Leases

9 Months Ended

Sep. 30, 2023

Leases [Abstract]

Leases

LEASES

New Lease Agreement

On August 23, 2023, the Company entered into 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 September 30, 2023, The Company recognized an initial right of use asset and lease liability of $1.2 million in connection with this agreement.

Modification of Lease Agreement

On July 7, 2023, the Company amended its lease agreement for the cultivation and production facility in Matteson, Illinois to apply a portion of the security deposit to pay one-half of 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.

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 September 30, 2023, the right-of-use assets and lease liabilities related to the discontinued operations were written off.

The Company as a Lessor:

Lease income for operating and direct financing leases for the periods presented are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Real estate income:
Operating leases	$	2,318	$	2,424	$	6,952	$	6,952
Direct financing leases	574		641		1,795		2,029
Total real estate income	$	2,892	$	3,065	$	8,747	$	8,981

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. The underlying assets are presented in the condensed consolidated balances sheets as follows:

	September 30, 2023		December 31, 2022
Right-of-use assets	$	25,465	$	26,133
Current portion of lease liability	$	290	$	295
Long-term portion of lease liability	$	22,302	$	22,078

The Company also 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 is as follows:

	September 30, 2023		December 31, 2022
Balance, beginning of period	$	9,421	$	10,378
Interest	1,795		2,673
Lease payments transferred to accounts receivable	(2,835)		(3,630)
Balance, end of period	8,381		9,421
Less current portion	(3,945)		(3,810)
Long-term lease receivables	$	4,436	$	5,611

Leases

LEASES

New Lease Agreement

On August 23, 2023, the Company entered into 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 September 30, 2023, The Company recognized an initial right of use asset and lease liability of $1.2 million in connection with this agreement.

Modification of Lease Agreement

On July 7, 2023, the Company amended its lease agreement for the cultivation and production facility in Matteson, Illinois to apply a portion of the security deposit to pay one-half of 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.

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 September 30, 2023, the right-of-use assets and lease liabilities related to the discontinued operations were written off.

The Company as a Lessor:

Lease income for operating and direct financing leases for the periods presented are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Real estate income:
Operating leases	$	2,318	$	2,424	$	6,952	$	6,952
Direct financing leases	574		641		1,795		2,029
Total real estate income	$	2,892	$	3,065	$	8,747	$	8,981

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. The underlying assets are presented in the condensed consolidated balances sheets as follows:

	September 30, 2023		December 31, 2022
Right-of-use assets	$	25,465	$	26,133
Current portion of lease liability	$	290	$	295
Long-term portion of lease liability	$	22,302	$	22,078

The Company also 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 is as follows:

	September 30, 2023		December 31, 2022
Balance, beginning of period	$	9,421	$	10,378
Interest	1,795		2,673
Lease payments transferred to accounts receivable	(2,835)		(3,630)
Balance, end of period	8,381		9,421
Less current portion	(3,945)		(3,810)
Long-term lease receivables	$	4,436	$	5,611