Cronos Group Inc. Annual Report 2022

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FY2022 Annual Report · Cronos Group Inc.

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________

Form 10-K
__________________

(cid:3811) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2022
or

(cid:3809) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF

1934

For the transition period from to .
Commission File No. 001-38403
__________________________
CRONOS GROUP INC.

(Exact name of Registrant as specified in its Charter)
__________________________

British Columbia, Canada
(State or other jurisdiction of
incorporation or organization)

111 Peter St., Suite 300
Toronto, Ontario
(Address of principal executive offices)

N/A
(I.R.S. Employer
Identification No.)

M5V 2H1
(Zip Code)

Registrant’s telephone number, including area code: 416-504-0004
____________________________
Securities registered pursuant to Section 12(b) of the Act:
Trading Symbol

Name of Each Exchange on Which Registered

CRON

The Nasdaq Stock Market LLC

Title of Each Class

Common Shares, no par value

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes (cid:134) No (cid:95)

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:95) No (cid:134)
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
Yes (cid:95) No (cid:134)
months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated
filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Yes (cid:134) No (cid:95)

Large accelerated filer

Non-accelerated filer

Emerging growth company

(cid:95)
(cid:134)
(cid:3809)

Accelerated filer

Smaller reporting company

(cid:134)
(cid:3809)

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. (cid:3809)
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial
statements. (cid:3809)
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant
recovery period pursuant to § 240.10D-1(b). (cid:3809)
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-
Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes (cid:3811) No (cid:134)
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:3809) No (cid:95)
As of June 30, 2022, the last business day of the Registrant’s most recently completed second fiscal quarter, the aggregate market value of common shares held by non-affiliates of the Registrant computed by reference to
the closing price of $2.82 per common share on June 30, 2022 was approximately $562,557,422.
As of February 24, 2023, there were 380,575,403 common shares of the Registrant issued and outstanding.

Certain information required by Part III of this Annual Report on Form 10-K will either be incorporated into this Annual Report on Form 10-K by reference to the registrant’s definitive proxy statement for its 2023 Annual
Meeting of Shareholders, or will be included in an amendment to this Annual Report on Form 10-K to be filed no later than 120 days after the registrant's fiscal year ended December 31, 2022.

DOCUMENTS INCORPORATED BY REFERENCE

Table of Contents

PART I

Business

Risk Factors

Unresolved Staff Comments

Properties

Legal Proceedings

Mine Safety Disclosure

Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities

Reserved

Management’s Discussion and Analysis of Financial Condition and Results of Operations

PART II

Item 1.

Item 1A.
Item 1B.

Item 2.

Item 3.

Item 4.

Item 5.

Item 6.

Item 7.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Item 8.

Item 9.

Item 9A.

Item 9B.
Item 9C.

Item 10.

Item 11.

Item 12.

Item 13.

Item 14.

Financial Statements and Supplementary Data

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Controls and Procedures

Other Information
Disclosures Regarding Foreign Jurisdictions that Prevent Inspections
PART III

Directors, Executive Officers and Corporate Governance

Executive Compensation

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Certain Relationship and Related Transactions, and Director Independence

Principal Accounting Fees and Services

PART IV

Item 15.

Exhibits, inancial Statement Schedules

53
54

123

125
125

126

127

Unless otherwise noted or the context indicates otherwise, references in this Annual Report on Form 10-K (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. Agricultural Improvement Act of 2018 (the “2018 Farm Bill”), including hemp-derived cannabidiol (“CBD”); and the term “U.S.
Schedule I cannabis” means cannabis excluding U.S. hemp.

This report contains references to our trademarks and trade names and to trademarks and trade names belonging to other entities. Solely for convenience,
trademarks and trade names referred to in this report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way,
that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other
companies’ trademarks or trade names to imply a relationship with, or endorsement or sponsorship of us or our business by, any other companies.

All currency amounts in this Annual Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or
“$” are to U.S. dollars; all references to “C$” are to Canadian dollars; all references to “A$” are to Australian dollars; and all references to “ILS” are to
New Israeli Shekels.

(Exchange rates are shown as C$ per $)

Average rate
Spot rate

2022

1.3017
1.3554

As of December 31,

2021

1.2541
1.2746

2020

1.3411
1.2751

All summaries of agreements described herein are qualified by the full text of such agreements (certain of which are filed as exhibits hereto).

Special Note Regarding Forward-Looking Statements

PART I

This Annual Report, the documents incorporated into this Annual Report by reference, other reports we file with, or furnish to, the U.S. Securities and
Exchange Commission (“SEC”) and other regulatory agencies, and statements by our directors, officers, other employees and other persons authorized to
speak on our behalf contain information that may constitute forward-looking information and forward-looking statements within the meaning of applicable
U.S. and Canadian securities laws and court decisions (collectively, “Forward-Looking Statements”), which are based upon our current internal
expectations, estimates, projections, assumptions and beliefs. All information that is not clearly historical in nature may constitute Forward-Looking
Statements. In some cases, Forward-Looking Statements can be identified by the use of forward-looking terminology, such as “expect”, “likely”, “may”,
“will”, “should”, “intend”, “anticipate”, “potential”, “proposed”, “estimate” and other similar words, expressions and phrases, including negative and
grammatical variations thereof, or statements that certain events or conditions “may” or “will” happen, or by discussion of strategy. Forward-Looking
Statements include estimates, plans, expectations, opinions, forecasts, projections, targets, guidance or other statements that are not statements of historical
fact.

Forward-Looking Statements include, but are not limited to, statements with respect to:
•

expectations related to our announced realignment (the “Realignment”) and any progress, challenges and effects related thereto as well as changes in
strategy, metrics, investments, reporting structure, costs, operating expenses, employee turnover and other changes with respect thereto;
the timing of the change in the nature of operations at our facility in Stayner, Ontario (the “Peace Naturals Campus”) and the expected costs and
benefits from the wind-down of cultivation and certain production activities at the Peace Naturals Campus;
our ability to effectively wind-down cultivation and certain production activities at the Peace Naturals Campus in an organized fashion and acquire raw
materials from other suppliers, including Cronos Growing Company Inc. (“Cronos GrowCo”), and the costs and timing associated therewith;
expectations regarding the potential success of, and the costs and benefits associated with, our joint ventures, strategic alliances and equity
investments, including the strategic partnership (the “Ginkgo Strategic Partnership”) with Ginkgo Bioworks Holdings, Inc. (“Ginkgo”);
our ability or plans to identify, develop, commercialize or expand our technology and research and development (“R&D”) initiatives in cannabinoids,
or the success thereof;
expectations regarding revenues, expenses, gross margins and capital expenditures;
expectations regarding our future production and manufacturing strategy and operations, the costs and timing associated therewith and the receipt of
applicable production and sale licenses;
the ongoing impact of the legalization of additional cannabis product types and forms for adult-use in Canada, including federal, provincial, territorial
and municipal regulations pertaining thereto, the related timing and impact thereof and our intentions to participate in such markets;
the legalization of the use of cannabis for medical or adult-use in jurisdictions outside of Canada, the related timing and impact thereof and our
intentions to participate in such markets, if and when such use is legalized;
the grant, renewal, withdrawal, suspension, delay and impact of any license or supplemental license to conduct activities with cannabis or any
amendments thereof;
our ability to successfully create and launch brands and further create, launch and scale U.S. hemp-derived cannabinoid consumer products and
cannabis products;
the benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, including CBD and other cannabinoids;
laws and regulations and any amendments thereto applicable to our business and the impact thereof, including uncertainty regarding the application of
United States (“U.S.”) state and federal law to U.S. hemp (including CBD and other U.S. hemp-derived cannabinoids) products and the scope of any
regulations by the U.S. Food and Drug Administration (the “FDA”), the U.S. Drug Enforcement Administration (the “DEA”), the U.S. Federal Trade
Commission (the “FTC”), the U.S. Patent and Trademark Office (the “PTO”) and any state equivalent regulatory agencies over U.S. hemp (including
CBD and other U.S. hemp-derived cannabinoids) products;
the laws and regulations and any amendments thereto relating to the U.S. hemp industry in the U.S., including the promulgation of regulations for the
U.S. hemp industry by the U.S. Department of Agriculture (the “USDA”) and relevant state regulatory authorities;

•

•
•

•

•
•

•

•
•
•
•
•

•

the anticipated benefits and impact of Altria Group Inc.’s investment in the Company (the “Altria Investment”), pursuant to a subscription agreement
dated December 7, 2018;
uncertainties as to our ability to exercise our option (the “PharmaCann Option”) in PharmaCann Inc. (“PharmaCann”), in the near term or the future, in
full or in part, including the uncertainties as to the status and future development of federal legalization of cannabis in the U.S. and our ability to
realize the anticipated benefits of the transaction with PharmaCann;
expectations regarding the implementation and effectiveness of key personnel changes;

expectations regarding acquisitions and dispositions and the anticipated benefits therefrom;
our ability to timely and effectively remediate any material weaknesses in our internal control over financial reporting;
expectations of the amount or frequency of impairment losses, including as a result of the write-down of intangible assets, including goodwill;
the uncertainties associated with the COVID-19 pandemic, including our ability, and the abilities of our joint ventures and our suppliers and
distributors, to effectively deal with the restrictions, limitations and health issues presented by the COVID-19 pandemic, the ability to continue our
production, distribution and sale of our products, and demand for and the use of our products by consumers;
the impact of the ongoing military conflict between Russia and Ukraine (and resulting sanctions) on our business, financial condition and results of
operations or cash flows;
our compliance with the terms of the settlement with the SEC (the “SEC Order”) and the settlement with the Ontario Securities Commission (the
“OSC Settlement”), including complying with any recommendations made by the independent consultant appointed pursuant to the SEC Order (the
“Consultant”); and
the impact of the loss of our ability to rely on private offering exemptions under Regulation D of the Securities Act of 1933, as amended (the
“Securities Act”), and the loss of our status as a well-known seasoned issuer, each as a result the SEC Order.

Certain of the Forward-Looking Statements contained herein concerning the industries in which we conduct our business are based on estimates prepared
by us using data from publicly available governmental sources, market research, industry analysis and on assumptions based on data and knowledge of
these industries, which we believe to be reasonable. However, although generally indicative of relative market positions, market shares and performance
characteristics, such data is inherently imprecise. The industries in which we conduct our business involve risks and uncertainties that are subject to change
based on various factors, which are described further below.

The Forward-Looking Statements contained herein are based upon certain material assumptions that were applied in drawing a conclusion or making a
forecast or projection, including: (i) our ability to realize the expected cost-savings, efficiencies and other benefits of our Realignment and employee
turnover related thereto; (ii) our ability to efficiently and effectively wind-down our cultivation and certain production activities at the Peace Naturals
Campus, receive the benefits of the change in the nature of our operations at our Peace Naturals Campus and acquire raw materials on a timely and cost-
effective basis from third parties, including Cronos GrowCo; (iii) our ability to realize anticipated benefits, synergies or generate revenue, profits or value
from our acquisitions and strategic investments; (iv) the production and manufacturing capabilities and output from our facilities and our joint ventures,
strategic alliances and equity investments; (v) government regulation of our activities and products including, but not limited to, the areas of cannabis
taxation and environmental protection; (vi) the timely receipt of any required regulatory authorizations, approvals, consents, permits and/or licenses; (vii)
consumer interest in our products; (viii) competition; (ix) anticipated and unanticipated costs; (x) our ability to generate cash flow from operations; (xi) our
ability to conduct operations in a safe, efficient and effective manner; (xii) our ability to hire and retain qualified staff, and acquire equipment and services
in a timely and cost-efficient manner; (xiii) our ability to exercise the PharmaCann Option and realize the anticipated benefits of the transaction with
PharmaCann; (xiv) our ability to complete planned dispositions, and, if completed, obtain our anticipated sales price; (xv) our ability, and the abilities of
our joint ventures and our suppliers and distributors, to effectively deal with the restrictions, limitations and health issues presented by the COVID-19
pandemic and the ability to continue our production, distribution and sale of our products and customer demand for and use of our products; (xvi) general
economic, financial market, regulatory and political conditions in which we operate; (xvii) management’s perceptions of historical trends, current
conditions and expected future developments; and (xviii) other considerations that management believes to be appropriate in the circumstances. While our
management considers these assumptions to be reasonable based on information currently available to management, there is no assurance that such
expectations will prove to be correct.

By their nature, Forward-Looking Statements are subject to inherent risks and uncertainties that may be general or specific and which give rise to the
possibility that expectations, forecasts, predictions, projections or conclusions will not prove to be accurate, that assumptions may not be correct and that
objectives, strategic goals and priorities will not be achieved. A variety of factors, including known and unknown risks, many of which are beyond our
control, could cause actual results to differ materially from the Forward-Looking Statements in this Annual Report and other reports we file with, or furnish
to, the SEC and other regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf. Such
factors include, without limitation, that we may not be able to wind-down cultivation and certain production activities at the Peace Naturals Campus in a
disciplined manner or achieve the anticipated benefits of the change in the nature of our operations or be able to access raw materials on a timely and cost-
effective basis from third-parties, including Cronos GrowCo; the risk that the COVID-19 pandemic and the military conflict between Russia and Ukraine
may disrupt our operations and those of our suppliers and distribution channels and negatively impact the demand for and use of our products; the risk that
cost savings and any other synergies from the Altria Investment may not be fully realized or may take longer to realize than expected; failure to execute key
personnel changes; the risks that our Realignment, the change in the nature of our operations at the Peace Naturals Campus and our further leveraging of
our strategic partnerships will not result in the expected cost-savings, efficiencies and other benefits or will result in greater than anticipated turnover in
personnel; levels of revenues; the lack of consumer demand for our cannabis and U.S. hemp products; our inability to manage disruptions in credit markets
or changes to our credit ratings; unanticipated future levels of capital, environmental or maintenance expenditures, general and administrative and other
expenses; growth opportunities not turning out as expected; the lack of cash flow necessary to execute our business plan (either within the expected
timeframe or at all); difficulty raising capital; the potential adverse effects of judicial, regulatory or other proceedings, or threatened litigation or
proceedings, on our business, financial condition, results of operations and cash flows; volatility in and/or degradation of general economic, market,
industry or business conditions; compliance with applicable environmental, economic, health and safety, energy and other policies and regulations and in
particular health concerns with respect to vaping and the use of cannabis and U.S. hemp products in vaping devices; the unexpected effects of actions of
third parties such as competitors, activist investors or federal (including U.S. federal), state, provincial, territorial or local regulatory authorities or self-
regulatory organizations; adverse changes in regulatory requirements in relation to our business and products; legal or regulatory obstacles that could
prevent us from being able to exercise the PharmaCann Option and thereby realizing the anticipated benefits of the transaction with PharmaCann; dilution
of our fully diluted ownership of PharmaCann and the loss of our rights as a result of that dilution; a delay in our remediation of material weaknesses in our
internal control over financial reporting and the improvement of our control environment and our systems, processes and procedures; and the factors
discussed under Part I, Item 1A “Risk Factors” in this Annual Report. Readers are cautioned to consider these and other factors, uncertainties and potential
events carefully and not to put undue reliance on Forward-Looking Statements.

Forward-Looking Statements are provided for the purposes of assisting the reader in understanding our financial performance, financial position and cash
flows as of and for periods ended on certain dates and to present information about management’s current expectations and plans relating to the future, and
the reader is cautioned not to place undue reliance on these Forward-Looking Statements because of their inherent uncertainty and to appreciate the limited
purposes for which they are being used by management. While we believe that the assumptions and expectations reflected in the Forward-Looking
Statements are reasonable based on information currently available to management, there is no assurance that such assumptions and expectations will prove
to have been correct. Forward-Looking Statements are made as of the date they are made and are based on the beliefs, estimates, expectations and opinions
of management on that date. We undertake no obligation to update or revise any Forward-Looking Statements, whether as a result of new information,
estimates or opinions, future events or results or otherwise or to explain any material difference between subsequent actual events and such Forward-
Looking Statements. The Forward-Looking Statements contained in this Annual Report and other reports we file with, or furnish to, the SEC and other
regulatory agencies and made by our directors, officers, other employees and other persons authorized to speak on our behalf are expressly qualified in
their entirety by these cautionary statements.

ITEM 1. BUSINESS

General

Cronos is incorporated under the laws of the Province of British Columbia with principal executive offices located at 111 Peter Street, Suite 300, Toronto,
Ontario M5V 2H1. Our telephone number is +1-416-504-0004, our website is https://thecronosgroup.com/ and the investor relations section of our website
is https://ir.thecronosgroup.com/. All references to our website are inactive references, are for informational purposes only and are not intended to
incorporate any information from or referenced on our website into this Annual Report.

Our common shares are currently listed on the Toronto Stock Exchange (“TSX”) and on the NASDAQ Global Market (“Nasdaq”) under the trading symbol
“CRON.”

Description of the Business

Overview

Strategy

Cronos seeks to create value for shareholders by focusing on four core strategic priorities:

•

growing a portfolio of iconic brands that responsibly elevate the consumer experience;

developing a diversified global sales and distribution network;

establishing an efficient global supply chain; and

creating and monetizing disruptive intellectual property.

Business Segments

Cronos reports through two segments: “United States” and “Rest of World.” These two segments represent the geographic regions in which the Company
operates and the different product offerings within each geographic region.

United States

Our U.S. operational subsidiaries (collectively, “Redwood”) manufacture, market and distribute U.S. hemp-derived cannabinoid products through e-
commerce, retail and hospitality partner channels in the United States under the Lord Jones brand.

Strategic Investment in PharmaCann, Inc.

On June 14, 2021, Cronos USA Holdings Inc., a wholly owned subsidiary of the Company, purchased an option (the “PharmaCann Option”), with an
exercise price of $0.0001 per share, to acquire an approximately 10.5% ownership stake in PharmaCann, Inc. (“PharmaCann”) on a fully diluted basis for
total consideration of approximately $110.4 million. PharmaCann is a leading vertically integrated U.S. cannabis company that has a broad geographic
footprint in the U.S. and has built an efficient, effective and scalable operating model. The PharmaCann Option exercise will be based upon various factors,
including the status of U.S. federal cannabis legalization, as well as regulatory approvals, including in the states where PharmaCann operates that may be
required upon exercise. 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”). LivWell is a multi-state cannabis cultivation and retail leader based in Colorado. As a result of the LivWell
Transaction, the Company’s ownership percentage in PharmaCann on a fully diluted basis decreased to approximately 6.4%. As of December 31, 2022, the
Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 6.3%. 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). As a result, further dilution
could adversely affect the Company’s rights under the PharmaCann Option.

No U.S. Schedule I Cannabis-Related Activities

On December 20, 2018, the 2018 Farm Bill was enacted in the U.S., removing U.S. hemp from the list of Schedule I controlled substances under the U.S.
Controlled Substances Act (the “CSA”), and on January 19, 2021, the USDA issued a final rule establishing a domestic U.S. hemp production regulatory
program, effective March 2021. 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 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. 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.

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.

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. Cronos has established two strategic joint ventures in
Canada and Israel and holds approximately 10% of the issued capital of Vitura Health Limited (“Vitura”), formerly known as Cronos Australia Limited,
which is listed on the Australian Securities Exchange under the trading symbol “VIT.” Cronos seeks to export cannabis products to countries that permit the
import of such products.

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.

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.

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.

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. Subject to applicable regulatory approvals, strategic international business opportunities pursued by
us could include:

•

production, distribution, sales and marketing in jurisdictions that have passed legislation to legalize the production, distribution and possession of
cannabis products at all relevant levels of government; and

the export of cannabis products to markets that permit the import of such products.

We seek to conduct business only in jurisdictions where we believe it is legal to do so and where such operations remain compliant with our listing
obligations with the TSX and Nasdaq. Determining whether a business activity is legal in a jurisdiction may require judgment since laws, rules, regulations
and licenses may not be clear and legal interpretation and advice of counsel may vary. If a business activity in which we engage in any jurisdiction is
determined to be illegal, we could be subject to fines, penalties, reputational harm, delisting from securities exchanges and material civil, criminal and
regulatory litigation and proceedings or be enjoined from doing business in the applicable jurisdiction. 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.”

Joint Ventures/Strategic Investments

We have established two strategic joint ventures in Canada and Israel. 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.

Our ownership interest in each of our joint ventures is summarized in the table below.

Joint Venture
Cronos Israel
Cronos GrowCo

(ii)

(iii)

Jurisdiction
Israel
Canada

(i)

Ownership Interest
70%/90%
50%

(i)

(ii)

(iii)

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. 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.

A strategic joint venture with Kibbutz Gan Shmuel (“Gan Shmuel”), an Israeli agricultural collective settlement, for the production, manufacturing and global distribution of medical
cannabis, consisting of a cultivation company (Cronos Israel G.S. Cultivation Ltd.), a manufacturing company (Cronos Israel G.S. Manufacturing Ltd.), a distribution company (Cronos
Israel G.S. Store Ltd.) and a pharmacy company (Cronos Israel G.S. Pharmacy Ltd., collectively, “Cronos Israel”). We hold a 70% equity interest in the cultivation company and a 90%
equity interest in each of the manufacturing, distribution and pharmacy companies.

A strategic joint venture with a group of investors led by Bert Mucci (the “Greenhouse Partners”), a Canadian large-scale greenhouse operator. 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.

®
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 addition, PEACE NATURALS cannabis products are currently available in the Israeli medical market.

Brand Positioning

Product Offering

Geographic Availability

Adult-Use Brand

Mainstream adult-use
Dried cannabis, pre-rolls,
vaporizers, edibles

Canada

Wellness
Dried cannabis, pre-rolls, cannabis
tinctures
Canada and Israel

Prestige adult consumer goods
U.S. hemp-derived cannabinoid
products

U.S.

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™. 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. 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.
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 Company currently distributes products under PEACE
NATURALS for the Canadian and non-U.S. medical cannabis markets.

U.S. Hemp-derived Cannabinoid Brands

The Company operates Lord Jones , a prestige U.S. hemp-derived cannabinoid brand in the U.S., for the adult consumer goods market.

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. Cronos believes that those
below the legal age of consumption should not be targeted in an adult-use cannabis market. Cronos recognizes there is a clear need for standards.

The principles in the Cronos Marketing Code apply to all marketing activities of all Cronos brands globally and are communicated to all business partners
in any work they do on the Company’s behalf. The Marketing Code represents Cronos’ commitment to responsible marketing standards. The code
standards are:

• Our advertising will be targeted to adults.
• We will highlight responsible cannabis consumption and any people depicted in any imagery will be adults.
• Our brand websites and social media will be designed for adults.
• Our marketing events will be targeted to adults and will promote responsible cannabis consumption.
• We will provide our customers with facts and substantiate our claims.

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. We have also
built a distribution channel for the Israeli medical market. Our PEACE NATURALS medical cannabis products are sold in Canada through the Medical
Cannabis by Shoppers Drug Mart platform.

United States Market and Distribution

Through Redwood, the Company manufactures, markets and distributes U.S. hemp-derived cannabinoid products through e-commerce, retail and
hospitality partner channels in the U.S. under the Lord Jones brand. Redwood’s products use high-quality cannabinoids from U.S. hemp extract that
retains naturally occurring phytocannabinoids and terpenes found in the plant. We plan to use our resources to capitalize on market demand and to further
create and scale U.S. hemp-derived cannabinoid products and brands. We do not engage in any commercial activities related to the cultivation, distribution
or possession of U.S. Schedule I cannabis in the U.S.

Rest of World

Canadian Market and Distribution
• Medical Market. Our PEACE NATURALS medical cannabis products are sold in Canada through the Medical Cannabis by Shoppers Drug Mart

platform.

• Adult-Use. 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. 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. 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. Vitura holds an import license from the Australian Office of Drug Control to import PEACE NATURALS branded
cannabis products for sale in the Australian medical market under the terms of the relevant permits, which Vitura applies for on a case-by-case basis.
On November 29, 2022, the shareholders of Cronos Australia approved a proposal to change the name of the company to “Vitura Health Limited” (the
“CAU Name Change”), which change became effective on February 6, 2023. On December 2, 2022, in connection with the CAU Name Change,
Vitura and the Company mutually agreed to terminate the intellectual property license that granted Vitura the right to use certain intellectual property
of the Company, including, but not limited to, the “Cronos” name and the PEACE NATURALS brand. Vitura has 180 days following the date of
termination to cease all usage of the Company’s intellectual property. Vitura did not import PEACE NATURALS branded cannabis products from the
Company during 2022.

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.

Global Supply Chain

Cronos is focused on establishing an efficient global supply chain by seeking to develop industry-leading methodologies and best practices at Cronos
Fermentation and the Peace Naturals Campus and leveraging this expertise to create beneficial production partnerships. 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 may supply these third-party
manufacturers with U.S. hemp-derived cannabinoids or infused bulk product, and other inputs such as packaging that we source from other third-party
suppliers. The contract manufacturers supply any other necessary ingredients to manufacture products using our formulas and fill and package our finished
products. Our contract manufacturing and supply agreements generally do not require us to purchase minimum quantities of materials or products.

In producing our supplement products, we source our ingredients from our suppliers on an ongoing as-needed basis. We have not entered into any contracts
that obligate us to purchase a minimum quantity or exclusively from any supplier. Our supplements are manufactured according to Good Manufacturing
Practices (“GMP”), which we employ at our facility in Los Angeles, California.

Rest of World

Canadian Supply Chain

•

Facilities at Cronos Fermentation and Peace Naturals Campus. Cronos Fermentation and the Peace Naturals Campus are licensed for cannabis
production and the manufacturing of certain 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. The Peace Naturals Campus is engaged in processing, finishing, packaging and shipping activities, as well as R&D activities,
including cannabinoid product formulation, product development, tissue culture and micro propagation. The GMP certificate issued under relevant
European Economic Area GMP directives by the national competent authority of Germany was retracted in 2022 due to the announcement of the
closure of the Peace Naturals Campus.

Cronos GrowCo. The Cronos GrowCo production facility is licensed for cannabis production and the manufacturing of certain cannabis products.
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. 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. We also enter into contract
manufacturing agreements with other license holders for certain manufacturing and processing services related to our products.

Supply Chain Outside of Canada

•

Cronos Israel. Cronos Israel holds the IMC-GAP, IMC-GMP and IMC-GDP certifications required for the cultivation, production, distribution, and
marketing of dried flower, pre-rolls and oils in Israel. 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. 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 mitigate credit risk through verification of the customers’ liquidity prior to the authorization of material transactions.

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 sell these products to the various cannabis control authorities under supply agreements that are subject to terms that allow for
renegotiation of sale prices and termination at the election of the applicable cannabis control authority. In particular, the cannabis control authorities have in
the past and may in the future choose to stop purchasing our products, may change the prices at which they purchase our products, may return our products
to us and, in certain circumstances, may cancel purchase orders at any time including after products have been shipped. For the year ended December 31,
2022, we had approximately $77.6 million in sales to cannabis control authorities in Canada.

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. The Ginkgo Collaboration Agreement was
amended in June 2021 to enable accelerated commercialization of such cultured cannabinoids, ultimately resulting in the Company’s launching of its first
cultured cannabinoid product containing cannabigerol (“CBG”) in the second half of 2021. These cultured cannabinoid molecules are identical to those
produced by plants grown using traditional cultivation but are created by leveraging the power of biological manufacturing via fermentation. These
cultured cannabinoids include rare cannabinoids that are difficult to produce at high purity and scale through traditional cultivation.

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 contemplates the performance of licensed R&D activities in the U.S. in order to produce cultured cannabinoids, and such
activities are to be conducted in compliance with all applicable laws regarding controlled substances. 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.

Ginkgo has filed certain patent applications pertaining to biosynthesis of cannabinoids to protect the intellectual property developed as part of the research
progressing under the Ginkgo Strategic Partnership. Under the partnership, Cronos is the exclusive licensee of the intellectual property covered by the
patent applications for the target cannabinoids.

Cronos Fermentation

Cronos Fermentation is a GMP-standard fermentation and manufacturing facility in Winnipeg, Manitoba. The state-of-the-art facility includes fully
equipped laboratories covering microbiology, organic and analytical chemistry, quality control and method development as well as two large-scale
microbial fermentation production areas, chemical manufacturing production areas, three downstream processing plants, and bulk product and packaging
capabilities. 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 Company is prioritizing rare cannabinoids, such as CBG, CBC and THCV, over common cannabinoids, such as THC and CBD, and has been
sequencing commercial production and subsequent product launches based upon this approach. The Company achieved its first two equity milestones in
2021, and an additional three equity milestones in 2022. The achievement of equity milestones for the remaining target cannabinoids generally will occur
sequentially based on Ginkgo’s ability to produce such target cannabinoids as contemplated under the Ginkgo Collaboration Agreement.

Competitive Conditions

Competitive Conditions in the United States

We face competition in all aspects of our business in the U.S. hemp market. 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. In the second quarter of 2022,
the Company began a phased exit of the wholesale beauty category in the U.S. business to focus the portfolio on adult-use product formats within the
direct-to-consumer channel. 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. However, rapidly evolving and developing federal and state regulatory frameworks affect all areas of our
business and could result in our inability to compete successfully against our current and future competitors. See “U.S. Hemp Regulatory Framework” for
further information on regulatory framework on U.S. hemp.

Competitive Conditions in Rest of World

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.

The principal factors on which we compete with other Canadian license holders are product quality, innovation, intellectual property, brand recognition and
price. We believe the Company’s strong capitalization resulting from the Altria Investment, along with the Spinach 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. 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. As these illegal market participants do not comply with the
regulations governing the cannabis industry, their operations may also have significantly lower costs. 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. The principal factors on which we compete are product quality, innovation, intellectual property, brand
recognition, price and physician familiarity. 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 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. However, a patchwork of
regulatory frameworks and federal regulations in these various regions also affects our ability to compete in emerging markets as evolving regulations and
federal frameworks have the potential to affect all areas of our business.

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.

Warrant
Prior to December 16, 2022, Altria had the right to acquire up to an additional 84,243,223 of our common shares at a per share exercise price of C$19.00
(the “Warrant”). On December 16, 2022, Altria notified the Company 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. The voluntary irrevocable
relinquishment of the Warrant does not affect any rights of Altria under the Investor Rights Agreement between the Company and Altria, dated March 8,
2019 (the “Investor Rights Agreement”), and Altria continues to beneficially own 156,573,537 of our common shares.

Investor Rights Agreement

In connection with the Altria Investment, we entered into the Investor Rights Agreement with Altria pursuant to which Altria received certain governance
rights that are summarized below.

Board Representation

The Investor Rights Agreement provides that, for so long as Altria and certain of its affiliates (the “Altria Group”) continue to beneficially own at least
40% of our issued and outstanding common shares and the size of our board of directors (the “Board”) is seven directors, we agree to nominate for election
as directors to the Board four individuals designated by Altria (the “Altria Nominees”). 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. At least one Altria Nominee must be independent
as long as Atria has the right to designate at least three Altria Nominees and the Altria Group’s beneficial ownership of our issued and outstanding common
shares does not exceed 50%.

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.

Approval Rights

The Investor Rights Agreement also grants Altria, until the Altria Group beneficially owns less than 10% of our issued and outstanding common shares,
approval rights over certain transactions that may be undertaken by us. 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).

Exclusivity Covenant

Pursuant to the terms of the Investor Rights Agreement, until the earlier of:

•

the six-month anniversary of the date on which the Altria Group beneficially owns less than 10% of our issued and outstanding common shares; and

the six-month anniversary of the termination of the Investor Rights Agreement,

Altria has agreed to make us its exclusive partner for pursuing cannabis opportunities throughout the world (subject to certain limited exceptions).

Pre-Emptive Rights and Top-Up Rights

Pursuant to the terms of the Investor Rights Agreement and provided the Altria Group continues to beneficially own at least 20% of our issued and
outstanding common shares, Altria has a right to purchase, directly or indirectly by another member of the Altria Group, upon the occurrence of certain
issuances of common shares by us (including issuances of common shares to Ginkgo under the Ginkgo Collaboration Agreement (each, a “Ginkgo
Issuance”)) (each, a “Triggering Event”) and subject to obtaining the necessary approvals, up to such number of our common shares issuable in connection
with the Triggering Event which will, when added to our common shares beneficially owned by the Altria Group immediately prior to the Triggering
Event, result in the Altria Group beneficially owning the same percentage of our issued and outstanding common shares that the Altria Group beneficially
owned immediately prior to the Triggering Event (in each case, calculated on a non-diluted basis). The price per common share to be paid by Altria
pursuant to the exercise of these pre-emptive rights will be, subject to certain limited exceptions, the same price per common share at which the common
shares are sold in the relevant Triggering Event; provided that if the consideration paid in connection with any such issuance is non-cash, the price per
common share that would have been received had such common shares been issued for cash consideration will be determined by an independent committee
(acting reasonably and in good faith); provided further that the price per common share to be paid by Altria pursuant to the exercise of its pre-emptive
rights in connection with a Ginkgo Issuance will be C$16.25 per common share.

In addition to (and without duplication of) the aforementioned pre-emptive rights, the Investor Rights Agreement provides Altria with top-up rights,
exercisable on a quarterly basis, whereby, subject to obtaining the necessary approvals and for so long as the Altria Group beneficially owns at least 20% of
our issued and outstanding common shares, Altria has the right to subscribe for such number of common shares in connection with any Top-Up Securities
(as defined below) that we may, from time to time, issue after the date of the Investor Rights Agreement, as will, when added to the common shares
beneficially owned by the Altria Group prior to such issuance, result in the Altria Group beneficially owning the same percentage of our issued and
outstanding common shares that the Altria Group beneficially owned immediately prior to such issuance. “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.

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.

Standstill Covenant

The Altria Group is permitted to acquire our common shares in the open market upon the falling away of the standstill covenant under the Investor Rights
Agreement. The Investor Rights Agreement specifies that the standstill covenant falls away on the expiry or termination of the Warrant.

Registration Rights

The Investor Rights Agreement provides Altria with the right, subject to certain limitations and to the extent permitted by applicable law, to require us to
use reasonable commercial efforts to file a prospectus under applicable securities laws and/or a registration statement, qualifying our common shares held
by Altria for distribution in Canada and/or the U.S. In addition, the Investor Rights Agreement provides Altria with the right to require us to include our
common shares held by Altria in any proposed distribution of common shares in Canada and/or the U.S. by us for our own account.

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. The services under the Commercial
Arrangements are provided on customary terms and for a services fee payable by us that is equal to Altria’s reasonably allocated costs plus 5%.

Protection of Intangible Assets

The ownership and protection of our intellectual property rights is a significant aspect of our future success. Currently, we rely on trademarks, patents,
copyrights, trade secrets, technical know-how and proprietary information. We seek to protect our intellectual property by strategically seeking and
obtaining registered protection where appropriate, developing and implementing standard operating procedures to protect inventions, germplasm, trade
secrets, technical know-how and proprietary information and entering into agreements with parties that have access to our inventions, germplasm, trade
secrets, technical know-how and proprietary information, such as our partners, collaborators, employees and consultants, to protect confidentiality and
ownership. We also seek to preserve the integrity and confidentiality of our inventions, germplasm, trade secrets, trademarks, technical know-how and
proprietary information by maintaining physical security of our premises and physical and electronic security of our information technology systems.

In addition, we have sought trademark protection in many jurisdictions, including Canada, Australia, the U.S., China, Israel and Europe. Our ability to
obtain registered trademark protection for cannabis-related goods and services, in particular for cannabis itself, may be limited in certain countries outside
of Canada. For example, in the U.S., registered federal trademark protection is only available for goods and services that can be lawfully used in interstate
commerce; the PTO is not currently approving any trademark applications for U.S. Schedule I cannabis, or certain goods containing U.S. hemp-derived
CBD (such as dietary supplements and food) until the FDA provides clearer guidance on the regulation of such products. 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.

Human Capital Resources

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. 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. The Company’s people strategy seeks to build a winning team and to foster
a community where everyone feels included and empowered to do to their best work.

As of December 31, 2022, we had 447 full-time employees. Of our full-time employees, 269 were in Canada, 69 were in the U.S., and 109 were in Israel.
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. We believe we offer
competitive compensation and benefits in each of our locations, including long-term equity awards to eligible employees under our 2020 Omnibus Equity
Incentive Plan to reward and retain talented individuals and align employee and shareholder interests.

Safety, Health and Well-being. The safety, health and well-being of our employees are paramount to the Company. We provide our employees and their
families with access to a variety of health and welfare programs, including benefits that support their physical and mental health by providing tools and
resources to help them improve or maintain their health status. In response to COVID-19, we implemented extensive safety measures throughout the
Company to protect our employees from COVID-19, including complying with social distancing and other health and safety standards as required by
federal, provincial, state, local and municipal government agencies, taking into consideration guidelines of applicable public health authorities. These
measures have included increased frequency of cleaning and sanitizing throughout the workplace, providing hand sanitizer and/or hand washing stations
located throughout the workplace, mandatory mask wearing in all office and production areas, social distancing protocols at our production facilities, and
travel restrictions.

Currently, we continue to follow safety standards as recommended by applicable public health authorities, which may include isolation after symptoms and
optional mask wearing.

Employee Engagement, Development and Training. We are committed to developing our talent and building an agile and resilient organization with a
workforce with the skillset to effectively adapt to changing business needs in order to best position the Company for success. 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. Employees are
enabled to succeed through our communicated behaviors, development training opportunities, our performance management program and pay for
performance philosophy, and using their voice in our employee engagement survey.

Diversity, Equity and Inclusion and Ethical Business Practices. We believe that a diverse, equitable and inclusive work environment mitigates the risk of
groupthink, ensures that the Company has the opportunity to benefit from all available talent and enhances, among other things, our organizational strength,
problem-solving ability and opportunity for innovation. We continue to focus on understanding our diversity and inclusion strengths and opportunities and
executing on a strategy to support further progress. We are committed to hiring, developing, and promoting employees with diverse backgrounds. We are
actively reviewing diversity across our Company to drive greater progress. We welcome, embrace, and celebrate all our employees. 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.

U.S. Hemp Regulatory Framework

We derive a portion of our revenues from the manufacture, marketing and distribution of U.S. hemp-derived supplement and cosmetic consumer products
through e-commerce, retail and hospitality channels in certain states in the U.S. All U.S. hemp-derived products produced and sold by us constitute “hemp”
(i) under the 2018 Farm Bill and (ii) the applicable state-law equivalent in all states in which we produce and sell such U.S. hemp-derived products. The
2018 Farm Bill was enacted in the U.S. on December 20, 2018. Prior to this enactment, cannabis was scheduled as a controlled substance (marijuana) under
the CSA with limited exemptions based on the portion of the cannabis plant. The 2018 Farm Bill, among other things, removed U.S. hemp (which is
defined in the 2018 Farm Bill 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 delta-9 tetrahydrocannabinol concentration of not more than 0.3
percent on a dry weight basis”) and its derivatives, extracts and cannabinoids, including CBD, derived from hemp, from the definition of “marijuana” in the
CSA, thereby removing U.S. hemp and its derivatives as controlled substances. The 2018 Farm Bill also amended the Agricultural Marketing Act of 1946
to allow for production and sale of U.S. hemp and its derivatives in the U.S.

The 2018 Farm Bill tasked the USDA with promulgating regulations in relation to the cultivation and production of U.S. hemp. The 2018 Farm Bill also
directed the USDA to promulgate federal regulations that would apply to the production of U.S. hemp in every state that does not put forth a state U.S.
hemp plan for approval by the USDA.

The USDA’s final rule establishes a federal licensing plan for regulating U.S. hemp producers in states that do not have their own USDA-approved plans.
In the absence of a state plan, U.S. hemp producers will be subject to regulation directly by the USDA unless the state prohibits U.S. hemp production.
Additionally, the final rule includes requirements for maintaining information on the land where U.S. hemp is produced, testing U.S. hemp for THC levels,
disposing of plants with more than 0.3 percent THC on a dry-weight basis and licensing for U.S. hemp producers. The USDA’s final rule requires hemp
producers to use a laboratory that is registered with the DEA, although the USDA is delaying enforcement of this requirement until December 31, 2022.
The final rule also includes provisions for producers to dispose or remediate violative hemp plants without the use of a DEA-registered reverse distributor
or law enforcement.

States may adopt regulatory schemes that impose more stringent levels of regulation and costs on the production of U.S. hemp. Moreover, the 2018 Farm
Bill provides that its provisions do not pre-empt or limit state laws that regulate the production of U.S. hemp. Accordingly, some states may choose to
restrict or prohibit some or all U.S. hemp production or sales within the state. Variances in states’ laws and regulations on U.S. hemp are likely to persist.

Further, each state has discretion to develop and implement its own laws and regulations governing the manufacturing, composition, marketing, labeling
and sale of U.S. hemp products, which has created a patchwork of different regulatory schemes applicable to such products.

Under the 2018 Farm Bill, the FDA has retained authority over the Federal Food, Drug, and Cosmetic Act-regulated products (e.g., drugs, food, dietary
supplements and cosmetics) containing U.S. hemp and U.S. hemp-derived ingredients, including CBD and other cannabinoids. Moreover, states have
retained regulatory authority through their own analogues to the Federal Food, Drug, and Cosmetic Act (the “FFDCA”), and the states may diverge from
the federal treatment of the use of U.S. hemp as, or in, food, dietary supplements or cosmetic products.

The FDA has consistently taken the position that CBD, whether derived from U.S. hemp or U.S. Schedule I cannabis, is prohibited from use as an
ingredient in food and dietary supplements. This stems from its interpretation of the exclusionary clauses in the FFDCA because CBD has been approved
as a prescription drug and is the subject of substantial clinical investigations as a drug, which have been made public. The exclusionary clauses under the
FFDCA provide that a substance that has been approved or has been subject to substantial clinical investigations as a drug may not be used in a food or
dietary supplement, unless the substance was first marketed in a food or dietary supplement prior to the initiation of substantial clinical investigations of the
substance as a drug. The exclusionary clause does not apply to cosmetics. Cosmetics containing CBD could be viewed as drug products by the FDA if
disease claims are made, or if the FDA determines the use of CBD in the product has a structure or function effect on the body (i.e., a drug effect).

To date, the FDA has not issued regulations that elaborate on the exclusionary clauses and the FDA has not taken any enforcement action in the courts
asserting a violation of the exclusionary clauses. To date, the FDA has issued a number of warning letters to companies unlawfully marketing CBD
products. In many of these cases, the manufacturers made unsubstantiated claims about the product being able to treat medical conditions (e.g., cancer,
Alzheimer’s disease, opioid withdrawal, anxiety and COVID-19) and had not obtained drug approvals. Others were issued to companies marketing CBD
products as dietary supplements despite those products which contain CBD not meeting the definition of a dietary supplement, adding CBD to human and
animal foods and marketing CBD products for infants and children and other vulnerable populations, selling CBD products that people may confuse for
traditional foods or beverages and that may result in unintentional consumption or overconsumption of CBD, and selling unapproved animal drugs
containing CBD that are intended for use in food-producing animals. Some of these letters were co-signed with the FTC and cited the companies for
making claims about the efficacy of CBD and other ingredients which were not substantiated by competent and reliable scientific evidence. In December
2020, the FTC announced it had entered into settlement agreements with six companies marketing CBD products including oils, gummies, creams, and
others with deceptive health claims about serious health conditions. The settlements included monetary penalties ranging from $20,000 to $85,000. The
FTC announced another such enforcement action and settlement in May 2021, ordering consumer redress of over $30,000. The FDA has also issued
warning letters to dietary supplement manufacturers objecting to CBD supplements on the basis that CBD was not a permissible dietary supplement
ingredient.

The FDA periodically updates its “Consumer Update” on CBD. Through these Consumer Updates, the FDA has noted that it has approved only one CBD
product, a prescription drug product to treat three rare, severe forms of epilepsy. The FDA has also stated that it is illegal to market CBD by adding it to a
food or labeling it as a dietary supplement, that the FDA has seen only limited data about CBD safety and these data point to real risks that need to be
considered before taking CBD for any reason and that some CBD products are being marketed with unproven medical claims and are of unknown quality.

The FDA has stated that it recognizes the potential opportunities and significant interest in drug and other consumer products containing CBD, is
committed to evaluating the agency’s regulatory policies related to CBD and has established a dedicated internal working group, the Cannabis Product
Committee, to explore potential pathways for various types of CBD products to be lawfully marketed. The FDA held a public hearing in May 2019 to
obtain scientific data and information about the safety, manufacturing, product quality, marketing, labeling and sale of products containing cannabis or
cannabis-derived compounds. The rules and

regulations and enforcement in this area continue to evolve and develop. In July 2020, the FDA sent to the White House Office of Management and Budget
(the “OMB”) for review a draft guidance, “Cannabidiol Enforcement Policy,” the details of which were not made public. This guidance remained under
review at the OMB until January 2021, when it was withdrawn by the FDA as a part of the regulatory moratorium Executive Order issued by President
Biden. On January 26, 2023, the FDA stated its views publicly that a new regulatory pathway for CBD is needed and it is prepared to work with Congress
to create such a pathway. The timeline for further CBD policy development remains uncertain while the administration and the FDA face competing
regulatory priorities.

Furthermore, with respect to Company’s development of CBG and other cannabinoids and additional cannabinoid product lines, the FDA has provided no
guidance as to how cannabinoids other than CBD (such as CBG) are to be regulated under the FFDCA, and it is unclear at this time how such potential
regulation could affect the results of the operations or prospects of the Company or this product line.

For more information regarding certain risks facing our business in connection with the U.S. hemp regulatory framework in the U.S., see the section below
entitled “Risk Factors - Risks Relating to Regulation and Compliance - Risks Related to U.S. Regulations and Compliance.”

U.S. Cosmetics Regulation

On December 29, 2022, President Biden signed into law the Modernization of Cosmetics Regulation Act of 2022, which significantly expands the FDA’s
enforcement authorities over cosmetics products and imposes new obligations on the cosmetics industry, including requirements relating to GMP, labeling,
safety substantiation, facility registration and product listing with the FDA, adverse event reporting, recordkeeping, among others. Under the new
legislation, the FDA is required over the next several years to issue additional regulations and reports to clarify requirements. Most enforcement of
requirements under the new legislation will not go into effect until a year or later from the date of enactment; however, we expect that regulation of our
cosmetic products in the U.S. will become increasingly complex, and compliance with regulatory requirements may take significant additional resources.

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.

The Cannabis Regulations also create subclasses for cultivation licenses (standard cultivation, micro-cultivation and nursery) and processing licenses
(standard processing and micro-processing). Different licenses and each sub-class therein carry differing rules and requirements that are intended to be
proportional to the public health and safety risks posed by each category and sub-class.

Federal Regime

The Cannabis Act provides a licensing and permitting scheme for, among other things, the cultivation, processing, testing, packaging, labeling, distribution,
sale, possession and disposal of adult-use cannabis, implemented by regulations promulgated under the Cannabis Act. 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.

On October 17, 2019, the Regulations Amending the Cannabis Regulations (New Classes of Cannabis) (the “Further Regulations”) came into effect. The
Further Regulations amend the Cannabis Act and Cannabis Regulations to, among other things, permit the production and sale of cannabis extracts
(including concentrates), cannabis topicals and cannabis edibles, in addition to dried cannabis, cannabis oil, fresh cannabis, cannabis plants and cannabis
seeds for parties holding the appropriate licenses. The Cannabis Regulations set out certain requirements for the sale of cannabis products, including
limiting the THC content and serving size of certain product forms.

Health Canada allows license holders to export cannabis products with appropriate export permits. Export permits issued by Health Canada are specific to
each shipment and may only be obtained for medical or scientific purposes. To apply for a permit to export cannabis, a license holder must submit
significant information to Health Canada including information about the substance to be exported (including description, intended use, quantity) and the
importer. As part of the application, applicants are also generally required to provide a copy of the import permit issued by a competent authority in the
jurisdiction of final destination and to make a declaration to Health Canada that the shipment does not contravene the laws of the jurisdiction of the final
destination or any country of transit or transshipment.

The Cannabis Act requires the federal government to conduct a review of the Cannabis Act after three years, which commenced in September 2022. The
scope of this statutory review includes, among other things, consideration of (i) the administration and operation of the Cannabis Act, (ii) the impact of the
Cannabis Act on public health, (iii) the health and consumption habits of young persons, (iv) the impact of cannabis on indigenous persons and
communities and (v) the impact of the cultivation of cannabis plants in a dwelling-house. 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.

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. 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. A summary report of the consultation results was published by Health Canada in September 2020. Given the results of the
consultation, Health Canada has indicated that it intends to obtain external scientific advice on the appropriate evidence standards required to demonstrate
safety, efficacy and quality in cannabis health products, with the information it gathers informing the next steps on a potential implementation of a cannabis
health product regime.

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. As part of this consultation, Health Canada released proposed
regulations that contemplate restricting the production, sale, promotion, packaging and labelling of inhaled cannabis extracts from having a flavor, other
than the flavor of cannabis. The proposed amendments would apply equally to inhaled cannabis extracts sold for medical and non-medical purposes. 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.

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.

The governments of each Canadian province and territory have implemented regulatory regimes for the distribution and sale of cannabis for adult-use
purposes which continue to evolve over time. Most provinces and territories have announced a minimum age for possession and consumption of 19 years
old, except for Québec and Alberta, where the minimum age is 21 and 18, respectively. In addition, provinces and territories may impose additional
licensing requirements and restrictions on sales, distribution and promotion which are more stringent than those at the federal level. 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. 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.

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. 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). 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.

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. Only products that can be directly marketed to patients (including smoking products, oils, and
vaporizer products) may be exported, and only to those countries that have signed the United Nations Single Convention on Narcotic Drugs and that have
explicitly approved the import of cannabis. The export of plant substances, including seeds and tissue cultures, is not permitted. In October 2020, the Israeli
MOH initiated a pilot program in which certain medical cannabis companies were permitted to export their products, and the Yakar issued guidelines
relating to the export of medical cannabis products. These guidelines set forth the process and conditions for obtaining an export license, which can only be
issued to an applicant already holding a valid Yakar license.

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. The CBD Committee concluded that it would be advisable to exclude CBD from the Ordinance
and to allow CBD use, other than in food and cosmetics products, provided that the aggregate concentration of THC does not exceed 0.2%. The CBD
Committee further recommended that during the next two years, CBD components not be approved as a component in food, food supplements, and
cosmetics and that this issue be re-examined by a committee designated by the Israeli MOH. 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. 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. The discussion was concluded with a request to the Israeli MOH to study the matter and consider
banning medical cannabis import until a balance is reached in the market between the import and export of medical cannabis. The Israeli MOH has not yet
publicly issued a study on the matter.

In July 2022, a committee appointed by the Director General of the Israeli MOH concluded that it would be advisable to reform the medical cannabis
regulatory framework by transitioning from the grant of personal patient licenses to the issuance of prescriptions available through public healthcare
services. In August 2022, the new regulations adopting this reform (the “Reform Regulations”) were presented for public comments. The Reform
Regulations propose to amend the Ordinance to allow medical cannabis to be prescribed by trained and certified physicians and to be held and distributed
by pharmacies. The Reform Regulations will enter into effect 180 days following the adoption by the Israeli Parliament of the HMOs collection plan. As of
January 2023, the Reform Regulations have not yet been adopted and are not yet in effect.

In June 2022, 11 cannabis manufacturers (including Cronos Israel G.S Manufacturing Ltd.) (the “Petitioners”) filed an administrative petition to the District
Court in Jerusalem regarding the Yakar’s decision to issue a constructive license (i.e., a license for dealing with medical cannabis, without a direct contact
with the drug, such as brokering medical cannabis transactions) (the “Constructive License”). The Petitioners claim that the procedure and requirements for
other licenses (e.g., for cultivation or production), granted by the Yakar, are unreasonably more stringent than those of the Constructive License. On
January 5, 2023, the District Court in Jerusalem ordered the Israeli MOH to stop the issuance of Constructive Licenses, for 60 days, and to formulate a
clear policy regarding the issuance of such Constructive Licenses. On February 12, 2023, the director general of the Yakar published a decision regarding
the Constructive Licenses, in response to the District Court’s order. The decision clarifies the Yakar’s authority to grant Constructive Licenses for the
import/export of medical cannabis.

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.

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. 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.

Available Information

We are subject to the informational requirements of the United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), and, in
accordance with the Exchange Act, we also file reports with and furnish other information to the SEC. 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.

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. We also provide access without charge to all of our SEC filings, including copies of this Annual Report, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as
well as Section 16 reports on Forms 3, 4 or 5, as soon as reasonably practicable after filing or furnishing, on our website located at
https://thecronosgroup.com. In addition, our website includes, among other things, our Code of Business Conduct and Ethics. The Code of Business
from our Corporate Secretary,
Conduct and Ethics
corporate.secretary@thecronosgroup.com, telephone: +1-416-504-0004. Within the time period required by the SEC, we will post on our website any
amendment to the Code of Business Conduct and Ethics and any waiver applicable to any executive officer, director or senior financial officer.

to any shareholder upon

request without charge

is also available

in print

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/).

It is possible that certain information we post on our website or these social media sites could be deemed to be material information, and we encourage
investors, the media and others interested in the Company to review the business and financial information we or our officers post on our website or these
social media sites. None of the information on our website or disclosed through these social media sites is incorporated by reference into this Annual
Report.

ITEM 1A. RISK FACTORS

An investment in us involves a number of risks. In addition to the other information contained in this Annual Report and in other filings we make, investors
should give careful consideration to the following risk factors. Any of the matters highlighted in these risk factors could adversely affect our business,
results of operations and financial condition, causing an investor to lose all, or part of, its, his or her investment. The risks and uncertainties described
below are those we currently believe to be material, but they are not the only ones we face. If any of the following risks, or any other risks and uncertainties
that we have not yet identified or that we currently consider not to be material, actually occur or become material risks, our business, prospects, financial
condition, results of operations and cash flows and consequently the price of our securities could be materially and adversely affected.

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.

Risks Relating to Our Growth Strategy.

Certain of our subsidiaries have limited operating histories and therefore we are subject to many of the risks common to early-stage enterprises.

We began carrying on business in 2013; Peace Naturals began operations in 2012 and generated its first revenues in 2013; Redwood began operations in
2017. In addition, many of our joint ventures are in the early stages of their operations and have generated little or no revenue. We are therefore subject to
many of the risks common to early-stage enterprises, including limitations with respect to personnel, financial, and other resources and lack of revenues.

We may not be able to achieve or maintain profitability and may continue to incur losses in the future.

We have incurred significant losses in recent periods. We had negative operating cash flow for the last five fiscal years. We may not be able to achieve or
maintain profitability and may continue to incur significant losses in the future even in light of our Realignment and the change in the nature of operations
at the Peace Naturals Campus and the exit of the wholesale beauty category in the U.S. In addition, we expect to continue to incur significant operating
expenses as we implement initiatives to continue to grow our business. If our revenues do not increase to offset these expected costs and operating
expenses, we will not be profitable. If our revenue declines or fails to grow at a rate faster than our operating expenses, we will not be able to achieve and
maintain profitability in future periods. As a result, we may continue to generate losses. We may not achieve profitability in the future and, even if we do
become profitable, we might not be able to sustain that profitability.

We may not be able to successfully manage our growth.

We are currently in an early development stage and may be subject to growth-related risks, including capacity constraints and pressure on our internal
systems and controls, which may place significant strain on our operational and managerial resources. While our revenue has generally grown in recent
years, our ability to manage and sustain revenue growth will depend on a number of factors, many of which are beyond our control, including, but not
limited to, changes in laws and regulations respecting the production of U.S. hemp and cannabis products, competition from other license holders, the size
of the illegal market and the adult-use market in Canada, and our ability to produce sufficient volumes of our products to meet customer demand. Our
ability to manage growth effectively will require us to continue to implement and improve our operational and financial systems and to expand, train and
manage our employee base. There can be no assurances that we will be able to manage growth successfully. Any inability to manage growth successfully
could have a material adverse effect on our business, financial condition and results of operations.

Our use of joint ventures may expose us to risks associated with jointly owned investments.

We currently operate parts of our business through joint ventures with other companies, and we may enter into additional joint ventures and strategic
alliances in the future. Joint venture investments may involve risks not otherwise present for investments made solely by us, including: (i) we may not
control the joint ventures, either by virtue of our economic or legal ownership share, or our ability to influence day-to-day operational decision-making; (ii)
our joint venture partners may not agree to distributions that we believe are appropriate; (iii) where we do not have substantial decision-making authority,
we may experience impasses or disputes with our joint venture partners on certain decisions, which could require us to expend additional resources to
resolve such impasses or disputes, including litigation or arbitration; (iv) our joint venture partners may become insolvent or bankrupt, fail to fund their
share of required capital contributions or fail to fulfill their obligations as a joint venture partner; (v) the arrangements governing our joint ventures may
contain certain conditions or milestone events that may never be satisfied or achieved; (vi) our joint venture partners may have business or economic
interests that are inconsistent with ours and may take actions contrary to our interests; (vii) we may suffer losses as a result of actions taken by our joint
venture partners with respect to our joint venture investments; (viii) it may be difficult for us to exit a joint venture if an impasse arises or if we desire to
sell our interest for any reason; (ix) our joint venture partners may exercise termination rights under the relevant agreements and (x) conflicts of interest
may arise between our joint ventures and Company personnel who are directors of our joint ventures because of the fact that such directors are employed
by us. In addition, we may, in certain circumstances, be liable for the actions of our joint ventures or joint venture partners. Any of the foregoing risks could
have a material adverse effect on our business, financial condition and results of operations, and the magnitude of these material adverse effects could be
greater to the extent we decide to rely on such joint ventures for certain goods or services, such as the receipt of raw materials from Cronos GrowCo, or
decide to outsource certain operating activities to such joint ventures.

There can be no assurance of continued growth in Israel and our performance in Israel depends on, among other things, our ability to continue to
import cannabis into Israel and our joint venture partners.

While our revenue in Israel has experienced a recent period of significant growth, our prior performance is not indicative of any potential future results in
Israel. There can be no assurance that our recent growth in the Israeli market can be sustained or will continue. Our ability to manage and sustain revenue
growth in Israel will depend on a number of factors, many of which are beyond our control, including, but not limited to, our ability to continue to import
cannabis into Israel, changes in laws and regulations respecting the cultivation, production and marketing of dried flower, pre-rolls and oils in Israel,
increased competition, our ability to produce sufficient volumes of our products to meet customer demand and our ability to maintain or grow our market
share in Israel. Any of these factors could materially and negatively impact our growth in Israel.

In connection with the Realignment, we have begun to further leverage our strategic joint venture with Cronos GrowCo. Our current efforts to wind-down
the cultivation and certain production activities at the Peace Naturals Campus have increased the importance of Cronos GrowCo to our business and
operations. Once the cultivation and certain production activities at the Peace Naturals Campus have ceased, Cronos GrowCo’s production facilities will be
our principal source of raw materials. Therefore, our performance in Israel is reliant on our ability to acquire such raw materials on a timely and cost-
effective basis from Cronos GrowCo and to continue to import such raw materials and cannabis products to Israel from Cronos GrowCo’s production
facilities. There is no guarantee that we will be able to successfully execute our strategy to expand production at Cronos GrowCo or that we will be able to
obtain the regulatory approvals, licenses and permits required for both the export of cannabis from Canada and the import of cannabis into Israel.

Our acquisition strategy may not be successful, and we have in the past, and may in the future, need to write down the goodwill and indefinite-lived
intangible assets recognized upon the acquisitions.

In the second quarter of 2021, we wrote off all of the goodwill and substantially all of the indefinite-lived intangible assets recognized upon the acquisition
of Redwood. Acquisitions of companies, or equity interests of companies operating in new markets, such as the U.S. hemp market in the U.S., are risky and
speculative and may not produce the anticipated revenues and profits.

Our acquisition of the PharmaCann Option (the “PharmaCann Investment”) presents significant risks. 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. We had a material weakness in our control environment, and in 2021 and 2022, we
experienced significant turnover, both voluntary and involuntary, in our accounting and financial reporting functions. If we are unable to remediate
our existing material weakness and create an appropriate control environment, our business, results of operations, financial condition, cash flows and
reputation will be adversely affected.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act) and for evaluating and reporting on the effectiveness of our system of internal control. Effective internal control is necessary for us to
provide timely, reliable and accurate financial reports, identify and proactively correct any deficiencies, material weaknesses or fraud and meet our
reporting obligations. We had two restatements and seven material weaknesses in the last four years, have one material weakness existing as of December
31, 2022, and have had significant turnover, both voluntary and involuntary, in our accounting and financial reporting functions. Moreover, we had a
material weakness in our control environment. Remediation efforts have placed, and will continue to place, a significant burden on management and add
increased pressure on our financial reporting resources and processes. The accuracy of our financial reporting and our ability to timely file with the SEC
and the applicable securities regulatory authorities in Canada have in the past been, and may in the future be, adversely impacted if we are unable to
successfully remediate material weaknesses in a timely manner, or if any additional material weaknesses in our internal control over financial reporting are
identified. 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.

We are subject to civil litigation relating to the restatements and we cannot predict the outcome of this litigation, but we have incurred and expect to
continue to incur significant costs and expenses in defending against this civil litigation. For more information on this civil litigation and proceedings, see
Part 1, Item 3, Legal Proceedings, of this Annual Report.

We are subject to disabilities as a result of our settlement with the SEC that may expose us to increased future litigation and adversely affect our ability
to raise capital.

As of the date of our settlement with the SEC (the “SEC Order”), October 24, 2022, and for a period of three years thereafter, we are unable to rely on the
safe harbor provisions regarding forward-looking statements provided by the Securities Act and the Exchange Act. Our inability to rely on these safe
harbor provisions may expose us to increased future litigation in connection with forward-looking statements in our public disclosures.

Further, as of the date of the SEC Order, we have lost our status as a “well-known seasoned issuer” for a period of three years, which places limitations on
the manner in which we can market our securities to the public, and we are unable to rely on the private offering exemptions provided by Regulations A
and D under the Securities Act for a period of five years, which could impair our ability to raise additional capital in the private market quickly in response
to changing requirements and market conditions.

There can be no assurance that our current and future strategic alliances or expansions of scope of existing relationships will have a beneficial impact
on our business, financial condition and results of operations.

We currently have, and may in the future enter into additional, strategic alliances with third parties that we believe will complement or augment our
existing business. Our ability to complete strategic alliances is dependent upon, and may be limited by, the availability of suitable candidates and capital. 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. 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. Any of the foregoing could have a material adverse
effect on our business, financial condition and results of operations.

In the case of the Ginkgo Strategic Partnership, we have and will continue to obtain, pursuant to the Ginkgo Collaboration Agreement, the exclusive right
to use and commercialize the key patented intellectual property related to the production of the target cannabinoids globally (referred to herein as the
“Ginkgo exclusive licenses”). There can be no assurance that Ginkgo will be able to develop microorganisms that we will be able to commercialize or to
obtain patents relating to production of the target cannabinoids, or that third parties will not develop similar microorganisms or obtain patents that may
restrict our ability to commercialize the microorganisms developed by Ginkgo, and, as a result, there can be no assurance that we will be able to realize the
expected benefits of the Ginkgo Strategic Partnership. Additionally, we have determined, and may determine in the future, that the production of certain
cannabinoids is not economically feasible and in our best interests and we have abandoned, and may abandon in the future, the production efforts of
Ginkgo with respect to certain target cannabinoids. Even if we are able to commercialize cultured cannabinoids, we may not be able to generate satisfactory
returns on them or on the products that incorporate them, and there may not be demand for such cultured cannabinoid products.

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”). If we undergo a change in control that has not been approved by the Board, then Ginkgo will have
the ability to terminate the Ginkgo Collaboration Agreement immediately, in which case, among other things: (i) all rights or licenses granted to us by
Ginkgo under the Ginkgo Collaboration Agreement will terminate; (ii) certain expenses and costs incurred by Ginkgo will be accelerated and become due
and payable by us; (iii) the then-outstanding and unpaid portion of all cash payments from us to Ginkgo for the achievement of R&D milestones by Ginkgo
shall be due immediately as if all R&D milestones had been achieved; and (iv) a lump sum cash payment equal to the aggregate of all Milestone Cash
Election amounts in respect of which the relevant Equity Milestone Events have not yet been achieved will be immediately due and payable by us. In
addition, should Ginkgo terminate the Ginkgo Collaboration Agreement upon a change of control, we will no longer be able to use or commercialize the
key patented intellectual property related to the production of the target cannabinoids, which could have a material adverse effect on our business, financial
condition and results of operations. See “Description of Business - Research and Development Activities and Intellectual Property.”

As additional equity milestones occur under the Ginkgo Collaboration Agreement, we are required by accounting rules to conduct an impairment analysis
related to the new Ginkgo exclusive licenses. These analyses have resulted in impairment charges in the past and may do so in the future as additional
equity milestones are achieved. For a discussion of our most recent impairments of the Ginkgo exclusive licenses, see Note 6 “Goodwill and Intangible
Assets, net” to the consolidated financial statements in the Item 8 of this Annual Report.

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. Continuing and expanding operations at our facilities and joint ventures will be
subject to obtaining and maintaining the appropriate licenses from the relevant regulatory agencies in those jurisdictions. In particular, continuing and
expanding operations at Cronos GrowCo’s production facilities will be subject to obtaining and maintaining the appropriate licenses from Health Canada.
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. Once cultivation and certain production activities at the Peace Naturals Campus have
ceased, these production facilities will be our principal source of raw materials.

In addition, we may not be successful in obtaining the necessary approvals required to export or import our products to or from the jurisdictions in which
we or our joint ventures operate. If we are unable to secure necessary production licenses in respect of our facilities and those of our joint ventures, the
expectations of management with respect to the increased future cultivation and growing capacity may not be borne out, which could have a material
adverse effect on our business, financial condition and results of operations.

There can be no assurance that the Realignment and the change in the nature of operations at the Peace Naturals Campus will have a beneficial
impact on our business, financial condition and results of operations. The timing, costs and benefits of the Realignment and the change in the nature
of operations at the Peace Naturals Campus cannot be guaranteed.

In the first quarter of 2022, we announced our Realignment to centralize functions under common leadership to increase efficient distribution of resources,
improve strategic alignment and eliminate duplication of roles and costs; evaluate our global supply chain and perform product reviews and pricing and
distribution optimization in order to reduce fixed expenses and reduce complexity; and implement an operating expense target to optimize cash deployment
for activities such as margin accretive innovation and U.S. adult-use cannabis market entry in the future. Additionally, we announced a plan to leverage our
strategic partnerships to improve supply chain efficiencies and reduce manufacturing overhead by partially exiting the Peace Naturals Campus.

In the first quarter of 2023, we announced a shift in our strategic plans for the Realignment. Our intent is to retain select components of our operations at
the Peace Naturals Campus, namely distribution and warehousing, certain R&D activities and manufacturing of certain of our proprietary innovation
products.

There can be no assurance that these initiatives will achieve the expected benefits to our business or reduce costs or grow our revenue as intended and, if
achieved at all, the timing thereof. The execution and implementation of these initiatives involve risk, including that significant amounts of management’s
time and Company resources could be diverted from our core operations in order to complete such initiatives. In addition, these initiatives could present
unforeseen obstacles, lead to operating inefficiencies and negatively disrupt our corporate culture, which could lead to further employee attrition, any of
which would have a material adverse effect on our business, financial condition and results of operations. We have and will continue to incur costs to
implement these initiatives, and we could be subject to litigation risks and expenses. Our projected costs and expenses to change the nature of our
operations at the Peace Naturals Campus may turn out to be too low by a material amount.

The industries and markets in which we operate are relatively new, and these industries and markets may not continue to exist or grow as anticipated or
we may ultimately be unable to succeed in these industries and markets.

The cannabis and U.S. hemp industries and markets in which we operate are relatively new, can be highly speculative, are rapidly expanding and may
ultimately not be successful. In addition to being subject to general business risks, we need to continue to build brand awareness in these industries and
markets through significant investments in our strategy, our production capacity, quality assurance and compliance with regulations. These activities may
not promote our brand and products as effectively as intended, or at all. Competitive conditions and consumer tastes, as applicable, and spending patterns in
these new industries and markets are relatively unknown and may have unique circumstances that differ from existing industries and markets. We are
subject to all of the business risks associated with a new business in a niche market, including risks of unforeseen capital requirements, failure of
widespread market acceptance of our products, failure to establish business relationships and competitive disadvantages against larger and more established
competitors.

Accordingly, there are no assurances that these industries and markets will continue to exist or grow as currently estimated or anticipated, or function and
evolve in a manner consistent with management’s expectations and assumptions, and a failure to do so could have 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 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. Our supply arrangements
with provincial and territorial purchasers, each of which we understand to be substantially similar in all material respects with the supply arrangements
entered into with the other license holders in the Canadian cannabis industry, do not contain any binding minimum purchase obligations on the part of the
relevant provincial purchaser.

We expect purchase orders to be primarily driven by end-consumer demand for our products and the relevant provincial or territorial purchaser supply at
the relevant time. Accordingly, we cannot predict the quantities of our products that will be purchased by the provincial and territorial purchasers, or if our
products will be purchased at all. Provincial and territorial purchasers may change the terms of the supply agreements at any time during the supply
relationship including pricing, have broad rights of return of products and are under no obligation to purchase our products or maintain any listings of our
products for sale. As a result, provincial and territorial purchasers have a significant amount of control over the terms of the supply arrangements.

The effect of the legalization of adult-use cannabis in Canada on the medical cannabis market in Canada is still uncertain, and it may have a
significant negative effect upon our medical cannabis business if consumers decide to purchase products available in the adult-use market instead of
purchasing our medical-use products.

The Cannabis Act allows individuals over the age of 18 to legally purchase, process and cultivate limited amounts of cannabis for adult-use in Canada,
subject to provincial and territorial age restrictions which may increase the age of purchase in the province or territory. As a result, individuals who rely
upon the medical cannabis market to supply their medical cannabis and cannabis-based products may cease this reliance, and instead turn to the adult-use
cannabis market to supply their cannabis and cannabis-based products. Factors that will influence this decision include the price of medical cannabis
products in relation to similar adult-use cannabis products, the amount of active ingredients in medical cannabis products in relation to similar adult-use
cannabis products, the types of cannabis products available to adult users and limitations on access to adult-use cannabis products imposed by the
regulations under the Cannabis Act and the legislation governing the distribution and sale of cannabis that has been enacted by the individual provinces and
territories of Canada.

The impact of the legalization of adult-use cannabis in Canada on the medical cannabis market is uncertain, and while we cannot predict its impact on our
sales and revenue prospects, it may be adverse.

The adult-use cannabis market in Canada has in the past been and may in the future become oversupplied following the implementation of the
Cannabis Act and the related legalization of cannabis for adult-use.

As a result of the implementation of the Cannabis Act and the legalization of adult cannabis use, numerous additional cannabis producers have and may
continue to enter the Canadian adult-use market. We and such other cannabis producers have in the past produced and may in the future produce more
cannabis than is needed to satisfy the collective demand of the Canadian medical and adult-use markets, and we may be unable to export that over-supply
into other markets. As a result, the available supply of cannabis could exceed demand, which has in the past, and may in the future, result in significant
inventory write downs.

We may be unsuccessful in competing in the legal adult-use cannabis market in Canada.

We face competition from existing license holders licensed under the Cannabis Act. Certain of these competitors may have significantly greater financial,
production, marketing, R&D and technical and human resources than we do. As a result, our competitors may be more successful than us in gaining market
share in the adult-use cannabis industry in Canada. Our commercial opportunity in the adult-use market could be reduced or eliminated if our competitors
produce and commercialize products for the adult-use market that, among other things, are safer, more effective, more convenient or less expensive than the
products that we may produce, have greater sales, marketing and distribution support than our products, enjoy enhanced timing of market introduction and
perceived effectiveness advantages over our products and receive more favorable publicity than our products. 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.

We are exposed to the risk that our employees, independent contractors and consultants may engage in fraudulent or other illegal activity. 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. It is not always possible for us to identify and
deter misconduct by our employees and other third parties, and the precautions taken by us to detect and prevent this activity may not be effective in
controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a
failure to comply with such laws or regulations. If any such actions are brought against us, and we are not successful in defending them, those actions could
have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, contractual
damages, reputational harm, diminished profits and future earnings, loss or suspension of licenses and the curtailment of our operations, any of which could
have a material adverse effect on our business, financial condition and results of operations.

Some jurisdictions may never develop markets for cannabis and U.S. hemp.

Many jurisdictions place restrictions on or prohibit commercial activities involving cannabis and U.S. hemp. Such restrictions or prohibitions may make it
impossible or impractical for us to enter or expand our operations in such jurisdictions unless there is a change in law or regulation. For example, U.S.
Schedule I cannabis remains illegal under U.S. federal law and may never become legal under U.S. federal law.

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.

Our ability to exercise the PharmaCann Option will depend on the satisfaction of several conditions, including U.S. federal cannabis legalization. In
addition, our ability to exercise the PharmaCann Option is subject to the receipt of any required regulatory approvals, including in the states where
PharmaCann operates that may be required upon exercise, as well as Altria’s approval under the Investor Rights Agreement. These conditions are outside
of our control and therefore there can be no certainty that the PharmaCann Option will be exercised in the near term, or at all. If the PharmaCann Option is
not exercised, we will not receive the benefits of the contemplated commercial arrangements between us and PharmaCann.

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. Furthermore, in connection with obtaining approvals from or otherwise satisfying the requests
of the state regulators or applicable laws, we may be required to divest all or a portion of the PharmaCann Option, or if after the exercise of the
PharmaCann Option, our shares of PharmaCann.

Even if we are able to and do exercise the PharmaCann Option, the intended benefits of the PharmaCann Investment may not be realized. We cannot assure
you that the PharmaCann Investment will be accretive to us in the near term or at all. For example, if entered into, the commercial arrangements between us
and PharmaCann may not be successful or beneficial to us. Furthermore, if we fail to realize the intended benefits of the PharmaCann Investment, our stock
price could decline to the extent that the market price anticipates those benefits.

We are entitled to certain limited governance rights with respect to PharmaCann, including limited information rights and board observer rights. Therefore,
we will have little to no ability to influence the strategy and material decisions of PharmaCann’s business. Furthermore, until such time as we exercise the
PharmaCann Option, we will not have the ability to vote on matters requiring the vote of PharmaCann’s shareholders and, until the exercise of the
PharmaCann Option, will not have the right to appoint directors to the PharmaCann board of directors. Even after exercising the PharmaCann Option, we
are entitled to appoint a director of PharmaCann’s board only if we own at least 10% of the outstanding capital stock of PharmaCann, and in any event may
appoint no more than two directors. In addition, we are subject to certain standstill restrictions, both prior to and after the exercise of the PharmaCann
Option, which restrictions further limit our ability to influence decisions of PharmaCann.

Although we are entitled to certain anti-dilution protections with respect to our investment in PharmaCann, such protections are subject to various
conditions, and our potential ownership in PharmaCann may be significantly diluted by, among other things, future issuances of PharmaCann securities or
acquisition activity in which PharmaCann uses its equity as consideration. On February 28, 2022, PharmaCann closed the previously announced LivWell
Transaction. As a result of the LivWell Transaction, the Company’s ownership percentage in PharmaCann on a fully diluted basis decreased to
approximately 6.4%. As of December 31, 2022, the Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 6.3%.
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). As a result, further dilution could adversely affect our rights under the PharmaCann Option. Any other equity event could be significantly
dilutive to our ownership in PharmaCann and may adversely impact the potential benefits we may realize from the PharmaCann Investment.

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. If our sales forecasts and our expectations regarding market conditions, including prices, influence
capital expenditure levels, inventory levels, production and supply chain capacity and operating expenses, prove to be inaccurate, this could have a material
adverse effect on our business, financial condition and results of operations. For example, our forecasts for product demand and market conditions were
impacted by a decline in market prices for cannabis products in the Canadian market, which contributed to our inventory write-down in the second and
fourth quarters of 2020.

We could have difficulty integrating the operations of businesses that we have acquired and will acquire.

The success of our acquisitions depends upon our ability to integrate any businesses that we acquire. The integration of acquired business operations could
disrupt our business by causing unforeseen operating difficulties, diverting management’s attention from day-to-day operations and requiring significant
financial resources that would otherwise be used for the ongoing development of our business. The difficulties of integrations could be increased by the
necessity of coordinating geographically dispersed organizations, coordinating personnel with disparate business backgrounds, managing different
corporate cultures, or discovering previously unknown liabilities. In addition, we could be unable to retain key employees or customers of the acquired
businesses. We could face integration issues including those related to operations, internal control and information systems and operational functions of the
acquired companies and we also could fail to realize cost efficiencies or synergies that we anticipated when selecting our acquisition candidates or these
acquisitions could fail to compete successfully. Any of these items could adversely affect our business, financial condition and results of operations. For
more information on the risks associated with acquisitions, see “Risk Factors – Risks Relating to Our Growth Strategy – Our acquisition strategy may not
be successful and we have in the past, and may in the future, need to write down the goodwill and indefinite-lived intangible assets recognized upon the
acquisitions.”

We have been and may in the future be required to write down intangible assets, including goodwill, due to impairment, which could have a material
adverse effect on our results of operations or financial position.

The Company has been and may in the future be required to write down intangible assets, including goodwill, due to impairment, which would reduce
earnings. Indefinite-lived intangible assets are reviewed annually or more frequently when events or changes in circumstances indicate that the fair value of
the indefinite-lived intangible assets have been reduced to less than their carrying amount. We periodically calculate the fair value of our reporting units
and intangible assets to test for impairment. This calculation may be affected by several factors, including general economic conditions, regulatory
developments, changes in category growth rates as a result of changing adult consumer preferences, success of planned new product introductions, and
competitive activity. Certain events can also trigger an immediate review of goodwill and intangible assets. If the carrying amount of our reporting unit and
other intangible assets exceed their fair value, the goodwill and other intangible assets are considered impaired, which would result in impairment losses
and could have a material adverse effect on our consolidated financial position or results of operations. We cannot provide any assurance that the U.S.
segment will successfully execute its business plans and strategies.

For a discussion of previous write downs of indefinite-lived intangible assets and goodwill, see Note 6 “Goodwill and Intangible Assets, net” to the
consolidated financial statements in Item 8 of this Annual Report.

Risks Relating to Our Products

There is limited long-term data with respect to the efficacy and side effects of cannabis, U.S. hemp and cannabinoids, and future clinical research
studies on the effects of cannabis, U.S. hemp and cannabinoids may lead to conclusions that dispute or conflict with our understanding and belief
regarding their benefits, viability, safety, efficacy, dosing and social acceptance.

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. 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. As a result, our products could have unexpected side effects or safety
concerns, the discovery of which could lead to civil litigation, regulatory actions and even possibly criminal enforcement actions. In addition, if the
products we sell do not or are not perceived to have the effects intended by the end user, this could have a material adverse effect on our business, financial
condition and results of operations.

The statements made by the Company, including in this Annual Report, concerning the potential benefits of cannabis, U.S. hemp and isolated cannabinoids
are based on published articles and reports and therefore are subject to the experimental parameters, qualifications and limitations in such studies that have
been completed. 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.
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.

Clinical trials of cannabis-based medical products and treatments are novel terrain with very limited or non-existent history, and any trials may not
result in commercially viable products and treatments.

Clinical trials are expensive, time consuming and difficult to design and implement. Regulatory authorities may suspend, delay or terminate any clinical
trials we commence at any time, may require us, for various reasons, to conduct additional clinical trials, or may require a particular clinical trial to
continue for a longer duration than originally planned. 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.

Any of the foregoing could cause our products or treatments not to be commercially viable, which could have a material adverse effect on our business,
financial condition and results of operations.

The controversy surrounding vaporizers and vaporizer products may materially and adversely affect the market for vaporizer products and expose us to
litigation and additional regulation.

There have been a number of highly publicized cases involving lung and other illnesses and deaths that appear to be related to vaporizer devices and/or
products used in such devices (such as vaporizer liquids). 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. Some states, provinces, territories and municipalities in the U.S. and Canada have already taken steps to prohibit the sale or
distribution of vaporizers, restrict the sale and distribution of such products or impose restrictions on flavors, substances and concentration of substances
used, or use of such vaporizers. This trend may continue, accelerate and expand.

Cannabis vaporizers in Canada are regulated under the Cannabis Act, Cannabis Regulations and other laws and regulations of general application.
Although this legislation sets rules and standards for the manufacture, composition, packaging, and marketing of cannabis vaporizer products, these rules
and standards predate the spate of vaporizer-related health issues that have recently arisen in the U.S. These issues and accompanying negative public
sentiment may prompt Health Canada or individual provinces/territories or municipalities to decide to further limit or defer the industry’s ability to sell
cannabis vaporizer products, and may also diminish consumer demand for such products. Currently, Québec and Prince Edward Island do not allow the sale
of cannabis vaporizers in their respective jurisdictions and Health Canada is seeking to limit the flavors of inhaled cannabis extracts. 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. As part of this consultation, Health Canada released proposed regulations that
contemplate restricting the production, sale, promotion, packaging and labelling of inhaled cannabis extracts from having a flavor, other than the flavor of
cannabis. The proposed amendments would apply equally to inhaled cannabis extracts sold for medical and non-medical purposes. 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.

There can be no assurance that the jurisdictions in which we operate will allow the sale of cannabis vaporizers in the future, that other jurisdictions will not
prohibit the sale of cannabis vaporizers, that we will be able to meet any additional compliance requirements or regulatory restrictions, or that we will
remain competitive in face of unexpected changes in market conditions.

An extension of this controversy to non-nicotine vaporizer devices and other product formats could materially and adversely affect our business, financial
condition, operating results, liquidity, cash flow and operational performance. In February 2020, the U.S. Centers for Disease Control reported that federal
and state agencies were investigating an outbreak of over 2,807 lung injury cases associated with the use of vaporizer products, including non-nicotine
containing products. Litigation pertaining to vaporizer products is ongoing and that litigation could potentially expand to include our products, which
would materially and adversely affect our business, financial condition, operating results, liquidity, cash flow and operational performance.

Future research may lead to findings that vaporizers, electronic cigarettes and related products are not safe for their intended use.

Vaporizers, electronic cigarettes and related products were recently developed and therefore the scientific or medical communities have had a limited
period of time to study the long-term health effects of their use. Currently, there is limited scientific or medical data on the safety of such products for their
intended use and the medical community is still studying the health effects of the use of such products, including the long-term health effects. If a
consensus were to develop among the scientific or medical community that the use of any or all of these products pose long-term health risks, market
demand for these products and their use could materially decline. Such a development could also lead to litigation, reputational harm and significant
regulation. 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.

We believe the cannabis and U.S. hemp industries are highly dependent upon broad social acceptance and consumer perception regarding the safety,
efficacy and quality of the cannabis and U.S. hemp products, as well as consumer views concerning regulatory compliance. Consumer perception of our
products can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention, market rumors or
speculation and other publicity regarding the consumption or effects thereof of cannabis and U.S. hemp products. There can be no assurance that future
scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis or
U.S. hemp markets or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media
attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity could have a material
adverse effect on the demand for our products and our business, financial condition and results of operations. Our dependence upon consumer perceptions
means that adverse scientific research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whether or not accurate or
with merit, could have a material adverse effect on the demand for products, and our business, results of operations, financial condition and cash flows.
Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of U.S. hemp or cannabis in general, or our products
specifically, or associating the consumption or use of U.S. hemp or cannabis with illness or other negative effects or events, could have such a material
adverse effect. Such adverse publicity reports or other media attention could arise even if the adverse effects associated with such products resulted from
consumers’ failure to consume such products legally, appropriately or as directed.

The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users
has made it increasingly easier for individuals and groups to communicate and share opinions and views, whether or not true, on our operations and
activities and the U.S. hemp and cannabis industries in general, whether true or not. 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. Accordingly, the speed with which negative publicity (whether true or not) can be
disseminated has increased dramatically with the expansion of social media. The dissemination of negative or inaccurate posts, comments or other user-
generated content about us on social media (including those published by third-parties) could damage our brand, image and reputation or how the U.S.
hemp or cannabis industries are perceived generally, which could have a detrimental impact on the market for our products and thus on our business,
financial condition and results of operations.

Certain businesses may have strong economic opposition to the U.S. hemp or cannabis industries. Lobbying by such groups, and any resulting inroads they
might make in halting or rolling back the U.S. hemp and cannabis movements, could affect how the U.S. hemp or cannabis industries are perceived by
others and could have a detrimental impact on the market for our products and thus on our business, financial condition and results of operations.

The parties with which we do business, may perceive that they are exposed to reputational risk as a result of our cannabis or U.S. hemp business activities.
Failure to establish or maintain business relationships could have a material adverse effect on our business, financial condition and results of operations.
Any third party service provider or supplier could suspend or withdraw its services to us or require increased fees or compensation if it perceives that the
potential risks exceed the potential benefits to such services. For example, we face challenges making U.S. dollar wire transfers or engaging any third party
service provider or supplier with a substantial presence where cannabis is not federally legal (including the U.S.). In these circumstances, while we believe
that such services can be procured from other institutions, we may in the future have difficulty maintaining existing, or securing new, bank accounts or
clearing services, service providers or other vendors or we may be forced to pay increased fees or compensation for such services.

Although we take care in protecting our image and reputation, we do not ultimately have control over how we or the U.S. hemp or cannabis industries are
perceived by others. Reputation loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations
and an impediment to our overall ability to advance our business strategy and realize on our growth prospects, thereby having a material adverse impact on
our business, financial condition and results of operations.

We may be subject to litigation in the ordinary course of our marketing, distribution and sale of our products.

We are subject to litigation, claims and other legal and regulatory proceedings from time to time in the ordinary course of our manufacturing, marketing,
distribution and sale of our products, some of which may adversely affect our business, financial condition and results of operations. Several companies in
the U.S. hemp-derived CBD industry, including the Company, have become party to an increasing number of purported class actions lawsuits relating to
their food and dietary supplement products containing U.S. hemp-derived CBD. While one such case against the Company was dismissed, similar class
actions may be filed against us again, and the plaintiffs in such class action lawsuits, as well as in other lawsuits against us, may seek very large or
indeterminate amounts, including punitive damages, which may remain unknown for substantial periods of time. Should any litigation in which we become
involved be determined against us, such a decision could adversely affect our ability to continue operating, adversely affect the market price for our
common shares and require the use of significant resources. Even to the extent we ultimately prevail in litigation, litigation can consume and redirect
significant resources. Litigation may also create a negative perception of our brands, which could have an adverse effect on our business, financial
condition and results of operations. See Part I, Item 3, Legal Proceedings, of this Annual Report for a discussion of our legal proceedings.

We may be subject to product liability claims.

As a manufacturer and distributor of products designed to be ingested by humans, we face an inherent risk of exposure to product liability claims,
regulatory action and litigation if our products are alleged to have caused significant loss or injury. In addition, the manufacture and sale of cannabis and
U.S. hemp products involve the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Previously unknown
adverse reactions resulting from human consumption of cannabis or U.S. hemp products alone or in combination with other medications or substances
could occur as described above under “— There is limited long-term data with respect to the efficacy and side effects of cannabis, U.S. hemp and
cannabinoids and future clinical research studies on the effects of cannabis, U.S. hemp and cannabinoids may lead to conclusions that dispute or conflict
with our understanding and belief regarding their benefits, viability, safety, efficacy, dosing and social acceptance.” We have been, and may in the future
be, subject to product liability claims that include, among others, our products caused injury or illness, incorrect labeling, inadequate instructions for use or
inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action against us could
result in increased costs, could adversely affect our reputation with our consumers generally, and could have a material adverse effect on our business,
financial condition and results of operations. See Part I, Item 3, Legal Proceedings, of this Annual Report for a discussion on our legal proceedings.

There can be no assurances that we will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against
potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient
insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of
products.

Our products have in the past and may in the future be subject to recalls.

Manufacturers and distributors of products are sometimes subject to the recall or return of their products for a variety of reasons, including, among other
things, product defects, such as contamination, unintended harmful side effects or interactions with other substances, packaging safety and inadequate or
inaccurate labelling disclosure. Some of our products have been subject to recalls in the past.

If one or more of our products are recalled for any reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that
might arise in connection with the recall. We may lose a significant number of sales and may not be able to replace those sales at an acceptable margin, or
at all. In addition, product recalls have in the past and may in the future require significant management attention. Although we have detailed procedures in
place for testing finished products, there can be no assurance that any quality, potency or contamination problems will be detected in time to avoid
unforeseen product recalls, regulatory action or lawsuits. If one or more of our products were subject to recall, the public perception of that product and us
could be harmed. A recall of one of our products could lead to decreased demand for that product and our other products and could have a material adverse
effect on our business, financial condition and results of operations. Additionally, product recalls may lead to increased scrutiny of our operations by Health
Canada, the FDA, the California Department of Public Health (the “CDPH”), the DEA or other regulatory agencies, requiring further management attention
and potential legal fees and other expenses. Furthermore, any product recall affecting the cannabis or U.S. hemp industries more broadly could lead
consumers to lose confidence in the safety and security of the products sold by participants in these industries generally, which could have a material
adverse effect on our business, financial condition and results of operations.

We rely on third party testing and analytical methods which are validated but still being standardized.

For certain of our cannabis and U.S. hemp products, testing for cannabinoid levels, heavy metals and pesticides (among other things) is performed by
independent third-party testing laboratories. Testing methods and analytical assays for cannabinoids and levels of detection vary among different testing
laboratories in different jurisdictions. There is currently no industry consensus on standards for testing methods or an industry accepted compendium of
analytical assays or standard levels of detection. The detected and reported cannabinoid content in our cannabis and U.S. hemp products therefore can
differ depending on the laboratory and testing methods (analytical assays) used. 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. Until such standardized analytical assays and levels of
detection are developed, the existing differences could cause confusion with our consumers which could lead to a negative perception of us and our
products, increase the risk of litigation regarding cannabinoid content and regulatory enforcement action and could make it more difficult for us to comply
with regulatory requirements regarding contents of ingredients and packaging and labeling. For example, on June 16, 2020, an alleged consumer filed a
Statement of Claim, which has since been dismissed as against the Company, 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 distributors alleging 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. See Part I,
Item 3, Legal Proceedings, of this Annual Report.

The presence of trace amounts of THC in our U.S. hemp products may cause adverse consequences to users of such products that will expose us to the
risk of litigation, liability and other consequences.

Some of our products that are intended to primarily contain U.S. hemp-derived CBD, or other U.S. hemp-derived cannabinoids, may contain trace amounts
of THC. THC is a controlled substance in many jurisdictions, including under the federal laws of the U.S. Whether or not ingestion of THC (at low levels
or otherwise) is permitted in a particular jurisdiction, there may be adverse consequences to consumers of our U.S. hemp products who test positive for any
amounts of THC because of the presence of trace amounts of THC in our U.S. hemp products. In addition, certain metabolic processes in the body may
negatively affect the results of drug tests. Positive tests for THC may expose us to litigation from our consumers, adversely affect our reputation, our ability
to obtain or retain customers and individuals’ participation in certain athletic or other activities. 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.

The legal cannabis and U.S. hemp industries are in their early stages of development and it is likely that we, and our competitors, will seek to introduce
new products, including products that contain cannabinoids other than THC and CBD, in the future. In attempting to keep pace with any new market
developments, we may need to spend significant amounts of capital in order to successfully develop and generate revenues from new products we
introduce. In addition, we may be required to obtain additional regulatory approvals from Health Canada, the FDA and/or any other applicable regulatory
authority, which may take significant amounts of time. We may not be successful in developing effective and safe new products, bringing such products to
market in time to be effectively commercialized, or obtaining any required regulatory approvals, and, in the event we are successful, it is possible that there
may be little or no demand for the products we develop (including products containing cannabinoids other than THC and CBD with which consumers may
not be familiar or have significant reservations), which, together with any capital expenditures made in the course of such product development and
regulatory approval processes, may have a material adverse effect on our business, financial condition and results of operations.

The Canadian excise duty framework may affect our profitability.

Canada’s excise duty framework imposes an excise duty and various regulatory-like restrictions on certain cannabis products sold in Canada. We currently
hold licenses issued by the Canada Revenue Agency (“CRA”) required to comply with this excise framework. Any change in the rates or application of
excise duty to cannabis products sold by us in Canada, and any restrictive interpretations by the CRA or the courts of the provisions of the Excise Act, 2001
(which may be different than those contained in the Cannabis Act) may affect our profitability and ability to compete in the market.

Our business may be impacted as a result of increased rates of inflation.

In the past year, the worldwide economy has experienced significant inflation and inflationary pressures, including, in particular, on wages. Increased
inflation could reduce our purchasing power and result in negative impacts on our ability to obtain goods and services required for the operation of our
business, to hire and retain employees, or to pass on rising costs, including increased employee costs, to our customers. To the extent that we are unable to
offset such inflation through higher prices of our products or other cost savings, there could be a negative impact on our operating margins, net income,
cash flows and the trading price of our common shares.

A period of sustained inflation across the markets in which we operate could result in higher operating costs. Further rising inflation may negatively impact
our business, raise cost and reduce profitability. Despite efforts we may take to reduce the impact of inflation on our business across the markets in which
we operate, it could become increasingly difficult to effectively mitigate the increases to our costs. In addition, the effects of inflation on consumers’
budgets could result in the reduction of our customers’ spending habits. If we are unable to take actions to effectively mitigate the effect of the resulting
higher costs, our operating margins could be negatively impacted.

Risks Relating to Production and Distribution of Products

Our production facilities and those of our strategic joint ventures, are integral to our operations, and any adverse changes or developments affecting
such facilities may impact our business, financial condition and results of operations.

Our activities and resources are focused on various production and manufacturing facilities including in the U.S. (for U.S. hemp products), Canada and
Israel. Some licenses are specific to those facilities. Adverse changes or developments affecting our facilities and the facilities of our joint venture partners,
including but not limited to a breach of security, an inability to successfully grow cannabis plants or produce finished goods, unanticipated cost overruns in
growing or producing products, an outbreak of a communicable illness (such as COVID-19) or a force majeure event, could have a material and adverse
effect on our business, financial condition and results of operations. 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. Any breach of
the security measures and other facility requirements, including any failure to comply with recommendations or requirements arising from inspections by
regulatory agencies, could also have an impact on our ability to continue operating under our licenses or the prospect of renewing our licenses or could
result in a revocation of our licenses.

We bear the responsibility for all of the costs of maintenance and upkeep at our facilities and our operations and financial performance may be adversely
affected if our facilities are unable to keep up with maintenance requirements.

We may experience breaches of security at our facilities or fraudulent or unpermitted data access or other cybersecurity breaches, which may cause our
customers to lose confidence in our security or data protection measures and may expose us to risks related to breaches of applicable privacy and
security laws and regulations.

Given the nature of our products and the concentration of inventory in our facilities, we are subject to a risk of theft. A security breach at one of our
facilities could expose us to additional liability and to potentially costly litigation, increase expenses and business disruptions relating to the resolution and
future prevention of these breaches and may deter potential customers from choosing our products.

In addition, we collect and store personal information about our customers and are responsible for protecting that information from cybersecurity breaches.
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. 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.

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. 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. 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. We also rely on third party-service providers for certain information technology systems, such as payment processing,
and any data security breach at a third-party service provider could have similar effects. 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. If any of these were to occur, it could have a material adverse effect on our business, financial position and results of operations.

We are responsible for protecting employee and client health information. 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. With respect to customer health information, there are a number of federal, state and provincial laws and regulations
protecting the confidentiality of certain customer health information, including customer records, and restricting the use and disclosure of that protected
information. 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. 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.

The jurisdictions in which we operate or which we may enter also have data privacy and security laws and regulations that govern the collection, use,
disclosure, transfer, storage, disposal, and protection of personal information (such as the California Consumer Privacy Act (the “CCPA”) in California). In
Canada, we may be required to retain certain customer personal information for prescribed periods of time pursuant to the Cannabis Act.

Additionally, several states, including California, Colorado, and Virginia, have passed laws and regulations, modeled on the E.U. GDPR, that will
significantly impact data privacy and security requirements in the U.S. The California Privacy Rights Act (“CPRA”) imposes broad new requirements on
companies covered by the legislation. Under the CPRA, California consumers (i.e., California residents) will have new and expanded rights, and businesses
covered by the CPRA must disclose these rights to them. These new rights include, but are not limited to, a right of correction (i.e., the right to request that
a business correct any inaccurate personal information about them), a right to limit the use and disclosure of “Sensitive Information” (a new category of
personal information defined by the CPRA), a right to access information about automatic decision making used by the business, and a right to data
portability (i.e., that a business transfer their personal information to another entity to the extent technically feasible). Enhanced rights for California
consumers under the CPRA include, but are not limited to, expanded rights to know and access their personal information, expanded rights to delete their
personal information, and an explicit requirement that California consumers have the right to opt-out of the sharing, in addition to the selling, of their
personal information. Separately, the CPRA will codify the following GDPR-inspired requirements: (i) data minimization or the requirement that personal
information collected by businesses be reasonably necessary and proportionate to achieve the purpose for which the personal information was collected, (ii)
purpose limitation or the requirement that businesses only collect personal information for specific, explicit, and legitimate disclosed purposes that are
disclosed in advance to California consumers, (iii) data retention limitations for personal information predicated on the length of time the business intends
to retain each category of personal information, and (iv) reasonable data security requirements. Lastly, the CPRA provides for an expanded private right of
action in the context of cybersecurity breaches and creates a designated privacy agency, the California Privacy Protection Agency (“CPPA”), with authority
to implement and enforce the CCPA and CPRA.

While uncertain, the effects of the CCPA, the CPRA and other new state laws and regulations, as well as analogous laws and regulations in Canada (e.g.,
Bill 64 in Quebec), are potentially significant and may require us to modify our data collection or

processing practices and policies, incur substantial costs and expenses to comply with these laws and regulations, and increase our potential exposure to
regulatory enforcement and/or litigation. The interpretation and enforcement of such laws and regulations are uncertain and subject to change and may
require substantial costs to monitor and implement compliance. Failure to comply with data privacy and protection laws and regulations could result in
government enforcement actions (which could include substantial civil and/or criminal penalties), litigation, business disruption, the diversion of
management’s attention and/or adverse publicity and could negatively affect our business, results of operations and financial condition.

Our cannabis cultivation and U.S. hemp operations are subject to risks inherent in an agricultural business.

Our business and that of our joint venture partners involves the growing of cannabis, an agricultural product, in certain jurisdictions where that activity is
permitted. As such, the business is subject to the risks inherent in the agricultural business, such as insects, plant diseases and similar agricultural risks that
may create crop failures and supply interruptions for our customers. 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. 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. U.S. hemp is typically harvested in or around the month of October. U.S. hemp plants can be
vulnerable to various pathogens including bacteria, fungi, viruses and other miscellaneous pathogens. Such instances often lead to reduced crop quality,
stunted growth and/or death of the plant. Moreover, U.S. hemp is “phytoremediative” (meaning that it may extract toxins or other undesirable chemicals or
compounds from the ground in which it is planted). Various regulatory agencies have established maximum limits for pathogens, toxins, chemicals and
other compounds that may be present in agricultural materials. If U.S. hemp used in our products is found to have levels of pathogens, toxins, chemicals or
other undesirable compounds that exceed limits permitted by applicable law, it may have to be destroyed. Should the U.S. hemp used in our products be
lost due to pathogens, toxins, chemicals or other undesirable compounds, or if we or our suppliers are otherwise unable to obtain U.S. hemp for use in our
products on an ongoing basis, it may have a material and adverse effect on our business, financial condition, operating results, liquidity, cash flow and
operational performance.

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. For example, supply chains throughout the world have been negatively impacted by COVID-19 and this has increased the costs of
products and shipping. We have in the past, and may in the future, have disruptions in our supply chain.

We rely on third party distributors to distribute our products, and those distributors may not perform their obligations.

We rely on third party distributors and other courier services, and may in the future rely on other third parties, to distribute our products. 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. 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.

Risks Relating to Intellectual Property

We are subject to risks related to the protection and enforcement of our intellectual property rights, and we may be unable to protect or enforce our
intellectual property rights.

The ownership and protection of our intellectual property rights is a significant aspect of our future success. Currently we rely on trade secrets, technical
know-how, proprietary information, trademarks, copyrights, designs and certain patent filings to maintain our competitive position. We try to protect our
intellectual property by strategically seeking and obtaining registered protection where appropriate, developing and implementing standard operating
procedures to protect trade secrets, technical know-how and proprietary information, and entering into agreements with parties that have access to our
inventions, trade secrets, technical know-how and proprietary information, such as our partners, collaborators, employees and consultants, to protect
confidentiality and ownership. We also seek to preserve the integrity and confidentiality of our inventions, trade secrets, technical know-how and
proprietary information by maintaining physical security of our premises and physical and electronic security of our information technology systems, and
we seek to protect our trademarks and the goodwill associated therewith by monitoring and enforcing against unauthorized use of our trademarks.

It is possible that we will inadvertently disclose or otherwise fail or be unable to protect our inventions, trade secrets, technical know-how or proprietary
information, or will fail to identify our inventions or trademarks as patentable or registrable intellectual property, or fail to obtain patent or registered
trademark protection therefor. Any such disclosure or failure could have a material adverse effect on our business.

We may be unable to protect our inventions, trade secrets, and other intellectual property from discovery or unauthorized use.

In relation to our agreements with parties that have access to our intellectual property, any of these parties may breach their obligations to us, and we may
not have adequate remedies for such breach. In relation to our security measures, such security measures may be breached and we may not have adequate
remedies for such breach. In addition, our intellectual property that has not yet been applied for or registered may otherwise become known to, or be
independently developed by, competitors, or may already be the subject of applications for intellectual property registrations filed by our competitors,
which may have a material adverse effect on our business, financial condition and results of operations.

We cannot provide any assurances that our inventions, trade secrets, technical know-how and other proprietary information will not be disclosed in
violation of agreements, or that competitors will not otherwise gain access to our intellectual property or independently develop and file applications for
intellectual property rights in a manner that adversely impacts our intellectual property rights. Unauthorized parties may attempt to replicate or otherwise
obtain and use our inventions, trade secrets, technical know-how and proprietary information. Policing the unauthorized use of our current or future
intellectual property rights is difficult, expensive, time-consuming and unpredictable, as is enforcing these rights against unauthorized use by others.
Identifying unauthorized use of intellectual property rights is difficult. For example, we may be unable to effectively monitor and evaluate the products
being distributed by our competitors, including parties such as unlicensed dispensaries, and the processes used to produce such products. If the steps taken
to identify and protect our trade secrets are inadequate, we may be unable to enforce our rights in them against third parties.

Our intellectual property rights may be invalid or unenforceable under applicable laws, and we may be unable to have issued or registered, and unable
to enforce, our intellectual property rights.

The laws regarding intellectual property rights relating to cannabis and cannabis-related products, and the positions of intellectual property offices
administering such laws, are constantly evolving, and there is uncertainty regarding which countries will permit the filing, prosecution, issuance,
registration and enforcement of intellectual property rights relating to cannabis and cannabis-related products.

Specifically, we have sought trademark protection in many countries, including Canada, the U.S. and others. Our ability to obtain registered trademark
protection for cannabis and cannabis-related goods and services (including U.S. hemp and U.S. hemp-related goods and services) may be limited in certain
countries outside of Canada, including the U.S., where registered federal trademark protection is currently unavailable for trademarks covering the sale of
U.S. Schedule I cannabis products or certain goods containing U.S. hemp-derived CBD (such as dietary supplements and foods) until the FDA provides
clearer guidance on the regulation of such products, and including Europe, where laws on the legality of cannabis use are not uniform, and 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 or enforce intellectual property rights against third party uses of similar trademarks may be limited in certain countries.

Moreover, in any infringement proceeding, some or all of our current or future trademarks, patents or other intellectual property rights or other proprietary
know-how, or arrangements or agreements seeking to protect the same for our benefit, may be found invalid, unenforceable, anti-competitive or not
infringed. An adverse result in any litigation or defense proceedings could put one or more of our current or future trademarks, patents or other intellectual
property rights at risk of being invalidated or interpreted narrowly and could put existing intellectual property applications at risk of not being issued. Any
or all of these events could materially and adversely affect our business, financial condition and results of operations.

There is no guarantee that any patent or other intellectual property applications that we file will result in registration or any enforceable intellectual
property rights or the breadth of any such protection. Further, with respect to any patent applications that we file, there is no assurance that we will find all
potentially relevant prior art relating to such applications, which may prevent a patent from issuing from such application or invalidate any patent that
issues from such application. Even if patents do successfully issue, and cover our products and processes, third parties may challenge their validity,
enforceability or scope, which may result in such patents being narrowed, found unenforceable or invalidated. Even if they are unchallenged, any patent
applications and future patents may not adequately protect our intellectual property rights, provide exclusivity for our products or processes or prevent
others from designing around any issued patent claims. Any of these outcomes could impair our ability to prevent competition from third parties, which
could materially and adversely affect our business, financial condition and results of operations.

We may be subject to allegations that we are in violation of third-party intellectual property rights, and we may be found to infringe third-party
intellectual property rights, possibly without the ability to obtain licenses necessary to use such third party intellectual property rights.

Other parties may claim that our products infringe on their intellectual property rights, including with respect to patents, and our operation of our business,
including our development, manufacture and sale of our goods and services, may be found to infringe third party intellectual property rights. There may be
third party patents or patent applications with claims to products or processes related to the manufacture, use or sale of our products and processes. There
may be currently pending patent applications, some of which may still be confidential, that may later result in issued patents that our products or processes
may infringe. In addition, third parties may obtain patents in the future and claim that use of our inventions, trade secrets, technical know-how and
proprietary information, or the manufacture, use or sale of our products, infringes upon those patents. Third parties may also claim that our use of our
trademarks infringes upon their trademark rights. 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. In addition, we may need to obtain licenses from third
parties who allege that we have infringed on their purported rights, whether or not such allegations have merit. Such licenses may not be available on terms
acceptable to us, and we may be unable to obtain any licenses or other necessary or useful rights to such third-party intellectual property.

Our germplasm relies heavily on intellectual property, and we may be unable to protect, register or enforce our intellectual property rights in
germplasm, and may infringe third-party intellectual property rights with respect to germplasm, possibly without the ability to obtain licenses necessary
to use such third-party intellectual property rights.

Germplasm, including seeds, clones and cuttings, is the genetic material used in new cannabis varieties and hybrids. We use advanced breeding
technologies to produce cannabis germplasm (hybrids and varieties). We rely on parental varieties for the success of our breeding program. Although we
believe that the parental germplasm is proprietary to us, we may need to obtain licenses from third parties who may allege that we have appropriated their
germplasm or their rights to such germplasm, whether or not such allegations have merit. Such licenses may not be available on terms acceptable to us, and
we may be unable to obtain any licenses or other necessary or useful rights under third party intellectual property. We may seek to protect our parental
germplasm, as appropriate, relying on intellectual property rights, including rights related to inventions (patents and plant breeders’ rights), trade secrets,
technical know-how, and proprietary information. There is a risk that we will fail to protect such germplasm or that we will fail to register rights in relation
to such germplasm.

We also seek to protect our parental germplasm, hybrids and varieties from pests and diseases and enhance plant productivity and fertility, and we research
products to protect against crop pests and fungus. There are several reasons why new product concepts in these areas may be abandoned, including greater
than anticipated development costs, technical difficulties, regulatory obstacles, competition, inability to prove the original concept, lack of demand and the
need to divert focus, from time to time, to other initiatives. The processes of breeding, development and trait integration are lengthy, and the germplasm we
test may not be selected for commercialization. The length of time and the risk associated with breeding may affect our business. Our sales depend, in part,
on our germplasm. Commercial success frequently depends on being the first company to the market, and many of our competitors are also making
considerable investments in similar new and improved cannabis germplasm products. Consequently, there is no assurance that we will successfully develop
new cannabis germplasm to the point of commercial viability in the markets we serve on a timely basis.

Finally, we seek to protect our germplasm, hybrids and varieties from accidental release, theft, misappropriation and sabotage by maintaining physical
security of our premises and through contractual rights with our employees and certain of our suppliers, independent contractors, consultants and licensees.
However, such security measures may be insufficient or breached, and our employees, independent contractors, consultants and licensees may engage in
the inadvertent disclosure, theft, misappropriation or sabotage. We may not have adequate remedies in the case of any such security breach, inadvertent
disclosure, theft, misappropriation or sabotage.

We receive licenses to use some third-party intellectual property rights; the failure of the owner of such intellectual property to properly maintain or
enforce the intellectual property underlying such licenses, or our inability to obtain or maintain such licenses, could have a material adverse effect on
our business, financial condition and performance.

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. 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. 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. 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. Such licenses may not be available on terms acceptable to us, or at all, 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.

Any of our licensors may allege that we have breached our license agreements with those licensors, whether with or without merit, and accordingly seek to
terminate our applicable licenses. 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.

Rapidly changing markets, technology, emerging industry standards and frequent introduction of new products characterize our business. The introduction
of new products embodying new technologies, including new manufacturing processes or formulations, and the emergence of new industry standards may
render our products obsolete, less competitive or less marketable. The process of developing our products is complex and requires significant continuing
costs, development efforts and third-party commitments, including licensees, researchers, and collaborators. Our failure to develop new technologies and
products and the obsolescence of existing technologies or processes could adversely affect our business, financial condition and results of operations. We
may be unable to anticipate changes in our potential customer preferences or requirements that could make our existing technology, processes or
formulations obsolete. Our success will depend, in part, on our ability to continue to enhance our existing technologies, develop new technology that
addresses the increasing sophistication and varied views of the market, and respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis. The development of our proprietary technology, processes and formulations entails significant technical and
business risks. We may not be successful in using our new technologies or exploiting our niche markets effectively or adapting our business to evolving
customer requirements or preferences or emerging industry standards.

Risks Relating to Entry into New Markets

Controlled substance and other legislation and treaties may restrict or limit our ability to research, manufacture and develop a commercial market for
our products outside of the jurisdictions in which we currently operate, and our expansion into such jurisdictions is subject to risks.

Approximately 250 substances, including cannabis, are listed in the Schedules annexed to the UN Single Convention on Narcotic Drugs (New York, 1961),
the Convention on Psychotropic Substances (Vienna, 1971) and the Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances
(introducing control on precursors) (Vienna, 1988). The purpose of these listings is to control and limit the use of these drugs according to a classification
of their therapeutic value, risk of abuse and health dangers, and to minimize the diversion of precursor chemicals to illegal drug manufacturers. The 1961
UN Single Convention on Narcotic Drugs, as amended in 1972 classifies cannabis as a Schedule I (“substances with addictive properties, presenting a
serious risk of abuse”) narcotic drug. In December 2020, the Commission on Narcotic Drugs voted to remove cannabis from Schedule IV (“the most
dangerous substances, already listed in Schedule I, which are particularly harmful and of extremely limited medical or therapeutic value”). The 1971 UN
Convention on Psychotropic Substances classifies THC as a Schedule I psychotropic substance (substances presenting a high risk of abuse, posing a
particularly serious threat to public health which are of very little or no therapeutic value). Many countries are parties to these conventions, which govern
international trade and domestic control of these substances, including cannabis. They may interpret and implement their obligations in a way that creates
legal obstacles to our obtaining manufacturing and/or marketing approval for our products in those countries. These countries may not be willing or able to
amend or otherwise modify their laws and regulations to permit our products to be manufactured and/or marketed, and achieving such amendments to the
laws and regulations may take a prolonged period of time. There can be no assurance that any market for our products will develop in any jurisdiction in
which we do not currently have operations. We may face new or unexpected risks or significantly increase our exposure to one or more existing risk
factors, including economic instability, political instability, changes in laws and regulations and the effects of competition. These factors may limit our
capability to successfully expand our operations into such jurisdictions and may have a material adverse effect on our business, financial condition and
results of operations.

Investments and joint ventures outside of Canada and the U.S. are subject to the risks normally associated with any conduct of business in foreign
countries, including varying degrees of political, legal, regulatory and economic risk.

Much of our exposure to markets in jurisdictions outside of Canada and the U.S. is through investments and joint ventures. These investments and joint
ventures are subject to the risks normally associated with any conduct of business in foreign and/or emerging countries including political risks; civil
disturbance risks; changes in laws, regulations or policies of particular countries, including those relating to royalties, duties, imports, exports and currency;
the cancellation or renegotiation of contracts; the imposition of royalties, net profits payments, tax increases or other claims by government entities,
including retroactive claims; a disregard for due process and the rule of law by local courts; the risk of expropriation and nationalization; delays in
obtaining or the inability to obtain necessary governmental permits or the reimbursement of refundable tax from fiscal authorities.

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. Changes in policy or law may have a material adverse effect on our business, financial condition and results of
operations. The risks include increased “unpaid” state participation, higher energy costs, higher taxation levels and potential expropriation.

Other risks include the potential for fraud and corruption by suppliers or personnel or government officials which may implicate us, compliance with
applicable anti-corruption laws and regulations, including the U.S. 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.

There is also the risk of increased disclosure requirements; currency fluctuations; restrictions on the ability of local operating companies to hold Canadian
dollars, U.S. dollars or other foreign currencies in offshore bank accounts; import and export restrictions; increased regulatory requirements and
restrictions; increased health-related regulations; limitations on the repatriation of earnings or on our ability to assist in minimizing our expatriate
workforce’s exposure to double taxation in both the home and host jurisdictions; and increased financing costs.

These risks may limit or disrupt our joint ventures, strategic alliances or investments, restrict the movement of funds, cause us to have to expend more
funds than previously expected or required or result in the deprivation of contract rights or the taking of property by nationalization or expropriation
without fair compensation, and may materially adversely affect our business, financial position and/or results of operations. In addition, the enforcement by
us of our legal rights in foreign countries, including rights to exploit our properties or utilize our permits and licenses and contractual rights may not be
recognized by the court systems in such foreign countries or enforced in accordance with the rule of law.

We currently do, and may in the future, invest in companies, or engage in joint ventures, in countries with developing economies. It is difficult to predict
the future political, social and economic direction of the countries in which we or our joint ventures operate, and the impact government decisions may
have on our business. Any political or economic instability in the countries in which we operate could have a material and adverse effect on our business,
financial condition and results of operations.

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.

Our business and activities are heavily regulated in all jurisdictions where we carry on business. Our operations are subject to various laws, regulations and
guidelines 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, PTO and FTC and other federal and state agencies) relating to the cultivation, manufacture, processing, marketing,
labeling, packaging, management, transportation, distribution, import, export, storage, sale, pricing and disposal of cannabis and U.S. hemp, and also
including laws, regulations and guidelines relating to health and safety, insurance coverage, the conduct of operations and the protection of the environment
(including relating to emissions and discharges to water, air and land, and the handling and disposal of hazardous and non-hazardous materials and wastes).
Our operations may also be affected in varying degrees by government regulations with respect to, among other things, price controls, import or export
controls, controls on currency remittance, increased income taxes, restrictions on foreign investment and government policies rewarding contracts to local
competitors or requiring domestic producers or vendors to purchase supplies from a particular jurisdiction. Laws, regulations and guidelines, applied
generally, grant government agencies and self-regulatory bodies broad administrative discretion over our activities, including the power to limit or restrict
business activities as well as impose additional disclosure requirements on our products and services, as well as on our personnel (including management
and our board of directors).

Achievement of our business objectives is contingent, in part, upon compliance with regulatory requirements enacted by these governmental authorities and
obtaining all necessary regulatory approvals for the cultivation, production, processing storage, transportation, distribution, sale, import and export, as
applicable, of our products. The cannabis and U.S. hemp industries are still new, and in Canada in particular, the Cannabis Act is a new regime that has no
close precedent in Canadian law. Similarly, the

regulatory regimes in the jurisdictions in which we and our joint ventures operate outside of the U.S. and Canada are new and are still being developed
without close precedent in such jurisdictions. The effect of relevant governmental authorities’ administration, application and enforcement of their
respective regulatory regimes and delays in obtaining, or failure to obtain, necessary regulatory approvals may significantly delay or impact the
development of markets, products and sales initiatives and could have a material adverse effect on our business, financial condition and results of
operations.

The regulatory environment for our products is rapidly developing, and the need to build and maintain robust systems to comply with different and
changing regulations in multiple jurisdictions increases the possibility that we may violate one or more applicable requirements. While we endeavor to
comply with all relevant laws, regulations and guidelines, any failure to comply with the regulatory requirements applicable to our operations could subject
us to negative consequences, including, but not limited to, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations,
asset seizures, revocation or imposition of additional conditions on licenses to operate our business, the denial of regulatory applications (including, in the
U.S., by other regulatory regimes that rely on the positions of the DEA and FDA in the application of their respective regimes), the suspension or expulsion
from a particular market or jurisdiction of our key personnel, or the imposition of additional or more stringent inspection, testing and reporting
requirements, any of which could materially adversely affect our business, financial condition and results of operations. Additionally, scheduled or
unscheduled inspections of our facilities or facilities of our joint ventures or third-party suppliers by applicable regulatory agencies could result in adverse
findings that could require significant remediation efforts and/or temporary or permanent shutdown of our facilities or those of our joint ventures or third-
party suppliers. In the U.S., failure to comply with FDA requirements (and analogous state agencies) may result in, among other things, injunctions,
product withdrawals, recalls, product seizures, fines and criminal prosecutions. The outcome of any regulatory or agency proceedings, investigations,
inspections, audits, and other contingencies could harm our reputation, require us to take, or refrain from taking, actions that could harm our operations or
require us to pay substantial amounts of money, harming our results of operations, financial condition and cash flows. There can be no assurance that any
pending or future regulatory or agency proceedings, investigations, inspections and audits will not result in substantial costs or a diversion of management’s
attention and resources, negatively impact our future growth plans and opportunities or have a material adverse impact on our business, financial condition
and results of operations.

If 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.

As it relates to U.S. Schedule I cannabis, in the U.S., despite cannabis possession and use having been legalized at the state level for medical use in many
states and for adult-use in a number of states, marijuana as defined by the CSA continues to be categorized as a Schedule I controlled substance under the
CSA and subject to the Controlled Substances Import and Export Act (“CSIEA”). Although we do not engage in any activities related to marijuana as
defined by the CSA in the U.S., violations of any U.S. federal laws and regulations, including the CSA and the CSIEA, whether intentional or inadvertent,
could result in civil, criminal and/or administrative enforcement actions, which could result in fines, penalties, and other sanctions, including but not
limited to, cessation of business activities. Additionally, U.S. border officials could deny entry into the U.S. to those employed at or investing in legal and
licensed non-U.S. cannabis companies and such persons could face detention, denial of entry or lifetime bans from the U.S. for their business associations
with cannabis businesses.

We and our joint ventures and strategic investments are reliant on required licenses, authorizations, approvals and permits for our ability to grow,
process, store and sell cannabis, U.S. hemp and cannabinoids which are subject to ongoing compliance, reporting and renewal requirements, and we
may also be required to obtain additional licenses, authorizations, approvals and permits in connection with our business.

Our ability to grow, process, store and sell cannabis in Canada is dependent on our licenses from Health Canada, and in particular the licenses currently
held by Peace Naturals, Cronos Fermentation and Cronos GrowCo. Failure to comply with the requirements of the licenses or failure to maintain the
licenses would have a material adverse impact on our business, financial condition and results of operations. Although we believe Peace Naturals, Cronos
Fermentation and Cronos GrowCo will meet the requirements of the Cannabis Act for their licenses, there can be no guarantee that Health Canada will
extend or renew the licenses or, if they are extended or renewed, that they will be extended or renewed on the same or similar terms or that Health Canada
will not revoke the licenses. Should we fail to comply with requirements of the licenses, should Health Canada not extend or renew the licenses, should
they be renewed on different terms (including not allowing for anticipated capacity increases) or should the licenses be revoked or suspended, our business,
financial condition and results of the operations will be materially adversely affected. To the extent we apply for any additional licenses from Health
Canada, there can be no assurance that such licenses will be granted or, if granted, that they will be granted on commercially reasonable terms or within the
time period we expect, which could have a material adverse effect on our business, financial condition and results of operations.

Our ability to grow, process, store and sell cannabis in Israel is dependent on maintaining our cannabis cultivation, production and distribution licenses and
our ability to export products to, or import products from, Cronos Israel is also dependent on obtaining the relevant permits. Cronos GrowCo’s ability to
grow, process, store and sell cannabis at its production facility depends on obtaining and maintaining the appropriate licenses from Health Canada. Should
we or our joint ventures fail to comply with the requirements of the licenses, or should they not be extended or renewed by the applicable regulatory
authorities, or should they be renewed on different terms (including not allowing for anticipated capacity increases) or should the licenses be revoked, the
business, financial condition and results of our and our joint ventures’ operations will be materially adversely affected. There is no assurance that we or our
joint ventures will be able to obtain necessary permits or licenses on commercially reasonable terms or within expected time periods, if at all. Moreover, the
change in the nature of operations at the Peace Naturals Campus will increase the importance of the licenses of Cronos GrowCo for our business and
operations.

In addition, Ginkgo’s ability to conduct certain R&D activities in the U.S. under the Ginkgo Collaboration Agreement is conditional on Ginkgo continuing
to maintain all necessary licenses, permits and approvals required for Ginkgo to perform such R&D activities. There are no assurances that Ginkgo will be
able to maintain required licenses, permits and approvals and, to the extent such licenses, permits and approvals are not maintained, we may not realize the
expected benefits of the Ginkgo Strategic Partnership.

We have obtained a processed food registration from CDPH and may also be required to obtain and maintain certain permits, licenses and approvals in the
jurisdictions where we source, process, or sell products derived from U.S. hemp. We may be unable to obtain or maintain any necessary licenses, permits or
approvals. 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. 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.

Changes in the laws, regulations and guidelines governing cannabis and U.S. hemp may adversely impact our business.

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. Additionally, our growth strategy continues to evolve as regulations governing the cannabis industry in
the jurisdictions other than Canada and the U.S. in which we and our joint ventures operate become more fully developed. Interpretation of these laws,
rules and regulations and their application to our operations and those of our joint ventures is ongoing. No assurance can be given that new laws,
regulations and guidelines will not be enacted or that existing laws, regulations and guidelines will not be amended, repealed or interpreted or applied in a
manner which could require extensive changes to our operations, increase compliance costs, give rise to material liabilities or a revocation of our licenses
and other permits, restrict the growth opportunities that we currently anticipate or otherwise limit or curtail our operations. For example, the Cannabis Act
requires the Canadian federal government to conduct a review of the Cannabis Act after three years, which commenced in September 2022. The scope of
this statutory review includes, among other things, consideration of (i) the administration and operation of the Cannabis Act, (ii) the impact of the Cannabis
Act on public health, (iii) the health and consumption habits of young persons, (iv) the impact of cannabis on Indigenous persons and communities and (v)
the impact of cultivation of cannabis plants in a dwelling-house. This 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. Amendments to current laws,
regulations and guidelines governing the production, sale and use of cannabis and cannabis-based products, more stringent implementation or enforcement
thereof or other unanticipated events, including changes in political regimes or political instability, currency controls, fluctuations in currency exchange
rates and rates of inflation, labor unrest, changes in taxation laws, regulations and policies, restrictions on foreign exchange and repatriation, governmental
regulations relating to foreign investment and the cannabis business more generally, and changes in attitudes toward cannabis, are beyond our control and
could require extensive changes to our operations, which in turn may result in a material adverse effect on our business, financial condition and results of
operations.

While the production of cannabis in Canada, among other things, is under the regulatory oversight of the federal government of Canada, the distribution
and retail sale of adult-use cannabis in Canada falls within the jurisdiction of the provincial and territorial governments. The impact of the legislation
regulating adult-use cannabis passed in the provinces and territories on the cannabis industry and our business plans and operations is uncertain. Provinces
and territories have announced certain restrictions that are more stringent than the federal rules or regulations such as retail sale and marketing restrictions,
bans on certain types of cannabis products, raising minimum age of purchase and flavor restrictions. For example, Québec and Prince Edward Island do not
currently permit sales of cannabis vaporizers, and Québec limits the sale of other high THC non-edible cannabis products. In addition, the distribution and
retail channels and applicable rules and regulations in the provinces continue to evolve, and our ability to distribute and retail cannabis products in Canada
is dependent on the ability of the provinces and territories of Canada to establish licensed retail networks and outlets. There is no guarantee that the
applicable legislation regulating the distribution and sale of cannabis for adult-use purposes will allow for the growth opportunities we currently anticipate
and may result in a material adverse effect on our business, financial condition and results of operations.

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. Increased international competition and limitations placed on us by Canadian regulations might lower the demand for our products on a global
scale. We also face competition in each jurisdiction outside of the U.S. and Canada where we have subsidiaries, investments, joint ventures and strategic
alliances with local companies that have more experience, more in-depth knowledge of local markets or applicable laws, regulations and guidelines or
longer operating histories in such jurisdictions.

We are subject to certain restrictions of the TSX and Nasdaq, which may constrain our ability to expand our business internationally.

Our common shares are listed on the TSX and Nasdaq. We must comply with the TSX and Nasdaq requirements or guidelines when conducting business.

On October 16, 2017, the TSX provided clarity regarding the application of Section 306 (Minimum Listing Requirements), Section 325 (Management) and
Part VII (Halting of Trading, Suspension and Delisting of Securities) of the TSX Company Manual (collectively, the “Requirements”) to TSX-listed issuers
with business activities in the cannabis sector. In TSX Staff Notice 2017- 0009, the TSX notes that issuers with ongoing business activities that violate U.S.
federal law regarding U.S. Schedule I cannabis are not in compliance with the Requirements. The TSX reminded issuers that, among other things, should
the TSX find that a listed issuer is engaging in activities contrary to the Requirements, the TSX has the discretion to initiate a delisting review. Although we
do not conduct any operations in the U.S. with respect to U.S. 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.

While Nasdaq has not issued official rules specific to the cannabis or U.S. hemp industry, stock exchanges in the U.S., including Nasdaq, have historically
refused to list certain U.S. Schedule I cannabis related businesses, including U.S. Schedule I cannabis retailers, that operate primarily in the U.S. Failure to
comply with any requirements imposed by Nasdaq could result in the delisting of our common shares from Nasdaq or denial of any application to have
additional securities listed on Nasdaq which could have a material adverse effect on the trading price of our common shares.

We are constrained by law in our ability to market and advertise our products.

Our marketing and advertising are subject to regulation by various regulatory bodies in the jurisdictions we operate. In Canada, the development of our
business and related results of operations may be hindered by applicable regulatory restrictions on sales and marketing activities. For example, the
regulatory environment in Canada limits our ability to compete for market share in a manner similar to other industries. Furthermore, the applicable
regulatory restrictions on sales and marketing activities are not always clear, may be subject to interpretation and have in the past, and may in the future, be
interpreted or applied inconsistently by the applicable Canadian regulatory agencies, which have broad interpretative and enforcement discretion with
respect to such activities. This may result in such restrictions on sales and marketing activities being interpreted unfavorably by a regulatory agency against
some market participants, including us, but not others. Furthermore, if our competitors fail to comply with applicable laws relating to sales and marketing
activities with which we comply, and regulatory agencies delay or do not take enforcement action against such competitors, or take sporadic enforcement
action, our ability to compete for market share and our sales and results of operations could be adversely affected. If we are unable to effectively market our
products and compete for market share in Canada, or if the costs of compliance with government legislation and regulation cannot be absorbed through
increased selling prices for our products, our sales and results of operations could be adversely affected. See “Business –Regulatory Framework in
Canada.”

In the U.S., our advertising is subject to regulation by the FTC under the Federal Trade Commission Act as well as the FDA under the FFDCA, including
as amended by the Dietary Supplement Health and Education Act of 1994, and by state agencies under analogous and similar state and local laws and
regulations. 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. Some U.S. states also permit content, advertising and labeling laws and regulations to be
enforced by state attorneys general, who may seek civil and criminal penalties, relief for consumers, class action certifications, class wide damages and
recalls of products sold by us. There has also been an increase in private litigation that seeks, among other things, relief for consumers, class action
certifications, class wide damages and recalls of products. We have been subject to such litigation and may be subject to additional private class action
litigation. 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.

Risks Related to U.S. 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.

On December 20, 2018, the 2018 Farm Bill was signed into law. 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 tasked the USDA with promulgating regulations in relation to the cultivation and production of U.S. hemp.
The 2018 Farm Bill also directed the USDA to promulgate federal regulations that would apply to the production of U.S. hemp in every state which does
not put forth a state U.S. hemp plan for approval by the USDA, for which the USDA has issued final rules. Beginning in January 2024, the USDA will
require hemp producers to use a laboratory that is registered with the DEA for analytical testing of hemp plants. The USDA rules also include provisions
for producers to dispose of or remediate violative hemp plants without the use of a DEA-registered reverse distributor or law enforcement. Various states
have applied and are in the process of applying to the USDA for approval of their U.S. hemp production regulations which impose different levels of
regulation and costs on the production of U.S. hemp, and many such state plans have been approved by the USDA. The 2018 Farm Bill provides that its
provisions do not preempt or limit state laws that regulate the production of U.S. hemp. Accordingly, some states may choose to restrict or prohibit some or
all U.S. hemp production or sales within the state, and variances in states’ laws and regulations on U.S. hemp are likely to persist. Further, each state has
discretion to develop and implement its own laws and regulations governing the manufacturing, marketing, labeling, and sale of U.S. hemp products, which
has created a patchwork of different regulatory schemes applicable to such products.

The FDA or particular states may ultimately prohibit the sale of some or all dietary supplements or conventional foods containing U.S. hemp and U.S.
hemp-derived ingredients, including CBD and other cannabinoids, and we may be required to submit a New Dietary Ingredient notification to the
FDA, which may not be accepted without objection.

Under the 2018 Farm Bill, the FDA has retained authority over the FFDCA-regulated products (e.g., drugs (human and animal), food (human and animal),
dietary supplements and cosmetics) containing U.S. hemp and U.S. hemp-derived ingredients, including CBD. The FDA has consistently taken the position
that CBD, whether derived from U.S. hemp or U.S. Schedule I cannabis, is prohibited from use as an ingredient in food and dietary supplements. This
stems from its interpretation of the exclusionary clauses in the FFDCA because CBD is the active ingredient in a drug that has been approved as a
prescription drug and is the subject of substantial clinical investigations as a drug, which have been made public. The exclusionary clauses under the
FFDCA provide that a substance that has been approved or has been subject to substantial clinical investigations as a drug may not be used in a food or
dietary supplement, unless the substance was first marketed in a food or dietary supplement prior to the initiation of substantial clinical investigations of the
substance as a drug.

To date, the FDA has not issued regulations that elaborate on the exclusionary clauses, and the FDA has not taken any enforcement action in the courts
asserting a violation of the exclusionary clauses due to the marketing of U.S. hemp, U.S. hemp extracts, CBD or other cannabinoids. Additionally, on
January 26, 2023, the FDA stated its views publicly that a new regulatory pathway for CBD is needed and it is prepared to work with Congress to create
such a pathway. To date, the FDA has issued several “Warning Letters” to companies unlawfully marketing CBD products. In many of these cases, the
manufacturer made unsubstantiated claims about the product being able to treat medical conditions (e.g., cancer, Alzheimer’s disease, opioid withdrawal,
anxiety and COVID-19) and had not obtained drug approvals. Some of these letters were co-signed with the FTC and cited the companies for making
claims about the efficacy of CBD or other ingredients which were not substantiated by competent and reliable scientific evidence. In December 2020, the
FTC announced it had entered into settlement agreements with six companies marketing CBD products including oils, gummies, creams, and others with
deceptive health claims about serious health conditions. The settlements included monetary penalties ranging from $20,000 to $85,000. The FTC
announced another CBD enforcement action and settlement in May 2021, ordering more than $30,000 in consumer redress. The FDA has also issued a
“Warning Letter” to at least one dietary supplement manufacturer for a number of violations observed during an inspection, including manufacturing CBD
supplements in a licensed facility. In November 2022, the FDA issued “Warning Letters” to five additional companies selling CBD-products in forms that
the FDA asserted are appealing to children, including gummies, hard candies and cookies. These letters also outlined additional violations of the FFDCA
including that several of the companies made claims that CBD-containing products cure, mitigate, treat or prevent various diseases or were added to animal
foods.

Until the FDA formally adopts regulations with respect to CBD or other U.S. hemp-derived cannabinoid products or announces an official position with
respect to CBD or other U.S. hemp-derived cannabinoid products, there is a risk that the FDA could take enforcement action (e.g., a “Warning Letter,”
seizure, or injunction) against the Company in respect of its U.S. hemp-derived products sold in the U.S.

Moreover, states have retained regulatory authority through their own analogues to the FFDCA, and the states may diverge from the federal treatment of
the use of U.S. hemp as, or in, food, dietary supplements or cosmetic products. The FDA or applicable states (under their CSA or FFDCA analogues) may
ultimately not permit the sale of non-pharmaceutical products containing U.S. hemp-derived ingredients, including CBD and other cannabinoids, which
would have a material adverse impact on our business, financial condition and results of operations.

Even if the exclusionary clause issue discussed above is resolved in a manner favorable to us, we could be required to submit a NDIN to the FDA with
respect to U.S. hemp-derived ingredients, including CBD and other cannabinoids we intend to include in our products, used in dietary supplement products.
This could depend on whether we can establish that a particular ingredient was marketed as a dietary ingredient in a dietary supplement prior to October 15,
1994 or is otherwise currently in the food supply in the same chemical form as used in our dietary supplement products. If the FDA objects to our NDIN,
this could prevent us from producing, marketing and selling ingestible U.S. hemp products which would have a material adverse impact on our business,
financial condition and results of operations. Such an NDIN submitted by one of our competitors was objected to by the FDA in August 2021.

The FDA or particular U.S. states may seek to regulate our cosmetic products containing U.S. hemp-derived ingredients, including CBD and other
cannabinoids, as drugs, medical devices, or drug-device combination products.

The FDA may seek to regulate our cosmetic products containing U.S. hemp-derived ingredients, including CBD and other cannabinoids, under its
authorities for medical products (i.e., drugs, medical devices, or drug-device combination products). Specifically, the agency could assert that our lotions,
oils, balms and creams are intended for use in diagnosing, treating, mitigating or preventing disease or for use in affecting the structure or any function of
the body. In making classification decisions, the agency considers a wide variety of factors to determine a product’s intended use; indeed, the FDA has
sometimes asserted that a product qualifies as a drug based solely on the presence of an ingredient widely understood to have drug effects, even in the
absence of express claims about them. Though we do not market our lotions, oils, balms and creams as drugs for use in the treatment of diseases or their
symptoms, the FDA could still assert that the products are intended for use as drugs, including based on the understood or presumed physical effects of
topically administered cannabinoids. Thus, we may not have the ability to successfully respond to such allegations simply by modifying labeling or
advertising claims. Ultimately, if the FDA asserts one of its medical product authorities over our lotion, oil, balm and cream products, and we cannot or
elect not to comply with the onerous regulatory requirements applicable to the asserted medical product category (e.g., drug), we could be prevented from
producing, marketing and selling cosmetic products containing U.S. hemp-derived ingredients, including CBD or other cannabinoids. In addition, states
may similarly seek to regulate our cosmetic products containing U.S. hemp-derived ingredients, including CBD and other cannabinoids, as medical
products (i.e., drugs, medical devices, or drug-device combination products) under state analogues to the FFDCA or otherwise. States have also considered
and established additional restrictions on, or requirements for, the marketing of cosmetic products containing U.S. hemp-derived ingredients. If states assert
their medical product authorities over our cosmetic products containing U.S. hemp-derived ingredients, including CBD or other cannabinoids, in a manner
that we cannot address simply by modifying labeling or advertising claims, and we cannot or elect not to comply with the onerous regulatory requirements
applicable to the asserted medical product category (e.g., drug), we could be prevented from producing, marketing and selling cosmetic products containing
U.S. hemp-derived ingredients, including CBD and other cannabinoids. Likewise, if states enforce or adopt regulatory interpretations or restrictions that
limit our ability to market our cosmetic products containing U.S. hemp-derived ingredients, including CBD and other cannabinoids, in such states, it could
materially and adversely affect our business, financial condition, operating results, liquidity, cash flow and operational performance.

Recent U.S. legislation granting the FDA additional authority to regulate cosmetics products imposes additional requirements relating to the
manufacture, labeling, safety reporting, recordkeeping, and other aspects of cosmetics products. Compliance with these additional requirements will be
complex and we may need significant additional resources to comply with these new requirements.

On December 29, 2022, President Biden signed into law the Modernization of Cosmetics Regulation Act of 2022, which significantly expands FDA’s
enforcement authorities over cosmetics products and imposes new obligations on the cosmetics industry, including requirements relating to GMP, labeling,
safety substantiation, facility registration and product listing with the FDA, adverse event reporting and recordkeeping, among others. Under the new
legislation, the FDA is required over the next several years to issue additional regulations and reports to clarify requirements. Most enforcement of
requirements under the new legislation will not go into effect until a year or later from the date of enactment; however, we expect that regulation of our
cosmetic products in the U.S. will become increasingly complex, and compliance with regulatory requirements may take significant additional resources.

The DEA could take enforcement action against us or other participants in the U.S. hemp industry.

There is substantial uncertainty concerning the legal status of U.S. hemp and U.S. hemp products containing U.S. hemp-derived ingredients, including
CBD and other cannabinoids. The status of products derived from the cannabis or hemp plant, under both federal and state law can depend on the THC
content of the plant or derivative (including whether the plant meets the statutory definition of “industrial hemp” or “hemp”), the part of the plant from
which an individual or entity produces the derivative (including whether the plant meets the statutory definition of “marihuana” under the CSA), the THC
concentration during the manufacturing process, whether the cultivator, processor, manufacturer or product marketer engages in cannabis-related activities
for research versus purely commercial purposes, as well as the form and intended use of the product. The mere presence of a cannabinoid (such as CBD) is
not dispositive as to whether the product is legal or illegal. Under U.S. federal law, products containing CBD may be unlawful if derived from U.S.
Schedule I cannabis (including hemp with a concentration greater than 0.3% THC on a dry weight basis), or if derived from U.S. hemp grown outside the
parameters of an approved U.S. hemp pilot program or U.S. hemp cultivated in violation of the 2018 Farm Bill. Even after enactment of the 2018 Farm
Bill, the DEA may not treat all products containing U.S. hemp-derived ingredients, including CBD and other cannabinoids, as exempt from the CSA. In
September 2020, the DEA issued an interim final rule that purported to align the DEA’s regulations with the statutory changes to the CSA made effective
by the 2018 Farm Bill. The DEA received a number of comments objecting to the interim final rule, and the interim final rule has been the subject of
litigation. However, the litigation was dismissed by the D.C. Circuit Court in June 2022. If the DEA takes action against us or other participants in the U.S.
hemp industry, this could have a material and adverse effect on our business, financial condition, operating results, liquidity, cash flow and operational
performance.

There is continuing uncertainty regarding the FDA’s potential position on CBG and other cannabinoids.

CBG is a cannabinoid that can be lawfully derived from U.S. hemp and the Company has begun and plans to continue developing products with CBG and
other rare cannabinoids (i.e., cannabinoids other than THC and CBD). The 2018 Farm Bill preserved the FDA’s authority over U.S. hemp-derived
consumer products and to date, the FDA has provided no guidance as to how cannabinoids other than CBD will be regulated under the FFDCA. Future
regulatory changes or enforcement actions by the FDA, with respect to CBG or other U.S. hemp-derived cannabinoids, could have a materially adverse
impact on our business, financial condition, results of operations or prospects.

Risks Relating to Competition

The markets in which we operate are increasingly competitive, and we may compete for market share with other companies, both domestically and
internationally, that may have longer operating histories and more financial resources, manufacturing and marketing experience than us.

The markets for cannabis and U.S. hemp are competitive and evolving and we face strong competition from both existing and emerging companies that
offer similar products. Some of our current and potential competitors may have longer operating histories, greater financial, marketing and other resources
and larger customer bases than we have. In addition, there is potential that the cannabis and U.S. hemp industries will undergo consolidation, creating
larger companies with financial resources, manufacturing and marketing capabilities and product offerings that are greater than ours. As a result of this
competition, we may be unable to maintain our operations or develop them as currently proposed on terms we consider acceptable, or at all. Increased
competition by larger, better-financed competitors with geographic advantages could materially and adversely affect our business, financial condition and
results of operations.

Given the rapid changes affecting global, national and regional economies generally, and the U.S. hemp industry in particular, we may not be able to create
and maintain a competitive advantage in the marketplace. Our success will depend on our ability to respond to, among other things, changes in the
economy, regulatory conditions, market conditions and competitive pressures. 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. We expect to face additional competition from
new market entrants that are granted licenses under the Cannabis Act or existing license holders which are not yet active in the industry. If a significant
number of new licenses are granted by Health Canada in the near term, we may experience increased competition for market share and may experience
downward price pressure on our products as new entrants increase production. If the number of users of cannabis in Canada increases, the demand for
products will increase and we expect that competition will become more intense, as current and future competitors begin to offer an increasing number of
diversified products. To remain competitive, we will require a continued high level of investment in R&D, sales and customer support. We may not have
sufficient resources to maintain R&D, sales and customer support efforts on a competitive basis which could have a material adverse effect on our business,
financial condition and results of operations. Furthermore, the Canadian federal authorization of home cultivation, outdoor grow, and the easing of other
barriers to entry to the Canadian adult-use cannabis market, could materially and adversely affect our business, financial condition and results of
operations.

In the U.S., the number of competitors in the U.S. hemp industry has increased significantly in recent years and is expected to continue to increase, which
could negatively impact our market share and demand for our products. Additionally, if the U.S. takes steps to legalize U.S. Schedule I cannabis, the impact
of such a development could result in new entrants into the market and increased levels of competition.

We face competition from the illegal cannabis market.

We face competition from illegal market operators 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 and they may be able to sell products with
significantly higher cannabinoid potencies or which include ingredients that are prohibited by law. The perpetuation of the illegal market for cannabis may
have a material adverse effect on our business, results of operations, financial condition as well as the perception of cannabis use.

We have been and may in the future be required to write down inventory due to downward pressure on market prices, which could have a material
adverse effect on our results of operations or financial position.

At the end of each reporting period, management performs an assessment of inventory obsolescence, prices and demand to measure inventory at the lower
of cost and net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable
costs of completion, disposal and transportation. We also consider factors such as slow-moving or non-marketable products in our determination of
obsolescence. As a result of this assessment, inventory write-downs may occur from period to period. Due to continued pricing pressures in the Canadian
marketplace, we may incur further inventory write-downs in the future. 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 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 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. Our future success depends on our continuing ability to attract,
develop, motivate and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract
and retain them. In 2022, we announced a Realignment to, among other things, centralize functions under common leadership to increase efficient
distribution of resources, optimize collaboration and strategic alignment and eliminate duplication of roles and costs, including a reduction in headcount
impacting a number of employees. The Realignment could lead to increased attrition amongst those employees who were not directly affected by the
reduction in headcount, and we may not be successful at retaining such employees or attracting new employees, which may have a material adverse effect
on our business, results of operations and financial condition.

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. There is no assurance that any of our existing personnel who presently or may in the future
require a security clearance will be able to obtain or renew such clearances or that new personnel who require a security clearance will be able to obtain
one. A failure by any of our existing personnel to maintain or renew his or her security clearance may impair our business operations. In addition, if an
employee with security clearance leaves and we are unable to find a suitable replacement who has a security clearance required by the Cannabis Act in a
timely manner, or at all, there could occur a material adverse effect on our business operations. Similar risks and potential effects apply to analogous
security clearances required by various provincial agencies.

Risks Relating to the Altria Investment

Altria has significant influence over us following closing of the Altria Investment.

Altria is our single largest shareholder. As of December 31, 2022, Altria beneficially owned approximately 41% of our issued and outstanding common
shares (calculated on a non-diluted basis). In light of such ownership, Altria is in a position to exercise significant influence over matters affecting
shareholders or requiring shareholder approval, including the election of the Board, amendments to our articles and the determination of significant
corporate actions. In addition, pursuant to the Investor Rights Agreement, Altria has certain rights, including the right to nominate a specified number of
directors to the Board, approval rights over certain Company actions and pre-emptive and top-up rights entitling Altria to maintain its pro rata beneficial
ownership in us. Further, as of the date hereof, four of the seven directors on the Board are Altria Nominees. For more information, see “Business -Altria
Strategic Investment – Investor Rights Agreement.”

Accordingly, Altria currently has significant influence over us. There can be no assurance that Altria’s interests will align with our interests or the interests
of other shareholders. In addition, such influence could limit the price that an acquirer might be willing to pay in the future for our common shares and it
may have the effect of delaying or preventing a change of control of us, such as a merger or take-over.

We have discretion in the use of net proceeds from the Altria Investment and may not use them effectively.

Under the Subscription Agreement, we have discretion in the use of net proceeds from the Altria Investment, subject to our obligation to consult with
Altria, in certain circumstances, seek the approval of Altria (such approval not to be unreasonably conditioned, withheld or delayed) and certain other
limitations regarding the use of net proceeds set forth in the Subscription Agreement. 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. There can be no assurance that we will
be able to deploy the available cash in an effective manner that is accretive to us, or at all. Until such time as we are able to deploy the cash available to us,
we anticipate holding the net proceeds as cash balances in our bank accounts, investing in certificates of deposit and other instruments issued by banks or
obligations of or guaranteed by the Government of Canada or any province thereof, or investing in U.S. Treasury securities or other obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities. Based on the level of current interest rates, we will not earn any material revenue
from such invested cash.

We may not realize the benefits of our strategic partnership with Altria, which could have an adverse effect on our business, financial condition and
results of operations.

We believe that the strategic partnership between us and Altria provides us with additional financial resources, product development and commercialization
capabilities, and deep regulatory expertise to better position us to compete, scale and lead the rapidly growing global cannabis industry. We believe that the
growth opportunities for us are significant and could extend across the globe as new markets open. With Altria’s resources, we expect to be even better
positioned to support cannabinoid innovation, create differentiated products and brands across medical and adult-use categories and expand our global
footprint and growing production capacity. Nevertheless, a number of risks and uncertainties are associated with the expansion into such markets and the
pursuit of these other growth opportunities. The successful implementation of the Altria Investment is critical to our growth and capital position. The
failure to successfully implement or reap the anticipated benefits of Altria’s resources and expertise to realize growth and expansion opportunities could
have a material adverse effect on our business, financial condition and results of operations.

Altria’s significant interest in us may impact the liquidity of our common shares.

Our common shares may be less liquid and trade at a discount relative to the trading that could occur in circumstances where Altria did not have the ability
to significantly influence or determine matters affecting us. Additionally, Altria’s significant voting interest in us may discourage transactions involving a
change of control of us, including transactions in which an investor, as a shareholder, might otherwise receive a premium for its common shares over the
then-current market price.

Future sales of our common shares by Altria could cause the market price for our common shares to fall.

Sales of a substantial number of our common shares by Altria could occur at any time. Such sales, or the market perception of such sales, could
significantly reduce the market price of our common shares. We cannot predict the effect, if any, that future public sales of our common shares beneficially
owned by Altria or the availability of these common shares for sale will have on the market price of our common shares. If the market price of our common
shares were to drop as a result, this might impede our ability to raise additional capital and might cause a significant decline in the value of the investments
of our other shareholders.

The intentions of Altria regarding its long-term economic ownership of our common shares are subject to change as a result of changes in the
circumstances of Altria or its affiliates, changes in our management and operation and changes in laws and regulations, market conditions and our financial
performance.

Conflicts of interest may arise between us and our directors and officers, including as a result of the continuing involvement of certain of our directors
with Altria and its affiliates.

We may be subject to various potential conflicts of interest because of the fact that some of our directors and officers may be engaged in a range of business
activities, or have relationships with or are employed by Altria. One of our directors, Jason Adler, is the co-founder and Managing Member of Gotham
Green Partners, a private equity firm focused primarily on early-stage investing in companies in the cannabis industry, and Michael Gorenstein, our
Chairman, President, and Chief Executive Officer, is a co-founder and non-managing Member of Gotham Green Partners. Three of our directors, Jody
Begley, Murray Garnick and Heather Newman, are employed by Altria as Executive Vice President and Chief Operating Officer, Executive Vice President
and General Counsel, and Senior Vice President, Corporate Strategy, respectively. As a result of these relationships, conflicts of interests may arise between
us and them, as described below.

We may also become involved in other transactions that are inconsistent or conflict with the interests of our directors and officers, and/or our directors and
officers may have interests in persons, firms, institutions, corporations or transactions that are inconsistent or in conflict with our interests and those of our
shareholders. In addition, from time to time, Gotham Green Partners or Altria may be competing with us for available investment opportunities. Conflicts
of interest, if any, will be subject to the procedures and remedies provided under applicable laws and regulations. In particular, in the event that such a
conflict of interest arises at a meeting of our directors, a director who has such a conflict will abstain from voting for or against the approval of the
transaction and may recuse himself or herself from any related discussion or deliberation. In accordance with applicable laws and regulations, our directors
are required to act honestly, in good faith and in our best interests.

Risks Relating to Our Common Shares

It is not anticipated that any dividend will be paid to holders of our common shares for the foreseeable future.

No dividends on our common shares have been paid to date. 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. Any changes to our policy with respect to the declaration
and payment of any dividends requires Altria’s approval. As a result, investors may not receive any return on an investment in our common shares unless
they sell their shares for a price greater than that which such investors paid for them.

The market price for our common shares may be volatile and subject to fluctuation in response to numerous factors, many of which are beyond our
control.

The market price for our common shares may be volatile and subject to wide fluctuations in response to many factors, including:

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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.

For example, reports by industry analysts, investor perceptions, market rumors or speculation could trigger a sell-off in our common shares. Any sales of
substantial numbers of our common shares in the public market or the perception that such sales might occur may cause the market price of our common
shares to decline. In addition, to the extent that other large companies within our industries experience declines in their stock price, the price of our
common shares may decline as well. Moreover, if the market price of our common shares drops significantly, shareholders may institute securities class
action lawsuits against us. Lawsuits against us could cause us to incur substantial costs and could divert the time and attention of our management and
other resources.

Securities markets continue to experience significant price and volume fluctuations that have, in some cases, been unrelated to the operating performance,
underlying asset values or prospects of public companies. Accordingly, the market price of our common shares may decline even if our results of
operations, underlying asset values or prospects have not changed. In addition, certain institutional investors may base their investment decisions on
consideration of our environmental, governance, diversity and social practices and performance against such institutions’ respective investment guidelines
and criteria, and failure to meet such criteria may result in limited or no investment in our common shares by those institutions, which could adversely
affect the trading price of our common shares. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased
levels of volatility and market turmoil continue, the trading price of the common shares may be adversely affected.

Securities class action litigation often has been brought against companies following periods of volatility in the market price of their securities. We have
been the target of such litigation and may in the future be the target of similar litigation. Regardless of merit, such litigation could result in substantial costs
and damages and divert management’s attention and resources, which could adversely affect our business. Any adverse determination in litigation against
us could also subject us to significant liabilities.

We may require additional capital in the future or be required to issue common shares pursuant to certain of our agreements, which may dilute holders
of our securities.

We may be required to issue additional common shares pursuant to the Ginkgo Collaboration Agreement. Pursuant to the Ginkgo Collaboration Agreement,
upon Ginkgo’s demonstration that the microorganisms they develop are capable of producing certain target cannabinoids above a minimum productivity
level, we will issue to Ginkgo up to approximately 14.7 million common shares in the aggregate. To date, we have issued approximately 7.1 million
common shares to Ginkgo in respect of certain Equity Milestone Events that have occurred. Additional tranches of common shares will be issued if and
when additional Equity Milestone Events are reached. The issuance of such common shares, if any, would dilute holders of our common shares. In
addition, Altria has pre-emptive rights to subscribe for additional common shares in us following any issuances we make to Ginkgo pursuant to the Ginkgo
Collaboration Agreement, and the issuance of such common shares, if any, would further dilute holders of our common shares.

Holders of common shares will have no pre-emptive rights in connection with such further issuances. Our Board has the discretion to determine if an
issuance of common shares is warranted, the price at which such issuance is effected and the other terms of issue of common shares. Any additional capital
raised through the sale of equity will dilute the percentage of ownership of holders of our common shares. Capital raised through debt financing would
require us to make periodic interest payments and may impose restrictive covenants on the conduct of our business.

A substantial number of our securities are owned by a limited number of existing shareholders.

Our management, directors and employees own a substantial number of our outstanding common shares (on a fully diluted basis). 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, these shareholders could delay or prevent a
change in control that could otherwise be beneficial to holders of common shares.

Investors in the U.S. may have difficulty bringing actions and enforcing judgments against us and others based on securities law civil liability
provisions.

We are incorporated under the laws of the Province of British Columbia and our head office is located in the Province of Ontario. Some of our directors and
officers and some of the experts named in this Annual Report are residents of Canada or otherwise reside outside of the U.S., and a substantial portion of
their assets and our assets are located outside the U.S. Consequently, it may be difficult for investors in the U.S. to bring an action against such directors,
officers or experts or to enforce against those persons or us a judgment obtained in a U.S. court predicated upon the civil liability provisions of U.S. federal
securities laws or other laws of the U.S. In addition, while statutory provisions exist in British Columbia for derivative actions to be brought in certain
circumstances, the circumstances in which a derivative action may be brought, and the procedures and defenses that may be available in respect of any such
action, may be different than those of shareholders of a company incorporated in the U.S.

If we are a passive foreign investment company for U.S. federal income tax purposes in any year, certain adverse tax rules could apply to U.S. holders
of our common shares.

We will be classified as a passive foreign investment company (“PFIC”) for any taxable year for U.S. federal income tax purposes if for a taxable year, (i)
75% or more of our gross income is passive income, or (ii) 50% or more of the value of our assets either produce passive income or are held for the
production of passive income, based on the quarterly average of the fair market value of such assets. 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. There is, however, no direct legal authority applying these look-through rules
to our particular situation (including to what extent, they apply to intercompany items). Likewise, in light of the volatility of our common share price, we
intend to take the position that the spot trading price of our stock at each quarter end, as adjusted by liabilities, does not dictate the determination of the fair
market value of our assets. Based on current business plans and financial expectations, an independent valuation report in respect of our assets, and the
application of certain look-through rules (including the taking into account of certain intercompany items), we do not expect to be a PFIC for the taxable
year ending December 31, 2023. However, PFIC status is determined annually and depends upon the composition of our gross income and assets, both of
which are subject to change. Moreover, there can be no assurance that the Internal Revenue Service (“IRS”) or a court will agree with our interpretation of
fair market value or its computation, or with our interpretation of the PFIC rules (including the “look-through” rules and the scope of their application,
including in respect of intercompany items). Therefore, there can be no assurance as to our PFIC status for the current taxable year or for future taxable
years, nor any assurance that the IRS or a court will agree with our determination of our PFIC status.

If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research about our business, our share price and
trading volume could decline.

The trading market for our common shares depends, in part, on the research and reports that securities or industry analysts publish about us or our business.
If one or more of the analysts who cover us downgrade our common shares or publish inaccurate or unfavorable research about our business, the trading
price of our common shares would likely decline. In addition, if our results of operations fail to meet the forecasts of analysts, the trading price of our
common shares would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our
common shares could decrease, which might cause our trading price and trading volume to decline.

General Risks

We are dependent on our senior management.

Our success is dependent upon the ability, expertise, judgment, discretion and good faith of our senior management. While employment agreements are
customarily used as a primary method of retaining the services of key employees, these agreements cannot assure the continued services of our senior
management team. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. The loss of the services of a
member of senior management, or an inability to attract other suitably qualified persons when needed, could have a material adverse effect on our ability to
execute on our business plan and strategy, and we may be unable to find adequate replacements on a timely basis, or at all. We do not maintain key-person
insurance on the lives of any of our officers or employees.

We will seek to maintain adequate insurance coverage in respect of the risks we face; however, insurance premiums for such insurance may not
continue to be commercially justifiable, and there may be coverage limitations and other exclusions which may not be sufficient to cover our potential
liabilities.

We have insurance to protect our assets, operations and employees. While we believe our insurance coverage addresses all material risks to which we are
exposed in our current state of operations, such insurance is subject to deductibles, coverage limits and exclusions and may not be available or adequate for
the risks and hazards to which we are exposed. For example, certain wholesalers, distributors, retailers and other service providers may require suppliers of
U.S. hemp products to provide an indemnification from liability in connection with such products, which may not be covered by insurance. In addition, no
assurance can be given that such insurance will be adequate to cover our liabilities or will be generally available in the future or, if available, that premiums
and deductibles will be commercially justifiable. If we were to incur substantial liability claims and such damages were not covered by insurance or were in
excess of policy limits, or if we were to incur such liability at a time when we are not able to obtain liability insurance, there could be a material adverse
effect on our business, financial condition and results of operations. Furthermore, our insurers have in the past and may in the future deny us coverage,
whether or not such denial is with merit, and we have in the past and may in the future need to commence litigation against such insurers, which could be
time consuming and expensive and divert significant management resources, with no assurance that we will be successful in any resulting proceedings.

Tax and accounting requirements may be interpreted or changed in ways that are complex and not necessarily anticipated by us, and we may face
difficulty or be unable to implement and/or comply with any such interpretations or changes.

We are subject to numerous tax and accounting requirements, and changes in existing accounting or taxation rules or practices, or varying interpretations of
current rules or practices, could have a significant adverse effect on our financial results, the manner in which we conduct our business or the marketability
of any of our products. 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. Although we believe that we are in substantial compliance with all applicable regulations
and restrictions, we are subject to the risk that governmental authorities could audit our transfer pricing and related practices and assert that additional taxes
are owed or that various jurisdictions could assert that we should file tax returns in jurisdictions where we do not file and subject us to additional tax. In the
future, the geographic scope of our business may expand, and such expansion will require us to comply with the tax laws and regulations of additional
jurisdictions. Requirements as to taxation vary substantially among jurisdictions. Complying with the tax laws and regulations of these jurisdictions can be
time consuming and expensive and could potentially subject us to penalties and fees in the future if we failed to comply. In the event that we failed to
comply with applicable tax laws and regulations, this could have a material adverse effect on our business, financial condition and results of operations.

Our business and results of operations have been adversely affected and will likely continue to be materially adversely impacted by the coronavirus
pandemic (COVID-19).

The COVID-19 pandemic has in the past, and could in the future, severely restrict the level of economic activity around the world and in all countries in
which we or our affiliates, investments and joint ventures operate (including the U.S., Canada, and Israel). In response to the COVID-19 pandemic the
governments of many countries, states, provinces, municipalities, and other geographic regions took preventative or protective actions, such as imposing
restrictions on travel and business operations, ordering temporary closures of businesses and advising or requiring individuals to limit or forego their time
outside of their homes. Although many preventative or protective actions have been eased or lifted in varying degrees by different governments of various
countries, states and municipalities, the situation remains dynamic and subject to rapid and possibly material changes. Notwithstanding widespread

vaccine availability within Canada, the U.S. and Israel, the emergence of COVID-19 variants and slowing vaccination rates in certain localities have
resulted in increased infection rates and has caused, and may continue to cause, several jurisdictions to reinstitute certain COVID-19 restrictions.
Additional waves of increased COVID-19 infections as well as COVID-19 related restrictions imposed by various governmental authorities (including, for
example, requirements to show proof of vaccination), could negatively impact our supply chain, as well as traffic and sales volume for retailers offering the
Company’s products, which in turn could have an adverse effect on our business, financial condition and results of operations.

Further effects of the COVID-19 pandemic and any emerging COVID-19 variants could include closures of our or our joint ventures’ facilities or the
facilities of our suppliers and other vendors in our supply chain and other preventive and protective measures in our supply chain. If the pandemic persists,
including if and when new variants of the virus emerge, closures or other restrictions on the conduct of business operations of our joint ventures, third party
manufacturers, suppliers or vendors could disrupt our supply chain. We have experienced minor delays in shipping and the increased global demand on
shipping and transport services, in addition to customs and border control policies put in place in response to COVID-19 that require shipments to undergo
quarantine periods, may cause us to experience delays or increased costs in the future which could impact our ability to obtain materials or deliver our
products in a timely manner, could otherwise disrupt our operations and could have an adverse effect on our business, financial condition and results of
operations.

The global impact of the COVID-19 pandemic continues to evolve, and the extent of its effect on our operational and financial performance will depend on
future developments, which are highly uncertain, including the duration, scope and severity of the pandemic, the development and availability of effective
treatments and vaccines, further actions taken by governments and other third parties to contain or mitigate its impact, the direct and indirect economic
effects of the pandemic and related containment measures, and new information that will emerge concerning the severity and impact of COVID-19 and new
variants of the virus, among others. Even after the COVID-19 pandemic subsides, our businesses could also be negatively impacted should the effects of
the COVID-19 pandemic lead to changes in consumer behavior, including as a result of a decline in the level of vaping or demand for inhalable products in
light of certain recent published articles and studies on the potential increased susceptibility of individuals who smoke or vaporize nicotine or cannabis to
COVID-19, in light of changes in consumer behavior such as reduced spending on certain product formats historically used in shared experiences such as
pre-rolls or in reductions in discretionary spending.

Natural disasters, unusual weather, pandemic outbreaks, boycotts and geo-political events or acts of terrorism could adversely affect our operations
and financial results.

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. These events could result in physical damage to one or more of our or our joint ventures’ properties, increases in fuel or other energy
prices, the temporary or permanent closure of one or more of our or our joint ventures’ facilities, the temporary lack of an adequate workforce in a market,
the temporary or long-term disruption in the supply of products from suppliers, the temporary disruption in the transport of goods, delay in the delivery of
goods to our or our joint ventures’ facilities, and disruption to our information systems. 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.

We are subject to changing rules and regulations promulgated by a number of governmental and self-regulatory organizations, including the SEC, Nasdaq
and the Financial Accounting Standards Board. These rules and regulations continue to evolve in scope and complexity. In addition, increasingly
regulators, customers, investors, employees and other stakeholders are focusing on environmental, social and governance (“ESG”) matters and related
disclosures. These changing rules, regulations and stakeholder expectations have resulted in, and are likely to continue to result in, increased general and
administrative expenses and increased management time and attention spent complying with or meeting such regulations and expectations. 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. We may also communicate certain initiatives and goals, regarding environmental matters,
diversity, responsible sourcing and social investments and other ESG related matters, in our SEC filings or in other public disclosures. These initiatives and
goals within the scope of ESG could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and
may not advance at a sufficient pace, and we could be criticized for the accuracy, adequacy or completeness of the disclosure. Further, statements about our
ESG related initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal
controls and processes that continue to evolve, and assumptions that are subject to change in the future. In addition, we could be criticized for the scope or
nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we
fail to achieve progress with respect to our initiatives or goals within the scope of ESG on a timely basis, or at all, our reputation, business, financial
performance and growth could be adversely affected.

Climate change may disrupt our business and our efforts to address concerns relating to climate change could result in damage to our reputation.

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. Additionally, the potential physical impacts of climate
change are uncertain and may vary by region. These potential effects could include changes in rainfall patterns, water shortages, changing sea levels,
changing storm patterns and intensities, and changing temperature levels that could adversely impact our costs and business operations, the location, costs,
and competitiveness of cannabis production and related storage and processing facilities and the supply of cannabis.

We are also exposed to risks resulting from changes in public policy, laws and regulations, or market and public perceptions and preferences in connection
with the transition to a less carbon-dependent economy. These changes could adversely affect our business, results of operations and reputation.

Our financial performance is subject to risks of foreign exchange rate fluctuation, which could result in foreign exchange losses.

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. Exchange
rates for currencies of the countries in which we operate may fluctuate in relation to the U.S. dollar, and such fluctuations may have a material adverse
effect on our earnings or assets when translating foreign currency into U.S. dollars.

Our business, financial condition, results of operations and cash flows could be adversely affected by disruptions in the global economy caused by the
ongoing conflict between Russia and Ukraine.

The global economy has been negatively impacted by the military conflict between Russia and Ukraine. 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. 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. Further escalation of geopolitical tensions related to the military conflict, including increased
trade barriers or restrictions on global trade, could result in, among other things, cyberattacks, supply disruptions, lower consumer demand, and changes to
foreign exchange rates and financial markets, any of which may adversely affect our business, financial condition, results of operations and cash flows.

We are continuing to monitor the situation in Ukraine and globally and assessing its potential impact on our business. Although our business has not been,
to the date of this Annual Report, materially impacted by the ongoing military conflict in Ukraine, it is impossible to predict the extent to which our
operations, or those of our suppliers and vendors, will be impacted in the short and long term, or the ways in which the conflict may impact our business.
The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but may be substantial. In addition, the
effects of the ongoing conflict could heighten any of our known risks described above.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

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. As 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.

ITEM 3. LEGAL PROCEEDINGS.

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.

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. 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. 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. The consolidated amended complaint does not quantify a damage request. Defendants
moved to dismiss on February 8, 2021.

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. 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. 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. 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. 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. 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.

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”). 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.

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.

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. 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.

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. Private Securities Litigation Reform Act of 1995 for a period of three years.

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.

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. 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.

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. 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. 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. 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.

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. 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. 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. 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 4. MINE SAFETY DISCLOSURE.

Not applicable.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.

PART II

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. This number of holders of record does not represent the
actual number of beneficial owners of our common shares because shares are frequently held in “street name” by securities dealers and others for the
benefit of individual owners who have the right to vote their shares.

Dividends

As of the date of this Annual Report, we have not declared any dividends or made any distributions on our common shares. Furthermore, we have no
current intention to declare dividends on our common shares in the foreseeable future. Any decision to pay dividends on our common shares in the future
will be at the discretion of the Board and will depend on, among other things, our results of operations, current and anticipated cash requirements and
surplus, financial condition, any future contractual restrictions and financing agreement covenants, our ability to meet solvency tests imposed by corporate
law and other factors that the Board may deem relevant.

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.

Purchases of Equity Securities by the Issuer and Affiliated Persons

None.

Recent Sales of Unregistered Securities

None.

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. 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 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 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”). 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.

Date
February 27, 2018
March 31, 2018
June 30, 2018
September 30, 2018
December 31, 2018
March 31, 2019
June 30, 2019
September 30, 2019
December 31, 2019
March 31, 2020
June 30, 2020
September 30, 2020
December 31, 2020
March 31, 2021
June 30, 2021
September 30, 2021
December 31, 2021
March 31, 2022
June 30, 2022
September 30, 2022
December 31, 2022

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

Cronos Group Inc.

S&P 500

Old Peer Group

New Peer Group

100.00 $
88.32 $
85.56 $
145.93 $
136.35 $
241.86 $
209.71 $
118.77 $
100.66 $
74.41 $
78.87 $
65.75 $
91.08 $
124.15 $
112.86 $
74.28 $
51.44 $
51.05 $
37.01 $
37.01 $
33.33 $

100.00 $
97.46 $
100.81 $
108.58 $
93.90 $
106.71 $
111.31 $
113.20 $
123.46 $
99.27 $
119.66 $
130.35 $
146.18 $
155.21 $
168.47 $
169.46 $
188.14 $
179.49 $
150.59 $
143.24 $
154.07 $

100.00 $
111.22 $
121.53 $
190.41 $
98.39 $
145.34 $
124.13 $
70.99 $
55.09 $
32.45 $
37.99 $
33.33 $
58.43 $
80.99 $
70.52 $
47.25 $
32.67 $
29.70 $
11.66 $
11.13 $
9.00 $

100.00
114.36
136.42
217.76
115.61
187.52
155.63
101.19
60.79
36.12
39.30
35.71
57.65
85.50
74.35
42.72
28.17
36.89
15.59
14.14
11.88

*$100 invested on 2/27/18 in stock or 2/28/18 in index, including reinvestment of dividends. Fiscal year ending December 31.
Copyright© 2022 Standard & Poor’s, a division of S&P Global. All rights reserved.

ITEM 6. RESERVED

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

Recent Developments

Consolidated Results of Operations

Summary of financial results – ROW

Summary of financial results – U.S.

Non-GAAP Measures

Liquidity and Capital Resources

Critical Accounting Estimates

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 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.

Business Overview

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. Agricultural Improvement
Act of 2018, including hemp-derived cannabidiol (“CBD”).

Strategy

Cronos seeks to create value for shareholders by focusing on four core strategic priorities:

•

growing a portfolio of iconic brands that responsibly elevate the consumer experience;

developing a diversified global sales and distribution network;

establishing an efficient global supply chain; and

creating and monetizing disruptive intellectual property.

Business Segments

We report through two segments: “United States” (the “U.S. segment”) and “Rest of World” (the “ROW segment”). These two segments represent the
geographic regions in which we operate and the different product offerings within each geographic region.

The U.S. segment manufactures, markets and distributes U.S. hemp-derived products through e-commerce, retail and hospitality partner channels in the
United States under the Lord Jones brand.

The ROW segment is involved in the cultivation, manufacturing, and marketing of cannabis products for the medical and adult-use markets. 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 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. Additionally, as of December 31, 2022, Cronos held approximately 10% of the issued capital of Vitura
Health Limited (“Vitura”), formerly known as Cronos Australia Limited, which is listed on the Australian Securities Exchange under the trading symbol
“VIT” and approximately 13.7% of the issued capital of Natuera.

Recent Developments

COVID-19

In December 2019, an outbreak of a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. Since then, COVID-19 has spread across the
globe, including the U.S., Canada and Israel, and other countries in which Cronos or its affiliates operate, and was recognized as a pandemic by the World
Health Organization. The COVID-19 pandemic resulted in a sharp contraction in many areas of the global economy and increased volatility and uncertainty
in the capital markets. In response to the pandemic, the governments of many countries, provinces, states, municipalities, and other geographic regions took
preventative or protective actions, including closures of certain businesses, mandatory quarantines, limits on individuals’ time outside of their homes, travel
restrictions and social distancing or other preventative measures. Such measures have been eased or lifted in varying degrees by different governments of
various countries, states and municipalities since implementation in 2020, but the continued spread of COVID-19 and increased infection rates has caused,
and may continue to cause, some jurisdictions to roll back reopening plans that had been underway and re-impose quarantines, border closures, closure of
certain businesses and stay-at-home orders.

The COVID-19 pandemic continues to impact the global economy and, specifically, the U.S., Canada, Israel, and the other countries in which Cronos or its
affiliates operate. We continue to closely monitor and respond, where possible, to the ongoing COVID-19 pandemic. As the global situation continues to
change rapidly, ensuring the health and safety of our employees remains one of our top priorities.

In the U.S., numerous states have continued to remove their COVID-19 related restrictions. This has resulted in the re-opening of, and increased occupancy
capacities in, retail outlets, including those that sell our products. Any reinstatement of restrictions on the operations of retail outlets could negatively
impact our short-term results of operations in the U.S. Additionally, in the U.S., there have been a number of supply chain challenges, such as container
ships facing delays due to congestion in ports, impacting many industries, including the industries in which we operate. Although we have not yet seen a
significant impact from supply chain disruptions, we continue to monitor our supply chain closely.

In Canada, COVID-19 restrictions began gradually easing at the end of June 2021 as the vaccination rate increased. The lockdown measures taken in the
first six months of 2021 to slow infection rates negatively impacted our short-term revenue growth in Canada in 2021. The increase in cases related to the
Omicron variant of COVID-19 beginning in December 2021 caused the reinstatement of some restrictions on non-essential retail stores in some provinces,
including Quebec, in early 2022; however, those restrictions have eased in most other provinces. Each province is responsible for implementing re-opening
plans and certain provinces, including Ontario, are progressing through phases of re-opening which may permit continued increases to the allowance of in-
person shopping, typically in the form of percentage of store capacity. All provinces have some form of cannabis retail open to consumers, and most
provinces have lifted the requirement that retail shoppers show proof of vaccination before entering retail stores. The potential for recurring retail
restrictions is ongoing, which could negatively impact our results of operations.

In Israel, most COVID-19 restrictions have been removed as vaccination rates have increased. Occupancy limitations in retail outlets have been removed,
including those that sell our products. We do not expect the remaining COVID-19 restrictions to have a material impact on our short-term revenue growth
in Israel.

Collectively, the effects of the COVID-19 pandemic have adversely affected our results of operations and, if the effects continue unabated, could continue
to do so as long as measures to combat the COVID-19 pandemic remain in effect or supply chains continue to be challenged. At this time, neither the
duration nor scope of the disruption can be predicted; therefore, the ultimate impact to our business cannot be reasonably estimated, but such impact could
materially adversely affect our business, financial condition and results of operations.

Despite the impacts of the COVID-19 pandemic, we believe that our significant cash on hand and short-term investments will be adequate to meet liquidity
and capital requirements for at least the next twelve months.

2022 Business Highlights

Spinach Branded Product Portfolio Expansion in Canada

Throughout 2022, the Company expanded its Spinach gummies portfolio under both SOURZ by Spinach and Spinach FEELZ™, with the following new
products:

• April 2022: SOURZ by Spinach Cherry Lime (Hybrid), 10mg of THC per pack

•

July 2022: Spinach FEELZ™ DEEP DREAMZ CBN, 10mg of THC and 5mg of CBN per pack

• October 2022: SOURZ by Spinach Tropical Triple Berry 2:1 CBD:THC, 20mg of CBD and 10mg of THC per pack

• December 2022: Spinach FEELZ™ 1:3 THC+CBC Mango Lime, 10mg of THC and 30mg of CBC per pack

In 2022, Cronos was also focused on renovating both its vape and pre-roll offerings and launched the products below in those categories in 2022:

Vape:

• August 2022: Spinach FEELZ™ Deep Dreamz Blackberry Kush (7:1 THC|CBN) 1-gram vape

• May 2022: Spinach Cosmic Green Apple and Polar Mint Vortex (800 mg/g THC) 1-gram vapes

In November, 2022, Cronos launched two infused pre-rolls in Canada. The first, Fully Charged Atomic GMO, was launched under the Spinach brand and
is offered in a 5-pack with 0.5 grams per pre-roll. Second, Cronos launched Tropical Diesel CBG, a 3-pack of CBG infused pre-rolls with 0.5 grams per
pre-roll under the Spinach FEELZ™ sub-brand.

Intellectual property initiatives

In 2022, we continued to progress our fermentation initiative in partnership with Ginkgo. We achieved equity milestones for the following cannabinoids in
2022:

•

June 2022: tetrahydrocannabivaric acid (“THCVA”)

• November 2022: cannabichromenic acid (“CBCA”)

• December 2022: cannabichromevarinic acid (“CBCVA”)

Strategic and Organizational Update

In February 2023, the Company announced a shift in its strategic plans for the Realignment, with the intent to retain select components of its operations at
the Peace Naturals Campus, namely distribution and warehousing, certain research and development activities and manufacturing of certain of the
Company’s proprietary innovation products.

Appointments

In March 2022, the Board of Directors appointed Cronos’s founder, Mike Gorenstein, as Chairman, President and Chief Executive Officer. Mr. Gorenstein
previously served as Chairman, President and Chief Executive Officer of Cronos until September 2020, when he transitioned to the Executive Chairman
role.

In April 2022, the Company appointed Terry Doucet as Senior Vice President, Legal, Regulatory Affairs and Corporate Secretary, after serving in an
interim capacity since December 2021. Mr. Doucet has been with Cronos since 2018 and has guided Cronos through significant growth over the last few
years, including the build-out of the Company’s Legal and Regulatory Affairs teams, the Altria Investment, the Ginkgo Strategic Partnership, the
PharmaCann Option and various product commercialization initiatives.

In August 2022, the Company appointed Arye Weigensberg as Senior Vice President, Head of Research & Development, after serving in an interim
capacity since November 2021. Prior to serving as interim Head of Research and Development, Mr. Weigensberg was the General Manager and Vice
President of Research and Technology at Cronos Research Labs. Before joining the Company, Mr. Weigensberg was the CEO of Altria Israel Ltd (an Altria
research and development hub). Since joining Cronos, Mr. Weigensberg has played a foundational role developing the scope of our rare cannabinoid work,
while advancing our research capabilities to forge new strategies for differentiated cannabis products.

In October 2022, Jeff Jacobson was appointed Chief Growth Officer. Mr. Jacobson previously served as the Company’s Senior Vice President, Head of
Growth (North America). Mr. Jacobson has been with Cronos since December 2016 and was a co-founder of Peace Naturals Project Inc. Mr. Jacobson’s
expertise and experience in licensing and compliance, new business development, project management and resource management assist Cronos in
developing and penetrating domestic and international markets.

In November 2022, the Company appointed James Holm as Chief Financial Officer after nearly two decades of finance and accounting experience at
leading companies across industries. He most recently served as the Global Vice President of Finance Transformation at Vertiv, a global provider of critical
digital infrastructure and continuity solutions, where he led the company’s centralization, standardization and optimization to a Global Shared Service hub
for finance processes. Before joining Vertiv, Mr. Holm served as Finance Leader, Finance Solutions & Process Transformation Organization at Worldpay,
one of the largest global payment processors. There he drove financial reporting accuracy, capabilities and enhancements across the company. Earlier in his
career, he held multiple positions of increasing seniority in the finance department during his eight-year tenure at Procter and Gamble.

2021 Compared to 2020

Results of Operations

For a discussion of our 2021 results of operations 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.

Cash Flows

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.

Foreign currency exchange rates

All currency amounts in this Annual Report are stated in U.S. dollars, which is our reporting currency, unless otherwise noted. All references to “dollars” or
“$” are to U.S. dollars. The assets and liabilities of our foreign operations are translated into dollars at the exchange rate in effect as of December 31, 2022
and December 31, 2021, as reported on Bloomberg. Transactions affecting the shareholders’ equity (deficit) are translated at historical foreign exchange
rates. 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 exchange rates used to translate from Canadian dollars (“C$”) to dollars are shown below:

(Exchange rates are shown as C$ per $)

Average rate
Spot rate

Consolidated Results of Operations

Year ended December 31,

2022

2021

2020

1.3017
1.3554

1.2541
1.2746

1.3411
1.2751

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

Net revenue before excise taxes
Excise taxes
Net revenue
Cost of sales
Inventory write-down

Gross profit
Operating expenses:

Sales and marketing
Research and development
General and administrative
Restructuring costs
Share-based compensation
Depreciation and amortization
Impairment loss on goodwill and indefinite-lived intangible assets
Impairment loss on long-lived assets
Total operating expenses

Operating loss
Other income (expense)
Income tax benefit (expense)
Loss from discontinued operations
Net loss

Net loss attributable to non-controlling interest

Net loss attributable to Cronos Group

Year ended December 31,

2022

2021

114,456
(22,552)
91,904
79,935
—
11,969

22,282
13,381
71,178
5,333
15,115
6,025
—
3,493
136,807
(124,838)
(9,721)
(34,175)
—
(168,734)
—
(168,734)

89,486
(15,051)
74,435
80,008
11,961
(17,534)

44,937
23,331
96,482
—
10,151
4,484
236,056
127,619
543,060
(560,594)
163,459
431
(500)
(397,204)
(1,097)
(396,107)

Summary of select financial results

Net revenue
Cost of sales
Inventory write-down
Gross profit
Gross margin

(i)

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

Net revenue

Year ended December 31,

2022

2021

Change

91,904
79,935
—
11,969

74,435
80,008
11,961
(17,534)

13 %

(24)%

17,469
(73)
(11,961)
29,503
N/A

23 %
— %
(100) %
168 %
37 pp

For 2022, we reported consolidated net revenue of $91.9 million, representing a $17.5 million increase from 2021. 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.

Cost of sales

For 2022, we reported consolidated cost of sales of $79.9 million, essentially flat with 2021, despite a 23% increase in net revenue. 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.

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.

Gross profit

For 2022, we reported consolidated gross profit of $12.0 million, representing a $29.5 million improvement from 2021. 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.

Operating expenses

Sales and marketing

Year ended December 31,

2022

2021

22,282 $
13,381
71,178
5,333
15,115
6,025
—
3,493
136,807 $

44,937 $
23,331
96,482
—
10,151
4,484
236,056
127,619
543,060 $

Change

$
(22,655)
(9,950)
(25,304)
5,333
4,964
1,541
(236,056)
(124,126)
(406,253)

(50)%
(43)%
(26)%
100 %
49 %
34 %
(100)%
(97)%
(75)%

For 2022, we reported sales and marketing expenses of $22.3 million, representing a decrease of $22.7 million from 2021. The decrease was primarily due
to lower advertising and marketing spend and lower personnel-related costs in the U.S. segment as a result of the Realignment.

Research and development

For 2022, we reported research and development expenses of $13.4 million, representing a decrease of $10.0 million from 2021. 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 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. 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. 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. 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.

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. For further information, see Note 6
“Goodwill and Intangible Assets, net” to the consolidated financial statements in Item 8 of this Annual Report.

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. For 2021, we recorded an impairment charge of $119.9 million
on long-lived assets related to the previously announced planned exit from the Peace Naturals Campus. Additionally, in 2021, we recorded impairment
charges of $4.8 million related to our Ginkgo exclusive licenses for cannabigerolic acid (“CBGA”) and cannabigerovarinic acid (“CBGVA”) for the
difference between the fair value of the licenses and the consideration paid. Furthermore, in 2021, our U.S. segment recorded impairment charges of
$1.2 million on property, plant, and equipment where the carrying value of those assets was not recoverable and a $1.7 million impairment charge related to
ceasing use of certain leased premise and the derecognition of the associated right-of-use asset. 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.

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

Interest income, net
Gain on revaluation of derivative liabilities
Impairment loss on other investments
Share of income (loss) from equity method investments
Gain on revaluation of financial instruments
Foreign currency transaction loss
Other, net

Total other income
Income tax benefit (expense)
Loss from discontinued operations

Net loss

(i)

“N/M” is defined as not meaningful.

Interest income, net

Year ended December 31,

2022

2021

22,537 $
14,060
(61,392)
3,114
14,739
(2,286)
(493)
(9,721)
(34,175)
—

(168,734) $

9,071 $

151,360
—
(6,313)
8,611
—
730
163,459
431
(500)
(397,204) $

Change

(i)

13,466
(137,300)
(61,392)
9,427
6,128
(2,286)
(1,223)
(173,180)
(34,606)
500
228,470

148 %
(91)%
N/M
149 %
71 %
N/M
(168)%
(106)%
N/M
(100)%
58 %

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.

Gain on revaluation of derivative liabilities

For 2022, we reported a gain on revaluation of derivative liabilities of $14.1 million, representing a decrease of $137.3 million from 2021 primarily due to
the greater impact on the derivative liabilities in 2021 from the decreased estimated term of the derivative instruments and the decreased price of Cronos
common shares.

Impairment loss on other investments

For 2022, impairment loss on other investments was $61.4 million, driven by impairment charges recorded on our PharmaCann Option for the difference
between its estimated fair value and its carrying amount. There were no such impairment losses on other investments during 2021. 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. The change
was primarily due to improved results from our equity method investment in Cronos GrowCo.

Gain (loss) on revaluation of financial instruments

For 2022, we reported a gain on revaluation of financial instruments of $14.7 million, representing an increase of $6.1 million from 2021. The increase was
due to the change in fair value of our investment in Vitura. 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. 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. The change was primarily due to loss on disposal of assets
associated with the Realignment, partially offset by $0.4 million of dividend income from our Vitura investment during 2022.

Income tax benefit (expense)

For 2022, we reported income tax expense of $34.2 million, compared to an income tax benefit of $0.4 million in 2021. 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.

Loss from discontinued operations

For 2021, we reported loss from discontinued operations of $0.5 million. There was no such loss from discontinued operations in 2022.

Results of Operations by Business Segment: 2022 compared with 2021

The tables below set forth our consolidated results of operations by our two business segments: the ROW segment and the U.S. segment, expressed in U.S.
dollars and in thousands for the periods presented. Our consolidated financial results for these periods are not necessarily indicative of the consolidated
financial results that we will achieve in future periods. Certain totals in the tables below will not sum to exactly 100% due to rounding.

Summary of financial results – ROW

Net revenue
Cost of sales
Inventory write-down
Gross profit
Gross margin

Net revenue – ROW

Cannabis flower
Cannabis extracts
Other
Net revenue

Year ended December 31,

Change

2022

86,749
71,313
—
15,436

2021

64,561
70,193
11,961
(17,593)

18 %

(27)%

22,188
1,120
(11,961)
33,029
N/A

34 %
2 %
(100) %
188 %
45 pp

Year ended December 31,

2022

2021

Change

63,593 $
22,522
634
86,749 $

55,194 $
8,807
560
64,561 $

8,399
13,715
74
22,188

15 %
156 %
13 %
34 %

For 2022, the ROW segment reported net revenue of $86.7 million, representing an increase of $22.2 million from 2021. 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.

Cost of sales - ROW

For 2022, the ROW segment reported a year-over-year increase in cost of sales of 2%, while net revenue increased 34%. This increase was primarily due to
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, partially offset by lower cannabis biomass costs and the impact of the weakening
Canadian dollar against the U.S. dollar during 2022.

Inventory write-downs - ROW

We reported no inventory write-downs for 2022. 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.

Gross profit - ROW

For 2022, the ROW segment reported gross profit of $15.4 million, representing an increase of $33.0 million from 2021. 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, 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 at the Peace Naturals Campus.

Summary of financial results – U.S.

Net revenue
Cost of sales
Gross profit
Gross margin

Net revenue – U.S.

Year ended December 31,

2022

2021

Change

5,155
8,622
(3,467)

(67)%

9,874
9,815
59

1 %

(4,719)
(1,193)
(3,526)
N/A

(48) %
(12) %
N/M
(68)pp

For 2022, the U.S. segment reported net revenue of $5.2 million, representing a decrease of $4.7 million from 2021. The decrease in sales was driven by
the decision to exit the adult beauty business, a decrease in promotional spending and SKU rationalization efforts as the Company implements the
Realignment in the U.S. segment.

Cost of sales – U.S.

For 2022, the U.S. segment reported cost of sales of $8.6 million, representing a decrease of $1.2 million from 2021. This decrease was primarily due to
lower sales volumes due to the decision to exit the adult beauty business, partially offset by higher inventory reserves associated with discontinued
products.

Gross profit – U.S.

For 2022, the U.S. segment reported negative gross profit of $3.5 million, representing a decrease in gross profit of $3.5 million from 2021. This decrease
was primarily due to the decision to exit the adult beauty business and higher inventory reserves associated with discontinued products.

Non-GAAP Measures

Cronos reports its financial results in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”). This Annual Report
refers to measures not recognized under U.S. GAAP (“non-GAAP measures”). 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. 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. All non-GAAP measures presented in this Annual Report are reconciled to their closest reported GAAP measure.
Reconciliations of historical adjusted financial measures to corresponding U.S. GAAP measures are provided below.

Adjusted EBITDA

Management reviews Adjusted EBITDA, a non-GAAP measure which excludes non-cash items or items that do not reflect management’s assessment of
ongoing business performance of our operating segments. 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 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. Management uses Adjusted EBITDA for planning, forecasting and evaluating business and financial performance,
including allocating resources and evaluating results relative to employee compensation targets.

Adjusted EBITDA is reconciled to net income (loss) as follows:

(in thousands of U.S. dollars)

Net loss
Interest income, net
Income tax expense
Depreciation and amortization

EBITDA

(ii)

(iii)

Share of income from equity accounted investments
Impairment loss on long-lived assets
Gain on revaluation of derivative liabilities
Gain on revaluation of financial instruments
Impairment loss on other investments
Foreign currency transaction loss
Other, net
Restructuring costs
Share-based compensation
Financial statement review costs

(vii)

(xi)

(vi)

(iv)

(ix)

(x)

Adjusted EBITDA

(in thousands of U.S. dollars)

Net loss
Interest income, net
Income tax benefit
Depreciation and amortization

EBITDA

(i)

(ii)

Share of loss from equity method investments
Impairment loss on goodwill and indefinite-lived intangible assets
Impairment loss on long-lived assets
Gain on revaluation of derivative liabilities
Gain on revaluation of financial instruments
Transaction costs
Other, net
Loss from discontinued operations
Share-based compensation
Financial statement review costs

(viii)

(vii)

(iii)

(xi)

(iv)

(v)

(x)

Adjusted EBITDA

US
(84,194) $
(4,518)
—
1,485
(87,227)
—
—
—
—
61,392
—
169
1,788
3,744
—
(20,134) $

US
(283,883) $

(40)
(89)
917
(283,095)
—
236,019
2,955
—
—
—
3
—
3,401
—
(40,717) $

Year ended December 31, 2022

ROW

Corporate

(54,129) $
(18,019)
34,175
11,637
(26,336)
(3,114)
3,493
(14,060)
(14,739)
—
2,286
324
3,545
11,371
—
(37,230) $

(30,411) $
—
—
—
(30,411)
—
—
—
—
—
—
—
—
—
7,167
(23,244) $

Year ended December 31, 2021

ROW

Corporate

(81,811) $
(9,031)
(342)
14,485
(76,699)
6,313
37
124,664
(151,360)
(8,611)
—
(733)
500
6,750
—
(99,139) $

(31,510) $
—
—
—
(31,510)
—
—
—
—
—
3,801
—
—
—
7,102
(20,607) $

Total
(168,734)
(22,537)
34,175
13,122
(143,974)
(3,114)
3,493
(14,060)
(14,739)
61,392
2,286
493
5,333
15,115
7,167
(80,608)

Total
(397,204)
(9,071)
(431)
15,402
(391,304)
6,313
236,056
127,619
(151,360)
(8,611)
3,801
(730)
500
10,151
7,102
(160,463)

(in thousands of U.S. dollars)

Net income (loss)
Interest expense (income), net
Income tax expense
Depreciation and amortization

EBITDA

(i)

(iii)

Share of loss from equity accounted investments
Impairment loss on goodwill and indefinite-lived intangible assets
Gain on revaluation of derivative liabilities
Loss on revaluation of financial instruments
Transaction costs
Other, net
Loss from discontinued operations
Share-based compensation
Financial statement review costs
Gain on disposal of investments

(viii)

(vii)

(xii)

(xi)

(iv)

(v)

(x)

Adjusted EBITDA

US
(77,368) $
18
323
234
(76,793)
—
40,000
—
—
40
20
—
8,714
—
—
(28,019) $

Year ended December 31, 2020

ROW

Corporate

Total

32,671 $
(18,433)
1,024
6,811
22,073
4,510
—
(129,254)
9
—
1,805
650
6,647
—
(4,789)
(98,349) $

(30,573) $
—
—
—
(30,573)
—
—
—
—
—
—
—
—
9,688
—
(20,885) $

(75,270)
(18,415)
1,347
7,045
(85,293)
4,510
40,000
(129,254)
9
40
1,825
650
15,361
9,688
(4,789)
(147,253)

(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

(viii)

(ix)

(x)

(xi)

(xii)

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. 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.

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, 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. 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.

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 8
“Derivative Liabilities” to the consolidated financial statements in Item 8 of this Annual Report.

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. For the year ended December 31, 2020, loss on revaluation of
financial instruments relates to revaluations of financial liabilities resulting from DSUs. See Note 3 “Investments” and Note 10 “Share-based Compensation” to the consolidated financial
statements in Item 8 of this Annual Report.

For the years ended December 31, 2021 and 2020, transaction costs represent legal, financial and other advisory fees and expenses incurred in connection with various strategic
investments. These costs are included in general and administrative expenses on the consolidated statements of net income (loss) and comprehensive income (loss).

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.

For the year ended December 31, 2022, other, net primarily related to related to $646 loss on disposal of assets and $390 of dividends declared by Vitura on the Company’s 55,176,065
ordinary shares in the capital of Vitura. 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.

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, 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.

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.

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.

For the year ended December 31, 2020, gain on disposal of investments is primarily comprised of the gain recorded related to the sale of common shares of Aurora, which were received
in connection with the achievement of a milestone related to Aurora’s acquisition of Whistler (“Whistler Transaction”) in 2020 and as a result of the closing of the Whistler Transaction in
2019. There were no disposals of investments during the years ended December 31, 2022 and 2021. See Note 3 “Investments” to the consolidated financial statements in Item 8 of this
Annual Report.

Constant Currency

To supplement the consolidated financial statements presented in accordance with U.S. 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. We present constant currency information to provide a framework for assessing how our underlying operations performed excluding the effect of
foreign currency rate fluctuations. 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. 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.

The table below sets forth certain measures of consolidated results from continuing operations on an as-reported and constant currency basis for 2022
compared to 2021, as well as cash and cash equivalents and short-term investments as of December 31, 2022, compared to December 31, 2021, on an as-
reported and constant currency basis (in thousands):

As Reported

As Adjusted for Constant Currency

Net revenue
Gross profit
Gross margin

Year ended December 31,

As Reported Change

2022
91,904
11,969

2021
74,435
(17,534)

13 %

(24)%

$
17,469
29,503
N/A

23 % $
168 %
37 pp

Year ended
December 31,
2022

95,237
12,571

13 %

Operating expenses
Net loss
Adjusted EBITDA

136,807
(168,734)
(80,608)

543,060
(397,204)
(160,463)

(406,253)
228,470
79,855

(75) %
58 %
50 %

140,064
(170,888)
(82,116)

Constant Currency Change

$
20,802
30,105
N/A

(402,996)
226,316
78,347

28 %
172 %
37 pp

(74) %
57 %
49 %

Cash and cash equivalents
Short-term investments
Total cash and cash equivalents
and short-term investments

As of December 31,

As Reported Change

As of December 31,

Constant Currency Change

2022
764,644
113,077

877,721

2021
886,973
117,684

1,004,657

(122,329)
(4,607)

(126,936)

2022

(14) % $

(4) %

(13) % $

793,525
120,246

913,771

$
(93,448)
2,562

(90,886)

(11) %
2 %

(9) %

Net revenue

Cannabis flower
Cannabis extracts
Other

Net revenue

Canada
Israel
United States
Other countries
Net revenue

Net Revenue

As Reported

As Adjusted for Constant Currency

Year ended December 31,

2022

2021

63,593 $
27,677
634
91,904 $

55,194 $
18,681
560
74,435 $

As Reported Change

8,399
8,996
74
17,469

Year ended December
31,
2022

15 % $
48 %
13 %
23 % $

66,047 $
28,532
658
95,237 $

Constant Currency Change

$
10,853
9,851
98
20,802

20 %
53 %
18 %
28 %

As Reported

As Adjusted for Constant Currency

Year ended December 31,

2022

2021

56,233 $
30,516
5,155
—
91,904 $

50,294 $
13,376
9,874
891
74,435 $

As Reported Change

Year ended December
31,

Constant Currency Change

5,939
17,140
(4,719)
(891)
17,469

2022

12 % $
128 %
(48)%
(100)%

23 % $

58,367 $
31,715
5,155
—
95,237 $

8,073
18,339
(4,719)
(891)
20,802

16 %
137 %
(48)%
(100)%
28 %

For 2022, net revenue on a constant currency basis was $95.2 million, representing a 28% increase from 2021. 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

For 2022, gross profit on a constant currency basis was $12.6 million, representing a 172% increase from 2021. Gross profit increased on a constant
currency basis 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.

Operating expenses

For 2022, operating expenses on a constant currency basis was $140.1 million, representing a 74% decrease from 2021. Operating expenses decreased on a
constant currency basis primarily due to lower advertising and marketing spend and lower payroll-related costs in the U.S. segment as a result of the
Realignment, reduced costs associated with the timing of Ginkgo milestones, cancellation of beauty-focused product development spending in the U.S.
segment, and an expected credit loss allowance revaluation recognized in 2021, partially offset by higher restructuring costs related to the Realignment.

Net loss

For 2022, net loss on a constant currency basis was $170.9 million, representing a 57% improvement from 2021. Net loss improved primarily due to lower
impairment charges, higher gross profit, lower operating expenses, higher interest income and higher income from equity method investments, partially
offset by lower gain on revaluation of derivative liabilities and higher share-based compensation expense in 2022.

Adjusted EBITDA

For 2022, adjusted EBITDA on a constant currency basis was $82.1 million, representing a 49% improvement from 2021. Adjusted EBITDA increased on
a constant currency basis primarily due to decreases in general and administrative expenses, sales and marketing expenses, and research and development
expenses as a result of the Realignment, and an improvement in gross profit.

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. The decrease in cash and cash equivalents and short-term investments is primarily due to cash flows used in operating
activities in 2022.

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. Our primary need for liquidity is to fund operations and capital expenditures. Our ability to fund operations and
capital expenditures depends on, among other things, future operating performance and cash flows that are subject to general economic conditions and
financial and other factors, including factors beyond our control. 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. 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.

Cash flows

(In thousands of U.S. dollars)

Net cash used in operating activities
Net cash provided by (used in) investing activities
Net cash used in financing activities
Effect of foreign currency translation on cash and cash equivalents

Net change in cash

2022 cash flows vs 2021 cash flows

Operating activities

Year ended December 31,

2022

2021

2020

(88,948) $
(1,842)
(2,897)
(28,642)
(122,329) $

(153,616) $
(28,898)
(13,442)
4,906
(191,050) $

(144,871)
20,150
(3,051)
6,102
(121,670)

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. 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.

Investing activities

During 2022, we used $1.8 million of cash in investing activities, compared to $28.9 million during 2021, representing a decrease of $27.1 million in net
cash used. This change is primarily driven by the purchase of the PharmaCann Option during 2021, lower purchases of property, plant and equipment and
greater repayments than disbursements on loans receivable during 2022, partially offset by a higher level of short-term investments during 2022.

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.

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.

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. 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. 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. Refer to Note 4 “Loans Receivable,
net” to the consolidated financial statement in Item 8 of this Annual Report for further information.

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. 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. (“Ginkgo”), as well as maintained internal cash
requirements related to R&D activities, to continue to improve processes and gain knowledge on the cannabinoid industry. As of December 31, 2022, we
had approximately $1.7 million in cash requirements related to R&D, with $1.7 million payable within 12 months. 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. GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements,
and the reported amounts of revenues and expenses during the reporting period. These estimates are reviewed periodically, and adjustments are made as
appropriate in the year they become known. Items for which actual results may differ materially from these estimates are described in the following section.

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. Excise taxes remitted to tax authorities are government-imposed excise taxes on cannabis products.
Excise taxes are recorded as a reduction of sales in net revenue in the consolidated statements of income (loss) and comprehensive income (loss) and are
recognized as a current liability within accrued liabilities on the consolidated balance sheets, with the liability subsequently reduced when the taxes are
remitted to the tax authority.

In addition, amounts disclosed as net revenue are net of allowances, discounts and rebates. In determining the transaction price for the sale of goods, the
Company considers the effects of variable consideration and the existence of significant financing components, if any. Some contracts for the sale of goods
may provide customers with a right of return, most-favored-customer rights, or early payment discounts. In addition, the Company may provide, in certain
circumstances, a retroactive price reduction to a customer based primarily on inventory movement. These items give rise to variable consideration. The
Company uses the expected value method to estimate the variable consideration because this method best predicts the amount of variable consideration to
which the Company will be entitled. The Company uses historical evidence, current information and forecasts to estimate the variable consideration. The
Company reduces revenue and recognizes a contract liability equal to the amount expected to be refunded to the customer in the form of a future rebate or
credit for a retroactive price reduction, representing its obligation to return the customer’s consideration. The estimate is updated at each reporting period
date.

Goodwill and indefinite-lived intangible assets

Goodwill and indefinite-lived intangible assets are not subject to amortization. We test goodwill and indefinite-lived intangible assets for impairment
annually, or more frequently if an event occurs or circumstances change that could indicate a potential impairment. We compare the fair value of our
reporting units with their carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s
fair value.

We believe that the accounting estimate for goodwill and indefinite-lived intangible assets is a critical accounting estimate because of the judgment
required in assessing the fair value of each of our reporting units. We estimate fair value through various valuation methods, including the use of discounted
expected future cash flows of each reporting unit, as well as the use of the relief-from-royalty method on the Lord Jones brand. Significant inputs include
discount rates, growth rates, and cash flow projections, and, for the Lord Jones brand, royalty rate. 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. 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. Our accounting for goodwill and indefinite-lived intangible assets
represents our best estimate of future events.

In the second quarter of 2021, we recognized impairment losses related to goodwill and indefinite-lived intangible assets of $178.4 million and $56.5
million, respectively, in the U.S. reporting unit. During our annual quantitative impairment test in the fourth quarter of 2021, an additional impairment of
$1.0 million was recognized on the Lord Jones brand due to the U.S. segment’s sustained operating losses and lack of revenue growth. In 2020, based on
our assessments and after considering potential triggering events, including COVID-19, we recognized an impairment loss related to goodwill and
indefinite-lived intangible assets of $35 million and $5 million, respectively, in the U.S. reporting unit. During our annual quantitative impairment test in
the fourth quarter of 2020, no further impairment was recorded as both fair values of the goodwill as well as the Lord Jones brand exceeded carrying
amount by more than 10%.

Inventory valuation

We value our inventory at lower of cost or net realizable value determined using weighted average cost. 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. We record an inventory valuation adjustment for excess, slow moving, and obsolete inventory that is equal to the excess of
the cost of the inventory over the estimated net realizable value. We also experience inventory write-downs due to reduced market prices. The inventory
valuation adjustment to net realizable value establishes a new cost basis of the inventory that cannot be subsequently reversed. Inventory valuation
adjustments are based on inventory levels, expected product life, and estimated product demand. In assessing the ultimate realization of inventories, we are
required to make judgments as to future demand requirements compared with inventory levels.

Long-lived assets

Long-lived assets are primarily comprised of property, plant, and equipment and definite-lived intangible assets. We evaluate long-lived assets for
impairment when events or changes in circumstances indicate, in management’s judgment, that the carrying amount of such assets may not be recoverable.
Long-lived asset recoverability is assessed on an asset group basis. We group assets and liabilities for our asset groups at the reporting unit level, which is
the lowest level for which cash flows are separately identifiable. Long-lived asset recoverability is measured by comparing the carrying amount of the asset
group with its estimated future undiscounted pre-tax cash flows over the remaining life of the primary long-lived asset of the asset group. If the carrying
amount exceeds the estimated future undiscounted cash flows as part of the recoverability assessment, an impairment charge is recognized equal to the
difference between the carrying amount and fair value of the asset group. The impairment charge is allocated to the underlying long-lived assets in the asset
group on a relative carrying amount basis; however, carrying amount after allocated impairment is subject to a floor of fair value on an individual asset
basis.

We believe the accounting estimates used in the long-lived asset impairment assessment are critical accounting estimates because of the judgment required
in identifying indicators of impairment, determining asset groups, assessing future undiscounted cash flows of the asset groups, and as applicable,
evaluating the fair value of the determined asset groups as well as the underlying long-lived assets, once indicators of impairment have been identified.

We periodically evaluate whether impairment indicators related to our property, plant and equipment, operating leases and other long-lived assets are
present. These impairment indicators may include a significant decrease in the market price of a long-lived asset or asset group, early termination of an
operating lease, a significant adverse change to the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, or
a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a forecast that demonstrates continuing losses
associated with the use of a long-lived asset or asset group. If impairment indicators are present, we estimate the fair value for the asset or group of assets.
We estimate fair value of long-lived assets through various valuation methods, including the use of the indirect cost approach, income approach, and direct
comparison approach. The indirect cost approach is based on the estimated cost to reproduce the asset as if new, adjusted for physical deterioration and
consideration of functional and economic obsolescence. The income approach is based on estimated rental and capitalization rates. The direct comparison
approach is based on recent observable transactions of comparable assets. The estimation of future undiscounted cash flows of the asset groups as well as
each of these fair value approaches are significantly impacted by market conditions. A significant adverse change in market conditions could result in fair
values that differ from our estimates, which could adversely impact whether an impairment exists and the extent to which an asset group and underlying
assets are impaired. The difference between the fair value and the carrying amount of the asset group is recorded as an impairment charge.

During the first quarter of 2022, we concluded that indicators of impairment were present with respect to our corporate headquarters, for which we
determined we would seek a sublease. As a result, we recognized an impairment charge of $2.0 million related to the right-of-use lease asset associated
with our corporate headquarters. In addition, we recognized an impairment charge of $1.5 million during the year ended December 31, 2022 related to
leasehold improvements and other office equipment that we plan to include in any potential sublease agreement. The determination to seek a sublease of
the property and include leasehold improvements and other office equipment in any potential sublease agreement triggered the impairment charges. Both of
the impairment charges are recognized as impairment loss on long-lived assets on the consolidated statements of net income (loss) and comprehensive
income (loss).

During the fourth quarter of 2021, we concluded that indicators of impairment were present with respect to our Canadian asset group. As a result, we
estimated the undiscounted cash flows for the Canadian asset group and found that the carrying amount exceeded its undiscounted cash flows.
Subsequently, we estimated the fair values of all long-lived assets in the Canadian asset group using the indirect cost approach for personal property, the
income and direct comparison approaches for our facility in Stayner, Ontario, Canada, and the indirect cost approach for our facility in Winnipeg, Manitoba
Canada, and compared the fair values attributable to the Canadian asset group to their respective carrying amounts and recorded a non-cash impairment
charge on long-lived assets of $119.9 million. 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. The cost of cash and equity in Cronos issued in exchange for the cannabinoid exclusive licenses is initially
recognized and measured at the date of acquisition. On the date of acquisition, we then test each cannabinoid exclusive license for impairment by
comparing the cost and fair value of each license. We believe that the accounting estimate for the cannabinoid exclusive licenses is a critical accounting
estimate because of the judgment required in assessing their fair values and the expected future cash flows are significantly impacted by the future
expectations for products containing each cannabinoid. We estimate the fair value using the relief-from-royalty method. Each cannabinoid exclusive license
is subject to amortization.

In August 2021, the Ginkgo Equity Milestone was achieved related to cannabigerolic acid (“CBGA”). At that time, we issued 1.5 million common shares
valued at $9.0 million based on the observable market price of the shares. In exchange, we received process and background intellectual property related to
CBGA, as well as the CBGA exclusive license, which is a perpetual license with exclusivity for 10 years from the date the license is granted. An
impairment of $1.8 million was recognized to record the CBGA exclusive license at its fair value of $7.3 million.

In November 2021, the Ginkgo Equity Milestone was achieved related to cannabigerovarinic acid (“CBGVA”). At that time, we issued 1.5 million common
shares valued at $8.2 million based on the observable market price of the shares. In exchange, we received process and background intellectual property
related to CBGVA, as well as the CBGVA exclusive license, which is a perpetual license with exclusivity for 10 years from the date the license is granted.
An impairment of $3.0 million, was recognized to record the CBGVA exclusive license at its fair value of $5.3 million.

In June 2022, the Ginkgo Equity Milestone was achieved related to tetrahydrocannabivaric acid (“THCVA”). At that time, we issued 2.2 million common
shares and paid cash of $600, for total consideration of $8.4 million based on the observable market price of the shares. In exchange, we received process
and background intellectual property related to THCVA, as well as an exclusive license with respect to THCVA, which is a perpetual license with
exclusivity for 10 years from the date the license is granted. No impairment was recorded with respect to the THCVA exclusive license.

In November 2022, the Ginkgo Equity Milestone was achieved related to the early commercialization of cannabichromenic acid (“CBCA”). At the time we
issued 0.5 million common shares valued at $1.5 million based on the observable market price of the shares. In exchange, we received process and
background intellectual property related to CBCA, as well as an exclusive license with respect to CBCA, which is a perpetual license with exclusivity for
10 years from the date the license is granted. No impairment was recorded with respect to the CBCA exclusive license.

In December 2022, the Ginkgo Equity Milestone was achieved related to cannabichromevarinic acid (“CBCVA”). At the time we issued 1.5 million
common shares valued at $3.7 million based on the observable market price of the shares. In exchange, we received process and background intellectual
property related to CBCVA, as well as an exclusive license with respect to CBCVA, which is a perpetual license with exclusivity for 10 years from the date
the license is granted. No impairment was recorded with respect to the CBCVA exclusive license.

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. 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. 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. 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 8 “Derivative Liabilities” to the consolidated financial statements
in Item 8 of this Annual Report.

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. Each reporting period, we
qualitatively assess if indicators of impairment are present, and, if present, we estimate the fair value of the investments and record impairment charges on
the consolidated statements of income if the carrying value exceeds fair value. To estimate the fair value of the investments, we use a combination of the
income and market approaches. 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 market
valuation approach, the key assumptions that require judgment under the Guideline Public Companies method are cash flow projections, selected multiples
and the discount for lack of marketability. As a result of our analysis, we recorded non-cash impairment charges of $11.2 million, $29.0 million and $21.2
million in the first, third and fourth quarters of 2022, respectively, related to the PharmaCann Option. No such impairments were recorded during the year
ended December 31, 2021, as no indicators of impairment were present.

Share-based compensation

We measure the fair value of services received in exchange for all stock options granted based on the fair market value of the award as of the grant date. We
compute the fair value of stock options with time-based vesting using the Black-Scholes option-pricing model and recognize the cost of the equity awards
over the period that services are provided to earn the award. The Black-Scholes option-pricing model includes assumptions regarding dividend yields,
expected volatility, expected option term and risk-free interest rates. The assumptions used in computing the fair value of share-based compensation
expense reflect our best estimates, but involve uncertainties relating to market and other conditions, many of which are outside of our control. We estimate
expected volatility based primarily on historical daily price changes of our stock and peers. 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. In the third quarter of 2021, we changed methodologies for estimating the allowance
for credit loss on loans receivable from the historical credit loss method to the probability of default method. The probability of default rate is adjusted for
current conditions and reasonable and supportable forecasts of future losses as necessary. We may also record a specific reserve for individual accounts
when we become aware of specific customer circumstances, such as in the case of a bankruptcy filing or deterioration in the borrower’s operating results or
financial condition. The allowance for credit loss accrual balance was $13.1 million and $14.6 million as of December 31, 2022 and 2021, respectively.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest rate risk

Interest rate risk is the risk that the value or yield of fixed-income investments may decline if interest rates 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. 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. 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%. During the year ended December 31, 2021,
our average variable interest rate did not materially change.

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. 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. Revenue and expenses of all foreign operations are translated into U.S. dollars at
the foreign currency exchange rates that approximate the rates in effect during the period when such items are recognized. 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. 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. We have not historically engaged in hedging transactions and do not currently contemplate engaging in hedging transactions to
mitigate foreign exchange risks. 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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Table of Contents

Reports of Independent Registered Public Accounting Firm (KPMG LLP, Vaughan, Ontario, Canada, Auditor Firm ID: 85)
Consolidated Balance Sheets
Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

74
77
78
79
80
82

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Cronos Group Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Cronos Group Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021,
the related consolidated statements of net income (loss) and comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the
years in the three(cid:2799)year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the
results of its operations and its cash flows for each of the years in the three(cid:2799)year period ended December 31, 2022, in conformity with U.S. generally
accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s
internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 28, 2023 expressed an adverse opinion on the
effectiveness of the Company’s internal control over financial reporting

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Valuation of an option to purchase equity securities without a readily determinable fair value

As disclosed in note 1(g) of the consolidated financial statements, the Company records its other investments without a readily determinable fair value
using the cost method, and assesses such investments for observable price changes and other than temporary impairment on a periodic basis. Changes in the
reported value of other investments are reported in the consolidated statements of net income (loss) and comprehensive income (loss). As disclosed in note
3(b) to the consolidated financial statements, the Company’s investment in an option to purchase equity securities of PharmaCann, Inc. (the “PharmaCann
Option”) is accounted for as an other investment without a readily determinable fair value. To estimate the fair value of the PharmaCann Option,
management uses a combination of the income and market approaches. Under the income approach, significant assumptions used in the discounted cash
flow method that require the use of judgment are the discount rate, terminal growth rate, cash flow projections, and the timing of federal legalization of
cannabis in the United States. Under the market valuation approach, the key assumptions which require judgment under the Guideline Public Companies
method are cash flow projections, selected multiples and the discount for lack of marketability. As disclosed in note 14(a) of the consolidated financial
statements, the Company’s other investment in PharmaCann Option amounted to $49,000 thousand as of December 31, 2022.

We identified the evaluation of the impairment assessment of PharmaCann Option as a critical audit matter. As the original cash flow projections of the
investee were not prepared by management, a high degree of challenging auditor judgement was required to evaluate fair value of the investment. These
assumptions were challenging to test as they represented subjective determinations of future market, economic, and legal conditions that are sensitive to
variation. Minor changes to these assumptions could have had a significant

impact on the Company’s assessment of the fair value of the PharmaCann Option. Additionally, the audit effort associated with this estimate required
specialized skills and knowledge.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness
of an internal control related to the critical audit matter. We compared the historical cash flow projections of PharmaCann to actual results to assess the
Company’s ability to accurately project PharmaCann cash flows. We evaluated the reasonableness of the cash flow projections by comparing them to
historical actual results, planned business initiatives, external industry reports, and peer data. We evaluated the reasonableness of the timing of federal
legalization of cannabis in the United States by comparing management’s estimated timing with external industry reports and market information. In
addition, we involved valuation professionals with specialized skills and knowledge, who assisted in:

•

assessing the discount rate used in the income approach and the multiples used in the market approach against ranges that were independently
developed using peer data

evaluating the terminal growth rate used in the income approach by comparing management’s assumption against external market information

independently developing a discount for lack of marketability and comparing to management’s assumption used in the market approach.

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

We have served as the Company’s auditor since 2018.

Vaughan, Canada
February 28, 2023

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Cronos Group Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Cronos Group Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2022, based on criteria
established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our
opinion, because of the effect of the material weakness, described below, on the achievement of the objectives of the control criteria, the Company has not
maintained effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of net income (loss) and comprehensive income
(loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes
(collectively, the consolidated financial statements), and our report dated February 28, 2023 expressed an unqualified opinion on those consolidated
financial statements.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material
weakness related to the design and maintenance of effective controls over Information Technology General Controls, pertaining to user access management
and the provisioning and monitoring of user access, including privileged access was identified by management. This material weakness did not impact any
information derived from information systems and did not result in any identified misstatements in the financial statements. The material weakness was
considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2022 consolidated financial statements, and this report
does not affect our report on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm
registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control
over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Chartered Professional Accountants, Licensed Public Accountants

Vaughan, Canada
February 28, 2023

CRONOS GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

Cronos Group Inc.
Consolidated Balance Sheets
As of December 31, 2022 and 2021
(In thousands of U.S. dollars)

Assets
Current assets

Cash and cash equivalents
Short-term investments
Accounts receivable, net
Other receivables
Current portion of loans receivable, net
Inventory, net
Prepaids and other current assets

Total current assets

Equity method investments, net
Other investments
Non-current portion of loans receivable, net
Property, plant and equipment, net
Right-of-use assets
Goodwill
Intangible assets, net
Other

Total assets

Liabilities
Current liabilities

Accounts payable
Income taxes payable
Accrued liabilities
Current portion of lease obligation
Derivative liabilities
Current portion due to non-controlling interests

Total current liabilities

Non-current portion due to non-controlling interests
Non-current portion of lease obligation
Deferred income tax liability

Total liabilities

Shareholders’ equity

Share capital (authorized for issue as of December 31, 2022 and 2021: unlimited; shares outstanding as of
December 31, 2022 and 2021: 380,575,403 and 374,952,693, respectively)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)

Total equity attributable to shareholders of Cronos Group
Non-controlling interests
Total shareholders’ equity
Total liabilities and shareholders’ equity

See notes to consolidated financial statements.

As of December 31,

2022

2021

764,644 $
113,077
23,113
5,767
8,890
37,559
7,106
960,156
18,755
70,993
72,345
60,557
2,273
1,033
26,704
193

1,213,009 $

11,163 $
32,956
22,268
1,330
15
384
68,116
1,383
2,546
—
72,045

611,318

42,682
490,682
(797)
1,143,885
(2,921)
1,140,964
1,213,009 $

886,973
117,684
22,067
5,765
5,460
32,802
8,967
1,079,718
16,764
118,392
80,635
74,070
8,882
1,098
18,079
100
1,397,738

11,113
105
25,636
2,711
14,375
433
54,373
1,913
7,095
81
63,462

595,497

32,465
659,416
49,865
1,337,243
(2,967)
1,334,276
1,397,738

Cronos Group Inc.
Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss)
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S dollars, except share and per share amounts)

Net revenue, before excise taxes

Excise taxes

Net revenue

Cost of sales
Inventory write-down

Gross profit
Operating expenses
Sales and marketing
Research and development
General and administrative
Restructuring costs
Share-based compensation
Depreciation and amortization
Impairment loss on goodwill and indefinite-lived intangible assets
Impairment loss on long-lived assets

Total operating expenses

Operating loss
Other income (expense)
Interest income, net
Gain on revaluation of derivative liabilities
Share of income (loss) from equity method investments
Gain (loss) on revaluation of financial instruments
Impairment loss on other investments
Foreign currency transaction loss
Gain on disposal of investments
Other, net

Total other income (expense)

Loss before income taxes
Income tax expense (benefit)
Loss from continuing operations

Loss from discontinued operations

Net loss

Net loss attributable to non-controlling interest

Net loss attributable to Cronos Group

Comprehensive income (loss)

Net loss

Foreign exchange gain (loss) on translation

Comprehensive loss

Comprehensive income (loss) attributable to non-controlling interest

Comprehensive loss attributable to Cronos Group

Net loss from continuing operations per share

Basic
Diluted

See notes to consolidated financial statements.

Year ended December 31,

2022

2021

2020

$
$

114,456 $
(22,552)
91,904
79,935
—
11,969

22,282
13,381
71,178
5,333
15,115
6,025
—
3,493
136,807
(124,838)

22,537
14,060
3,114
14,739
(61,392)
(2,286)
—
(493)
(9,721)
(134,559)
34,175
(168,734)
—
(168,734)
—

(168,734) $

(168,734) $
(50,616)
(219,350)
46

(219,396) $

(0.45) $
(0.45) $

89,486 $
(15,051)
74,435
80,008
11,961
(17,534)

44,937
23,331
96,482
—
10,151
4,484
236,056
127,619
543,060
(560,594)

9,071
151,360
(6,313)
8,611
—
—
—
730
163,459
(397,135)
(431)
(396,704)
(500)
(397,204)
(1,097)
(396,107) $

(397,204) $
8,192
(389,012)
229
(389,241) $

(1.07) $
(1.07) $

54,353
(7,634)
46,719
46,497
26,055
(25,833)

34,386
20,366
80,569
—
15,361
2,872
40,000
—
193,554
(219,387)

18,415
129,254
(4,510)
(9)
—
—
4,789
(1,825)
146,114
(73,273)
1,347
(74,620)
(650)
(75,270)
(2,133)
(73,137)

(75,270)
14,951
(60,319)
(2,343)
(57,976)

(0.21)
(0.21)

Cronos Group Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S dollars, except number of share amounts)

Number of
shares

Share capital

Additional
paid-in capital

Retained
earnings

Accumulated
other
comprehensive
income (loss)

Non-
controlling
interests

Total
shareholders’
equity

Balance as of January 1, 2020

348,817,472 $ 561,165 $

23,234 $ 1,137,646 $

Shares issued
Share issuance costs
Activities relating to share-based compensation
Net loss
Foreign exchange gain (loss) on translation

Balance as of December 31, 2020

Shares issued
Share issuance costs
Activities relating to share-based compensation
Share issuance pursuant to research and
development milestones
Accelerated restricted share units vesting out-of-
period adjustment
Top-up rights out-of-period adjustment
Net loss
Foreign exchange gain on translation

Balance as of December 31, 2021

Activities relating to share-based compensation
Share issuance pursuant to research and
development milestones
Net loss
Foreign exchange gain (loss) on translation

—
—
11,435,860
—
—
360,253,332
—
—
11,764,381

—
—
8,095
—
—
569,260
—
—
7,288

—
—
11,362
—
—
34,596
—
—
2,671

—
—
—
(73,137)
—
1,064,509
—
—
(12,213)

27,838 $
—
—
—
—
15,161
42,999
—
—
—

(853) $ 1,749,030
—
—
19,457
(75,270)
14,951
1,708,168
—
—
(2,254)

—
—
—
(2,133)
(210)
(3,196)
—
—
—

2,934,980

17,374

—

17,374

—
—
—
374,952,693
1,464,822

4,157,888
—
—

4,802
(3,227)
—
—
595,497
4,617

11,204
—
—

(4,802)
—
—
—
32,465
10,217

—
—
—
42,682 $

—
3,227
(396,107)
—
659,416
—

—
(168,734)
—

—
—
—
6,866
49,865
—

—
—
(50,662)

490,682 $

(797) $

—
—
(1,097)
1,326
(2,967)
—

—
—
(397,204)
8,192
1,334,276
14,834

—
—
46

11,204
(168,734)
(50,616)
(2,921) $ 1,140,964

Balance as of December 31, 2022

380,575,403 $ 611,318 $

See notes to consolidated financial statements.

Cronos Group Inc.
Consolidated Statements of Cash Flows
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S dollars)

Operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:

Share-based compensation
Depreciation and amortization
Impairment loss on goodwill and indefinite-lived intangible assets
Impairment loss on long-lived assets
Impairment loss on other investments
(Income) loss from investments
Gain on revaluation of derivative liabilities
Changes in expected credit losses on long-term financial assets
Gain on disposal of investments
Non-cash sales and marketing
Foreign currency transaction loss
Other non-cash operating activities, net
Changes in operating assets and liabilities:

Accounts receivable, net
Other receivables
Prepaids and other current assets
Inventory, net
Accounts payable
Income taxes payable
Accrued liabilities

Net cash used in operating activities

Investing activities

Proceeds from short-term investments
Purchase of short-term investments
Purchase of investments
Dividend proceeds
Repayments (advances) on loan receivables
Purchase of property, plant and equipment, net of disposals
Purchase of intangible assets, net of disposals
Other investing activities
Net cash provided by (used in) investing activities

Year ended December 31,

2022

2021

2020

(168,734) $

(397,204) $

(75,270)

15,115
13,122
—
3,493
61,392
(17,853)
(14,060)
(662)
—
341
2,286
(4,051)

(2,711)
(833)
996
(7,217)
(863)
34,212
(2,921)
(88,948)

268,870
(271,378)
—
384
5,246
(3,451)
(1,581)
68
(1,842)

10,151
15,402
236,056
127,619
—
(1,974)
(151,360)
12,202
—
1,383
—
(3,886)

(13,163)
3,838
3,102
11,565
(1,597)
(776)
(4,974)
(153,616)

215,303
(119,610)
(110,392)
—
(4,967)
(11,144)
(1,118)
3,030
(28,898)

15,361
7,045
40,000
—
—
4,510
(129,254)
2,437
(4,789)
2,863
—
(123)

(4,724)
(5,300)
—
(735)
(2,784)
839
5,053
(144,871)

296,730
(201,326)
—
—
(44,652)
(31,412)
(3,979)
4,789
20,150

Cronos Group Inc.
Consolidated Statements of Cash Flows (continued)
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S dollars)

Financing activities

Advance to non-controlling interests
Withholding taxes paid on equity awards
Other financing activities, net
Net cash used in financing activities

Effect of foreign currency translation on cash and cash equivalents
Net change in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period

Supplementary cash flow information:

Interest received
Taxes paid

See notes to consolidated financial statements.

Year ended December 31,

2022

2021

2020

—
(2,829)
(68)
(2,897)
(28,642)
(122,329)
886,973
764,644 $

—
(13,458)
16
(13,442)
4,906
(191,050)
1,078,023

886,973 $

(1,019)
(2,148)
116
(3,051)
6,102
(121,670)
1,199,693
1,078,023

15,548
177

8,988
892

18,105
—

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

1. Background, Basis of Presentation, and Summary of Significant Accounting Policies

(a)

Background

Cronos Group Inc. (“Cronos” or the “Company”) is incorporated in the province of British Columbia and under the Business Corporations Act (British
Columbia) with principal executive offices at 111 Peter St., Suite 300, Toronto, Ontario, M5V 2H1. The Company’s common shares are currently listed on
the Toronto Stock Exchange (“TSX”) and Nasdaq Global Market (“Nasdaq”) under the ticker symbol “CRON.”

(b)

Basis of presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”). Certain prior year amounts have been reclassified to conform to the current year presentation of our consolidated financial
statements. These reclassifications had no effect on reported results of operations and ending shareholders’ equity.

(c)

Basis of consolidation

The accompanying consolidated financial statements include the accounts of the Company, and all entities in which the Company has a controlling voting
interest or is the primary beneficiary of a variable interest as of and for the reporting periods. The Company assesses control under the variable interest
entity (“VIE”) model to determine whether the Company is the primary beneficiary of that entity’s operations. If an entity is not deemed to be a VIE, the
Company consolidates the entity if the Company has a controlling voting interest. Subsidiaries are fully consolidated from the date on which control is
transferred to the Company. They are deconsolidated from the date that control ceases. Investments in which the Company has the ability to exercise
significant influence over the operating and financial policies of the investee, but does not have control, are accounted for under the equity method of
accounting. The Company consolidates the financial results of the following entities, which the Company controls but does not wholly own:

Subsidiaries

Cronos Israel G.S. Cultivation Ltd.

(i)

Cronos Israel G.S. Manufacturing Ltd.

(i)

Cronos Israel G.S. Store Ltd.

(i)

Cronos Israel G.S. Pharmacy Ltd.

(i)

Jurisdiction of incorporation
Israel

Israel

Incorporation date
February 4, 2018

September 4, 2018

June 28, 2018

February 15, 2018

Ownership interest
70%

(ii)

90%

(i)

(ii)

These Israeli entities are collectively referred to as “Cronos Israel.”

“Ownership interest” is defined as the proportionate share of net income to which the Company is entitled; equity interest may differ from ownership interest as described herein.

In the consolidated statements of net income (loss) and comprehensive income (loss), net income (loss) and comprehensive income (loss) are attributed to
the equity holders of the Company and to the non-controlling interests. Non-controlling interests in the equity of Cronos Israel are presented separately in
the shareholders’ equity section of the consolidated balance sheets and consolidated statements of shareholders’ equity. All intercompany transactions and
balances are eliminated upon consolidation.

(d)

Use of estimates

The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and
assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Significant estimates and assumptions
include, among other things, valuation of derivative liabilities, expected credit losses on long-term financial assets, impairment losses on goodwill and
indefinite-lived intangible assets, impairment losses on long-lived assets,

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

inventory write-downs, share-bared payments, valuation allowance on deferred income tax assets and uncertain tax liabilities. Actual results could differ
from those estimates.

(e)

Cash and cash equivalents and short-term investments

Cash and cash equivalents are comprised of cash and highly liquid short-term investments that are readily convertible into known amounts of cash,
generally with original maturities of three months or less. Cash and cash equivalents include amounts held in dollars, C$ and ILS and security deposits.
Short-term investments consist of debt securities that (i) generally have original maturities of greater than three months and (ii) the Company has the ability
to convert into cash within one year.

Short-term investments are classified as either available-for-sale or held-to-maturity and recorded at cost. Interest earned on short-term investments is
recorded in other receivables on the consolidated balance sheets and interest income, net on the consolidated statements of net income (loss) and
comprehensive income (loss). Cash inflows and outflows related to the purchase and maturity of short-term investments are classified as investing activities
in the Company’s consolidated statements of cash flows.

(f)

Inventory

Inventory is comprised of raw materials, finished goods and work-in-progress, such as pre-harvested cannabis plants, dried cannabis flower, by-products to
be extracted, cannabis extracts and by-products, dry cannabis and cannabis extract containers, and boxes. When the Company cultivated cannabis, costs
capitalized into inventory until the time of harvest included, but were not limited to, labor, utilities, nutrition and irrigation.

Inventory is stated at the lower of cost and net realizable value, determined using weighted average cost. Cost includes expenditures directly related to
manufacturing and distribution of the products. Primary costs include consumables (insect control, fertilizers, soil), packaging, shipping, direct labor,
contract manufacturer fees, overhead, supplies and small tools, and the depreciation of manufacturing equipment and production facilities determined at
normal capacity. Manufacturing overhead and related expenses include salaries, wages, employee benefits, rent, utilities, security, and property taxes. Net
realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and
transportation. At the end of each reporting period, the Company performs an assessment to measure inventory at the lower of cost and net realizable value.
Factors considered in the determination of net realizable value include slow-moving or non-marketable products.

(g)

Investments

Variable interest entities

A variable interest entity is an entity having either a total equity investment that is insufficient to finance its activities without additional subordinated
financial support or equity investors at risk that lack the ability to control the entity’s activities. Variable interests are investments or other interests that will
absorb portions of a VIE’s expected losses or receive portions of the VIE’s expected residual returns. The Company evaluates whether it is the primary
beneficiary of each VIE it identifies on a periodic basis and considers the impact of any reconsideration events. The primary beneficiary is the party that
has both the power to direct the activities that most significantly impact the VIE and holds a variable interest that could potentially be significant to the
VIE. To make this determination, the Company considers both quantitative and qualitative factors regarding the nature, size and form of its involvement
with the VIE. The Company consolidates a VIE when it is determined that it is the primary beneficiary of the VIE.

Equity method investments

The Company accounts for investments in companies over which it has the ability to exercise significant influence but does not hold a controlling financial
interest using the equity method. Under the equity method, the Company records its proportionate share of income or loss in share of income (loss) from
equity method investments within the consolidated statements of net income (loss) and comprehensive income (loss). Cash payments to equity method
investees such as additional investments or expenses incurred on behalf of investees, as well as income earned and payments from equity method investees
such as dividends and distributions are recorded as adjustments to investment balances. If the current fair value of an investment falls below its carrying
amount, this may indicate that an impairment loss should be recorded. Any impairment losses recognized in one period cannot be reversed in subsequent
periods.

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

Other investments

Other investments include common stock and options in third party entities in which the Company’s influence is deemed non-significant. The Company
holds other investments with and without readily determinable fair values. Other investments with readily determinable fair values are recorded using the
fair value method of accounting as of period-end on the consolidated balance sheets. Other investments without readily determinable fair values are
recorded using the cost method of accounting on the consolidated balance sheets. Other investments without readily determinable fair values are assessed
for observable price changes and other than temporary impairment on a periodic basis. Changes in the reported value of other investments are reported in
the consolidated statements of net income (loss) and comprehensive income (loss).

(h)

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:

Building and leasehold improvements
Machinery and equipment
Furniture and fixtures

Rate
15 to 20 years
5 to 7 years
5 years

When assets are disposed of, the cost and accumulated depreciation are removed from the respective accounts and any related gain or loss is recognized.
Maintenance and repairs are charged to expense as incurred. Significant expenditures, which increase productivity or extend the useful life of the asset, are
capitalized.

Available for use is defined as the point at which the related property, plant and equipment is operational, including the possession of any requisite licenses.
Depreciation commences at the point the assets are available for use.

(i)

Definite-lived intangible assets

Intangible assets are recorded at cost less any accumulated amortization and accumulated impairment losses. Intangible assets acquired through a business
combination are measured at fair value at the acquisition date.

The Company capitalizes certain costs incurred in connection with its enterprise software, which include external direct costs of materials and services
consumed in developing or obtaining internal-use software and payroll and payroll-related costs for employees who are directly associated with and who
devote time to the development of the software for the function intended. All other costs are expensed as incurred.

Intangible assets with definite useful lives are amortized over their estimated useful lives using the following methods and rates:

Software
Health Canada licenses
Ginkgo exclusive licenses
(i)
Israeli codes
(i)

Method
Straight-line
Straight-line
Straight-line
Straight-line

Rate
5 years
Useful life of corresponding facilities
10 years
Useful life of corresponding facilities

The preliminary licenses granted to Kibbutz Gan Shmuel (the Cronos Israel joint venture partner) by the Medical Cannabis Unit of the Israeli Ministry of Health in early 2017 (the “Israeli

codes”) were transferred by non-controlling interests to Cronos Israel in exchange for equity interests in the Cronos Israel entities specified above.

Amortization begins when assets become available for use. The estimated useful life, amortization method, and rate are reviewed at the end of each
reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Intangible assets originating from the strategic partnership (the “Ginkgo Strategic Partnership”) with Ginkgo Bioworks Holdings, Inc. (“Ginkgo”) are
accounted for in accordance with the acquisition method of accounting. Equity interests issued in exchange for an asset are initially recognized and
measured at the date of acquisition at fair value. We estimate fair value using the relief-from-royalty method and key assumptions include the discount rate
and estimated life. Definite-lived intangible assets, including intangible assets originating from the Ginkgo Strategic Partnership, are subject to
amortization and reviewed for impairment annually or more frequently when events or changes in circumstances indicate that fair value has been reduced
to less than its carrying amount.

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

(j)

Accrued liabilities

Accrued liabilities consist of the following:

Accrued payroll and related expenses
Accrued professional fees
Accrued taxes
Other accrued expenses

Total accrued liabilities

As of December 31,

2022

2021

11,492 $
2,414
4,132
4,230
22,268 $

12,875
8,337
3,488
936
25,636

Accrued payroll and related expenses include salaries and wages, bonuses, and other related payroll expenses associated with the Company’s employees.
Accrued professional fees include fees for legal expenses, litigation, consulting, marketing, and other related expenses. Accrued taxes include sales, excise
and other taxes owed. Other accrued expenses include the fair value of deferred share units outstanding to directors and other general expenses.

(k)

Leases

The Company enters into leases in the normal course of business, primarily for the land-use rights, office premises, and equipment used in the production
of its products. At the inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company performs an analysis
over the classification of the lease agreement as either an operating lease or finance lease.

A right-of-use asset and the related lease obligation associated with the lease are recorded at the inception of the lease. The right-of-use asset’s recorded
amount is based on the present value of future lease payments over the lease term at the commencement date plus any initial direct costs incurred. If the
rate implicit in the lease is not readily determinable for the Company’s operating leases, an incremental borrowing rate is generally used based on
information available at the lease commencement date to determine the present value of future lease payments. Subsequent changes to these lease payments
due to rate updates are recorded as lease expense in the period incurred. Leases with a term of 12 months or less are not recorded on the balance sheet as a
lease.

The right-of-use asset is subject to impairment testing whenever events or changes in circumstances indicate the carrying amount of the asset may not be
recoverable. The leased asset is amortized over the shorter of the lease term or its estimated useful life if title does not transfer to the Company, while the
leased asset is depreciated in accordance with the Company’s depreciation policy if the title is to eventually transfer to the Company.

The Company’s lease agreements generally exclude non-lease components. As a result, non-lease components are accounted for separately for all classes of
assets and expensed as incurred. In addition, the Company’s lease agreements do not contain any material residual value guarantees or material restrictive
covenants. For finance leases, from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term,
the right-of-use asset is amortized on a straight-line basis and the interest expense is recognized on the lease liability using the effective interest method.
For operating leases, lease expense is recognized on a straight-line basis over the term of the lease and presented as a single charge in the consolidated
statements of net income (loss) and comprehensive income (loss).

(l)

Derivative liabilities

For financial instruments classified as derivatives that are not designated as hedging instruments or do not qualify for hedge accounting, changes in fair
value are recorded in the consolidated statements of net income (loss) and comprehensive income (loss) each period. The Company does not enter into or
hold derivative financial instruments for trading or speculative purposes. Derivative liabilities are initially recognized at fair value at the date on which the
derivative contract was entered into. Any attributable transaction costs are recognized in net income (loss) as incurred. Subsequent to initial recognition,
derivative liabilities are measured 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). For more details on derivative liabilities consisting of the Altria Warrant, Pre-emptive Rights, and
certain Top-up Rights, see Note 8 “Derivative Liabilities.”

(m)

Capital stock

Capital stock is presented at the fair value at the time of issuance of the shares issued. Costs related to the issuance of shares are reported in equity, net of
tax, as a deduction from the issuance proceeds.

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

(n)

Revenue recognition

Revenue is recognized in accordance with Accounting Standards Codification (“ASC”) 606, “Revenue from Contracts with Customers,” and is measured
based on the consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by
transferring control over a product or service to a customer. The Company’s contracts with customers for the sale of dried cannabis, cannabis oil,
cannabinoid-derived products and “hemp” (as defined in the U.S. Agricultural Improvement Act of 2018 “U.S. hemp”) derived products consist of a single
performance obligation.

The Company has concluded that revenue from the sale of these products should be recognized at the point in time when control is transferred to the
customer, depending on the specific contractual terms. The Company has determined that the most definitive demonstration that control has transferred to a
customer is physical shipment or delivery, depending on the contractual shipping terms, except for consignment transactions. Consignment transactions are
arrangements where the Company transfers product to a customer or third-party location but retains ownership and control of such product until it is used
by the customer. Revenue for consignment arrangements is recognized upon the customer’s usage.

Revenue is recognized at the transaction price, which is the amount of consideration to which the Company expects to be entitled in exchange for
transferring promised goods to a customer. Net revenue before excise taxes from sale of goods, as presented in the consolidated statements of net income
(loss) and comprehensive income (loss), represents revenue from the sale of goods less expected price discounts, allowances for customer returns and other
forms of variable consideration. Within the Company’s Rest of World segment (the “ROW segment”), dried cannabis sales outside of Canada may include
commission arrangements with distributors that give rise to variable consideration. If the consideration in a contract includes a variable amount, the
Company estimates the amount of consideration to which it will be entitled in exchange for transferring the goods to the customer. The variable
consideration is estimated using the expected value method, based on the Company’s historical information, at contract inception. The Company’s payment
terms vary by customer and product type. Refer to Note 12 “Segment Information and Disaggregated Revenue” for information on disaggregated revenue.

The Company treats shipping and handling activities as a fulfillment cost, classified as cost of sales. Accordingly, the Company accrues all fulfillment costs
related to the shipping and handling of consumer goods at the time of shipment.

(o)

Research and development

The Company has a research and development center in Canada that performs scientific research on the interaction of cannabinoids as well as strain
development, growing conditions, extraction technology, and biosynthesis. Fermentation and production related research is performed to further strategic
initiatives around rare cannabinoids. In addition, the Company has a collaboration and license agreement with Ginkgo (the “Ginkgo Collaboration
Agreement”) to research, produce, and commercialize cultured cannabinoids. Technological feasibility is considered to be established once productivity
targets or commercialization are achieved, at which point the exclusive license is recognized at cost less impairment charges. As of the acquisition date of
each exclusive license, cost less impairment charges is equal to the fair value. Refer to Note 6 “Goodwill and Intangible Assets, net” for more information
on the Ginkgo Collaboration Arrangement. Research and development costs associated with these collective efforts are expensed as incurred as part of
operating expenses in the Company’s consolidated statements of net income (loss) and comprehensive income (loss).

(p)

Advertising costs

Advertising costs include costs to sell the Company’s products and are expensed as incurred through sales and marketing expenses in the consolidated
statements of net income (loss) and comprehensive income (loss). Advertising costs were $928, $11,514 and $6,087 for the years ended December 31,
2022, 2021, and 2020, respectively.

(q)

Share-based compensation

As described in more detail below, the Company has five share-based compensation plans under which awards have been made: the 2020 Omnibus Plan,
the 2018 Stock Option Plan, the 2015 Stock Option Plan, the Employment Inducement Award Plan and the DSU Plan (each as defined below).

Share-based awards consists of equity-settled share-based awards such as stock options and restricted share units (“RSUs”) that are issued to eligible
employees, non-executive directors, and non-employees. Cash-settled deferred share units (“DSUs”) that are issued to non-executive directors under the
DSU Plan are recorded in accrued liabilities with the fair value adjustment recorded in other income.

Equity instruments granted are initially measured at fair value on the grant date. The fair value of stock options is determined using the Black-Scholes
option pricing model. The fair value of RSUs and DSUs are determined using the market price of the Company’s common shares. This is recognized on a
straight-line basis in the consolidated statements of net income (loss) and comprehensive

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

income (loss) over the vesting period for employees, and over the contractual term for non-employees. The fair value of the payout of cash-settled DSUs is
determined at each reporting date based on the fair value of the Company’s common shares at the reporting date and is recorded within other liabilities. The
related costs for all equity-settled share-based awards are reflected in additional paid-in capital until the awards are settled or exercised. Upon settlement or
exercise, shares are issued and the amount previously reflected in additional paid-in capital is, along with any proceeds paid upon settlement or exercise,
credited to a combination of share capital and additional paid-in capital. Forfeitures of share-based compensation awards are accounted for as reductions to
share-based compensation and additional paid-in capital as they occur.

(r)

Impairment of long-lived assets

The Company reviews its long-lived assets, such as property, plant and equipment and definite-lived intangible assets, for impairment in accordance with
ASC Topic 360, Property, Plant, and Equipment. In accordance with ASC Topic 360, long-lived assets to be held are reviewed for events or changes in
circumstances that indicate that their carrying amount may not be recoverable. The Company periodically reviews for indicators and, if indicators are
present, tests the carrying amount of long-lived assets, assessing their fair values based on estimated undiscounted cash flows over their remaining
estimated useful lives. The Company groups assets at the lowest level for which cash flows are separately identifiable, referred to as an asset group. If the
carrying amount of an asset (or asset group) exceeds its estimated undiscounted future cash flows, an impairment charge is measured as the amount by
which the carrying amount of the asset exceeds the fair value of the asset group, based on discounted cash flows.

(s)

Impairment of goodwill and indefinite-lived intangible assets

Goodwill and indefinite-lived intangible assets are not amortized. Goodwill and indefinite-lived intangible assets are reviewed for impairment annually or
more frequently when events or changes in circumstances indicate that fair value of the reporting unit has been reduced to less than its carrying amount in
accordance with the provisions of ASC Topic 350, Intangibles—Goodwill and Other. The Company performs an impairment test annually in the fourth
quarter by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its
carrying amount, goodwill is not considered to be impaired. An impairment charge would be recognized for the amount by which the carrying amount
exceeds the reporting unit’s fair value.

(t)

Income taxes

The Company uses the liability method of accounting for income taxes, under which deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.
Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when such assets and liabilities are recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in the year that includes the enactment date. The Company determines
deferred tax assets including net operating losses and liabilities, based on temporary differences between the book and tax bases of assets and liabilities.

A valuation allowance is established to reduce some or all net deferred tax assets to amounts that are more likely than not to be realized. The Company
considers all available evidence, both positive and negative, including past operating results, estimates of future taxable income, and the feasibility of tax
planning strategies, in assessing the need for a valuation allowance.

A valuation allowance against some or all of the net deferred tax assets does not in any way impact the Company’s ability to use future tax deductions such
as the Company’s net operating loss carryforwards; rather, the valuation allowance indicates, according to the provisions of Accounting Standards
Codification (“ASC”) 740, Income Taxes, it is more likely than not that the deferred tax assets will not be realized. The valuation allowance that was
established will be maintained until there is sufficient positive evidence to conclude that it is more likely than not that the net deferred tax assets will be
realized. The Company’s income tax expense for future periods will be reduced to the extent of corresponding decreases in our valuation allowance. There
is uncertainty regarding any future realization of the benefit by the Company of all or part of our net deferred tax assets.

Judgment is required to determine the recognition and measurement attributes prescribed in the accounting guidance for uncertainty in income taxes. The
Company uses a two-step approach for evaluating uncertain tax positions. Step one, recognition, requires us to determine whether the weight of available
evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if
any. If a tax position is not considered “more likely than not” to be sustained, no benefits of the position are recognized. If we determine that a position is
“more likely than not” to be sustained, then we proceed to step two, measurement, which is based on the largest amount of benefit which is more likely
than not to be realized on effective settlement. This process involves estimating our actual current tax exposure, including assessing the risks associated
with income tax audits, together with assessing temporary differences resulting from the different treatment of items for tax and financial reporting
purposes. If actual results differ from our estimates, our net operating loss and credit carryforwards, to the extent not covered by a valuation allowance,
could be materially impacted in the period which such determination is made.

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

The Company recognizes uncertain income tax positions at the largest amount that is more-likely-than-not to be sustained upon examination by the relevant
taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Recognition or
measurement is reflected in the period in which the likelihood changes. Any interest and penalties related to unrecognized tax liabilities are presented
within income tax expense in the consolidated statements of net income (loss) and comprehensive income (loss). Accrued interest and penalties are
included in accounts payable and other liabilities in the consolidated balance sheets.

(u)

Foreign currency

The Company’s functional currency is the Canadian dollar (“C$”) and its reporting currency is the U.S. dollar. Functional currencies for the entities in these
consolidated financial statements are their respective local currencies, including C$, U.S. dollar and Israeli New Shekel (“ILS”). All assets and liabilities of
operations with a functional currency other than the Canadian dollar are translated into Canadian dollars at the period-end currency exchange rates and
subsequently translated into U.S. dollars at period-end currency exchange rates. The resulting translation adjustments are recorded in accumulated other
comprehensive income (loss), net of tax. Revenues and expenses of operations, as well as all cash flows, with a functional currency other than the Canadian
dollar are translated into Canadian dollars at the average exchange rates for the period and subsequently translated into U.S. dollars at the average exchange
rates for the period. Transaction gains and losses resulting from changes in foreign currency exchange rates are recorded in either cost of sales, general and
administrative expenses, or foreign currency transaction gain (loss) in the consolidated statements of net income (loss) and comprehensive income (loss).

(v)

Segments

Cronos reports through two segments: the U.S. segment and the ROW segment. These two segments represent the geographic regions in which the
Company operates and the different product offerings within each geographic region. Refer to Note 12 “Segment Information and Disaggregated Revenue”
for additional information.

(w)

Earnings (loss) per share

The Company presents basic and diluted earnings (loss) per share data for its common shares. Basic earnings (loss) per share is calculated by dividing the
profit or loss attributable to common shareholders of the Company by the weighted average number of common shares outstanding during the period.
Diluted earnings (loss) per share is determined by adjusting the profit or loss attributable to common shareholders and the weighted average number of
common shares outstanding for the effects of all potentially dilutive common shares.

(x)

Fair value measurements

The carrying amount of the Company’s cash and cash equivalents, accounts receivable, other receivables, loans receivable, account payables and other
liabilities approximate fair value, given their short-term nature. Cronos uses a fair value hierarchy, which gives the highest priority to unadjusted quoted
prices in active markets for identical assets and liabilities, noted as Level 1 measurements, and the lowest priority to unobservable inputs, noted as Level 3
measurements.

The following are the three levels of inputs used to measure fair value:

•
•

•

Level 1 – valuation based on quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2 – valuation techniques based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either
directly or indirectly.
Level 3 – valuation techniques using the inputs for the asset or liability that are not based on observable market data.

The Company’s policy for determining when transfers between levels of the fair value hierarchy occur is based on the date of the event or changes in
circumstances that caused the transfer.

(y)

Assets held for sale and discontinued operations

In accordance with ASC 205-20 Presentation of Financial Statements: Discontinued Operations, a disposal of a component of an entity or a group of
components of an entity is required to be reported as discontinued operations if the disposal represents a strategic shift that has (or will have) a major effect
on an entity’s operations and financial results when the components of an entity meet the criteria in paragraph ASC 205-20-45-10. In the period in which
the component meets held-for-sale or discontinued operations criteria the major current assets, other assets, current liabilities, and other liabilities are
reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all
discontinued operations, less applicable income taxes (benefit), are reported as components of net income (loss) separate from the net income (loss) of
continuing operations.

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

(z)

Adoption of new accounting pronouncements

On January 1, 2022, the Company adopted ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and
Hedging—Contracts in Entity’s Own Equity (Subtopic 815–40) (“ASU No. 2020-06”). ASU No. 2020-06 simplifies the accounting for certain financial
instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU No. 2020-06 is part
of the Financial Accounting Standards Board’s (“FASB”) simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The
adoption of ASU No. 2020-06 did not have an impact on the Company’s consolidated financial statements.

(aa)

New accounting pronouncements not yet adopted

In March 2022, the FASB issued ASU 2022-02, Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures
(“ASU No. 2022-02”). ASU No. 2022-02 eliminates the existing troubled debt restructuring recognition and measurement guidance, and instead aligns the
accounting treatment to that of other loan modifications. The amendments enhance existing disclosure requirements and introduce new requirements
related to certain modifications of receivables made to borrowers experiencing financial difficulty. ASU No. 2022-02 also requires that entities disclose
current-period gross write-offs by year of origination for financing receivables and net investments in leases. ASU No. 2022-02 is effective for fiscal years
beginning after December 15, 2022, and interim periods within those fiscal years, and is to be adopted prospectively. The Company does not expect the
adoption of ASU No. 2022-02 to have a material impact on its consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual
Sale Restrictions (“ASU No. 2022-03”). ASU No. 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered in
measuring fair value. The amendments also require additional disclosures for equity securities subject to contractual sale restrictions. ASU 2022-03 is
effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years, and is to be adopted prospectively. The
Company does not expect the adoption of ASU No. 2022-03 to have a material impact on its consolidated financial statements.

2. Inventory, net

Inventory, net is comprised of the following items:

Raw materials
Work-in-progress
Finished goods
Supplies and consumables

Total

3. Investments

As of December 31,

2022

2021

7,421 $ $

15,646
13,503
989
37,559 $

9,211
12,405
10,778
408
32,802

(a)

Variable interest entities and investments in equity method investments, net

The Company holds variable interests in Cronos Growing Company Inc. (“Cronos GrowCo”), NatuEra S.à.r.l. (“Natuera”) and Cannasoul Lab Services
Ltd. (“CLS”). The Company’s investments in Cronos GrowCo and Natuera are exposed to economic variability from each entity’s performance; however,
the Company does not consolidate the entities as it does not have the power to direct the activities that most significantly impact each entity’s economic
performance. Thus, the Company is not considered the primary beneficiary of either entity. The investment in Cronos GrowCo is accounted for as an equity
method investment classified as “Investments in equity method investments, net” in the consolidated balance sheets. As of December 31, 2022, the
investment in Natuera is accounted for as an equity security without a readily determinable fair value classified as “Other Investments” in the consolidated
balance sheets.

Cronos GrowCo

Cronos GrowCo is a joint venture incorporated under the Canada Business Corporations Act on June 14, 2018 with the objective of cultivating and
commercializing cannabis and cannabis products. Cronos GrowCo’s economic performance is driven by the day-to-day operations of Cronos GrowCo,
which are controlled by 2645485 Ontario Inc. (“Mucci”), the Company’s joint venture partner.

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

During the year ended December 31, 2021, the Company concluded that lower than expected sales forecasts combined with the increase to the aggregate
principal amount of the GrowCo Credit Facility (as defined below) were indicators of impairment for the Company’s equity method investment in Cronos
GrowCo. Accordingly, the Company performed a quantitative impairment assessment in the third quarter of 2021 to compare the fair value of the
investment in Cronos GrowCo to its carrying amount. The fair value was estimated using the discounted cash flow method. Significant inputs included
discount rate, growth rates, and cash flow projections. As a result of this analysis, the Company concluded that as of September 30, 2021, the estimated fair
value was higher than the carrying amount and no impairment charges were recorded. There were no such indicators of impairment present for the year
ended December 31, 2022.

Natuera

Upon formation, Natuera was a joint venture registered in Luxembourg with the objective of cultivating and commercializing hemp and cannabis products,
and its economic performance is driven by the quantity and strains of cannabis grown. Until December 2022, the Company held variable interests in
Natuera through its ownership of 50% of Natuera’s common shares. An affiliate of Agroidea SAS, a Colombian agricultural services provider, owned the
remaining 50% of Natuera’s common shares (such affiliate, the “Natuera JV Partner”). In December 2022, Natuera entered into a $9.5 million convertible
bridge loan with the Natuera JV Partner and a new investment group, whereby the Natuera JV Partner and the new investment group provided $9.5 million
in exchange for convertible notes that were converted into equity immediately following the closing of the loan. Post-closing, the Company’s ownership
share was diluted to approximately 13.7% and the Company will no longer have any members on the board of directors of Natuera. Given these changes in
ownership and board representation, the Company believes it no longer exerts significant influence over Natuera, has discontinued accounting for the
investment under the equity method and has reclassified its investment in Natuera as an investment in equity securities without a readily determinable fair
value, presented in Other Investments on the consolidated balance sheets as of December 31, 2022.

During the year ended December 31, 2021, the Company concluded that lower than expected sales forecasts as of December 31, 2021 were an other than
temporary indicator of impairment for the Company’s equity method investment in Natuera. Accordingly, the Company performed a qualitative assessment
to determine whether there was any value remaining in the investment. As a result of this analysis, the Company concluded that, as of December 31, 2021,
the estimated fair value was zero, and $167 was recorded as an impairment loss on equity method investments on the consolidated statements of net income
(loss) and comprehensive income (loss) for the year ended December 31, 2021.

CLS

CLS is a wholly owned subsidiary of Cannasoul Analytics Ltd., incorporated with the purpose of establishing a commercial cannabis analytical testing
laboratory located on the premises of Cronos Israel (the “Cannasoul Collaboration”). Cronos Israel agreed to advance up to ILS 8,297 ($2,664) by a non-
recourse loan (the “Cannasoul Collaboration Loan”) to CLS over a period of two years from April 1, 2020 for the capital and operating expenditures of the
laboratory. The loan bears interest at 3.5% annually. Cronos Israel will receive 70% of the profits of the laboratory until such time as it has recovered 150%
of the amounts advanced to CLS, after which time it will receive 50% of the laboratory profits. As a result, the Company is exposed to economic variability
from CLS’s performance. The Company does not consolidate CLS as it does not have the power to direct the activities that most significantly impact the
entity’s economic performance; thus, the Company is not considered the primary beneficiary of the entity. The carrying amount of the non-recourse loan is
recorded under loans receivable and the full loan amount, ILS 8,297, represents the Company’s maximum potential exposure to losses through the
Cannasoul Collaboration. See Note 4 “Loans Receivable, net” for further information regarding loans receivable.

A reconciliation of the carrying amount of the investments in equity method investments, net is as follows:

Cronos GrowCo
Natuera

(i, ii, iii)

Ownership interest
50%
13.7% / 50%

(iii)

As of December 31,

2022

2021

18,755 $
N/A
18,755 $

16,764
—
16,764

(i)

On April 1, 2021, the Company and the Natuera JV Partner, converted all advances made to Natuera under the master loan agreement entered into with Natuera on September 27, 2019
(the “Natuera Series A Loan”), plus accrued interest, into equity of Natuera (“Natuera Debt Conversion”). Total aggregate gross advances to Natuera under the Natuera Series A Loan
were $15,500, of which the Company advanced 50% and the Natuera JV Partner advanced the remaining 50%, or $7,750 each. As a result, the Company transferred the carrying amount
of the Natuera Series A Loan of approximately $2,013 plus accrued interest of $540, for a total investment value of $2,553, which approximated the then fair value, to investments in
equity accounted investees in respect of Natuera. See Note 4 “Loans Receivable, net.”

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

(ii)

(iii)

As of December 31, 2021, the Company concluded that the estimated fair value of the investment in Natuera was lower than the carrying amount resulting in an impairment charge of
$167 being recorded as an impairment loss on equity method investments in the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended
December 31, 2021.

As of December 31, 2022, the Company classifies its investment in Natuera as an investment in equity securities without a readily determinable fair value, presented in Other Investments
on the consolidated balance sheets. As of December 31, 2022, the Company’s ownership interest in Natuera was approximately 13.7%.

The following is a summary of the Company’s share of net income (losses) from equity investments accounted for under the equity method of accounting:

(i)

Vitura
Cronos GrowCo
Natuera

(ii)(iii)

Year ended December 31,

2022

2021

2020

N/A $

3,114
N/A
3,114 $

(48) $

(2,518)
(3,747)
(6,313) $

(363)
(1,537)
(2,610)
(4,510)

(i)

(ii)

(iii)

As of December 31, 2022, the Company held a 10% ownership interest in Vitura, and Vitura is no longer considered an equity-method investment. As of December 31, 2020, and up to
December 16, 2021, the Company held a 31% ownership interest in Vitura and was considered an equity-method investment. The gross investment balance in Vitura was offset by equity
losses as of December 31, 2020.

As of December 31, 2021, the combination of the Company’s share of accumulated net losses and impairment charges was in excess of its equity investment in Natuera, and the net book
value of the investment was zero.

The following is a summary of financial information for the Company’s equity method investments:

Current assets
Non-current assets
Current liabilities
Non-current liabilities

Revenue
Gross profit
Net income (loss)

As of December 31,

2022

2021

2020

21,158 $
104,227
5,593
73,779

5,660 $

125,777
13,457
81,594

19,126
122,099
24,223
76,313

Year ended December 31,

2022

2021

2020

39,110 $
24,379
6,569

8,186 $
(5,059)
(12,603)

367
(631)
(11,453)

The following is a summary of the maximum exposure to loss from the Company’s investments in equity method investments:

Cronos GrowCo

Balance as of December 31, 2022

Cronos GrowCo
Natuera

Balance as of December 31, 2021

Ownership
interest
50%

Ownership
interest
50%
50%

Other Net Assets (Liabilities) Maximum Exposure to Loss

$
$

62,368 $
62,368 $

19,866
19,866

Other Net Assets (Liabilities) Maximum Exposure to Loss

33,674 $
2,712
36,386 $

21,125
7,826
28,951

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

(b)

Other investments

Other investments consist of investments in common shares and options of two companies in the cannabis industry.

PharmaCann Option

On June 14, 2021, the Company purchased an option (the “PharmaCann Option”) to acquire 473,787 shares of Class A Common Stock of PharmaCann,
Inc. (“PharmaCann”), a vertically integrated cannabis company in the United States, at an exercise price of $0.0001 per share, representing approximately
10.5% of PharmaCann’s issued and outstanding capital stock on a fully diluted basis as of the date of the PharmaCann Option, for an aggregate purchase
price of approximately $110,392. The option exercise will be based upon various factors, including the status of U.S. federal cannabis legalization, as well
as regulatory approvals, including in the states where PharmaCann operates that may be required upon exercise. The Company has deemed its influence in
PharmaCann to be non-significant. The PharmaCann Option is classified as an investment in an equity security without a readily determinable fair value.
The Company measures the PharmaCann Option at cost less accumulated impairment charges, if any, and subsequently adjusted for observable price
changes in orderly transactions for the identical or a similar investment of the same issuer. The PharmaCann Option is reported as other investments on the
consolidated balance sheet for the periods ended December 31, 2022 and 2021.

On February 28, 2022, PharmaCann closed its previously announced transaction with LivWell Holdings, Inc. (“LivWell”) pursuant to which PharmaCann
acquired LivWell (the “LivWell Transaction”). LivWell is a multi-state cannabis cultivation and retail leader based in Colorado. As a result of the LivWell
Transaction, the Company’s ownership percentage in PharmaCann on a fully diluted basis decreased to approximately 6.4%. As of December 31, 2022, the
Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 6.3%. 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 transfer all or any portion of the option (subject to certain exceptions). As a result, further dilution
could adversely affect the Company’s rights under the PharmaCann Option. The decrease in the Company’s ownership percentage since acquisition does
not materially affect the Company’s rights under the PharmaCann Option.

During the first, third and fourth quarters of 2022, the Company identified adverse forecast changes in the financial performance of PharmaCann as
indicators of impairment related to the PharmaCann Option and conducted analyses comparing the PharmaCann Option’s carrying amount to its estimated
fair value. The fair value was estimated using a combination of the income approach and the market approach. Under the income approach, significant
inputs used in the discounted cash flow method include discount rate, growth rates, and cash flow projections. Under the market valuation approach, the
key assumptions are the selected multiples and the discount for lack of marketability. As a result of these analyses, the Company recorded non-cash
impairment charges of $11,238. $28,972 and $21,182 in the first, third and fourth quarters of 2022, respectively, as the difference between the carrying
amount of the PharmaCann Option and its estimated fair value, in the consolidated statements of net income (loss) and comprehensive income (loss).

As of December 31, 2021, the Company performed an assessment on the existence of impairment indicators on the PharmaCann Option and noted no
indicators of impairment existed. As such, no impairment loss on the investment was recorded during the year ended December 31, 2021.

Vitura (formerly known as Cronos Australia)

On September 14, 2021, Cronos Australia (now, Vitura Health Limited) entered into a merger agreement to acquire 100% of the issued shares of CDA
Health Pty Ltd, an Australian medicinal cannabis company, subject to customary closing conditions, including shareholder approval (the “Cronos Australia
Merger”). The Cronos Australia Merger closed on December 16, 2021. In connection with the closing of the Cronos Australia Merger, all advances made
under the Company’s A$1,500 unsecured loan to Cronos Australia, plus accrued interest and certain royalties payable, were converted into ordinary shares
of Cronos Australia. In addition, the Company’s ownership interest in Cronos Australia decreased to approximately 10% and the Company’s number of
Cronos Australia board seats was reduced from two to zero. On November 29, 2022, the shareholders of Cronos Australia approved the proposal to change
the name of the company to “Vitura Health Limited” (the “CAU Name Change”). On December 2, 2022, in connection with the CAU Name Change,
Vitura and the Company mutually agreed to terminate the intellectual property license that granted Vitura the right to use certain intellectual property of the
Company, including, but not limited to, the “Cronos” name and the PEACE NATURALS brand. Vitura has 180 days following the date of termination to
cease all usage of the Company’s intellectual property. The reduction in ownership interest and loss of all board seats constituted a loss of significant
influence and resulted in a reclassification on the consolidated balance sheet from investments in equity method investments using the equity method of
accounting to other investments using the fair value method of accounting, with unrealized holding gains and losses included in net income (loss) on the
consolidated statements of net income (loss) and comprehensive income (loss).

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

The Company recorded a gain on revaluation of other investments of $14,739 and $8,287, included in the gain on revaluation of financial instruments on
the statements of net income (loss) and comprehensive income (loss), for the years ended December 31, 2022 and 2021, respectively. The Company’s
investment in Vitura was $21,993 and $8,000, included in other investments on the balance sheet, as of December 31, 2022 and 2021, respectively.

The following table summarizes the Company’s other investments activity:

As of January 1, 2022

Unrealized gain

Impairment charges

Foreign exchange effect

PharmaCann
Vitura

110,392 $
8,000
118,392 $

— $

14,739
14,739 $

(61,392) $
—
(61,392) $

(c)

Disposal of investments

The following is a summary of the Company’s gain from disposals of investments:

As of December 31, 2022
49,000
21,993
70,993

— $

(746)
(746) $

Aurora

(i)

Year ended December 31,

2022

2021

2020

—

4,789

(i)

During the year ended December 31, 2020, in connection with the achievement of certain milestones related to the Whistler Transaction, the Company received 980,662 common shares
of Aurora Cannabis Inc. (“Aurora”). The Company sold all 980,662 of the Aurora common shares during the year ended December 31, 2020, for gross proceeds of approximately $4,789,
resulting in a $4,789 gain on disposal of investments being recorded on the consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December
31, 2020.

4. Loans Receivable, net

Loans receivable, net consists of the following:

GrowCo Credit Facility
Add: Accrued interest

Total current portion of loans receivable

GrowCo Credit Facility
Mucci Promissory Note
Cannasoul Collaboration loan
Add: Long-term portion of accrued interest

Total long-term portion of loans receivable

Total loans receivable

As of December 31,

2022

2021

4,427 $
4,463
8,890
56,898
13,438
1,837
172
72,345
81,235 $

3,138
2,322
5,460
64,367
14,019
2,249
—
80,635
86,095

Cronos GrowCo Credit Facility
On August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into a senior secured credit agreement for an aggregate principal
amount of C$100,000 (the “GrowCo Credit Facility”). In August 2021, the GrowCo Credit Facility was amended to increase the aggregate principal
amount available to C$105,000. As a result of the increase in the aggregate principal amount of the GrowCo Credit Facility and lower than expected sales
forecasts from Cronos GrowCo, the Company revalued its allowance for credit loss on the GrowCo Credit Facility resulting in an increase in the allowance
of $12,748, which was recorded in general and administrative expenses on the consolidated statements of net income (loss) and comprehensive income
(loss) for the year ended December 31, 2021. In conjunction with the aforementioned revaluation, the Company changed its expected credit loss valuation
methodology from the historical credit loss method to the probability of default method. As of December 31, 2022 and 2021, Cronos GrowCo had drawn
C$104,000 ($76,730) and C$104,000 ($81,598), respectively, from the GrowCo Credit Facility. As of December 31, 2022, Cronos GrowCo had repaid
C$4,000 ($3,073) in principal under the terms of the GrowCo Credit Facility.

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

Mucci Promissory Note
On June 28, 2019, the Company entered into a promissory note receivable agreement (the “Mucci Promissory Note”) for C$16,350 (approximately
$12,063) with Mucci. The Mucci Promissory Note is secured by a general security agreement covering all the assets of Mucci. On September 30, 2022, the
Mucci Promissory Note was amended and restated to increase the interest rate from 3.95% to the Canadian Prime Rate plus 1.25%, change the interest
payments from quarterly to annual, and defer Mucci’s initial cash interest payment from September 30, 2022 to July 1, 2023. This debt modification
resulted in an increase of approximately C$180 ($140) in interest income.

Cannasoul Collaboration Loan
As of both December 31, 2022 and 2021, CLS has received ILS 8,297 (approximately $2,359 and $2,664, respectively), from the Cannasoul Collaboration
Loan. See Note 3 “Investments” for further information regarding the Cannasoul Collaboration Loan.

Expected credit loss allowances on the Company’s long-term financial assets were comprised of the following items:

GrowCo Credit Facility
Mucci Promissory Note
Cannasoul Collaboration Loan

GrowCo Credit Facility
Natuera Series A Loan
Mucci Promissory Note
Cannasoul Collaboration Loan

As of January 1, 2022

Increase (decrease)

(i)

Foreign exchange effect

As of December 31, 2022

14,089 $
90
415
14,594 $

(827) $
4
161
(662) $

(807) $
(5)
(54)
(866) $

12,455
89
522
13,066

As of January 1, 2021

Increase (decrease)

(i)

Foreign exchange effect

As of December 31, 2021

1,546 $
721
270
26
2,563 $

12,748 $
(737)
(183)
374
12,202 $

(205) $
16
3
15
(171) $

14,089
—
90
415
14,594

(i)

During the year ended December 31, 2021, $737 of expected credit losses on long-term financial assets was transferred to investments in equity method investments in relation to the
Natuera Debt Conversion, as the carrying amount of the loan receivable, net, approximated fair value as of the date of transfer. During the years ended December 31, 2022 and 2021,
$(662) and $12,939, respectively, were recorded to general and administrative expenses on the consolidated statements of net income (loss) and comprehensive income (loss) as a result
of adjustments to our expected credit losses.

5. Property, plant and equipment, net

Property, plant and equipment, net consisted of the following:

Cost

Land
Building and leasehold improvements
Machinery and equipment
Furniture and fixtures
Construction in progress
Less: accumulated depreciation
Less: accumulated impairment charges

Property, plant and equipment, net

As of December 31,

2022

2021

2,556 $

177,095
19,130
5,345
841
(35,347)
(109,063)

60,557 $

2,822
188,522
18,894
5,937
2,502
(30,306)
(114,301)
74,070

For the years ended December 31, 2022, 2021 and 2020, depreciation expense on property, plant and equipment was $8,667, $11,668 and $9,052,
respectively, and was included in cost of sales as well as depreciation and amortization in operating expenses on the consolidated statements of net income
(loss) and comprehensive income (loss).

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

Impairment of Long-lived Assets

During the first quarter of 2022, the Company recognized an impairment charge of $1,507 related to leasehold improvements and other office equipment
that it plans to include in any potential sublease agreement of the Company’s corporate headquarters, encompassing approximately 29,000 square feet, in
Toronto, Ontario, Canada. The determination to seek a sublease of the property and include leasehold improvements and other office equipment in any
potential sublease agreement triggered the impairment charges. The impairment charge was recognized as impairment loss on long-lived assets on the
consolidated statements of net income (loss) and comprehensive income (loss).

During the fourth quarter of 2021, the Company concluded that indicators of impairment were present with respect to its Canadian asset group in
connection with the previously anticipated wind-down and closure of the Company’s facility in Stayner, Ontario. As a result, the Company compared the
sum of the undiscounted future cash flows attributable to the Canadian asset group to their respective carrying amounts and recorded a non-cash
impairment charge on long-lived assets of $113,917 as the difference between the carrying amount of the asset group and its estimated fair value for the
year ended December 31, 2021, in the consolidated statements of net income (loss) and comprehensive income (loss).

During the third quarter of 2021, in connection with the Company’s reassessment of indicators of impairment relating to the U.S. segment’s property, plant
and equipment asset group for the quarter ended June 30, 2021, the Company concluded that triggers were present that indicated that the carrying amounts
of those assets were not recoverable. Accordingly, the Company compared the sum of the undiscounted future cash flows attributable to the U.S. asset
group (the lowest level for which identifiable cash flows are available) to their respective carrying amount and recorded a non-cash impairment charge on
long-lived assets of $1,214 for the difference between the carrying amount of the asset group and its estimated fair values in the consolidated statements of
net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

During the second quarter of 2021, the Company recognized an impairment charge of $1,039 related to leasehold improvements located within leased
premises, encompassing approximately 6,000 square feet, in Los Angeles, California, which the Company determined it no longer had plans to use. The
significant change in the extent and manner in which the leasehold improvements are being used and the expectation that, more likely than not, the
leasehold improvements will be disposed of before the end of their useful life triggered an impairment. The impairment charges were recognized in the
consolidated statements of net income (loss) and comprehensive income (loss) as an impairment loss on long-lived assets.

There were no impairment charges on property, plant and equipment during the year ended December 31, 2020.

6. Goodwill and Intangible Assets, net

(a)

Goodwill

Goodwill is comprised of the following items:

Peace Naturals
Redwood

Cost

As of December 31, 2022

Accumulated impairment
charges

1,033 $

213,414
214,447 $

— $

(213,414)
(213,414) $

As of December 31, 2021

Accumulated impairment
charges

1,098 $

213,414
214,512 $

— $

(213,414)
(213,414) $

Net

1,033
—
1,033

1,098
—
1,098

Impairment of Goodwill

Accumulated impairment charges on goodwill consist of:

Redwood

(213,414) $

— $

(213,414)

As of January 1, 2022

Impairment charges

Foreign exchange effect

As of December 31, 2022

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

Redwood

(35,000)

(178,414)

— $

(213,414)

As of January 1, 2021

Impairment charges

Foreign exchange effect

As of December 31, 2021

In 2019, the Company acquired all of the issued and outstanding shares of each of the four Redwood operating subsidiaries (collectively “Redwood”) for
an aggregate consideration of $283,300 (the “Redwood Acquisition”), which included $227,191 in cash and 5,086,586 common shares of the Company
with a fair value of $56,109. Goodwill attributable to the acquisition was $213,414. The Company is required to perform a quantitative analysis of goodwill
to test for impairment on an annual basis or more frequently when events or changes in circumstances indicate that fair value of the reporting unit may be
less than its carrying amount. Under ASC 350 Intangibles - Goodwill and Other, the qualitative assessment requires the consideration of factors such as
recent market transactions, macroeconomic conditions, and changes in projected future cash flows or planned revenue or earnings of the reporting unit as
indicators of impairment when determining the need for a quantitative assessment of impairment.

During the third quarter of 2021, the Company reassessed the existence of impairment indicators on goodwill associated with the U.S. reporting unit,
derived from the Redwood Acquisition, and the Lord Jones brand indefinite-lived intangible asset as of June 30, 2021, and determined that quantitative
impairment analyses were required as of June 30, 2021 due to slower actual revenue growth as compared to previous revenue growth forecasts and
significant pricing pressures brought about by increased competition and aggressive discounting in the U.S. reporting unit and associated with the Lord
Jones brand indefinite-lived intangible asset. As such, the Company reassessed its estimates and forecasts as of June 30, 2021, to determine the fair values
®
of the reporting unit and intangible asset using a discounted cash flow method on the reporting unit and the relief-from-royalty method on the Lord Jones
brand. Significant inputs include discount rates, growth rates, and cash flow projections, and, for the Lord Jones brand, royalty rate. These valuation
inputs are considered Level 3 inputs as defined by ASC 820 Fair Value Measurement. As a result of the analysis as of June 30, 2021, the Company
concluded that the carrying amount of the U.S. reporting unit exceeded its fair value, which resulted in the recognition of an impairment charge of
$178,414 on goodwill associated with its U.S. reporting unit on the consolidated statements of net income (loss) and comprehensive income (loss) for the
year ended December 31, 2021.

In June 2020, the Company concluded that the projected impact of the COVID-19 pandemic on its sales and revenues in the near term, together with the
volatility in the market conditions during the second quarter, represented indicators of impairment for the Company’s U.S. reporting unit. Accordingly, the
Company performed an interim impairment analysis as of June 30, 2020, which revealed the carrying amount of the reporting unit exceeded its fair value.
As a result, the Company recorded an impairment charge of $35,000 on goodwill associated with its U.S. reporting unit for the year ended December 31,
2020.

(b)

Intangible assets, net

Intangible assets, net are comprised of the following items:

Cost

Accumulated
amortization

Accumulated impairment
charges

Net

As of December 31, 2022

Software
Health Canada licenses
Ginkgo exclusive licenses
(i)
Israeli codes

Total definite-lived intangible assets

Lord Jones brand
Trademarks

Total intangible assets

6,037 $
8,269
27,676
292

42,274

64,000
142
106,416 $

(2,388) $
(1,771)
(1,854)
(49)

(6,062)

—
—
(6,062) $

(76) $

(6,498)
(4,434)
—

(11,008)

(62,500)
(142)
(73,650) $

3,573
—
21,388
243

25,204

1,500
—
26,704

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

Software
Health Canada licenses
Ginkgo exclusive licenses
(i)
Israeli codes

Total definite-lived intangible assets

Lord Jones brand
Trademarks

Total intangible assets

Cost

Accumulated
amortization

Accumulated impairment
charges

Net

As of December 31, 2021

5,644 $
8,793
17,330
330
32,097
64,000

142
96,239 $

(1,595) $
(1,883)
(335)
(39)
(3,852)
—

—
(3,852) $

(4) $

(6,910)
(4,752)
—
(11,666)
(62,500)

(142)
(74,308) $

4,045
—
12,243
291
16,579
1,500

—
18,079

(i)

The Israeli codes were transferred by non-controlling interests to Cronos Israel in exchange for their equity interests in the Cronos Israel entities.

Ginkgo Exclusive Licenses

CBGA

In August 2021, the Company achieved the final productivity target in respect of cannabigerolic acid (“CBGA”), under the Ginkgo Collaboration
Agreement. As a result, on August 21, 2021, the Company issued 1,467,490 common shares at a share price of C$7.90 for total consideration given of
C$11,593 ($9,042) to Ginkgo through the Ginkgo Collaboration Agreement for the achievement of commercialization and productivity milestones for
CBGA. The estimated fair value of the exclusive license for CBGA (the “CBGA Exclusive License”) was $7,300 determined using a variation of the
income approach called the relief-from-royalty method, which requires an estimate or forecast of the expected future cash flows. The definite-lived
intangible asset is being amortized using the straight-line method over its estimated useful life of 10 years. The difference between the consideration paid to
Ginkgo and the fair value of the exclusive license intangible asset of $1,784 was recognized as an impairment charge on the consolidated statements of net
income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

CBGVA

In November, 2021, the Company achieved the final productivity target in respect of cannabigerovarinic acid (“CBGVA”). As a result, on November 12,
2021, the Company issued 1,467,490 common shares at a share price of C$7.12 for total consideration given of C$10,449 ($8,150) to Ginkgo. The
estimated fair value of the exclusive license for CBGVA (the “CBGVA Exclusive License”) was $5,300 determined using a variation of the income
approach called the relief-from-royalty method, which requires an estimate or forecast of the expected future cash flows. The definite-lived intangible asset
is being amortized using the straight-line method over its estimated useful life of 10 years. The difference between the consideration paid to Ginkgo and the
fair value of the exclusive license intangible asset of $3,008 was recognized as an impairment charge on the consolidated statements of net income (loss)
and comprehensive income (loss) for the year ended December 31, 2021.

THCVA

In June 2022, the Company achieved the final productivity target in respect of tetrahydrocannabivaric acid (“THCVA”) under the Ginkgo Collaboration
Agreement. As a result, the Company issued 2,201,236 common shares at a share price of C$3.47, and made a cash payment of $600, for total
consideration of C$8,412 ($6,522) to Ginkgo through the Ginkgo Collaboration Agreement. The definite-lived intangible asset is being amortized using the
straight-line method over its estimated useful life of 10 years.

CBCA

In November 2022, the Company achieved the early commercialization milestone in respect of cannabichromenic acid (“CBCA”) under the Ginkgo
Collaboration Agreement. As a result, the Company issued 489,163 common shares at a share price of C$4.11 for total consideration of C$2,010 ($1,473)
to Ginkgo through the Ginkgo Collaboration Agreement. The definite-lived intangible asset is being amortized using the straight-line method over its
estimated useful life of 10 years.

CBCVA

In December 2022, the Company achieved the final productivity target in respect of cannabichromevarinic acid (“CBCVA”) under the Ginkgo
Collaboration Agreement. As a result, the Company issued 1,467,490 common shares at a share price of C$3.44 for total consideration of C$5,048 ($3,724)
to Ginkgo through the Ginkgo Collaboration Agreement. The definite-lived intangible asset is being amortized using the straight-line method over its
estimated useful life of 10 years.

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

For the years ended December 31, 2022, 2021 and 2020, the aggregate amortization expense on intangible assets was $2,751, $1,800 and $814,
respectively, and was included in depreciation and amortization in operating expenses on the consolidated statements of net income (loss) and
comprehensive income (loss).

The estimated future amortization of definite-lived intangible assets is as follows:

2023
2024
2025
2026
2027
Thereafter

As of December 31, 2022

3,498
3,483
3,207
2,643
2,435
9,938
25,204

Impairment of Intangible Assets

Accumulated impairment charges on intangible assets, net consist of:

Software
Health Canada licenses
Ginkgo exclusive licenses
Lord Jones brand
Trademarks

Software
Health Canada licenses
Ginkgo exclusive licenses
Lord Jones® brand
Trademarks

As of January 1, 2022

Impairment charges

Foreign exchange effect

As of December 31, 2022

(4) $

(6,910)
(4,752)
(62,500)
(142)
(74,308) $

(76) $
—
—
—
—
(76) $

4 $

412
318
—
—
734 $

(76)
(6,498)
(4,434)
(62,500)
(142)
(73,650)

As at January 1, 2021

Impairment charges

Foreign exchange effect

As at December 31, 2021

— $

(1,053)
—
(5,000)
—
(6,053) $

(4) $

(5,951)
(4,792)
(57,500)
(142)
(68,389) $

— $
94
40
—
—
134 $

(4)
(6,910)
(4,752)
(62,500)
(142)
(74,308)

During the fourth quarter of 2021, in connection with the previously anticipated wind-down and closure of the Company’s facility in Stayner, Ontario, the
Company determined that the Peace Naturals Health Canada license associated with ongoing use of the Peace Naturals Campus for cannabis cultivation
and production was also impaired. Accordingly, the Company recorded an impairment loss on long-lived assets in its ROW segment of $5,951 in the
consolidated statements of net income (loss) and comprehensive income (loss) for the year ended December 31, 2021.

As mentioned above, during third and fourth quarter of 2021, the fair value of each of the Company’s Ginkgo exclusive licenses for two cannabinoids that
achieved productivity milestones in 2021 were deemed to be lower than the consideration paid for each of those licenses. As a result, the Company
recorded an aggregate impairment loss of $4,792 on long-lived assets for the year ended December 31, 2021 in the consolidated statements of net income
(loss) and comprehensive income (loss).

During the third quarter of 2021, the Company concluded the carrying amount of the Lord Jones brand exceeded its fair value, which resulted in
impairment charges of $56,500 on its Lord Jones brand in the consolidated statements of net income (loss) and comprehensive income (loss) for the year
ended December 31, 2021. Additionally, in the fourth quarter of 2021, due to the U.S. segment’s sustained operating losses and lack of revenue growth, the
Company performed an additional impairment test on Lord Jones brand intangible asset. As a result, the Company concluded the carrying amount of the
Lord Jones brand exceeded its fair value, which resulted in an additional impairment charge of $1,000 on its Lord Jones brand for the year ended
December 31, 2021 in the consolidated statements of net income (loss) and comprehensive income (loss).

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

In June 2020, the Company concluded that the projected impact of the COVID-19 pandemic on its sales and revenues in the near term, together with the
volatility in the market conditions during the quarter, represented indicators of impairment for the U.S. reporting unit’s Lord Jones brand. Accordingly, the
Company performed an interim impairment analysis as of June 30, 2020, which concluded the carrying amount of the brand exceeded its fair value. As a
result of the analysis, the Company recorded an impairment loss on indefinite-lived intangible assets of $5,000 on the consolidated statements of net
income (loss) and comprehensive income (loss) for the year ended December 31, 2020.

Impairment charges on the Company’s Health Canada licenses for the year ended December 31, 2020 are related to the discontinuation of Original B.C.
Ltd. (“OGBC”).

7. Leases

The Company has entered into leases primarily for the land-use rights, office premises and equipment used in the production of cannabis, U.S. hemp-
derived cannabinoids and other related products. The Company’s leases have terms that range from three years to six years, excluding land use rights,
which generally extend to 15 years. These leases often include options to extend the term of the lease for up to 10 years. When it is reasonably certain that
the option will be exercised, the impact of the option is included in the lease term for purposes of determining total future lease payments.

Operating leases greater than one year are included in right-of-use assets and operating lease liabilities. Finance leases are included in property, plant and
equipment on the Company’s consolidated balance sheet. The Company’s finance leases were not material for any of the periods presented.

Lease cost

Operating lease cost
Short-term lease cost

Total lease cost

Supplemental cash flow and other information

Operating cash flows - cash paid for operating lease obligations
Non-cash activity - right-of-use assets obtained in exchange for lease
obligations

Weighted-average remaining lease term (years) – operating leases
Weighted-average discount rate – operating leases

2022

As of December 31,

2021

2020

2,209
—
2,209

2,491

443

4.0
7.19 %

2,530
10
2,540

2,458

3,277

4.3
7.65 %

2,479
60
2,539

2,414

5,332

5.5
8.86 %

For the years ended December 31, 2022, 2021 and 2020, the aggregate depreciation expense on right-of-use assets was $1,704, $1,934 and $1,310,
respectively, and was included in general and administrative expenses on the consolidated statements of net income (loss) and comprehensive income
(loss).

During the year ended December 31, 2022, the Company recognized an impairment charge of $1,986 related to the right-of-use lease asset associated with
the Company’s corporate headquarters, encompassing approximately 29,000 square feet, in Toronto, Ontario, Canada, for which the Company determined
it would seek a sublease.

During the year ended, December 31, 2021, the Company recognized an impairment charge of $702 related to the right-of-use asset associated with leased
premises, encompassing approximately 6,000 square feet, in Los Angeles, California, which the Company determined it no longer had plans to use. The
significant change in the extent and manner in which the leased asset was being used and the expectation that, more likely than not, the leased asset would
be abandoned before the end of the lease term triggered an impairment.

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

The following is a summary of the Company’s future minimum lease payments under operating leases for its premises due in future fiscal years:

As of December 31, 2022

2023
2024
2025
2026
2027
Thereafter
Total lease payments

Less: imputed interest

Present value of lease liabilities

1,648
1,186
1,049
262
104
556
4,805
(929)
3,876

In addition to the minimum lease payments, the Company is required to pay realty taxes and other occupancy costs in accordance with the terms of the
lease agreements.

8. Derivative Liabilities

On March 8, 2019, the Company closed the previously announced investment in the Company (the “Altria Investment”) by Altria Group Inc. (“Altria”),
pursuant to a subscription agreement dated December 7, 2018. As of the closing date of the Altria Investment, the Altria Investment consisted of
149,831,154 common shares of the Company and one warrant of the Company (the “Altria Warrant”), issued to a wholly owned subsidiary of Altria. As of
the closing date of the Altria Investment, Altria beneficially held an approximate 45% ownership interest in the Company (calculated on a non-diluted
basis). As summarized in this note, if exercised in full on such date, the exercise of the Altria Warrant would have resulted in Altria holding a total
ownership interest in the Company of approximately 55% (calculated on a non-diluted basis). On December 16, 2022, Altria notified the Company that it
was irrevocably relinquishing all of its rights, title and interest in the Altria Warrant, effective immediately. As a result, the Company’s liability associated
with the Altria Warrant was reduced to nil, with the change recorded to gain on revaluation of derivative liabilities for the year ended December 31, 2022.

Pursuant to the investor rights agreement between the Company and Altria, entered into in connection with the closing of the Altria Investment (the
“Investor Rights Agreement”), the Company granted Altria certain rights, among others, summarized in this note.

The summaries below are qualified entirely by the terms and conditions fully set out in the Investor Rights Agreement and the Altria Warrant, as
applicable.

a. The Altria Warrant entitled the holder, subject to certain qualifications and limitations, to subscribe for and purchase up to an additional 10% of
the common shares of Cronos at a per share exercise price of C$19.00, which was set to expire on March 8, 2023. The Altria Warrant was
irrevocably relinquished by Altria on December 16, 2022.

b. The Company granted to Altria, subject to certain qualifications and limitations, upon the occurrence of certain issuances of common shares of the
Company executed by the Company (including issuances pursuant to the research and development (“R&D”) partnership with Ginkgo, (refer to
Note 9 “Commitments and Contingencies”), the right to purchase up to such number of common shares of the Company in order to maintain their
ownership percentage of issued and outstanding common shares of the Company immediately preceding any issuance of shares by the Company
(“Pre-emptive Rights”), at the same price per common share of the Company at which the common shares are sold in the relevant issuance;
provided that if the consideration paid in connection with any such issuance is non-cash, the price per common share of the Company that would
have been received had such common shares been issued for cash consideration will be determined by an independent committee (acting
reasonably and in good faith); provided further that the price per common share of the Company to be paid by Altria pursuant to its exercise of its
Pre-emptive Rights related to the Ginkgo Collaboration Agreement will be C$16.25 per common share. These rights may not be exercised if
Altria’s ownership percentage of the issued and outstanding shares of the Company falls below 20%.

100

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

In addition to (and without duplication of) the Pre-emptive Rights, the Company granted to Altria, subject to certain qualifications and limitations,
the right to subscribe for common shares of the Company issuable in connection with the exercise, conversion or exchange of convertible
securities of the Company issued prior to March 8, 2019 or thereafter (excluding any convertible securities of the Company owned by Altria or
any of its subsidiaries), a share incentive plan of the Company, the exercise of any right granted by the Company pro rata to all shareholders of the
Company to purchase additional common shares and/or securities of the Company, bona fide bank debt, equipment financing or non-equity
interim financing transactions that contemplate an equity component or bona fide acquisitions (including acquisitions of assets or rights under a
license or otherwise), mergers or similar business combination transactions or joint ventures involving the Company in order to maintain their
ownership percentage of issued and outstanding common shares of the Company immediately preceding any such transactions (“Top-up Rights”).

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 10-day
volume-weighted average price of the common shares of the Company on the TSX for the 10 full days preceding such exercise by Altria; provided that the
price per common share of the Company to be paid by Altria pursuant to the exercise of its Top-up Rights in connection with the issuance of common
shares of the Company pursuant to the exercise of options or warrants that were outstanding as of March 8, 2019 will be C$16.25 per common share
without any set off, counterclaim, deduction, or withholding. These rights may not be exercised if Altria’s ownership percentage of the issued and
outstanding shares of the Company falls below 20%. The Altria Warrant, Pre-emptive Rights, and fixed price Top-up Rights have been classified as
derivative liabilities on the Company’s consolidated balance sheet.

As of December 31, 2022, Altria beneficially held 156,573,537 of the Company’s common shares, an approximate 41% ownership interest in the Company
(calculated on a non-diluted basis).

Reconciliations of the carrying amounts of the derivative liability are presented below:

(a) Altria Warrant
(b) Pre-emptive Rights
(c) Top-up Rights

As of January 1, 2022

Gain on revaluation

Foreign exchange effect

As of December 31, 2022

13,720 $
180
475
14,375 $

(13,431) $
(179)
(450)
(14,060) $

(289) $
(1)
(10)
(300) $

—
—
15
15

As of January 1, 2021

Gain on revaluation

Foreign exchange effect

As of December 31, 2021

138,858 $
12,095
12,457
163,410 $

(127,099) $
(12,102)
(12,159)
(151,360) $

1,961 $
187
177
2,325 $

13,720
180
475
14,375

Fluctuations in the expected life of the derivative instruments and the Company’s share price are primary drivers for the changes in the derivative
valuations during each reporting period. As the period of time the derivative liability is expected to be outstanding decreases and the share price decreases,
the fair value typically decreases for each related derivative instrument. Weighted-average expected life and share price are two of the significant
observable inputs used in the fair value measurement of each of the Company’s derivative instruments.

The fair values of the derivative liabilities were determined using the Black-Scholes pricing model using the following inputs:

Share price at valuation date (per share in C$)
Subscription price (per share in C$)
Weighted average risk-free interest rate

(i)

Weight average expected life (in years)

(ii)

Expected annualized volatility
Expected dividend yield

(iii)

101

As of December 31, 2022

Pre-emptive Rights
$3.44
$16.25
4.14%

Top-up Rights
$3.44
$16.25
4.28%

0.25

73%
—%

0.59

73%
—%

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

Share price at valuation date (per share in C$)
Subscription price (per share in C$)
Weighted average risk-free interest rate

(i)

Weight average expected life (in years)

(ii)

Expected annualized volatility
Expected dividend yield

(iii)

As of December 31, 2021

Altria Warrant
$4.98
$19.00
0.79%

Pre-emptive Rights
$4.98
$16.25
0.39%

Top-up Rights
$4.98
$16.25
0.50%

1.18

80%
—%

0.50

80%
—%

0.80

80%
—%

(i)

(ii)

(iii)

The risk-free interest rate was based on Bank of Canada government treasury bills and bonds with a remaining term equal to the expected life of the derivative liabilities. As of December 31,
2022 and December 31, 2021, the risk-free interest rate uses a range of approximately 3.81% to 4.37% and 0.16% to 1.10%, respectively, for the Pre-emptive Rights and Top-up Rights.

The expected life represents the period of time, in years, that the derivative liabilities are expected to be outstanding. The expected life of the Pre-emptive Rights and Top-up Rights is
determined based on the expected term of the underlying options, warrants, and shares, to which the Pre-emptive Rights and Top-up Rights are linked. As of December 31, 2022 and
December 31, 2021, the expected life uses a range of approximately 0.25 years to 2.75 years and 0.25 years to 3.75 years, respectively.

Volatility was based on an equally weighted blended historical and implied volatility level of the underlying equity securities of the Company.

The following table quantifies each of the significant inputs described above and provides a sensitivity analysis of the impact on the reported values of the
derivative liabilities. The sensitivity analysis for each significant input is performed by assuming a 10% decrease in the input while other significant inputs
remain constant at management’s best estimate as of the respective dates. While a decrease in the inputs noted below would cause a decrease in the carrying
amount of the derivative liability, there would also be an equal and opposite impact on net income (loss).

Share price at issuance date
Weighted average expected life
Expected annualized volatility

10% decrease as of December 31, 2022

Pre-emptive Rights

Top-up Rights

— $
—
—

4
5
6

10% decrease as of December 31, 2021

Altria Warrant

Pre-emptive Rights

Top-up Rights

3,970 $
2,971
5,402

80 $
171
96

123
133
155

These inputs are classified in Level 3 on the fair value hierarchy and are subject to volatility and several factors outside the Company’s control, which
could significantly affect the fair value of these derivative liabilities in future periods.

102

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

9. Commitments and Contingencies

(a)

Commitments

R&D commitments

(i) Ginkgo. On September 4, 2018, the Company announced an R&D partnership with Ginkgo to develop scalable and consistent production of a
variety of certain common and lesser-known cannabinoids. As part of this partnership, Cronos agreed to issue up to 14,674,903 common shares
of the Company (aggregate value of approximately $100,000 as of July 17, 2018 assuming all milestones are met, collectively the “Ginkgo
Equity Milestones”) in tranches and $22,000 in cash subject to Ginkgo’s achievement of certain milestones and to fund certain R&D expenses,
including foundry access fees. During the years ended December 31, 2022 and December 31, 2021, 4,157,888 shares and 2,934,980 shares,
respectively, of the Company’s common stock were issued in conjunction with this partnership. No shares were issued for the year ended
December 31, 2020.

(ii)

Technion. On October 15, 2018, the Company entered into a sponsored research agreement with the Technion Research and Development
Foundation of the Technion – Israel Institute of Technology (“Technion”). Research was focused on the use of cannabinoids and their role in
regulating skin health and skin disorders. This research was conducted by Technion over a three-year period and concluded during the fourth
quarter of 2021. During the year ended December 31, 2021, the Company funded $60 of cash payments related to this agreement. The Company
had no further funding requirements as of both December 31, 2022 and December 31, 2021.

On February 18, 2019, the Company entered into an agreement with a wholly owned subsidiary of Altria (which agreement was subsequently amended and
restated to substitute Altria Pinnacle as a party thereto), to receive strategic advisory and project management services from Altria Pinnacle (the “Services
Agreement”). Pursuant to the Services Agreement, the Company will pay Altria Pinnacle a monthly fee equal to the product of 105% and the sum of: (i) all
costs directly associated with the services incurred during the monthly period, and (ii) a reasonable and appropriate allocation of indirect costs incurred
during the monthly period. The Company will also pay all third-party direct charges incurred during the monthly period in connection with the services,
including any reasonable and documented costs, fees and expenses associated with obtaining any consent, license or permit. The Services Agreement will
remain in effect until terminated by either party. See Note 15 “Related Party Transactions.”

(b)

Contingencies

The Company is subject to various legal proceedings in the ordinary course of its business and in connection with its marketing, distribution and sale of its
products. Many of these legal proceedings are in the early stages of litigation and seek damages that are unspecified or not quantified. Although 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.

(i) 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 Chief Executive Officer and now former Chief Financial Officer. The court has consolidated the
cases, and the consolidated amended complaint alleges violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule
10b-5 promulgated thereunder against all defendants, and Section 20(a) of the Exchange Act against the individual defendants. The consolidated amended
complaint generally alleges that certain of the Company’s prior public statements about revenues and internal control were incorrect based on the
Company’s disclosures relating to the Audit Committee of the Board of Director’s review of the appropriateness of revenue recognized in connection with
certain bulk resin purchases and sales of products through the wholesale channel. The consolidated amended complaint does not quantify a damage request.
Defendants moved to dismiss on February 8, 2021.

103

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

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. The Amended Statement of Claim names (i) the Company, (ii) its Chief Executive Officer, (iii) now former Chief Financial Officer,
(iv) former Chief Financial Officer and Chief Commercial Officer, and (v) current and former members of the Board of Directors (the “Board”) as
defendants and alleges breaches of the Ontario Securities Act, oppression under the Ontario Business Corporations Act and common law misrepresentation.
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. 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. The plaintiff appealed the Court’s dismissal of the motions only with respect to the Company, the Chief Executive Officer, 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. 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.

(ii) Regulatory reviews relating to restatements

The Company has been responding 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”). The Company has been responding to all such requests for information and cooperating with all regulatory
authorities.

U.S. Securities and Exchange Commission Settlement

On October 24, 2022, the U.S. Securities and Exchange Commission (“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 “SEC Order”) resolving the Restatements.

The Company has agreed to settle with the SEC, without admitting or denying the allegations described in the SEC Order. The SEC 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.

The SEC 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. 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.

As a result of the SEC 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. Private Securities Litigation Reform Act of 1995 for a period of three years.

OSC Settlement

On October 24, 2022, the Ontario Capital Markets Tribunal approved a settlement agreement (the “OSC Settlement”) between the Company and the staff
of the Ontario Securities Commission (the “OSC”), resolving the Restatements.

Pursuant to the terms of the OSC Settlement, 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. 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 SEC Order.

104

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

(iii) 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. 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. 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. The Company has not responded to the Third Amended Statement of 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.

The Company expects litigation and regulatory proceedings relating to the marketing, distribution and sale of its products to increase.

10. Share-based Compensation

(a)

Share-based award plans

The Company has granted stock options, RSUs and DSUs to employees and non-employee directors under the Stock Option Plan dated May 26, 2015 (the
“2015 Stock Option Plan”), the 2018 Stock Option Plan dated June 28, 2018 (the “2018 Stock Option Plan” and, together with the 2015 Stock Option Plan,
the “Prior Option Plans”), the Employment Inducement Award Plan #1 (the “Employment Inducement Award Plan”), the 2020 Omnibus Equity Incentive
Plan dated March 29, 2020 (the “2020 Omnibus Plan”) and the DSU plan dated August 10, 2019 (the “DSU Plan”). The Company can no longer make
grants under the Prior Option Plans or the Employment Inducement Award Plan.

The following table summarizes the total share-based compensation associated with the Company’s stock options and RSUs:

Stock options
RSUs
Liability-classified awards

(i)

Total share-based compensation

2022

2021

2020

Year ended December 31,

6,778 $
7,740
597
15,115 $

7,604 $
2,547
—
10,151 $

7,185
8,176
—
15,361

(i)

Represents share-based compensation awards conditionally approved for grant to one of the Company’s former executives for a fixed monetary value, but a variable number of shares.
These awards were liability-classified until the number of shares was determined.

(b)

Stock options

The Company adopted the 2015 Stock Option Plan, which was approved by shareholders of the Company at the annual general meeting of shareholders
held on June 28, 2017. The 2015 Stock Option Plan allowed the Board to award options to purchase shares to directors, officers, key employees and service
providers of the Company. As of June 28, 2018, no further awards will be granted under the 2015 Stock Option Plan; however, shares may be purchased
via option exercise by the holders of any outstanding options previously issued under the 2015 Stock Option Plan.

On June 28, 2018, the shareholders of the Company approved the 2018 Stock Option Plan, which replaced the 2015 Stock Option Plan. The 2018 Stock
Option Plan terminated the Company’s ability to grant equity under the 2015 Stock Option Plan. As of June 25,

105

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

2020, the date on which the 2020 Omnibus Plan was approved by the shareholders of the Company, no further awards will be granted under the 2018 Stock
Option Plan; however, shares may be purchased via option exercise by the holders of any outstanding options previously issued under the 2018 Stock
Option Plan.

On March 29, 2020, the Board adopted the 2020 Omnibus Plan, which was approved by the shareholders of the Company at the annual and special meeting
of shareholders held on June 25, 2020. The 2020 Omnibus Plan provides for grants of stock options, share appreciation rights, restricted shares, RSUs and
other share-based or cash-based awards, which are subject to terms as determined by the Compensation Committee of the Board (the “Compensation
Committee”), and awards may be granted to eligible employees, non-employee directors and consultants. The 2020 Omnibus Plan terminated the
Company’s ability to grant equity awards under the 2018 Stock Option Plan and RSUs under the Employment Inducement Award Plan.

Options represent the right to purchase Company common shares on the date of exercise at a stated exercise price. The exercise price of an option generally
must be at least equal to the fair market value of the Company common shares on the date of grant. Vesting conditions for grants of options are determined
by the Compensation Committee. The typical vesting for stock option grants is quarterly vesting over three to five years. The maximum term of options
granted under the 2020 Omnibus Plan is seven years. Participants under the 2020 Omnibus Plan are eligible to be granted options to purchase shares at an
exercise price established upon approval of the grant by the Compensation Committee. When options are granted, the exercise price is, with respect to a
particular date, the closing price as reported by the TSX or the Nasdaq and, if the shares are not traded on the TSX or the Nasdaq, any other stock exchange
on which the Company’s common shares are traded (as selected by the Compensation Committee in good faith taking into account applicable legal and tax
requirements) on the immediately preceding trading day (the “Fair Market Value”). The 2020 Omnibus Plan does not authorize grants of options with an
exercise price below the Fair Market Value.

The following is a summary of the changes in options:

Balance as of January 1, 2022

Issuance of options
Exercise of options
Cancellation, forfeiture and expiry of options

Balance as of December 31, 2022
Exercisable at December 31, 2022

Balance as of January 1, 2021

Issuance of options
Exercise of options
Cancellation, forfeiture and expiry of options

Balance as of December 31, 2021
Exercisable at December 31, 2021

Weighted average exercise
price (C$)

(i)

Number of options

Weighted average remaining
contractual term (years)

7.75
4.20
2.79
5.74
10.57

11.48

8,939,330
113,947
(2,735,985)
(966,692)
5,350,600

3,867,887

2.70

0.73

0.66

Weighted average exercise
price (C$)

(i)

Number of options

Weighted average remaining
contractual term (years)

5.40
9.19
2.11
12.37
7.75

6.69

13,755,148
900,000
(5,598,695)
(117,123)
8,939,330

5,836,616

2.30

2.70

1.37

(i)

The weighted average exercise price reflects the conversion of foreign currency-denominated stock options translated into C$ using the average foreign exchange rate as of the date of
issuance.

106

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

For the years ended December 31, 2022 and 2021, the fair value per option at grant date was C$2.94 and C$6.39, respectively. The fair value of the options
issued during the year was determined using the Black-Scholes option pricing model, using the following inputs:
2022
C$4.20
C$4.20
3.14%
7
73%
—
C$2.94
—

Share price at grant date (per share)
Exercise price (per option)
Risk-free interest rate
Expected life of options (in years)
Expected annualized volatility
Expected dividend yield
Weighted average Black-Scholes value at grant date (per option)
Forfeiture rate

2021
C$9.19
C$9.19
1.39%
7
75%
—
C$6.39
—

(i)

The expected life of the awards represents the period of time options are expected to be outstanding and is estimated considering vesting terms and employees’ and non-employees’
historical exercise and, where relevant, post-vesting employment termination behavior. Volatility was estimated by using the historical volatility of the Company’s share price, adjusted
for the Company’s expectation of volatility going forward. The risk-free interest rate was based on the Bank of Canada government bonds with a remaining term equal to the expected life
of the options at the grant date.

The following table summarizes stock options outstanding:

2020 Omnibus Plan
2018 Stock Option Plan
2015 Stock Option Plan

Total stock options outstanding

(c)

Restricted share units

Options outstanding as of December 31,

2022

2021

2020

2,788,947
1,422,069
1,139,584
5,350,600

2,900,000
1,550,074
4,489,256
8,939,330

2,000,000
1,627,715
10,127,433
13,755,148

RSUs are granted under the 2020 Omnibus Plan. RSUs represent an equivalent amount of Company common shares on the date of issuance at fair value.
Fair value is determined using the closing price of the trading day immediately preceding the date of grant. RSUs issued under the 2020 Omnibus Plan
typically vest over a three-year period following the grant date and have no performance requirements.

The following is a summary of the changes in RSUs:

Weighted average grant date fair value (C$)

(iii)

Number of RSUs

(i)(ii)

Balance at January 1, 2022
Granted
Vested and issued
Cancellation and forfeitures

Balance at December 31, 2022

(i)

Balance at January 1, 2021
Granted
Vested and issued
Cancellation and forfeitures

Balance at December 31, 2021

9.22
4.27
7.40
5.08
4.63

Weighted average grant date fair value (C$)

(ii)

Number of RSUs

7.66
11.06
7.57
8.03
9.22

1,225,870
6,140,492
(1,151,292)
(489,600)
5,725,470

948,357
576,876
(158,178)
(141,185)
1,225,870

(i)

(ii)

(iii)

RSUs granted in the period vest annually in equal installments over a three-year period from either the grant date or after a three or five year “cliff-period.” All RSUs are subject to such
holder’s continued employment through each vesting date. The vesting of such RSUs is not subject to the achievement of any performance criteria.

Equity grants for 2020, 2021 and 2022 were held back for certain executives of the Company in connection with ongoing investigations by the SEC and the OSC, which were
subsequently settled on October 24, 2022. On August 5, 2022, the Compensation Committee approved the release of these held-back equity grants conditioned upon settlement of the
SEC and OSC investigations. These RSUs vest in equal installments over a period of three years from what would have been their original grant dates had the grants not been withheld.

The weighted-average grant date fair value reflects the conversion of foreign currency-denominated RSUs translated into C$ using the foreign exchange rate as of the date of issuance.

107

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

(d)

Deferred share units

On August 10, 2019, the Company established the DSU Plan pursuant to which its non-executive directors receive DSUs for Board services. The DSU Plan
is designed to promote a greater alignment of long-term interests between non-executive directors and shareholders. The number of DSUs granted under
the DSU Plan (including fractional DSUs) is determined by dividing the amount of remuneration payable by the closing price as reported by the TSX for
awards made prior to 2022 and as reported by Nasdaq for awards made in 2022 on the trading day immediately preceding the date of grant. DSUs are
payable at the time a non-executive director ceases to hold the office of director for any reason and are settled by a lump-sum cash payment, in accordance
with the terms of the DSU Plan, based on the fair value of the DSUs at such time. The fair value of the cash payout is determined by multiplying the
number of DSUs vested at the payout date by the closing price as reported by the TSX for awards made prior to 2022 and as reported by Nasdaq for awards
made in 2022 on the trading day immediately preceding the payout date. The fair value of the cash payout is determined at each reporting date based on the
fair value of the Company’s common shares at the reporting date and is recorded within other liabilities.

The following is a summary of the changes in DSUs:

Balance at January 1, 2022
Granting and vesting of DSUs
Gain on revaluation

Balance at December 31, 2022

Balance at January 1, 2021
Granting and vesting of DSUs
Liabilities settled
Loss on revaluation

Balance at December 31, 2021

(e)

Warrants

The following is a summary of the changes in warrants:

Balance as of January 1, 2021

Exercise of warrants

Balance as of December 31, 2021

As of December 31, 2022, there were no warrants outstanding.

(f)

Liability-classified awards

Financial liability

Number of DSUs

408
443
(177)
674

Financial liability

Number of DSUs

577 $
354
(203)
(320)
408 $

104,442
161,290
—
265,732

83,293
48,913
(27,764)
—
104,442

Weighted average exercise price (C$)

Number of warrants

0.25
0.25
—

7,987,349
(7,987,349)
—

During the year ended December 31, 2022, the Compensation Committee conditionally approved the grant to one of the Company’s former executives of
share-based compensation awards for a fixed monetary amount, but a variable number of common shares. These awards were liability-classified until the
number of common shares was determined.

Balance as of January 1, 2022

Grants
Transfers to equity awards

Balance as of December 31, 2022

As of December 31, 2021, there were no liability-classified awards outstanding.

108

Financial liability

—
597
(597)
—

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

11. Income Taxes

For financial reporting purposes, loss from continuing operations before income taxes includes the following components:

Rest of World
United States

Total

Year ended December 31,

2022

2021

2020

(55,502) $
(79,057)
(134,559) $

(116,267) $
(280,868)
(397,135) $

12,679
(85,952)
(73,273)

The loss before income taxes above excludes losses from discontinued operations of $nil, $500 and $650 for the year ended December 31, 2022, 2021 and
2020, respectively.

Income tax expense (benefit) consists of the following components:

Current:

Rest of World
United States
Total

Deferred:

Rest of World
United States
Total

Year Ended December 31,

2022

2021

2020

34,416 $
—
34,416 $

(241) $
—
(241) $

(382) $
(89)
(471) $

40 $
—
40 $

1,024
323
1,347

—
—
—

As of December 31, 2022, 2021 and 2020, the Company’s current income taxes payable were $32,956, $105 and $865, respectively, related to current
income tax expense. Included in other receivables as of December 31, 2022, 2021 and 2020 is $40, $543 and $nil, respectively, related to current income
tax benefits.

109

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

Income tax differs from that computed using the combined Canadian federal and provincial statutory income tax rate of 26.5%. Reconciliation of the
expected income tax to the effective tax rate in continuing operations is as follows:

Loss before income taxes
Effective income tax rate
Expected income tax benefit

Non-taxable income (loss)
Non-deductible share-based compensation
Non-deductible expenses
Non-deductible transaction costs
Effect of provincial tax rate difference
Effect of tax rates outside of Canada
Effect of change in tax rates
Fair value gain on financial liabilities
Changes in valuation allowance
Capital gain on financial liabilities
Other

Income tax expense (benefit), net

Year ended December 31,

2022

2021

2020

(134,559)

26.5 %

(35,658)

(397,135)

$ $

26.5 %

(105,241)

(73,273)

26.5 %

(19,417)

(2,140)
1,198
836
1,625
(15)
1,848
11,041
(3,726)
(6,873)
66,193
(154)
34,175

39
1,667
53
2,917
(1)
(1,869)
—
(40,111)
141,639
—
476
(431)

(711)
2,498
1,364
3,146
(15)
(362)
—
(34,250)
48,227
—
867
1,347

The valuation allowance recorded against the loss on discontinued operations is not reflected in the effective tax rate reconciliation presented above for
continuing operations.

For the year ended December 31, 2022, the Company realized a capital gain for tax purposes of $479,800 as a result of Altria’s irrevocable relinquishment
of the Altria Warrant on December 16, 2022, resulting in an increase in the total income tax expense reported for the year ended December 31, 2022.

110

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

The following table summarizes the significant components of the Company’s deferred tax assets and liabilities:

As of December 31,

2022

2021

Deferred assets:

Tax loss carryforwards
Interest expense carryforwards
Deferred financing costs
Share issuance cost
Finance lease obligation
Plant and equipment
Investment
Intangible asset
Inventory
Reserve
R&D investment tax credits
Other
Total deferred tax assets
Less valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Right-of-use assets
Unrealized foreign exchange
Total deferred tax liabilities
Net deferred tax asset (liability)

(i)

98,074 $
2,533
1,311
196
690
37,662
13,359
53,365
1,287
2,972
293
3,099
214,841
(214,199)
642

(365)
(84)
(449)
193 $

111,373
1,047
2,788
834
1,847
38,119
900
65,088
—
3,633
—
1,450
227,079
(224,776)
2,303

(1,860)
(483)
(2,343)
(40)

(i)

Net deferred tax asset (liability) is reported as Other assets within our consolidated balance sheet.

The realization of deferred tax assets is dependent on the Company’s generating sufficient taxable income in the years that the temporary differences
become deductible. A valuation allowance has been provided for the deferred tax assets that the Company determined did not meet the more-likely-than-
not recognition threshold under U.S. GAAP.

As of December 31, 2022 and 2021, the Company’s valuation allowance was $214,199 and $224,776, respectively. The valuation allowance decreased by
$10,577 during the year ended December 31, 2022, and increased by $138,841 during the year ended December 31, 2021. The decrease in the valuation
allowance during the year ended December 31, 2022, was primarily due to the recognition of a portion of deferred tax assets for which a valuation
allowance was recorded in the prior year.

As of December 31, 2022, the Company had net operating losses in Canada, the U.S., and Israel available to offset future years’ taxable income of
approximately $216,120, $134,593, $18,739, respectively. As of December 31, 2021, the Company had net operating losses in Canada, the U.S., and Israel
available to offset future years’ taxable income of approximately $276,497, $117,983, and $24,843, respectively. The net operating losses in Canada will
begin to expire, for purposes of carryforward, in fiscal year 2033. The net operating losses in the U.S. can be carried forward indefinitely for federal
purposes. The net operating losses in Israel can be carried forward indefinitely. The decrease in net operating loss carry-forward balance reported in Canada
was primarily due to the Company utilizing a portion of its net operating loss carry-forward balance in Canada to offset a portion of the capital gain
realized as a result of Altria’s irrevocable relinquishment of the Altria Warrant on December 16, 2022.

Utilization of the net operating loss carryforwards may be subject to limitations under the tax laws applicable in each tax jurisdiction due to ownership
changes that could occur in the future. These ownership changes could limit the amount of net operating loss carryforwards and other deferred tax assets
that can be utilized to offset future taxable income and tax expense. Due to the existence of the valuation allowance, limitations created by ownership
changes, if any, will not impact the Company’s effective tax rate.

As of December 31, 2022, the Company has various scientific research and experimental development investment tax credit carryforwards of $293 related
to Canadian operations, which, if not utilized, will begin to expire in 2040. Investment tax credits are recognized when realization of the tax credits is more
likely than not.

The Company files federal income tax returns in Canada, Israel and the U.S. The Company has open tax years with the taxation jurisdictions. These open
years contain certain matters that could be subject to differing interpretations of applicable tax laws and

111

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

regulations and tax treaties, as they relate to the amount, timing, or inclusion of revenue and expense. As of December 31, 2022, Peace Naturals is under
examination with the Canadian Reserve Agency for tax years 2019 and 2020.
Jurisdiction
Canada
United States
Israel

Open Years
2018 – 2022
2019 – 2022
2019 – 2022

Accounting guidance clarifies the accounting for uncertain tax positions and prescribes a recognition threshold and measurement process for recording in
the financial statements uncertain tax positions taken or expected to be taken in a tax return. Additionally, the authoritative guidance addresses the
derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. Only tax positions that meet the more-
likely-than-not recognition threshold may be recognized. There were no identified unrecognized tax benefits as of December 31, 2022 or December 31,
2021.

As of December 31, 2022 and 2021, deferred income taxes have not been provided for any undistributed earnings from operations outside of Canada. The
foreign subsidiaries have accumulated losses and as such the amount of undistributed earnings upon which income taxes have not been provided is
immaterial to these consolidated financial statements.

12. Segment Information and Disaggregated Revenue

Segment reporting is prepared on the same basis that the Company’s chief operating decision maker (the “CODM”) manage the business, make operating
decisions and assess the Company’s performance. For the years ended December 31, 2022 and December 31, 2021, the Company determined that it has the
following two reportable segments: United States and Rest of World. The United States operating segment consists of the manufacture and distribution of
U.S. hemp-derived products. The Rest of World operating segment is involved in the cultivation, manufacture, and marketing of cannabis-derived products
for the medical and adult-use markets. These two segments represent the geographic regions in which the Company operates and the different product
offerings within each geographic region. The results of each segment are regularly reviewed by the CODM to assess the performance of the segment and
make decisions regarding the allocation of resources. The CODM reviews adjusted earnings (loss) before interest, tax, depreciation and amortization
(“Adjusted EBITDA”) as the measure of segment profit or loss to evaluate performance of and allocate resources for its reportable segments. Adjusted
EBITDA is defined as earnings before interest, tax, depreciation, non-cash items and items that do not reflect management’s assessment of ongoing
business performance.

The tables below set forth our consolidated results of operations by segment:

United States

Rest of World

Corporate

Total

Year ended December 31, 2022

Cannabis flower
Cannabis extracts
Other

Net revenue

— $

5,155
—
5,155

63,593 $
22,522
634
86,749

Share of income from equity method investments

—

3,114

Interest income
Interest expense

Interest income (expense), net

Total assets
Depreciation and amortization
Impairment loss on long-lived assets
Adjusted EBITDA
Purchase of property, plant and equipment, net

4,519
(1)
4,518

368,588
344
—
(20,134)
183

18,031
(12)
18,019

290,799
5,681
3,493
(37,230)
3,268

112

— $
—
—
—

—

—
—
—

63,593
27,677
634
91,904

3,114

22,550
(13)
22,537

553,622
—
—
(23,244)
—

1,213,009
6,025
3,493
(80,608)
3,451

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

Cannabis flower
Cannabis extracts
Other

Net revenue

Share of loss from equity method investments

Interest income
Interest expense

Interest income, net

Total assets
Depreciation and amortization
Impairment loss on goodwill and indefinite-lived assets
Impairment loss on long-lived assets
Loss from discontinued operations
Adjusted EBITDA
Purchase of property, plant and equipment, net

Cannabis flower
Cannabis extracts
Other

Net revenue

Share of loss from equity method investments

Interest income
Interest expense

Interest income, net

Total assets
Depreciation and amortization
Impairment loss on indefinite-lived assets
Loss from discontinued operations
Adjusted EBITDA
Purchase of property, plant and equipment, net

United States

Rest of World

Corporate

Total

Year ended December 31, 2021

— $

9,874
—
9,874

—

40
—
40

462,830
295
236,019
2,955
—
(40,717)
776

55,194 $
8,807
560
64,561

(6,313)

9,058
(27)
9,031

273,484
4,189
37
124,664
(500)
(99,139)
10,368

— $
—
—
—

—

—
—
—

661,424
—
—
—
—
(20,607)
—

55,194
18,681
560
74,435

(6,313)

9,098
(27)
9,071

1,397,738
4,484
236,056
127,619
(500)
(160,463)
11,144

United States

Rest of World

Corporate

Total

Year ended December 31, 2020

— $

9,495
—
9,495

—

16
(34)
(18)

253,745
234
40,000
—
(28,019)
385

27,932 $
8,759
533
37,224

(4,510)

18,585
(152)
18,433

388,351
2,638
—
(650)
(98,349)
31,027

— $
—
—
—

—

—
—
—

27,932
18,254
533
46,719

(4,510)

18,601
(186)
18,415

1,283,586
—
—
—
(20,885)
—

1,925,682
2,872
40,000
(650)
(147,253)
31,412

113

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

The following tables set forth a reconciliation of net income (loss) as determined in accordance with U.S. GAAP to Adjusted EBITDA for the periods
indicated:

(in thousands of U.S. dollars)

Net loss
Interest income, net
Income tax expense
Depreciation and amortization

EBITDA

(ii)

(iii)

(vii)

(xi)

(vi)

(iv)

(ix)

(x)

Adjusted EBITDA

(in thousands of U.S. dollars)

Net loss
Interest income, net
Income tax benefit
Depreciation and amortization

EBITDA

(i)

(ii)

(viii)

(vii)

(iii)

(xi)

(iv)

(v)

(x)

Adjusted EBITDA

114

US
(84,194) $
(4,518)
—
1,485
(87,227)
—
—
—
—
61,392
—
169
1,788
3,744
—
(20,134) $

US
(283,883) $

(40)
(89)
917
(283,095)
—
236,019
2,955
—
—
—
3
—
3,401
—
(40,717) $

Year ended December 31, 2022

ROW

Corporate

(54,129) $
(18,019)
34,175
11,637
(26,336)
(3,114)
3,493
(14,060)
(14,739)
—
2,286
324
3,545
11,371
—
(37,230) $

(30,411) $
—
—
—
(30,411)
—
—
—
—
—
—
—
—
—
7,167
(23,244) $

Year ended December 31, 2021

ROW

Corporate

(81,811) $
(9,031)
(342)
14,485
(76,699)
6,313
37
124,664
(151,360)
(8,611)
—
(733)
500
6,750
—
(99,139) $

(31,510) $
—
—
—
(31,510)
—
—
—
—
—
3,801
—
—
—
7,102
(20,607) $

Total
(168,734)
(22,537)
34,175
13,122
(143,974)
(3,114)
3,493
(14,060)
(14,739)
61,392
2,286
493
5,333
15,115
7,167
(80,608)

Total
(397,204)
(9,071)
(431)
15,402
(391,304)
6,313
236,056
127,619
(151,360)
(8,611)
3,801
(730)
500
10,151
7,102
(160,463)

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

(in thousands of U.S. dollars)

Net income (loss)
Interest expense (income), net
Income tax expense
Depreciation and amortization

EBITDA

(i)

(iii)

(viii)

(vii)

(xii)

(xi)

(iv)

(v)

(x)

Adjusted EBITDA

US
(77,368) $
18
323
234
(76,793)
—
40,000
—
—
40
20
—
8,714
—
—
(28,019) $

Year ended December 31, 2020

ROW

Corporate

Total

32,671 $
(18,433)
1,024
6,811
22,073
4,510
—
(129,254)
9
—
1,805
650
6,647
—
(4,789)
(98,349) $

(30,573) $
—
—
—
(30,573)
—
—
—
—
—
—
—
—
9,688
—
(20,885) $

(75,270)
(18,415)
1,347
7,045
(85,293)
4,510
40,000
(129,254)
9
40
1,825
650
15,361
9,688
(4,789)
(147,253)

(i)

(ii)

(iii)

(iv)

(v)

(vi)

(vii)

(viii)

(ix)

(x)

(xi)

(xii)

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 the ROW segment. 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 the U.S. segment. See Note 6 “Goodwill and Intangible Assets, net.”

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, 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. See Note 5 “Property, Plant and Equipment, net” and Note 6 “Goodwill and Intangible Assets, net.”

For the year ended December 31, 2022 and 2021, gain on revaluation of financial instruments relates primarily to the Company’s unrealized holding gain on its mark-to-market
investment in Vitura as well as revaluations of financial liabilities resulting from DSUs. For the year ended December 31, 2020, (gain) loss on revaluation of financial instruments relates
to revaluations of financial liabilities resulting from DSUs. See Note 3 “Investments.”

For the year ended December 31, 2022, other, net primarily related to $877 loss on disposal of assets and $384 of dividends declared by Vitura on the Company’s 55,176,065 ordinary
shares in the capital of Vitura. 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.

For the years ended December 31, 2021 and 2020, loss from discontinued operations relates to the discontinuance of OGBC.

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 the
Company’s share-based award plans as described in Note 10. “Share-based Compensation.”

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
and legal costs defending shareholder class action complaints brought against the Company as a result of the 2019 restatement.

115

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

Net revenue attributed to a geographic region based on the location of the customer was as follows:

Canada
Israel
United States
Other countries
Net revenue

Year ended December 31,

2022

2021

2020

56,233 $
30,516
5,155
—
91,904 $

50,294 $
13,376
9,874
891
74,435 $

Property, plant and equipment, net were physically located in the following geographic regions:

Canada
United States
Israel

Total

As of December 31,

2022

2021

40,052 $
20,251
254
60,557 $

34,538
2,539
9,495
147
46,719

49,117
24,473
480
74,070

13. Earnings (Loss) per Share

Basic and diluted earnings (loss) per share from continued and discontinued operations are calculated as follows:

Basic loss per share computation
Net loss from continuing operations attributable to the shareholders of Cronos Group
Weighted-average number of common shares outstanding for computation for basic earnings
per share

(i)

Basic loss from continuing operations per share

Loss from discontinued operations attributable to the shareholders of Cronos Group
Weighted-average number of common shares outstanding from computation for basic
earnings per share

Basic loss from discontinued operations per share

Year ended December 31,

2022

2021

2020

(168,734) $

(395,607) $

(72,487)

376,961,797

370,390,965

351,576,848

(0.45) $

(1.07) $

(0.21)

— $

(500) $

(650)

376,961,797

370,390,965

351,576,848

0.00 $

0.00

116

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

Diluted loss per share computation

Net loss used in the computation of basic loss from continuing operations per
share
Adjustment for exercise of rights on derivative liabilities

Net loss used in the computation of diluted loss from continuing operations per
share

Weighted-average number of common shares outstanding used in the computation
of basic loss per share

Dilutive effect of stock options
Dilutive effect of RSUs
Dilutive effect of Altria Warrant
Dilutive effect of Top-up Rights – market price

Weighted-average number of common shares for computation of diluted loss from
continuing operations per share

(i)

Diluted loss per share from continuing operations

Loss from discontinued operations attributable to the shareholders of Cronos
Group

Weighted-average number of common shares for computation of diluted loss from
discontinued operations per share

Diluted loss from discontinued operations per share

(168,734) $

(395,607)

—

(168,734) $

(395,607)

376,961,797

370,390,965

—
—
—
—

376,961,797

370,390,965

(0.45) $

— $

(1.07)

(500)

376,961,797

370,390,965

0.00 $

0.00

(72,487)

—

(72,487)

351,576,848

—
—
—
—

351,576,848

(0.21)

(650)

351,576,848

0.00

(i)

In computing diluted earnings per share, incremental common shares are not considered in periods in which a net loss is reported, as the inclusion of the common share equivalents would be
anti-dilutive.

Total securities of 112,612,579, 125,195,001 and 151,338,762 were not included in the computation of diluted shares outstanding for the years ended
December 31, 2022, 2021 and 2020, respectively, because the effect would be anti-dilutive.

14. Financial Instruments

(a)

Fair value measurement

The Company complies with ASC 820 Fair Value Measurements for its financial assets and liabilities that are re-measured and reported at fair value at
each reporting period and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. In general, fair values are
determined by:

•

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves.

Level 3 inputs are unobservable data points for the asset or liability, and includes situations where there is little, if any, market activity for the asset or
liability.

117

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

The following tables present information about the Company’s assets that are measured at fair value on a recurring basis and indicates the fair value
hierarchy of the valuation techniques the Company utilized to determine such fair value:

Cash and cash equivalents
Short-term investments
Other investments
Derivative liabilities

(i)

Cash and cash equivalents
Short-term investments
Other investments
Derivative liabilities

(i)

Level 1

Level 2

Level 3

Total

As of December 31, 2022

764,644 $
113,077
21,993
—

— $
—
—
—

— $
—
—
15

764,644
113,077
21,993
15

Level 1

Level 2

Level 3

Total

As of December 31, 2021

886,973 $
117,684
8,000
—

— $
—
—
—

— $
—
—
14,375

886,973
117,684
8,000
14,375

(i)

On December 16, 2021, Cronos Australia (now, Vitura) closed their merger agreement to acquire CDA Health Pty Ltd, an Australian medicinal cannabis company. In connection with
the closing of the Cronos Australia Merger, the Company’s ownership interest in Cronos Australia decreased to approximately 10% and the Company’s number of Cronos Australia
board seats was reduced from two to zero which constituted a loss of significant influence. As such, the Company reclassified the investment from an investment in equity method
investments under the equity method of accounting to other investments under the fair value method of accounting. See Note 3 “Investments.”

There were no transfers between fair value categories during the periods presented.

The following tables present information about the Company’s assets that are measured at fair value on a non-recurring basis and indicates the fair value
hierarchy of the valuation techniques the Company utilized to determine such fair value:

Other investments

(i)

As of December 31, 2022

Level 1

Level 2

Level 3

Total

—

49,000

(i)

On June 14, 2021, the Company purchased an option to acquire 473,787 shares of Class A Common Stock of PharmaCann, a vertically integrated cannabis company in the United
States, at an exercise price of $0.0001 per share, representing approximately 10.5% of PharmaCann’s issued and outstanding capital stock on a fully diluted basis as of the date of the
PharmaCann Option, for an aggregate purchase price of approximately $110,392. On February 28, 2022, PharmaCann closed its previously announced transaction with LivWell
pursuant to which PharmaCann acquired LivWell. LivWell is a multi-state cannabis cultivation and retail leader based in Colorado. As a result of the LivWell Transaction, the
Company’s ownership percentage in PharmaCann on a fully diluted basis decreased to approximately 6.4%. As of December 31, 2022, the Company’s ownership percentage in
PharmaCann on a fully diluted basis was approximately 6.3%. See Note 3 “Investments.”

There were no transfers between fair value categories during the periods presented.

(b)

Financial risks

The Company’s activities expose it to a variety of financial risks, including credit risk, liquidity risk, market risk, interest rate risk, and foreign currency
rate risk.

Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The
Company is exposed to credit risk from its operating activities, primarily accounts receivable and other receivables, and its investing activities, including
cash held with banks and financial institutions, short term investments, loans receivable, and advances to joint ventures. The Company’s maximum
exposure to this risk is equal to the carrying amount of these financial assets, which amounted to $987,442 and $1,118,684 as of December 31, 2022 and
December 31, 2021, respectively.

118

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

(i) Accounts receivable

The Company had accounts receivable of $23,113 and $22,067 as of December 31, 2022 and December 31, 2021, respectively. An impairment analysis is
performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on the days past due for
groupings of various customer segments with similar loss patterns. The calculation reflects the probability-weighted outcome, the time value of money and
reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic
conditions. Accounts receivable are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of
recovery include, amongst others, the failure of a debtor to engage in a repayment plan, and a failure to make contractual payments for a period of greater
than 120 days past due. As of December 31, 2022, 2021 and 2020, the Company had $2, $8 and $9, respectively, in expected credit losses on receivables
from contracts with customers in the ROW segment and $217, $104 and $65, respectively, in expected credit losses on receivables from contracts with
customers in the U.S. segment.

As of December 31, 2022, the Company has assessed that there is a concentration of credit risk as 55% of the Company’s accounts receivable were due
from three customers with an established credit history with the Company. As of December 31, 2021, 88% of the Company’s accounts receivable were due
from four customers with an established credit history with the Company.

The Company sells products through a limited number of major customers. Major customers are defined as customers that each individually accounted for
greater than 10% of the Company’s revenues. During the year ended December 31, 2022, the Company earned a total net revenue before excise taxes of
$63,509 from three major customers in the ROW segment, together accounting for 55% of the Company’s total net revenue before excise taxes. During the
year ended December 31, 2021, the ROW segment earned a total net revenue before excise taxes of $41,603 from three major customers, together
accounting for 56% of the Company’s total net revenue before excise taxes. During the year ended December 31, 2020, the ROW segment earned a total
net revenue before excise taxes of $34,295 from four major customers, accounting for 63% of the Company’s total net revenues before excise taxes. During
the years ended December 31, 2022, 2021, and 2020 the U.S. segment had no major customers.

(ii) Cash and cash equivalents, short-term investments, and other receivables

The Company held cash and cash equivalents of $764,644 and $886,973 as of December 31, 2022 and December 31, 2021, respectively. The short-term
investments and related interest receivable of $113,077 and $117,684 as of December 31, 2022 and December 31, 2021, respectively, represent short-term
investments with a maturity of less than a year and accrued interest. The cash and cash equivalents and short-term investments, including guaranteed
investment certificates and bankers’ acceptances, are held with central banks and financial institutions that are highly rated. In addition to interest
receivable, other receivables include sales taxes receivable from the government. As such, the Company has assessed an insignificant loss allowance on
these financial instruments.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due and arises principally from the Company’s
accounts payable. The Company had trade accounts payable of $8,599 and $8,395 as of December 31, 2022 and December 31, 2021, respectively, included
in accounts payable on the consolidated balance sheet. The Company’s policy is to review liquidity resources and ensure that sufficient funds are available
to meet financial obligations as they become due. Further, the Company’s management is responsible for ensuring funds exist and are readily accessible to
support business opportunities as they arise. The Company’s funding has primarily been provided in the form of capital raised through the issuance of
common shares and warrants. As of December 31, 2022, the Company has assessed a concentration of risk of vendors as 27% of accounts payable were
due to one vendor. As of December 31, 2021, the Company has assessed a concentration risk of vendors as 19% of accounts payable due to one vendor.

Market risk

Market risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will significantly fluctuate due to changes in
market prices. The value of financial instruments can be affected by changes in interest rates, market and economic conditions, and equity and commodity
prices. The Company is exposed to market risk in divesting its investments, such that unfavorable market conditions could result in dispositions of
investments at less than their carrying amounts. Further, the revaluation of securities classified as fair value through net income could result in significant
write-downs of the Company’s investments, which would have an adverse impact on the Company’s results of operations, unless these would flow through
other comprehensive income.

The Company manages risk by having a portfolio of securities from multiple issuers, such that the Company was not materially exposed to any one issuer.

119

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

Interest rate risk

Interest rate risk is the risk that the value or yield of fixed-income investments may decline if interest rates 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 that possess a short term to maturity. 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. Management continues to monitor external interest rates and revise the Company’s investment strategy as a result.

During the years ended December 31, 2022 and December 31, 2021, the Company had net interest income of $22,537 and $9,071, respectively. During the
year ended December 31, 2022, the Company’s average variable interest rate increased approximately 3.5%. During the year ended December 31, 2021, the
Company’s average variable interest rate did not change materially.

Foreign currency risk

Currency rate risk is the risk that the fair value of, or future cash flows from, the Company’s financial instruments will significantly fluctuate due to
changes in foreign exchange rates. The Company is exposed to this risk on investments in equity investments denominated in A$ and C$, and other assets
and liabilities denominated in A$ and C$. The Company is further exposed to this risk through subsidiaries operating in Israel and the U.S. as the
Company’s functional currency is in Canadian dollars. The Company does not currently use foreign exchange contracts to hedge its exposure to currency
rate risk. As such, the Company’s financial position and financial results may be adversely affected by the unfavorable fluctuations in currency exchange
rates.

As of December 31, 2022 and December 31, 2021, the Company had foreign currency gain (loss) on translation of $(50,616) and $8,192, respectively. A
10% change in the exchange rates for the foreign currencies would affect the carrying amounts of net assets by approximately $77,414 and $87,705 as of
December 31, 2022 and December 31, 2021, respectively.

15. Related Party Transactions

(a)

Altria

On March 8, 2019, in connection with the Altria Investment, Altria, through certain of its wholly owned subsidiaries, purchased a 45% equity interest in the
Company. As of December 31, 2022, Altria beneficially held an approximately 41% ownership interest in the Company (calculated on a non-diluted basis).

The Company incurred the following expenses for consulting services from Altria Pinnacle LLC, a subsidiary of Altria (“Altria Pinnacle”):

Altria Pinnacle – expense

— $

436 $

1,199

Year ended December 31,

2022

2021

2020

There were no amounts payable related to the consulting services with Altria Pinnacle as of December 31, 2022 and 2021.

Refer to Note 8 “Derivative Liabilities” for further information on the derivative liabilities related to the Altria Investment.

120

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

(b)

Cronos GrowCo

The Company holds a variable interest in Cronos GrowCo through its ownership of 50% of Cronos GrowCo’s common shares and senior secured debt in
Cronos GrowCo. See Note 3 “Investments” for further discussion.

The Company made the following purchases of cannabis products from Cronos GrowCo:

Year ended December 31,

2022

2021

2020

Cronos GrowCo – purchases

18,144 $

4,820 $

—

The Company’s outstanding payable balance to Cronos GrowCo was $2,519 and $82 as of December 31, 2022 and December 31, 2021, respectively.

Additionally, on August 23, 2019, the Company, as lender, and Cronos GrowCo, as borrower, entered into the GrowCo Credit Facility. See additional
information in Note 4 “Loans Receivable, net.”

(c)

Vendor Agreement

In November 2022, the Company entered into an agreement with an external vendor whereby the vendor would provide certain manufacturing services to
the Company. The vendor then subcontracted out a portion of those services to another company whose chief executive officer is an immediate family
member of an executive of the Company. The Company has no direct contractual relationship with the related party.

During the year-ended 2022, the Company purchased $645 of products and services under this agreement and had no outstanding accounts payable related
to the agreement as of December 31, 2022.

121

Cronos Group Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2022, 2021, and 2020
(In thousands of U.S. dollars, except for share amounts)

16. Restructuring

In the first quarter of 2022, the Company initiated a strategic plan to realign the business around its brands, centralize functions and evaluate the
Company’s supply chain (the “Realignment”). As part of the Realignment, on February 28, 2022, the Board approved plans to leverage the Company’s
strategic partnerships to improve supply chain efficiencies and reduce manufacturing overhead by exiting its production facility in Stayner, Ontario, Canada
(the “Peace Naturals Campus”). On February 27, 2023, the Board approved revisions to the Realignment, which are expected to result in the Company
maintaining select components of its operations at the Peace Naturals Campus, namely distribution warehousing, certain R&D activities and manufacturing
of certain of the Company’s proprietary innovation products, while seeking to lease the remaining portions of the Peace Naturals Campus to third parties.
The Realignment initiatives were intended to position the Company to drive profitable and sustainable growth over time.

During the year ended December 31, 2022, the Company recognized $5,333 of restructuring costs in connection with the Realignment, including the
change in the nature of operations at the Peace Naturals Campus. Charges related thereto include employee-related costs such as severance, relocation and
other termination benefits, as well as contract termination and other related costs.

The Company incurred the following restructuring costs by reportable segment:

Rest of World
United States

Total

Year ended December 31,

2022

2021

3,544 $
1,789
5,333 $

—
—
—

The following table summarizes the Company’s restructuring activity for the year ended December 31, 2022:

As of January 1, 2022

Expenses

Payments/Write-offs

Employee termination benefits
Other restructuring costs

Total

17. Subsequent Events

— $
—
— $

3,671 $
1,662
5,333 $

As of December 31, 2022
403
21
424

(3,268) $
(1,641)
(4,909) $

In March 2022, following the evaluation of our global supply chain, we announced the planned exit of our Peace Naturals Campus as part of the
Realignment. Given the constantly evolving operating landscape Cronos participates in and our continued work towards building an efficient global supply
chain, we continue to remain agile in our evaluation of our footprint and the market’s capabilities. To that end, in February 2023, the Board approved plans
to maintain select components of the Company’s operations at the Peace Naturals Campus, namely distribution and warehousing, certain R&D activities
and manufacturing of certain of the Company’s proprietary innovation products.

122

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A. CONTROLS AND PROCEDURES.

(a)

Evaluation of Disclosure Controls and Procedures.

The Company’s management, with the participation of the Chief Executive Officer and the Chief Financial Officer, performed an evaluation of the
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), as of
December 31, 2022. Based on that evaluation, management has concluded that, as of December 31, 2022, due to the existence of a material weakness in the
Company’s internal control over financial reporting described below, the disclosure controls and procedures were not effective to provide reasonable
assurance that the information required to be disclosed by us in reports we file or submit under the Exchange Act were recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the SEC, and to ensure that the information required to be disclosed by us in reports
that we file or submit under the Exchange Act, is accumulated and communicated to management, including the principal executive officer and principal
financial officer, as appropriate, to allow timely decisions regarding required disclosure.

(b)

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining internal control over financial reporting, as such term is defined in Rule 13a-
15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon criteria established in Internal Control –
Integrated Framework (2013) by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management
concluded that our internal control over financial reporting was not effective as of December 31, 2022 because of the material weakness described below.

We did not design and maintain effective controls over Information Technology General Controls (“ITGC”), pertaining to user access management and
the provisioning and monitoring of user access, including privileged access. We believe this weakness to be the result of ineffective monitoring of
security administrator activities, insufficient retention of documentation to support access requests and lack of training on the importance of ITGC.
This material weakness did not impact any information derived from information systems and did not result in any identified misstatements to our
financial statements.

Our independent registered public accounting firm, KPMG LLP, who audited the consolidated financial statements included in this Annual Report, issued
an adverse opinion on the effectiveness of the Company’s internal control over financial reporting.

123

(c)

Changes in Internal Controls over Financial Reporting

Other than the material weakness identified above and measures described below to remediate the material weaknesses previously identified, there were no
changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act), that occurred
during the fourth quarter of the year ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s
internal control over financial reporting.

Remediation of Previously Reported Material Weaknesses

The Company has implemented various initiatives to address the previously reported material weaknesses in internal control over financial reporting.
During the fourth quarter of 2022, the Company successfully completed the testing necessary to conclude that the material weaknesses have been
remediated. Some of our key remedial initiatives included:

Material Weakness

Control, Control Enhancement or Mitigant

Implementation
Status

Management
Testing Status

Remediation Status

Control
Environment

•

The Company’s Chief Executive Officer and Chief Financial Officer have
reinforced and will continue to reinforce on an ongoing basis the importance
of adherence to the Company’s policies, procedures and standards of
conduct, including identifying misconduct and raising and communicating
concerns;

• All accounting personnel that engaged in unprofessional conduct were

terminated or resigned from the Company and were replaced with qualified
personnel;

• We have enhanced our existing sub-certification process to include

additional certifications regarding certain complex accounting topics and to
include additional employees to increase accountability amongst Company
personnel;

Completed

Tested

Remediated

Completed

Tested

Remediated

Completed

Tested

Remediated

• We have expanded our compensation claw back provisions to incorporate all

personnel who are subject to our enhanced sub-certification process;

Completed

Tested

Remediated

• We have implemented organizational enhancements including (i) evaluation

of the sufficiency, experience and training of personnel within our
accounting function and (ii) the hiring of accounting personnel with
appropriate knowledge and experience in U.S. GAAP;

• We have implemented a training program for accounting and finance
personnel to enhance their knowledge of U.S. GAAP outlined in our
accounting policies, which are used in the preparation of the Company’s
consolidated financial statements; and

Completed

Tested

Remediated

Completed

Tested

Remediated

Asset
Impairment
Testing

• We have evaluated and will continue to regularly evaluate our policies and

procedures relating to certain complex accounting topics and have
implemented improvements in those policies and procedures.

Completed

Tested

Remediated

As a result of the settlements with the SEC and the OSC related to the Restatements, the Company has retained a consultant to review and make
recommendations with respect to certain of the Company’s internal controls and internal control over financial reporting. That review is ongoing and it is
possible that review results in the identification of other material weaknesses or other control deficiencies that require material changes to the Company’s
internal control over financial reporting. For additional information of this risk, see Item 1A “Risk Factors – Risks Relating to Our Growth Strategy – 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 had a material weakness in our control environment, and in 2021 and 2022, we experienced
significant turnover, both voluntary and involuntary, in our accounting and financial reporting functions. If we are unable to remediate our existing
material weakness and create an appropriate control environment, our business, results of operations, financial condition, cash flows and reputation will
be adversely affected.”

124

Remediation Plan and Status Related to Material Weakness Identified in the Current Year

As discussed above, we have identified a material weakness related to ITGCs in user access management and the provisioning and monitoring of privileged
access.

As of the filing date, the Company is in the process of implementing various initiatives intended to address the identified material weakness. In this regard,
some of our key remedial initiatives include:

Material Weakness

Control, Control Enhancement or Mitigant

ITGCs

•

Train security administrators on access provisioning and approval protocols.

• Align approval requirements for all privileged access for consistency and

appropriate visibility within the IT function.

•

Implement a process to identify instances where privileged access roles or
profiles are assigned and, when identified, review activities performed
during the period of assigned privileged access.

Implement a periodic control to compare each user’s system access to their
responsibilities.

Implement an oversight control over security administrator actions.

Implementation
Status
In Planning
Stage
In Planning
Stage

In Planning
Stage

In Planning
Stage
In Planning
Stage

Management
Testing Status

Remediation Status

Not Tested

Not Remediated

Not Tested

Not Remediated

Not Tested

Not Remediated

Not Tested

Not Remediated

Not Tested

Not Remediated

ITEM 9B. OTHER INFORMATION.

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.

Not applicable.

125

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

PART III

The information required under this Item is incorporated herein by reference to our definitive proxy statement or to an amendment to this Annual Report on
Form 10-K to be filed with the SEC no later than 120 days after the close of our fiscal year ended December 31, 2022.

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

126

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

PART IV

The following documents are filed as part of this Annual Report on Form 10-K, or incorporated herein by reference:

(a)(1) Financial Statements. The following financial statements of Cronos Group Inc. are filed as part of this Annual Report on Form 10-K on the pages
indicated.

CRONOS GROUP INC. AND SUBSIDIARIES
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss) for the years ended December 31, 2022,
2021, and 2020
Consolidated Statements of Changes in Shareholders’ (Deficit) Equity for the years ended December 31, 2022, 2021, and 2020
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021, and 2020
Notes to Consolidated Financial Statements

Page No.
74
77

78
79
80
82

(a)(2) Financial Statement Schedules. Schedules are omitted because the required information is inapplicable, not material, or the information is
presented in the consolidated financial statements or related notes.

(a)(3) Exhibits. The exhibits listed in the Exhibit Index immediately below are filed as part of this Annual Report on Form 10-K or are incorporated by
reference herein.

Exhibit
Number

2.1

2.2

3.1

4.1

4.2

10.1

10.2

10.3

10.4

10.5

10.6†

10.7†

10.8†

Exhibit Description
Options Purchase Agreement, dated June 14, 2021, by and between Cronos USA Holdings Inc. and PharmaCann Inc. (incorporated by
reference to Exhibit 2.1 to the Current Report on Form 8-K of Cronos Group Inc. filed June 15, 2021).
Option, dated June 14, 2021, issued by PharmaCann Inc. to Cronos USA Holdings Inc. (incorporated by reference to Exhibit 2.2 to the
Current Report on Form 8-K of Cronos Group Inc. filed June 15, 2021).
Certificate of Continuance, Notice of Articles and Articles of Cronos Group Inc. (incorporated by reference to Exhibit 4.1 to the
Quarterly Report on Form 10-Q of Cronos Group Inc., filed August 6, 2020).
Form of Cronos Group Inc. Common Share certificate (incorporated by reference to the corresponding exhibit to the Annual Report on
Form 10-K of Cronos Group Inc., filed on March 2, 2020).
Description of Capital Stock of Cronos Group Inc. (incorporated by reference to Exhibit 4.2 to the Annual Report on Form 10-K of
Cronos Group Inc., filed March 1, 2022)
Subscription Agreement, dated as of December 7, 2018, by and among Cronos Group Inc., Altria Summit LLC, and, solely for the
purposes specified therein, Altria Group, Inc. (incorporated by reference to Exhibit 99.1 to the Company’s Current Report of Foreign
Private Issuer, filed December 10, 2018).
Investor Rights Agreement, dated as of March 8, 2019, by and between Cronos Group Inc. and Altria Group, Inc. (incorporated by
reference to Exhibit 99.1 to the Company’s Current Report of Foreign Private Issuer, filed March 15, 2019).
Collaboration and License Agreement, dated as of September 1, 2018, by and between Cronos Group Inc. and Ginkgo Bioworks, Inc.
(incorporated by reference to Exhibit 99.3 to the Company’s Current Report of Foreign Private Issuer, filed September 4, 2018).
First Amendment to Collaboration and License Agreement, dated as of May 9, 2019 (incorporated by reference to the corresponding
exhibit to the Annual Report on Form 10-K of Cronos Group Inc., filed on March 2, 2020).
Amended and Restated Collaboration and License Agreement, dated as of June 3, 2021, by and between Ginkgo Bioworks, Inc. and
Cronos Group Inc. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Cronos Group Inc. filed June 4,
2021).
Cronos Group Inc. 2015 Amended and Restated Stock Option Plan, dated as of May 26, 2015 (incorporated by reference to Exhibit 4.3
to the Registration Statement on Form S-8 of Cronos Group Inc., filed July 11, 2018).
Form of Option Certificate to 2015 Amended and Restated Stock Option Plan (incorporated by reference to Exhibit 10.6 to the Annual
Report on Form 10-K of Cronos Group Inc., filed on March 2, 2020).
First Amendment to the Cronos Group Inc. 2015 Amended and Restated Stock Option Plan, dated as of August 7, 2019 (incorporated
by reference to Exhibit 10.7 to the Annual Report on Form 10-K of Cronos Group Inc., filed on March 2, 2020).

127

10.9†

10.10†

10.11†

10.12†

10.13†

10.14†

10.15†

10.16†

10.17†

10.18†

10.19†

10.20†

10.21†

10.22†

10.23†

10.24†

10.25†

10.26†

10.27†

10.28†

10.29†

Cronos Group Inc. Amended and Restated 2018 Stock Option Plan, dated as of November 11, 2019 (incorporated by reference to
Exhibit 10.8 to the Annual Report on Form 10-K of Cronos Grou Inc., filed on March 2, 2020).
Cronos Group Inc. Deferred Shared Unit Plan for Non-Executive Directors, dated as of August 7, 2019 (incorporated by reference to
the Exhibit 10.9 to the Annual Report on Form 10-K of Cronos Group Inc., filed on March 2, 2020).
Employment Agreement, by and between Cronos Group Inc. (Employment Agreement, by and between Cronos Group Inc. (f/k/a
PharmaCann Capital Corporation) and Michael Gorenstein, effective as of August 10, 2016 (incorporated by reference to Exhibit 10.10
to the Annual Report on Form 10-K of Cronos Group Inc., filed on March 2, 2020).
Description of Oral Amendment, effective as of June 2019, to Employment Agreement, by and between Cronos Group Inc. (f/k/a
PharmaCann Capital Corporation) and Michael Gorenstein, effective as of August 10, 2016 (incorporated by reference to Exhibit 10.11
to the Annual Report on Form 10-K of Cronos Group Inc., filed on March 2, 2020).
Cronos Group Inc. Employment Inducement Award Plan #1 (incorporated by reference to Exhibit 10.21 to the Annual Report on Form
10-K of Cronos Group Inc., filed on March 2, 2020).
Form of Director and Officer Indemnity Agreement (incorporated by reference to Exhibit 10.24 to the Annual Report on Form 10-K of
Cronos Group Inc., filed on March 2 2020).
Cronos Group Inc. 2020 Omnibus Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q of Cronos Group Inc., filed August 6, 2020).
Form of Restricted Share Unit Award Agreement to Cronos Group Inc. 2020 Omnibus Equity Incentive Plan (incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Cronos Group Inc., filed August 6, 2020).
Form of Restricted Share Unit Award Agreement (Israel) to Cronos Group Inc. 2020 Omnibus Equity Incentive Plan (incorporated by
reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of Cronos Group Inc., filed August 6, 2020).
Executive Employment Agreement, dated as of September 9, 2020, by and among Cronos USA Client Services LLC, Cronos Group
Inc. and Kurt Schmidt (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Cronos Group Inc., filed
September 9, 2020).
Amended and Restated Employment Agreement, dated as of September 9, 2020, by and among Cronos USA Client Services LLC,
Cronos Group Inc., and Michael Gorenstein (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Cronos
Group Inc., filed September 9, 2020).
Amended and Restated Executive Employment Agreement, dated as of June 3, 2021, by and among Cronos USA Client Services LLC,
Cronos Group Inc. and Todd Abraham (incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Cronos
Group Inc., filed August 6, 2021).
Executive Employment Agreement, dated as of August 6, 2021, between Cronos USA, Cronos Group and Robert Madore
(incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of Cronos Group Inc., filed August 6, 2021).
Executive Employment Agreement, dated as of January 10, 2022, by and among Cronos USA Client Services LLC, Cronos Group
Inc., Hortican Inc. and John Griese (incorporated by reference to Exhibit 10.27 to the Annual Report on Form 10-K of Cronos Group
Inc., filed on March 1, 2022).
Letter Agreement, dated as of February 17, 2022, by and among Cronos USA Client Services LLC, Cronos Group Inc., and Anna
Shlimak (incorporated by reference to Exhibit 10.28 to the Annual Report on Form 10-K of Cronos Group Inc., filed on March 1,
2022).
Amended and Restated Employment Agreement, dated as of March 21, 2022, between Cronos USA Client Services LLC, Cronos
Group Inc. and Michael Gorenstein (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Cronos Group
Inc., filed on March 21, 2022).
Letter Agreement, dated as of March 21, 2022, between Cronos USA Client Services LLC, Cronos Group Inc. and Kurt Schmidt
(incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Cronos Group Inc., filed on March 21, 2022).
Executive Employment Agreement, dated as of August 16, 2020, among Cronos Israel G.S. Cultivation Ltd., Cronos Group Inc. and
Ran Gorelik (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of Cronos Group Inc., filed on May 10,
2022).
Letter Agreement by and among Jeffrey Jacobson and Hortican Inc., dated November 7, 2022 (incorporated by reference to Exhibit
10.1 to the Quarterly Report on Form 10-Q of Cronos Group Inc., filed on November 7, 2022).
Letter Agreement by and among John Griese, Cronos USA Client Services LLC, and Hortican Inc., dated November 7, 2022
(incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q of Cronos Group Inc., filed on November 7, 2022)
James Holm Employment Agreement, dated November 14, 2022, among Cronos USA, the Company and Mr. Holm (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K of Cronos Group Inc., filed on November 14, 2022).

128

10.30

10.31†

10.32†*

14.1

21.1*
23.1*
24.1*

31.1*

31.2*

32.1**

32.2**

101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*

Altria’s notice of abandonment, dated December 16, 2022 (incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-
K of Cronos Group Inc., filed on December 19, 2022).
Letter Agreement by and between Robert Madore and Cronos USA Client Services LLC, dated February 8, 2023 (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K/A of Cronos Group Inc., filed on February 13, 2023)
Letter Agreement by and between Anna Shlimak and Cronos USA Client Services LLC, dated February 21, 2023.
Cronos Group Inc. Code of Business Conduct and Ethics (incorporated by reference to Exhibit 14.1 to the Annual Report on Form 10-
K of Cronos Group Inc., filed on March 1, 2022).
List of Subsidiaries of Cronos Group Inc.
Consent of KPMG LLP, Independent Registered Public Accounting Firm.
Power of Attorney (included on signature page hereto).
Certification of the Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
XBRL Instance Document
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation Linkbase Document.
XBRL Taxonomy Extension Definition Linkbase Document.
XBRL Taxonomy Extension Label Linkbase Document.
XBRL Taxonomy Extension Presentation Linkbase Document.

† Management contract or compensatory plan or arrangement.

* Filed herewith.

** Furnished herewith and not “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

129

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

SIGNATURES

CRONOS GROUP INC.

By:

/s/ Michael Gorenstein

Michael Gorenstein
Chairman, President and Chief Executive Officer

Power of Attorney

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints each of Michael Gorenstein
and James Holm, severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any
amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated:

Name

Title

Date

/s/ Michael Gorenstein
Michael Gorenstein

/s/ James Holm
James Holm

/s/ Carlos Cortez
Carlos Cortez
/s/ Kendrick Ashton, Jr.
Kendrick Ashton, Jr.
/s/ Heather Newman
Heather Newman
/s/ James Rudyk
James Rudyk
/s/ Jody Begley
Jody Begley
/s/ Jason Adler
Jason Adler
/s/ Murray Garnick
Murray Garnick

Chairman, President and Chief Executive Officer
(Principal Executive Officer)

Chief Financial Officer
(Principal Financial Officer)

Vice President, Controller
(Principal Accounting Officer)

Director

130

February 28, 2023

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