Mr. Mike Gorenstein reports

CRONOS GROUP REPORTS 2023 THIRD QUARTER RESULTS

Cronos Group Inc. has released its 2023 third quarter business results. All currency amounts in this press release are stated in U.S. dollars.

"By most financial metrics, Q3 2023 was one of the best quarters in Cronos history," said Mike Gorenstein, chairman, president and chief executive officer, Cronos. "We achieved our highest net revenue for continuing operations on record at $24.8-million, up 22 per cent year-over-year. The top line was propelled by 40-per-cent growth year-over-year in Canada, driven by strength in prerolls, flower and edibles. This robust success in Canada was driven primarily by innovations in our Spinach brand, and with the Lord Jones brand now also on the market, we are excited about having a broader portfolio of unique and differentiated products to address consumer needs. Our relaunch in Germany with the Peace Naturals medical cannabis brand is an exciting step for Cronos to move beyond its existing markets. And just last month, we signed an agreement to ship to Australia. Opening new avenues for growth with operational discipline is our primary focus. Beyond top-line growth initiatives, our teams have done a great job reducing costs across the company and improving the gross margin profile of the business, which yielded significant improvements in cash flow.

"The positive results this quarter were overshadowed by the horrific and despicable events that took place in Israel, our second-largest operating market," continued Mr. Gorenstein. "Our thoughts remain with all victims, their loved ones and all Israelis as they fight to be free from terror today and in the future. Cronos continues to prioritize the safety of our Israeli team members and their families, and we will do everything we can to support them and our patients during this time."

Consolidated financial results

In the second quarter of 2023, the company exited its U.S. hemp-derived cannabidiol operations. The exit of the U.S. operations represented a strategic shift, and as such, qualifies for reporting as discontinued operations in the company's condensed consolidated statements of net loss and comprehensive loss. Prior period amounts have been reclassified to reflect the discontinued operations classification of the U.S. operations.

Third quarter 2023:

• Net revenue of $24.8-million in Q3 2023 increased by $4.4-million from Q3 2022. The increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market. These results were partially offset by an adverse price/mix in the Canadian cannabis flower category driving increased excise tax payments as a percentage of revenue, and lower cannabis flower sales in Israel driven by pricing pressure due to competition, the slowdown in patient permit authorizations and geopolitical unrest. Furthermore, the weakened Canadian dollar and new Israeli shekel against the U.S. dollar during the period adversely impacted results.
• Gross profit of $4-million in Q3 2023 increased by $800,000 from Q3 2022. The increase was primarily due to higher cannabis flower and extract sales in the Canadian adult-use market and lower biomass costs, partially offset by lower cannabis flower sales in Israel, and the inventory writedown recognized as a result of the decision to wind down operations at the company's Winnipeg, Man., facility (Cronos Fermentation). Adjusting for the inventory writedown of $700,000, gross margin would have been approximately 19 per cent.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $(15.2-million) in Q3 2023 improved by $3.3-million from Q3 2022. The improvement year-over-year was primarily driven by a decrease in general and administrative expenses as part of the broader organizational cost reduction efforts.

Business updates

Guidance and outlook

The company reiterates its previously announced operating expense savings target of $20-million to $25-million in 2023, and planned incremental operating expense savings of $10-million to $15-million in 2024 primarily driven by savings in sales and marketing, general and administrative, and research and development. The organizational and cost savings initiatives are intended to position the company to drive profitable and sustainable growth over time.

Cronos anticipates that the net change in cash, defined as the sum of cash and cash equivalents and short-term investments, will decline by less than $5-million to $10-million in the last three months of fiscal year 2023. The company maintains its expectation that the net change in cash will be positive in 2024.

The fiscal year 2023 guidance assumes: (i) the company will experience relatively consistent interest rates; (ii) limited impacts to the company's operations, facilities and business in Israel due to the Israel-Hamas War; (iii) limited deterioration in foreign exchange rates due to the Israel-Hamas War; (iv) the general economic conditions and regulatory environment in the markets in which Cronos participates will not materially change; (v) timely receipt of interest and principal payments on the senior secured credit facility with Cronos Growing Company Inc. (Cronos GrowCo); (vi) anticipated interest income of approximately $15-million for the last three months of fiscal year 2023; (vii) steady gross margin profile; and (viii) meeting the company's target for reducing our operating expenses by $20-million to $25-million.

Cronos continues to monitor the conflict in Israel and potential impacts the conflict could have on the company's personnel and business in Israel and the recorded amounts of assets and liabilities related to the company's operations in Israel. The extent to which the conflict may impact the company's personnel, business and activities will depend on future developments which remain highly uncertain and cannot be predicted. It is possible that the recorded amounts of assets and liabilities related to the company's operations in Israel could change materially in the near term.

Brand and product portfolio

The Spinach brand continued to hold its No. 1 market share position in the edibles category in Canada in Q3 2023, with an approximate 17.9-per-cent market share across the Sourz by Spinach and Spinach Feelz subbrands, according to Hifyre. In August, Cronos launched its highly anticipated THCV (tetrahydrocannabivarin) edible, the Spinach Feelz Full Tilt THC (tetrahydrocannabinol) plus THCV. This THCV edible is designed to provide a boosted and elevated high and Cronos is excited to have it as part of its No. 1 ranked edible portfolio.

In October, 2023, the company's Spinach brand won best preroll at the Grow Up Awards for its Spinach Fully Charged Atomic GMO infused prerolls. The annual Grow Up Awards celebrate excellence in the cannabis industry, recognizing outstanding achievements and innovation in a variety of cannabis-related categories. In Q3 2023, Spinach prerolls rose to the No. 7 ranking in the category, according to Hifyre. Cronos launched several new offerings to bolster the Spinach preroll portfolio in the first nine months of the year, and the company is excited about the progress it has experienced in market. Winning in the preroll category is a top priority, and Cronos will continue to flex its robust product development capabilities to formulate differentiated products with flavours and rare cannabinoids to win with consumers.

Cronos's strong breeding program and portfolio of genetics continued to drive growth, propelling the Spinach brand to become the No. 2 flower brand in Canada, with a 5.8-per-cent market share in Q3 2023, according to Hifyre. Cronos has three stock-keeping units in the top 15 for market share, led by its GMO Cookies genetic across various pack sizes. Cronos carried the Q3 strength into October, and as of the end of October Spinach is the No. 1 flower brand in Canada, according to Hifyre.

The Spinach brand was ranked the No. 5 vape brand in September, 2023, holding a 6.4-per-cent market share, which is up from Q2 2023 where it had a 4.5-per-cent market share, according to Hifyre. Spinach is the No. 1 rare cannabinoid vape brand, with the company's SKUs that feature cannabinol (CBN), cannabigerol (CBG) and cannabichromene (CBC) holding three spots in the top five market share among rare cannabinoid vapes. In October, Cronos launched its highly anticipated THCV vape, the Spinach Feelz Full Tilt THC plus THCV. The company's new launches in 2023 helped propel Spinach to achieve the No. 3 brand rank in the vape category in October, according to Hifyre.

In November, 2023, Cronos launched its award-winning cannabis brand Lord Jones in Canada. Lord Jones will build on its legacy of delivering premium quality cannabis products by returning to its roots with bold THC-focused innovations. The first product line to launch are Lord Jones Hash Fusions prerolls. These infused prerolls have been designed with an optimized ratio of ice water hash-to-flower, meticulously researched and sensory-tested to drive a smoother consumption experience and preserve the flowers' terpene-rich, bold flavours.

Later this month, Cronos will also launch a Lord Jones live resin vape, which will feature sought-after cultivars that deliver a flavourful full-spectrum live resin experience. And in early 2024, the company plans to launch its next groundbreaking edible innovation, this time in the chocolate category. The Lord Jones Chocolate Fusions edibles, which were researched and developed over multiple years, will feature artisanal chocolate and high-quality ingredients in three flavours -- cookies and cream, dazzle-berry pop, and salted caramel crunch.

In Israel, Cronos launched four new flower offerings under the Peace Naturals brand: Sticky Ape, Raphael Gems, Purple Punch and Tangerine Twist. Driven by the company's best-in-class genetics program and high-quality cultivation capabilities, Cronos is able to meet market demands as consumers continue to look for strain variety.

Global supply chain

Cronos GrowCo reported to the company preliminary unaudited net revenue to licensed producers, excluding sales to the company, of approximately $6.2-million in the third quarter of 2023. Cronos previously provided GrowCo with a senior secured credit facility, which currently has approximately $69.4-million outstanding following a principal repayment of $1.1-million by GrowCo in Q3 2023. In addition to principal repayment, Cronos also received $1.2-million in interest payments from GrowCo, totalling approximately $2.3-million in cash payments to Cronos in Q3 2023.

In September, 2023, Cronos commenced medical cannabis shipments to its German distribution partner, Cansativa GmbH. Re-establishing Cronos and its Peace Naturals brand in the German market will position the company to capitalize on this growing market, with additional growth potential from future legislative changes.

In the coming weeks, Cronos plans to ship cannabis to Vitura Health Ltd. for sale in the Australian medical market. As a reminder, Cronos owns approximately 10 per cent of the common shares of Vitura. Vitura is the market-leading prescriber, patient, pharmacy and supplier on-line platform, focused on creating medicinal cannabis products and digital health solutions that connect and strengthen the cannabis ecosystem in the Australian medical cannabis market. Supplying the Australian market, which has grown significantly in the past three years, is an important goal for Cronos. The company looks forward to providing its partners at Vitura with high-quality cannabis products.

Conference call

The company will host a conference call and live audio webcast on Wednesday, Nov. 8, 2023, at 8:30 a.m. ET to discuss 2023 third quarter business results. An audio replay of the call will be archived on the company's website for replay. Instructions for the live audio webcast are provided on the company's website.

About Cronos Group Inc.

Cronos is an innovative global cannabinoid company committed to building disruptive intellectual property by advancing cannabis research, technology and product development. With a passion to responsibly elevate the consumer experience, Cronos is building an iconic brand portfolio. Cronos's diverse international brand portfolio includes Spinach, Peace Naturals and Lord Jones.

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