LEASES

12 Months Ended

Dec. 31, 2021

LEASES

LEASES

NOTE 10. LEASES

On May 13, 2020, we entered into a commercial real estate lease with a related party (see Note 19) for 17,000 square feet of greenhouse space in Boulder, CO, with an initial term of five years and, at our option, two additional terms of five years each. Rent is $30,000 per month with 1.5% annual escalations. We also pay our portion of real estate taxes. In December 2020, we amended the lease to include a 3% rent escalation in 2021 and 2022. No other changes to the lease were made. We accounted for the amendment as a lease modification and remeasured the lease with an incremental borrowing rate of 20% which resulted in an increase of $246,250 to the right-of-use operating lease asset and lease liability from the initial lease valued on May 13, 2020 using an incremental borrowing rate of 22.8%. We determined the present value of the future lease payments using a discount rate of 20% over a 15-year term, our incremental borrowing rate based on outstanding debt, resulting in a right-of-use asset and lease liability of $1,877,423 which are being applied ratably over the term of the lease. As of December 31, 2021 and 2020, the balance of the right-of-use asset and lease liability was $1,796,983 and $1,873,607, respectively.

On September 2, 2021, we entered into a commercial real estate lease with a related party (see Note 19) for retail space in Englewood, CO, with an initial term of five years and, at our option, two additional terms of three years each. Rent is $10,000 per month with 3% annual escalations during the initial term and 4% annual escalations during the option term. We also pay our portion of real estate taxes. We determined the present value of the future lease payments using a discount rate of 20% over a 11-year term, resulting in a right-of-use asset and lease liability of $602,140 which are being applied ratably over the term of the lease. As of December 31, 2021, the balance of the right-of-use asset and lease liability was $584,258 and $591,741, respectively.

Through the acquisition of TREES Englewood, we entered into a commercial real estate lease for office space in Denver, CO. This office space is our new principal business office. The lease has 15 months remaining. Rent is $7,150 per month with a 3% escalation beginning in November 2021. We also pay our portion of real estate taxes. We determined the present value of the future lease payments using a discount rate of 20% over a 15-month term, resulting in a right-of-use asset and lease liability of $98,211 which are being applied ratably over the term of the lease. As of December 31, 2021, the balance of the right-of-use asset and lease liability was $73,138 and $73,451, respectively.

Through the acquisition of TREES Portland, we entered into a commercial real estate lease in Portland, OR. The lease has 5.5 years remaining. Rent is $5,124 per month with a 5% annual escalation beginning in May 2022. The rent includes payment of property taxes. We determined the present value of the future lease payments using a discount of 20% over a 5.5-year term, resulting in a right-of-use asset and lease liability of $229,501. As of December 31, 2021, the balance of the right-of-use asset and lease liability was $229,501.

Through the acquisition of TREES Waterfront, we entered into a commercial real estate lease in Portland, OR. The lease has an initial term of 5 years and, at our option an additional term of 5 years. Rent is $6,683 per month with a 3% annual escalation. The rent includes payment of property taxes. We determined the present value of the future lease payments using a discount rate of 20% over a 10-year term, resulting in a right-of-use asset and lease liability of $381,272. As of December 31, 2021, the balance of the right-of-use asset and lease liability was $381,271.

Future remaining minimum lease payments were as follows:

Year ending December 31,	Amount
2022	$	729,356
2023		663,351
2024		678,771
2025		694,633
2026		711,290
Thereafter		4,990,009
Total		8,467,410
Less: Present value adjustment		(5,317,839)
Operating lease liability	$	3,149,571

Rent expense was approximately $614,953 and $380,607 for the years ended December 31, 2021 and 2020, respectively.