|6 Months Ended|
Jun. 30, 2021
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. None of the Company’s leases include options to purchase the leased property. 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 June 30, 2021, were as follows:
For the three and six months ended June 30, 2021, the Company recorded operating lease expenses of $2.0 million and $4.4 million, respectively, (June 30, 2020 - $2.1 million and $4.1 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 quarter ended June 30, 2021 for two of its facilities pursuant to which it serves as lessor to the sublessees. The gross rental income and underlying lease expense are presented gross in the Company’s unaudited interim condensed consolidated balance sheets. For the three and six months ended June 30, 2021, the Company recorded sublease income of less than $0.1 million and $0.1 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
assets of related subleased facilities for impairment and recorded impairment expense of $1.7
million for the three and six months ended June 30, 2021 (June 30, 2020 - $Nil and $Nil
Supplemental balance sheet information related to leases are as follows:
The entire disclosure for operating leases of lessee. Includes, but is not limited to, description of operating lease and maturity analysis of operating lease liability.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef