NOTE 13. EQUITY-BASED COMPENSATION

On April 17, 2019, Greenlane adopted the 2019 Equity Incentive Plan (the "2019 Plan"). The 2019 Plan provides eligible participants with compensation opportunities in the form of cash and equity incentive awards. The 2019 Plan is designed to enhance the Company's ability to attract, retain and motivate its executive officers and other key management and incentivizes executives to increase the Company's long-term growth and equity value in alignment with the interests of Greenlane's stockholders. Under the 2019 Plan, Greenlane may grant up to 5,000,000 stock options and other equity-based awards to employees, directors and officers. Equity-based compensation cost is measured at the grant date for all equity-based awards made to employees based on the fair value of the awards and is attributed on a straight-line basis for awards with service conditions and on an accelerated attribution basis for awards with performance conditions over the requisite service period, which is generally the vesting period.

The Company accounts for grants of equity awards to employees in accordance with ASC 718, Compensation-Stock Compensation. This standard requires compensation expense to be measured based on the estimated fair value of the share-based awards on the date of grant and recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The Company uses the Black-Scholes option-pricing model to determine the fair value of the stock option awards. The Company estimates the expected volatility by using a weighted average of the historical volatility of its common stock and the historical volatilities of a peer group comprised of publicly-traded companies in the same industry. The risk-free interest rate is based on United States Treasury zero-coupon issues with remaining terms similar to the expected term of the stock option awards. The expected term for stock options granted is estimated using the "simplified" method, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the stock option due to the Company's lack of sufficient historical data.

In connection with the closing of the IPO, Greenlane and the Operating Company consummated certain organizational transactions, as described in further detail in Note 1, among which, the Operating Company reclassified unvested Class B membership interests and profits interests which had been granted as equity-based compensation into Common Units of the Operating Company. 

During the three and six months ended June 30, 2019, the Company recorded compensation expense of approximately $1.7 million and $4.6 million, respectively, related to equity-based compensation awards, which is included in salaries, benefits and payroll taxes in the condensed consolidated statement of operations and comprehensive (loss) income. The Company did not incur any equity-based compensation expense during the three and six months ended June 30, 2018. As of June 30, 2019, total unrecognized compensation expense related to unvested Common Units granted as equity-based compensation was approximately $7.7 million, which is expected to be recognized over a weighted-average period of 2.5 years. As of June 30, 2019, total unrecognized compensation expense related to unvested stock options granted as equity-based compensation was approximately $1.2 million, which is expected to be recognized over a weighted-average period of 2.0 years. 

In connection with the IPO, the Company granted 176,784 options to its directors and certain employees, less forfeitures. The stock options were granted with an exercise price of $17.00 per share and vest ratably over a zero to four-year period.

The fair value of the stock option awards during the six months ended June 30, 2019 was determined on the grant date using the Black-Scholes valuation model based on the following weighted-average assumptions:

A summary of stock option activity for the six months ended June 30, 2019 is as follows: