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Leases

3 Months Ended

Mar. 31, 2024

NOTE 3. LEASES

The Company’s leases consist primarily of real estate leases for retail and cultivation 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 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.

Operating lease expense is as follows:

For the three months ended March 31,	2024		2023
Straight-line operating lease expense	$	217,024	$	393,265
Variable lease cost		53,610		202,826
Total operating lease expense	$	270,634	$	596,091

The finance lease expense for the three months ended March 31, 2024, and March 31, 2023, was approximately $41,823 and $50,000, respectively.

Related party leases

During the three months ended March 31, 2024, 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. During the three months ended March 31, 2024, the related party operating leases consisted of one cultivation facility lease. As of March 31, 2024, the ROU asset, operating lease liability, current, and operating lease liability, non-current for the related party leases were $119,034, $120,000 and $3,637, respectively. Lease expense for related party leases was $30,000 and $127,790 for the three months ended March 31, 2024 and 2023, respectively.

As of March 31, 2024, the weighted average remaining term of the Company’s operating leases is 4.85 years, and the remaining term on the finance lease is 8.75 years.

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

Lease Maturities

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

Year ending December 31,	Operating leases			Finance lease
2024 (remaining nine months)	$	686,642		$	154,050
2025		708,439			171,043
2026		452,948			136,940
2027		302,095			143,102
2028		245,456			149,542
Thereafter		667,154			668,558
Total		3,134,734			1,423,235
Less: Present value adjustment		(1,178,849	)		(733,738	)
Lease liability		1,955,885			689,497
Less: Lease liability, current		(849,686	)		(79,259	)
Lease liability, non-current	$	1,106,199		$	610,238

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.

As of March 31, 2024, the weighted average remaining term of the Company’s operating leases is 4.84 years and the remaining term on the finance lease is 8.75 years.

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

Supplemental cash flow information

For the three months ended March 31,	2024		2023
Supplemental cash flow information
Cash paid for amounts included in operating lease liability	$	270,634	$	373,840
Cash paid for amounts included in finance lease liability	$	41,823	$	50,000
Supplemental lease disclosures of non-cash transactions:
ROU assets obtained in exchange for operating lease liabilities	$	—	$	348,825