RIGHT-OF-USE ASSETS & LEASE LIABILITIES |
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RIGHT-OF-USE ASSETS & LEASE LIABILITIES |
9. RIGHT-OF-USE ASSETS & LEASE LIABILITIES Information related to operating and finance leases is as follows:
The maturities of the contractual lease liabilities as of December 31, 2022, are as follows:
In June 2022, the Company completed a sale and lease back transaction to sell two cultivation and processing facilities for a purchase price of $28,107, excluding transaction costs. The Company leased back the facilities and continues to operate and manage them under a long-term agreement. The transaction qualified for sale-leaseback treatment under ASC 842. As a result of the sale, the Company divested of $22,206 of buildings and improvements, and $3,728 of land. The Company recognized a gain on sale related to the transaction of $2,173 which was recorded within gain on sale of assets on the statements of operations. The lease was recorded as an operating lease and resulted in a lease liability of $25,331 and an ROU asset of $25,339, which was recorded net of a $750 work allowance.
In June 2022, the Company closed on a real estate financing transaction resulting in $27,599 of cash proceeds for the sale and simultaneous leaseback of a cultivation facility. The transaction includes a construction financing allowance of up to $14,187, which will increase the base rent at the time the construction financing is drawn down. The initial term of the agreement is fifteen years, with two five-year options to renew. The initial payments are equal to 10% of the sum of the purchase price and increases when a draw is made on the construction finance allowance, payable monthly. In addition, a 3% increase in payments will be applied annually after the first year.
The transaction was classified as a finance lease and control was never transferred to the buyer-lessor accordingly the transaction did not qualify for sale-leaseback treatment. Therefore, the Company is deemed to own this real estate and will continue to depreciate the assets and reflect the properties on the Company’s balance sheet. The Company recorded a financing obligation for the consideration received from the buyer-lessor, and future cash lease payments will be allocated between interest expense and reduction to the financing obligation, as applicable. As the transactions did not qualify for sale-leaseback treatment, under ASC 842, Leases, no gain or loss was recognized.
9. RIGHT-OF-USE ASSETS & LEASE LIABILITIES (Continued) Payments related to leases during the years ended December 31, 2022, and 2021, are as follows:
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