LEASES

3 Months Ended

Mar. 31, 2024

The Company leases its distribution centers and manufacturing facilities from third parties under various non-cancelable lease agreements expiring at various dates through 2038. Also, the Company leases some property, plant and equipment under finance leases. Certain leases contain escalation provisions and/or renewal options, giving the Company the right to extend the leases by up to 20 years. However, these options are generally not reflected in the calculation of the right-of-use assets and lease liabilities due to uncertainty surrounding the likelihood of renewal. The Company recognizes operating lease costs over the respective lease periods, including short-term and month-to-month leases. The Company incurred operating lease costs of $2,750 and $3,647 during the three months ended March 31, 2024, and March 31, 2023, respectively. These costs are included primarily within SG&A in the condensed consolidated statements of operations.

The Company has operating subleases which have been accounted for by reference to the underlying asset subject to the lease, primarily as an offset to rent expense within SG&A. For the three months ended March 31, 2024, and March 31, 2023, the Company recorded sublease income of $738 and $642, respectively.

In January 2023, Gotham Properties LLC, an Oregon limited liability company and a subsidiary of the Company (“Seller”), consummated a Purchase and Sale Agreement with J & D Property, LLC, a Nevada limited liability company (“Purchaser”) pursuant to which certain real property located in the City of Eugene, County of Lane, State of Oregon (the “Eugene Property”) was sold to Purchaser for $8,598 and then leased back by Seller (the “Sale-Leaseback Transaction”). The new lease has a term of 15 years with annual rent starting at $731 and fixed increases to the final year when annual rent is $964. The Company is accounting for the transaction as a failed sale-leaseback which requires retaining the asset associated with the property and recognizing a corresponding financial liability for the cash received. The Eugene Property serves as the manufacturing and processing site for certain of the Company’s grow media and nutrient brands. Refer to Note 9 – Debt for further discussion.

Total right-of-use ("ROU") assets, finance lease assets, and lease liabilities were as follows:


	Balance Sheet Classification	March 31, 2024		December 31, 2023
Lease assets
Operating lease assets	Operating lease right-of-use assets	$	51,886	$	54,494
Finance lease assets	Property, plant and equipment, net	9,020		9,315
Total lease assets		$	60,906	$	63,809

Lease liabilities
Current:
Operating leases	Current portion of operating lease liabilities	$	8,362	$	8,336
Finance leases	Current portion of finance lease liabilities	929		954
Noncurrent:
Operating leases	Long-term operating lease liabilities	45,161		47,506
Finance leases	Long-term finance lease liabilities	8,498		8,734
Total lease liabilities		$	62,950	$	65,530

The aggregate future minimum lease payments under long-term non-cancelable operating and finance leases with remaining terms greater than one year as of March 31, 2024, are as follows:


	Operating		Finance
For the period of April 1, 2024 to December 31, 2024	$	7,872	$	1,063
Year ending December 31,
2025	10,315		1,303
2026	9,159		851
2027	8,938		853
2028	8,383		806
2029 and thereafter	16,800		8,039
Total lease payments	61,467		12,915
Less portion representing interest	(7,944)		(3,488)
Total principal	53,523		9,427
Less current portion	(8,362)		(929)
Long-term portion	$	45,161	$	8,498