In February 2016, the FASB issued Accounting Standards Update No. 2016-02 “Leases (Topic 842)” (“ASU 2016-02”), which requires lessees to put most leases on the balance sheet but recognize expense on the income statement in a manner similar to current accounting. On January 1, 2019, the Company adopted the standard and all related amendments, using the optional transition method (modified retrospective approach) applied to leases at the adoption date. Under the modified retrospective approach, comparative periods have not been restated and continue to be reported under the accounting standards in effect for those periods. Additionally, an adjustment was recorded to retrained earnings to account for the initial adoption of the standard.

The Company elected the optional package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs. The Company also elected the practical expedient to not separate lease components from non-lease components for real estate leases. As a result of the adoption of ASU 2016-02, the Company recorded right-of-use (“ROU”) assets of $5,580 and corresponding lease liabilities of $5,897 with the difference of $317 recorded in opening retained earnings.

Upon adoption of ASU 2016-02, ROU assets were adjusted for deferred rent and prepaids as of January 1, 2019. Lease expense is recognized on a straight-line basis over the expected lease term. The Company’s incremental borrowing rate is used in determining the present value of future payments at the commencement date of the lease, or for the adoption of ASU 2016-02, at January 1, 2019. Balances related to operating leases are included in ROU assets and noncurrent lease liabilities on the consolidated balance sheet.

All real estate leases are recorded on the balance sheet. Equipment and other non-real estate leases with an initial term of twelve months or less are not recorded on the balance sheet. Lease agreements for some locations provide for rent escalations and renewal options. Many leases include one or more options to renew the lease at the end of the initial term. The Company considered renewals in its ROU assets and operating lease liabilities. Certain real estate leases require payment for taxes, insurance and maintenance which are considered non-lease components. The Company accounts for real estate leases and the related fixed non-lease components together as a single component.

The Company determines if an arrangement is a lease at inception. The Company must consider whether the contract conveys the right to control the use of an identified asset. Certain arrangements require significant judgment to determine if an asset is specified in the contract and if the Company directs how and for what purpose the asset is used during the term of the contract.

For the year ended December 31, 2020 and 2019 the Company recorded $4,872 and $2,204 in operating lease expense respectively.

Other information related to operating leases as of and for the year ended December 31, 2020 were as follows:

	Classification - Consolidated Balance Sheets	December 31, 2020		December 31, 2019
Assets
Operating lease assets	Operating lease assets	$	62,466	$	20,757

Liabilities
Current
Operating	Current portion of operating lease liabilities		1,909		972
Noncurrent
Operating	Operating lease liabilities		51,545		20,976
Total lease liabilities		$	53,454	$	21,948

Maturities of lease liabilities for third-party operating leases as of December 31, 2020 were as follows:

Year Ending December 31		Third-Party Maturities of Lease Liability
2021		$	8,987
	2022		9,220
	2023		9,397
	2024		9,445
	2025		9,599
2026 and thereafter			128,067
Total lease payments		$	174,715

Future minimum lease payments (principal and interest) on the leases are as follows:

The Company has right-of-use assets and lease liabilities for leased real estate for dispensaries, cultivation and production facilities and office space. The incremental borrowing rate used for leases for 2019 was 10.25% and was 15-18% for 2020.

Future minimum rental commitments under non-cancelable operating leases as of December 31, 2019 were

Year Ending December 31,	Total
2020	$	3,734
2021		3,805
2022		3,845
2023		3,701
2024		3,507
2025 and Thereafter		15,778
Total Future Minimum Lease Payments	$	34,370

The Company is a landlord for a lease in Olympia, Washington. The Company is a landlord through a sublease in Tumwater, Washington. The Company acquired these leases in the Cannex business combination. The Company applied ASC 842 to these leases when acquired on July 31, 2019 and determined that both leases should be classified as direct finance leases. Lease receivables were recorded for these leases for the future lease payments by the tenants and for the residual value of the leased assets at the end of the leases. On December 17, 2020, the Company sold the Olympia building and other assets as part of a sales lease back transaction and the lease where the Company is the landlord was cancelled. The Company applied ASC 842 to the new sublease and classified the new sublease as an operating lease. The lease receivable was sold to the purchaser of the assets as part of the sales lease back transaction.

	December 31, 2020			December 31, 2019
Balance, beginning of the year	$	33,500		$	—
Acquisitions		—			33,192
Sale of assets in sale lease back		(22,508	)		—
Interest		11,019			4,528
Lease payments received		(10,966	)		(4,220	)
Balance, end of the period	$	11,045		$	33,500
Less current portion		(3,450	)		(9,556	)
Long-term lease receivables	$	7,595		$	23,944

Future minimum lease payments receivable (principal and interest) on the leases are as follows:

	As of December 31, 2020
2021	$	11,846
2022		12,725
2023		1,575
2024		—
2025		—
Thereafter		—
Total minimum lease payments		26,146
Less Olympia operating lease payments		(17,491	)
Total minimum lease payments for Elma		8,655
Effect of discounting		(2,434	)
Present value of minimum lease payments		6,221
Present value of residual value of leased property		4,824
Total lease receivable	$	11,045
Current portion lease receivable		(3,450	)
Long-term lease receivable	$	7,595