3. PROPERTY AND EQUIPMENT

Depreciation expense for the three and six months ended June 30, 2026 totaled $21,543 thousand and $42,273 thousand, respectively, of which $13,226 thousand and $26,455 thousand, respectively, is included in cost of goods sold. Depreciation expense for the three and six months ended June 30, 2025 totaled $17,234 thousand and $34,071 thousand, respectively, of which $10,846 thousand and $21,595 thousand, respectively, is included in cost of goods sold.

Assets under construction represent costs associated with construction projects related to cultivation and production facilities and retail stores. The Company capitalizes interest expense incurred during the active construction of qualifying assets, primarily cultivation and processing facilities and retail stores under development. Capitalization commences when expenditures for the asset are being made, activities necessary to prepare the asset for its intended use are in progress, and interest costs are being incurred. Capitalization ceases when the asset is substantially complete and ready for its intended use. The amount of interest capitalized is based on the weighted average rate applicable to the Company's outstanding borrowings.