LEASES

9 Months Ended

Sep. 30, 2023

LEASES

LEASES

NOTE 7. 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 and nine months ended September 30, 2023, and September 30, 2022, is as follows:

	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Straight-line operating lease expense	$	197,513	$	164,103	$	929,241	$	548,135
Variable lease cost		44,239		169,368		502,413		326,105
Total operating lease expense	$	241,752	$	333,471	$	1,431,654	$	874,240

The finance lease expense for the three months ended September 30, 2023, and September 30, 2022, was approximately $41,823 and nil, respectively. The finance lease expense for the nine months ended September 30, 2023, and September 30, 2022, was approximately $125,470 and nil, respectively.

Related party leases

During the three months and nine months ended September 30, 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 and nine months ended September 30, 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 September 30, 2023, the ROU asset, operating lease liability, current, and operating lease liability, non-current for the related party leases were $845,234, $535,143, and $368,715, respectively. For the three months ended September 30, 2023 and 2022, the total lease expense for related party leases was $127,790 and $75,849, respectively. For the nine months ended September 30, 2023 and 2022, the total lease expense for related party leases was $383,371 and $151,698, respectively.

Lease Maturities

Future remaining minimum lease payments were as follows:

Year ending December 31,	Operating leases		Finance lease
2023 (remaining three months)	$	307,735	$	50,000
2024		1,252,825		205,400
2025		1,033,857		171,043
2026		764,190		136,940
2027		507,871		143,102
Thereafter		965,359		818,100
Total		4,831,837		1,524,585
Less: Present value adjustment		(1,725,921)		(803,300)
Lease liability		3,105,916		721,285
Less: Lease liability, current		(1,245,724)		(50,000)
Lease liability, non-current	$	1,860,192	$	671,285

The total remaining lease payments in the table above include $1,219,188 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.

As of September 30, 2023, the weighted average remaining term of the Company’s operating leases is 4.54 years, and the remaining term on the finance lease is 9.25 years.

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

Supplemental cash flow information

For the nine months ended September 30,	2023		2022
Supplemental cash flow information
Cash paid for amounts included in operating lease liability	$	957,153	$	193,523
Cash paid for amounts included in finance lease liability	$	150,000	$	—
Supplemental lease disclosures of non-cash transactions:
ROU assets obtained in exchange for operating lease liabilities	$	348,825	$	172,053