Leases

12 Months Ended

Dec. 31, 2021

Leases [Abstract]

Leases

Note 10: LEASES

The Company has operating leases for its facilities where the Company conducts its operations. These leases have remaining lease terms ranging from 3.25 year to 19.60 years.

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 right-of-use 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.

There are no material residual guarantees associated with any of the Company’s leases, and there are no significant restrictions or covenants included in the Company’s lease agreements. Certain leases include variable payments related to common area maintenance and property taxes, which are billed by the landlord, as is customary with these types of charges for office space.

The Company’s lease agreements occasionally provide an implicit borrowing rate. When implicit borrowing rates are provided, the Company utilizes these implicit borrowing rates to calculate right-of-use assets and liabilities at the end of each reporting period. The Company may enter into leases that do not provide an implicit borrowing rate. When an implicit borrowing rate is not provided, the Company uses a benchmark approach to derive an appropriate imputed discount rate. The Company will benchmark itself against other companies of similar credit ratings and comparable quality and derive an imputed rate.

The Company entered into sale-leaseback transactions for certain of its property and equipment during the year ended December 31, 2020, where the Company has been identified as the seller-lessee. The Company recognized a gain of $3,345 from the sale of the property and equipment in the sale-leaseback transactions, and the Company sold the leased property and equipment for approximately $22,508 during the year ended December 31, 2020. The Company did not enter into any sale-leaseback transactions during the year ended December 31, 2021.

For the year ended December 31, 2021 and 2020 the Company recorded $14,400 and $4,872 in operating lease expense respectively.

Other information related to operating leases as of and for the year ended December 31, 2021 were as follows:

	Year Ended December 31,
	2021			2020
Weighted average remaining lease term (in years)		15.1			16.1
Weighted average discount rate		12.2	%		14.4	%

(a) The Company as a Lessee

The following table summarizes the Company’s operating leases:

	Classification - Consolidated Balance Sheet	December 31, 2021		December 31, 2020
Assets
Operating lease assets	Operating Lease Assets	$	100,519	$	62,466
Liabilities
Current
Operating	Current portion of operating lease liabilities		3,629		1,909
Noncurrent
Operating	Operating lease liabilities		93,111		51,545
Total lease liabilities			96,740		53,454

The components of lease expense, which are included in cost of good sold, general and administrative expenses and selling and marketing expenses, based on the underlying use of the right-of-use asset, were as follows:

	As of December 31,
	2021		2020
Operating lease cost	$	14,400	$	4,837
Short term lease expense		—		—
Total lease cost	$	14,400	$	4,837

Maturities of lease liabilities for third-party operating leases as of December 31, 2021 were as follows:

Year Ending December 31	Operating Leases
2022	$	14,284
2023		15,433
2024		15,859
2025		16,213
2026		16,594
2027 and thereafter		244,309
Total undiscounted cash flows		322,692
Less discounting		(225,952	)
Total lease payments	$	96,740

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 2021 was 10.25 - 18% and was 15 - 18% for 2020.

(b) The Company as a Lessor:

The Company leases a building in Elma, Washington that is subleased by the Company to a third party. This sublease is classified as a finance lease with a long term lease receivable balance of $6,748 and a short term lease receivable balance of $3,630 as of December 31, 2021 compared to a long term lease receivable balance of $7,595 and a short term lease receivable balance of $3,450 as of December 31, 2020. This lease generated $2,783 of the $11,179 and $3,094 of the $11,019 in real estate income for the year ending December 31, 2021 and 2020, respectively.

The Company owned buildings in Olympia, Washington that were leased to a third party. This lease was classified as a finance lease. On December 17, 2020, the Company sold the Olympia building and other assets as part of a sale and leaseback transaction and this lease was cancelled. The Company applied ASC 842 to a new sublease to the same third party and classified the new sublease as an operating lease. The lease receivable was sold to the purchaser of the assets as part of the sale and leaseback transaction. This lease generated $8,396 of the $11,179 and $7,925 of the $11,019 in real estate income for the year ending December 31, 2021 and 2020, respectively.

The following table summarizes changes in the Company’s lease receivables:

	December 31, 2021			December 31, 2020
Balance, beginning of the year	$	11,045		$	33,500
Sale of assets in sale lease back		—			(22,508	)
Interest		2,783			11,019
Lease payments received		(3,450	)		(10,966	)
Balance, end of the period		10,378		$	11,045
Less current portion		(3,630	)		(3,450	)
Long-term lease receivables	$	6,748		$	7,595

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

	As of December 31, 2021
2022	$	3,630
2023		1,575
2024		—
2025		—
Thereafter		—
Total minimum lease payments		5,205
Effect of discounting		(948	)
Present value of minimum lease payments		4,257
Present value of residual value of leased property		6,121
Total lease receivable		10,378
Current portion lease receivable		(3,630	)
Long-term lease receivable	$	6,748