LEASES

9 Months Ended

Feb. 28, 2022

Leases [Abstract]

LEASES

NOTE 5 – LEASES

Leases – as a Lessor

On November 22, 2019, the Company entered into a triple-net lease agreement with Tosei America, Inc. (“Tosei”), whereby Tosei leased the Company's building located at 2451 NW 28th Avenue, Portland, OR 97210 for a base monthly fee of $23,282 for a term of 120 months. This lease arrangement has been accounted for pursuant to Accounting Standards Update (“ASU”) No. 2016-02, "Leases (Topic 842) (“ASU Topic 842”)". The Company presents property revenues as other income. As previously noted, the Company sold this property on November 10, 2021. As such, this lease has been terminated as of February 28, 2022.

On October 1, 2020, the Company entered into a lease agreement (“Humboldt Lease”) whereby Humboldt Street Collective, LLC (“Humboldt”) will lease the Company's building located at 2765 NW Nicolai Street, Portland, OR 97210 for a monthly fee of $3,185 for a term of 62 months. This lease arrangement been accounted for pursuant to Topic 842. The Company presents property revenues as other income. Minimum future lease payments receivable are as follows: 

Years Ending May 31,
2022	$	9,841
2023		40,151
2024		41,356
2025		42,597
2026		14,338
Total undiscounted cash flow	$	148,283

On December 1, 2020, the Company entered into the Second Humboldt Lease, whereby Humboldt leased a portion of the Company’s building located at 2451 NW 28th Avenue, Portland, OR 97210 for a monthly fee of $4,596 for a term of 59 months. As noted above, the Company sold this property on November 10, 2021. As such, this lease has been terminated as of February 28, 2022.

Leases – as a Lessee

In connection with the acquisition of Ample Hills, the Company assumed multiple real estate leases for retail store locations as well as a manufacturing facility, all of which are classified as operating leases. On November 12, 2021, the Company signed an additional retail lease agreement in conjunction with its new retail store located in New York. The store is scheduled to open during the summer of 2022. Payments on this lease will commence on April 22, 2022.

To determine whether a contract is or contains a lease, the Company determines at contract inception whether it contains the right to control the use of an identified asset for a period of time in exchange for consideration to the counterparty in the transaction. If the Company determines that the contract provides the right to obtain substantially all of the economic benefit from the use of the leased asset, as well as the right for the Company to direct the asset's use, the Company recognizes a right-of-use asset and liability upon contract inception. The initial carrying value of the operating lease liability is determined by calculating the present value of future lease payments under the contract. The Company considers the future lease payments under the original terms of the contract, and also includes explicitly enumerated renewal periods where management is reasonably certain that such renewal options will be exercised.

The Company’s operating leases contain varying terms and expire at various dates through 2032. For the three months ended February 28, 2022 and February 28, 2021, lease expenses under fixed term leases amounted to $478,890 and $400,609, respectively. For the nine months ended February 28, 2022 and February 28, 2021, lease expenses under fixed term leases amounted to $1,347,522 and $1,099,993, respectively.

Certain of the Company’s operating leases contain variable lease payments related to certain performance targets by the Company at the underlying store locations. These variable lease costs are recognized as incurred in accordance with ASC 842 - Leases.

The Company's future minimum lease payments required under operating leases that have commenced as of February 28, 2022 were as follows:

Years Ending May 31,
2022	$	446,148
2023		1,886,203
2024		1,793,510
2025		1,748,643
2026		1,529,082
Thereafter		7,221,582
Total lease payments		14,625,168
Less: imputed interest		(2,374,383)
Present value of lease payments		12,250,785
less: current lease obligations		(1,417,386)
Long-term lease obligations	$	10,833,399

In order to calculate the operating lease asset and liability for a lease, ASC 842 - Leases requires that a lessee apply a discount rate equal to the rate implicit in a lease whenever such a rate is readily determinable. The Company's lease agreements do not provide a readily determinable implicit rate, nor is this rate available from our leasing counterparties. Consequently, the Company estimates an incremental borrowing rate to determine the present value of the lease payments. This incremental borrowing rate represents the Company's estimate of an interest rate that the Company would be able to obtain from a lender to borrow, on a collateralized basis, over a similar term to obtain an asset of similar value.

The Company’s weighted-average remaining lease term and discount rates under operating leases that have commenced as of February 28, 2022 were as follows:

	as of February 28, 2022
Weighted-average remaining lease term (years)		8.94
Weighted-average discount rate		3.87	%