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 prepaid expenses 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 three months ended March 31, 2021 and 2020 the Company recorded $4,872 and $2,204 in operating lease expense respectively.

	Classification - Consolidated Interim Balance Sheets	March 31, 2021		December 31, 2020
Assets
Operating lease assets	Operating lease assets	$	61,593	$	62,466
Liabilities
Current
Operating	Current portion of operating lease liabilities		1,795		1,909
Non Current
Operating	Operating lease liabilities		51,334	$	51,545
Total lease liabilities		$	53,129	$	53,454

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

	Third-Party Maturities of Lease Liability
2021	$	6,510
2022		8,901
2023		9,103
2024		9,295
2025		9,449
Thereafter		126,454
Total minimum lease payments	$	169,712

The Company has right-of-use assets and lease liabilities for leased real estate for dispensaries, cultivation facilities and office space. The incremental borrowing rate for the Company on January 1, 2020 through March 31, 2021 was between 10.25% and 17%.

The Company is a landlord for a subleased building in Elma, Washington. The Company owned buildings in Olympia, Washington that were leased to a third party. 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. The following table summarizes changes in the Company’s lease receivables:

	March 31, 2021			December 31, 2020
Balance, beginning of the year	$	11,045		$	33,500
Acquisitions		—			—
Sale of assets in sale leaseback		—			(22,508	)
Interest		791			11,019
Lease payments received		(855	)		(10,966	)
Balance, end of the period	$	10,981		$	11,045
Less current portion		(3,495	)		(3,450	)
Long term lease receivables	$	7,486		$	7,595

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

	As of March 31, 2021
2021		2,595
2022		3,630
2023		1,575
2024		—
2025		—
Thereafter		—
Total minimum lease payments	$	7,800
Effect of discounting		(1,954	)
Present value of minimum lease payments	$	5,846
Present value of residual of leased property	$	5,135
Total lease receivable		10,981
Current portion lease receivable		(3,495	)
Long term lease receivable	$	7,486