Note 7 - Commitments and Contingencies

9 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

NOTE 7.  COMMITMENTS AND CONTINGENCIES

Operating Leases

Land

On October 17, 2016, the Company closed the acquisition of the 52.6-acre parcel of undeveloped land in Freetown, Massachusetts. The property is located approximately 47 miles southeast of Boston. The Company is developing the property as the Massachusetts Center (“MCC”). Plans for the property include the construction of sustainable greenhouse cultivation and processing facilities that will be leased or sold to Registered Marijuana Dispensaries under the Massachusetts Medical Marijuana Program.

As part of a simultaneous transaction, the Company assigned the property rights to Massachusetts Medical Properties (“MMP”) for a nominal fee and entered a lease agreement pursuant to which MMP agreed to lease the property to the Company for an initial term of fifty (50) years. The Company has the option to extend the term of the lease for four (4) additional ten (10) year periods. The lease is a triple net lease, with the Company paying all real estate taxes, repairs, maintenance and insurance.

The lease payments will be the greater of (a) $30,000 per month; (b) $0.38 per square foot per month of any structure built on the property; or (c) 1.5% of all gross monthly sales of products sold by the Company, any assignee of the Company, or any subtenant of the Company. The lease payments will be adjusted up (but not down) every five (5) years by any increase in the Consumer Price Index.

Effective October 1, 2019, the Company adopted Topic 842 and recorded ROU assets and lease liabilities of $6,980,957 and $4,256,869, respectively. As part of the adoption, the prepaid land lease balance of $2,724,088 was classified as a component of the Company’s ROU assets.

The Company completed the construction of Building I on the leased land and on September 1, 2019, BASK, commenced its 15-year sublease of Building I which includes an annual base rent of $138,762 plus 15% of BASK’s gross revenues from products produced at the MCC. This sublease income is recorded as Rental income on the Company’s consolidated statements of operations.

As of June 30, 2023, the Company’s right-of-use assets were $6,726,237, the Company’s current maturities of operating lease liabilities were $11,967 and the Company’s noncurrent lease liabilities were $4,207,532. During the nine months ended June 30, 2023, the Company had operating cash flows from operating leases of $295,062.

The table below presents lease related terms and discount rates as of June 30, 2023.

	As of June 30 2023
Weighted average remaining lease term
Operating leases		43.25
Weighted average discount rate
Operating leases		7.9	%

The reconciliation of the maturities of the operating leases to the lease liabilities recorded in the Consolidated Balance Sheet as of June 30, 2023 are as follows:

2023		85,372
2024		341,500
2025		341,500
2026		341,500
2027		341,500
Thereafter		13,318,505
Total lease payments		14,769,877
Less: Interest		(10,550,378	)
	$	4,219,499
Less: operating lease liability, current portion		(11,967	)
Operating lease liability, long term	$	4,207,532

Office space

The Company leases its office space located at 1555 Blake St., Unit 502, Denver, CO 80202 for $2,500 per month with a lease term of less than 12 months.

Lease expense for office space was $22,500 for the nine months ended June 30, 2023 and 2022.

Aggregate rental expense under all leases totaled $361,031 and $354,905 for the nine months ended June 30, 2023 and 2022, respectively.