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Leases

6 Months Ended

Jun. 30, 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 condensed 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 condensed 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 three and six months ended June 30, 2024, and June 30, 2023, is as follows:

	For the three months ended June 30,				For the six months ended June 30,
	2024		2023		2024		2023
Straight-line operating lease expense	$	245,554	$	338,463	$	462,578	$	731,728
Variable lease cost		51,016		255,348		104,626		458,174
Total operating lease expense	$	296,570	$	593,811	$	567,204	$	1,189,902

The finance lease expense for the three months ended June 30, 2024, and June 30, 2023, was approximately $41,824 and $41,823, respectively. The finance lease expense for the six months ended June 30, 2024, and June 30, 2023 was approximately $83,647 and $83,647, respectively.

Related party leases

As of June 30, 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. As of June 30, 2024, the ROU asset, operating lease liability, current, and operating lease liability, non-current for the related party leases were $94,816, $110,000 and ($10,581), respectively. For the three months ended June 30, 2024 and 2023, the total lease expense for related party leases was $30,000 and $127,790, respectively. For the six months ended June 30, 2024 and 2023, the total lease expense for related party leases was $60,000 and $255,580, respectively.

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 six months)	$	425,189		$	102,700
2025		780,439			171,043
2026		452,948			136,940
2027		302,095			143,102
2028		245,456			149,542
Thereafter		667,154			668,558
Total		2,873,281			1,371,885
Less: Present value adjustment		(1,033,527	)		(700,417	)
Lease liability		1,839,754			671,468
Less: Lease liability, current		(843,229	)		(84,746	)
Lease liability, non-current	$	996,525		$	586,722

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 June 30, 2024, the weighted average remaining term of the Company’s operating leases is 4.75 years, and the remaining term on the finance lease is 8.5 years.

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

Supplemental cash flow information

For the six months ended June 30,	2024		2023
Supplemental cash flow information
Cash paid for amounts included in operating lease liability	$	567,204	$	701,661
Cash paid for amounts included in finance lease liability	$	83,647	$	100,000
Supplemental lease disclosures of non-cash transactions:
ROU assets obtained in exchange for operating lease liabilities	$	—	$	348,825