Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.21.2
Leases
9 Months Ended
Sep. 30, 2021
Leases [Abstract]  
Leases
Note 2 – Leases
The Company mainly leases office space and cannabis cultivation, processing and retail dispensary space. Leases with an initial term of less than 12 months are not recorded on the unaudited interim condensed consolidated balance sheets. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to five years or more. The Company assumed that it was reasonably certain that the renewal options on the majority of its cannabis cultivation, processing and retail dispensary space would be exercised based on previous history and knowledge, current understanding of future business needs and the level of investment in leasehold improvements, among other considerations. The incremental borrowing rate used in the calculation of the lease liability is based on the rate available to the parent company. The depreciable life of assets and leasehold improvements are limited by the expected lease term. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants. Certain subsidiaries of the Company rent or sublease certain office space to/from other subsidiaries of the Company. These intercompany subleases are eliminated on consolidation and have lease terms ranging from less than 1 year to 15 years.
Maturities of lease liabilities for operating leases as of September 30, 2021, were as follows:
 
    
Operating
Leases
 
2022
   $ 7,579  
2023
     7,328  
2024
     7,463  
2025
     7,629  
2026
     7,538  
Thereafter
     59,301  
    
 
 
 
Total lease payments
   $ 96,838  
Less: interest expense
     (61,232
    
 
 
 
Present value of lease liabilities
   $ 35,606  
Weighted-average remaining lease term (years)
     11.5  
Weighted-average discount rate
     19
    
 
 
 
 
For the three and nine months ended September 30, 2021, the Company recorded operating lease expenses of $2.1 million and $6.5 million, respectively, (September 30, 2020 - $2.3 million and $6.4 million, respectively), which are included in selling, general and administrative expenses and depreciation and amortization lines on the unaudited interim condensed consolidated statements of operations.
The Company entered into multiple sublease agreements during the nine months ended September 30, 2021 pursuant to which it serves as lessor to the sublessees. The gross rental income and underlying lease expense are presented gross on the Company’s unaudited interim condensed consolidated balance sheets. For the three and nine months ended September 30, 2021, the Company recorded sublease income of $0.2 million and $0.3 million, respectively, which is included in the other income line on the unaudited interim condensed consolidated statements of operations. The sublease income to be earned over the remaining sublease term was determined to be less than the costs associated with the primary lease held by the Company. As a result, the Company tested its
right-of-use
assets of related subleased facilities for impairment and recorded impairment expense of $0.1 million and $1.8 million for the three and nine months ended September 30, 2021
, respectiv
ely
 (September 30, 2020 - $Nil and $Nil, respectively).
Supplemental balance sheet information related to leases are as follows:
 
Balance Sheet Information
  
Classification
    
September 30,
2021
    
December 31,
2020
 
Right-of-use
assets
     Operating leases      $ 31,268      $ 33,083  
             
 
 
    
 
 
 
Lease Liabilities
                          
Current portion of lease liabilities
     Operating leases      $ 7,579      $ 7,450  
Long-term lease liabilities
     Operating leases        28,027        27,670  
             
 
 
    
 
 
 
Total
           
$
35,606
 
  
$
35,120