What changed in this filing

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Item 1A. Risk Factors

2021-08-05 compared with 2021-05-06 · 53 added, 9 removed, 26 unchanged (70% of the section changed)

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A.

Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, which could materially affect our business, financial condition and/or results of operations.

Except to the extent updated below or to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors, there have been no material changes to the risk factors described in the “Risk Factors” section in our Annual Report on Form 10-K for year ended December 31, 2020.

The risks as updated below and as described in our Annual Report on Form 10-K are not the only risks facing our Company.

Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, and in Part II, “Item 1A.

Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, which could materially affect our business, financial condition and/or results of operations.

Except to the extent updated below or to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors, there have been no material changes to the risk factors described in the “Risk Factors” sections in our Annual Report on Form 10-K for year ended December 31, 2020 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2021.

The risks as updated below and as described in our Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q are not the only risks facing our Company.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.

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capital markets for our competitors and for regulated cannabis operators (including but not limited to access to the Nasdaq Stock Market and/or the New York Stock Exchange).

According to analysis by Viridian Capital Advisors, North American cannabis companies either closed or announced more than $5.0 billion in capital raising through April 9, 2021, representing a significant increase in the pace of capital raising for regulated cannabis operators versus the prior year period.

According to analysis by Viridian Capital Advisors (“Viridian”), U.S.

cannabis companies either closed or announced more than $5.0 billion in capital raising through July 23, 2021.

In addition, through July 23, 2021, Viridian was tracking U.S.

targeted M&A transactions totaling over $5.3 billion in total consideration.

Both statistics represent year-to-date totals significantly higher than any prior year’s comparable period.

Increased competition for properties as a result of greater clarity of the federal regulatory environment may also preclude us from acquiring those properties that would generate attractive returns to us.

By way of example, Congress introduced several proposed bills in the past legislative cycle focused on the regulated cannabis industry, including the Marijuana Opportunity Reinvestment and Expungement Act (the “MORE Act”) and the Secure and Fair Enforcement (SAFE) Banking Act (the “SAFE Banking Act”).

By way of example, Congress introduced or re-introduced several proposed bills in the current legislative cycle focused on the regulated cannabis industry, including but not limited to, the Marijuana Opportunity Reinvestment and Expungement Act (the “MORE Act”), the Secure and Fair Enforcement (SAFE) Banking Act (the “SAFE Banking Act”) and most recently in July 2021, a preliminary draft of the Cannabis Administration and Opportunity Act (the “CAO Act”).

If it became law, the MORE Act, which was passed by the U.S.

House of Representatives in December 2020, would, among other things, remove cannabis as a Schedule I controlled substance under the CSA and make available U.S.

House of Representatives in the prior legislative cycle and re-introduced in May 2021, would, among other things, remove cannabis as a Schedule I controlled substance under the Controlled Substances Act of 1970 (the “CSA”) and make available

Small Business Administration funding for regulated cannabis operators.

If it became law, the SAFE Banking Act would, among other things, provide protection from federal prosecution to banks and other financial institutions that provide financial services to state-licensed, compliant cannabis operators, which may include the provision of loans by financial

institutions to such operators.

In April 2021, the SAFE Banking Act was reintroduced again for the fourth time in the U.S.

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Senate for consideration.

In July 2021, a preliminary draft of the CAO Act was introduced, which would, among other things, remove cannabis as a Schedule I controlled substance under the CSA, provide deference to states to determine their own cannabis policies, transfer regulatory responsibility of cannabis to the U.S.

Food and Drug Administration and certain other federal regulatory agencies, and establish a federal taxation framework for regulated cannabis sales.

If any of the proposed bills in Congress became law, there would be further increased competition for the acquisition of properties that can be leased to licensed cannabis operators, consolidation of cannabis cultivation facilities for more cost efficient, larger scale production and manufacturing may occur, and such operators would have greater access to alternative financing sources with lower costs of capital.

These factors may reduce the number of operators that wish to enter into lease transactions with us or renew leases with us, or may result in us having to enter into leases on less favorable terms with tenants, each of which may significantly adversely impact our profitability and ability to generate cash flow and make distributions to our stockholders.

Construction loans involve an increased risk of loss and other risks that are different from owning and leasing properties.

In June 2021, we executed a construction loan agreement with a developer, pursuant to which we agreed to make available up to $18.5 million for the development of a regulated cannabis cultivation and processing facility in California.

We may invest in other such loans in the future.

Construction loans involve an increased risk of loss and other risks that are different from owning and leasing properties, including the following risks:

● If we fail to fund our entire commitment on a construction loan or if a borrower otherwise fails to complete the construction of a project, there could be adverse consequences associated with the loan, including, but not limited to:

a loss of the value of the property securing the loan, especially if the borrower is unable to raise funds to complete it from other sources;

a borrower’s claim against us for failure to perform under the loan documents;

increased costs to the borrower that the borrower is unable to pay;

a bankruptcy or receivership filing by the borrower;

and abandonment by the borrower of the collateral for the loan;

● We are subject to the risk that a borrower may make business decisions with which we disagree and the management of such company may take risks or otherwise act in ways that do not serve our interests;

● A borrower may not be able to realize the value anticipated from the project and otherwise not have the resources to repay the amount owed under the construction loan at maturity;

● We may incur significant costs and assume significant liabilities in foreclosing on any property subject to a construction loan, in addition to costs and risks associated with completing construction of the property if construction was not completed;

● If we foreclose on the property and take ownership, we may incur a significant loss on disposing of the property or, in the alternative, we may not be able to lease the property at all or on terms reasonably acceptable to us if we determine to continue to own the property.

If any one of these risks were to materialize with respect to one or more construction loans, our financial condition, results of operations, cash flow, and our ability to make distributions to our stockholders could be materially and adversely affected.

Risks Related to Financing Our Business

Our Unsecured Senior Notes, Exchangeable Senior Notes and any future indebtedness reduce our cash available for distribution and may expose us to the risk of default.

As of June 30, 2021, we had outstanding $300.00 million aggregate principal amount of our Unsecured Senior Notes and approximately $143.75 million aggregate principal amount of Exchangeable Senior Notes.

Payments of principal and interest on our Unsecured Senior Notes and Exchangeable Senior Notes and borrowings that we may incur in the future may leave us with insufficient cash resources to operate our properties or to pay the distributions currently contemplated or necessary to satisfy the requirements for REIT qualification.

Our level of debt and the limitations imposed on us by these debt agreements could have significant material and adverse consequences, including the following:

● our cash flow may be insufficient to meet our required principal and interest payments;

● we may be unable to borrow additional funds as needed or on favorable terms, or at all;

● we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;

● to the extent we borrow debt that bears interest at variable rates, increases in interest rates could materially increase our interest expense;

● we may be forced to dispose of one or more of the properties that we expect to acquire, possibly on disadvantageous terms;

● we may default on our obligations or violate restrictive covenants, in which case the lenders may accelerate these debt obligations;

● our default under any loan with cross default provisions could result in a default on other indebtedness.

If any one of these events were to occur, our financial condition, results of operations, cash flow, and our ability to make distributions to our stockholders could be materially and adversely affected.

A downgrade in our investment grade credit rating could materially adversely affect our business and financial condition.

There can be no assurance that we will be able to maintain our current credit rating.

Any downgrade in terms of rating or outlook by the rating agency could have a material adverse impact on our cost and availability of capital, which could in turn have a material adverse impact on our financial condition, results of operations and liquidity and a material adverse effect on the market price of our common stock.

The terms governing our Unsecured Senior Notes include restrictive covenants relating to our operations, which could limit our ability to respond to changing market conditions and our ability to make distributions to our stockholders.

The indenture governing the Unsecured Senior Notes contains financial and operating covenants that, among other things, restrict our ability to take specific actions, even if we believe them to be in our best interest, including restrictions on our ability to (1) consummate a merger, consolidation or sale of all or substantially all of our assets and (2) incur additional secured and unsecured indebtedness.

The covenants relating to our Unsecured Senior Notes may adversely affect our flexibility and our ability to achieve our operating plans.

The indenture governing the Exchangeable Senior Notes also contains certain covenants.

Our ability to comply with these covenants and other provisions relating to our indenture governing the Unsecured Senior Notes and our indenture governing the Exchangeable Senior Notes may be affected by changes in our operating and financial performance, changes in general business and economic conditions, adverse regulatory developments or other events adversely impacting us.

The breach of any of these covenants could result in a default under our indebtedness, which could cause those and other obligations to become due and payable.

If any of our indebtedness is accelerated, we may not be able to repay it, pursue our business plan or make distributions to our stockholders.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors