Insiders ranked by realized 90-day signed return on their open-market trades at Cronos Group Inc.. Minimum 3 scored trades. Returns are signed - a sale followed by a rally counts against the insider.
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.32pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Real-time Form 4 intelligence. Smarter insider tracking.
Flat
Net-tone change vs last year's 10-K.
MD&A
-0.35pp
Lean -
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
adversely+16
disruptions+6
closing+6
disrupt+5
challenges+4
Positive rising
achieve+2
effective+2
profitability+1
greater+1
satisfied+1
Risk Factors (Item 1A)
28,624 words
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, 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
• We and certain of our joint ventures have limited operating histories and our growth strategy may not be successful.
• We may not be able to achieve or maintain and may continue to incur in the future.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
loss+10
impairment+9
termination+6
losses+4
litigation+4
Positive rising
collaboration+8
efficiencies+4
improvement+1
popular+1
progress+1
MD&A (Item 7)
11,076 words
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Overview
Recent Developments
Consolidated Results of Operations
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, see Part I, Item 1 “ Business — Special Note Regarding Forward-Looking Statements ” in this Annual Report for a discussion of the risks and uncertainties involved in the Forward-Looking Statements.
For more information about our operations and the risks facing our business, see Part I, Item 1 “ Business ” and Part I, Item 1A “ Risk Factors, ” respectively, of this Annual Report.
Business Overview
Cronos is an innovative global cannabinoid company committed to building disruptive intellectual property by cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio. Cronos’ diverse international brand portfolio includes Spinach ® , PEACE NATURALS ® , LIT™ and Lord Jones ® .
• We may not be able to successfully manage our growth.
• Our acquisition strategy may not be successful, and we have in the past, and may in the future, write down goodwill and intangible assets recognized upon acquisitions.
• We may not be able to complete, or realize the expected benefits of, our planned acquisition of CanAdelaar.
• 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 as a result of risks inherent to agricultural operations and our reliance on third-party suppliers and distributors.
• We may be unable to obtain adequate supplies of raw materials in a timely manner and at commercially reasonable prices.
• 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 exposes us to market-specific regulatory, operational, and commercial risks, including unfamiliar regulatory regimes, changes in applicable laws, import and export restrictions, supply chain disruptions, currency fluctuations, and reliance on local partners and distributors.
• We are subject to extensive regulation and licensing and may not successfully comply with all applicable laws and regulations.
• Our business faces highly competitive conditions, including from the illegal cannabis market and licensed cannabis competitors that fail to comply with applicable regulations.
• Altria has significant influence over us.
• The price of our common shares has been and may continue to be highly volatile.
• We have had multiple restatements and material weaknesses in our internal control over financial reporting in the past.
• The adult-use cannabis market in Canada has in the past been and may in the future become oversupplied.
• Our business may be negatively impacted by the Middle East Conflict or the imposition of an anti-dumping duty or other restrictions on our imports into Israel.
• Any rescheduling of U.S. Schedule I cannabis to Schedule III would have an uncertain impact on our business.
• We are subject to other risks generally applicable to our industry and the conduct of our businesses.
Risks Relating to Our Growth Strategy.
We have a limited operating history and therefore we are subject to many of the risks common to early-stage enterprises.
We began carrying on business and generated our first revenues in 2013. 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.
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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 and have had negative operating cash flow for four of the last six fiscal years. We may not be able to achieve or maintain profitability and may continue to incur significant losses in the future. In addition, we expect to continue to incur significant costs and operating expenses as we implement initiatives to grow our business. 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 achieveprofitability 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 changes in our business or sustain our growth.
Our business has evolved and may continue to evolve as we adjust our operating footprint, expand in select markets, and implement operational and strategic initiatives. Our ability to manage changes in our business and sustain our 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 cannabis products, competition from other license holders, the size of the illegal market and the adult-use market in Canada and the other markets in which we sell or distribute, our ability to produce sufficient volumes of our products to meet customer demand, our ability to continue to implement and improve our operational and financial systems and controls, and our ability to expand, train and manage our employee base. There can be no assurances that we will be able to manage changes in our business or sustain our growth successfully. Any inability to manage changes in our business or sustain our growth could have a material adverse effect on our business, financial condition and results of operations.
Our use of joint ventures exposes 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 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 otherwise 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 sufferlosses 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. Certain of these risks have materialized in the past. 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.
Our prior performance in Israel is not indicative of any potential future results in Israel. The Middle East Conflict has created significant uncertainty with respect to our operations in Israel and may materially and adversely affect our sales and other activities in Israel. There can be no assurance that our 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, the impact of, and developments in, the Middle East Conflict on our operations, our ability to continue to import cannabis into Israel (including the outcome of the Anti-Dumping Investigation initiated by the Israel Ministry of Economy and Industry, see Part II, Note 12(b) “ Contingencies ” to the consolidated financial statements under Item 8 of this Annual Report for further details), changes in laws and regulations respecting the cultivation, production, marketing and sale of medical cannabis products in Israel, growth of the medical cannabis patient count 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.
We have begun to further leverage our strategic joint venture with Cronos GrowCo. Our revised plans for the Peace Naturals Campus as well as the completion of the Cronos GrowCo Transaction and entry into the Cronos GrowCo Supply Agreement have increased the importance of Cronos GrowCo to our business and operations. Cronos GrowCo’s production facilities are our principal source of raw materials. Therefore, our performance in Israel is reliant on our ability to acquire sufficient 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 obtain the regulatory approvals, licenses and permits
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required for both the export of cannabis from Canada and the import of cannabis into Israel. Further, there can be no assurance that the Anti-Dumping Investigation will not result in the imposition of an anti-dumping duty on us or limit our imports into Israel, or that other trade restrictions will not limit our imports into Israel, the impact of which could have a material adverse effect on our business in Israel.
Our acquisition strategy may not be successful, and we have in the past, and may in the future, need to write down goodwill and intangible assets recognized upon acquisition.
Our growth strategy has included, and may continue to include, acquisitions and strategic investments. These transactions involve significant risks and uncertainties, including challenges associated with integration, changes in market conditions, regulatory developments, and the performance of acquired businesses or investments. As a result, acquisitions and strategic investments may not produce the anticipated revenues, profits or other benefits.
We have in the past recorded significant impairment charges related to goodwill and intangible assets arising from prior acquisitions, and we may be required to record additional impairment charges in the future if the carrying value of such assets exceeds their estimated fair value. Any such impairment charges could have a material adverse effect on our results of operations and financial condition.
Consummation of our planned acquisition of CanAdelaar is subject to closing conditions and regulatory approvals, and the transaction may be delayed, incur additional costs, or fail to close. If completed, we may face integration challenges and future unforeseen obligations based on CanAdelaar’s operating performance following closing.
We entered into a definitive share sale and purchase agreement to acquire CanAdelaar, one of the licensed producers participating in the Netherlands’ Controlled Cannabis Supply Chain Experiment (the “Wietexperiment”). The completion of this transaction is subject to a number of closing conditions, including obtaining required regulatory clearances in the Netherlands, receipt of confirmations relating to CanAdelaar’s licenses and Bibob review (a background check conducted by Dutch authorities), the accuracy of representations and warranties, and the absence of certain regulatory orders. There can be no assurance that these closing conditions will be satisfied in a timely manner or at all. Failure to obtain required approvals or meet closing conditions could delay or prevent completion of the transaction, increase costs, or require us to modify or abandon the planned acquisition.
If the transaction does not close, we may not realize the anticipated strategic benefits associated with establishing a licensed production presence in the Netherlands. Additionally, we may suffer other consequences that could adversely affect our business, results of operations, and stock price, including an inability to benefit from or recover acquisition costs, negative publicity, and reputational damage. Even if completed, the transaction will require significant integration efforts, including integrating operations, technology, compliance systems, and personnel structures. Integration challenges could require greater-than-expected resources, divert significant management attention, or reduce the strategic benefits we expect to achieve. Further, the contingent consideration structure of the transaction may also give rise to future obligations based on CanAdelaar’s operating performance following closing. Any failure to close the transaction or to integrate CanAdelaar effectively could adversely affect our business, financial condition, and results of operations.
CanAdelaar has operated independently prior to the acquisition, and we may not identify all costs, liabilities, or operational challenges associated with CanAdelaar prior to completing the transaction. Following the acquisition, we may incur unanticipated expenses. In addition, assumptions made in evaluating the acquisition, including estimates of costs, synergies, operational efficiencies, or future performance, may prove to be inaccurate. Actual results may differ materially from our expectations due to factors beyond our control, including changes in market conditions, regulatory requirements, supplier or customer relationships, or the condition of the acquired business’s assets and operations.
We have had multiple restatements and material weaknesses in our internal control over financial reporting in the past. We have experienced significant turnover, both voluntary and involuntary, in our accounting and financial reporting functions, as well as in our internal audit function. If we are unable to create and maintain 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. Our financial reporting processes also rely in part on third-party information technology systems and service providers, including systems used for accounting, consolidation and reporting. Disruptions, failures, delays, or deficiencies in these systems or in the performance of third-party service providers could impair our ability to maintain effective internal control over financial reporting or timely prepare and file our financial statements.
We have had multiple restatements and material weaknesses in the past and significant turnover, both voluntary and involuntary, in our accounting, financial reporting and internal audit functions. Remediation efforts placed a significant burden on management and added 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 by material weaknesses or significant deficiencies in our
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internal control over financial reporting. Restatement of our financial statements due to material weaknesses or significant deficiencies 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 significant 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 defendingagainst this civil litigation. For more information on this civil litigation and proceedings, see Part II, Note 12(b) “ Contingencies ” to the consolidated financial statements under Item 8 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 five years thereafter, we are unable to rely on the private offering exemptions provided by Regulations A and D under the Securities Act, 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 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, 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 or operational obstacles or costs, could lead to or exacerbate product or supply shortages that could impact other markets in which we operate, 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 liabilities, and there can be no assurance that strategic alliances will achieve the expected benefits to our business or that we will be able to consummate future strategic alliances on satisfactory terms or at all. Any of the foregoing could have a material adverse effect on our business, financial condition and results of operations.
Wholesale price volatility could have a material adverse effect on our business.
Following the Cronos GrowCo Transaction, the financial results of Cronos GrowCo are consolidated into our results, which are in turn impacted by the market for wholesale cannabis. Wholesale prices fluctuate due to changes in supply (which itself depends on other factors such as the level of cultivation of cannabis, weather conditions, fuel, equipment and labor costs, shipping costs, and government regulations), demand and other market conditions, which are factors beyond the control of Cronos GrowCo. The market for wholesale cannabis biomass is particularly volatile compared to other commoditized markets due to the relatively nascent maturity of the industry. The lack of centralized data and large variations in product quality make it difficult to establish a universal “spot price” for wholesale cannabis biomass. A decline or general volatility in the wholesale price of cannabis biomass may negatively impact Cronos GrowCo’s operating income, which may have a material adverse effect on our results of operations.
Under the Cronos GrowCo Supply Agreement, which governs our commercial arrangement with Cronos GrowCo, our option to purchase cannabis biomass from Cronos GrowCo is subject to fixed pricing. If wholesale market prices decline, we may choose not to exercise our option to purchase biomass at the fixed prices and instead seek to purchase such biomass at the prevailing market price from Cronos GrowCo or third parties. However, if we do not exercise our option, Cronos GrowCo would be under no obligation to sell to us at such lower market prices, and there can be no assurance that third-party suppliers will be able to provide biomass on a consistent basis or in the quantities, strains, grades and qualities we require. Similarly, if wholesale cannabis prices increase materially, our fixed-price purchasing arrangement with Cronos GrowCo may negatively impact the results of its operations, create economic misalignment between Cronos and Cronos GrowCo, and adversely affect long-term supply availability, reliability, and our consolidated financial results. As a result, wholesale price volatility could adversely affect our cost structure, supply reliability, and results of operations.
We may be unable to obtain adequate supplies of raw materials in a timely manner and at commercially reasonable prices.
Our production operations require that we obtain adequate supplies of raw materials, particularly biomass, on a timely basis, at commercially reasonable prices and in the quantities, strains, grades and qualities that we require. From time to time there have been shortages of raw materials. Industry-wide shortages in the supply of raw materials could result in industry-wide raw material price adjustments and shortages.
Cronos GrowCo’s production facilities are our principal source of raw materials. Therefore, our production operations are reliant on our ability to acquire such raw materials from Cronos GrowCo on a timely, cost-effective basis and in the quantities, strains, grades and qualities we require. If Cronos GrowCo is unable to meet our needs for raw materials on a timely, cost-effective basis and in the quantities, strains, grades and qualities we require (which may exceed forecasts), we may be, and have in the past been, required to source additional supply from third parties, and we may not be able to do so on a timely basis at commercially reasonable prices or in the quantities, strains, grades and qualities we require.
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If we are unable to secure the raw materials we require, we may experience product shortages and delays, be unable to launch new products, and be required to discontinue certain products. Any such disruptions could result in fewer product listings, impact our market share, and cause reputational damage, which could materially and adversely affect our results of operations, financial condition, business and prospects.
If raw material shortages cause industry-wide prices of raw materials to rise, our costs could increase. To the extent that we are unable to offset such costs through higher prices of our products or other cost savings, our results of operations, financial condition, business and prospects could be materially and adversely affected.
Our option to purchase a significant portion of Cronos GrowCo’s production could strain Cronos GrowCo’s ability to develop, maintain and grow profitable relationships with third-party customers.
Under the Cronos GrowCo Supply Agreement, we have the option to purchase a significant portion of Cronos GrowCo’s production. There can be no assurance that Cronos GrowCo will be able to sell its remaining production to third parties at commercially viable prices or on commercially viable terms. Likewise, volatility in the exercise of Cronos’ option could negatively impact Cronos GrowCo’s ability to forecast the portion or quantity of its production available for sale to third parties, which could negatively impact Cronos GrowCo’s ability to develop, maintain and grow profitable relationships with third-party customers. To the extent Cronos GrowCo encounters difficulty in selling its remaining production capacity to third parties, Cronos GrowCo’s results of operations may be significantly and adversely affected, which may have a material adverse effect on our results of operations.
Termination or non-renewal of the Cronos GrowCo Supply Agreement could have a material negative impact on our ability to obtain cannabis biomass at commercially viable prices.
Cronos GrowCo’s production facilities are our principal source of raw materials. In addition to various termination rights under the Cronos GrowCo Supply Agreement, following an initial four-year term, the Cronos GrowCo Supply Agreement is subject to automatic renewal for successive one-year periods unless either party provides notice of non-renewal. In the event of non-renewal or termination of the Cronos GrowCo Supply Agreement, we would be required to source cannabis biomass from third parties or negotiate a new supply agreement with Cronos GrowCo, and we may not be able to do so on a timely basis at commercially reasonable prices or in the quantities, strains, grades and qualities we require. Any disruption to our access to raw materials could result in product shortages, delays, and discontinuations and limitations on product launches, which could have a material adverse effect on our business, financial condition and results of operations.
We may not successfully execute or sustain our production capacity strategy.
Our production capacity strategy depends on our ability to efficiently operate, optimize, expand and maintain production at our facilities and joint ventures, including the Peace Naturals Campus, the Cronos Israel facility at Kibbutz Gan Shmuel and the Cronos GrowCo Facility. Although certain expansion initiatives have been completed, including expansion of the Cronos GrowCo Facility, there can be no assurance that we will be able to achieve or sustain the expected levels of output, quality, efficiency, or cost structure from these operations.
Continuing operations at these facilities is subject to maintaining the appropriate licenses from the relevant regulatory authorities in those jurisdictions, including Health Canada. Any failure to maintain required licenses or comply with applicable regulatory requirements could disrupt operations or limit production capacity or actual production.
Cronos GrowCo’s ability to operate at its current production levels and optimize output, margins and efficiency following expansion may be affected by a number of factors, including regulatory requirements, labor availability and costs, weather conditions, operational errors, aging or failure of equipment or processes and labor disputes, as well as factors specifically related to indoor agricultural and processing practices, such as reliance on provision of energy and utilities to the facility, and other factors beyond our control. These factors may adversely affect yields, quality, operating costs, or supply reliability.
In addition, our ability to realize the benefits of our production capacity strategy may be affected by our ability to obtain 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 approvals or permits, our production capacity strategy may not be realized, which could have a material adverse effect on our business, financial condition and results of operations.
We may not be able to successfully procure rare cannabinoids at commercially viable prices or in the quantities that we require.
We no longer have the internal capacity to produce rare cannabinoids through the fermentation process developed with Ginkgo. As we continue to utilize rare cannabinoids in our products, we are engaged with third-party suppliers capable of producing rare cannabinoids at commercially viable prices or in the quantities we require. If we are unable to secure the necessary rare cannabinoids from third-party suppliers, we may experience product shortages and delays and we may be unable to launch new products, which could have a material adverse effect on our business, financial condition and results of operations.
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There can be no assurance that recent operational and strategic initiatives will have a beneficial impact on our business, financial condition and results of operations. The timing, costs and benefits thereof cannot be guaranteed.
We have implemented a series of significant operational and strategic changes in recent years, including our Realignment of functions and cost structure, changes to the nature of our operations at the Peace Naturals Campus, the exit of our U.S. operations, the cessation of our fermentation operations and sale of our fermentation and manufacturing facility in Winnipeg, Manitoba (the “Cronos Fermentation Facility”), and the Cronos GrowCo Transaction.
There can be no assurance that these initiatives will achieve the expected benefits on a timely basis or at all. 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 and other risks, some of which are outside of our control. In addition, these initiatives could present unforeseenobstacles, lead to operating inefficiencies, negativelydisrupt our corporate culture and lead to further employee attrition, which could have a material adverse effect on our business, financial condition and results of operations. We have and may continue to incur costs to implement these initiatives (including costs in excess of projections), and we could be subject to litigation risks and expenses related to these initiatives.
The industries and markets in which we operate are relatively new and may not continue to exist or grow as anticipated, and we may ultimately be unable to succeed in these industries and markets.
The medical and adult-use cannabis industries and markets in which we operate are relatively new, highly speculative, rapidly expanding, and may ultimately not continue to exist or grow. We build brand awareness in these markets through significant investments in our strategy, production capacity, quality assurance, and compliance with regulations. These activities may not promote our brands and products as effectively as intended, or at all. Competitive conditions (including from the illicit market), consumer preferences and behavior in these industries and markets are relatively unpredictable and may differ from existing industries and markets. We are subject to all of the business risks associated with a niche market, including unforeseen capital requirements, market acceptance of our products, business relationship risks, and competitive disadvantagesagainst larger and more established competitors.
Accordingly, there are no assurances that these markets will continue to exist, grow, function, and evolve as currently anticipated, 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 purchasers in various provinces and territories of Canada with our products in the quantities or prices anticipated, or at all, due to the discretion such purchasers have over purchasing, pricing, and product listings.
We have entered into supply arrangements with all provinces in Canada (where the relevant provincial body is the sole wholesale distributor of cannabis products in the province, except for Manitoba where we have also entered into a distribution agreement with a Manitoba Liquor & Lotteries Corporation authorized cannabis distributor) and the Yukon territory and with private retailers in Saskatchewan.
These supply arrangements do not contain any binding minimum purchase obligations on the part of the relevant provincial or territorial purchaser. Purchase orders are primarily driven by end-consumer demand for our products and the relevant purchaser’s supply. Accordingly, we cannot predict the quantities of our products that will be purchased by the provincial, territorial and private 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, may terminate such supply agreements at their election, have broad rights of order cancellation and 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. Provincial and territorial purchasers have in the past and may in the future choose to stop purchasing Cronos products.
Furthermore, provincial and territorial purchasers may decide to ban, limit or implement new guidance on the types of cannabis products permitted for sale in each of their jurisdictions (including in response to Health Canada’s guidance on intoxicating cannabinoids) which may result in some or all of our products being viewed as non-compliant with law or non-binding policy guidance.
The adult-use cannabis market in Canada has in the past been and may in the future become oversupplied.
Numerous cannabis producers operate in the Canadian adult-use market. Cannabis producers have in the past produced and may in the future produce more cannabis than is needed to satisfy aggregate demand of the Canadian medical and adult-use markets, and we have in the past, and may in the future, 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 and decreases in market prices.
We may be unsuccessful in competing in the legal adult-use cannabis market in Canada.
We face competition from existing license holders under the Cannabis Act. Certain of these competitors may have significantly greater financial, production, marketing, R&D, technical and human resources than we do, which may allow them to achievegreater
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economies of scale, invest more heavily in brand development, and respond more quickly to changing consumer preferences. As a result, our competitors may be more successful than us in gaining or maintaining market share.
Our ability to compete also depends on the acceptance of our products by consumers and retail channels. If competing products are perceived to be safer, more effective, more consistently available, more effectively marketed, or less expensive than our products, or if our products do not achieve or sustain an adequate level of market acceptance, our revenues, margins, and profitability could be adversely affected.
In addition, competition in the Canadian adult-use market has intensified as certain retailers or retail groups have become vertically integrated with, or otherwise affiliated with or influenced by, licensed producers. Although applicable laws and regulations in certain provinces restrict certain forms of vertical integration between retailers and licensed producers, the interpretation and enforcement of these requirements may vary over time and by jurisdiction. To the extent retailers prioritize the sale, promotion, and shelf placement of their own or affiliated cannabis products over third-party brands such as ours, or if regulatory requirements are not enforced or are unevenly enforced, our ability to secure or maintain retail access, shelf space, and promotional visibility could be adversely affected, which could reduce sales volumes, increase pricing pressure, and harm our competitive position.
If we are unable to compete effectively in the legal adult-use cannabis market in Canada, we may not generate sufficient revenue from these products, our market share may decline, and our business, financial condition, and results of operations could be materially adversely affected.
We are subject to liability arising from any fraudulent or illegal activity by our employees, contractors, manufacturers and consultants.
We are exposed to the risk that our employees, independent contractors, manufacturers and consultants may engage in fraudulent, improper or otherwise illegal activity. Such misconduct could include intentional, reckless and/or negligentviolations of: (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 such misconduct within a reasonable time or at all, 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.
Many jurisdictions place restrictions on or prohibit commercial activities involving cannabis. 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 PharmaCann Investment.
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 the PharmaCann Option may take a prolonged period of time to complete, which could significantly delay our ability to exercise the PharmaCann Option and realize the benefits of the PharmaCann Investment or result in our not being able to exercise all or part of the PharmaCann Option. 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 shares from the exercise thereof).
Even if we are able to and do exercise the PharmaCann Option, the intended benefits of the PharmaCann Investment may not be realized within the expected timeframe or at all. There can be no assurance that the PharmaCann Investment will be accretive to us in the near term or at all. Any commercial arrangements between us and PharmaCann may not be successful or beneficial. For example, in December 2024 and March 2025, Innovative Industrial Properties, Inc. (“IIP”) disclosed that PharmaCann had defaulted on its obligations to pay rent under several lease agreements with IIP. Though certain of the defaults have since been resolved, PharmaCann’s financial condition and results of operations may not improve or may continue to deteriorate, and the value of the
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PharmaCann Investment could be materially adversely affected. If we fail to realize the intended benefits of the PharmaCann Investment, or if market expectations regarding those benefits are not met, our stock price could decline.
We have only limited governance, information and board observer rights with respect to PharmaCann. As a result, we will have little to no ability to influence PharmaCann’s strategy, operations, or other material business decisions. 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 even following any exercise of the PharmaCann Option, our ability to influence PharmaCann may remain limited. In addition, we are subject to certain standstill restrictions, both prior to and after the exercise of the PharmaCann Option, which 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 limitations. 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. As of December 31, 2025, the Company’s ownership percentage in PharmaCann on a fully diluted basis was approximately 1.1%. Under the terms of our investment in PharmaCann, Cronos’ rights to nominate an observer to the PharmaCann board of directors could be lost if our ownership drops below 6% on a fully diluted basis and we sell or transfer all or any portion of the PharmaCann Option (subject to certain exceptions).
We rely largely on our own market research to forecast sales and market demand and market prices may differ from our forecasts.
We rely largely on our own market research and internal data to forecast sales as there is limited availability of detailed and reliable market data from other sources at this early stage of the cannabis industry. Inaccurate forecasts or expectations regarding market conditions, including prices, capital expenditure levels, inventory levels, production and supply chain capacity and operating expenses could have, and have in the past had, a material adverse effect on our business, financial condition and results of operations.
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 goodwill and intangible assets recognized upon acquisition .”
If we complete our planned acquisition of CanAdelaar, we may face challenges integrating its operations into our existing organization, particularly given that CanAdelaar operates under the Netherlands’ Wietexperiment. The Wietexperiment is an experimental and highly regulated regime that imposes detailed requirements governing cultivation, production, quality control, distribution, reporting, and ongoing regulatory oversight. Complying with this framework may require operational practices, compliance systems, and regulatory expertise that differ from those used in our existing businesses. Any difficulties integrating CanAdelaar’s operations, maintaining compliance with applicable requirements, changes in the regulatory framework, delays in regulatory approvals, or modification, suspension, or termination of the Wietexperiment could disrupt operations, increase compliance costs, or prevent us from realizing the anticipated benefits of the CanAdelaar acquisition, which could materially and adversely affect our business, financial condition, and results of operations.
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.
Goodwill and other intangible assets are reviewed annually or more frequently when events or changes in circumstances indicate that their fair value has 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 impairment review. If the carrying amount of goodwill or other intangible assets exceeds their fair value, they are considered impaired, which would result in impairmentlosses and could have a material adverse effect on our consolidated financial position or results of operations. 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.
For a discussion of previous write downs of goodwill and other intangible assets, see Note 8 “ Goodwill and Intangible Assets, net ” to the consolidated financial statements in Item 8 of this Annual Report.
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Risks Relating to Operations in Israel
Conditions in Israel could materially and adversely affect our business, financial condition, and results of operations.
We have operations in Israel through a strategic joint venture, Cronos Israel, including employees and management personnel based in Israel, and we are therefore exposed to risks associated with geopolitical instability and armed conflict in the region.
On October 7, 2023, Hamas terrorists from the Gaza Strip launched a rocket barrage against Israel and engaged in incursions into Israeli territory, breaching the Gaza-Israel border, attacking military bases and slaughtering and kidnapping civilians in neighboring Israeli communities. Israel formally declared war on October 8. The Middle East Conflict may further escalate and may continue to result in a broader conflict across the Middle East. Ongoing hostilities and any escalation could disrupt our operations in Israel, adversely affect employee safety and availability, damage or destroy facilities, and materially impair economic activity and commercial operations in the region. Any resulting regional political instability or interruption or curtailment of trade between Israel and its trading partners could materially and adversely affect our business, financial condition, and results of operations.
The Middle East Conflict has adversely affected transportation, logistics, and imports into Israel, and we may be unable to import materials into Israel on a timely basis, or at all. Further, our sales have been, and may continue to be, adversely affected, including as a result of reduced demand, supply disruptions, or regulatory or governmental actions taken in response to the Middle East Conflict.
Our commercial insurance does not cover losses that may occur as a result of events associated with war and terrorism. Any damage to our facilities, operations, or inventory, or any disruption of our business resulting from the Middle East Conflict or related events could result in losses that we may not be able to recover, which could have an adverse effect on our business, financial condition, and results of operations.
Further, in the past, the State of Israel and Israeli companies have been subjected to economic boycotts. Several countries still restrict doing business with the State of Israel and with Israeli companies. A campaign of boycotts, divestment, and sanctions has been undertaken against Israel, which could also adversely impact our business, financial condition, and results of operations and the expansion of our business.
Our operations may be disrupted by the obligations of personnel to perform military service.
Some of our employees in Israel are obligated to perform annual reserve duty in the Israeli military for several days, and in some cases more, of annual military reserve duty each year until they reach the age of 40 (or older, for reservists who are military officers or who have certain occupations) and are subject to being called for additional active duty under emergency circumstances. In response to the Middle East Conflict, a number of our employees have been called up to serve in the Israeli military. We cannot predict the full impact of these conditions on us in the future, particularly if emergency circumstances or an escalation in the political or military situation occurs. If many of our employees are called for active duty, our operations in Israel and our business may not be able to function at profitable levels, or at all, and our business in, and results of operations from, Israel could be adversely affected.
The imposition of an anti-dumping duty on our imports into Israel could have a material adverse effect on our business, financial condition and results of operations.
On January 18, 2024, the Company was notified that the Trade Levies Commissioner of the Israel Ministry of Economy and Industry initiated a public investigation of alleged dumping of medical cannabis imports from Canada into Israel. On April 10, 2025, following the investigation, the Minister of Economy approved a duty of up to 165% on imports of cannabis from Canada, including the Company’s imports. On April 25, 2025, the Minister of Finance released a memorandum opposing the imposition of the duty, which acted as a veto of the Minister of Economy’s approval. On April 29, 2025, the Minister of Economy released a memorandum stating that notwithstanding the veto, he intended to proceed with the process of imposing the duty. On July 3, 2025, the Ministry of Justice issued a memorandum sustaining the Minister of Finance’s veto. Notwithstanding the government’s decision not to impose a tariff at this time, on June 12, 2025, a group of Israeli cannabis cultivators initiated an administrative proceeding against the government and certain importers, including the Company’s subsidiaries in Israel, asking the court to declare the Minister of Finance’s veto void and order the Minister of Economy to impose an anti-dumping duty. On December 18, 2025, the court denied the cultivators’ petition, effectively dismissing the case. The Company cannot predict further proceedings or determinations of the Ministers of Economy or Finance and cannot predict whether a duty will ultimately be imposed on its products.
If a final decision is made to impose an anti-dumping duty, or any other import restrictions, to which the Company’s imports would be subject, our ability to continue to import raw materials and cannabis products into Israel from Cronos GrowCo, the performance of our business in Israel, and our results of operations, financial condition, business and prospects could be materially and adversely impacted.
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Risks Relating to Our Products
There is limited long-term data with respect to the efficacy and side effects of cannabis and cannabinoids, and future clinical research studies on the effects of cannabis 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) inhaled, 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 in dietary supplements, food, or cosmetic products and there is limited long-term data with respect to potential benefits, effects and/or interaction of these substances with human or animal biochemistry. 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 possible criminal enforcement actions, which could have a material adverse effect on our business, financial condition and results of operations. 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 publicly available scientific literature and reports, which are subject to methodological limitations, qualifications and assumptions and evolving scientific consensus. Future research and clinical trials may cast doubt or disprove the Company’s current beliefs regarding the benefits, viability, safety, efficacy, dosing, and social acceptance of cannabis, U.S. hemp and cannabinoids in dietary supplements, food, or cosmetic products, 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, as well as on our business, financial condition and results of operations. In particular, the FDA has raised questions regarding the safety of CBD and other cannabinoids, particularly in food and dietary supplements and gaps in the public scientific literature supporting the use of CBD and other cannabinoids by the general population.
Clinical trials of cannabis-based medical products and treatments have a limited 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 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 withdrawing, 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 has been on the vaporizer devices, the manner in which the devices were used and the related vaporizer device products – THC, nicotine, other substances in vaporizer liquids, possibly adulterated products and other illegalunlicensed 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.
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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.
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 industry more generally, may receive unfavorable publicity or become subject to negative consumer perception.
We believe the cannabis industry is highly dependent upon broad social acceptance and consumer perception regarding the safety, efficacy and quality of cannabis 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 of cannabis 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 market 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 our 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 cannabis in general, or our products specifically, or associating the consumption or use of cannabis with illness or other negative effects or events, could have such material adverse effects. 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, artificial intelligence 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 products, operations, and activities and the cannabis industry in general. Social media permits user-generated content to be distributed to a broad audience which can respond or react, in near real time, with comments that may not be filtered or checked for accuracy. Accordingly, the speed with which negative publicity (whether based in truth or not) can be disseminated has increased dramatically with the expansion of social media and artificial intelligence. The dissemination of negative or inaccurate posts, comments or other user-generated content about the cannabis industry, our business, or our products on social media (including those published by third parties) could damage our brand, image, and reputation or how the cannabis industry is perceived generally, which could have a material adverse 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 cannabis industry. Lobbying by such groups, and any resulting inroads they might make in halting or rolling back the cannabis movement, could affect how the cannabis industry is 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.
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The parties with which we do business have perceived and may in the future perceive that they are exposed to reputational or regulatory risk as a result of our cannabis business activities. Failure to establish or maintain business relationships could have a material adverse effect on our business, financial condition and results of operations. Third-party service providers and suppliers have, and may in the future, suspend or withdraw services to us or require increased fees or compensation based on their perception of such risks. For example, we face challenges making U.S. dollar wire transfers or engaging third-party service providers or suppliers with a substantial presence where cannabis is not federally legal (including the U.S.). In these circumstances, we have, and 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.
We do not ultimately have control over how we or the cannabis industry 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 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 with respect to its previous U.S. operations, have become party to an increasing number of purported class action lawsuits relating to their food and dietary supplement products containing U.S. hemp-derived CBD. We have in the past been, and may in the future be, subject to such class actions or other litigation, and the plaintiffs may seek very large or indeterminate amounts, including punitivedamages, which may remain unknown for substantial periods of time. Any adverse outcome in litigation could adversely affect our operations, adversely affect the market price for our common shares and require the use of significant financial and management resources. Even to the extent we ultimately prevail in litigation, litigation can consume and redirect significant resources and create a negative perception of our brands, which could have an adverse effect on our business, financial condition and results of operations. See Part II, Note 12(b) “ Contingencies ” to the consolidated financial statements under Item 8 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 exposure to product liability claims, regulatory action and litigation if our products are alleged to have caused 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, and cannabinoids and future clinical research studies on the effects of cannabis, 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 our products caused injury or illness, incorrect labeling, inadequate instructions for use or inadequatewarnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action against us could result in increased costs, adversely affect our reputation with our consumers generally, and have a material adverse effect on our business, financial condition and results of operations. See Part II, Note 12(b) “ Contingencies ” to the consolidated financial statements under Item 8 of this Annual Report for a discussion of 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, product defects, such as contamination, unintendedharmful side effects or interactions with other substances, packaging safety and inadequate or inaccurate labeling 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 may experience unexpected expenses in connection with the recall, related legal proceedings, disruption of our sales and operations, diversion of management attention, negative publicity, decreased demand for our products and increased regulatory scrutiny of our operations. 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. Furthermore, any product recall affecting the cannabis industry more broadly could lead
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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 have not yet been standardized.
For certain of our cannabis 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 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, cannabinoids and their derivative products, and it is possible that such variations could continue even after such standardization. As a result, the existing differences have in the past caused, and could continue to cause, confusion with our consumers, lead to a negative perception of us and our products, increase the risk of litigation regarding cannabinoid content and regulatory enforcement action and make it more difficult for us to comply with regulatory requirements regarding contents of ingredients and packaging and labeling. See Part II, Note 12(b) “ Contingencies ” to the consolidated financial statements under Item 8 of this Annual Report.
We may not be able to successfully develop new products or find a market for their sale.
The legal cannabis industry is in its 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 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 adversely 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 the excise duty, 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. Similarly, the excise duty has in the past, and will likely continue to, have an effect on our profitability and ability to compete in the market.
Our business may be impacted by conditions in the global economy and financial markets, including changes in inflation, interest rates, trade policy and overall economic conditions.
In recent years, the global economy has experienced elevated inflation and inflationary pressures, including on wages and other input costs. Inflation could reduce our purchasing power and negatively impact our ability to obtain goods and services at commercially viable prices. We may be unable to pass on rising 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, our operating margins, net income, cash flows and the trading price of our common shares could be negatively impacted. Inflation may also reduce consumer discretionary spending, which could negatively affect demand for our products.
Interest rates directly affect the amount of interest income we generate from investing our cash and cash equivalents and short-term investments. Interest rates are subject to fluctuation, and a decrease in interest rates could negatively impact our interest income. Further, high interest rates have in the past had, and may in the future have, adverse effects on consumer disposable income and spending habits.
International trade and diplomatic tensions, including trade disputes and tariffs, may impact our business and future opportunities. For example, in early 2025, the U.S. government announced tariffs affecting imports from certain countries, and retaliatory measures were subsequently announced by affected countries. Although certain measures were deferred or are subject to negotiation, the implementation, modification, or escalation of tariffs remains possible. Tariffs, trade restrictions, and related uncertainty could adversely affect our business, including through increased costs, supply chain disruptions, currency fluctuations, and reduced demand. The ultimate impact of such developments is uncertain and depends on various factors, such as negotiations between countries, exemptions or exclusions, availability and cost of alternative sources of supply, and broader economic conditions. Actions we take to adapt to tariffs or trade restrictions may cause us to modify our operations or forgo business opportunities.
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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 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 or strategic partners, including the Cronos GrowCo Facility, such as 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. 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 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 have in the past and may in the future experience unauthorized access to our information technology systems or other cybersecurity incidents, which could disrupt our operations and have a material adverse effect on our business.
A cybersecurity incident or breach may occur in a variety of ways, including as a result of process failure, information technology malfunction, inadvertent disclosure of sensitive or personal information, deliberateunauthorizedintrusion, malware, phishing scheme, computer virus, or cyberattack or other electronic security breach. Financial theft, as well as theft of data for competitive or fraudulent purposes, such as customer, employee or vendor information, trade secrets or confidential or proprietary information, is an ongoing and growing risk. Any such theft or cybersecurity incident or breach may have a material adverse effect on our business, financial condition and results of operations.
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, including through cloud-based and software-as-a-service (“SaaS”) platforms. We have been, and expect to continue to be, subject to cyberattacks and phishing attempts. Additionally, our ongoing efforts to modernize our information technology systems may increase the risk of cybersecurity incidents, including during system migrations or transitions. We also permit employees to use certain third-party artificial intelligence tools for productivity purposes, which increases our reliance on external systems and may create risks of inadvertent disclosure of confidential information, exposure of proprietary data, or other compliance risks.
Any fraudulent, malicious or accidentalbreach of our systems could result in unintended disclosure of, or unauthorized access to, third-party, customer, vendor, employee or other confidential information, and could require us to incur significant costs and devote substantial resources to repair or replace damaged systems, enhance security, or respond to or remediate occurrences, which in turn may require us to divert substantial resources from our business. Such incidents could disrupt our operations, harm our reputation, cause customers to lose confidence in our security practices, and result in lost sales, violations of applicable laws and regulations and subsequent penalties, fines, regulatory action or litigation. Moreover, we could be required or otherwise find it appropriate to expend significant capital and other resources to respond to, notify third parties of, and otherwise address the breach or incident and its root cause.
We rely on third-party service providers, including cloud-based and SaaS systems, for most of our information technology systems. A cybersecurity incident affecting any of these service providers could have similar adverse effects. In addition, media or other reports of perceived security vulnerabilities to our systems or those of our service providers, even if no breach has been attempted or occurred, could adversely impact our brand and reputation.
There can be no assurance that our cybersecurity risk management systems and processes will prevent or timely detect a cybersecurity incident. We rely on third-party service providers to assist with these measures. We and our third-party service providers may not have the resources or technical sophistication to anticipate, prevent, respond to, or mitigate cyberattacks or cybersecurity breaches or incidents, and we or they may face difficulties or delays in identifying and responding to cyberattacks, cybersecurity breaches and incidents. We incur significant costs to detect, prevent and mitigate cybersecurity breaches and incidents and we expect those costs to increase as we continue to implement systems and processes designed to prevent and otherwise address cybersecurity breaches and incidents. In the event of a significant or material cybersecurity breach or incident, we could be required to expend additional significant capital and other resources in an effort to respond to or prevent further breaches or incidents, which may require us to divert substantial resources from our business, as well as increase our premiums for cybersecurity insurance, or limit our ability to obtain insurance on acceptable terms or with adequate coverage.
In recent years, our Information Systems department, which oversees our cybersecurity systems and processes, has experienced high turnover, creating opportunities for knowledge and skill gaps, which can result in operational errors and security oversights. In addition, cybersecurity is not the sole focus of our Information Systems department and competing responsibilities may divert their attention from cybersecurity matters. We also partner with external service providers to implement, manage and monitor our
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cybersecurity systems, including a managed security service provider whose personnel are not dedicated full time to our systems and may have their attention diverted by other customers.
Any actual or perceived failure by us to comply with laws, regulations or any other obligations relating to privacy, data protection or the protection or transfer of personal data, could adversely affect our business.
We collect and store personal information about our customers and employees, including health information, and are responsible for protecting that information. In Canada, for example, we are required to retain certain customer personal information for prescribed periods of time pursuant to the Cannabis Act. In the U.S., for example, we must comply with Americans with Disability Act requirements for confidential employee medical records, including that they must be stored separately from other personnel records and access must be restricted to those who need access. 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”) and related provincial laws protect medical records and other personal health information by limiting the use and disclosure of health information to the minimum level reasonably necessary to accomplish the intended purpose and apply to our operations globally. If we were found to be in violation of the privacy or data protection rules under PIPEDA or other applicable laws and regulations protecting the confidentiality of client health information in jurisdictions we operate in, we could be subject to sanctions and civil or criminalpenalties, 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 data protection laws and regulations that govern the collection, use, disclosure, transfer, storage, disposal, and protection of personal information. We may incur significant expenses in an effort to comply with privacy, data protection and information security standards imposed by such laws and regulations, as well as contractual obligations.
Additionally, upon the completion of our acquisition of CanAdelaar, we will become subject to the European Union’s General Data Protection Regulation (GDPR), as well as Dutch data protection laws and regulations, as a result of CanAdelaar’s ongoing business in the Netherlands. Completion of this acquisition would result in our operating a business in Europe for the first time. European data privacy laws impose significant obligations and restrictions on the collection, use, processing, storage, transfer, and security of personal data, including employee, customer, vendor, and business contact information, and we have limited experience complying with these legal and regulatory requirements. Compliance with these requirements may require us to implement new or enhanced policies, procedures, systems, controls, training programs, contractual arrangements, and technical safeguards, and to devote substantial management time and financial resources to compliance efforts. In addition, we may identify compliance gaps or legacy practices within the acquired business that require remediation, which could result in unanticipated costs, operational changes, or delays. We may also be required to engage external legal, technical, or compliance advisors to assist with ongoing compliance and oversight. Failure to comply with applicable European data privacy laws could result in regulatory investigations, fines, penalties, litigation, reputational harm, or restrictions on our ability to process personal data, any of which could materially and adversely affect our business, results of operations and financial condition.
New and modified laws, and other changes in laws or regulations relating to privacy, data protection and information security, 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 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 systems. Failure to comply with data privacy and protection laws and regulations could result in government enforcement actions (which could include substantial civil and criminalpenalties), litigation, business disruption, the diversion of management’s attention and adverse publicity and could negatively affect our business, results of operations and financial condition.
Our cannabis cultivation operations are subject to risks inherent in an agricultural business.
Our business and that of our joint venture partners and third-party suppliers involves the growing of cannabis, an agricultural product. As such, the business is subject to the risks inherent in the agricultural business, such as insects, plant diseases and other agricultural risks that may create crop failures and supply interruptions for our customers. Although our current operational production facilities, those of our joint venture partners and many of our third-party suppliers, grow products indoors (including in greenhouses) under climate-controlled conditions, there can be no assurance that natural elements will not have a material adverse effect on the production of our products. Any such crop failure or production disruptions could increase our costs, limit product availability, and materially and adversely affect our business, financial condition, and results of operations.
The inability of our suppliers to meet their financial or contractual obligations to us may result in disruption to our supply chain and could result in financial losses.
We face exposure to our third-party suppliers that may face financial difficulties which would impact our supply of products. We have in the past, and in the future may have disruptions in our supply chain.
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We rely on third-party distributors and manufacturers to distribute and manufacture certain of our products, and those distributors and manufacturers may not perform their obligations.
We rely on third-party distributors and other services to distribute our products and third-party manufacturers to manufacture certain of our products. If these distributors or manufacturers do not successfully carry out their contractual obligations, terminate or suspend their contractual arrangements with us, experience delays or interruptions, or damage our products, our operations could be disrupted, management’s attention could be diverted, and our business, results of operations and financial condition could be adversely affected. In certain cases, damage to our products, such as product spoilage or improper storage or handling, could expose us to potential product liability, damage our reputation 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. When we develop intellectual property that we believe is valuable, 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 againstunauthorized use of our trademarks.
It is possible that we will inadvertentlydisclose 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 or disclosure.
We enter into agreements with employees, consultants, collaborators, and other 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. Our physical, electronic and procedural security measures may be compromised, and we may not be able to prevent unauthorized access to or use of our intellectual property.
Our intellectual property that has not yet been applied for or registered may otherwise become known to, be independently developed by or be the subject of applications for intellectual property registrations filed by our competitors, which could have a material adverse effect on our ability to protect or enforce our rights.
We have experienced instances of misappropriation or unauthorized disclosure of our confidential information, including intellectual property, and similar incidents could occur in the future. Unauthorized parties may attempt to replicate or otherwise obtain and use our inventions, trade secrets, technical know-how and proprietary information. Identifying and policing the unauthorized use of our current or future intellectual property rights is difficult, expensive, time-consuming and unpredictable, as is enforcing these rights againstunauthorized use by others. 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. Additionally, since the exit of our U.S. operations, we have voluntarily forfeited certain of our trademark registrations in the U.S. that we were no longer utilizing, and in the future we may forfeit additional intellectual property rights, either voluntarily or through operation of law due to non-use.
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 a trademark applicant or registrant needs to demonstrate continued use or intent to use a trademark in U.S. commerce to obtain or maintain rights to register such trademark, where registered federal trademark protection is currently unavailable for trademarks covering the sale of U.S. Schedule I cannabis
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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, maintain, or enforce intellectual property rights 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 assert that our products, including those developed, produced, and sold by contract manufacturers on our behalf, or a contract manufacturer’s operations and production methods, may infringe on their 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 supply chain disruptions, as well as the expenditure of significant financial and managerial resources, legal fees, injunctions, temporary restraining orders, other equitable relief, and require the payment of damages, any or all of which may have an adverse impact on our business, financial condition and results of operations. 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 have also licensed certain of our germplasm strains to Cronos GrowCo and may be unable to maintain control of these strains.
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
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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.
We receive licenses to use some third-party intellectual property rights and germplasm; the failure of the owner of such intellectual property or germplasm to properly maintain or enforce the intellectual property underlying such licenses or germplasm, as the case may be, 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, which give us rights to use third-party intellectual property and germplasm 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, including intellectual property underlying licensed germplasm, against other third parties, particularly intellectual property rights to which we have secured exclusive rights. Without protection for the intellectual property we have licensed, or underlying germplasm that we have licensed, as the case may be, other companies might be able to offer substantially similar products for sale or utilize substantially similar processes, publicity and marketing rights or other intellectual property, any of which could have a material adverse effect on our business, financial condition and results of operations. Our success will also depend, in part, on our ability to obtain licenses to certain intellectual property and germplasm that we believe are necessary or useful for our business. 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 or germplasm, which could adversely affect our ability to commercialize our products or services, as well as have a material adverse effect on our business, financial condition and results of operations.
The technologies, processes 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 growing or 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, innovation, development efforts and third-party commitments, including licensees, researchers, and collaborators. Our failure to develop new processes, 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 grow products efficiently, enhance our existing technologies, develop new technology that addresses evolving consumer and market preferences, and respond to technological advances and emerging industry standards and practices on a timely and cost-effective basis.
Risks Relating to Entry into New Markets
Entering into new jurisdictions is inherently risky, may not be successful and could be costly.
From time to time, we enter into additional jurisdictions throughout the world, whether directly or through strategic partnerships with local operators who distribute our products. These expansion efforts involve significant risks and uncertainties, including risks related to the ability to obtain and maintain governmental permits and licenses, consumer reception of our products in such jurisdictions, increases in operational complexity, increases in the complexity involved in ensuring our products consistently meet our quality standards, unanticipateddelays or challenges, increased strain on our operational and internal resources, our dependence on strategic commercial partnerships, and negative public reception.
Our expansion efforts have required, and may in the future require, the dedication of substantial resources. In particular, we may need to make additional investments in management and personnel, infrastructure, operations and compliance systems. Expanding into additional jurisdictions may involve significant up-front capital investments and such investments may not generate our expected return on investment or any return at all. Further, from time to time we may reevaluate and discontinue our participation in such jurisdictions, which could result in write-offs and asset, intangible asset and goodwill impairments, and could otherwise adversely affect our business, financial condition and results of operations.
We also face new operational risks and challenges as we enter into new markets. Expansion into foreign jurisdictions subjects us to legal, regulatory, reputational and political risks that may be different from and additional to those that we face in jurisdictions in which we currently operate, and we may be at a disadvantage relative to competitors who are more familiar with local markets and local laws and regulations. Similarly, consumer preferences in jurisdictions we enter may differ from those in our existing markets, and our products may not be received by consumers as well as competing products in such jurisdictions. These factors may cause our expansion efforts to be unsuccessful, which may result in write-offs and asset, intangible asset and goodwill impairments, and may otherwise have a material negative impact on our business, results of operations and financial condition.
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Our expansion into the Netherlands exposes us to unique regulatory and commercial risks associated with the Dutch cannabis market.
The Netherlands operates under a highly regulated and evolving framework for adult-use cannabis. Participation in the Wietexperiment is limited to a small number of licensed producers and participating municipalities, and the program has a set expiration and is subject to change, extension or termination at the discretion of the Dutch government. Evaluation criteria of the Wietexperiment remain uncertain, and changes in government policy, enforcement priorities or political support could materially restrict our ability to operate or expand in the Dutch market. Regulatory requirements, interpretations, and operational requirements may evolve over time, increasing compliance costs, delaying commercialization plans, or limiting anticipated revenues.
The Dutch market also imposes structural and commercial constraints that may limit our expected return on investment. Under the Wietexperiment, licensed producers may supply only licensed retailers within designated municipalities, certain product formats are limited or prohibited, import and export are prohibited and distribution to unlicensed retailers or licensed retailers operating outside of the participating municipalities remain prohibited. These limitations may restrict market size, reduce economies of scale and make it difficult to achieve or maintain profitability. In addition, the experimental nature of the program may result in inconsistent or shifting regulatory expectations or logistical challenges in distribution and quality-control oversight. Consumer preferences and competitive dynamics in the Netherlands (including competition from the illicit market) may differ significantly from those in our existing markets, and our products may not gain the consumer acceptance we expect. Any of these factors could prevent us from realizing anticipated strategic benefits from our expansion efforts in the Netherlands and could adversely affect our business, financial condition and results of operations.
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 United Nations Single Convention on Narcotic Drugs (New York, 1961), the Convention on Psychotropic Substances (Vienna, 1971) and the Convention againstIllicit 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 United Nations 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 United Nations 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 United Nations Convention on Psychotropic Substances classifies tetrahydrocannabinols, which includes delta-9 THC, as a Schedule I psychotropic substance (substances presenting a high risk of abuse, posing a particularly seriousthreat 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 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 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 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 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 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 or region caused by political events, including elections, change in government, changes in personnel or legislative bodies, foreign relations or military control present serious political and social risk and instability causing interruptions to the flow of business negotiations and influencing relationships with government officials. 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.
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Other risks include the potential for fraud and corruption by suppliers, 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 and strategic alliances operating in jurisdictions that may be vulnerable to the possibility of bribery, collusion, kickbacks, theft, improper commissions, facilitation payments, conflicts of interest and related party transactions or our joint ventures’ and strategic alliances’ possible failure to identify, manage and mitigate instances of fraud, corruption or violations of our Code of Business Conduct and Ethics and applicable regulatory requirements.
There is also the risk of increased disclosure requirements; exchange rate 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 relating to the cultivation, manufacture, processing, marketing, labeling, packaging, management, transportation, distribution, import, export, storage, sale, pricing and disposal of cannabis, and also including laws, regulations and guidelines relating to health and safety, insurance coverage, banking, 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 industry is still new, and in Canada in particular, the Cannabis Act has no close precedent in Canadian law. Similarly, the regulatory regimes in the jurisdictions in which we and our joint ventures operate outside of 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. Further, the regulations to which our business is subject 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 regulatory agencies, which have broad interpretative and enforcement discretion with respect to such activities. This has in the past, and may in the future, make it difficult for us to determine whether we are in compliance with such regulations. 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 criminalpenalties, 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, the suspension or expulsion from a particular market or jurisdiction of our key personnel, the imposition of additional or more stringent inspection, testing and reporting requirements or negative publicity, any of which could materially
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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. 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.
As it relates to U.S. Schedule I cannabis, in the U.S., despite cannabis manufacturing, distribution, sale, possession and use having been legalized at the state level for medical use and for adult-use in many states and efforts to reschedule marijuana to Schedule III under the CSA, 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 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 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 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 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 or should the licenses be revoked or suspended, our business, financial condition and results of 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.
Additional government licenses in the future may be required in connection with our operations, in addition to other unknown permits and approvals which may be required. To the extent such permits, and approvals are required and not obtained, we may be prevented from operating 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 may adversely impact our business.
Our operations are and have been subject to various laws, regulations and guidelines promulgated by governmental authorities (including, in Canada, Health Canada and other federal, provincial and local regulatory agencies) relating to the cultivation, processing, marketing, acquisition, manufacture, packaging/labeling, management, transportation, distribution, import, export, storage, sale and disposal of cannabis 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 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 included, 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. The final report of an
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independent expert panel on a review of the Cannabis Act was published in March 2024 and the amendment, removal or addition of provisions in or to the Cannabis Act based on the recommendations resulting from this report could adversely affect our business. For example, recommendations related to imposing restrictions or prohibition of certain products with higher quantities or concentrations of THC or other intoxicating cannabinoids could limit and affect the types of products we can sell. On March 12, 2025, amendments to the Cannabis Regulations related to streamlining the regulatory requirements came into effect. As part of Health Canada’s red tape reduction initiatives, feedback from license holders and other recommendations from the independent expert panel may result in more changes to the current laws, regulations and guidelines. 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 limits the sale of other high THC non-edible cannabis products. In April 2023, the Supreme Court of Canada affirmed the provinces’ power to enact regulations that are more restrictive than the federal regime. In addition, the distribution and retail channels and applicable rules and regulations in the provinces continue to evolve, and our ability to distribute and sell 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.
In December 2023, Health Canada released guidance on cannabis products deliberately made with intoxicating cannabinoids other than delta-9-THC. Health Canada defines “intoxicating cannabinoids” as cannabinoids that bind to and activate the CB1 receptor and the guidance includes a list of 9 cannabinoids which can be revised as new evidence becomes available. This guidance recommends that license holders apply the regulatory controls (including limits on the amount of cannabinoids in certain products) currently applicable to delta-9-THC to all other cannabinoids that Health Canada considers to be “intoxicating cannabinoids” in order to minimize the risks of accidental consumption, overconsumption and adverse effects. Provincial and territorial distributors have taken different positions on the sale and distribution of products with various cannabinoids and may decide to ban, limit or implement new guidance on the types of cannabis products permitted for sale in each of their jurisdictions (including in response to Health Canada’s guidance on intoxicating cannabinoids) which may result in some or all of our products being viewed as non-compliant with law or non-binding policy guidance. For example, the NSLC does not permit the sale of cannabis products that do not meet Health Canada’s recommendation for total intoxicating cannabinoid content.
Furthermore, additional countries continue to pass laws and implement additional rules and regulations with respect to the production and distribution of cannabis in some form or another. We have subsidiaries, investments, joint ventures and strategic alliances in places outside of Canada, which may be affected by such changes. 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 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.
The TSX has 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.
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While Nasdaq has not issued official rules specific to the cannabis 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 in which we operate. In Canada and Israel, 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 environments in Canada and Israel limit 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 regulatory agencies, which have broad interpretative and enforcement discretion with respect to such activities. Furthermore, if our competitors fail to comply with applicable laws relating to sales and marketing activities with which we comply, and regulatory agencies are delayed or do not take enforcement action against such competitors, or take sporadic or inconsistent 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 and Israel, 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 ” and “ Business–Regulatory Framework in Israel .”
Any rescheduling of U.S. Schedule I cannabis to Schedule III would have an uncertain impact on our business.
In August 2023, the U.S. Department of Health and Human Services recommended that the DEA move marijuana from Schedule I to Schedule III under the CSA. In May 2024, DEA published a notice of proposed rulemaking in the Federal Register agreeing with HHS’s recommendation and proposing to move marijuana from Schedule I to Schedule III. Later in 2024, the process slowed considerably. The proposed rule became the subject of a hearing before a DEA administrative law judge (“ALJ”), where it experienced significant procedural disputes. When the ALJ retired in August 2025, the rescheduling process effectively stalled. In December 2025, President Trump issued the Executive Order directing the Department of Justice to expedite the completion of the rescheduling of marijuana from Schedule I to Schedule III, among other things. There can be no assurances that the rulemaking process will continue, be completed or withstand legal challenges.
If rescheduling occurs, the impacts on our business and competitive position are unclear. For example, rescheduling marijuana from Schedule I to Schedule III may be accompanied by additional regulatory obligations as prerequisite to participate in the U.S. market, and it may provide a greaterbenefit to the businesses of our competitors than our business, including by providing favorable tax treatment to their U.S. operations. We cannot assure you that rescheduling of marijuana from Schedule I to Schedule III would result in our ability or willingness to operate in the U.S. market. Participation in the U.S. cannabis market could remain subject to extensive licensing, compliance, and enforcement requirements, if participation were pursued, and rescheduling may impose additional regulatory obligations or costs. As a result, rescheduling could fail to improve, or could adversely affect, our ability to compete or operate, and any potential benefits may accrue disproportionately to other market participants.
Public speculation regarding the likelihood, timing or effects of rescheduling has contributed to, and may continue to contribute to, significant volatility in the market for our common stock. To the extent that market speculation results in an increase in the price of our stock, our stock price could decline significantly thereafter if market expectations are not realized or regulatory developments are delayed, modified or reversed or investor optimism fades.
The legal and regulatory framework governing U.S. hemp and hemp-derived products is complex, evolving, and subject to significant uncertainty.
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. 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 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.
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In November 2025, as part of the spending package to reopen U.S. the federal government (H.R. 5371), Congress enacted significant changes to the federal definition and regulation of U.S. hemp. The legislation narrows what qualifies as federally legal U.S. hemp, effectively prohibiting most intoxicating U.S. hemp products currently sold in the U.S. marketplace ( e.g. , U.S. hemp-derived THC gummies and beverages). The ban is scheduled to go into effect in November 2026. One of the many uncertainties regarding the ban is how, if at all, the Executive Order that President Trump issued in December 2025 related to marijuana rescheduling and the regulation of U.S. hemp will impact H.R. 5371. The Executive Order could lead to the establishment of guidance on an upper-limit of U.S. hemp-derived THC per serving in food and dietary supplements, and President Trump has directed the Assistant to the President and Deputy Chief of Staff for Legislative, Political, and Public Affairs to work with Congress to update the statutory definition of U.S. hemp-derived cannabinoid products.
Uncertainty regarding the interpretation, implementation, timing and interaction of these and other legislative and executive actions may result in inconsistent or delayed regulatory guidance, transitional disruption, or additional compliance obligations. Any such developments could adversely affect the broader cannabis and cannabinoid marketplace and indirectly affect our business, financial condition, results of operations, or the market price of our common shares, even if we do not directly participate in the U.S. hemp market.
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, distribution, and marketing experience than us.
The market for cannabis is 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 industry 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 these competitive pressures, we may be unable to maintain or grow our operations on terms we consider acceptable, or at all. Increased competition from larger, better-financed competitors, including those 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, 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, 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.
We face competition from the illegal cannabis market.
We 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 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 and financial condition as well as the perception of cannabis use.
Regulatory non-compliance by licensed cannabis competitors may have an adverse effect on our business, results of operations and financial condition.
In addition to competition from illegal market participants, we also face competition from licensed cannabis competitors that fail to comply with the regulations governing the cannabis industry when developing, marketing and selling cannabis products. These competitors may be able to produce and sell products with significantly higher cannabinoid potencies or which include ingredients that are prohibited by law, or market products in contravention of the law. If regulatory authorities are delayed in, or fail to, effectively restrict the marketing, sale or distribution of such non-compliant cannabis products by our competitors, there may be a material adverse effect on our business, results of operations and financial condition, as well as the perception of cannabis use.
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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 have occurred on a number of occasions in the past and may occur in the future. Continued pricing pressures in the markets in which we operate may result in further inventory write-downs. 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. In connection with the Cronos GrowCo Transaction, we consolidated additional inventory of $15.8 million, which includes a step-up to fair value of $5.6 million, which if reversed, could significantly affect our results of operations. These inventory write-downs have in the past and may in the future materially adversely affect our results of operations.
We may be unable to attract or retain skilled labor and personnel with experience in the cannabis sector and may be unable to attract, develop and retain additional employees required for our operations and future developments.
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. Restructurings and other changes to our operations have in the past led, and could in the future lead, to increased attrition amongst employees, including those not directly affected by a 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, employees and contractors in our operations may require security clearance from various regulatory agencies. For example, in Canada, 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 or analogous clearance from another jurisdiction 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 individual with security clearance leaves the service of the Company 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, 2025, Altria beneficially owned approximately 41.0% 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 and the Investor Rights 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 $831.8 million as of December 31, 2025. 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, among other things, certificates of deposit and other instruments issued by banks or obligations of or guaranteed by the Government of
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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.
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, Kamran Khan, Dominik Meier and Elizabeth Seegar, are employed by Altria. 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 is required to 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 in 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 operations and expansion. Any decision to declare and pay dividends in the future will be made at the discretion of the Board and will depend on, among other things, financial results, cash requirements, contractual restrictions and other factors that the Board may deem relevant. 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.
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The market price for our common shares has in the past been volatile and may continue to be volatile and subject to significant fluctuation.
The market price for our common shares has been volatile and subject to wide fluctuations and may continue to be volatile and subject to wide fluctuations in response to many factors, including:
• actual or anticipated fluctuations in our results of operations;
• changes in estimates of our future results of operations by us or securities research analysts;
• changes in the economic performance or market valuations of other companies that investors deem comparable to us;
• additions or departures of our executive officers and other key personnel;
• restating our financial results;
• 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 divert the time and attention of our management and other resources.
Securities markets have in the past experienced, and may 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, we may not be able to meet the diverse expectations and demands of all of our stakeholders, including on topics related to environmental, social, governance and sustainability matters, which could harm our reputation, reduce customer demand, subject us to legal and operational risks and adversely affect the trading price of our common shares. See “ Risk Factors—General Risks—Our business faces evolving and diverging expectations, requirements and demands from regulators, investors and other stakeholders, including with respect to environmental, social, governance and sustainability matters, which could expose us to numerous risks. ” 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 our 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 litigationagainst us could also subject us to significant liabilities.
We may require additional capital or issue additional securities in the future or be required to issue common shares pursuant to certain of our agreements, which may dilute holders of our securities.
Other than with respect to Altria’s pre-emptive rights to subscribe for additional common shares in us following certain issuances, holders of common shares have no pre-emptive rights in connection with 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. The issuance of any additional 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.
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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, 2025, Altria beneficially owned approximately 41.0% 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 (including our interests in subsidiaries). 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 and the application of certain look-through rules (including to certain intercompany items and to our interests in our subsidiaries), we do not expect to be a PFIC for the taxable year ending December 31, 2026. 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 could cause our trading price and trading volume of our common shares to decline.
General Risk Factors
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.
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We may be unable to obtain insurance coverage at acceptable rates and there may be coverage limitations and other exclusions which may not be sufficient to cover our potential liabilities.
We have insurance to protect certain of our assets, operations and employees. Our insurance coverage, however, 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. No assurance can be given that insurance 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 litigationagainst 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, 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 fail to comply. Failure to comply with applicable tax laws and regulations could have a material adverse effect on our business, financial condition and results of operations.
Natural disasters, unusual weather, pandemic outbreaks, boycotts and geopolitical 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 geopolitical events, such as civil unrest in countries in which our or our joint ventures’ operations are located and acts of terrorism, or similar disruptions could adversely affect our business, financial condition and results of operations. 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 or long-term 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 faces evolving and diverging expectations, requirements and demands from regulators, investors and other stakeholders, including with respect to environmental, social, governance and sustainability matters, which 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, environmental, social, governance and sustainability topics, including climate, corporate diversity and companies’ actions and initiatives on such issues, have received significant attention from a wide range of stakeholders, including regulators, customers, investors and employees. Many jurisdictions, including the U.S. and Canadian federal and local governments, have adopted or are considering legislation, regulation or policies on these topics, including requirements to disclose and/or otherwise address material climate risks, corporate greenhouse gas emissions and workplace diversity. Compliance with these laws, regulations or policies, including any that may be adopted in the future has resulted in, and are likely to continue to result in, among other things, increased general, compliance and administrative expenses, increased costs of operating our businesses, increased legal and reputational risks and reduced demand for our products, any or all of which could adversely affect our results of operations. In addition, policymakers in some jurisdictions have adopted or proposed laws, regulations and policies that diverge from, or potentially conflict with, those in other jurisdictions. Failure to comply with any legislation, regulation or policy could potentially result in substantial fines, criminal sanctions, reputational harm or operational changes.
Moreover, our customers, shareholders, employees and other stakeholders have differing expectations, demands and perspectives, including on these topics, which are continuing to evolve and, in some cases, diverge. We may not be able to meet the diverse expectations and demands of all of our stakeholders, which could harm our reputation, reduce customer demand for our products and services, and subject us to legal and operational risks. For example, we may communicate certain initiatives and goals, regarding
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environmental, social, governance and sustainability matters in our SEC filings or in other public disclosures. These initiatives and goals 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. Also, there can be no assurance that regulators, our shareholders or other stakeholders will agree with our initiatives or goals (including any potential changes to such initiatives or goals), or be satisfied with our efforts to achieve such goals. Any perception, whether or not valid, that we have failed to act responsibly with respect to such matters, failed (or may fail) to achieve our goals or to effectively respond to new or additional legal or regulatory requirements, could adversely affect our business, reputation and exposure to legal risks. Our ability to execute on our initiatives and goals, including on environmental, social, governance and sustainability matters, is subject to numerous risks and uncertainties, many of which are outside of our control, including, among other factors, changes in the regulatory or legal environment, changes in industry practices, evolving standards for measuring progress, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. If our disclosures related to these and other topics are incomplete or inaccurate, or if we fail to achieve our initiatives or goals on a timely basis, or at all, our reputation, business, financial performance and growth, as well as our reputation and customer and other stakeholder relationships, 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 and third-party suppliers involves the growing of cannabis, an agricultural product, and adverse weather conditions have historically caused volatility in the agricultural industry and consequently in operating results by causing crop failures or significantly reduced harvests, which may negatively affect the supply and pricing of agricultural commodities, such as cannabis. 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 and transportation 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 climate change. These changes could adversely affect our business, results of operations and reputation. See “Risk Factors—General Risks—Our business faces evolving and diverging expectations, requirements and demands from regulators, investors and other stakeholders, including with respect to environmental, social, governance and sustainability matters, which could expose us to numerous risks.”
Our financial performance is subject to risks of foreign exchange rate fluctuation, which could result in foreign exchange losses.
We are exposed to fluctuations of the U.S. dollar against certain other currencies, particularly the Canadian dollar and Israeli Shekel, because we publish our financial statements in U.S. dollars, while a significant portion of our assets, liabilities, revenues and costs are or will be denominated in other currencies. 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. We do not hedge our exchange rate exposure so any changes in exchange rates will directly affect our earnings.
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, the UK 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 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, as of 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 long term, or the ways in which the conflict may impact our business. The extent and duration of the military conflict, 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.
advancing
Unless otherwise noted or the context indicates otherwise, references in this Annual Report to the “Company,” “Cronos,” “we,” “us,” and “our” refer to Cronos Group Inc., its direct and indirect wholly owned subsidiaries and, if applicable, its joint ventures and investments accounted for by the equity method; the term “cannabis” means the plant of any species or subspecies of genus Cannabis and any part of that plant, including all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers; the term “U.S. hemp” has the meaning given to the term “hemp” in the U.S. 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.
Recent Developments
CanAdelaar Acquisition
On December 9, 2025, we entered into a definitive share sale and purchase agreement to acquire all of the issued and outstanding shares of CanAdelaar B.V. (“CanAdelaar”), one of ten licensed cannabis producers in the Dutch Controlled Cannabis Supply Chain Experiment. Closing of the proposed acquisition is subject to certain closing conditions, including obtaining required regulatory clearances in the Netherlands, receipt of confirmations relating to CanAdelaar’s licenses and Bibob review (a background check conducted by Dutch authorities), the accuracy of representations and warranties, and the absence of certain regulatory orders.
Cronos GrowCo Expansion
The expansion of the facility at Cronos Growing Company Inc. (“Cronos GrowCo”) is complete and sales from the expansion commenced in Fall 2025. Under the terms of our amended and restated supply agreement with Cronos GrowCo (the “Cronos GrowCo Supply Agreement”), Cronos has the option to purchase up to 70% of the total production from the expanded facility. Cronos GrowCo sells the remaining portion of its supply through the wholesale channel in Canada and across markets internationally. The Company believes this additional supply will fuel growth internationally and within the domestic Canadian market and the wholesale market in
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2026. As with any cultivation expansion, it typically takes time to fully optimize the new facility.
U.S. Federal Cannabis Rescheduling
In December 2025, President Trump issued an executive order (the “Executive Order”) directing the U.S. Attorney General to expedite the completion of the administrative process to reschedule marijuana from Schedule I to Schedule III under the U.S. Controlled Substances Act (the “CSA”). The Executive Order followed the U.S. Department of Health and Human Services’ August 2023 recommendation to reschedule marijuana and the DEA’s May 2024 notice of proposed rulemaking agreeing with that recommendation. Prior to the Executive Order, the rescheduling process had experienced procedural delays, including a hearing before a DEA administrative law judge and subsequent developments that slowedprogress on the rulemaking.
The Executive Order does not itself change the legal status of marijuana under U.S. federal law. Any rescheduling would require the completion of the DEA’s administrative rulemaking process and could be subject to further procedural steps and legal challenges.
The Company continues to monitor developments related to U.S. federal cannabis policy, including the DEA’s rulemaking process and related legislative and regulatory activity, and will evaluate any potential implications for its business as additional information becomes available.
Sale of Cronos Fermentation Facility
In September 2025, we entered into a purchase and sale agreement to sell our fermentation and manufacturing facility in Winnipeg, Manitoba (the “Cronos Fermentation Facility”) for a purchase price of CAD $4.0 million, subject to customary adjustments. The sale, which closed on November 15, 2025, included the land, buildings and related chattels associated with the facility.
Termination of Ginkgo Collaboration Agreement
On December 15, 2025, Cronos and Ginkgo Bioworks Holdings, Inc. (“Ginkgo”) mutually terminated their collaboration and license agreement (the “Ginkgo Collaboration Agreement”). As a result of the termination, all rights and licenses granted to Cronos under the Ginkgo Collaboration Agreement, including licenses to Ginkgo intellectual property and collaborationstrains, terminated as of that date, and neither party has any continuing obligations thereunder.
Ginkgo paid Cronos nominal consideration for the termination of the licenses to the Ginkgo intellectual property and the collaborationstrains. No payments or equity issuances were required by Cronos in connection with the termination, and Cronos has no further rights or obligations with respect to any patent families previously associated with the collaboration. In connection with the termination, Cronos exited fermentation-based cannabinoid manufacturing and no longer operates facilities leveraging intellectual property under the Ginkgo Collaboration Agreement.
Spinach ®
A key addition to our gummy portfolio in 2025 was 10mg THC Fully Blasted SOURZ by Spinach® gummies featuring rare cannabinoids, including Mango Lime with CBC, Peach Passionfruit with CBN and CBD and Strawberry Watermelon with CBG.
In the fourth quarter of 2025, SOURZ by Spinach® Fully Blasted gummies launched in new multipack formats. The SOURZ by Spinach® Fully Blasted Multipacks with liquid diamond-infused gummies are now available in five popular flavors.
In the first quarter of 2025, the brand introduced two new Spinach® 1g vapes, Cherry Crush and Cocoa Mintz, alongside new 1.2g cartridges, Mango Kiwi Haze CBC, Peach Passionfruit Kush CBN and Strawberry Watermelon OG CBG. These additions extend our popular SOURZ by Spinach® flavor profiles into the vape category.
In the third quarter of 2025, the brand launched the limited-edition Spinach® Sweet Green Apple 1g vape, to complement its corresponding SOURZ by Spinach® Carmel Green Apple seasonal offering.
PEACE NATURALS ®
In 2025, new launches for the PEACE NATURALS® brand included strain‑specific oils and limited‑edition premium flower series, further strengthening the brand’s portfolio and patient appeal. In the third quarter of 2025, Cronos Israel introduced new PEACE NATURALS® strains ANML, OGC, and Do Si Do under a new premium limited-edition product series, and launched a limited-edition combo pack featuring Wedding CK and Blue Thai.
Internationally, PEACE NATURALS® expanded its global footprint significantly. In the second quarter of 2025, the brand entered the medical cannabis markets in Australia and Malta, followed by launching in Switzerland in the third quarter. By mid‑2025, the brand’s medical presence spanned seven key markets: Canada, Israel, Germany, the United Kingdom (the “UK”), Australia, Switzerland, and Malta.
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LIT™
The LIT™ brand continued to gain momentum by launching in the German and UK medical markets in 2025. The goal of this value-driven brand is to capitalize on market trends, combining local insights with product development to build loyalty in emerging medical markets. Germany and the UK’s growth environments helped LIT™ gain visibility and traction as demand for affordable, high‑quality flower products increased across clinics and distributors.
Lord Jones ®
In the first quarter of 2025, the brand launched a Lord Jones ® Chocolate Fusions™ fudge brownie bite in Canada, which features a 1:1:1 ratio of CBN, CBD and THC.
The brand also expanded its presence in concentrates in Canada with the introduction of Lord Jones® Live Resin Caviar in the second quarter of 2025, reinforcing its positioning as a high‑quality, innovation‑driven brand.
2024 Compared to 2023
Results of Operations and Cash Flows
For a discussion of our 2024 results of operations and cash flows compared to 2023, 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, 2024.
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, 2025 and December 31, 2024, 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, 2025, December 31, 2024, and December 31, 2023, 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 $)
Year ended December 31,
Average rate
Spot rate
The exchange rates used to translate from New Israeli Shekels (“ILS”) to dollars are shown below:
(Exchange rates are shown as ILS per $)
Year ended December 31,
Average rate
Spot rate
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Consolidated Results of Operations - 2025 Compared to 2024
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 .
Year ended December 31,
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
Impairmentloss on goodwill and indefinite-lived intangible assets
Impairmentloss on long-lived assets
Total operating expenses
Operating loss
Other income
Income (loss) before income taxes
Income tax benefit
Net income (loss)
Net income (loss) attributable to non-controlling interest
Net income (loss) attributable to Cronos Group
Summary of select financial results
Year ended December 31,
Change
Net revenue
Cost of sales
Inventory write-down
Gross profit
Gross margin (i)
(i) Gross margin is defined as gross profit divided by net revenue.
Net revenue
For 2025, we reported consolidated net revenue of $146.6 million, representing a $29.0 million increase from 2024. This change was primarily due to higher cannabis flower sales in Israel and other countries, which carry no excise taxes, the inclusion of a full year of Cronos GrowCo sales in the current period, and higher cannabis extract sales in the Canadian market, partially offset by a decrease in cannabis flower sales in the Canadian market due to supply constraints. Due to the consolidation of Cronos GrowCo’s results of operations in our financial statements beginning July 1, 2024, Cronos GrowCo contributed $10.3 million of cannabis flower sales to third parties in the year ended December 31, 2025, compared to $6.4 million of cannabis flower sales to third parties in the year ended December 31, 2024.
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Cost of sales
For 2025, we reported consolidated cost of sales of $83.2 million, representing a $8.5 million decrease from 2024. This decrease was primarily due to lower amounts of inventory step-up from the transaction by which we obtained majority control of the board of directors of Cronos GrowCo (the “Cronos GrowCo Transaction”) recognized into cost of sales, as well as the consolidation of Cronos GrowCo and production efficiencies, partially offset by higher sales volumes. For 2025 and 2024, we recognized $0.5 million and $5.3 million, respectively, of inventory step-up from the Cronos GrowCo Transaction into cost of sales.
Inventory write-down
For each of 2025 and 2024, we reported inventory write-downs of $0.7 million. The activity in both years was due to write-downs resulting from unusable inventory that was scrapped in the period.
Gross profit
For 2025, we reported consolidated gross profit of $62.8 million, representing a $37.6 million increase from 2024. The increase in gross profit was primarily due to lower amounts of inventory step-up from the Cronos GrowCo Transaction recognized into cost of sales, the consolidation of Cronos GrowCo, higher average sales prices driven primarily by a mix shift to Israel and other countries, higher sales volumes, and production efficiencies. For 2025 and 2024, gross profit was reduced $0.5 million and $5.3 million, respectively, as a result of the impact of the inventory step-up from the Cronos GrowCo Transaction that was recorded into cost of sales.
Operating expenses
Year ended December 31,
Change
Sales and marketing
Research and development
General and administrative
Restructuring costs
Share-based compensation
Depreciation and amortization
Impairmentloss on goodwill and indefinite-lived intangible assets
Impairmentloss on long-lived assets
Operating expenses
Sales and marketing
For 2025, we reported sales and marketing expenses of $21.8 million, representing an increase of $0.2 million from 2024. The increase was primarily due to higher salaries and benefits, partially offset by lower marketing expenses.
Research and development
For 2025, we reported research and development expenses of $4.4 million, representing an increase of $0.2 million from 2024. The increase was primarily due to higher costs associated with genetics development, partially offset by lower salaries and benefits.
General and administrative
For 2025, we reported general and administrative expenses of $42.0 million, representing a decrease of $4.5 million from 2024. The decrease was primarily due to lower salaries and benefits and lower expected credit loss allowances on loans receivable, partially offset by the consolidation of Cronos GrowCo and higher transaction costs. For the year ended December 31, 2025, changes in expected credit loss allowances on loans receivable decreased general and administrative expenses by $16 thousand, compared to an increase to general and administrative expenses of $1.0 million for the year ended December 31, 2024. For the year ended December 31, 2025 and 2024, general and administrative expenses related to Cronos GrowCo were $4.2 million and $1.5 million, respectively.
Restructuring costs
For 2025, we reported restructuring costs of $2.0 million, representing an increase of $1.4 million from 2024. The restructuring costs in 2025 and 2024 were related to Realignment activities. See Note 18 “ Restructuring ” to the consolidated financial statements in Item 8 of this Annual Report for additional information.
Share-based compensation
For 2025, we reported share-based compensation expenses of $7.1 million, representing a decrease of $1.7 million compared to 2024. The decrease was primarily due to lower amounts of share-based compensation awards outstanding, partially offset by the inclusion of expense related to DSUs in share-based compensation in 2025, which was not included in share-based compensation in 2024.
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Depreciation and amortization
For 2025, depreciation and amortization expenses were $2.1 million, representing a decrease of $1.6 million from 2024. The decrease was primarily due to lower amortization of intangible assets.
Impairmentloss on goodwill and indefinite-lived intangible assets
For 2025, impairmentloss on goodwill and indefinite-lived intangible assets was $0.7 million and related to the Company’s Lord Jones® indefinite-lived intangible asset. There were no such impairmentlosses in 2024. See Note 8 “ Goodwill and Intangible Assets, net ” to the consolidated financial statements in Item 8 of this Annual Report for additional information.
Impairmentloss on long-lived assets
For 2025, impairmentloss on long-lived assets was $36 thousand, compared to $16.4 million in 2024. Impairmentloss on long-lived assets in 2024 was primarily due to the impairment of the exclusive rights to use and commercialize the key patented intellectual property related to the production of the target cannabinoids (the “Ginkgo Exclusive Licenses”) globally and the cessation of operations of Thanos Holdings Ltd., known as Cronos Fermentation (“Cronos Fermentation”). See Note 8 “ Goodwill and Intangible Assets, net ” and Note 18 “ Restructuring ” to the consolidated financial statements in Item 8 of this Annual Report for additional information.
Total other income, income tax expense (benefit) and loss from discontinued operations
Year ended December 31,
Change (i)
Interest income, net
Share of income from equity method investments
Gain on revaluation of loan receivable
Gain on revaluation of equity method investment
Loss on revaluation of financial instruments
Impairmentloss on other investments
Foreign currency transaction gain (loss)
Loss on held-for-sale assets
Change in allowance for credit loss on non-operating loan
Other, net
Total other income
Income tax benefit
Net income (loss)
(i) “N/M” is defined as not meaningful.
Interest income, net
For 2025, we reported interest income, net of $40.0 million, representing a decrease of $12.1 million from 2024, primarily due to lower interest rates in the current period and the absence of income recognized on the Cronos GrowCo loan receivable, which is eliminated in consolidation, effective from and after July 1, 2024.
Share of income from equity method investments
For 2025, we had no income from equity method investments, compared to $2.4 million in 2024. As a result of the Cronos GrowCo Transaction on July 1, 2024, we now consolidate Cronos GrowCo and no longer account for our investment in Cronos GrowCo as an equity method investment. See Note 5 “ Investments ” to the consolidated financial statements in Item 8 of this Annual Report for additional information.
Gain on revaluation of loans receivable
For 2025, we reported no gain on revaluation of loans receivable. For 2024, we reported a gain on revaluation of loans receivable of $11.8 million. The gain related to the remeasurement of the outstanding loans receivable under the credit facility with Cronos GrowCo as a result of the Cronos GrowCo Transaction on July 1, 2024. See Note 6 “ Loans Receivable, net ” to the consolidated financial statements in Item 8 of this Annual Report for additional information.
Gain on revaluation of equity method investment
For 2025, we reported no gain on revaluation of equity method investment. For 2024, we reported a gain on revaluation of equity method investment of $32.5 million related to the remeasurement of the existing investment in Cronos GrowCo as a result of the
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Cronos GrowCo Transaction. See Note 5 “ Investments ” to the consolidated financial statements in Item 8 of this Annual Report for additional information.
Loss on revaluation of financial instruments
For 2025, we reported a loss on revaluation of financial instruments of $0.5 million, compared to a loss of $6.2 million in 2024. The decreased loss was primarily related to the changes in fair value of our investment in Vitura Health Limited (“Vitura”) and the warrant (the “High Tide Warrant”) to purchase common shares of High Tide Inc. (“High Tide”). See Note 5 “ Investments ” to the consolidated financial statements in Item 8 of this Annual Report for additional information.
Impairmentloss on other investments
For 2025, we recognized no impairmentloss on other investments. For 2024, we recognized $25.7 million of impairmentloss on other investments, driven by impairment charges recorded on our PharmaCann Option for the difference between its estimated fair value and its carrying amount. See Note 5 “ Investments ” to the consolidated financial statements in Item 8 of this Annual Report for additional information.
Foreign currency transaction gain (loss)
For 2025, foreign currency transaction loss was $28.6 million, representing a change of $86.4 million from 2024. The change was primarily due to the weakening of the U.S. dollar compared to the Canadian dollar impacting the revaluation of certain foreign currency-denominated cash equivalents and short-term investments held in Canada.
Loss on held-for-sale assets
For 2025, we recognized $5.5 million of loss on held-for-sale assets. For 2024, we recognized $11.2 million of loss on held-for-sale assets. The losses in both 2025 and 2024 relate to decreases in the fair value of the Cronos Fermentation Facility held-for-sale assets. See Note 18 “ Restructuring ” to the consolidated financial statements in Item 8 of this Annual Report for additional information.
Change in allowance for credit loss on non-operating loan
For 2025, change in allowance for credit loss on non-operating loan was $4.9 million. The expense relates to the change in the allowance for credit loss on the junior secured convertible debt (the “High Tide Loan”) from High Tide. For further information, see Note 6 “ Loans Receivable, net .”
Other, net
Other, net primarily includes gains and losses on the disposal of assets.
Income tax benefit
For 2025, we reported an income tax benefit of $14.2 million, compared to an income tax benefit of $3.4 million in 2024. The change was primarily driven by tax benefits realized on the termination of the Ginkgo Collaboration Agreement and the disposition of the Cronos Fermentation Facility assets in 2025.
Net income (loss)
For the year ended December 31, 2025, net loss was $2.9 million, compared to net income of $40.0 million for the year ended December 31, 2024. The change was mainly driven by foreign currency transaction loss, partially offset by higher gross profit and lower operating expenses.
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 U.S. GAAP measure. Reconciliations of historical adjusted financial measures to corresponding U.S. GAAP measures are provided below.
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Adjusted EBITDA
Management reviews Adjusted EBITDA, a non-GAAP measure, which excludes non-cash items and items that do not reflect management’s assessment of ongoing business performance. 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; impairmentloss on goodwill and intangible assets; impairmentloss on long-lived assets; (gain) loss on revaluation of derivative liabilities; (gain) loss on revaluation of financial instruments; gain on revaluation of loan receivable; gain on revaluation of equity method investment; transaction costs related to strategic projects; loss on held-for-sale assets; impairmentloss on other investments; foreign currency transaction (gain) loss; other, net; loss from discontinued operations; change in allowance for credit loss on non-operating loan; restructuring costs; inventory write-downs resulting from restructuring actions; share-based compensation; costs related to the Israel Ministry of Economy and Industry dumping inquiry; purchase accounting adjustment-related inventory step-up adjustments recorded through cost of sales; 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 of defending shareholder class action complaints brought against us as a result of the 2019 restatement (see Note 12(b) “ Contingencies ,” to the consolidated financial statements under Item 8 of this Annual Report for a discussion of the shareholder class action complaints relating to the restatement of the 2019 interim financial statements and the settlement of the SEC’s and the OSC’s investigations of the Restatements). Results are reported as total consolidated results, reflecting our reporting structure of one reportable segment.
Management believes that Adjusted EBITDA provides the most useful insight into underlying business trends and results and provides a more meaningful comparison of period-over-period results. Management uses Adjusted EBITDA for planning, forecasting and evaluating business and financial performance, including allocating resources and evaluating results relative to employee compensation targets.
Beginning in 2025, the Company modified the composition of Adjusted EBITDA to exclude the impact of the provision for expected credit losses recognized under ASC 326 solely with respect to the High Tide Loan (see Note 6 “ Loans Receivable, net ” to the consolidated financial statements under Item 8 of this Annual Report for further information). Management determined that excluding this non-cash provision provides investors with additional insight into period-over-period operating performance by isolating credit-risk movements unrelated to the Company’s core operations.
Management believes that this change provides additional information regarding the Company’s ongoing operational results and enhances comparability with peers that do not routinely extend credit to third parties. This change does not affect the Company’s GAAP financial statements.
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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)
For the year ended December 31, 2025
Continuing Operations
Discontinued Operations
Total
Net loss
Interest income, net
Income tax benefit
Depreciation and amortization
EBITDA
Impairmentloss on goodwill and indefinite-lived intangible assets (i)
Impairmentloss on long-lived assets (ii)
Loss on revaluation of financial instruments (v)
Foreign currency transaction loss
Transaction costs (vii)
Loss on held-for-sale assets (viii)
Other, net (ix)
Restructuring costs (x)
Share-based compensation (xi)
Restatementlitigation costs (xii)
Inventory step-up recorded to cost of sales (xiii)
Israel Ministry of Economy and Industry dumping inquiry (xiv)
Change in allowance for credit loss on non-operating loan (xv)
Adjusted EBITDA
(in thousands of U.S. dollars)
For the year ended December 31, 2024
Continuing Operations
Discontinued Operations
Total
Net income
Interest income, net
Income tax benefit
Depreciation and amortization
EBITDA
Share of income from equity method investments
Impairmentloss on long-lived assets (ii)
Revaluation gain on loan receivable (iii)
Gain on revaluation of equity method investment (iv)
Loss on revaluation of financial instruments (v)
Impairmentloss on other investments (vi)
Foreign currency transaction gain
Transaction costs (vii)
Loss on held-for-sale assets (viii)
Other, net (ix)
Restructuring costs (x)
Share-based compensation (xi)
Restatementlitigation costs (xii)
Inventory step-up recorded to cost of sales (xiii)
Israel Ministry of Economy and Industry dumping inquiry (xiv)
Adjusted EBITDA
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(in thousands of U.S. dollars)
For the year ended December 31, 2023
Continuing Operations
Discontinued Operations
Total
Net loss
Interest income, net
Income tax benefit
Depreciation and amortization
EBITDA
Share of income from equity method investments
Impairmentloss on long-lived assets (ii)
Loss on revaluation of financial instruments (v)
Impairmentloss on other investments (vi)
Foreign currency transaction loss
Other, net (ix)
Restructuring costs (x)
Share-based compensation (xi)
Restatementlitigation costs (xii)
Inventory write-down (xvi)
Adjusted EBITDA
(i) For the year ended December 31, 2025, impairmentloss on goodwill and indefinite-lived intangible assets related to our Lord Jones ® brand intangible asset, which was assessed for impairment in the fourth quarter of 2025. There were no such losses in the years ended December 31, 2024 and 2023. See Note 8 “Goodwill and Intangible Assets, net” to the consolidated financial statements in Item 8 of this Annual Report.
(ii) For the year ended December 31, 2025, impairmentloss on long-lived assets related to equipment no longer in use. For the year ended December 31, 2024, impairmentloss on long-lived assets included $14,258 related to the write-down of our Ginkgo Exclusive Licenses and $1,631 related to the winding down of operations at the Cronos Fermentation Facility. For the year ended December 31, 2023, impairmentloss on long-lived assets related to certain leased properties associated with the Company’s former U.S. operations and impairment of the Ginkgo Collaboration Agreement’s CBCVA exclusive license. On December 15, 2025, Cronos and Ginkgo mutually terminated the Ginkgo Collaboration Agreement. See Note 7 “Property, Plant and Equipment, net” and Note 8 “Goodwill and Intangible Assets, net” to the consolidated financial statements in Item 8 of this Annual Report.
(iii) For the year ended December 31, 2024, a revaluation gain on loan receivable was recognized as a result of the Cronos GrowCo Transaction on July 1, 2024.
(iv) For the year ended December 31, 2024, a gain on revaluation of equity method investment was recognized as a result of the Cronos GrowCo Transaction on July 1, 2024.
(v) For the year ended December 31, 2025, the loss on revaluation of financial instruments was driven by the Company’s equity securities in Vitura, partially offset by a gain related to the High Tide Warrant. For the years ended December 31, 2024 and 2023, loss on revaluation of financial instruments related primarily to the Company’s equity securities in Vitura. See Note 5 “ Investments ” to the consolidated financial statements in Item 8 of this Annual Report.
(vi) For the years ended December 31, 2024 and 2023, impairmentloss on other investments represented the fair value change on the PharmaCann Option. See Note 5 “ Investments” to the consolidated financial statements in Item 8 of this Annual Report.
(vii) For the years ended December 31, 2025 and 2024, transaction costs represented legal, financial and other advisory fees and expenses incurred in connection with the Cronos GrowCo Transaction and the pending acquisition of CanAdelaar. These costs are included in general and administrative expenses on the consolidated statements of net income (loss) and comprehensive income (loss).
(viii) For the years ended December 31, 2025 and 2024, loss on held-for-sale assets related to revaluations of the Cronos Fermentation Facility held-for-sale asset group.
(ix) For the year ended December 31, 2025, other, net related to (gain) loss on disposal of assets and dividend income. For the years ended 2024 and 2023, other, net primarily related to (gain) loss on disposal of assets and (gain) loss on revaluation of derivative liabilities.
(x) For the year ended December 31, 2025, restructuring costs from continuing operations related to employee-related severance costs and IT infrastructure and finance transformation costs associated with the Realignment, as described in Note 18 “ Restructuring ” to the consolidated financial statements in Item 8 of this Annual Report. For the year ended December 31, 2024, restructuring costs from continuing operations related to shutdown costs at the Cronos Fermentation Facility, as well as employee-related severance costs associated with the Realignment, as described in Note 18 “ Restructuring ” to the consolidated financial statements in Item 8 of this Annual Report. For the year ended December 31, 2023 restructuring costs related to the employee-related severance costs and other restructuring costs associated with the Realignment.
(xi) For the year ended December 31, 2025, share-based compensation related to the expenses of share-based compensation awarded to employees and our DSUs issued to certain members of our Board of Directors, each under the Company’s 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, 2024 and 2023, share-based compensation related 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.
(xii) For the years ended December 31, 2025, 2024 and 2023, restatementlitigation costs included legal costs incurred defending shareholder class action complaints brought against the Company as a result of the 2019 restatement.
(xiii) For the years ended December 31, 2025 and 2024, inventory step-up recorded to cost of sales represented the portion of the inventory step-up from the Cronos GrowCo Transaction that was recorded through the consolidated statements of income (loss) and comprehensive income (loss).
(xiv) For the year ended December 31, 2024, Israel Ministry of Economy and Industry dumping inquiry expense included expenditures relating to the regulatory inquiry about alleged dumping of medical cannabis products in Israel and related litigation and external relations expenses.
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(xv) For the year ended December 31, 2025, change in allowance for credit loss on non-operating loan represents the allowance recognized on the High Tide loan receivable and adjustments thereto, as described in Note 6, “ Loans Receivable, net ” to the consolidated financial statements in Item 8 of this Annual Report.
(xvi) For the year ended December 31, 2023, inventory write-downs from discontinued operations related to product destruction and obsolescence associated with the exit of our U.S. operations as described in Note 3 “ Discontinued Operations ” to the consolidated financial statements in Item 8 of this Annual Report and inventory write-downs from continuing operations related to product destruction and obsolescence associated with the winding down of operations at the Cronos Fermentation Facility as described in Note 18 “ Restructuring ” to the consolidated financial statements in Item 8 of this Annual Report.
For the year ended December 31, 2025, Adjusted EBITDA was $10.1 million, representing an improvement of $45.1 million from the year ended December 31, 2024. The improvement was primarily due to higher Adjusted Gross Profit and lower operating expenses due to a decline in general and administrative costs.
Adjusted Gross Profit and Adjusted Gross Margin
To supplement the consolidated financial statements presented in accordance with U.S. GAAP, we have presented Adjusted Gross Profit and Adjusted Gross Margin, non-GAAP measures that exclude the impacts of inventory-related purchase accounting adjustments from the calculations of gross profit and gross margin, which resulted from the Cronos GrowCo Transaction. Results are reported as total consolidated results, reflecting our reporting structure of one reportable segment.
Management believes that Adjusted Gross Profit and Adjusted Gross Margin provide useful insight into underlying business trends to facilitate comparisons of period-over-period results by removing the impacts of inventory-related purchase accounting adjustments resulting from the Cronos GrowCo Transaction, which reflect a one-time event and do not reflect management’s assessment of ongoing business performance.
The following table sets forth a reconciliation of Gross profit and Gross margin, each as determined in accordance with U.S. GAAP, to Adjusted Gross Profit and Adjusted Gross Margin, respectively, for the periods indicated:
(in thousands of USD)
Year ended December 31,
Net revenue
Gross profit
Inventory step-up recorded to cost of sales
Adjusted Gross Profit
Gross margin (i)
Adjusted Gross Margin (ii)
(i) Gross margin is defined as gross profit divided by net revenue.
(ii) Adjusted Gross Margin is defined as Adjusted Gross Profit divided by net revenue.
For the year ended December 31, 2025, Adjusted Gross Profit was $63.3 million, representing an increase of $32.8 million from the year ended December 31, 2024. The increase was primarily due to the consolidation of Cronos GrowCo, higher average sales prices driven primarily by a mix shift to Israel and other countries, higher sales volumes, and production efficiencies.
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 2025, as well as cash and cash equivalents and short-term investment balances as of December 31, 2025 compared to December 31, 2024, 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 2024 rather than the actual average exchange rates in effect during 2025; 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 2024. We have provided this non-GAAP financial information to aid investors in better understanding the performance of our business. The non-GAAP financial measures presented in this Annual Report should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with U.S. GAAP.
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The table below sets forth certain measures of consolidated results from continuing operations on an as-reported and constant currency basis for 2025 compared to 2024, as well as cash and cash equivalents and short-term investments as of December 31, 2025, compared to December 31, 2024, on an as-reported and constant currency basis (in thousands):
As Reported
As Adjusted for Constant Currency
Year ended December 31,
As Reported Change
Year ended December 31,
Constant Currency Change
Net revenue
Gross profit
Gross margin
Operating expenses
Net income (loss)
Adjusted EBITDA
As of December 31,
As Reported Change
As of December 31,
Constant Currency Change
Cash and cash equivalents
Short-term investments
Total cash and cash equivalents and short-term investments
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Net revenue
As Reported
As Adjusted for Constant Currency
Year ended December 31,
As Reported Change
Year ended December 31,
Constant Currency Change
Cannabis flower
Cannabis extracts
Other
Net revenue
As Reported
As Adjusted for Constant Currency
Year ended December 31,
As Reported Change
Year ended December 31,
Constant Currency Change
Canada
Israel
Other countries
Net revenue
For 2025, net revenue on a constant currency basis was $145.4 million, representing a 24% increase from 2024. Net revenue increased on a constant currency basis primarily due to higher cannabis flower sales in Israel and other countries, which carry no excise taxes, the inclusion of a full year of Cronos GrowCo sales in the current period, and higher cannabis extract sales in the Canadian market, partially offset by a decrease in cannabis flower sales in the Canadian market due to supply constraints. Due to the consolidation of Cronos GrowCo’s results of operations in our financial statements beginning July 1, 2024, Cronos GrowCo contributed $10.5 million of cannabis flower sales to third parties in the year ended December 31, 2025, on a constant currency basis, compared to $6.4 million of cannabis flower sales to third parties in the year ended December 31, 2024.
Gross profit
For 2025, gross profit on a constant currency basis was $61.8 million, representing a 145% increase from 2024. Gross profit increased on a constant currency basis primarily due to lower amounts of inventory step-up from the Cronos GrowCo Transaction recognized into cost of sales, the consolidation of Cronos GrowCo for a full year, higher average sales prices driven primarily by a mix shift to Israel and other countries, higher sales volumes, and production efficiencies. For 2025 and 2024, gross profit on a constant currency basis was reduced $0.6 million and $5.3 million, respectively, as a result of the impact of the inventory step-up from the Cronos GrowCo Transaction that was recorded into cost of sales.
Operating expenses
For 2025, operating expenses on a constant currency basis were $80.2 million, representing a 21% decrease from 2024. Operating expenses decreased on a constant currency basis primarily due to the impairment of Ginkgo Exclusive Licenses in 2024, lower salaries and benefits, lower expected credit losses on loans receivable, lower depreciation and amortization and lower share-based compensation expense, partially offset by higher restructuring costs, transaction costs and impairmentloss on goodwill and indefinite-lived intangible assets in 2025.
Net income (loss)
For 2025, net loss on a constant currency basis was $4.3 million, compared to net income of $40.0 million for 2024. The change on a constant currency basis was mainly driven by lower other income, partially offset by higher gross profit and lower operating expenses.
Adjusted EBITDA
For 2025, Adjusted EBITDA on a constant currency basis was $8.6 million, representing a $43.5 million improvement from 2024. Adjusted EBITDA improved on a constant currency basis primarily due to higher Adjusted Gross Profit and lower operating expenses due to a decline in general and administrative costs.
Cash and cash equivalents & short-term investments
Cash and cash equivalents and short-term investments on a constant currency basis decreased 4% to $828.2 million as of December 31, 2025 from $858.8 million as of December 31, 2024. The decrease in cash and cash equivalents and short-term investments is primarily due to cash flows used in investing and financing activities in 2025, partially offset by cash generated in operating activities in 2025.
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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, including continuing to fund the expansion of Cronos GrowCo’s cultivation and processing facilities (the “Cronos GrowCo Phase 2 Expansion”). 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 $1.7 billion) Altria investment in us as further discussed under “ Business—Altria Strategic Investment ” in Part I, Item 1 of this Annual Report. As of December 31, 2025, we had $791.8 million in cash and cash equivalents and $40.0 million in short-term investments, compared to $858.8 million in cash and cash equivalents and no short-term investments as of December 31, 2024. As of both December 31, 2025 and December 31, 2024, we had no external debt financing.
Cash flows
(In thousands of U.S. dollars)
Year ended December 31,
Net cash provided by (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
2025 cash flows vs. 2024 cash flows
Operating activities
During 2025, we generated $25.9 million of cash from operating activities, compared to cash generated of $18.8 million in 2024, representing an increase in cash generated of $7.0 million. This change is primarily driven by a $41.1 million increase in net income adjusted for non-cash items as well as higher accounts payable and lower interest receivable, partially offset by higher inventory, accounts receivable and other receivables.
Investing activities
During 2025, we used $76.6 million of cash in investing activities, compared to cash provided by investing activities of $175.1 million during 2024, representing a change of $251.7 million in net cash used. This change is primarily driven by the maturity of certain short-term investments, which were reinvested as cash equivalents upon maturity in 2024 that did not recur in 2025, as well as the purchase of short-term investments, higher purchases of property plant, and equipment, higher advances on loans receivable, the purchase of the High Tide Warrant in 2025 and cash obtained from the Cronos GrowCo Transaction in 2024.
Financing activities
During 2025, cash used in financing activities was $19.9 million, as compared to $1.2 million in 2024, representing an increase in net cash used of $18.7 million. This change is primarily driven by share repurchases and dividends paid to non-controlling interests in 2025 and an increase 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 believe we have adequate liquidity to meet working capital requirements.
Our material cash requirements include the following contractual and other obligations as of December 31, 2025:
Pending acquisition
On December 9, 2025, the Company announced a definitive share sale and purchase agreement (the “Purchase Agreement”) to acquire all of the outstanding shares of CanAdelaar, one of ten licensed cannabis producers operating within the Netherlands’ adult-use cannabis pilot program. Under the terms of the Purchase Agreement, all of the issued and outstanding share capital of CanAdelaar will be acquired for up-front consideration of €57.5 million, or approximately $67.5 million, subject to certain customary adjustments, with additional contingent consideration payable in cash based on 0.5x of CanAdelaar’s normalized EBITDA in 2026 and 2027. As of December 31, 2025, the transaction has not closed and is subject to certain closing conditions, including obtaining required regulatory clearances in the Netherlands, receipt of confirmations relating to CanAdelaar’s licenses and Bibob review (a background check
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conducted by Dutch authorities), the accuracy of representations and warranties, and the absence of certain regulatory orders. The up-front cash consideration is expected to be paid in the first half of 2026 and will be funded by available cash on hand.
Leases
We have operating leases for land, buildings and office and research space. As of December 31, 2025, the future minimum payments required under these leases totaled $1.9 million, with $0.5 million payable within 12 months. See Note 9 “ 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 two loan agreements with affiliates. The Mucci Promissory Note and Cannasoul Collaboration Loan (each as defined below) have been fully drawn. See Note 6 “ Loans Receivable, net ” to the consolidated financial statements in Item 8 of this Annual Report for further information.
Purchase obligations
Our purchase obligations primarily consist of contractual obligations for capital expenditures, computer software, agricultural supply services and data analytics and to maintain the ordinary course of business through information technology. As of December 31, 2025, the Company had purchase obligations of $40.0 million, with $27.6 million payable within 12 months. Other purchase obligations consist of noncancellable obligations related to maintenance, internet, and telecommunication service. As of December 31, 2025, we had other purchase obligations of $2.1 million, with $1.2 million payable within 12 months.
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$100.0 million (as amended, the “GrowCo Credit Facility”). The GrowCo Credit Facility is secured by substantially all present and after-acquired personal and real property of Cronos GrowCo. In August 2021, the GrowCo Credit Facility was amended to increase the aggregate principal amount available to C$105.0 million, and in June 2024, the GrowCo Credit Facility was amended to increase the aggregate principal amount available by C$70.0 million to C$175.0 million by providing a second secured non-revolving credit facility.
As a result of the Cronos GrowCo Transaction on July 1, 2024, the existing loans receivable under the GrowCo Credit Facility were remeasured at their fair value and effectively settled for accounting purposes. Beginning in the third quarter of 2024, the GrowCo Credit Facility has been treated as an intercompany loan and eliminated upon consolidation.
For the twelve months ended December 31, 2025, Cronos GrowCo repaid an aggregate C$17.7 million ($12.8 million) and C$7.9 million ($5.7 million) in principal and interest, respectively, under the terms of the GrowCo Credit Facility.
As of December 31, 2025, Cronos GrowCo had repaid an aggregate C$35.8 million ($26.0 million) and C$36.4 million ($26.5 million) in principal and interest, respectively, under the terms of the GrowCo Credit Facility.
As of December 31, 2025, the closing balance of the GrowCo Credit Facility was C$131.2 million ($95.8 million).
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 at the point in time when the control of the promised goods is transferred to the customer in an amount that reflects the consideration we expect to be entitled to in exchange for the performance obligation. 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 net 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
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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 Accounting Standards Codification 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 reporting unit could differ from our estimate, which could cause goodwill to be impaired. Our accounting for goodwill and indefinite-lived intangible assets represents our best estimate of future events.
Inventory valuation
We value our inventory at lower of cost or net realizable value. Cost is determined using standard cost, which approximates actual cost. Standard costs are reviewed periodically and adjusted to reflect current costs. 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 recorded during an interim period may be reversed, in whole or in part, in subsequent interim periods of the same fiscal year if the net realizable value recovers prior to the inventory being sold. 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.
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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. Refer to Note 7 “ Property, Plant and Equipment, net ” to the consolidated financial statements in Item 8 of this Annual Report.
We periodically evaluate our long-lived assets that we plan to dispose of through sale for held-for-sale classification. To be classified as held-for-sale, management must have committed to a plan to sell, the asset (or asset group) must be available for immediate sale in its present condition, an active program to locate a buyer must have been initiated, the sale must be probable to close within one year, the asset (or asset group) must be marketed at a reasonable sales price, and it must be unlikely that significant changes to the plan will be made. Once an asset (or asset group) meets all of the above criteria, it is reclassified as assets held-for-sale on the consolidated balance sheet, and the asset(s) cease depreciation and are written down to their fair value, less costs to sell, if applicable.
The Company completed a review of its global supply chain in 2023 and determined that it would wind down the Cronos Fermentation facility and list it for sale. This review involved significant complexities and judgments in making the accounting treatment determination. There were subjective and complex judgments in the determination of whether the Cronos Fermentation Facility met the criteria to be classified as held for sale, including: (1) whether the Cronos Fermentation Facility was available for sale in its then-present condition subject only to terms that are usual and customary for sales of such businesses, (2) whether the sale of the Cronos Fermentation Facility was probable and that the transfer of assets would be a completed sale within one year from period end, and (3) whether the Cronos Fermentation Facility was being actively marketed at a reasonable price. See Note 7 “ Property, plant and equipment, net ” to the consolidated financial statements in Item 8 of this Annual Report for discussion regarding our evaluation of the Cronos Fermentation Facility for held-for-sale classification as of December 31, 2024.
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 was initially recognized and measured at the date of acquisition. On the date of acquisition, we then tested 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 were significantly impacted by the future expectations for products containing each cannabinoid. We estimated the fair value using the relief-from-royalty method. Each cannabinoid exclusive license was subject to amortization. Refer to Note 8 “ Goodwill and Intangible Assets, net ” to the consolidated financial statements in Item 8 of this Annual Report.
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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 expectation of federal rescheduling and individual state 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.
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. 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 borrower circumstances, such as in the case of a bankruptcy filing or deterioration in the borrower’s operating results or financial condition.
Assets held-for-sale
We periodically evaluate our long-lived assets that we plan to dispose of through sale for held-for-sale classification. To be classified as held-for-sale, management must have committed to a plan to sell, the asset (or asset group) must be available for immediate sale in its present condition, an active program to locate a buyer must have been initiated, the sale must be probable to close within one year, the asset (or asset group) must be marketed at a reasonable sales price, and it must be unlikely that significant changes to the plan will be made. Once an asset (or asset group) meets all of the above criteria, it is reclassified as assets held-for-sale on the consolidated balance sheet, and the asset(s) cease depreciation and are written down to their fair value, less costs to sell, if applicable.
