Leases

12 Months Ended

Dec. 31, 2023

Leases [Abstract]

LEASES

NOTE 11. LEASES

The Company’s leases consist primarily of real estate leases for retail, cultivation, and manufacturing facilities. All but one of the Company’s leases are classified as operating leases. The lease for the retail dispensary acquired in the Green Man transaction is classified as a finance lease. The current and non-current portions of the operating lease liabilities and finance lease liabilities are disclosed separately on the accompanying consolidated balance sheets. The finance lease ROU asset is included in property and equipment, net (see Note 9) and the operating lease ROU asset is disclosed separately on the accompanying consolidated balance sheets. As the rate implicit in the Company’s leases is not readily determinable, we used an estimated incremental borrowing rate of 20% in determining the present value of lease payments.

The operating lease expense for the years ended December 31, 2023 and December 31, 2022 is as follows:

	December 31,
For the year ended December 31,	2023		2022
Straight-line operating lease expense	$	1,265,837	$	743,156
Variable lease cost		445,982		133,689
Total operating lease expense	$	1,711,819	$	876,845

The finance lease expense for the year ended December 31, 2023 and December 31, 2022, was approximately $167,293 and $5,846, respectively.

Related party leases

As of December 31, 2023, one of the Company’s operating leases, a cultivation facility lease, is a related party lease as the landlord is a principal shareholder and former board member of the Company. A retail dispensary lease and a lease that included both cultivation and retail were with related parties until November 2023, when these leases were transferred to the Green Tree parties (see Note 6). Prior to the transfer of these leases to the Green Tree Parties, the Green Tree Parties had consisted of a board member and executive level employee of the Company. During the year ended December 31, 2022, the related party operating leases consisted of one retail dispensary lease, one cultivation facility lease, and one lease that included both cultivation and retail. Another retail dispensary lease was with a related party through May 2022 when the building was sold to an unaffiliated third-party. As of December 31, 2023, the ROU asset, operating lease liability, current, and operating lease liability, non-current for the related party leases are $142,080, $120,000, and $26,683, respectively. For the years ended December 31, 2023 and December 31, 2022, the total lease expense for related party leases was $390,884 and $434,437, respectively.

Lease Maturities

Future remaining minimum lease payments on our operating leases and finance lease are as follows:

Year Ended December 31,	Operating leases			Finance lease
2024	$	846,201		$	205,400
2025		708,439			171,043
2026		452,948			136,940
2027		302,095			143,102
Thereafter		914,910			818,100
Total		3,296,593			1,474,585
Less: Present value adjustment		(1,232,000	)		(767,937	)
Lease liability		2,064,593			706,648
Less: Lease liability, current		(846,201	)		(205,400	)
Lease liability, non-current	$	1,218,392		$	501,248

The total remaining lease payments in the table above include $772,051 related to renewal option periods that management is reasonably certain will be exercised. The majority of this amount relates to the flagship Trees location in Englewood, Colorado and the retail and certain cultivation facilities that were acquired in the Green Tree Acquisition and are eligible for renewal in 2023.

As of December 31, 2023, the weighted average remaining term of the Company’s operating leases is 4.98 years and the remaining term on the finance lease is 9 years.

None of the Company’s leases contain residual value guarantees or restrictive covenants.

Supplemental cash flow information

	December 31,
For the Year Ended December 31, 2023	2023		2022
Supplemental cash flow information
Cash paid for amounts included in operating lease liability	$	1,098,544	$	685,214
Cash paid for amounts included in finance lease liability	$	167,293	$	4,194
Supplemental lease disclosures of non-cash transactions:
ROU assets obtained in exchange for operating lease liabilities	$	219,438	$	2,235,798
ROU assets obtained in exchange for finance lease liabilities	$	—	$	766,623
Reduction of operating lease ROU asset and operating lease liabilities from remeasurement (1)	$	—	$	(1,097,651	)

(1) In April 2022, the lease for Seven-Five Farm, a cultivation facility, was amended and the remaining lease payments were reduced. Upon modification, management reassessed the lease term and concluded that it was not reasonably certain that any of the renewal option periods in the lease would be exercised. This conclusion was different than the conclusion reached at the initial commencement of the lease in 2020. The significant drop in the wholesale cost of marijuana flower and the current economic environment in the cannabis industry, particularly in the cultivation sector, is the primary driver of this change. As a result, the measurement of the ROU asset and operating lease liability no longer includes the payments associated with the renewal option periods.