Leases

3 Months Ended

Mar. 31, 2022

11.

Leases

The Company leases real estate, vehicle, and equipment for use in its operations. The Company’s leases generally have lease terms of one to 30 years, some of which include options to terminate, or to extend leases. The Company includes options that are reasonably certain to be exercised as part of the determination of lease terms. The Company may negotiate termination clauses in anticipation of any changes in market conditions, but generally these termination options are not exercised. Residual value guarantees are generally not included within operating leases. In addition to base rent payments, the leases may require the Company to pay directly for taxes and other non-lease components, such as insurance, maintenance and other operating expenses, which may be dependent on usage or vary month-to-month.

On January 26, 2021, the Company entered into a five-year lease agreement for 115,500 square feet within a 136,500 square foot building for the Company's fulfillment and distribution operations, located in Summerville, South Carolina. Rent was abated for the first three months while the Company installed racking, packing stations, and other required equipment, prior to the Company's shipping operations to this facility. This lease terminates in July 2026. The lease has two renewal options for three years each. The Company has funded a customary security deposit of $52 thousand upon execution of the lease, which has been recorded in other assets with our condensed consolidated balance sheets at March 31, 2022 and December 31, 2021.

On July 28, 2021, the Company entered into a lease agreement for a 360,320 square foot industrial building for the Company's finished goods warehousing and shipping operations, located in Summerville, South Carolina. The building is currently under construction and the lease will commence on the date of which the landlord completes construction of the facility and required tenant improvements, currently estimated to be during the first quarter of 2023, and will terminate upon the thirteenth anniversary of the commencement date. The lease has one renewal option for a five-year term. The lease provides for an allowance for tenant improvements of up to $1.26 million. The annual base rent for the first year will be $1.98 million and is subject to an annual escalation of 2.0% on each anniversary. The Company has funded a customary security deposit of $331 thousand upon execution of the lease which has been recorded in other assets with our condensed consolidated balance sheets at March 31, 2022 and December 31, 2021.

The balances for the operating and finance leases where the Company is the lessee are presented as follows within the condensed consolidated balance sheets:


	March 31, 2022		December 31, 2021
Operating lease:
Operating lease right-of-use assets	$	17,037,892	$	17,836,756

Current portion of operating lease obligations		2,037,520		2,633,236
Operating lease obligations, net of current portion		27,317,015		27,605,739
Total operating lease liabilities	$	29,354,535	$	30,238,975

Finance lease:
Finance right-of-use assets	$	783,075	$	883,076

Current portion of finance lease obligations		403,824		413,487
Finance lease obligation, net of current portion		398,578		482,544
Total finance lease liabilities	$	802,402	$	896,031

The components of lease expense are as follows within our condensed consolidated statement of operations:


	Three Months Ended March 31,
	2022		2021
Operating lease expense:
Operating lease cost(1)	$	1,461,355	$	1,232,708
Finance lease expense:
Amortization of leased assets		112,400		73,915
Interest on lease liabilities		11,588		11,300
Total lease expense	$	1,585,343	$	1,317,923

(1)

Includes short-term leases and variable lease costs, which are immaterial.

The weighted-average remaining lease term and weighted-average discount rate at March 31, 2022 and December 31, 2021, were as follows:


	March 31, 2022			December 31, 2021
Weighted average remaining lease term (years)
Operating leases	13.81 years			13.73 years
Finance leases	2.16 years			2.33 years
Weighted average discount rate applied
Operating leases		9.0	%		9.2	%
Finance leases		6.1	%		6.1	%

Supplemental cash flow information related to leases where the Company is the lessee is as follows:


	Three Months Ended March 31,
	2022		2021
Operating cash outflows from operating leases	$	1,546,933	$	1,863,504
Operating cash outflows from finance leases (interest payments)		11,588		11,300
Financing cash outflows from finance leases		106,025		76,039
Leased assets obtained in exchange for finance lease liabilities		12,399		284,551
Leased assets obtained in exchange for operating lease liabilities		—		2,913,002

As of March 31, 2022, the maturities of the operating and finance lease liabilities are as follows:


Period	Operating Leases		Finance Leases
April 1, 2022 - March 31, 2023	$	4,442,202	$	438,055
April 1, 2023 - March 31, 2024		3,520,374		291,284
April 1, 2024 - March 31, 2025		3,590,764		88,566
April 1, 2025 - March 31, 2026		3,571,398		51,512
April 1, 2026 - March 31, 2027		3,146,563		—
Thereafter		34,981,041		—
Total minimum lease payments	$	53,252,342	$	869,417
Less: imputed interest		23,897,807		67,015
Total present value of lease liabilities	$	29,354,535	$	802,402
Less: current portion		2,037,520		403,824
Long-term portion of lease liabilities	$	27,317,015	$	398,578

In 2016, the Company entered into a new lease agreement for office, warehouse and production space in Summerville, South Carolina. The Company was required to provide the landlord with a $4.9 million irrevocable letter of credit as a security deposit (see Note 10). The required security deposit may be reduced upon the attainment of certain EBITDA levels.