Annual report [Section 13 and 15(d), not S-K Item 405]

Note 12 - Leases

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Note 12 - Leases
12 Months Ended
Dec. 31, 2024
Notes to Financial Statements  
Lessee, Operating Leases [Text Block]

NOTE 12  LEASES

 

A lease provides the lessee the right to control the use of an identified asset for a period of time in exchange for consideration. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Current lease liabilities are included in accounts payable and accrued expenses and long-term lease liabilities are a line item on the Company’s consolidated balance sheets. The Company determines if an arrangement is a lease at inception. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Most operating leases contain renewal options that provide for rent increases based on prevailing market conditions. The terms used to calculate the right-of-use assets for certain properties include the renewal options that the Company is reasonably certain to exercise.

 

The discount rate used to determine the commencement date present value of lease payments is the interest rate implicit in the lease, or when that is not readily determinable, the Company utilizes its secured borrowing rate. Right-of-use assets include any lease payments required to be made prior to commencement and exclude lease incentives. Both right-of-use assets and lease liabilities exclude variable payments not based on an index or rate, which are treated as period costs. The Company’s lease agreements do not contain significant residual value guarantees, restrictions or covenants.

 

The Company occupies office and other facilities under lease agreements that expire at various dates. In addition, office, production and transportation equipment are leased under agreements that expire at various dates. The Company does not have any finance leases. Total operating lease costs were $1.56 million and $1.74 million for the years ended December 31, 2024 and 2023, respectively. Short-term lease costs during the fiscal years ended  December 31, 2024 and 2023 were $0.13 million and $0.13 million, respectively, with a related party. Refer to "Note 25 - Related Party Transactions".

 

As of December 31, 2024 and 2023, short term lease liabilities of $0.17 million and $1.25 million are included in “Accounts Payable & Accrued Liabilities” on the consolidated balance sheets, respectively. The table below presents total operating right-of-use assets and lease liabilities as of December 31, 2024 and 2023:

 

    (in thousands)  
   

December 31, 2024

   

December 31, 2023

 

Operating Lease Right-of-Use Assets

  $ 1,614     $ 8,166  

Operating Lease Liabilities

  $ 1,983     $ 9,694  

 

The table below presents the maturities of operating lease liabilities as of December 31, 2024:

 

Year Ending December 31,

 

(in thousands)

 

2025

  $ 431  

2026

    442  

2027

    360  

2028

    366  

2029

    372  

Thereafter

    1,435  

Total Lease Payments

    3,406  

Less: Discount

    (1,423 )

Total Operating Lease Liabilities

  $ 1,983  

 

The table below presents the weighted average remaining lease term for operating leases and weighted average discount rate used in calculating operating lease right-of-use assets:

 

   

Year Ended

 
   

December 31, 2024

   

December 31, 2023

 

Weighted Average Remaining Lease Term (Years)

    10.0       9.2  

Weighted Average Discount Rate

    13.9 %     11.7 %

 

In October 2023, the Company entered into a management services agreement with a third-party to manage and operate the Company's cultivation facility in Oakland, California. Under the agreement, the Company shall receive a monthly administrative fee equal to 3.0% of gross revenue and a monthly fee of $20,000. The transaction was not within the scope of deconsolidation guidance under ASC 810 and was accounted for as a sublease in accordance with ASC 842. The Company recognized sublease income of $0.21 million and $0.06 million for the years ended December 31, 2024 and 2023, respectively, which is presented as a component of other income on the consolidated statements of operations. The Company is no longer a party to the agreement as of  November 5, 2024. See "Note 22 - Dispositions" for transaction details.

 

On May 7, 2024, the Company terminated a lease agreement and agreed to a settlement payment of $0.20 million, of which $0.15 million was paid as of June 30, 2024. The remaining balance is due through May 2025, of which the unpaid balance is included in the balances of the Debtors discussed in Note 3. As a result, the Company wrote off the related right-of-use asset and lease liability in the amount of $4.28 million and $4.44 million, respectively, and recorded a gain of $0.25 million included in "(Gain) Loss on Disposal of Assets" on the consolidated statement of operations for the year ended December 31, 2024. See "Note 22 - Dispositions" for further information.
 
During the second fiscal quarter of 2024, the Company terminated a lease agreement and wrote off the related right-of-use asset and lease liability in the amount of $1.64 million and $2.79 million, respectively.