LEASES

12 Months Ended

Dec. 31, 2023

Leases [Abstract]

LEASES

LEASES

(a)    The Company as a Lessee

The Company leases real estate for dispensaries, cultivation and production facilities, and office space which were all accounted for as operating leases as of December 31, 2023 and 2022. 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. Total operating lease costs related to continuing operations were $20.9 million and $17.5 million for the years ended December 31, 2023 and 2022, respectively. Short-term lease costs during the years ended December 31, 2023 and 2022 were not material.

The below are the details of other disclosures regarding the Company's lessee transactions as of December 31, 2023 and 2022:

	Years Ended December 31,
	2023			2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	15,330		$	12,071
Non-cash additions to right-of-use assets and lease liabilities:
Recognition of right-of-use assets for operating leases	$	94		$	—
Weighted average remaining lease term (in years)	17.7			18.6
Weighted average discount rate	13.7		%	13.7		%

Maturities of lease liabilities for third-party operating leases as of December 31, 2023 were as follows:

Year Ending December 31,
2024	$	16,336
2025	16,854
2026	17,295
2027	17,672
2028	18,119
Thereafter	305,054
Total lease payments	391,330
Less interest	(265,664)
Present value of lease liability	$	125,666

Modification of Lease Agreement

On October 27, 2022, the Company amended its lease agreement for the Company’s facility located in Matteson, Illinois by creating an option to increase the tenant improvement allowance for the facility by between $15.0 million and $19.9 million. On November 10, 2022, the Company exercised its option and entered into a Second Amendment to Lease Agreement, increasing the tenant improvement allowance under the lease by $19.9 million; extending the term of the lease to 20 years after the amendment; increasing the base rent by $0.2 million per month (abated until April 1, 2023); and increasing the security deposit by $2.2 million, to be funded pro rata out of draws on the tenant improvement allowance.

On July 7, 2023, the Company amended its lease agreement for the cultivation and production facility in Matteson, Illinois to apply its security deposit mainly to the monthly base rent for the four month period through November 30, 2023; to defer payment of the $2.2 million increase in security deposit to be funded as draws on the tenant improvement allowance through November 30, 2023; and to make pro rata payments of such deferred payments equal to 1/12 of the aggregate amount, concurrently with monthly base rent installments, for the twelve month period commencing January 1, 2024. There was no modification to the lease accounting as a result of this amendment to the timing of payments of the refundable security deposit.

New Lease Agreement

On August 23, 2023, the Company entered into a guaranty of a lease agreement for a third dispensary location in Illinois. Within five days of the agreement execution, the premise was available to the Company to begin leasehold improvements. The Company funded a security deposit with rent abated for the first nine calendar months following the rent commencement date. As of December 31, 2023, the Company recognized an initial right of use asset and lease liability of $1.2 million in connection with this agreement.

Discontinued Operations

During the fiscal quarter ended September 30, 2023, the Company ceased its cultivation and production operations in the state of California (together, the "California operations") as reported under the THC Cannabis segment. As a result, all prior year right-of-use assets and lease liabilities were reclassified as assets related to discontinued operations and liabilities related to discontinued operations, respectively in prior periods reflected. As of December 31, 2023, the right-of-use assets and lease liabilities related to the discontinued operations were written off.

(b)    The Company as a Lessor

The Company leases real estate, sells equipment and supplies, and licenses intellectual property to cannabis producers in the state of Washington and Illinois where the Company is the lessor. Such leases in which the Company is the lessor do not contain variable lease payments or options to purchase. Lease income for operating and direct financing leases for the periods presented are as follows:

	Years Ended December 31,
	2023		2022
Real estate income:
Operating leases	$	8,961	$	9,269
Direct financing leases	2,342		2,673
Total real estate income	$	11,303	$	11,942

The Company leases buildings in Olympia, Washington and Elk Grove, Illinois that are subleased or partly subleased to a third party. The subleases are classified as operating leases under ASC 842 and the underlying assets are presented in the consolidated balance sheets as follows:

	December 31, 2023		December 31, 2022
Right-of-use assets	$	25,249	$	26,133
Current portion of lease liability	$	289	$	296
Long-term portion of lease liability	$	22,380	$	22,078

The Company leases a building in Elma, Washington that is subleased to a third party. This sublease is classified as a finance lease. A reconciliation of the lease receivables for the periods presented is as follows:

	December 31, 2023		December 31, 2022
Balance, beginning of the year	$	9,421	$	10,378
Interest	2,342		2,673
Lease payments received	(3,810)		(3,630)
Balance, end of the period	7,953		$	9,421
Less current portion	(3,990)		(3,810)
Long-term lease receivables	$	3,963	$	5,611

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

Year Ending December 31,
2024	$	3,990
2025	4,170
2026	2,880
2027	—
2028	—
Thereafter	—
Total minimum lease payments	11,040
Less: Interest	(3,087)
Total lease receivable	$	7,953
Current portion lease receivable	(3,990)
Long-term lease receivable	$	3,963

LEASES

LEASES

(a)    The Company as a Lessee

The Company leases real estate for dispensaries, cultivation and production facilities, and office space which were all accounted for as operating leases as of December 31, 2023 and 2022. 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. Total operating lease costs related to continuing operations were $20.9 million and $17.5 million for the years ended December 31, 2023 and 2022, respectively. Short-term lease costs during the years ended December 31, 2023 and 2022 were not material.

The below are the details of other disclosures regarding the Company's lessee transactions as of December 31, 2023 and 2022:

	Years Ended December 31,
	2023			2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	15,330		$	12,071
Non-cash additions to right-of-use assets and lease liabilities:
Recognition of right-of-use assets for operating leases	$	94		$	—
Weighted average remaining lease term (in years)	17.7			18.6
Weighted average discount rate	13.7		%	13.7		%

Maturities of lease liabilities for third-party operating leases as of December 31, 2023 were as follows:

Year Ending December 31,
2024	$	16,336
2025	16,854
2026	17,295
2027	17,672
2028	18,119
Thereafter	305,054
Total lease payments	391,330
Less interest	(265,664)
Present value of lease liability	$	125,666

Modification of Lease Agreement

On October 27, 2022, the Company amended its lease agreement for the Company’s facility located in Matteson, Illinois by creating an option to increase the tenant improvement allowance for the facility by between $15.0 million and $19.9 million. On November 10, 2022, the Company exercised its option and entered into a Second Amendment to Lease Agreement, increasing the tenant improvement allowance under the lease by $19.9 million; extending the term of the lease to 20 years after the amendment; increasing the base rent by $0.2 million per month (abated until April 1, 2023); and increasing the security deposit by $2.2 million, to be funded pro rata out of draws on the tenant improvement allowance.

On July 7, 2023, the Company amended its lease agreement for the cultivation and production facility in Matteson, Illinois to apply its security deposit mainly to the monthly base rent for the four month period through November 30, 2023; to defer payment of the $2.2 million increase in security deposit to be funded as draws on the tenant improvement allowance through November 30, 2023; and to make pro rata payments of such deferred payments equal to 1/12 of the aggregate amount, concurrently with monthly base rent installments, for the twelve month period commencing January 1, 2024. There was no modification to the lease accounting as a result of this amendment to the timing of payments of the refundable security deposit.

New Lease Agreement

On August 23, 2023, the Company entered into a guaranty of a lease agreement for a third dispensary location in Illinois. Within five days of the agreement execution, the premise was available to the Company to begin leasehold improvements. The Company funded a security deposit with rent abated for the first nine calendar months following the rent commencement date. As of December 31, 2023, the Company recognized an initial right of use asset and lease liability of $1.2 million in connection with this agreement.

Discontinued Operations

During the fiscal quarter ended September 30, 2023, the Company ceased its cultivation and production operations in the state of California (together, the "California operations") as reported under the THC Cannabis segment. As a result, all prior year right-of-use assets and lease liabilities were reclassified as assets related to discontinued operations and liabilities related to discontinued operations, respectively in prior periods reflected. As of December 31, 2023, the right-of-use assets and lease liabilities related to the discontinued operations were written off.

(b)    The Company as a Lessor

The Company leases real estate, sells equipment and supplies, and licenses intellectual property to cannabis producers in the state of Washington and Illinois where the Company is the lessor. Such leases in which the Company is the lessor do not contain variable lease payments or options to purchase. Lease income for operating and direct financing leases for the periods presented are as follows:

	Years Ended December 31,
	2023		2022
Real estate income:
Operating leases	$	8,961	$	9,269
Direct financing leases	2,342		2,673
Total real estate income	$	11,303	$	11,942

The Company leases buildings in Olympia, Washington and Elk Grove, Illinois that are subleased or partly subleased to a third party. The subleases are classified as operating leases under ASC 842 and the underlying assets are presented in the consolidated balance sheets as follows:

	December 31, 2023		December 31, 2022
Right-of-use assets	$	25,249	$	26,133
Current portion of lease liability	$	289	$	296
Long-term portion of lease liability	$	22,380	$	22,078

The Company leases a building in Elma, Washington that is subleased to a third party. This sublease is classified as a finance lease. A reconciliation of the lease receivables for the periods presented is as follows:

	December 31, 2023		December 31, 2022
Balance, beginning of the year	$	9,421	$	10,378
Interest	2,342		2,673
Lease payments received	(3,810)		(3,630)
Balance, end of the period	7,953		$	9,421
Less current portion	(3,990)		(3,810)
Long-term lease receivables	$	3,963	$	5,611

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

Year Ending December 31,
2024	$	3,990
2025	4,170
2026	2,880
2027	—
2028	—
Thereafter	—
Total minimum lease payments	11,040
Less: Interest	(3,087)
Total lease receivable	$	7,953
Current portion lease receivable	(3,990)
Long-term lease receivable	$	3,963