.
As the Company’s supply chain grows, the Company continues to expand its portfolio of cannabis products for the existing markets in Canada. Markets and Distribution Outside of Canada • Israel. Cronos Israel holds the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production and marketing of dried flower, pre-rolls and oils in Israel.
As the Company’s supply chain grows, the Company continues to expand its portfolio of cannabis products for the existing markets in Canada. 7 T able of Contents Markets and Distribution Outside of Canada • Israel. Cronos Israel holds the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production and marketing of dried flower, pre-rolls and oils in Israel.
We consolidate the financial results of Cronos Israel and account for our other joint ventures under the equity method of accounting. See Note 1 “ Background, Basis of Presentation, and Summary of Significant Accounting Policies ” and Note 3 “ Investments ” to our consolidated financial statements in Item 8 of this Annual Report.
We consolidate the financial results of Cronos Israel and account for our other joint ventures under the equity method of accounting. See Note 1 “ Background, Basis of Presentation, and Summary of Significant Accounting Policies” and Note 4 “ Investments ” to our consolidated financial statements in Item 8 of this Annual Report.
From time to time, we use our website, as well as the following social media sites, as an additional means of disclosing public information to investors, the media and others interested in the Company. • Facebook ( https://www.facebook.com/The-Cronos-Group-419168411987225 ); • Twitter ( https://twitter.com/cronosgroup ); and • LinkedIn ( https://www.linkedin.com/company/cronosgroupcron/ ).
From time to time, we use our website, as well as the following social media sites, as an additional means of disclosing public information to investors, the media and others interested in the Company. • Facebook ( https://www.facebook.com/The-Cronos-Group-419168411987225 ); • X (f.k.a. Twitter) ( https://twitter.com/cronosgroup ); and • LinkedIn ( https://www.linkedin.com/company/cronosgroupcron/ ).
Licenses to cultivate, produce, possess and use cannabis for medical or research purposes in Israel are granted by the Israel Medical Cannabis Agency within the Israeli Ministry of Health (the “Yakar” and the “Israeli MOH”, respectively).
Licenses to cultivate, produce, possess and use cannabis for medical or research purposes in Israel are granted by the Israel Medical Cannabis Agency within the Israeli Ministry of Health (the “Yakar” and the “Israeli MOH,” respectively).
We seek to foster a culture of employee learning, innovation and a drive to succeed through a talent development strategy that adapts to changing business needs. Management is an active enabler of our people strategy as we seek to recruit, retain and engage top talent that will maximize our business performance.
We seek to foster a culture of employee learning, innovation and a drive to succeed through a talent development strategy 12 T able of Contents that adapts to changing business needs. Management is an active enabler of our people strategy as we seek to recruit, retain and engage top talent that will maximize our business performance.
We currently sell dried flower, pre-rolls, vaporizers and edibles through our adult-use brand, Spinach ® , to cannabis control authorities in all provinces of Canada and the Yukon territory, except Saskatchewan, where we sell to private-sector retailers, subject to the relevant province’s or territory’s product or other restrictions and requirements.
We currently sell dried flower, pre-rolls, vaporizers and edibles through our core adult-use brands, Spinach ® and Lord Jones ® , to cannabis control authorities in all provinces of Canada and the Yukon territory, except Saskatchewan, where we sell to private-sector retailers, subject to the relevant province’s or territory’s product or other restrictions and requirements.
We seek to ensure this inclusivity is achieved through regular training and support for our employees. We maintain a whistleblower policy and anonymous hotline for the confidential reporting of any suspected policy violations and provide training and education to our global workforce with respect to our Code of Business Conduct and Ethics and related policies. Regulatory Framework in the U.S.
We seek to ensure this inclusivity is achieved through regular training and support for our employees. We maintain a whistleblower policy and anonymous hotline for the confidential reporting of any suspected policy violations and provide training and education to our global workforce with respect to our Code of Business Conduct and Ethics and related policies.
Licenses and Regulatory Framework in Other Jurisdictions We and our joint venture partners and strategic investments are subject to comprehensive and evolving regulations in each jurisdiction we and they operate. All aspects of the production, manufacture and distribution of cannabis products are regulated and subject to licensing regimes.
Licenses and Regulatory Framework in Other Jurisdictions We and our joint venture partners, strategic investments and strategic partners are subject to comprehensive and evolving regulations in each jurisdiction in which we and they operate. All aspects of the production, manufacture and distribution of cannabis products are 15 T able of Contents regulated and subject to licensing regimes.
The proposed amendments were pre-published in June 2021 and the consultation period closed in September 2021. No expected in-force date has been publicly announced.
The proposed amendments were pre-published in June 2021 and the consultation period closed in September 2021. No expected in-force date has been publicized.
SPINACH FEELZ™ prominently features rare cannabinoids in a range of product formats, designed to deliver unique and enhanced experiences made possible through proprietary blends of rare cannabinoids alongside common cannabinoids, like THC and CBD. Each product is formulated to help adult consumers, “Feelz.
Spinach FEELZ™ prominently features rare cannabinoids in a range of product formats, designed to deliver unique and enhanced experiences made possible through proprietary blends of rare cannabinoids alongside common cannabinoids, like delta-9-tetrayhydrocannabinol (“THC”). Each product is formulated to help adult consumers, “Feelz.
SOURZ by Spinach ® is a line of dual-colored, dual-flavored edibles in a variety of cannabinoid ratios in a distinctive “S” shared gummy, featuring proprietary flavor masking technology.
SOURZ by Spinach ® is a line of multi-colored, multi-flavored edibles in a variety of cannabinoid ratios in a distinctive “S” shaped gummy, featuring proprietary flavor masking technology.
Under its current licenses, Cronos GrowCo is permitted to sell certain cannabis products to other license holders in the wholesale channel, as well as to provincial cannabis control authorities. Cronos GrowCo holds Global GAP and ICANN GAP certifications (equivalent to IMC-GAP) for the export of dried cannabis to Israel. • Third Party Supply and Manufacturing Agreements.
Under its current licenses, Cronos GrowCo is permitted to sell certain cannabis products to other license holders in the wholesale channel, as well as to provincial cannabis control authorities. Cronos GrowCo holds Global GAP and ICANN GAP certifications (equivalent to IMC-GAP) for the export of dried flower to Israel. • Cronos Fermentation.
Israel In Israel, the Company operates under the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production and marketing of dried flower, pre-rolls and oils in the Israeli medical market. Operations Outside of Canada, Israel, and the U.S.
In Israel, the Company operates under the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production and marketing of dried flower, pre-rolls and oils in the Israeli medical market.
For example, the SQDC, the exclusive distributor of cannabis in the province and the sole retail and online vendor in Québec, does not permit cannabis vaporizers or other high THC non-edible cannabis products to be sold through its channels.
For example, the Société Quebécoise du Cannabis (the “SQDC”), the exclusive distributor of cannabis in the province and the sole retail and online vendor in Québec, does not permit cannabis vaporizers or other high THC non-edible cannabis products to be sold through its channels.
In June 2021, Health Canada opened a consultation into the use of flavors in inhaled cannabis extracts as it claims that the availability of flavors is one of the factors that contributes to the increase in cannabis vaping in youth and young adults.
Health Canada intends to engage with key stakeholders further in 2024. In June 2021, Health Canada opened a consultation into the use of flavors in inhaled cannabis extracts as it claims that the availability of flavors is one of the factors that contributes to the increase in cannabis vaping in youth and young adults.
Our ownership interest in each of our joint ventures is summarized in the table below. Joint Venture Jurisdiction Ownership Interest (i) Cronos Israel (ii) Israel 70%/90% Cronos GrowCo (iii) Canada 50% (i) We define ownership interest as the proportionate share of net income to which we are entitled; equity interest may differ from ownership interest shown above.
Joint Venture Jurisdiction Ownership Interest (i) Cronos Israel (ii) Israel 70%/90% Cronos GrowCo (iii) Canada 50% (i) We define ownership interest as the proportionate share of net income to which we are entitled; equity interest may differ from ownership interest shown above.
The price per common share to be paid by Altria pursuant to the exercise of its top-up rights will be, subject to certain limited exceptions, the volume-weighted average price of our common shares on the TSX for the 10 full trading days preceding such exercise by Altria; provided that the price per common share to be paid by Altria pursuant to the exercise of its top-up rights in connection with the issuance of common shares pursuant to the exercise of options or warrants that were outstanding on the date of closing of the Altria Investment will be C$16.25 per common share without any set off, counterclaim, deduction or withholding.
The price per common share to be paid by Altria pursuant to the exercise of its top-up rights will be, subject to certain limited exceptions, the volume-weighted average price of our common shares on the TSX for the 10 full trading days preceding such exercise by Altria; provided that the price per common share to be paid by Altria pursuant to the exercise of its top-up rights in connection with the issuance of common shares pursuant to the exercise of options or warrants that were outstanding on the date of closing of the Altria Investment will be C$16.25 per common share without any set off, counterclaim, deduction or withholding. 11 T able of Contents Open Market Purchases The Altria Group is permitted to acquire our common shares in the open market at any time and in any amount.
Patients also must obtain licenses either directly from physicians who have been authorized to grant patient licenses or from the Yakar following a request from the patient’s physician in order to purchase and consume medical cannabis. 16 Table of Contents In January 2019, the Israeli government approved, in principle, the export from Israel of medical cannabis products that meet applicable quality standards under the strict supervision of the Israeli authorities.
Until the Reform Regulations (as described below) take effect, patients must also obtain licenses either directly from physicians who have been authorized to grant patient licenses or from the Yakar following a request from the patient’s physician in order to purchase and consume medical cannabis. 14 T able of Contents In January 2019, the Israeli government approved, in principle, the export from Israel of medical cannabis products that meet applicable quality standards under the strict supervision of the Israeli authorities.
Regulatory Framework in Canada Licenses and Regulatory Framework On October 17, 2018, the Cannabis Act and the Cannabis Regulations (the “Cannabis Regulations”) came into force. The Cannabis Regulations establish six classes of licenses: • cultivation; • processing; • sale for medical purposes; • analytical testing; • research; and • cannabis drug.
Regulatory Framework in Canada Licenses and Regulatory Framework The Cannabis Act and the Cannabis Regulations (the “Cannabis Regulations”) establish six classes of licenses: • cultivation; • processing; • sale for medical purposes; • analytical testing; • research; and • cannabis drug.
We believe the Company’s strong capitalization resulting from the Altria Investment, along with the Lord Jones ® brand recognition and differentiation in the U.S. hemp retail channel, will enable us to provide better quality consumer products, grow our U.S. hemp business and strengthen our market position in the U.S.
We believe the Company’s strong capitalization resulting from the Altria Investment, along with the Spinach ® and Lord Jones ® brand recognition and differentiation in the Canadian adult-use market, will enable us to provide better quality consumer products, grow our Canadian business and strengthen our market position in Canada.
The Cannabis Act and Cannabis Regulations include, among other things, strict specifications for the plain packaging and labeling and analytical testing of all cannabis products as well as stringent physical and personnel security requirements for all federally licensed cultivation, processing and sales sites.
The Cannabis Act and Cannabis Regulations include, among other things, strict specifications for the plain packaging and labeling and analytical testing of all cannabis products as well as stringent physical and personnel security requirements for all federally licensed cultivation, processing and sales sites. Health Canada allows license holders to export cannabis products with appropriate export permits.
We intend to produce and distribute the target cannabinoids globally, where permitted by applicable law, and have received confirmation from Health Canada that this method of production is permitted under the Cannabis Act.
We intend to distribute the target cannabinoids globally, where permitted by applicable law, and have received confirmation from Health Canada that this method of production is permitted under the Cannabis Act. Cronos Fermentation Cronos Fermentation is a fermentation and manufacturing facility in Winnipeg, Manitoba.
Adult-Use Brand Spinach ® is the Company’s adult-use cannabis brand focused on friends, fun and legendary cannabis. The Spinach ® brand portfolio includes cannabinoid products in a wide range of formats including dried flower, pre-rolls, vaporizers and edibles. The Spinach ® brand also has two sub-brands, SOURZ by Spinach ® and SPINACH FEELZ™.
The Spinach ® brand portfolio includes cannabinoid products in a wide range of formats including dried flower, pre-rolls, vaporizers and edibles. The Spinach ® brand also has two sub-brands, SOURZ by Spinach ® and Spinach FEELZ™.
Cronos Israel distributes PEACE NATURALS ® branded cannabis products to the Israeli medical cannabis market through pharmacies. See “- Licenses and Regulatory Framework in Israel.” • Europe. We have previously distributed PEACE NATURALS ® branded cannabis products in Germany. • Australia and Asia-Pacific.
Cronos Israel distributes PEACE NATURALS ® branded cannabis products to the Israeli medical market through pharmacies. See “ — Licenses and Regulatory Framework in Israel.” • Europe.
For the year ended December 31, 2022, we had approximately $77.6 million in sales to cannabis control authorities in Canada.
For the year ended December 31, 2023, we had approximately $96.5 million in sales to cannabis control authorities in Canada.
Schedule I cannabis violates federal law in the U.S. unless a U.S. federal agency, such as the DEA, grants a registration for a specific activity, such as research, with U.S. Schedule I cannabis. We do not engage in any activities related to U.S. Schedule I cannabis in the U.S.
Controlled Substances Act (the “CSA”). Therefore, the cultivation, manufacture, distribution and possession of U.S. Schedule I cannabis violates federal law in the U.S. unless a U.S. federal agency, such as the DEA, grants a registration for a specific activity, such as research, with U.S. Schedule I cannabis. We do not engage in any activities related to U.S.
Our PEACE NATURALS ® medical cannabis products are sold in Canada through the Medical Cannabis by Shoppers Drug Mart platform. • Adult-Use.
Following the closure of the Medical Cannabis by Shoppers Drug Mart platform, our PEACE NATURALS ® medical cannabis products are sold in Canada through various third-party distributors. • Adult-Use.
Additionally, we hold approximately 10% of the issued capital of Vitura, which we account for as equity securities with a readily determinable fair value, and approximately 13.7% of the issued capital of NatuEra S.à.r.l. (“Natuera”), which we account for as equity securities without a readily determinable fair value, as of December 31, 2022.
Additionally, we hold approximately 9.6% of the issued capital of Vitura Health Limited (“Vitura”), which we account for as equity securities with a readily determinable fair value, and approximately 13.7% of the issued capital of NatuEra S.à.r.l.
Schedule I cannabis containing products to various degrees and subject to various requirements or conditions, U.S. Schedule I cannabis continues to be a Schedule I controlled substance under the CSA. Therefore, the cultivation, manufacture, distribution and possession of U.S.
Schedule I Cannabis-Related Activities Though a number of states in the U.S. have authorized the cultivation, distribution or possession of U.S. Schedule I cannabis and U.S. Schedule I cannabis containing products to various degrees and subject to various requirements or conditions, U.S. Schedule I cannabis continues to be a Schedule I controlled substance under the U.S.
None of our employees are represented by a labor union or covered by a collective bargaining agreement. Compensation and Benefits . Our compensation program is designed to attract, motivate and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our shareholders.
Our compensation program is designed to attract, motivate and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our shareholders.
These regulations and licensing regimes vary by jurisdiction and we, our joint venture partners and strategic investments spend significant time, effort and money to comply with the applicable requirements.
These regulations and licensing regimes vary by jurisdiction and we, our joint venture partners, strategic investments and strategic partners spend significant time, effort and money to comply with the applicable requirements. We seek to comply with export laws in connection with distributing our products in other jurisdictions by obtaining export permits from Health Canada.
Vitura did not import PEACE NATURALS ® branded cannabis products from the Company during 2022. 7 Table of Contents We continue to seek new international distribution channels in jurisdictions that have legalized the production, distribution and possession of cannabis products at all relevant levels of government.
We continue to seek new international distribution channels in jurisdictions that have legalized the production, distribution and possession of cannabis products at all relevant levels of government.
We had three major customers, Ontario Cannabis Retail Corporation, Alberta Gaming, Liquor and Cannabis Commission, and Société Québécoise du Cannabis (the “SQDC”), which accounted for approximately 28%, 17% and 10%, respectively, of our consolidated net revenues, before excises taxes, for the year ended December 31, 2022.
We had three major customers, Ontario Cannabis Retail Corporation, Alberta Gaming, Liquor and Cannabis Commission, and BC Liquor Distribution Branch, which accounted for approximately 34%, 21%, and 11%, respectively, of our consolidated net revenues, before excises taxes, for the year ended December 31, 2023.
Global Sales and Distribution - Principal Markets Cronos has developed a diversified global sales and distribution network. We have built a distribution footprint in Canada through the adult-use market, as well as a distribution footprint for U.S. hemp-derived cannabinoid products in the U.S. through e-commerce, retail and hospitality channels.
Global Sales and Distribution - Principal Markets Cronos has developed a diversified global sales and distribution network. We have built a distribution footprint in Canada through the adult-use and medical markets, as well as a distribution channel for the Israeli medical market. Canadian Market and Distribution • Medical Market.
In the U.S., we market and distribute U.S. hemp-derived cannabinoid products through e-commerce, retail and hospitality channels under the Lord Jones ® brand. In Canada, we sell a variety of cannabis products through wholesale channels under both our adult-use brand, Spinach ® , and under our wellness platform, PEACE NATURALS ® .
In Canada, we sell a variety of cannabis products through wholesale channels under both our core adult-use brands, Spinach ® and Lord Jones ® , and under our core wellness platform, PEACE NATURALS ® .
In Europe, trademarks cannot be obtained for products that are “contrary to public policy or accepted principles of morality.” Accordingly, our ability to obtain intellectual property rights and enforce intellectual property rights against third party uses of similar trademarks may be limited in certain jurisdictions. 12 Table of Contents Human Capital Resources Cronos is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development.
In Europe, trademarks cannot be obtained for products that are “contrary to public policy or accepted principles of morality.” Accordingly, our ability to obtain intellectual property rights and enforce intellectual property rights against third-party uses of similar trademarks may be limited in certain jurisdictions.
In addition to the current medical and adult-use regimes under the Cannabis Act, Health Canada has also been considering the implementation of a cannabis health product regime for products with potential therapeutic uses that would not require practitioner oversight.
The report resulting from the statutory review may recommend and/or lead to the amendment, removal or addition of provisions in or to the Cannabis Act which could adversely affect our business . 13 T able of Contents In addition to the current medical and adult-use regimes under the Cannabis Act, Health Canada has also been considering the implementation of a cannabis health product regime for products with potential therapeutic uses that would not require practitioner oversight.
Licenses and Regulatory Framework in Israel In Israel, cannabis is subject to the Israeli Dangerous Drugs Ordinance [New Version], 5733 – 1973, and its sale and use are prohibited unless applicable licenses have been obtained.
Provincial distributors may also take different positions on the sale and distribution of products with various cannabinoids (including tetrahydrocannabivarin and cannabinol). Licenses and Regulatory Framework in Israel In Israel, cannabis is subject to the Israeli Dangerous Drugs Ordinance [New Version], 5733 – 1973 (the “Ordinance”), and its sale and use are prohibited unless applicable licenses have been obtained.
We plan to continue to develop a global supply chain, which will employ a combination of wholly owned production facilities, third party suppliers and global production partnerships, all of which will support the manufacturing of cannabinoid-based consumer goods. United States In the ordinary course of our business, we enter into contract manufacturing agreements with suppliers of our products.
We plan to continue to develop a global supply chain, which will employ a combination of wholly-owned production facilities, third party suppliers and global production partnerships, all of which will support the manufacturing of cannabinoid-based consumer goods. Canadian Supply Chain • Peace Naturals Campus. The Peace Naturals Campus is licensed for cannabis production and the manufacturing of certain cannabis products.
The public may obtain any document that we file with or furnish to the SEC from the SEC’s Electronic Document Gathering, Analysis, and Retrieval system, which can be accessed at www.sec.gov , or via the System for Electronic Document Analysis and Retrieval, which can be accessed at www.sedar.com , as well as from commercial document retrieval services. 17 Table of Contents Copies of this Annual Report may be obtained on request without charge from our Corporate Secretary, corporate.secretary@thecronosgroup.com, telephone: +1-416-504-0004.
The public may obtain any document that we file with or furnish to the SEC from the SEC’s Electronic Document Gathering, Analysis, and Retrieval system, which can be accessed at www.sec.gov , or via the System for Electronic Document Analysis and Retrieval Plus, which can be accessed at www.sedarplus.com , as well as from commercial document retrieval services.
Cronos anticipates expanding in the geographic markets outside of Canada and the U.S. in which we currently participate and entering new geographic markets. By leveraging operational, manufacturing and regulatory expertise, quality standards and procedures and intellectual property, we believe that we are well-positioned to effectively access these markets.
By leveraging operational, manufacturing and regulatory expertise, quality standards and procedures and intellectual property, we believe that we are well-positioned to effectively access these markets.
The facility provides the fermentation and manufacturing capabilities we need in order to capitalize on the progress underway with Ginkgo, by enabling us to produce the target cannabinoids contemplated under the Ginkgo Collaboration Agreement at commercial scale with high quality and high purity.
The facility provided the fermentation and manufacturing capabilities we used to capitalize on the Ginkgo Strategic Partnership, by enabling us to produce the target cannabinoids contemplated under the Ginkgo Collaboration Agreement at commercial scale with high quality and high purity. In August 2023, Cronos announced the planned wind-down of the Cronos Fermentation facility and has listed the facility for sale.
Any inability of the Canadian federal or provincial law enforcement authorities to enforce existing laws prohibiting the unlicensed cultivation and sale of cannabis and cannabis-based products could result in the perpetuation of the illegal market for cannabis. Competitive Conditions in Europe and Israel We face competition when entering new markets.
Any inability of the Canadian federal or provincial law enforcement authorities to enforce existing laws prohibiting the unlicensed cultivation and sale of cannabis and cannabis-based products could result in the perpetuation of the illegal market for cannabis. 9 T able of Contents In addition to competition from illegal market participants, we also face competition from licensed cannabis competitors that fail to comply with the regulations governing the cannabis industry when developing and selling cannabis products.
See “ Risk Factors - Risks Relating to Regulation and Compliance - We operate in highly regulated sectors where the regulatory environment is rapidly developing, and we may not always succeed in complying fully with applicable regulatory requirements in all jurisdictions where we carry on business. ” 5 Table of Contents Joint Ventures/Strategic Investments We have established two strategic joint ventures in Canada and Israel.
See “ Risk Factors—Risks Relating to Regulation and Compliance—We operate in highly regulated sectors where the regulatory environment is rapidly developing, and we may not always succeed in complying fully with applicable regulatory requirements in all jurisdictions where we carry on business. ” Sale and Leaseback of the Peace Naturals Campus On November 27, 2023, the Company announced that Peace Naturals had entered into an agreement (the “Sale Agreement”) with Future Farmco Canada Inc.
Each of Cronos and the Greenhouse Partners owns a 50% equity interest in Cronos GrowCo and has equal representation on its board of directors. Brand Portfolio We are committed to building a portfolio of iconic brands that responsibly elevate the consumer experience.
Each of Cronos and the Greenhouse Partners owns a 50% equity interest in Cronos GrowCo and has equal representation on its board of directors. Strategic Investment in PharmaCann, Inc.
See “ —Regulatory Framework in Canada ” for further information on the regulatory framework applicable to our Canadian business. We also face competition from illegal market participants that are unlicensed and unregulated. As these illegal market participants do not comply with the regulations governing the cannabis industry, their operations may also have significantly lower costs.
However, a rapidly evolving and stringent federal regulatory framework affects all areas of our business. See “ —Regulatory Framework in Canada ” for further information on the regulatory framework applicable to our Canadian business. We also face competition from illegal market participants that are unlicensed and unregulated.
In addition, PEACE NATURALS ® cannabis products are currently available in the Israeli medical market. Brand Positioning Mainstream adult-use Wellness Prestige adult consumer goods Product Offering Dried cannabis, pre-rolls, vaporizers, edibles Dried cannabis, pre-rolls, cannabis tinctures U.S. hemp-derived cannabinoid products Geographic Availability Canada Canada and Israel U.S.
In addition, PEACE NATURALS ® cannabis products are currently available in the Israeli and German medical markets. 6 T able of Contents Brand Positioning Mainstream adult-use Wellness Premium adult-use Product Offering Dried flower, pre-rolls, vaporizers, edibles Dried flower, pre-rolls, cannabis tinctures Pre-rolls, vaporizers, edibles Geographic Availability Canada Canada, Israel & Germany Canada Core Adult-Use Brands Spinach ® is a mainstream adult-use cannabis brand focused on friends, fun and legendary cannabis.
The Ginkgo Strategic Partnership contemplates the performance of licensed R&D activities in the U.S. in order to produce cultured cannabinoids, but such activities are conducted in compliance with all applicable laws regarding controlled substances. Rest of World The Rest of World operating segment is involved in the cultivation, manufacturing, and marketing of cannabis-derived products for medical and adult-use markets.
Schedule I cannabis in the U.S. The Ginkgo Strategic Partnership contemplates the performance of licensed R&D activities in the U.S. in order to produce cultured cannabinoids, but such activities are conducted in compliance with all applicable laws regarding controlled substances. Brand Portfolio We are committed to building a portfolio of iconic brands that responsibly elevate the consumer experience.
As the demand for cannabis increases as a result of the legalization of adult-use cannabis in Canada under the Cannabis Act, we believe that new competitors will continue to enter the market. The principal factors on which we compete with other Canadian license holders are product quality, innovation, intellectual property, brand recognition and price.
Competitive Conditions Competitive Conditions in Canada We face competition in all aspects of our business in the Canadian adult-use and medical markets. As the demand for cannabis increases as a result of the legalization of adult-use cannabis in Canada under the Cannabis Act, we believe that new competitors will continue to enter the market.
In Canada, Cronos operates through two wholly owned license holders under the Cannabis Act (Canada) (the “Cannabis Act”), Peace Naturals Project Inc. (“Peace Naturals”), which has production facilities near Stayner, Ontario (the “Peace Naturals Campus”) and Thanos Holdings Ltd., known as Cronos Fermentation (“Cronos Fermentation”), which has a production facility in Winnipeg, Manitoba.
(“Peace Naturals”), which has production facilities near Stayner, Ontario, and Thanos Holdings Ltd., known as Cronos Fermentation (“Cronos Fermentation”), which has a production facility in Winnipeg, Manitoba. In November 2023, Cronos announced Peace Naturals had entered into an agreement for the sale and leaseback of the Peace Naturals Campus.
The decision clarifies the Yakar’s authority to grant Constructive Licenses for the import/export of medical cannabis.
The decision clarifies the Yakar’s authority to grant Constructive Licenses for the import/export of medical cannabis. On August 30, 2023, following recommendation by the Israeli MOH’s committee, the Director General of the Israeli MOH appointed an additional committee (the “2023 Committee”).
Following the exercise of the PharmaCann Option, the Company and PharmaCann will enter into commercial agreements that would permit each party to offer its products through either party’s distribution channels. On February 28, 2022, PharmaCann closed its merger transaction with LivWell Holdings, Inc. (“LivWell”) pursuant to which PharmaCann acquired LivWell (the “LivWell Transaction”).
Following the exercise of the PharmaCann Option, the Company and PharmaCann will enter into commercial agreements that would permit each party to offer its products through the other party’s distribution channels. As of December 31, 2023, the Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 5.9%.
Happy Dance ® and PEACE+ ® were brands focused on the production and distribution of U.S. hemp-derived cannabinoid products. The Company no longer produces or distributes products under the Happy Dance ® and PEACE+ ® brands. Cronos Marketing Code In 2021, Cronos released its Marketing Code, which is designed to responsibly move the emerging cannabis industry forward.
It is focused on building and shaping the global cannabis wellness market and promoting a holistic approach to wellness. The Company currently distributes products under PEACE NATURALS ® for Canadian, Israeli and German medical markets. Cronos Marketing Code In 2021, Cronos released its Marketing Code, which is designed to responsibly move the emerging cannabis industry forward.
In addition to numerous small companies and brands, we compete with larger, national companies that may have larger distribution capabilities with more developed and efficient supply chain operations. The principal factors on which we compete with other U.S. hemp brands are product quality, innovation, intellectual property, brand recognition and price.
The principal factors on which we compete with other Canadian license holders are product quality, innovation, intellectual property, brand recognition and price.
Cronos is able to produce large volumes of these cultured cannabinoids from custom yeast strains, as they are successfully created through the Ginkgo Strategic Partnership, by leveraging existing fermentation infrastructure at Cronos Fermentation in Winnipeg, Manitoba without incurring significant capital expenditures to build new cultivation and extraction facilities.
The Ginkgo Strategic Partnership enabled Cronos to produce large volumes of these cultured cannabinoids from custom yeast strains by leveraging the fermentation infrastructure at Cronos Fermentation. However, in August 2023, Cronos announced the planned wind-down of the Cronos Fermentation facility and has listed the facility for sale.
The Way You Want.” Wellness Brand PEACE NATURALS ® is a global wellness platform committed to producing high-quality cannabis products. PEACE NATURALS ® is focused on building and shaping the global cannabis wellness market and promoting a holistic approach to wellness.
The Way You Want.” Lord Jones ® is a premium adult-use cannabis brand that goes above and beyond to unlock differentiated ways to experience cannabis. The Lord Jones ® brand portfolio includes cannabis products in the pre-roll, vaporizer and edible categories. Core Wellness Brand PEACE NATURALS ® is a global wellness platform committed to producing high-quality cannabis products.
Cronos Fermentation engages in R&D to produce high-quality cultured cannabinoids at commercial scale. In addition to manufacturing cultured cannabinoids, scientists at the facility create cannabinoid product formulations, and engage in product development.
Cronos Fermentation is licensed for cannabis production and the manufacturing of certain cannabis products. In August 2023, Cronos announced the planned wind-down of Cronos Fermentation and has listed the facility for sale. Cronos Fermentation engaged in R&D to produce high-quality cultured cannabinoids at commercial scale. • Third-party Supply and Manufacturing Agreements.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf the Company’s U.S. hemp business activities are found to be in violation of any of U.S. federal, state or local laws or any other governmental regulations, in addition to the items described above: • the Company may be subject to “Warning Letters,” fines, penalties, administrative sanctions, settlements, injunctions, product recalls and/or other enforcement actions arising from civil, administrative or other proceedings initiated that could adversely affect the Company’s business, financial condition, operating results, liquidity, cash flow and operational performance; • the profits or revenues derived therefrom could be subject to anti-money laundering statutes, including the Money Laundering Control Act, which could result in significant disruption to our U.S. hemp business operations and involve significant costs, expenses or other penalties; and • the Company’s suppliers, service providers and distributors may elect, at any time, to breach, terminate or otherwise cease to participate in supply, service or distribution agreements, or other relationships, on which the Company’s operations rely.
Biggest changeThough the Company exited its U.S. operations in 2023, if the Company’s previous U.S. hemp business activities are found to be in violation of any of U.S. federal, state or local laws or any other governmental regulations, in addition to the items described above, the Company may be subject to “Warning Letters,” fines, penalties, administrative sanctions, settlements, injunctions, product recalls and/or other enforcement actions arising from civil, administrative or other proceedings initiated that could adversely affect the Company’s business, financial condition, and results of operations and the Company’s suppliers and service providers could breach, terminate or otherwise cease to do business with us. 36 T able of Contents As it relates to U.S.
We have entered into such supply arrangements with all provinces in Canada and the Yukon territory (where the relevant provincial body is the sole wholesale distributor of cannabis products in the province) and with private retailers in Saskatchewan.
We have entered into such supply arrangements with all provinces in Canada (where the relevant provincial body is the sole wholesale distributor of cannabis products in the province) and the Yukon Territory and with private retailers in Saskatchewan.
Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, legal fees, injunctions, temporary restraining orders, other equitable relief, and/or require the payment of damages, any or all of which may have an adverse impact on our business, financial condition and results of operations.
Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, legal fees, injunctions, temporary restraining orders, other equitable relief, and require the payment of damages, any or all of which may have an adverse impact on our business, financial condition and results of operations.
Furthermore, governments in the U.S., Canada, United Kingdom, and European Union have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia.
Furthermore, governments in the U.S., Canada, the United Kingdom and European Union have each imposed export controls on certain products and financial and economic sanctions on certain industry sectors and parties in Russia.
Further, certain shareholders, directors, officers and employees in our Canadian operations may require security clearance from Health Canada or require analogous clearance by various provincial agencies. Under the Cannabis Act, a security clearance cannot be valid for more than five years and must be renewed before the expiry of a current security clearance.
Further, certain shareholders, directors, officers, employees and contractors in our Canadian operations may require security clearance from Health Canada or require analogous clearance by various provincial agencies. Under the Cannabis Act, a security clearance cannot be valid for more than five years and must be renewed before the expiry of a current security clearance.
Under the terms of our investment in PharmaCann, Cronos’ rights to nominate an observer or a director to the PharmaCann board of directors could be lost if our ownership drops below 6% on a fully diluted basis and we sell or transfer all or any portion of the PharmaCann Option (subject to certain exceptions).
Under the terms of our investment in PharmaCann, Cronos’ rights to nominate an observer to the PharmaCann board of directors could be lost if our ownership drops below 6% on a fully diluted basis and we sell or transfer all or any portion of the PharmaCann Option (subject to certain exceptions).
For example, developing and acting on initiatives within the scope of ESG, and collecting, measuring and reporting ESG related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC’s recently proposed climate-related reporting requirements, and similar proposals by other international regulatory bodies.
For example, developing and acting on initiatives within the scope of ESG, and collecting, measuring and reporting ESG related information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC’s proposed climate-related reporting requirements, and similar proposals by other international regulatory bodies.
In addition, strategic alliances could present unforeseen integration obstacles or costs, may not enhance our business and may involve risks that could adversely affect us, including significant amounts of management time that may be diverted from operations in order to pursue and complete such transactions or maintain such strategic alliances.
In addition, strategic alliances could present unforeseen integration or operational obstacles or costs, may not enhance our business and may involve risks that could adversely affect us, including significant amounts of management time that may be diverted from operations in order to pursue and complete such transactions or maintain such strategic alliances.
If our adult-use products do not achieve an adequate level of acceptance by the adult-use market, we may not generate sufficient revenue from these products, and our adult-use business may not become profitable. We are subject to liability arising from any fraudulent or illegal activity by our employees, contractors and consultants.
If our adult-use products do not achieve an adequate level of acceptance by the adult-use market, we may not generate sufficient revenue from these products, and our adult-use business may not become profitable. We are subject to liability arising from any fraudulent or illegal activity by our employees, contractors, manufacturers and consultants.
Threats or instability in a country caused by political events including elections, change in government, changes in personnel or legislative bodies, foreign relations or military control present serious political and social risk and instability causing interruptions to the flow of business negotiations and influencing relationships with government officials.
Threats or instability in a country or region caused by political events including elections, change in government, changes in personnel or legislative bodies, foreign relations or military control present serious political and social risk and instability causing interruptions to the flow of business negotiations and influencing relationships with government officials.
Future strategic alliances could result in the incurrence of debt, costs and contingent liabilities, and there can be no assurance that future strategic alliances will achieve, or that our existing strategic alliances will continue to achieve, the expected benefits to our business or that we will be able to consummate future strategic alliances on satisfactory terms, or at all.
Future strategic alliances could result in the incurrence of debt, costs and contingent liabilities, and there can be no assurance that future strategic alliances will achieve, or that our existing strategic alliances will achieve, the expected benefits to our business or that we will be able to consummate future strategic alliances on satisfactory terms, or at all.
In addition, the regulatory approval processes in connection with the exercise of any PharmaCann Option may take a prolonged period of time to complete, which could significantly delay our ability to exercise the PharmaCann Option and realize the benefits of the PharmaCann Investment, or result in our not being able to exercise all or part of the PharmaCann Option.
In addition, the regulatory approval processes in connection with the exercise of the PharmaCann Option may take a prolonged period of time to complete, which could significantly delay our ability to exercise the PharmaCann Option and realize the benefits of the PharmaCann Investment, or result in our not being able to exercise all or part of the PharmaCann Option.
Research in Canada, the U.S. and internationally regarding the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, U.S. hemp or isolated cannabinoids (such as CBD and THC) in dietary supplements, food, or cosmetic products remains in early stages.
Research in Canada, the U.S. and internationally regarding the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, U.S. hemp or isolated cannabinoids (such as CBD and THC) inhaled, in dietary supplements, food, or cosmetic products remains in early stages.
In addition, any damage to our products due to acts or omissions of our third party distributors, such as product spoilage or improper storage or handling, could expose us to potential product liability, damage our reputation and the reputation of our products or brands or otherwise harm our business.
In addition, any damage to our products due to acts or omissions of our third-party distributors or manufacturers, such as product spoilage or improper storage or handling, could expose us to potential product liability, damage our reputation and the reputation of our products or brands or otherwise harm our business.
Clinical trials face many risks, including, among others: • lack of effectiveness of any formulation or delivery system during clinical trials; • discovery of serious or unexpected toxicities or side effects experienced by trial participants or other safety issues; • slower than expected subject recruitment and enrollment rates in clinical trials; • delays or inability in manufacturing or in obtaining sufficient quantities of materials for use in clinical trials due to regulatory and manufacturing constraints; • delays in obtaining regulatory authorization to commence a trial, including licenses required for obtaining and using cannabis, U.S. hemp or isolated cannabinoids for research, either before or after a trial is commenced; • unfavorable results from ongoing pre-clinical studies and clinical trials; • trial participants or investigators failing to comply with study protocols; • trial participants failing to return for post-treatment follow-up at the expected rate; • sites participating in an ongoing clinical study withdraw, requiring us to engage new sites; and • third party clinical investigators declining to participate in our clinical studies, not performing the clinical studies on the anticipated schedule, or acting in ways inconsistent with the established investigator agreement, clinical study protocol or good clinical practices.
Clinical trials face many risks, including, among others: • lack of effectiveness of any formulation or delivery system during clinical trials; • discovery of serious or unexpected toxicities or side effects experienced by trial participants or other safety issues; • slower than expected subject recruitment and enrollment rates in clinical trials; • delays or inability in manufacturing or in obtaining sufficient quantities of materials for use in clinical trials due to regulatory and manufacturing constraints; 24 T able of Contents • delays in obtaining regulatory authorization to commence a trial, including licenses required for obtaining and using cannabis, U.S. hemp or isolated cannabinoids for research, either before or after a trial is commenced; • unfavorable results from ongoing pre-clinical studies and clinical trials; • trial participants or investigators failing to comply with study protocols; • trial participants failing to return for post-treatment follow-up at the expected rate; • sites participating in an ongoing clinical study withdraw, requiring us to engage new sites; and • third-party clinical investigators declining to participate in our clinical studies, not performing the clinical studies on the anticipated schedule, or acting in ways inconsistent with the established investigator agreement, clinical study protocol or good clinical practices.
Any fraudulent, malicious or accidental breach of our systems could result in unintended disclosure of, or unauthorized access to, third party, customer, vendor, employee or other confidential information, which could potentially result in additional costs and business disruption to us, including without limitation, to repair or replace damaged systems, enhance security or respond to occurrences, lost sales, violations of data privacy, security or other laws and regulations and subsequent penalties, fines, regulatory action or litigation.
Any fraudulent, malicious or accidental breach of our systems could result in unintended disclosure of, or unauthorized access to, third-party, customer, vendor, employee or other confidential information, and could result in additional costs and business disruption to us, including without limitation, to repair or replace damaged systems, enhance security or respond to occurrences, lost sales, violations of data privacy, security or other laws and regulations and subsequent penalties, fines, regulatory action or litigation.
In addition, media or other reports of perceived security vulnerabilities to our systems or those of our third-party suppliers, even if no breach has been attempted or occurred, could adversely impact our brand and reputation, and customers could lose confidence in our security measures and reliability, which would harm our ability to retain customers and gain new ones.
In addition, media or other reports of perceived security vulnerabilities to our systems or those of our third-party providers, even if no breach has been attempted or occurred, could adversely impact our brand and reputation, and customers could lose confidence in our security measures and reliability, which would harm our ability to retain customers and gain new ones.
We are exposed to the risk that our employees, independent contractors and consultants may engage in fraudulent or other illegal activity.
We are exposed to the risk that our employees, independent contractors, manufacturers and consultants may engage in fraudulent or other illegal activity.
If these distributors do not successfully carry out their contractual obligations or terminate or suspend their contractual arrangements with us, if there is a delay or interruption in the distribution of our products or if these third parties damage our products, it could negatively impact our revenue and may require significant management attention.
If these distributors or manufacturers do not successfully carry out their contractual obligations or terminate or suspend their contractual arrangements with us, if there is a delay or interruption in the distribution or manufacturing of our products or if these third parties damage our products, it could negatively impact our revenue and may require significant management attention.
We currently intend to retain future earnings, if any, for future operation and expansion. Any decision to declare and pay dividends in the future will be made at the discretion of the Board and will depend on, among other things, financial results, cash requirements, contractual restrictions and other factors that the Board may deem relevant.
We currently intend to retain future earnings, if any, for future operations and expansion. Any decision to declare and pay dividends in the future will be made at the discretion of the Board and will depend on, among other things, financial results, cash requirements, contractual restrictions and other factors that the Board may deem relevant.
Such events could also negatively impact consumer sentiment, reduce demand for consumer products like ours and cause general economic slowdown. Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to environmental, social and governance matters, that could expose us to numerous risks.
Such events could also negatively impact consumer sentiment, reduce demand for consumer products like ours and cause general economic slowdown. Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to environmental, social and governance matters, which could expose us to numerous risks.
Our current operations are subject to various laws, regulations and guidelines promulgated by governmental authorities (including, in Canada, Health Canada and other federal, provincial and local regulatory agencies and, in the U.S., the FDA, the USDA, CDPH, DEA, FTC and PTO and other federal and state agencies) relating to the cultivation, processing, marketing, acquisition, manufacture, packaging/labeling, management, transportation, distribution, import, export, storage, sale and disposal of cannabis or U.S. hemp but also including laws and regulations relating to health and safety, the conduct of operations and the protection of the environment.
Our operations are and have been subject to various laws, regulations and guidelines promulgated by governmental authorities (including, in Canada, Health Canada and other federal, provincial and local regulatory agencies and, in the U.S., the FDA, the USDA, CDPH, DEA, FTC and PTO and other federal and state agencies) relating to the cultivation, processing, marketing, acquisition, manufacture, packaging/labeling, management, transportation, distribution, import, export, storage, sale and disposal of cannabis or U.S. hemp but also including laws and regulations relating to health and safety, the conduct of operations and the protection of the environment.
Although we do not have any customers or direct supplier relationships in Russia or Ukraine, businesses in the United States and globally have experienced shortages in materials and increased costs for transportation, energy, and raw material due in part to the negative impact of the Russia-Ukraine military conflict on the global economy.
Although we do not have any customers or direct supplier relationships in Russia or Ukraine, businesses globally have experienced shortages in materials and increased costs for transportation, energy, and raw material due in part to the negative impact of the Russia-Ukraine military conflict on the global economy.
Furthermore, additional countries continue to pass laws with respect to the production and distribution of cannabis in some form or another. We have subsidiaries, investments, joint ventures and strategic alliances in place outside of the U.S. and Canada, which may be affected if more countries legalize cannabis.
Furthermore, additional countries continue to pass laws with respect to the production and distribution of cannabis in some form or another. We have subsidiaries, investments, joint ventures and strategic alliances in place outside of Canada, which may be affected if more countries legalize cannabis.
In addition, pursuant to the Ginkgo Collaboration Agreement, if we undergo a change of control that is approved by the Board, Ginkgo may elect to receive cash payments, which, given the number of Equity Milestone Events (as defined in the Ginkgo Collaboration Agreement) that have occurred to date, could total up to $17 million, in lieu of the common shares that would otherwise become issuable in connection with any Equity Milestone Events achieved following such election (the “Milestone Cash Election”).
In addition, pursuant to the Ginkgo Collaboration Agreement, if we undergo a change of control that is approved by the Board, Ginkgo may elect to receive cash payments, which, given the number of Equity Milestone Events (as defined in the Ginkgo Collaboration Agreement) that have occurred to date, could total up to $15.8 million, in lieu of the common shares that would otherwise become issuable in connection with any Equity Milestone Events achieved following such election (the “Milestone Cash Election”).
We may be exposed to fluctuations of the U.S. dollar against certain other currencies, particularly the Canadian dollar, because we publish our financial statements in U.S. dollars, while a significant portion of our assets, liabilities, revenues and costs are or will be denominated in other currencies.
We may be exposed to fluctuations of the U.S. dollar against certain other currencies, particularly the Canadian dollar and Israeli Shekel, because we publish our financial statements in U.S. dollars, while a significant portion of our assets, liabilities, revenues and costs are or will be denominated in other currencies.
Foreign Corrupt Practices Act and the Corruption of Foreign Public Officials Act (Canada), by virtue of our or our joint ventures operating in jurisdictions that may be vulnerable to the possibility of bribery, collusion, kickbacks, theft, improper commissions, facilitation payments, conflicts of interest and related party transactions and our or our joint ventures’ possible failure to identify, manage and mitigate instances of fraud, corruption or violations of our Code of Business Conduct and Ethics and applicable regulatory requirements.
Foreign Corrupt Practices Act and the Corruption of Foreign Public Officials Act (Canada), by virtue of our or our joint ventures and strategic alliances operating in jurisdictions that may be vulnerable to the possibility of bribery, collusion, kickbacks, theft, improper commissions, facilitation payments, conflicts of interest and related party transactions or our joint ventures’ and strategic alliances’ possible failure to identify, manage and mitigate instances of fraud, corruption or violations of our Code of Business Conduct and Ethics and applicable regulatory requirements.
We have had a series of inventory write-downs due to price compression in the cannabis market. We expect these write-downs to continue as pricing pressures remain elevated. These inventory write-downs have in the past and may in the future materially adversely affect our results of operations and financial position.
We have had a series of inventory write-downs due to price compression in the cannabis market. We expect these write-downs to continue as pricing pressures remain elevated. These inventory write-downs have in the past and may in the future materially adversely affect our results of operations.
The occurrence of one or more natural disasters, such as hurricanes, floods and earthquakes, unusually adverse weather, pandemic outbreaks, such as the COVID-19 virus, influenza and other highly communicable diseases or viruses, boycotts and geo-political events, such as civil unrest in countries in which our or our joint ventures’ operations are located and acts of terrorism, or similar disruptions could adversely affect our business, financial condition and results of operations.
The occurrence of one or more natural disasters, such as hurricanes, floods and earthquakes, unusually adverse weather, pandemic outbreaks, such as the COVID-19 virus, influenza and other highly communicable diseases or viruses, boycotts and geopolitical events, such as civil unrest in countries in which our or our joint ventures’ operations are located and acts of terrorism, or similar disruptions could adversely affect our business, financial condition and results of operations.
If we were to be found to be in violation of the privacy or security rules under PIPEDA or other applicable laws and regulations protecting the confidentiality of client health information in jurisdictions we operate in, we could be subject to sanctions and civil or criminal penalties, which could increase our liabilities, harm our reputation and have a material adverse effect on our business, results of operations and financial condition.
If we were found to be in violation of the privacy or data protection rules under PIPEDA or other applicable laws and regulations protecting the confidentiality of client health information in jurisdictions we operate in, we could be subject to sanctions and civil or criminal penalties, which could increase our liabilities, harm our reputation and have a material adverse effect on our business, results of operations and financial condition.
The market price for our common shares may be volatile and subject to wide fluctuations in response to many factors, including: • actual or anticipated fluctuations in our results of operations; • changes in estimates of our future results of operations by us or securities research analysts; • changes in the economic performance or market valuations of other companies that investors deem comparable to us; • additions or departures of our executive officers and other key personnel; • our restating financial results twice in the last four years; • sales of additional common shares or the perception in the market that such sales might occur; • significant acquisitions or business combinations, strategic partnerships, investments, joint ventures or capital commitments by or involving us or our competitors; • increases in speculative trading activity by investors targeting publicly traded cannabis companies, which can further contribute to the volatility of the market price for our common shares if aggregate short exposure exceeds the number of our common shares available for purchase; • news reports relating to trends, concerns or competitive developments, regulatory changes or enforcement actions and other related issues in our industry or target markets; • the prospect of actual or perceived future changes to the legal and regulatory regimes that govern our products and our industries; • investors’ general perception of us and the public’s reaction to our press releases, our other public announcements and our filings with the SEC and Canadian securities regulators; • our failure to timely file our public filings with the SEC and Canadian securities regulators; • our failure to comply with the Nasdaq and TSX rules and potential trading halts or delisting notices; • reports by industry analysts, investor perceptions, and market rumors or speculation; and • negative announcements by our customers, competitors or suppliers regarding their own performance.
The market price for our common shares has been volatile and subject to wide fluctuations and may continue to be volatile and subject to wide fluctuations in response to many factors, including: • actual or anticipated fluctuations in our results of operations; • changes in estimates of our future results of operations by us or securities research analysts; • changes in the economic performance or market valuations of other companies that investors deem comparable to us; • additions or departures of our executive officers and other key personnel; • our restating financial results twice in the last five years; • sales of additional common shares or the perception in the market that such sales might occur; • significant acquisitions or business combinations, strategic partnerships, investments, joint ventures or capital commitments by or involving us or our competitors; • increases in speculative trading activity by investors targeting publicly traded cannabis companies, which can further contribute to the volatility of the market price for our common shares if aggregate short exposure exceeds the number of our common shares available for purchase; • news reports relating to trends, concerns or competitive developments, regulatory changes or enforcement actions and other related issues in our industry or target markets; • the prospect of actual or perceived future changes to the legal and regulatory regimes that govern our products and our industries; • investors’ general perception of us and the public’s reaction to our press releases, our other public announcements and our filings with the SEC and Canadian securities regulators; • our failure to timely file our public filings with the SEC and Canadian securities regulators; • our failure to comply with the Nasdaq and TSX rules and potential trading halts or delisting notices; • reports by industry analysts, investor perceptions, and market rumors or speculation; and 44 T able of Contents • negative announcements by our customers, competitors or suppliers regarding their own performance.
In the U.S., for example, we must comply with Americans with Disability Act requirements for confidential employee medical records, including that they must be stored separately from other personal records and access must be restricted to those who need access.
In the U.S., for example, we must comply with Americans with Disability Act requirements for confidential employee medical records, including that they must be stored separately from other personnel records and access must be restricted to those who need access.
There can be no assurance that our recent growth in the Israeli market can be sustained or will continue.
There can be no assurance that our growth in the Israeli market can be sustained or will continue.
To the extent such permits, and approvals are required and not obtained, we may be prevented from operating and/or expanding our business, which could have a material adverse effect on our business, financial condition and results of operations. 37 Table of Contents Changes in the laws, regulations and guidelines governing cannabis and U.S. hemp may adversely impact our business.
To the extent such permits, and approvals are required and not obtained, we may be prevented from operating and/or expanding our business, which could have a material adverse effect on our business, financial condition and results of operations. 37 T able of Contents Changes in the laws, regulations and guidelines governing cannabis and U.S. hemp may adversely impact our business.
Although our current operational production facilities, and those of our joint venture partners, grow products indoors (including in greenhouses) under climate-controlled conditions and we and our joint venture partners carefully monitor the growing conditions with trained personnel, there can be no assurance that natural elements will not have a material adverse effect on the production of our products.
Although our current operational production facilities, and those of our joint venture partners and third-party suppliers, grow products indoors (including in greenhouses) under climate-controlled conditions and we and our joint venture partners and third-party suppliers carefully monitor the growing conditions with trained personnel, there can be no assurance that natural elements will not have a material adverse effect on the production of our products.
In addition, as of December 31, 2022, Altria beneficially owned approximately 41% of our outstanding common shares (calculated on a non-diluted basis). As such, our management, directors and employees, as a group, and Altria each are in a position to exercise significant influence over matters requiring shareholder approval, including the election of directors and the determination of significant corporate actions.
In addition, as of December 31, 2023, Altria beneficially owned approximately 41.1% of our outstanding common shares (calculated on a non-diluted basis). As such, our management, directors and employees, as a group, and Altria each are in a position to exercise significant influence over matters requiring shareholder approval, including the election of directors and the determination of significant corporate actions.
Our business and that of our joint venture partners involves the growing of cannabis, an agricultural product, and adverse weather conditions have historically caused volatility in the agricultural industry and consequently in operating results by causing crop failures or significantly reduced harvests, which may negatively affect the supply and pricing of agricultural commodities, such as cannabis.
Our business and that of our joint venture partners and third-party suppliers involves the growing of cannabis, an agricultural product, and adverse weather conditions have historically caused volatility in the agricultural industry and consequently in operating results by causing crop failures or significantly reduced harvests, which may negatively affect the supply and pricing of agricultural commodities, such as cannabis.
In addition, if our remedial efforts are insufficient, or if additional material weaknesses or significant deficiencies in our internal control occur in the future, we could be required to restate our financial statements again, which could materially and adversely affect our business, results of operations and financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the material weaknesses or deficiencies, subject us to regulatory investigations and penalties, harm our reputation, cause a decline in investor confidence or otherwise cause a decline in our stock price.
In addition, if additional material weaknesses or significant deficiencies in our internal control occur in the future, we could be required to restate our financial statements again, which could materially and adversely affect our business, results of operations and financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the material weaknesses, subject us to regulatory investigations and penalties, harm our reputation, cause a decline in investor confidence or otherwise cause a decline in our stock price.
The 2018 Farm Bill, among other things, removes “hemp” (which we refer to as “U.S. hemp” in this Annual Report, defined as the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a THC concentration of not more than 0.3% on a dry weight basis and its derivatives) from the U.S. federal Controlled Substances Act and amends the Agricultural Marketing Act of 1946 to permit the production and sale of U.S. hemp in the U.S.
The 2018 Farm Bill, among other things, removes “hemp” (which we refer to as “U.S. hemp” in this Annual Report, defined as the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a THC concentration of not more than 0.3% on a dry weight basis and its derivatives) from the U.S. federal Controlled Substances Act and amends the Agricultural Marketing Act of 1946 to permit the production and sale of U.S. hemp in the U.S. for certain uses under certain conditions.
We may not successfully execute our production capacity strategy. We may not be successful in executing our strategy to expand production capacity at certain of our facilities and joint ventures and wind-down of cultivation and certain production activities at the Peace Naturals Campus.
We may not be successful in executing our strategy to expand production capacity at certain of our facilities and joint ventures and wind down of cultivation and certain production activities at the Peace Naturals Campus.
Loss of demand for our products, product liability claims and increased regulation stemming from unfavorable scientific studies on vaporizer products could have a material adverse effect on our business, financial condition, operating results, liquidity, cash flow and operational performance. We, or the cannabis and U.S. hemp industries more generally, may receive unfavorable publicity or become subject to negative consumer perception.
Loss of demand for our products, product liability claims and increased regulation stemming from unfavorable scientific studies on vaporizer products could have a material adverse effect on our business, financial condition, operating results, liquidity, cash flow and operational performance. 25 T able of Contents We, or the cannabis and U.S. hemp industries more generally, may receive unfavorable publicity or become subject to negative consumer perception.
As we proceed to wind-down cultivation and certain production activities at the Peace Naturals Campus, the production and manufacturing facilities that we continue to use will become increasingly important to our business.
Additionally, as we proceed to wind down certain production activities at the Peace Naturals Campus, the production and manufacturing facilities that we continue to use will become increasingly important to our business.
Variations in reported cannabinoid content will likely continue until the relevant regulatory agencies and independent certification bodies (e.g., ISO, USP) collaborate to develop, publish and implement standardized analytical assays and levels of detection for cannabis, U.S. hemp, cannabinoids and their derivative products.
Variations in reported cannabinoid content will likely continue until the relevant regulatory agencies and independent certification bodies (e.g., ISO, USP) collaborate to develop, publish and implement standardized analytical assays and levels of detection for cannabis, cannabinoids and their derivative products.
Although we believe that the existing public scientific literature generally supports our beliefs regarding the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, U.S. hemp and cannabinoids, future research and clinical trials may cast doubt or disprove such beliefs, or could raise or heighten concerns regarding, and perceptions relating to, cannabis, U.S. hemp and cannabinoids, which could have a material adverse effect on the demand for our products with the potential to lead to a material adverse effect on our business, financial condition and results of operations.
Although we believe that the existing public scientific literature generally supports our beliefs regarding the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, U.S. hemp and cannabinoids in dietary supplements, food, or cosmetic products, future research and clinical trials may cast doubt or disprove such beliefs, or could raise or heighten concerns regarding, and perceptions relating to, cannabis, U.S. hemp and cannabinoids, which could have a material adverse effect on the demand for our products with the potential to lead to a material adverse effect on our business, financial condition and results of operations.
We may not be able to supply the provincial purchasers in various provinces and territories of Canada with our products in the quantities or prices anticipated, or at all. We have entered into various supply arrangements for cannabis products with various provincial purchasers and have secured listings with various private retailers in those provinces.
We may not be able to supply the purchasers in various provinces and territories of Canada with our products in the quantities or prices anticipated, or at all. We have entered into supply arrangements for cannabis products with various provincial and territorial purchasers and have secured listings with private retailers in certain provinces.
Our success will also depend, in part, on our ability to obtain licenses to certain intellectual property that we believe are necessary or useful for our business.
Our success will also depend, in part, on our ability to obtain licenses to certain intellectual property and germplasm that we believe are necessary or useful for our business.
Accordingly, shareholders may not agree with the manner in which management chooses to allocate and spend the net proceeds. Our failure to apply the funds effectively could have a material adverse effect on our business, financial condition and results of operations. We have cash on hand, including short-term investments, of approximately $878 million as of December 31, 2022.
Accordingly, shareholders may not agree with the manner in which management chooses to allocate and spend the net proceeds. Our failure to apply the funds effectively could have a material adverse effect on our business, financial condition and results of operations. We have cash on hand, including short-term investments, of approximately $861 million as of December 31, 2023.
Construction delays or cost over-runs in respect of such operations, howsoever caused, could have a material adverse effect on our business, financial condition and results of operations. Moreover, with the change in the nature of operations at the Peace Naturals Campus, the continued operations of the Cronos GrowCo production facilities will be more important to us.
Construction delays or cost over-runs in respect of such operations, howsoever caused, could have a material adverse effect on our business, financial condition and results of operations. Moreover, with the pending sale-leaseback transaction and change in the nature of operations at the Peace Naturals Campus, the continued operations of the Cronos GrowCo production facilities will be more important to us.
We may be unable to attract or retain employees with sufficient experience in the cannabis or U.S. hemp industry, and may prove unable to attract, develop and retain additional employees required for our development and future success. Our success is currently largely dependent on the performance of our skilled employees.
We may be unable to attract or retain employees with sufficient experience in the cannabis industry, and may prove unable to attract, develop and retain additional employees required for our development and future success. Our success is currently largely dependent on the performance of our skilled employees.
A claim or regulatory action against us based on such positive test results could materially and adversely affect our business, financial condition, operating results, liquidity, cash flow and operational performance. 28 Table of Contents We may not be able to successfully develop new products or find a market for their sale.
A claim or regulatory action against us based on such positive test results could materially and adversely affect our business, financial condition, operating results, liquidity, cash flow and operational performance. We may not be able to successfully develop new products or find a market for their sale.
Social media permits user-generated content to be distributed to a broad audience which can respond or react, in near real time, with comments that are often not filtered or checked for accuracy. In many cases, we do not have the ability to filter such comments or verify their accuracy.
Social media permits user-generated content to be distributed to a broad audience which can respond or react, in near real time, with comments that may be generated by automation and are often not filtered or checked for accuracy. In many cases, we do not have the ability to filter such comments or verify their accuracy.
Additional government licenses are currently, and in the future, may be, required in connection with our operations, in addition to other unknown permits and approvals which may be required.
Additional government licenses in the future may be required in connection with our operations, in addition to other unknown permits and approvals which may be required.
Any failure by us to anticipate or respond adequately to such changes could have a material and adverse effect on our business, financial condition, operating results, liquidity, cash flow and operational performance. In Canada, the number of licenses granted by Health Canada could also have an impact on our operations.
Any failure by us to anticipate or respond adequately to such changes could have a material and adverse effect on our business, financial condition, operating results, liquidity, cash flow and operational performance. 41 T able of Contents In Canada, the number of licenses granted by Health Canada could also have an impact on our operations.
Our success will depend, in part, on the ability of the applicable licensor to maintain and enforce its licensed intellectual property against other third parties, particularly intellectual property rights to which we have secured exclusive rights.
Our success will depend, in part, on the ability of the applicable licensor to maintain and enforce its licensed intellectual property, including intellectual property underlying licensed germplasm, against other third parties, particularly intellectual property rights to which we have secured exclusive rights.
The determination of PFIC status depends on interpretive rules and computational conventions that are often unclear. In particular, in making our determination, we are relying on the application of certain “look-through” rules, taking into account certain intercompany items.
The determination of PFIC status depends on interpretive rules and computational conventions that are often unclear. In particular, in making our determination, we are relying on the application of certain “look-through” rules, taking into account certain intercompany items (including our interests in subsidiaries).
If successful, this could result in our loss of the right to use applicable licensed intellectual property, which could adversely affect our ability to commercialize our products or services, as well as have a material adverse effect on our business, financial condition and results of operations. The technologies, process and formulations we use may face competition or become obsolete.
If successful, this could result in our loss of the right to use applicable licensed intellectual property or germplasm, which could adversely affect our ability to commercialize our products or services, as well as have a material adverse effect on our business, financial condition and results of operations. 33 T able of Contents The technologies, process and formulations we use may face competition or become obsolete.
We are party to licenses granted by third parties, including through the Ginkgo Strategic Partnership, that give us rights to use third party intellectual property that is necessary or useful to our business.
We are party to licenses granted by third parties, including through the Ginkgo Strategic Partnership, which give us rights to use third-party intellectual property and germplasm that is necessary or useful to our business.
Given these risks, uncertainties and assumptions, undue reliance should not be placed on such literature. In particular, the FDA has raised several questions regarding the safety of CBD and other cannabinoids and gaps in the public scientific literature supporting the use of CBD and other cannabinoids by the general population.
Given these risks, uncertainties and assumptions, undue reliance should not be placed on such literature. In particular, the FDA has raised several questions regarding the safety of CBD and other cannabinoids, particularly in food and dietary supplements and gaps in the public scientific literature supporting the use of CBD and other cannabinoids by the general population.
Risk Factor Summary • Certain of our subsidiaries and joint ventures have limited operating histories and our growth strategy may not be successful. • We may not be able to achieve or maintain profitability and may continue to incur losses in the future. • Our products are new; there is limited long-term data with respect to the effects and the safety of our products, which is subject to conflicting medical data; and our products have been and may be in the future subject to recalls. • The production and distribution of our products is subject to disruption, the risks of an agricultural business and the risk third party suppliers and distributors may not perform their obligations to us. • Intellectual property is key to our growth strategy, and we may be unable to obtain or enforce our intellectual property rights. • Our entry into new markets is subject to risks normally associated with the conduct of business in foreign countries. • We are subject to extensive regulation and licensing and may not successfully comply with all applicable laws and regulations. • Our businesses face highly competitive conditions. • Altria has significant influence over us. • The price of our common shares has been and may continue to be highly volatile. • We have had two restatements and seven material weaknesses in our internal control over financial reporting over the last four years, and one material weakness remains unremediated at December 31, 2022. • We are subject to other risks generally applicable to our industry and the conduct of our businesses.
Risk Factor Summary • Certain of our subsidiaries and joint ventures have limited operating histories and our growth strategy may not be successful. • We may not be able to achieve or maintain profitability and may continue to incur losses in the future. • Our products are new; there is limited long-term data with respect to the effects and the safety of our products, which is subject to conflicting medical data; and our products have been and may be in the future subject to recalls. • The production and distribution of our products is subject to disruption, the risks of an agricultural business and the risk third-party suppliers and distributors may not perform their obligations to us. • Intellectual property is key to our growth strategy, and we may be unable to obtain or enforce our intellectual property rights. • Our entry into new markets is subject to risks normally associated with the conduct of business in foreign countries. • We are subject to extensive regulation and licensing and may not successfully comply with all applicable laws and regulations. • Our businesses face highly competitive conditions. • Altria has significant influence over us. • The price of our common shares has been and may continue to be highly volatile. 16 T able of Contents • We have had two restatements and seven material weaknesses in our internal control over financial reporting over the last five years. • We are subject to other risks generally applicable to our industry and the conduct of our businesses.
We may be unable to attract or retain skilled labor and personnel with experience in the cannabis or U.S. hemp sector and may be unable to attract, develop and retain additional employees required for our operations and future developments.
We may be unable to attract or retain skilled labor and personnel with experience in the cannabis sector and may be unable to attract, develop and retain additional employees required for our operations and future developments.
The privacy rules under the Personal Information Protection and Electronics Documents Act (Canada) (“PIPEDA”) protect medical records and other personal health information by limiting their use and disclosure of health information to the minimum level reasonably necessary to accomplish the intended purpose and apply to our operations globally.
The privacy rules under the Personal Information Protection and Electronics Documents Act (Canada) (“PIPEDA”) and related provincial laws protect medical records and other personal health information by limiting the use and disclosure of health information to the minimum level reasonably necessary to accomplish the intended purpose and apply to our operations globally.
Additionally, we are undertaking an effort to modernize our information technology systems, which could expose us to additional risks relating to our collection, storage and use of certain data on our systems. There have been many highly publicized attacks over the last several years and we expect those to continue.
Additionally, we are undertaking an effort to modernize our information technology systems, which could expose us to additional risks relating to our collection, storage and use of certain data on our systems. 29 T able of Contents There have been many highly publicized cyber-attacks over the last several years and we expect those to continue.
The inability of our suppliers to meet their financial or contractual obligations to us may result in disruption to our supply chain and could result in financial losses. We face exposure to our third party U.S. hemp and cannabis suppliers that may face financial difficulties which would impact our supply of U.S. hemp and cannabis products.
The inability of our suppliers to meet their financial or contractual obligations to us may result in disruption to our supply chain and could result in financial losses. We face exposure to our third-party suppliers that may face financial difficulties which would impact our supply of products.
We are dependent upon information technology systems in the conduct of our operations, and we collect, store and use certain data, intellectual property, proprietary business information and certain personal information of our employees and customers on our computer systems. We have been, and expect to continue to be, subject to various cyberattacks and phishing schemes.
We are dependent upon information technology systems in the conduct of our operations, and we collect, store and use certain data, intellectual property, proprietary business information and certain personal information of our employees and customers on those systems, including cloud-based systems. We have been, and expect to continue to be, subject to various cyberattacks and phishing schemes.
Any actions against us by governmental authorities or private litigants could have a material and adverse effect on our business, financial condition, operating results, liquidity, cash flow and operational performance. 39 Table of Contents Risks Related to U.S.
Any actions against us by governmental authorities or private litigants could have a material and adverse effect on our business, financial condition, operating results, liquidity, cash flow and operational performance. 39 T able of Contents Risks Relating to U.S.
Accordingly, the speed with which negative publicity (whether true or not) can be disseminated has increased dramatically with the expansion of social media.
Accordingly, the speed with which negative publicity (whether true or not) can be disseminated has increased dramatically with the expansion of social media and artificial intelligence.
Without protection for the intellectual property we have licensed, other companies might be able to offer substantially similar products for sale or utilize substantially similar processes or publicity and marketing rights, any of which could have a material adverse effect on our business, financial condition and results of operations.
Without protection for the intellectual property we have licensed, or underlying germplasm that we have licensed, as the case may be, other companies might be able to offer substantially similar products for sale or utilize substantially similar processes, publicity and marketing rights or other intellectual property, any of which could have a material adverse effect on our business, financial condition and results of operations.
In recent years, the FTC, the FDA and state agencies have initiated numerous investigations of food and dietary supplement products both because of their CBD and/or cannabinoid content and based on allegedly deceptive or misleading marketing claims and have, on occasion, issued “Warning Letters” or instituted enforcement actions due to such claims.
See “ Business –Regulatory Framework in Canada. ” In recent years, the FTC, the FDA and state agencies have initiated numerous investigations of food and dietary supplement products both because of their CBD or cannabinoid content and based on allegedly deceptive or misleading marketing claims and have, on occasion, issued “Warning Letters” or instituted enforcement actions due to such claims.
As of December 31, 2022, Altria beneficially owned approximately 41% of our issued and outstanding common shares (calculated on a non-diluted basis).
As of December 31, 2023, Altria beneficially owned approximately 41.1% of our issued and outstanding common shares (calculated on a non-diluted basis).
Theft of data for competitive or fraudulent purposes, such as customer lists and preferences and other consumer and employee personal information, is an ongoing and growing risk. Any such theft or cybersecurity breach may have a material adverse effect on our business, financial condition and results of operations.
Theft of data for competitive or fraudulent purposes, such as customer lists and preferences and other consumer and employee personal information, and trade secrets and other confidential intellectual property is an ongoing and growing risk. Any such theft or cybersecurity incident or breach may have a material adverse effect on our business, financial condition and results of operations.
Schedule I cannabis, failure to comply with the Requirements could result in a delisting of our common shares from the TSX or the denial of an application for certain approvals, such as to have additional securities listed on the TSX, which could have a material adverse effect on the trading price of our common shares and have a material adverse effect on our business, financial condition and results of operations.
Schedule I cannabis, failure to comply with the Requirements could result in a delisting of our common shares from the TSX or the denial of an application for certain approvals, such as to have additional securities listed on the TSX, which could have a material adverse effect on the trading price of our common shares.
See “Risk Factors – Risks Relating to Our Growth Strategy – Our U.S. strategy in part depends on the success of the PharmaCann Investment and there is no guarantee that we will exercise the PharmaCann Option in the near term, or at all, and, even if exercised, that the PharmaCann Investment will achieve the expected benefits of the transaction .” We have had two restatements and seven material weaknesses in our internal control over financial reporting over the last four years, and one material weakness remains unremediated at December 31, 2022.
See “Risk Factors —Risks Relating to Our Growth Strategy—Our U.S. strategy in part depends on the success of the PharmaCann Investment and there is no guarantee that we will exercise the PharmaCann Option in the near term, or at all, and, even if exercised, that the PharmaCann Investment will achieve the expected benefits of the transaction .” We have had two restatements and seven material weaknesses in our internal control over financial reporting over the last five years.
In many countries, including the U.S., we are subject to transfer pricing and other tax regulations designed to ensure that appropriate levels of income are reported as earned and are taxed accordingly.
In many countries, we are subject to transfer pricing and other tax regulations designed to ensure that appropriate levels of income are reported as earned and are taxed accordingly.
A cybersecurity breach may occur in a variety of ways, including, without limitation, a procedural or process failure, information technology malfunction, deliberate unauthorized intrusion, computer virus, and direct or indirect cyberattack or other electronic security breach.
A cybersecurity incident or breach may occur in a variety of ways, including, without limitation, a procedural or process failure, information technology malfunction, inadvertent disclosure of sensitive or private information, deliberate unauthorized intrusion, computer virus, and direct or indirect cyberattack or other electronic security breach.
We must rely largely on our own market research to forecast sales and market demand and market prices may differ from our forecasts. We must rely largely on our own market research and internal data to forecast sales as detailed market data is not generally obtainable from other sources at this early stage of the cannabis or U.S. hemp industries.
We must rely largely on our own market research to forecast sales and market demand and market prices may differ from our forecasts. We must rely largely on our own market research and internal data to forecast sales as detailed market data is not generally obtainable from other sources at this early stage of the cannabis industry.
The focus is currently on the vaporizer devices, the manner in which the devices were used and the related vaporizer device products – THC, nicotine, other substances in vaporizer liquids, possibly adulterated products and other illegal unlicensed cannabis vaporizer products.
The focus has been on the vaporizer devices, the manner in which the devices were used and the related vaporizer device products – THC, nicotine, other substances in vaporizer liquids, possibly adulterated products and other illegal unlicensed cannabis vaporizer products.
There have been relatively few clinical trials on the potential benefits of cannabis, U.S. hemp or isolated cannabinoids and there is limited long-term data with respect to potential benefits, effects and/or interaction of these substances with human or animal biochemistry.
There have been relatively few clinical trials on the potential benefits of cannabis, U.S. hemp or isolated cannabinoids in dietary supplements, food, or cosmetic products and there is limited long-term data with respect to potential benefits, effects and/or interaction of these substances with human or animal biochemistry.
Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: (i) applicable laws and regulations; (ii) manufacturing standards; (iii) federal and provincial healthcare fraud and abuse of federal, state and provincial laws and regulations; or (iv) laws and regulations that require the true, complete and accurate reporting of financial information or data.
Misconduct by these parties could include intentional, reckless and/or negligent conduct or engaging in unauthorized activities that violate: (i) applicable laws and regulations; (ii) manufacturing standards; (iii) federal and provincial healthcare fraud and abuse of federal, state and provincial laws and regulations; or (iv) laws and regulations that require the true, complete and accurate reporting of financial information or data.
To the extent we rely on third parties or our joint venture partners to grow cannabis that we intend to commercialize, we are exposed to similar risks and there can be no assurance that such risks will not have a similarly material adverse effect on the production of our products. Our business also involves products containing U.S. hemp.
To the extent we rely on third parties or our joint venture partners to grow cannabis that we intend to commercialize, we are exposed to similar risks and there can be no assurance that such risks will not have a similarly material adverse effect on the production of our products.
Regulation and Compliance We are subject to uncertainty regarding the legal and regulatory status of U.S. hemp, including with respect to U.S. federal and state implementation of the 2018 Farm Bill and related laws and regulations, including the FFDCA, and the interpretation or application of, or changes to, such laws and regulations may have material and adverse effects on our business, financial condition, operating results, liquidity, cash flow and operational performance.
Regulation and Compliance We are subject to uncertainty regarding the legal and regulatory status of U.S. hemp, including with respect to U.S. federal and state implementation of the 2018 Farm Bill and related laws and regulations, including the FFDCA, and the interpretation or application of such laws and regulations may have material and adverse effects on our business, financial condition, and results of operations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeAs of December 31, 2022, our United States segment leased office space and manufacturing facilities in Los Angeles, California. Management believes that our existing facilities are adequate to meet our current requirements and, to the extent that our facilities are leased, comparable space is readily available.
Biggest changeSee “ Operations and Investments. ” Management believes that our existing facilities and the anticipated changes described herein are adequate to meet our current requirements and, to the extent that our facilities are leased, comparable space is readily available.
ITEM 2. PROPERTIES. Our executive offices are located in Toronto, Ontario in Canada, where we lease office space. As of December 31, 2022, our Rest of World segment owned various manufacturing facilities in the Canadian provinces of Manitoba and Ontario, and in Hadera, Israel.
ITEM 2. PROPERTIES. Our executive offices are located in Toronto, Ontario in Canada, where we lease office space. As of December 31, 2023, the Company owned various manufacturing facilities in Canada and in Hadera, Israel.
Added
The Company has announced the pending sale and leaseback of the Peace Naturals Campus and is winding down its operations at the Cronos Fermentation facility in Manitoba and has listed the property for sale.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeAlthough the outcome of these matters cannot be predicted with certainty, the Company does not believe 49 Table of Contents these legal proceedings, individually or in the aggregate, will have a material adverse effect on its consolidated financial condition but could be material to its results of operations for any particular reporting period depending, in part, on its results for that period.
Biggest changeAlthough the outcome of these matters cannot be predicted with certainty, the Company does not believe these legal proceedings, individually or in the aggregate, will have a material adverse effect on its consolidated financial condition but could be material to its results of operations for any particular reporting period depending, in part, on its results for that period.
Removed
Class action complaints relating to restatement of 2019 interim financial statements On March 11 and 12, 2020, two alleged shareholders of the Company separately filed two putative class action complaints in the U.S. District Court for the Eastern District of New York against the Company and its former Chief Executive Officer (now Executive Chairman) and now former Chief Financial Officer.
Added
See Part II, Note 10(b) “Contingencies,” to the consolidated financial statements under Item 8 of this Annual Report for a description of legal proceedings.
Removed
The court has consolidated the cases, and the consolidated amended complaint alleges violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder against all defendants, and Section 20(a) of the Exchange Act against the individual defendants.
Removed
The consolidated amended complaint generally alleges that certain of the Company’s prior public statements about revenues and internal controls were incorrect based on the Company’s disclosures relating to the Audit Committee of the Board’s review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel.
Removed
The consolidated amended complaint does not quantify a damage request. Defendants moved to dismiss on February 8, 2021.
Removed
On June 3, 2020, an alleged shareholder filed a Statement of Claim, as amended on August 12, 2020, in the Ontario Superior Court of Justice in Toronto, Ontario, Canada, seeking, among other things, an order certifying the action as a class action on behalf of a putative class of shareholders and damages of an unspecified amount.
Removed
The Amended Statement of Claim names (i) the Company, (ii) its former Chief Executive Officer (now Executive Chairman), (iii) now former Chief Financial Officer, (iv) former Chief Financial Officer and Chief Commercial Officer, and (v) current and former members of the Board as defendants and alleges breaches of the Ontario Securities Act, oppression under the Ontario Business Corporations Act and common law misrepresentation.
Removed
The Amended Statement of Claim generally alleges that certain of the Company’s prior public statements about revenues and internal controls were misrepresentations based on the Company’s March 2, 2020 disclosure that the Audit Committee of the Board was conducting a review of the appropriateness of revenue recognized in connection with certain bulk resin purchases and sales of products through the wholesale channel, and the Company’s subsequent restatement.
Removed
The Amended Statement of Claim does not quantify a damage request. On June 28, 2021, the Court dismissed motions brought by the plaintiff for leave to commence a claim for misrepresentation under the Ontario Securities Act and for certification of the action as a class action.
Removed
The plaintiff has appealed the Court’s dismissal of the motions only with respect to the Company, the former Chief Executive Officer (now Executive Chairman), and the now former Chief Financial Officer; the remaining defendants were dismissed from the matter with prejudice and the Company and all individual defendants agreed not to seek costs from plaintiff in connection with the dismissal of the motions.
Removed
On September 26, 2022, the Court of Appeal for Ontario reversed the Superior Court’s dismissal of the leave and certification motions, granted the plaintiff leave to proceed to bring a claim for misrepresentation under the Ontario Securities Act, and remitted the certification motion back to the Superior Court.
Removed
Regulatory reviews relating to restatement The Company previously responded to requests for information from various regulatory authorities relating to its previously disclosed restatement of its financial statements for the first three quarters of 2019 as well as the previously disclosed restatement of the second quarter of 2021 interim financial statements (collectively, the “Restatements”).
Removed
On October 24, 2022, the Company announced settlements with those regulatory authorities as follows: SEC Settlement On October 24, 2022, the SEC issued an Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8(a) of the Securities Act of 1933 (the “Securities Act”) and Section 21(c) of the Exchange Act, Making Findings, and Imposing a Cease-and-Desist Order (the “Settlement Order”) resolving the Restatements.
Removed
The Company agreed to settle with the SEC, without admitting or denying the allegations described in the Settlement Order. The Settlement Order fully and finally disposes of the investigation of the Company by the SEC into the Restatements without the payment of any civil penalty or other amount.
Removed
The Settlement Order required the Company to cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 13a-13, 13a-15(a), 13a-16 and 12b-20 thereunder.
Removed
Additionally, the Company agreed to certain undertakings, which include, among other things, retaining a qualified independent consultant (the “Consultant”) to engage in a review of, and make recommendations with respect to, certain of the Company’s internal accounting controls and internal control over financing reporting.
Removed
As a result of the Settlement Order, the Company (i) lost its status as a well-known seasoned issuer for a period of three years, (ii) is unable to rely on the private offering exemptions provided by Regulations A and D under the Securities Act for a period of five years and (iii) is unable to rely on the safe harbor provisions of the U.S.
Removed
Private Securities Litigation Reform Act of 1995 for a period of three years.
Removed
Ontario Securities Commission Settlement On October 24, 2022, the Ontario Capital Markets Tribunal approved a settlement agreement (the “Settlement Agreement”) between the Company and the staff of the Ontario Securities Commission (“OSC”), resolving the Restatements. 50 Table of Contents Pursuant to the terms of the Settlement Agreement, which fully and finally disposes the investigation of the Company by the OSC, Cronos agreed to pay a total of C$1.34 million to fully settle the matter, and acknowledged that it had failed to comply with the requirement under Section 77 of the Securities Act (Ontario) to file interim financial reports in the manner set out therein and had acted in a manner contrary to the public interest.
Removed
Additionally, the Company agreed to retain the Consultant to engage in a review of, and make recommendations with respect to, certain of the Company’s internal accounting controls and internal control over financing reporting, on substantially the same terms as were required by the SEC pursuant the Settlement Order.
Removed
Litigation relating to marketing, distribution and sale of products On June 16, 2020, an alleged consumer filed a Statement of Claim on behalf of a class in the Court of King’s Bench of Alberta in Alberta, Canada, against the Company and other Canadian cannabis manufacturers and/or distributors.
Removed
On December 4, 2020, a Third Amended Statement of Claim was filed, which added a second alleged consumer. The Third Amended Statement of Claim alleges claims related to the defendants’ advertised content of cannabinoids in cannabis products for medicinal use on or after June 16, 2010 and cannabis products for adult use on or after October 17, 2018.
Removed
The Third Amended Statement of Claim seeks a total of C$500 million for breach of contract, compensatory damages, and unjust enrichment or such other amount as may be proven in trial and C$5 million in punitive damages against each defendant, including the Company. The Third Amended Statement of Claim also seeks interest and costs associated with the action.
Removed
The Company has not responded to the Third Amended Statement of the Claim. On January 31, 2022, upon consent of the Company and the plaintiffs, the court dismissed the case in its entirety as to the Company.
Removed
A number of claims, including purported class actions, have been brought in the U.S. against companies engaged in the U.S. hemp business alleging, among other things, violations of state consumer protection, health and advertising laws. On April 8, 2020, a putative class action complaint was filed in the U.S.
Removed
District Court for the Central District of California against Redwood, alleging violations of California’s Unfair Competition Law, False Advertising Law, Consumers Legal Remedies Act, and breaches of the California Commercial Code for breach of express warranties and implied warranty of merchantability with respect to Redwood’s marketing and sale of U.S. hemp products. The complaint did not quantify a damage request.
Removed
On April 10, 2020, the class action complaint was dismissed for certain pleading deficiencies and the plaintiff was granted leave until April 24, 2020 to amend the complaint to establish federal subject matter jurisdiction. On April 28, 2020, the action was dismissed without prejudice for failure to prosecute and for failure to comply with a court order.
Removed
As of the date of this Annual Report, the plaintiff has not refiled the complaint. We expect litigation and regulatory proceedings relating to the marketing, distribution and sale of our products to increase.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeS&P 500 Old Peer Group New Peer Group February 27, 2018 $ 100.00 $ 100.00 $ 100.00 $ 100.00 March 31, 2018 $ 88.32 $ 97.46 $ 111.22 $ 114.36 June 30, 2018 $ 85.56 $ 100.81 $ 121.53 $ 136.42 September 30, 2018 $ 145.93 $ 108.58 $ 190.41 $ 217.76 December 31, 2018 $ 136.35 $ 93.90 $ 98.39 $ 115.61 March 31, 2019 $ 241.86 $ 106.71 $ 145.34 $ 187.52 June 30, 2019 $ 209.71 $ 111.31 $ 124.13 $ 155.63 September 30, 2019 $ 118.77 $ 113.20 $ 70.99 $ 101.19 December 31, 2019 $ 100.66 $ 123.46 $ 55.09 $ 60.79 March 31, 2020 $ 74.41 $ 99.27 $ 32.45 $ 36.12 June 30, 2020 $ 78.87 $ 119.66 $ 37.99 $ 39.30 September 30, 2020 $ 65.75 $ 130.35 $ 33.33 $ 35.71 December 31, 2020 $ 91.08 $ 146.18 $ 58.43 $ 57.65 March 31, 2021 $ 124.15 $ 155.21 $ 80.99 $ 85.50 June 30, 2021 $ 112.86 $ 168.47 $ 70.52 $ 74.35 September 30, 2021 $ 74.28 $ 169.46 $ 47.25 $ 42.72 December 31, 2021 $ 51.44 $ 188.14 $ 32.67 $ 28.17 March 31, 2022 $ 51.05 $ 179.49 $ 29.70 $ 36.89 June 30, 2022 $ 37.01 $ 150.59 $ 11.66 $ 15.59 September 30, 2022 $ 37.01 $ 143.24 $ 11.13 $ 14.14 December 31, 2022 $ 33.33 $ 154.07 $ 9.00 $ 11.88 *$100 invested on 2/27/18 in stock or 2/28/18 in index, including reinvestment of dividends.
Biggest changeS&P 500 New Peer Group December 31, 2018 $ 100.00 $ 100.00 $ 100.00 March 31, 2019 $ 177.38 $ 113.65 $ 146.46 June 30, 2019 $ 153.80 $ 118.54 $ 126.09 September 30, 2019 $ 87.10 $ 120.55 $ 72.34 December 31, 2019 $ 73.82 $ 131.49 $ 59.86 March 31, 2020 $ 54.54 $ 105.72 $ 36.55 June 30, 2020 $ 57.84 $ 127.44 $ 44.14 September 30, 2020 $ 48.22 $ 138.81 $ 41.80 December 31, 2020 $ 66.79 $ 155.68 $ 73.30 March 31, 2021 $ 91.05 $ 165.29 $ 101.70 June 30, 2021 $ 82.77 $ 179.42 $ 87.65 September 30, 2021 $ 54.48 $ 180.47 $ 60.03 December 31, 2021 $ 37.73 $ 200.37 $ 44.44 March 31, 2022 $ 37.44 $ 191.15 $ 39.24 June 30, 2022 $ 27.14 $ 160.38 $ 17.24 September 30, 2022 $ 27.14 $ 152.55 $ 15.91 December 31, 2022 $ 24.45 $ 164.08 $ 14.41 March 31, 2023 $ 18.67 $ 176.38 $ 12.07 June 30, 2023 $ 18.96 $ 191.80 $ 8.24 September 30, 2023 $ 19.24 $ 185.52 $ 12.29 December 31, 2023 $ 20.12 $ 207.21 $ 11.41 *$100 invested on 12/31/2018 in stock or 12/31/2018 in index, including reinvestment of dividends.
The new peer group includes Aurora Cannabis Inc., Canopy Growth Corporation, Green Thumb Industries, Inc., HEXO Corporation, Organigram Holdings Inc., Tilray Inc., and Trulieve Cannabis Corp., (the “New Peer Group”).
The new peer group includes Aurora Cannabis Inc., Canopy Growth Corporation, Green Thumb Industries, Inc., Organigram Holdings Inc., Tilray Inc., and Trulieve Cannabis Corp., (the “New Peer Group”).
Securities Authorized for Issuance under Equity Compensation Plans Information concerning securities authorized for issuance under equity compensation plans will be set forth in the Company’s definitive proxy statement for its 2023 Annual Meeting of Shareholders or an amendment to this Annual Report to be filed within 120 days of our fiscal year end.
Securities Authorized for Issuance under Equity Compensation Plans Information concerning securities authorized for issuance under equity compensation plans will be set forth in the Company’s definitive proxy statement for its 2024 Annual Meeting of Shareholders or an amendment to this Annual Report to be filed within 120 days of our fiscal year end.
The graph assumes that $100 is invested in each of our common shares, the S&P 500 Index, and the indices of publicly traded peers on February 27, 2018 and that all dividends, if applicable, were reinvested. Past performance may not be indicative of future performance.
The graph assumes that $100 is invested in each of our common shares, the S&P 500 Index, and the indices of publicly traded peers on December 31, 2018, and that all dividends, if applicable, were reinvested. Past performance may not be indicative of future performance.
Performance Graph The following performance graph compares the cumulative total shareholder return of our common shares as listed on Nasdaq with the cumulative total return of the S&P 500 Index and a market-weighted index of publicly traded peers over the 58-month period beginning on February 27, 2018 and ending on December 31, 2022.
Performance Graph The following performance graph compares the cumulative total shareholder return of our common shares as listed on Nasdaq with the cumulative total return of the S&P 500 Index and a market-weighted index of publicly traded peers over the 60-month period beginning on December 31, 2018, and ending on December 31, 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common shares are traded on Nasdaq and the TSX under the symbol “CRON.” Holders As of February 24, 2023, there were approximately 107 holders of record of our common shares.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Our common shares are traded on Nasdaq and the TSX under the symbol “CRON.” Holders As of February 23, 2024, there were approximately 131 holders of record of our common shares.
The old peer group included Aurora Cannabis Inc., Canopy Growth Corporation, Green Thumb Industries, Inc., HEXO Corporation, iAnthus Capital Holdings Inc., Organigram Holdings Inc., and Tilray Inc.
The old peer group included Aurora Cannabis Inc., Canopy Growth Corporation, Green Thumb Industries, Inc., HEXO Corporation, Organigram Holdings Inc., Tilray Inc., and Trulieve Cannabis Corp. (the “Old Peer Group”).
Fiscal year ending December 31. Copyright© 2022 Standard & Poor’s, a division of S&P Global. All rights reserved.
Fiscal year ending December 31. Copyright© 2024 Standard & Poor’s, a division of S&P Global. All rights reserved. 51 T able of Contents ITEM 6. RESERVED Not applicable.
Removed
(the “Old Peer Group”). iAnthus Capital Holdings Inc. was removed from the New Peer Group and replaced with Trulieve Cannabis Corp. to better align the New Peer Group, as iAnthus Capital Holdings Inc.’s share price has fallen to a nominal value. 52 Table of Contents Date Cronos Group Inc.
Added
HEXO Corporation was removed from the New Peer Group after acquisition by Tilray Inc. in 2023, another member of the New Peer Group. 50 T able of Contents Date Cronos Group Inc.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

93 edited+63 added−72 removed45 unchanged
Biggest changeManagement uses Adjusted EBITDA for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets. 62 Table of Contents Adjusted EBITDA is reconciled to net income (loss) as follows: (in thousands of U.S. dollars) Year ended December 31, 2022 US ROW Corporate Total Net loss $ (84,194) $ (54,129) $ (30,411) $ (168,734) Interest income, net (4,518) (18,019) — (22,537) Income tax expense — 34,175 — 34,175 Depreciation and amortization 1,485 11,637 — 13,122 EBITDA (87,227) (26,336) (30,411) (143,974) Share of income from equity accounted investments — (3,114) — (3,114) Impairment loss on long-lived assets (ii) — 3,493 — 3,493 Gain on revaluation of derivative liabilities (iii) — (14,060) — (14,060) Gain on revaluation of financial instruments (iv) — (14,739) — (14,739) Impairment loss on other investments (vi) 61,392 — — 61,392 Foreign currency transaction loss — 2,286 — 2,286 Other, net (vii) 169 324 — 493 Restructuring costs (ix) 1,788 3,545 — 5,333 Share-based compensation (x) 3,744 11,371 — 15,115 Financial statement review costs (xi) — — 7,167 7,167 Adjusted EBITDA $ (20,134) $ (37,230) $ (23,244) $ (80,608) (in thousands of U.S. dollars) Year ended December 31, 2021 US ROW Corporate Total Net loss $ (283,883) $ (81,811) $ (31,510) $ (397,204) Interest income, net (40) (9,031) — (9,071) Income tax benefit (89) (342) — (431) Depreciation and amortization 917 14,485 — 15,402 EBITDA (283,095) (76,699) (31,510) (391,304) Share of loss from equity method investments — 6,313 — 6,313 Impairment loss on goodwill and indefinite-lived intangible assets (i) 236,019 37 — 236,056 Impairment loss on long-lived assets (ii) 2,955 124,664 — 127,619 Gain on revaluation of derivative liabilities (iii) — (151,360) — (151,360) Gain on revaluation of financial instruments (iv) — (8,611) — (8,611) Transaction costs (v) — — 3,801 3,801 Other, net (vii) 3 (733) — (730) Loss from discontinued operations (viii) — 500 — 500 Share-based compensation (x) 3,401 6,750 — 10,151 Financial statement review costs (xi) — — 7,102 7,102 Adjusted EBITDA $ (40,717) $ (99,139) $ (20,607) $ (160,463) 63 Table of Contents (in thousands of U.S. dollars) Year ended December 31, 2020 US ROW Corporate Total Net income (loss) $ (77,368) $ 32,671 $ (30,573) $ (75,270) Interest expense (income), net 18 (18,433) — (18,415) Income tax expense 323 1,024 — 1,347 Depreciation and amortization 234 6,811 — 7,045 EBITDA (76,793) 22,073 (30,573) (85,293) Share of loss from equity accounted investments — 4,510 — 4,510 Impairment loss on goodwill and indefinite-lived intangible assets (i) 40,000 — — 40,000 Gain on revaluation of derivative liabilities (iii) — (129,254) — (129,254) Loss on revaluation of financial instruments (iv) — 9 — 9 Transaction costs (v) 40 — — 40 Other, net (vii) 20 1,805 — 1,825 Loss from discontinued operations (viii) — 650 — 650 Share-based compensation (x) 8,714 6,647 — 15,361 Financial statement review costs (xi) — — 9,688 9,688 Gain on disposal of investments (xii) — (4,789) — (4,789) Adjusted EBITDA $ (28,019) $ (98,349) $ (20,885) $ (147,253) (i) For the year ended December 31, 2021, impairment loss on goodwill and indefinite-lived intangible assets relates to impairment on goodwill and intangible assets related to our U.S. segment and impairment on an indefinite-lived trademark related to our ROW segment.
Biggest changeAdjusted EBITDA is reconciled to net loss as follows: (in thousands of U.S. dollars) For the year ended December 31, 2023 Continuing Operations Discontinued Operations Total Net loss $ (70,439) $ (4,114) $ (74,553) Interest income, net (51,235) (10) (51,245) Income tax expense (benefit) (3,230) — (3,230) Depreciation and amortization 7,866 244 8,110 EBITDA (117,038) (3,880) (120,918) Share of (income) loss from equity method investments (1,583) — (1,583) Impairment loss on long-lived assets (ii) 3,366 205 3,571 Loss on revaluation of derivative liabilities (iii) 85 — 85 Loss on revaluation of financial instruments (iv) 12,042 — 12,042 Impairment loss on other investments (ix) 23,350 — 23,350 Foreign currency transaction loss 7,324 — 7,324 Other, net (vi) (1,114) 118 (996) Restructuring costs (x) 1,524 523 2,047 Share-based compensation (vii) 8,756 13 8,769 Financial statement review costs (viii) 919 — 919 Inventory write-down (xi) 805 839 1,644 Adjusted EBITDA $ (61,564) $ (2,182) $ (63,746) 63 T able of Contents (in thousands of U.S. dollars) For the year ended December 31, 2022 Continuing Operations Discontinued Operations Total Net loss $ (155,178) $ (13,556) $ (168,734) Interest income, net (22,514) (23) (22,537) Income tax expense (benefit) 34,175 — 34,175 Depreciation and amortization 11,924 1,198 13,122 EBITDA (131,593) (12,381) (143,974) Share of income from equity method investments (3,114) — (3,114) Impairment loss on long-lived assets (ii) 3,493 — 3,493 Gain on revaluation of derivative liabilities (iii) (14,060) — (14,060) Gain on revaluation of financial instruments (iv) (14,739) — (14,739) Impairment loss on other investments (ix) 61,392 — 61,392 Foreign currency transaction loss 2,286 — 2,286 Other, net (vi) 324 169 493 Restructuring costs (x) 3,545 1,788 5,333 Share-based compensation (vii) 15,008 107 15,115 Financial statement review costs (viii) 7,167 — 7,167 Adjusted EBITDA $ (70,291) $ (10,317) $ (80,608) (in thousands of U.S. dollars) For the year ended December 31, 2021 Continuing Operations Discontinued Operations Total Net loss $ (128,079) $ (269,125) $ (397,204) Interest income, net (9,068) (4) (9,072) Income tax expense (benefit) (431) — (431) Depreciation and amortization 15,236 166 15,402 EBITDA (122,342) (268,963) (391,305) Share of loss from equity method investments 6,313 — 6,313 Impairment loss on goodwill and indefinite-lived intangible assets (i) 37 236,019 236,056 Impairment loss on long-lived assets (ii) 126,405 1,214 127,619 Gain on revaluation of derivative liabilities (iii) (151,360) — (151,360) Gain on revaluation of financial instruments (iv) (8,611) — (8,611) Transaction costs (v) 3,801 — 3,801 Other, net (vi) (733) (101) (834) Share-based compensation (vii) 9,844 307 10,151 Financial statement review costs (viii) 7,102 — 7,102 Adjusted EBITDA $ (129,544) $ (31,524) $ (161,068) (i) For the year ended December 31, 2021, impairment loss on goodwill and indefinite-lived intangible assets relates primarily to impairment on goodwill and intangible assets related to our U.S. operations.
Unless otherwise noted or the context indicates otherwise, references in this Annual Report to the “Company”, “Cronos”, “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 U.S.
Unless otherwise noted or the context indicates otherwise, references in this Annual Report to the “Company”, “Cronos”, “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 the term “hemp” in the U.S.
On December 16, 2022, Altria notified us that its wholly owned subsidiary, Altria Summit LLC, irrevocably relinquished the Warrant and all rights that it may have held in the Warrant or any common shares underlying the Warrant for no consideration. As of December 31, 2022, derivative liabilities consisted of Pre-emptive Rights and certain Top-up Rights.
On December 16, 2022, Altria notified us that its wholly owned subsidiary, Altria Summit LLC, irrevocably relinquished its warrant and all rights that it may have held in the warrant or any common shares underlying the warrant for no consideration. As of December 31, 2023 , derivative liabilities consisted of pre-emptive rights and certain top-up rights.
We measure derivative liabilities at fair value at each reporting date until settlement with the re-measurement gain or loss being recognized immediately in net income (loss) and comprehensive income (loss). We calculate fair value of the derivative liabilities using the Black-Scholes model. Significant assumptions are used in the valuation of derivative liabilities, including the expected term and our stock price.
We measure derivative liabilities at fair value at each reporting date until settlement with the re-measurement gain or loss being recognized immediately in net loss and comprehensive loss. We calculate fair value of the derivative liabilities using the Black-Scholes model. Significant assumptions are used in the valuation of derivative liabilities, including the expected term and our stock price.
See Note 3 “ Investments ” to the consolidated financial statements in Item 8 of this Annual Report for additional information. Foreign currency transaction loss For 2022, foreign currency transaction loss was $2.3 million, which related to certain foreign currency-denominated intercompany loans anticipated to be settled in the foreseeable future.
See Note 4 “ Investments ” to the consolidated financial statements in Item 8 of this Annual Report for additional information. Foreign currency transaction loss For 2022, foreign currency transaction loss was $2.3 million, which related to certain foreign currency-denominated intercompany loans anticipated to be settled in the foreseeable future.
Inventory write-downs For 2021, we reported inventory write-downs of $12.0 million, primarily related to cannabis strains and potency levels that were no longer in-line with consumer preferences in the Canadian market and adjustments for obsolete inventory in Canada. We reported no inventory write-downs for 2022.
Inventory write-down For 2021, we reported inventory write-downs of $12.0 million, primarily related to cannabis strains and potency levels that were no longer in-line with consumer preferences in the Canadian market and adjustments for obsolete inventory in Canada. We reported no inventory write-downs for 2022.
The increase was primarily due to the acceleration of expense on equity awards granted to certain executive employees in connection with their separation from the Company as well as the approval for grant of previously held-back equity awards granted to certain executives in connection with the SEC and OSC settlements.
The increase was primarily due to the acceleration of expense on equity awards granted to certain executive employees in connection with their separation from the Company as well as the approval of the grant of previously held-back equity awards granted to certain executives in connection with the SEC and OSC settlements.
Refer to Note 7 “ Leases ” to the consolidated financial statements in Item 8 of this Annual Report for further information. Loans receivable with related parties We have entered into three loan agreements with affiliates.
Refer to Note 8 “ Leases ” to the consolidated financial statements in Item 8 of this Annual Report for further information. Loans receivable with related parties We have entered into three loan agreements with affiliates.
(ii) For the year ended December 31, 2022, impairment loss on long-lived assets relates to the Company’s decision to seek a sublease for leased office space in Toronto, Ontario, Canada during the first quarter of 2022.
For the year ended December 31, 2022, impairment loss on long-lived assets relates to the Company’s decision to seek a sublease for leased office space in Toronto, Ontario, Canada during the first quarter of 2022.
If these market conditions and resulting expected future cash flows for each reporting unit decline significantly, the actual results for each segment could differ from our estimate, which would cause goodwill to be impaired.
If these market conditions and resulting expected future cash flows for each reporting unit decline significantly, the actual results for each reporting unit could differ from our estimate, which would cause goodwill to be impaired.
Interest income, net For 2022, we reported interest income, net of $22.5 million, representing an increase of $13.5 million from 2021 primarily due to higher short-term investment balances and higher interest rates in 2022 when compared to 2021.
Interest income, net For 2022, we reported interest income, net of $22.5 million, representing an increase of $13.4 million from 2021 primarily due to higher short-term investment balances and higher interest rates in 2022 when compared to 2021.
This was primarily due to lower cannabis biomass costs, lower sales volumes in the U.S. segment and the impact of the weakening Canadian dollar against the U.S. dollar during the period, partially offset by higher sales volumes in the ROW segment and lower fixed cost absorption due to the timing of the wind-down of cultivation and certain production activities associated with the change in the nature of operations at the Peace Naturals Campus.
This was primarily due to lower cannabis biomass costs and the impact of the weakening Canadian dollar against the U.S. dollar during the period, partially offset by higher sales volumes and lower fixed cost absorption due to the timing of the wind-down of cultivation and certain production activities associated with the change in the nature of operations at the Peace Naturals Campus.
To present this information, current and prior period income statement results in currencies other than U.S. dollars are converted into U.S. dollars using the average exchange rates from the comparative period in 2021 rather than the actual average exchange rates in effect during 2022; constant currency current period balance sheet information is translated at the prior year-end spot rate rather than the current year-end spot rate.
To present this information, current and prior period income statement results in currencies other than U.S. dollars are converted into U.S. dollars using the average exchange rates from the comparative period in 2022 rather than the actual average exchange rates in effect during 2023; constant currency current period balance sheet information is translated at the prior year-end spot rate rather than the current year-end spot rate.
In Canada, Cronos operates two wholly owned license holders under the Cannabis Act (Canada) (the “Cannabis Act”), Peace Naturals Project Inc. (“Peace Naturals”), which has production facilities near Stayner, Ontario (the “Peace Naturals Campus”), and Thanos Holdings Ltd., known as Cronos Fermentation (“Cronos Fermentation”), which has a production facility in Winnipeg, Manitoba.
In Canada, Cronos operates two wholly owned license holder under the Cannabis Act (Canada) (the “Cannabis Act”), Peace Naturals Project Inc. (“Peace Naturals”), which has production facilities near Stayner, Ontario (the “Peace Naturals Campus”) and Thanos Holdings Ltd., known as Cronos Fermentation (“Cronos Fermentation”), which has a production facility in Winnipeg, Manitoba.
(iv) For the years ended December 31, 2022 and 2021, gain on revaluation of financial instruments relates primarily to our unrealized holding gain on our mark-to-market investment in Vitura as well as revaluations of financial liabilities resulting from deferred share units (“DSUs”) granted to directors.
(iv) For the years ended December 31, 2023, 2022 and 2021, (gain) loss on revaluation of financial instruments relates primarily to our unrealized holding gain on our mark-to-market investment in Vitura as well as revaluations of financial liabilities resulting from deferred share units (“DSUs”) granted to directors.
GAAP, we have presented constant currency adjusted financial measures for net revenues, gross profit, gross profit margin, operating expenses, net income (loss) and Adjusted EBITDA for 2022, as well as cash and cash equivalents and short-term investment balances as of December 31, 2022 compared to December 31, 2021, which are considered non-GAAP financial measures.
GAAP, we have presented constant currency adjusted financial measures for net revenues, gross profit, gross profit margin, operating expenses, net income (loss) and Adjusted EBITDA for 2023, as well as cash and cash equivalents and short-term investment balances as of December 31, 2023 compared to December 31, 2022, which are considered non-GAAP financial measures.
Refer to Note 1 “ Background, Basis of Presentation, and Summary of Significant Accounting Policies ” to the consolidated financial statements in Item 8 of this Annual Report for further information on our critical accounting estimates and policies, which are as follows: Revenue recognition Revenue is recognized when the control of the promised goods is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for the performance obligation.
Refer to Note 1 “ Background, Basis of Presentation, and Summary of Significant Accounting Policies ” to the consolidated financial statements in Item 8 of this Annual Report for further information on our critical accounting estimates and policies, which are as follows: Revenue recognition Revenue is recognized at the point in time when the control of the promised goods is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for the performance obligation.
Cash requirements In the near-term, we expect to use our available cash and investments to operate our core business and develop new ways to serve our customers as well as invest in our various strategic partnerships and in our investees. We have maintained adequate liquidity to meet working capital requirements.
Cash requirements In the near term, we expect to use our available cash and investments to operate our core business and develop new ways to serve our customers as well as invest in our various strategic partnerships and in our investees. We believe we have adequate liquidity to meet working capital requirements.
See Note 8 “ Derivative Liabilities ” to the consolidated financial statements in Item 8 of this Annual Report.
See Note 9 “ Derivative Liabilities ” to the consolidated financial statements in Item 8 of this Annual Report.
For further information, see Note 10 “ Share-based Compensation ” to the consolidated financial statements in Item 8 of this Annual Report. Depreciation and amortization For 2022, depreciation and amortization expenses were $6.0 million, representing an increase of $1.5 million from 2021. The increase was primarily due to higher amortization on our Ginkgo exclusive license intangible assets.
For further information, see Note 11 “ Share-based Compensation ” to the consolidated financial statements in Item 8 of this Annual Report. Depreciation and amortization For 2022, depreciation and amortization expenses were $6.0 million, representing an increase of $1.6 million from 2021. The increase was primarily due to higher amortization on our Ginkgo exclusive license intangible assets.
The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of December 31, 2022 and December 31, 2021, as reported on Bloomberg. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange rates.
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 improvement in gross profit is primarily due to increased revenue in the ROW segment driven mainly by a favorable mix of cannabis extract products, which carry a higher gross profit and gross margin than other product categories, higher sales of cannabis flower in Israel, the absence of inventory write-downs in 2022, and lower cannabis biomass costs, partially offset by lower revenue in the U.S. segment and lower fixed cost absorption due to the timing of the wind-down of cultivation and certain production activities associated with the change in the nature of operations at the Peace Naturals Campus.
The improvement in gross profit is primarily due to increased revenue driven mainly by a favorable mix of cannabis extract products, which carry a higher gross profit and gross margin than other product categories, higher sales of cannabis flower in Israel, the absence of inventory write-downs in 2022, and lower cannabis biomass costs, partially offset by lower fixed cost absorption due to the timing of the wind-down of cultivation and certain production activities associated with the change in the nature of operations at the Peace Naturals Campus.
There were no such foreign currency transaction gains or losses during 2021. Other, net For 2022, other, net was a loss of $0.5 million, compared to income of $0.7 million in 2021.
There were no such foreign currency transaction gains or losses during 2021. Other, net For 2022, other, net was a loss of $0.3 million, compared to income of $0.7 million in 2021.
The consolidated statements of net income (loss) and comprehensive income (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, 2022, December 31, 2021, and December 31, 2020, as reported on Bloomberg.
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.
For further information, see Note 6 “ Goodwill and Intangible Assets, net ” to the consolidated financial statements in Item 8 of this Annual Report.
For further information, see Note 7 “ Goodwill and Intangible Assets, net ” to the consolidated financial statements in Item 8 of this Annual Report.
All growth comparisons relate to the corresponding period in 2021. We have provided this non-GAAP financial information to aid investors in better understanding the performance of our segments. The non-GAAP financial measures presented in this Annual Report should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP.
All growth comparisons relate to the corresponding period in 2022. We have provided this non-GAAP financial information to aid investors in better understanding the performance of our business. The non-GAAP financial measures presented in this Annual Report should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP.
Refer to Note 4 “ Loans Receivable, net ” to the consolidated financial statement in Item 8 of this Annual Report for further information. 67 Table of Contents Purchase obligations Our purchase obligations primarily consist of contractual obligations to maintain the ordinary course of business through information technology and capital expenditures related to computer software, agricultural supply services and data analytics.
Refer to Note 5 “ Loans Receivable, net ” to the consolidated financial statement in Item 8 of this Annual Report for further information. 67 T able of Contents Purchase obligations Our purchase obligations primarily consist of contractual obligations to maintain the ordinary course of business through information technology and capital expenditures related to computer software, agricultural supply services and data analytics.
See Note 5 “ Property, Plant and Equipment, net ” and Note 6 “ Goodwill and Intangible Assets, net ” to the consolidated financial statements in Item 8 of this Annual Report. (iii) For the years ended December 31, 2022, 2021 and 2020, the gain on revaluation of derivative liabilities represents the fair value changes on the derivative liabilities.
See Note 6 “ Property, plant and equipment, net ” and Note 7 “ Goodwill and Intangible Assets, net ” to the consolidated financial statements in Item 8 of this Annual Report. (iii) For the years ended December 31, 2023, 2022 and 2021, the (gain) loss on revaluation of derivative liabilities represents the fair value changes on the derivative liabilities.
The decrease in cash and cash equivalents and short-term investments is primarily due to cash flows used in operating activities in 2022. 66 Table of Contents Liquidity and Capital Resources We believe that our existing cash and cash equivalents and short-term investments will be sufficient to fund our business operations and capital expenditures over the next twelve months.
The decrease in cash and cash equivalents and short-term investments is primarily due to cash flows used in operating activities in 2023. 66 T able of Contents Liquidity and Capital Resources We believe that our existing cash and cash equivalents and short-term investments will be sufficient to fund our business operations and capital expenditures over the next twelve months.
For more information, see Note 3 “ Investments ” to the consolidated financial statements in Item 8 of this Annual Report for additional information. Share of income (loss) from equity method investments For 2022, we reported share of income from equity method investments of $3.1 million, representing an increase of $9.4 million from 2021.
For more information, see Note 4 “ Investments ” to the consolidated financial statements in Item 8 of this Annual Report. 61 T able of Contents Share of income (loss) from equity method investments For 2022, we reported share of income from equity method investments of $3.1 million, representing an increase of $9.4 million from 2021.
Impairment loss on long-lived assets During 2022, we recorded impairment charges of $3.5 million related to the right-of-use lease asset and leasehold improvements associated with our corporate headquarters in Toronto, Ontario, Canada, which the Company plans to sublease.
Impairment loss on long-lived assets During 2022, we recorded impairment charges of $3.5 million related to the right-of-use lease asset and leasehold improvements associated with our corporate headquarters in Toronto, Ontario, Canada, which the Company has subleased in part.
These valuation inputs are considered Level 3 inputs as defined by ASC 820 Fair Value Measurement . The expected future cash flows for each reporting unit are significantly impacted by current market conditions.
These valuation inputs are considered Level 3 inputs as defined by Accounting Standards Codification 820 Fair Value Measurement . The expected future cash flows for each reporting unit are significantly impacted by current market conditions.
For the year ended December 31, 2021, impairment loss on long-lived assets relates to impairment charges on property, plant and equipment and definite-lived intangible assets in the Canadian asset group, impairment charges for the differences between the consideration paid to Ginkgo for the achievement of two equity milestones in connection with the Ginkgo Collaboration Agreement and the fair values of the CBGA exclusive license and CBGVA exclusive license as well as impairment on leased premises in the U.S. segment.
For the year ended December 31, 2021, impairment loss on long-lived assets relates to impairment charges on property, plant and equipment and definite-lived intangible assets in the Canadian asset group, impairment charges for the differences between the consideration paid to Ginkgo for the achievement of two equity milestones in connection with the Ginkgo Collaboration Agreement and the fair values of the CBGA exclusive license and CBGVA exclusive license.
(x) For the years ended December 31, 2022, 2021 and 2020, share-based compensation relates to the vesting expenses of share-based compensation awarded to employees under our share-based award plans as described in Note 10 “ Share-based Compensation ” to the consolidated financial statements in Item 8 of this Annual Report.
(vii) For the years ended December 31, 2023, 2022 and 2021, share-based compensation relates to the vesting expenses of share-based compensation awarded to employees under our share-based award plans as described in Note 11 “ Share-based Compensation ” to the consolidated financial statements in Item 8 of this Annual Report.
Under the income approach, significant assumptions used in the discounted cash flow method that require the use of judgment are the discount rate, growth rates, cash flow projections, and the timing of federal legalization of cannabis in the U.S.
Under the income approach, significant assumptions used in the discounted cash flow method that require the use of judgment are the discount rate, growth rates, cash flow projections, and the expectation of federal rescheduling and individual state legalization of cannabis in the U.S.
(vi) For the year ended December 31, 2022, impairment loss on other investments related to the PharmaCann Option for the difference between its fair value and carrying amount. See Note 3 “ Investments” to the consolidated financial statements in Item 8 of this Annual Report.
(ix) For the years ended December 31, 2023 and 2022, impairment loss on other investments related to the PharmaCann Option for the difference between its fair value and carrying amount. See Note 4 “ Investments” to the consolidated financial statements in Item 8 of this Annual Report.
Management defines Adjusted EBITDA as net income (loss) before interest, tax expense (benefit), depreciation and amortization adjusted for: share of income (loss) from equity method investments; impairment loss on goodwill and intangible assets; impairment loss on long-lived assets; (gain) loss on revaluation of derivative liabilities; (gain) loss on revaluation of financial instruments; transaction costs related to strategic projects; impairment loss on other investments; foreign currency transaction loss; other, net; loss from discontinued operations; restructuring costs; share-based compensation; and financial statement review costs and reserves related to the restatements of our 2019 and 2021 interim financial statements (the “Restatements”), including the costs related to the settlement of the SEC’s and the OSC’s investigations of the Restatements and legal costs defending shareholder class action complaints brought against us as a result of the 2019 restatement (see Part I, Item 3, Legal Proceedings, of this Annual Report for a discussion of the settlement of the SEC’s and OSC’s regulatory reviews relating to the Restatements and shareholder class action complaints relating to the restatement of the 2019 interim financial statements).
Management defines Adjusted EBITDA as net income (loss) before interest, tax expense (benefit), depreciation and amortization adjusted for: share of (income) loss from equity method investments; impairment loss on goodwill and intangible assets; impairment loss on long-lived assets; (gain) loss on revaluation of derivative liabilities; (gain) loss on revaluation of financial instruments; transaction costs related to strategic projects; impairment loss on other investments; foreign currency transaction loss; other, net; loss from discontinued operations; restructuring costs; inventory write-downs resulting from restructuring actions; share-based compensation; and financial statement review costs and reserves related to the restatements of our 2019 and 2021 interim financial statements (the “Restatements”), including the costs related to the settlement of the SEC’s and the OSC’s investigations of the Restatements and legal costs defending shareholder class action complaints brought against us as a result of the 2019 restatement (see Note 10(b) “ Contingencies ,” to the consolidated financial statements under Item 8 of this Annual Report for a discussion of the shareholder class action complaints relating to the restatement of the 2019 interim financial statements and the settlement of the SEC’s and the OSC’s investigations of the Restatements).
(xi) For the years ended December 31, 2022, 2021 and 2020, financial statement review costs include costs related to the restatements of the Company’s 2019 interim financial statements and second quarter 2021 interim financial statements, costs related to the Company’s responses to requests for information from various regulatory authorities relating to such restatements, the costs related to the Settlement Order and Settlement Agreement and legal costs defending shareholder class action complaints brought against the Company as a result of the 2021 and 2019 restatements.
(viii) For the years ended December 31, 2023, 2022 and 2021, financial statement review costs include costs related to the Restatement, costs related to the Company’s responses to requests for information from various regulatory authorities relating to the Restatements, the costs related to the Settlement Order and Settlement Agreement and legal costs defending shareholder class action complaints brought against the Company as a result of the 2019 restatement.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Business Overview 54 Recent Developments 55 Consolidated Results of Operations 57 Summary of financial results – ROW 61 Summary of financial results – U.S. 62 Non-G AAP Measures 62 Liquidity and Capital Resources 67 Critical Accounting Estimates 68 Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and related notes, which are included in Item 8 of this Annual Report on Form 10-K (this “Annual Report”), to enhance the understanding of our operations and our present business environment.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Business Overview 52 Recent Developments 53 Consolidated Results of Operations 55 Non-GAAP Measures 63 Liquidity and Capital Resources 67 Critical Accounting Estimates 68 Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to, and should be read in conjunction with, the consolidated financial statements and related notes, which are included in Item 8 of this Annual Report on Form 10-K (this “Annual Report”), to enhance the understanding of our operations and our present business environment.
This change is primarily driven by a $42.0 million increase in net income after adjusting for non-cash items, such as impairment charges, share-based payments, depreciation and amortization, and share of loss from investments in equity method investments in 2022, and a net increase in changes in operating assets and liabilities of $22.7 million related to the timing of collections of accounts receivables, payments for income taxes, payments for accruals and payables, and purchases of inventory.
This change is primarily driven by an $88.3 million increase in net income after adjusting for non-cash items, such as impairment charges, share-based payments, depreciation and amortization, and share of loss from investments in equity method investments, partially offset by and a net decrease in changes in operating assets and liabilities of $42.2 million related to payments for income taxes, the timing of collections of receivables, payments for accruals and payables, and purchases of inventory.
Financing activities During 2022, cash used in financing activities was $2.9 million, as compared to $13.4 million in 2021, representing a decrease of $10.5 million. This change is primarily driven by a decrease in withholding taxes paid on share-based awards.
Financing activities During 2023, cash used in financing activities was $1.0 million, as compared to $2.9 million in 2022, representing a decrease in net cash used of $1.9 million. This change is primarily driven by a decrease in withholding taxes paid on share-based awards.
The restructuring costs in 2022 were related to Realignment activities. For further information, see Note 16 “ Restructuring ” to the consolidated financial statements in Item 8 of this Annual Report. Share-based compensation For 2022, we reported share-based compensation expenses of $15.1 million, representing an increase of $5.0 million from 2021.
For further information, see Note 16 “ Restructuring ” to the consolidated financial statements in Item 8 of this Annual Report. 60 T able of Contents Share-based compensation For 2022, we reported share-based compensation expenses of $15.0 million, representing an increase of $5.2 million from 2021.
In Israel, the Company operates under the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production and marketing of dried flower, pre-rolls and oils in the Israeli medical market. Cronos has established two strategic joint ventures in Canada and Israel.
In Israel, the Company operates under the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production and marketing of dried flower, pre-rolls and oils in the Israeli medical market.
The change was due primarily to a capital gain for tax purposes of $479.8 million, which resulted in an income tax liability of $34.2 million, related to the irrevocable relinquishment by Altria of the Warrant on December 16, 2022. 60 Table of Contents Loss from discontinued operations For 2021, we reported loss from discontinued operations of $0.5 million.
The change was due primarily to a capital gain for tax purposes of $479.8 million, which resulted in an income tax liability of $34.2 million, related to the irrevocable relinquishment by Altria of the Warrant on December 16, 2022.
Refer to Note 6 “ Goodwill and Intangible Assets, net ” to the consolidated financial statements in Item 8 of this Annual Report. Valuation of derivative liabilities Prior to December 16, 2022, derivative liabilities consisted of the Altria Warrant, Pre-emptive Rights, and certain Top-up Rights.
Each cannabinoid exclusive license is subject to amortization. Refer to Note 7 “ Goodwill and Intangible Assets, net ” to the consolidated financial statements in Item 8 of this Annual Report. Valuation of derivative liabilities Prior to December 16, 2022, derivative liabilities consisted of the warrant issued to Altria, as well as Altria’s pre-emptive rights, and certain top-up rights.
Our material cash requirements include the following contractual and other obligations as of December 31, 2022: Leases We have operating leases for buildings and office space, vehicles and land, and a finance lease relating to equipment. As of December 31, 2022, the future minimum payments required under these leases totaled $4.8 million, with $1.6 million payable within 12 months.
Our material cash requirements include the following contractual and other obligations as of December 31, 2023: Leases We have operating leases for land, buildings and office space. As of December 31, 2023, the future minimum payments required under these leases totaled $3.0 million, with $1.1 million payable within 12 months.
Gross profit For 2022, we reported consolidated gross profit of $12.0 million, representing a $29.5 million improvement from 2021.
Gross profit For 2022, we reported consolidated gross profit of $15.4 million, representing a $33.0 million improvement from 2021.
Operating expenses For 2022, operating expenses on a constant currency basis was $140.1 million, representing a 74% decrease from 2021.
Operating expenses For 2023, operating expenses on a constant currency basis was $101.1 million, representing a 20% decrease from 2022.
As of December 31, 2022, we had $764.6 million in cash and cash equivalents and $113.1 million in short term investments, compared to $887.0 million in cash and cash equivalents and $117.7 million in short term investments as of December 31, 2021. As of both December 31, 2022 and December 31, 2021, we had no external financing.
As of December 31, 2023, we had $669.3 million in cash and cash equivalents and $192.2 million in short term investments, compared to $764.6 million in cash and cash equivalents and $113.1 million in short term investments as of December 31, 2022. As of both December 31, 2023 and December 31, 2022, we had no external financing.
The decrease was primarily due to lower expected credit losses on our loans to joint venture partners when compared to 2021, lower legal and advisory fees associated with strategic initiatives and lower personnel-related costs associated with the Realignment. Restructuring costs For 2022, we reported restructuring costs of $5.3 million, compared to no restructuring costs in 2021.
General and administrative For 2022, we reported general and administrative expenses of $67.7 million, representing a decrease of $23.2 million from 2021. The decrease was primarily due to lower expected credit losses on our loans to joint venture partners when compared to 2021, lower legal and advisory fees associated with strategic initiatives and lower personnel-related costs associated with the Realignment.
(ix) For the year ended December 31, 2022, restructuring costs related to the employee-related severance costs and other restructuring costs associated with the Realignment, including the change in the nature of operations at the Peace Naturals Campus. See Note 16 “ Restructuring” to the consolidated financial statements in Item 8 of this Annual Report.
(x) For the years ended December 31, 2023 and 2022, restructuring costs related to the employee-related severance costs and other restructuring costs associated with the Realignment. See Note 16 “ Restructuring” to the consolidated financial statements in Item 8 of this Annual Report.
Cash flows (In thousands of U.S. dollars) Year ended December 31, 2022 2021 2020 Net cash used in operating activities $ (88,948) $ (153,616) $ (144,871) Net cash provided by (used in) investing activities (1,842) (28,898) 20,150 Net cash used in financing activities (2,897) (13,442) (3,051) Effect of foreign currency translation on cash and cash equivalents (28,642) 4,906 6,102 Net change in cash $ (122,329) $ (191,050) $ (121,670) 2022 cash flows vs 2021 cash flows Operating activities During 2022, we used $88.9 million of cash in operating activities, compared to $153.6 million in 2021, representing a decrease in net cash used of $66.8 million.
Cash flows (In thousands of U.S. dollars) Year ended December 31, 2023 2022 2021 Net cash used in operating activities $ (42,835) $ (88,948) $ (153,616) Net cash used in investing activities (59,499) (1,842) (28,898) Net cash used in financing activities (1,030) (2,897) (13,442) Effect of foreign currency translation on cash and cash equivalents 8,011 (28,642) 4,906 Net change in cash $ (95,353) $ (122,329) $ (191,050) 2023 cash flows vs 2022 cash flows Operating activities During 2023, we used $42.8 million of cash in operating activities, compared to $88.9 million in 2022, representing a decrease in cash used of $46.1 million.
The expected option term is the number of years that we estimate that the stock options will be outstanding prior to exercise. Loans receivable, net Loans receivable are presented net of an allowance for credit losses.
The expected option term is the number of years that we estimate that the stock options will be outstanding prior to exercise. Loans receivable, net Loans receivable are presented net of an allowance for credit losses. The probability of default rate is adjusted for current conditions and reasonable and supportable forecasts of future losses as necessary.
The exchange rates used to translate from Canadian dollars (“C$”) to dollars are shown below: (Exchange rates are shown as C$ per $) Year ended December 31, 2022 2021 2020 Average rate 1.3017 1.2541 1.3411 Spot rate 1.3554 1.2746 1.2751 Consolidated Results of Operations The tables below set forth our consolidated results of operations, expressed in thousands of U.S. dollars for the periods presented.
The exchange rates used to translate from Canadian dollars (“C$”) to dollars are shown below: (Exchange rates are shown as C$ per $) Year ended December 31, 2023 2022 2021 Average rate 1.3494 1.3017 1.2541 Spot rate 1.3243 1.3554 1.2746 54 T able of Contents The exchange rates used to translate from New Israeli Shekels (“ILS”) to dollars are shown below: (Exchange rates are shown as ILS per $) Year ended December 31, 2023 2022 2021 Average rate 3.6819 3.3566 3.2297 Spot rate 3.6163 3.5178 3.1149 Consolidated Results of Operations - 2023 Compared to 2022 The tables below set forth our consolidated results of operations, expressed in thousands of U.S. dollars for the periods presented.
Inventory is reflected at the lower of cost or net realizable value considering future demand, market conditions and market prices. Our estimates are based upon assumptions believed to be reasonable, but that are inherently uncertain and unpredictable. These valuations require the use of management’s assumptions that do not reflect unanticipated events and circumstances that may occur.
Our estimates are based upon assumptions believed to be reasonable, but that are inherently uncertain and unpredictable. These valuations require the use of management’s assumptions that do not reflect unanticipated events and circumstances that may occur.
Cash and cash equivalents & short-term investments Cash and cash equivalents and short-term investments on a constant currency basis decreased 9% to $913.8 million as of December 31, 2022 from $1,004.7 million as of December 31, 2021.
Cash and cash equivalents & short-term investments Cash and cash equivalents and short-term investments on a constant currency basis decreased 4% to $844.5 million as of December 31, 2023 from $877.7 million as of December 31, 2022.
Our consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods. Certain totals in the tables below will not sum to exactly 100% due to rounding.
Our consolidated financial results for these periods are not necessarily indicative of the consolidated financial results that we will achieve in future periods .
This change was primarily due to higher cannabis flower sales in the Israeli medical market and higher cannabis extract sales in the Canadian adult-use market, partially offset by a reduction in revenue in the U.S. segment, lower cannabis flower sales in the Canadian adult-use market driven by an unfavorable price/mix shift and the impact of the weakening Canadian dollar against the U.S. dollar during 2022.
This change was primarily due to higher cannabis flower sales in the Israeli medical market and higher cannabis extract sales in the Canadian adult-use market, partially offset by lower cannabis flower sales in the Canadian adult-use market driven by an unfavorable price/mix shift and the impact of the weakening Canadian dollar against the U.S. dollar during 2022. 59 T able of Contents Cost of sales For 2022, we reported consolidated cost of sales of $71.3 million, representing a $1.1 million increase from 2021, despite a 34% increase in net revenue.
This increase was primarily due to higher cannabis extract sales in the Canadian adult-use market and higher cannabis flower sales in the Israeli medical market, partially offset by lower cannabis flower sales in the Canadian adult-use market driven by an unfavorable price/mix shift and the impact of the weakening Canadian dollar against the U.S. dollar during 2022.
This was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market, partially offset by lower cannabis flower sales in the Israeli medical market, lower inventory reserves, lower cannabis biomass costs and the impact of the weakened Canadian dollar and New Israeli Shekel against the U.S. dollar during the period.
Net revenue For 2022, we reported consolidated net revenue of $91.9 million, representing a $17.5 million increase from 2021.
Net revenue For 2022, we reported consolidated net revenue of $86.7 million, representing a $22.2 million increase from 2021.
See Note 5 “ Property, plant and equipment, net ” Note 6, “ Goodwill and Intangible Assets, net ” and Note 7 “ Leases ” to the consolidated financial statements in Item 8 of this Annual Report for additional information. 59 Table of Contents Total other income, income tax benefit (expense) and loss from discontinued operations Year ended December 31, Change (i) 2022 2021 $ % Interest income, net $ 22,537 $ 9,071 $ 13,466 148 % Gain on revaluation of derivative liabilities 14,060 151,360 (137,300) (91) % Impairment loss on other investments (61,392) — (61,392) N/M Share of income (loss) from equity method investments 3,114 (6,313) 9,427 149 % Gain on revaluation of financial instruments 14,739 8,611 6,128 71 % Foreign currency transaction loss (2,286) — (2,286) N/M Other, net (493) 730 (1,223) (168) % Total other income (9,721) 163,459 (173,180) (106) % Income tax benefit (expense) (34,175) 431 (34,606) N/M Loss from discontinued operations — (500) 500 (100) % Net loss $ (168,734) $ (397,204) $ 228,470 58 % (i) “N/M” is defined as not meaningful.
Total other income, income tax benefit (expense) and loss from discontinued operations Year ended December 31, Change (i) 2022 2021 $ % Interest income, net $ 22,514 $ 9,068 $ 13,446 148 % Gain on revaluation of derivative liabilities 14,060 151,360 (137,300) (91) % Impairment loss on other investments (61,392) — (61,392) N/M Share of income (loss) from equity method investments 3,114 (6,313) 9,427 149 % Gain on revaluation of financial instruments 14,739 8,611 6,128 71 % Foreign currency transaction loss (2,286) — (2,286) N/M Other, net (324) 733 (1,057) (144) % Total other income (9,575) 163,459 (173,034) (106) % Income tax benefit (expense) (34,175) 431 (34,606) N/M Loss from discontinued operations (13,556) (269,125) 255,569 95 % Net loss $ (168,734) $ (397,204) $ 228,470 58 % (i) “N/M” is defined as not meaningful.
Management believes that Adjusted EBITDA provides the most useful insight into underlying business trends and results and provides a more meaningful comparison of year-over-year results.
Results are reported as total consolidated results, reflecting our reporting structure of one reportable segment. Management believes that Adjusted EBITDA provides the most useful insight into underlying business trends and results and provides a more meaningful comparison of period-over-period results.
For the years ended December 31, 2021 and 2020, other, net is primarily related to (gain) loss on reclassification of held-for-sale assets and (gain) loss on disposal of assets. (viii) For the years ended December 31, 2021 and 2020, loss from discontinued operations relates to the discontinuance of Original B.C. Ltd. (“OGBC”).
For the year ended December 31, 2021, other, net is primarily related to (gain) loss on reclassification of held-for-sale assets and (gain) loss on disposal of assets.
Sensitivity is performed on various inputs, refer to Note 8 “ Derivative Liabilities ” to the consolidated financial statements in Item 8 of this Annual Report. 70 Table of Contents Impairment of other investments without readily determinable fair values We hold other investments without readily determinable fair values that are measured under the cost method less impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same investee.
Impairment of other investments without readily determinable fair values We hold other investments without readily determinable fair values that are measured under the cost method less impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same investee.
Gross profit For 2022, gross profit on a constant currency basis was $12.6 million, representing a 172% increase from 2021.
Gross profit For 2023, gross profit on a constant currency basis was $12.7 million, representing an 18% decrease from 2022.
The assumptions used in computing the fair value of derivative liabilities reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control.
The assumptions used in computing the fair value of derivative liabilities reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control. Sensitivity is performed on various inputs, refer to Note 9 “ Derivative Liabilities ” to the consolidated financial statements in Item 8 of this Annual Report.
Business Overview 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 ® .
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 ® .
Cash Flows 56 Table of Contents For a discussion of our 2021 cash flows compared to 2020, 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, 2021.
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.
Since 2019, we have been funded by the C$2.4 billion (approximately $1.8 billion) Altria investment in us, pursuant to which we issued to certain wholly owned subsidiaries of Altria 149,831,154 of our common shares and one warrant, as further discussed under “ Altria Strategic Investment ” in Item 1 of this Annual Report.
Since 2019, we have been funded by the C$2.4 billion (approximately $1.8 billion) Altria investment in us as further discussed under “ Business—Altria Strategic Investment ” in Part I, Item 1 of this Annual Report.
As of December 31, 2022, Cronos GrowCo had approximately $0.7 million undrawn on its loan receivable, with no amounts expected to be drawn within 12 months. All other loans receivable have been fully drawn.
As of December 31, 2023, Cronos GrowCo had approximately $0.8 million undrawn on its credit facility, with no amounts expected to be drawn within 12 months. The Mucci Promissory Note and Cannasoul Collaboration Loan (each as defined below) have been fully drawn.
For the year ended December 31, 2020, impairment loss on goodwill and indefinite-lived intangible assets relates to impairment on goodwill and intangible assets related to our U.S. segment. See Note 6 “ Goodwill and Intangible Assets, net ” to the consolidated financial statements under Item 8 of this Annual Report.
See Note 7 “ Goodwill and Intangible Assets, net ” to the consolidated financial statements under Item 8 of this Annual Report. (ii) For the year ended December 31, 2023, impairment loss on long-lived assets related to certain leased properties associated with the Company’s former U.S. operations and impairment of the Ginkgo Collaboration Agreement’s CBCVA exclusive license.
Impairment loss on goodwill and indefinite-lived intangible assets For 2021, we reported impairment loss on goodwill and intangible assets of $236.1 million due to impairment charges on the goodwill associated with our U.S. reporting unit and impairment on our Lord Jones ® brand. For 2022, we reported no such impairment losses.
Impairment loss on goodwill and indefinite-lived intangible assets For 2021, we reported impairment loss on goodwill and intangible assets of $37 thousand due to impairment charges on our PEACE+™ trademark. For 2022, we reported no such impairment losses.
Refer to Note 5 “ Property, plant and equipment, net ” to the consolidated financial statements in Item 8 of this Annual Report. We account for the cannabinoid exclusive licenses originating from the Ginkgo Strategic Partnership as definite-lived intangible assets in accordance with the acquisition method of accounting.
See Note 6 “Property, plant and equipment, net” to the consolidated financial statements in Item 8 of this Annual Report for discussion regarding our evaluation of the Peace Naturals Campus and the Cronos Fermentation facility for held-for-sale classification as of December 31, 2023. 69 T able of Contents We account for the cannabinoid exclusive licenses originating from the Ginkgo Strategic Partnership as definite-lived intangible assets in accordance with the acquisition method of accounting.
Refer to Note 9 “ Commitments and Contingencies ” to the consolidated financial statements in Item 8 of this Annual Report for further information. Critical Accounting Estimates Estimates and critical judgments by management The preparation of the consolidated financial statements in conformity with U.S.
Critical Accounting Estimates Estimates and critical judgments by management The preparation of the consolidated financial statements in conformity with U.S.
This decrease was primarily due to lower costs associated with the Ginkgo Collaboration Agreement and cancellation of beauty-focused product development spending in the U.S. segment. General and administrative For 2022, we reported general and administrative expenses of $71.2 million, representing a decrease of $25.3 million from 2021.
The decrease was primarily due to lower advertising and marketing spend. Research and development For 2022, we reported research and development expenses of $13.1 million, representing a decrease of $8.7 million from 2021. This decrease was primarily due to lower costs associated with the Ginkgo Collaboration Agreement.
This discussion contains Forward-Looking Statements that involve risks and uncertainties. For more information about our operations and the risks facing our business, see Item 1 “ Business ” and Item 1A “ Risk Factors ”, respectively, of this Annual Report.
This discussion contains forward-looking statements that involve risks and uncertainties, see Part I, Item 1 “ Business — Special Note Regarding Forward-Looking Statements ” in this Annual Report for a discussion of the risks and uncertainties involved in the Forward-Looking Statements.
Rather, these non-GAAP measures are provided as a supplement to corresponding U.S. GAAP measures to provide additional information regarding our results of operations from management’s perspective. Accordingly, non-GAAP measures should not be considered a substitute for, or superior to, the financial information prepared and presented in accordance with U.S. GAAP.
These non-GAAP measures do not have a standardized meaning prescribed by U.S. GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these non-GAAP measures are provided as a supplement to corresponding U.S. GAAP measures to provide additional information regarding our results of operations from management’s perspective.
Year ended December 31, 2022 2021 Net revenue before excise taxes $ 114,456 $ 89,486 Excise taxes (22,552) (15,051) Net revenue 91,904 74,435 Cost of sales 79,935 80,008 Inventory write-down — 11,961 Gross profit 11,969 (17,534) Operating expenses: Sales and marketing 22,282 44,937 Research and development 13,381 23,331 General and administrative 71,178 96,482 Restructuring costs 5,333 — Share-based compensation 15,115 10,151 Depreciation and amortization 6,025 4,484 Impairment loss on goodwill and indefinite-lived intangible assets — 236,056 Impairment loss on long-lived assets 3,493 127,619 Total operating expenses 136,807 543,060 Operating loss (124,838) (560,594) Other income (expense) (9,721) 163,459 Income tax benefit (expense) (34,175) 431 Loss from discontinued operations — (500) Net loss (168,734) (397,204) Net loss attributable to non-controlling interest — (1,097) Net loss attributable to Cronos Group $ (168,734) $ (396,107) 57 Table of Contents Summary of select financial results Year ended December 31, Change 2022 2021 $ % Net revenue $ 91,904 $ 74,435 $ 17,469 23 % Cost of sales 79,935 80,008 (73) — % Inventory write-down — 11,961 (11,961) (100) % Gross profit 11,969 (17,534) 29,503 168 % Gross margin (i) 13 % (24) % N/A 37 pp (i) Gross margin is defined as gross profit divided by net revenue.
Year ended December 31, 2022 2021 Net revenue before excise taxes $ 109,301 $ 79,612 Excise taxes (22,552) (15,051) Net revenue 86,749 64,561 Cost of sales 71,313 70,193 Inventory write-down — 11,961 Gross profit 15,436 (17,593) Operating expenses: Sales and marketing 18,046 20,917 Research and development 13,131 21,841 General and administrative 67,674 90,919 Restructuring costs 3,545 — Share-based compensation 15,008 9,844 Depreciation and amortization 5,967 4,413 Impairment loss on goodwill and indefinite-lived intangible assets — 37 Impairment loss on long-lived assets 3,493 126,405 Total operating expenses 126,864 274,376 Operating loss (111,428) (291,969) Other income (expense) (9,575) 163,459 Income tax benefit (expense) (34,175) 431 Loss from discontinued operations (13,556) (269,125) Net loss (168,734) (397,204) Net loss attributable to non-controlling interest — (1,097) Net loss attributable to Cronos Group $ (168,734) $ (396,107) Summary of select financial results Year ended December 31, Change 2022 2021 $ % Net revenue $ 86,749 $ 64,561 $ 22,188 34 % Cost of sales 71,313 70,193 1,120 2 % Inventory write-down — 11,961 (11,961) (100) % Gross profit 15,436 (17,593) 33,029 188 % Gross margin (i) 18 % (27) % N/A 45 pp (i) Gross margin is defined as gross profit divided by net revenue.
Net revenue increased on a constant currency basis primarily due to higher cannabis extract sales in the Canadian adult-use market and higher cannabis flower sales in the Israeli medical market, partially offset by a reduction in revenue in the U.S. segment and lower cannabis flower sales in the Canadian adult-use market driven by an adverse price/mix shift.
Gross profit decreased on a constant currency basis primarily due to lower cannabis flower sales in the Israeli medical market, an adverse price/mix on cannabis flower sales in Canada resulting in higher excise taxes as a percentage of revenue and the inventory write-down recognized as a result of the decision to wind down operations at Cronos Fermentation, partially offset by higher cannabis flower and extract sales in the Canadian adult-use market.
Other purchase obligations consist of noncancellable obligations related to maintenance, internet, and telecommunication service. As of December 31, 2022, we had purchase obligations of $13.5 million, with $10.6 million payable within 12 months. Research and development obligations We have entered into multiple R&D contracts with partners such as Ginkgo Bioworks Holdings, Inc.
As of December 31, 2023, the Company had purchase obligations of $13.0 million, with $10.1 million payable within 12 months. Other purchase obligations consist of noncancellable obligations related to maintenance, internet, and telecommunication service. As of December 31, 2023, we had other purchase obligations of $4.4 million, with $2.2 million payable within 12 months.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+3 added−1 removed3 unchanged
Biggest changeIn addition, we have net assets, liabilities, and revenues denominated in foreign currencies, including Canadian dollars and Israeli new shekels. As a result, we are exposed to foreign currency translation gains and losses.
Biggest changeForeign currency risk Our consolidated financial statements included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Annual Report are expressed in U.S. dollars. In addition, we have net assets, liabilities, and revenues denominated in foreign currencies, including Canadian dollars and Israeli new shekels. As a result, we are exposed to foreign currency translation gains and losses.
A 10% change in the interest rate in effect on December 31, 2022 and December 31, 2021, would not have a material effect on (i) fair value of the cash equivalents and short-term investments as the majority of the portfolio has a maturity date of three months or less, or (ii) interest income, net.
A 10% change in the interest rate in effect on December 31, 2022, would not have a material effect on (i) fair value of the cash equivalents and short-term investments as the majority of the portfolio had a maturity date of three months or less, or (ii) interest income, net.
A 10% change in the exchange rates for the Canadian dollar would affect the carrying amount of the net assets by approximately $77.4 million and $87.7 million as of December 31, 2022 and December 31, 2021, respectively. The corresponding impact would be recorded in accumulated other comprehensive income.
A 10% change in the exchange rates for the Canadian dollar would affect the carrying amount of the net assets by approximately $97.7 million and $77.4 million as of December 31, 2023 and December 31, 2022, respectively. The corresponding impact would be recorded in accumulated other comprehensive income.
Appreciating foreign currencies relative to the U.S. dollar will adversely impact operating income and net earnings, while depreciating foreign currencies relative to the U.S. dollar will have a positive impact. For the years ended December 31, 2022 and December 31, 2021, we had foreign currency gain (loss) on translation of $(50.6) million and $8.2 million, respectively.
Appreciating foreign currencies relative to the U.S. dollar will adversely impact operating income and net earnings, while depreciating foreign currencies relative to the U.S. dollar will have a positive impact. For the years ended December 31, 2023 and December 31, 2022, we had foreign currency gain (loss) on translation of $21.5 million and $(50.6) million, respectively.
As we continue to recognize gains and losses in foreign currency transactions, depending upon changes in future currency rates, such gains and losses could have a significant, and potentially adverse, effect on our results of operations. 72 Table of Contents
As we continue to recognize gains and losses in foreign currency transactions, depending upon changes in future currency rates, such gains and losses could have a significant, and potentially adverse, effect on our results of operations. 71 T able of Contents
Management continues to monitor external interest rates and revise our investment strategy as a result. During the year ended December 31, 2022, our average variable interest rate increased by approximately 3.5%.
Management continues to monitor external interest rates and revise our investment strategy as a result. During the year ended December 31, 2023, our average variable interest rate increased by approximately 1.45%. During the year ended December 31, 2022, our average variable interest rate did not materially change.
Fluctuations in interest rates may impact the level of income and expense recorded on the cash equivalents and short-term investments, and the market value of all interest-earning assets, other than those which possess a short-term to maturity. During the year ended December 31, 2022 and December 31, 2021, we had interest income, net of $22.5 million and $9.1 million, respectively.
Fluctuations in interest rates may impact the level of income and expense recorded on the cash equivalents and short-term investments, and the market value of all interest-earning assets, other than those which possess a short term to maturity.
Removed
During the year ended December 31, 2021, our average variable interest rate did not materially change. 71 Table of Contents Foreign currency risk Our consolidated financial statements included in Part II, Item 8 “Financial Statements and Supplementary Data” of the annual report are expressed in U.S. dollars.
Added
During the years ended December 31, 2023 and December 31, 2022, we had interest income, net of $51.2 million and $22.5 million, respectively.
Added
A 10% change in the interest rate in effect on December 31, 2023 would not have a material effect on the fair value of our cash equivalents and short-term investments as the majority of the portfolio had a maturity date of three months or less.
Added
A 10% change in the interest rate in effect for 2023 would have an effect of $5.4 million on interest income, net earned on our cash equivalents, short-term investments.

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