LEASES

3 Months Ended

Mar. 31, 2023

LEASES

LEASES

NOTE 6. 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 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 three months ended March 31, 2023, and March 31, 2022, is as follows:

For the three months ended March 31,	2023		2022
Straight-line operating lease expense	$	393,265	$	192,016
Variable lease cost		202,826		15,282
Total operating lease expense	$	596,091	$	207,298

The finance lease expense for the three months ended March 31, 2023, and March 31, 2022, was approximately $50,000 and nil, respectively.

Related party leases

As of March 31, 2023, three of the Company’s operating leases, one retail dispensary lease, one cultivation facility lease, and one lease that includes both cultivation and retail, are related party leases as the landlords are current, and former, board members, principal shareholders, or employees. During the three months ended Mach 31, 2022, the related party operating leases consisted of one dispensary and one cultivation facility. The retail dispensary lease was with a related party through May 2022, when the building was sold to an unaffiliated third-party. As of March 31, 2023, the ROU asset, operating lease liability, current, and operating lease liability, non-current for the related party leases were $1,002,335, $529,299, and $539,267, respectively. For the periods ended March 31, 2023 and 2022, the total lease expense for related party leases was $127,790 and $147,937, respectively.

Lease Maturities

Future remaining minimum lease payments were as follows:

Year ending December 31,	Operating leases		Finance lease
2023 (remaining nine months)	$	1,184,542	$	150,000
2024		1,617,657		205,400
2025		1,309,970		171,043
2026		846,823		136,940
2027		507,871		143,102
Thereafter		965,354		818,100
Total		6,432,217		1,624,585
Less: Present value adjustment		(2,274,659)		(875,080)
Lease liability		4,157,558		749,505
Less: Lease liability, current		(843,431)		(60,008)
Lease liability, non-current	$	3,314,127	$	689,497

The total remaining lease payments in the table above include $2,995,100 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 March 31, 2023, the weighted average remaining term of the Company’s operating leases is 4.5 years, and the remaining term on the finance lease is 9.75 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,	2023		2022
Supplemental cash flow information
Cash paid for amounts included in operating lease liability	$	373,840	$	170,276
Cash paid for amounts included in finance lease liability	$	50,000	$	—
Supplemental lease disclosures of non-cash transactions:
ROU assets obtained in exchange for operating lease liabilities	$	348,825	$	172,053