OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES – RELATED PARTY

6 Months Ended

Jun. 30, 2022

Operating Lease Right-of-use Assets And Operating Lease Liabilities Related Party

OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES – RELATED PARTY

NOTE 5 –OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES – RELATED PARTY

Right of Use

The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (“ASC 842”) on January 1, 2019, the start of our 2019 fiscal year. The Company has one lease arrangement with a related party entered into on December 22, 2018 for 3-year term starting with January 1, 2019 for certain laboratory facilities, with a nine-year extension option. This lease was extended and now expires on December 31, 2030. At inception, the Company recognized a Right of Use Asset and a corresponding lease liability in the amount of $4,595,509. The Company’s lease arrangements may contain both lease and non-lease components. The Company has elected to combine and account for lease and non-lease components as a single lease component. The Company has incorporated residual value obligations in leases for which there is such occurrences. Regarding short-term leases, ASC 842-10-25-2 permits an entity to make a policy election not to apply the recognition requirements of ASC 842 to Short-term leases. The Company has elected not to apply the ASC 842 recognition criteria to any leases that qualify as Short-Term Leases.

The Company leases a portion of the property (formerly the Environmental Protection Agency building) in Golden, CO from J&N Real Estate, owned by the CEO, a related party with a term expiring on December 31, 2030. The lease consists of all laboratory space including testing facilities, water treatment, extraction and production. The lease of the property is based on the fair market rent and triple net lease (NNN) values competitive in the marketplace for a cGMP facility. The Company also subleases some of its laboratory space to other CBD companies. This income is presented under the Other Income line items of the statements of operations. The leases vary from short-term monthly leases to 3-year leases but are all cancellable.

Below is a summary of our right of use assets and liabilities as of June 30, 2022 and December 31, 2021:

	June 30, 2022			December 31, 2021
Right-of-use assets	$	3,420,033		$	3,595,100
Present value of operating lease liabilities	$	3,521,156		$	3,692,392
Less: Long-term portion of operating lease liability		(3,168,620	)		(3,347,335	)
Short-term portion of operating lease liability		352,536			345,057
Unpaid balances		1,504,581			1,279,033
Total short-term lease liability obligations	$	1,857,117		$	1,624,090
Weighted-average remaining lease term (Ends December 31, 2030)		8.5 years			9 years
Weighted-average discount rate					3.0	%

During the three and six months ended June 30, 2022 and 2021, we recognized approximately $114,693 and $229,386 respectively in operating lease costs. Operating lease costs are included in operating expenses in our consolidated statement of operations.

Approximate future minimum lease payments for our right of use assets over the remaining lease periods as of June 30, 2022, are as follows:

2022		225,555
2023		455,622
2024		460,178
2025		464,780
2026		469,427
Thereafter		1,925,123
Total undiscounted operating lease payments		4,000,685
Less: Imputed interest		(479,529	)
Present value of operating lease liabilities	$	3,521,156