As used herein, the terms “we”, “us”, “our” or the “Company” refer to Innovative Industrial Properties, Inc., a Maryland corporation, and any of our subsidiaries, including IIP Operating Partnership, LP, a Delaware limited partnership (our “Operating Partnership”).
−Removed: We are an internally-managed REIT focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated state-licensed cannabis facilities.
+Added: We are an internally-managed REIT focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated cannabis facilities.
We have acquired and intend to continue to acquire our properties through sale-leaseback transactions and third-party purchases.
6 unchanged sentences
Our telephone number is (858) 997-3332.
−Removed: 2021 Highlights
−Removed: During 2021, we acquired 37 new properties and made additional investments into existing properties under development or redevelopment.
−Removed: As of December 31, 2021, we owned 103 properties comprising an aggregate of approximately 7.7 million rentable square feet (including approximately 2.5 million rentable square feet under development/redevelopment) in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Texas, Virginia and Washington, with a weighted-average remaining lease term of approximately 16.6 years.
+Added: 2022 Business Update
+Added: During 2022, we acquired nine new properties and made additional investments into existing properties under development or redevelopment.
+Added: As of December 31, 2022, we owned 110 properties comprising an aggregate of approximately 8.7 million rentable square feet (including approximately 1.6 million rentable square feet under development/redevelopment) in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Texas, Virginia and Washington.
+Added: Of these properties, we include 108 properties in our operating portfolio, which were 100% leased to state-licensed cannabis operators as of December 31, 2022, with a weighted-average remaining lease term of approximately 15.3 years.
+Added: We do not include in our operating portfolio two of our properties, which were previously leased to Kings Garden Inc.
+Added: (“Kings Garden”), and an expansion project at a property where Kings Garden continues to occupy the property pursuant to a confidential, contingent settlement agreement, all of which were under development as of December 31, 2022, and together are expected to comprise approximately 395,000 rentable square feet upon completion of development.
As of December 31, 2022, we had invested an aggregate of approximately $2.2 billion across our property portfolio (consisting of purchase price and construction funding and improvements reimbursed to tenants, but excluding transaction costs) and had committed an additional approximately $125.5 million to reimburse certain tenants and sellers for completion of construction and improvements at our properties.
−Removed: Of the approximately $316.1 million committed to reimburse certain tenants and sellers for completion of construction and improvements at our properties, approximately $46.3 million was incurred as of December 31, 2021.
−Removed: These statistics do not include an $18.5 million loan from us to a developer for construction of a regulated cannabis cultivation and processing facility in California and up to $55.0 million that may be funded between June 15, 2022 and July 31, 2022 pursuant to our lease with a tenant at one of our Pennsylvania properties, as the tenant at that property may not elect to have us disburse those funds and pay us the corresponding base rent on those funds.
+Added: These statistics do not include an $18.5 million loan commitment from us to a developer for construction of a regulated cannabis cultivation and processing facility in California, of which we have funded approximately $18.0 million as of December 31, 2022.
For more information regarding our properties and tenants, see the sections entitled “— Tenant Concentration” and “— Geographic Concentration” below.
+Added: Property Sale
+Added: In November 2022, we sold one of our Pennsylvania properties that was leased to a subsidiary of Maitri Holdings, LLC (“Maitri”) for $23.5 million (approximately $461 per square foot), excluding transaction costs, and recognized a gain on sale of the property of approximately $3.6 million.
Financial Results
8 unchanged sentences
Capital Activities
−Removed: In May 2021, we received an investment grade rating from a ratings agency, and our Operating Partnership issued $300.0 million aggregate principal amount of its 5.50% Senior Notes due 2026 (the “Notes due 2026”).
−Removed: The Notes due 2026 are senior unsecured obligations of our Operating Partnership, are fully and unconditionally guaranteed by us and our Operating Partnership’s subsidiaries and rank equally in right of payment with all of the Operating Partnership’s existing and future senior unsecured indebtedness, including the Operating Partnership’s 3.75% Exchangeable Senior Notes due 2024 (the “Exchangeable Senior Notes”).
−Removed: However, the Notes due 2026 are effectively subordinated to any of the Company’s, the Operating Partnership’s and the Operating Partnership’s subsidiaries’ future secured indebtedness to the extent of the value of the assets securing such indebtedness.
−Removed: Interest at a rate of 5.50% per year is payable on May 15 and November 15 of each year until the stated maturity date of May 25, 2026.
−Removed: In December 2021, our Operating Partnership entered into separate privately-negotiated exchange agreements with certain holders of the Exchangeable Senior Notes, pursuant to which the Operating Partnership delivered and paid an aggregate of (a) 1,684,237 shares of the Company’s common stock and (b) approximately $2.3 million in cash, collectively, in exchange for approximately $110.4 million principal amount of the Exchangeable Senior Notes (the “Exchange Transactions”).
−Removed: Following the closing of the Exchange Transactions, approximately $33.4 million in aggregate principal amount of the Exchangeable Senior Notes remain outstanding with terms unchanged.
+Added: In April 2022, we issued 1,815,790 shares of common stock in an underwritten public offering, which includes the exercise in full of the underwriters’ option to purchase an additional 236,842 shares, resulting in net proceeds of approximately $330.9 million.
+Added: During the year ended December 31, 2022, we sold 117,023 shares of our common stock pursuant to an “at-the-market” offering program (the “Prior ATM Program”) for net proceeds of approximately $21.1 million.
+Added: During the year ended December 31, 2022, we issued 413,166 shares of our common stock upon exchange by holders of approximately $26.9 million of outstanding principal amount of our 3.75% Exchangeable Senior Notes due 2024 (the “Exchangeable Senior Notes”).
+Added: In January 2023, we terminated the Prior ATM Program and entered into new equity distribution agreements with four sales agents, pursuant to which we may offer and sell from time to time through an “at-the-market” offering program, or ATM Program, up to $500.0 million in shares of our common stock.
+Added: As of February 28, 2023, we had not sold any shares of common stock under the ATM Program.
Our Properties
4 unchanged sentences
These improvements can include enhanced HVAC systems for climate and humidity control, high capacity electrical and plumbing systems, specialized lighting systems, and sophisticated building management, cultivation monitoring and security systems.
−Removed: Through our sale-leaseback strategy, we serve as a source of capital to these licensed regulated cannabis operators, allowing them to redeploy their sale proceeds into their core operations to grow their business and achieve higher returns.
+Added: Through our sale-leaseback strategy, we serve as a source of capital to these licensed regulated cannabis operators, allowing them to redeploy their sale proceeds into their core operations to grow
+Added: their business and achieve higher returns.
We may also purchase properties from third parties and fund the necessary improvements through a long-term lease with an identified tenant, which provides those tenants with increased cash flow to deploy in their operating businesses.
+Added: The following table sets forth certain information regarding our property portfolio by property type for the year ended and as of December 31, 2022 (dollars in thousands):
+Added: Rentable Square Feet
+Added: Rental Revenue
+Added: Development or
+Added: the Year Ended
+Added: Property Type
+Added: Redevelopment
+Added: December 31, 2022 (1)
+Added: Industrial (2)(3)
+Added: Industrial/Retail (3)
+Added: (1) Rental revenue excludes tenant reimbursements.
+Added: (2) Rental revenue from industrial properties for the year ended December 31, 2022 includes approximately $2.8 million of rental revenue related to a Pennsylvania property previously leased to Maitri that we sold in November 2022.
+Added: Number of properties and rentable square feet include one property acquired in January 2022 which did not satisfy the requirements for sale-leaseback accounting and therefore, the transaction is recognized as a note receivable and is included in other assets, net on our consolidated balance sheet.
+Added: (3) “Industrial” reflects facilities utilized or expected to be utilized for regulated cannabis cultivation, processing and/or distribution activities, which can consist of industrial and/or greenhouse space.
As of December 31, 2022, the tenant at each of our leased properties is generally responsible for paying all structural repairs, maintenance expenses, insurance and real estate taxes related to the property during the term of the applicable lease.
2 unchanged sentences
We believe that we have the following competitive strengths:
−Removed: ● Experienced and Committed Management Team.
+Added: ● Experienced Management Team.
Alan Gold, our executive chairman, and other members of our senior management team have substantial experience in all aspects of the real estate industry, including acquisitions, dispositions, construction, development, management, finance and capital markets.
6 unchanged sentences
● Recurring Revenue with Contractual Escalations.
−Removed: As of December 31, 2021, we had acquired 103 properties and lease our properties on triple-net leasing arrangements to licensed cannabis operators with a weighted-average remaining lease term of approximately 16.6 years, and which are subject to contractual rental rate increases.
+Added: As of December 31, 2022, we had acquired 110 properties.
+Added: Of these properties, 108 properties were 100% leased to state-licensed cannabis operators on triple-net leasing arrangements with a weighted-average remaining lease term of approximately 15.3 years, and which are subject to contractual rental rate increases.
Along with our existing portfolio, we expect to continue to enter into additional similar transactions structured to provide recurring revenue with contractual escalations.
1 unchanged sentence
We utilize rigorous underwriting standards for evaluating acquisitions and potential tenants to ensure that they meet our strategic and financial criteria.
−Removed: Our extensive experience and relationships in the real estate and regulated cannabis industry enable us to identify, negotiate and close on acquisitions and leases with established operators and other operators who have been among the top candidates in the rigorous state licensing process.
−Removed: ● Positive Regulated Cannabis Industry Trends.
−Removed: Based on the tremendous historical and projected growth for the regulated cannabis industry, we expect to see significant spending by state-licensed cannabis operators on their existing and new state-licensed cannabis facilities, presenting an opportunity for us to be a key capital provider in their expansion initiatives.
+Added: Our extensive experience and relationships in the real estate and regulated cannabis industry enable us to identify, negotiate and close on acquisitions and leases with established operators and other operators which meet our criteria.
+Added: ● Regulated Cannabis Industry Growth Trends.
+Added: Based on the strong historical and projected growth for the regulated cannabis industry, we expect to see significant spending by state-licensed cannabis operators on their existing and new state-licensed cannabis facilities, presenting an opportunity for us to be a key capital provider in their expansion initiatives.
Our Business Objectives and Growth Strategies
4 unchanged sentences
We primarily acquire regulated cannabis facilities from licensed operators who will continue their cultivation, processing and/or dispensing operations after our acquisition of the property.
−Removed: We expect to hold acquired properties for investment and to generate stable and increasing rental income from leasing these properties to licensed operators.
+Added: We expect to hold acquired properties for investment, with the goal of generating stable and increasing rental income from leasing these properties to licensed operators.
● Expanding as Additional States Enact Regulated Cannabis Programs.
We acquire properties in the United States, with a focus on states that have established regulated cannabis programs.
−Removed: As of December 31, 2021, we
−Removed: owned properties in 19 states, and we expect that our acquisition opportunities will continue to expand as additional states establish regulated cannabis programs and license new operators.
+Added: As of December 31, 2022, we owned properties in 19 states, and we expect that our acquisition opportunities will continue to expand as additional states establish regulated cannabis programs and license new operators.
● Providing Expansion Capital to Existing Tenants as an Additional Source of Income.
3 unchanged sentences
We are focused on maintaining a flexible capital structure for financing our growth initiatives.
−Removed: As of December 31, 2021, we had debt comprised of approximately $33.4 million principal amount of Exchangeable Senior Notes and $300.0 million principal amount of Notes due 2026, representing a total annual fixed cash interest obligation of approximately $17.8 million and representing approximately 15% of our total gross assets of approximately $2.2 billion, with no debt maturing in 2022 or 2023.
+Added: As of December 31, 2022, we had debt comprised of approximately $6.4 million principal amount of Exchangeable Senior Notes and $300.0 million principal amount of our 5.50% Senior Notes due 2026 (the “Notes due 2026”), representing a total quarterly fixed cash interest obligation of approximately $ 4.2 million and approximately 12 % of our total gross assets of approximately $2.
+Added: 6 billion , with no debt maturing until May 2026, other than the Exchangeable Senior Notes in 2024.
Our Target Markets
1 unchanged sentence
As of December 31, 2022, we owned 110 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Texas, Virginia and Washington.
−Removed: According to the National Conference of State Legislatures, as of February 3, 2022, 37 states and the District of Columbia have legalized cannabis for medical use, 18 states and the District of Columbia have legalized cannabis for adult-use, and an additional eleven states have legalized “low THC, high cannabidiol (CBD)” products for medical reasons in limited situations.
+Added: According to the Marijuana Business Daily, as of January 31, 2023, 39 states and the District of Columbia have legalized cannabis for medical use, and 21 states and the District of Columbia have legalized cannabis for adult-use.
Although these states have approved the regulated use of cannabis, the applicable state and local laws and regulations vary widely.
3 unchanged sentences
Some states permit home cultivation activities.
−Removed: The states also differ on the form in which they permit cannabis to be sold.
+Added: The states also differ on the
+Added: form in which they permit cannabis to be sold.
For example, some states do not permit cannabis-infused products such as concentrates, edibles and topicals, while other states ban smoking cannabis.
4 unchanged sentences
and the level of enforcement against illicit, non-licensed cannabis activities in a state.
−Removed: Progress in the regulated cannabis industry, while encouraging, is not assured and any number of factors could slow or halt progress in this area.
+Added: Progress in the regulated cannabis industry is not assured and any number of factors could slow or halt progress in this area.
Market Opportunity
The Regulated Cannabis Industry
−Removed: We believe that a convergence of changing public attitudes and increased legalization momentum in various states toward regulated cannabis creates an attractive opportunity to invest in the industrial real estate sector with a focus on regulated cannabis facilities.
−Removed: We also believe that the increased sophistication of the regulated cannabis industry and the development of strong business, operational and compliance practices have made the sector more attractive for investment.
−Removed: Increasingly, state-licensed cannabis cultivation, processing and dispensing facilities are becoming sophisticated business enterprises that use state-of-the-art technologies and well-honed business and operational
−Removed: processes to produce and dispense at scale high-quality, high-consistency cannabis products that drive in part their financial performance.
In the United States, the development and growth of the regulated cannabis industry has generally been driven by state law and regulation, and accordingly, the market varies on a state-by-state basis.
1 unchanged sentence
States have authorized numerous medical conditions as qualifying conditions for treatment with medical-use cannabis, which vary significantly from state to state and may include, among others, treatment for cancer, glaucoma, HIV/AIDs, wasting syndrome, pain, nausea, seizures, muscle spasms, multiple sclerosis, post-traumatic stress disorder (PTSD), migraines, arthritis, Parkinson’s disease, Alzheimer’s, lupus, residual limb pain, spinal cord injuries, inflammatory bowel disease and terminal illness.
−Removed: We believe that the following conditions, which are described in more detail below, create an attractive opportunity to invest in industrial real estate assets that support the regulated cannabis industry:
−Removed: ● significant industry growth in recent years and expected continued growth;
−Removed: ● a continuing shift in public opinion and increasing momentum toward the legalization of cannabis under state law;
−Removed: ● limited access to capital by industry participants in light of risk perceived by financial institutions of violating federal laws and onerous regulatory guidelines for offering banking services to cannabis-related businesses.
−Removed: Industry Growth and Trends
−Removed: According to BDSA, state-legal cannabis sales in the United States are projected to grow from $18 billion in 2020 to over $47 billion by 2026.
+Added: Industry Trends
+Added: According to BDSA, state-legal cannabis sales in the United States are projected to grow from $26.1 billion in 2022 to $44.5 billion by 2027, representing a compound annual growth rate of approximately 11%.
As the industry continues to evolve, new ways to consume regulated cannabis products are being developed in order for patients to have the treatment needed for their condition and provide consumers safe, consistent and appealing options.
4 unchanged sentences
We believe that the growth of the regulated cannabis industry has been fueled, in part, by the rapidly changing public attitudes in the United States.
−Removed: A 2019 poll by Quinnipiac University found that 93% of Americans support patient access to medical-use cannabis, if recommended by a doctor, which was the same level of support from a similar poll conducted by Quinnipiac University in 2018.
−Removed: In a poll by Gallup conducted in November 2021, a record-high 68% of Americans supported full legalization of cannabis in the United States.
−Removed: As of February 3, 2022, 37 states, plus the District of Columbia, have passed laws allowing their citizens to use medical cannabis.
+Added: In a poll by Pew Research Center released in November 2022, 88% of U.S.
+Added: adults supported either 1) legalization of cannabis for both medical- and adult-use (59%) or 2) legalization of cannabis for medical-use only (30%).
+Added: As of January 31, 2023, 39 states, plus the District of Columbia, have passed laws allowing their citizens to use medical cannabis.
The first state to permit the use of cannabis for medicinal purposes was California in 1996, upon adoption of the Compassionate Care Act.
The law allowed doctors to recommend cannabis for serious medical conditions and patients were permitted to use, possess and grow cannabis themselves.
−Removed: Several other states adopted medical-use cannabis laws in 1998 and 1999, and the remaining medical-use cannabis states adopted their laws on various dates through 2021.
−Removed: In addition, as of February 3, 2022, 18 states have legalized cannabis for adult-use.
+Added: Several other states adopted medical-use cannabis laws in 1998 and 1999, and the remaining medical-use cannabis states adopted their laws on
+Added: various dates through 2022.
+Added: In addition, as of January 31, 2023, 21 states, plus the District of Columbia, have legalized cannabis for adult-use.
Following the approval of state-regulated cannabis, state programs must be developed and businesses must be licensed before commencing cannabis sales.
5 unchanged sentences
take limited enforcement actions against non-licensed cannabis operators;
−Removed: restrict the method by which medical cannabis can be consumed;
+Added: restrict the method by which cannabis can be consumed;
restrict the ability of alternative health care providers to recommend medical cannabis for treatment;
13 unchanged sentences
For a more complete description of these risks, see the sections “— Governmental Regulation” below and “Risks Related to Regulation” under Item 1A, “Risk Factors.”
+Added: Market Dynamics in Regulated Cannabis State Programs
+Added: States vary significantly in their market dynamics, driven by many factors, including, but not limited to, regulatory frameworks, enforcement policies with respect to illicit, unlicensed cannabis operations, taxation and licensing structures.
+Added: Unit Pricing for Regulated Cannabis Products
+Added: Many states continue to experience significant declines in unit pricing for regulated cannabis products, with that decline more pronounced in certain states than in others, which compresses operating margins for operators.
+Added: As a result, certain regulated cannabis operators have recently announced that they are consolidating operations or shuttering certain operations to reduce costs, which if prolonged, could have a material negative impact on operators’ demand for regulated cannabis facilities, including our existing tenants.
+Added: Inflation and Supply Chain Constraints
+Added: economy is experiencing a sustained increase in inflation rates, which we believe is negatively impacting our tenants.
+Added: This inflation has impacted costs for labor and production inputs for regulated cannabis operators, in addition to increasing costs of construction for development and redevelopment projects.
+Added: Ongoing labor shortages and global supply chain issues also continue to adversely impact costs and timing for completion of these development and redevelopment projects, which are resulting in cost overruns and delays in commencing operations on certain of our tenants’ projects.
+Added: Reduced Capital Availability for Tenants
+Added: Recently, financial markets have been volatile, reflecting heightened geopolitical risks and material tightening of financial conditions since the U.S.
+Added: Federal Reserve began increasing interest rates in spring of 2022 and continued uncertainty regarding monetary policy.
+Added: Driven in part by overall macroeconomic conditions, capital availability has significantly declined for regulated cannabis operators.
+Added: According to Viridian Capital Advisors (“Viridian”), total equity and debt capital raising for public and private cannabis companies in North America decreased by 68% in 2022 versus 2021.
+Added: Even more pronounced, total capital raised for the U.S.
+Added: regulated cannabis cultivation and retail sector was down over 70% in 2022 versus 2021, with equity capital raised in the sector down over 96% and no equity deal in 2022 raising more than $25 million, according to Viridian.
+Added: According to Viridian, cannabis stock prices (as measured by the MSOS ETF) had declined more than 85% since their February 2021 peak, and were trading at multi-year lows.
+Added: Also according to Viridian, mergers and acquisitions activity in the North American regulated cannabis industry declined significantly in 2022, with aggregate transaction volume in dollar terms down 73% on 29% fewer transactions versus 2021.
Tenant Concentration
As of December 31, 2022, all of our revenues were derived from 110 properties.
−Removed: The following table sets forth the five tenants in our property portfolio that represented the largest percentage of our total rental revenue (including tenant reimbursements) for the year ended December 31, 2021:
−Removed: Percentage of
+Added: The following table sets forth certain information regarding the top ten tenants in our property portfolio that represented the largest total invested and committed capital as of and for the year ended December 31, 2022 (dollars in thousands):
+Added: Rental Revenue
+Added: Total Invested
+Added: and Committed
+Added: the Year Ended
+Added: December 31, 2022 (3)
PharmaCann Inc.
+Added: ("PharmaCann")
SH Parent, Inc.
1 unchanged sentence
Ascend Wellness Holdings, Inc.
+Added: ("Ascend")
+Added: Green Thumb Industries, Inc.
+Added: ("Green Thumb")
+Added: Curaleaf Holdings, Inc.
+Added: ("Curaleaf")
+Added: Columbia Care, Inc.
+Added: ("Columbia Care")
+Added: Trulieve Cannabis Corp.
+Added: ("Trulieve")
+Added: Holistic Industries Inc.
+Added: ("Holistic")
Cresco Labs Inc.
−Removed: Kings Garden Inc.
+Added: ("Cresco")
+Added: 4Front Ventures Corp.
+Added: ("4Front") (4)
(1) Includes leases with affiliates of each entity, for which the entity has provided a corporate guaranty.
+Added: (2) Total invested and committed capital includes development and improvements allowance not funded as of December 31, 2022.
+Added: (3) Rental revenue excludes tenant reimbursements.
+Added: (4) Number of properties and total invested and committed capital include one property acquired in January 2022 which did not satisfy the requirements for sale-leaseback accounting and therefore, the transaction is recognized as a note receivable and is included in other assets, net on our consolidated balance sheet.
Many of our tenants have limited histories of operations, and have not yet been profitable, or have been profitable only for a short period of time.
−Removed: For some or all of 2022, we expect that many of our tenants will continue to incur losses as their expenses increase in connection with the expansion of their operations, and that they have made and will continue to make rent payments to us from proceeds from the sale of the applicable property or cash on hand, and not funds from operations.
+Added: For some or all of 2023, we expect that many of our tenants will continue to incur losses as their expenses increase in connection with the expansion of their operations and the current operating environment, and that they have made and will continue to make rent payments to us from proceeds from the sale of the applicable property or cash on hand, and not funds from operations.
Furthermore, each of our leases does not prohibit the tenant from conducting adult-use cannabis operations at the applicable property, provided such operations are in compliance with applicable state and local laws.
As such, our tenant may conduct adult-use cannabis operations at the property it leases from us, which in turn could expose that tenant, us and our property to different and greater risks, including heightened risks of enforcement of federal laws.
−Removed: For example, Arizona, California, Colorado, Illinois, Massachusetts, Michigan, Nevada, New Jersey, New York, Virginia and Washington permit licensed adult-use cannabis operations, and our leases with tenants in those states allow for adult-use cannabis operations to be conducted at the properties in compliance with state and local laws.
−Removed: See each of the discussions under Item 1A, “Risk Factors,” under the captions “Many of our existing tenants are, and we expect that many of our future tenants will be, start-up businesses and may be unable to pay rent with funds from operations or at all, which could adversely affect our cash available to make distributions to our stockholders or otherwise impair the value of our common stock,” and “Because we lease our properties to a limited number of tenants, and to the extent we depend on a limited number of tenants in the future, the inability of any single tenant to make its lease payments could adversely affect our business and our ability to make distributions to our stockholders.”
+Added: For example, Arizona, California, Colorado, Illinois, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Jersey, New York, Virginia and Washington permit licensed adult-use cannabis operations, and our leases with tenants in those states allow for adult-use cannabis operations to be conducted at the properties in compliance with state and local laws.
+Added: In July 2022, Kings Garden defaulted on its obligations to pay rent at all of the properties it leases with us, and pursuant to a confidential, conditional settlement agreement executed on September 11, 2022 between us and Kings Garden, we terminated the leases for two properties that were in development or redevelopment as of December 31, 2022 and regained possession of those properties.
+Added: We have recovered approximately $15.4 million of funds paid to Kings Garden.
+Added: See Note 11 “Commitments and Contingencies — Litigation — Kings Garden Lawsuit” to our consolidated financial statements for more information.
+Added: In November 2022, Parallel defaulted on its obligations to pay rent at one of our properties in Pennsylvania, and Green Peak Industries, Inc.
+Added: (“Green Peak”) defaulted on its obligations to pay rent at one our properties in Michigan.
+Added: In February 2023, Parallel also defaulted on its obligations to pay rent at one of our properties in Texas.
+Added: In January 2023, we also executed limited rent deferrals for Holistic Industries Inc.
+Added: (“Holistic”) for two of our properties in California and Michigan, and a limited rent deferral for Calyx Peak, Inc.
+Added: at our Missouri property.
+Added: See each of the discussions under Item 1A, “Risk Factors,” under the captions “Many of our existing tenants are, and we expect that many of our future tenants will be, companies with limited histories of operations and may be unable to pay rent with funds from operations or at all, which could adversely affect our cash available to make distributions to our stockholders or otherwise impair the value of our common stock,” and “Because we lease our properties to a limited number of tenants, and to the extent we depend on a limited number of tenants in the future, the inability of any single tenant to make its lease payments could adversely affect our business and our ability to make distributions to our stockholders.”
Geographic Concentration
6 unchanged sentences
(2) Includes tenant reimbursements of approximately $10.1 million for insurance and taxes in the aggregate.
−Removed: See discussion under Item 1A, “Risk Factors,” under the caption “Our properties are, and are expected to continue to be, geographically concentrated in states that permit licensed cannabis operations, and we will be subject to social, political and economic risks of doing business in these states and any other state in which we may own property.” The
−Removed: regulated cannabis market is in its early stages;
+Added: (3) Number of properties and rentable square feet include one property acquired in January 2022 which did not satisfy the requirements for sale-leaseback accounting and therefore, the transaction is recognized as a note receivable and is included in other assets, net on our consolidated balance sheet.
+Added: See discussion under Item 1A, “Risk Factors,” under the caption “Our properties are, and are expected to continue to be, geographically concentrated in states that permit licensed cannabis operations, and we will be subject to social, political and economic risks of doing business in these states and any other state in which we may own property.” The regulated cannabis market is in its early stages;
is generally subject to strict regulations providing for, among other things, comprehensive product testing and tracking systems, limited medical conditions for treatment with medical-use cannabis, limitations on the form in which medical cannabis can be consumed and enhanced registration requirements for patients and physicians;
9 unchanged sentences
Our ability to access the capital markets and to obtain other financing arrangements is also significantly limited by our focus on serving the regulated cannabis industry.
−Removed: Our investment guidelines provide that our aggregate borrowings (secured and unsecured) will not exceed 50% of the cost of our tangible assets at the time of any new borrowing, subject to our board of directors’ discretion.
+Added: investment guidelines provide that our aggregate borrowings (secured and unsecured) will not exceed 50% of the cost of our tangible assets at the time of any new borrowing, subject to our board of directors’ discretion.
We have filed an automatic shelf registration statement, which may permit us, from time to time, to offer and sell common stock, preferred stock, warrants, debt securities and other securities to the extent necessary or advisable to meet our liquidity needs.
+Added: Capital raising activities by U.S.
+Added: REITs experienced a steep decline in 2022, with that decline more pronounced in the second half of 2022.
+Added: According to the National Association of Real Estate Investment Trusts, Inc.
+Added: (“NAREIT”), U.S.
+Added: REITs raised $41.5 billion in debt and equity during 2022, compared to $133.6 billion in 2021, representing the lowest level since 2009.
+Added: Recently, financial markets have been volatile in general, which has also significantly reduced our access to capital.
+Added: If sustained, this would have a material adverse effect on our business, financial condition and results of operations, including our ability to continue to make acquisitions of new properties and fund investments for improvements at existing properties.
Risk Management
15 unchanged sentences
In addition, we believe finding properties that are appropriate for the specific use of allowing regulated cannabis operators may be limited as more competitors enter the market, and as regulated cannabis operators obtain greater access to alternative financing sources, including but not limited to equity and debt financing sources.
−Removed: We face significant competition from a diverse mix of market participants, including but not limited to, other companies with similar business models, independent investors, hedge funds and other real estate investors, hard money lenders, and cannabis operators themselves, all of whom may compete with us in our efforts to acquire real estate zoned for regulated cannabis facilities.
+Added: We face significant competition from a diverse mix of market participants, including but not limited to, other companies with similar business models, independent investors, hedge funds and other real estate investors, hard money
+Added: lenders, and cannabis operators themselves, all of whom may compete with us in our efforts to acquire real estate zoned for regulated cannabis facilities.
In some instances, we will be competing to acquire real estate with persons who have no interest in the cannabis industry, but have identified value in a piece of real estate that we may be interested in acquiring.
27 unchanged sentences
The Sessions Memo instructed federal prosecutors to enforce the laws enacted by Congress and to follow well-established principles that govern all federal prosecutors when deciding whether to pursue prosecutions related to cannabis activities.
−Removed: As a result, federal prosecutors could, and still can, use their prosecutorial discretion to decide to prosecute actors compliant with their state laws.
+Added: As a result, federal prosecutors could, and still can, use their prosecutorial discretion to
+Added: decide to prosecute actors compliant with their state laws.
The Sessions Memo states that “these principles require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.” The Sessions Memo went on to state that given the DOJ’s well-established general principles, “previous nationwide guidance specific to marijuana is unnecessary and is rescinded, effective immediately.” Although there have not been any identified prosecutions of state law compliant cannabis entities, there can be no assurance that the federal government will not enforce federal laws relating to cannabis in the future and it remains unclear what impact the Sessions Memo will have on the regulated cannabis industry, if any.
12 unchanged sentences
Under the terms of the Rohrabacher-Blumenauer rider, the federal government is prohibited from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law.
−Removed: On December 27, 2020, the omnibus spending bill passed including the Rohrabacher-Blumenauer Amendment, extending its application until September 30, 2021.
−Removed: Congress did not pass the next spending bill before the September 30, 2021 deadline, and as of the date hereof, has still not passed an appropriations bill for fiscal year 2022.
−Removed: On December 3, 2021, President Biden signed the Further Extending Government Funding Act which included the Rohrabacher-Blumenauer Amendment, extending its application through February 18, 2022, which was further extended through a stopgap appropriations bill until March 11, 2022.
+Added: In December 2022, the omnibus spending bill passed including the Rohrabacher-Blumenauer Amendment, extending its application until September 30, 2023.
There is no assurance that Congress will approve inclusion of a similar prohibition on DOJ spending in the appropriations bills for future years.
2 unchanged sentences
Furthermore, our leases do not prohibit cannabis cultivation for adult-use that is permissible under the state and local laws where our facilities are located.
−Removed: Consequently, certain of our tenants cultivate, process and/or dispense adult-use cannabis now (and may in the future) in our facilities that are permitted by such state and local laws, which may in
−Removed: turn subject the tenant, us and our properties to greater and/or different federal legal and other risks than exclusively medical-use cannabis facilities, including not providing protection under the above Congressional spending provision.
+Added: Consequently, certain of our tenants cultivate, process and/or dispense adult-use cannabis now (and may in the future) in our facilities that are permitted by such state and local laws, which may in turn subject the tenant, us and our properties to greater and/or different federal legal and other risks than exclusively medical-use cannabis facilities, including not providing protection under the above Congressional spending provision.
Federal prosecutors have significant discretion and no assurance can be given that the federal prosecutor in each judicial district where we purchase a property will not choose to strictly enforce the federal laws governing cannabis production, processing or distribution.
21 unchanged sentences
Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued a memorandum on February 14, 2014 (the “FinCEN Memorandum”) outlining the pathways for financial institutions to bank state-sanctioned cannabis businesses in compliance with federal enforcement priorities.
−Removed: Concurrently with the FinCEN Memorandum, the DOJ issued supplemental guidance directing federal prosecutors to consider the
−Removed: federal enforcement priorities enumerated in the Cole Memo with respect to federal anti-money laundering, unlicensed money transmitter and Bank Secrecy Act offenses based on cannabis-related violations of the CSA.
+Added: Concurrently with the FinCEN Memorandum, the DOJ issued supplemental guidance directing federal prosecutors to consider the federal enforcement priorities enumerated in the Cole Memo with respect to federal anti-money laundering, unlicensed money transmitter and Bank Secrecy Act offenses based on cannabis-related violations of the CSA.
The FinCEN Memorandum sets forth extensive requirements for financial institutions to meet if they want to offer bank accounts to cannabis-related businesses and echoed the enforcement priorities of the Cole Memo.
3 unchanged sentences
As a result, many banks are hesitant to offer any banking services to cannabis-related businesses, including opening bank accounts.
−Removed: While we currently maintain banking relationships, our inability to maintain those accounts or the lack of access to bank accounts or other banking services in the future, would make it difficult for us to operate our business, increase our operating costs, and pose additional operational, logistical and security challenges.
+Added: While we currently maintain banking relationships, our inability to maintain those accounts or the lack of
+Added: access to bank accounts or other banking services in the future, would make it difficult for us to operate our business, increase our operating costs, and pose additional operational, logistical and security challenges.
Similarly, if our proposed tenants are unable to access banking services, they will not be able to enter into triple-net leasing arrangements with us, as our leases will require rent payments to be made by check or wire transfer.
15 unchanged sentences
However, should the need arise for additional water from wells and/or surface water sources, we may be required to obtain additional permits or approvals or to make other required notices prior to developing or using such water sources.
−Removed: Permits for drilling water
−Removed: wells or withdrawing surface water may be required by federal, state and local governmental entities pursuant to laws, ordinances, regulations or other requirements, and such permits may be difficult to obtain due to drought, the limited supply of available water within the districts of the states in which our properties are located or other reasons.
+Added: Permits for drilling water wells or withdrawing surface water may be required by federal, state and local governmental entities pursuant to laws, ordinances, regulations or other requirements, and such permits may be difficult to obtain due to drought, the limited supply of available water within the districts of the states in which our properties are located or other reasons.
In addition to the regulation of water usage and water runoff, state, local and federal governments also seek to regulate the type, quantity and method of use of chemicals and materials for growing crops, including fertilizers, pesticides and nutrient rich materials.
3 unchanged sentences
Reports on the usage of such chemicals and materials must be submitted pursuant to applicable laws, ordinances, and regulations and the terms of the specific licenses, permits and approvals.
−Removed: Failure to comply with laws, ordinances and regulations, to obtain required licenses, permits and approvals or to comply with the terms of such licenses, permits and approvals could result in fines, penalties and/or imprisonment.
+Added: Failure to comply with laws,
+Added: ordinances and regulations, to obtain required licenses, permits and approvals or to comply with the terms of such licenses, permits and approvals could result in fines, penalties and/or imprisonment.
The use of land for agricultural purposes in certain jurisdictions is also subject to regulations governing the protection of endangered species.
12 unchanged sentences
Laws related to upkeep, safety and taxation requirements may result in significant unanticipated expenditures, loss of our properties or other impairments to operations, any of which would adversely affect our cash flows from operating activities.
+Added: Changes to zoning, land use and other laws, ordinances and regulations may also prevent us from leasing a property for regulated cannabis cultivation, processing and/or dispensing in the future.
+Added: For one of our properties located in San Bernardino, California, as of December 31, 2022, we were evaluating alternative non-cannabis uses for the property, due in part to changes in the zoning of the property that no longer allow for regulated cannabis cultivation and processing.
Our property management activities, to the extent we are required to engage in them due to lease defaults by tenants or vacancies on certain properties, will likely be subject to state real estate brokerage laws and regulations as determined by the particular real estate commission for each state.
1 unchanged sentence
All of our properties are required to comply with the Americans with Disabilities Act (“ADA”), which generally requires that buildings be made accessible to people with disabilities.
−Removed: Compliance with ADA requirements may require removal of access barriers, and noncompliance may result in imposition of fines by the U.S.
+Added: Compliance with ADA requirements may require
+Added: removal of access barriers, and noncompliance may result in imposition of fines by the U.S.
government or an award of damages to private litigants, or both.
12 unchanged sentences
We are also committed to the health and safety of our employees.
−Removed: Since the beginning of the COVID-19 pandemic, we have implemented a number of safety protocols to protect our employees, including protocols regarding social distancing and working remotely.
−Removed: Our experienced team adapted quickly to these changes and has managed our business successfully during this challenging time.
−Removed: While we are a young company, having commenced real estate operations and completed our initial public offering in December 2016, we have a seasoned, committed team of employees with substantial experience in all aspects of the real estate industry, including acquisitions, dispositions, construction, development, management, finance and capital markets.
+Added: During the COVID-19 pandemic, we implemented a number of safety protocols to protect our employees, including protocols regarding social distancing and working remotely.
We believe that attracting, developing, engaging and retaining our team is an absolute priority.
6 unchanged sentences
● Company sponsorship of continuing education courses related to our Company’s business, including commercial real estate, cannabis, property management, legal and accounting courses;
+Added: ● Company reimbursement of up to $200 per year for each employee’s health and wellness activities, materials, equipment and/or classes;
● Matching contribution by the Company, dollar-for-dollar, up to $2,500 per year per employee for donations to qualifying educational institutions.
14 unchanged sentences
Risks Related to Our Business
−Removed: ● The current COVID-19 pandemic, or a similar future outbreak, could materially and adversely impact or cause disruption to our tenants and their operations, and in turn our business.
−Removed: ● We have a limited operating history, and may not be able to continue to operate our business successfully.
−Removed: ● The inability of any single tenant to make its lease payments could adversely affect our business.
−Removed: ● Competition for the acquisition of properties suitable for regulated cannabis operations and alternative financing sources for licensed operators may make new acquisitions difficult or less economically attractive.
−Removed: ● Our growth will depend upon future acquisitions of regulated cannabis facilities, and we may be unable to consummate acquisitions on advantageous terms.
−Removed: ● There may only be a limited number of cannabis facilities operated by suitable tenants available for acquisition.
● Many of our tenants are, and we expect that many of our future tenants will be, companies with limited histories of operations and may be unable to pay rent with funds from operations or at all.
+Added: ● The inability of any single tenant to make its lease payments could adversely affect our business.
● We are focused on properties leased to licensed cannabis operators, and a decrease in demand for these types of facilities would have a greater impact on us than if we had a more diversified property portfolio.
● Our real estate investments consist of primarily properties suitable for cultivation and production of cannabis, which may be difficult to sell or re-lease upon tenant defaults or lease terminations.
+Added: ● We have a limited operating history and may not be able to continue to operate our business successfully.
● The assets we acquire may be subject to impairment charges.
−Removed: ● Our tenants may be unable to renew or otherwise maintain their licenses for their cannabis operations, which may result in such tenants not being able to operate their businesses and defaulting on their lease payments.
−Removed: ● We acquire our properties “as-is,” which increases the risk of costs to remedy defects without recourse.
−Removed: ● Our property portfolio is and will be geographically concentrated in certain states that make us subject to social, political and economic risks of doing business in these states.
+Added: ● We have identified a material weakness in our system of internal controls.
+Added: If not remediated, this material weakness could result in material misstatements in our consolidated financial statements.
● We face significant risks associated with the development and redevelopment of properties that we acquire.
+Added: ● We are currently subject to securities lawsuits and we may be subject to litigation in the future, which may divert management’s attention and have a material adverse effect on us.
+Added: ● Inflation may adversely affect our business and our tenants’ financial condition and results of operations.
+Added: ● Competition for the acquisition of properties suitable for regulated cannabis operations and alternative financing sources for licensed operators may make new acquisitions difficult or less economically attractive.
+Added: ● Our growth will depend upon future acquisitions of regulated cannabis facilities.
+Added: ● There may only be a limited number of cannabis facilities operated by suitable tenants available for acquisition.
+Added: ● Our and our tenants’ businesses may be materially and adversely affected by global pandemics.
+Added: ● Our tenants may be unable to renew or otherwise maintain their licenses for their cannabis operations.
+Added: ● We acquire our properties “as-is,” which increases the risk of costs to remedy defects without recourse.
+Added: ● Our property portfolio is and will be geographically concentrated in certain states.
● Some of our tenants could be susceptible to bankruptcy.
−Removed: ● Our tenants may be subject to Section 280E of the Internal Revenue Code of 1986, as amended (the “Code”), because of the nature of their business activities, which could have an adverse impact on their financial condition due to a disallowance of certain tax deductions.
+Added: ● Our tenants may be subject to Section 280E of the Internal Revenue Code of 1986, as amended (the “Code”).
● We have acquired and may continue to acquire and lease cannabis retail stores and dispensaries, which present additional risks in comparison to properties for the cultivation and production of regulated cannabis.
1 unchanged sentence
● Liability for uninsured losses could adversely affect our financial condition.
−Removed: ● If our properties’ access to adequate water and power supplies is interrupted, it could harm our ability to lease the properties for regulated cannabis cultivation and production.
+Added: ● Our properties’ access to adequate water and power supplies could be interrupted.
● We may have a difficult time obtaining the insurance policies with our focus on the regulated cannabis industry.
−Removed: ● Construction loans involve an increased risk of loss and other risks that are different from owning and leasing properties.
+Added: ● Construction loans involve an increased risk of loss and other risks that are different from owning properties.
● We may purchase properties subject to ground leases or engage in other transactions involving ground leases.
37 unchanged sentences
Risks Related to Our Taxation as a REIT
−Removed: ● Our failure to qualify or remain qualified as a REIT would subject us to U.S.
−Removed: federal income tax and applicable state and local taxes, which reduce our distributable cash and negatively impact us.
+Added: ● Our failure to qualify as a REIT would reduce our distributable cash and negatively impact us.
● The REIT distribution requirements could adversely affect our ability to execute our business plan, and require us to make unfavorable borrowing decisions or subject us to tax.
13 unchanged sentences
Risks Related to Our Business
−Removed: The current COVID-19 pandemic, or the future outbreak of any other highly infectious or contagious diseases, could materially and adversely impact or cause disruption to our tenants and their operations, and in turn our performance, financial condition, results of operations and cash flows.
−Removed: Throughout 2020 and to date, the ongoing COVID-19 pandemic has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets.
−Removed: Many countries, including the United States, have instituted quarantines, mandated business and school closures and restricted travel.
−Removed: As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including the regulated cannabis industry.
−Removed: COVID-19 (or a future pandemic) could have material and adverse effects on our tenants and their operations, and in turn on our performance, financial condition, results of operations and cash flows due to, among other factors:
−Removed: ● a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant actions;
−Removed: ● the temporary inability of consumers and patients to purchase our tenant’s cannabis products due to a number of factors, including but limited to illness, dispensary closures or limitations on operations (including but not limited to shortened operating hours, social distancing requirements and mandated “curbside only” pickup), quarantine, financial hardship, and “stay at home” orders, could severely impact our tenants’ businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations;
−Removed: ● difficulty accessing equity and debt capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations and our tenants’ ability to fund their business operations and meet their obligations to us;
−Removed: ● workforce disruptions for our tenants, as a result of infections, quarantines, stay at home orders or other factors, could result in a material reduction in our tenants’ cannabis cultivation, manufacturing, distribution and/or sales capacity;
−Removed: ● because of the federal regulatory uncertainty relating to the regulated cannabis industry, our tenants may not be eligible for financial relief available to other businesses, including federal assistance programs;
−Removed: ● restrictions on public events for the regulated cannabis industry limit the opportunity for our tenants to market and sell their products and promote their brands;
−Removed: ● delays in construction at our properties may adversely impact our tenants’ ability to commence operations and generate revenues from projects, including but not limited to delays caused by:
−Removed: o construction moratoriums by local, state or federal government authorities;
−Removed: o delays by applicable governmental authorities in providing the necessary authorizations to continue construction or commence operations;
−Removed: o reductions in construction team sizes to effectuate social distancing and other requirements;
−Removed: o infection by one or more members of a construction team necessitating a partial or full shutdown of construction;
−Removed: o manufacturing and supply chain disruptions for materials sourced from other geographies which may be experiencing shutdowns and/or restrictions on transportation of such materials;
−Removed: ● a general decline in business activity in the regulated cannabis industry would adversely affect our ability to grow our portfolio of regulated cannabis properties;
−Removed: ● the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, would result in a deterioration in our ability to ensure business continuity during a disruption.
−Removed: The extent to which COVID-19 impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the continued scope, severity and duration of the pandemic, the actions taken to contain the outbreak or mitigate its impact, and the extent of the direct and indirect economic effects of the pandemic and containment measures, among others.
−Removed: During 2020, we granted temporary base rent deferrals to certain affected tenants.
−Removed: COVID-19 presents material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.
−Removed: We have a limited operating history, and may not be able to continue to operate our business successfully or generate sufficient cash flow to sustain distributions to our stockholders.
−Removed: We completed our initial public offering and commenced real estate operations with the acquisition of our first property in December 2016, and have a limited operating history.
−Removed: We are subject to many of the business risks and uncertainties associated with any new business enterprise.
−Removed: Furthermore, our properties are concentrated in the regulated cannabis industry, an industry in its very early stages of development, and we cannot predict how tenant demand and competition for these properties will change over time.
−Removed: We cannot assure you that we will be able to operate our business successfully or profitably or find additional suitable investments.
−Removed: Our ability to provide attractive risk-adjusted returns to our stockholders over the long term is dependent on our ability both to generate sufficient cash flow to pay an attractive dividend and to achieve capital appreciation, and we cannot assure you we will do either.
−Removed: There can be no assurance that we will be able to continue to generate sufficient revenue from operations to pay our operating expenses and make distributions to stockholders.
−Removed: The results of our operations and the execution on our business plan depend on several factors, including the availability of additional opportunities for investment, the performance of our existing properties and tenants, the evolution of tenant demand for regulated cannabis facilities, competition, the evolution of alternative capital sources for potential tenants, the availability of adequate equity and debt financing, the federal and state regulatory environment relating to the regulated cannabis industry, conditions in the financial markets and economic conditions.
−Removed: Because we lease our properties to a limited number of tenants, and to the extent we depend on a limited number of tenants in the future, the inability of any single tenant to make its lease payments could adversely affect our business and our ability to make distributions to our stockholders.
−Removed: As of December 31, 2021, we owned 103 total properties.
−Removed: Five of our tenants, PharmaCann Inc.
−Removed: (at five of our properties), Parallel (at four of our properties), Ascend Wellness Holdings, Inc.
−Removed: (at three of our properties), Cresco Labs Inc.
−Removed: (at five of our properties) and Kings Garden Inc.
−Removed: (at six of our properties), represented approximately 12%, 10%, 9%, 8% and 8%, respectively, of our rental revenues (including tenant reimbursements) for the year ended December 31, 2021.
−Removed: Lease payment defaults by any of our tenants or a significant decline in the value of any single property would materially adversely affect our business, financial position and results of operations, including our ability to make distributions to our stockholders.
−Removed: Our lack of diversification also increases the potential that a single underperforming investment or tenant could have a material adverse effect on our cash flows and the price we could realize from the sale of our properties.
−Removed: Any adverse change in the financial condition of any of our tenants, including but not limited to the state cannabis markets not developing and growing in ways that we or our tenants projected, or any adverse change in the political climate regarding cannabis where our properties are located, would subject us to a significant risk of loss.
−Removed: In addition, failure by any of our tenants to comply with the terms of its lease agreement with us could require us to find another lessee for the applicable property.
−Removed: We may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing that property.
−Removed: Furthermore, we cannot assure you that we will be able to re-lease that property for the rent we currently receive, or at all, or that a lease termination would not result in our having to sell the property at a loss.
−Removed: The result of any of the foregoing risks could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
−Removed: Competition for the acquisition of properties suitable for the retail sale, cultivation or production of regulated cannabis and alternative financing sources for licensed operators may impede our ability to make acquisitions or increase the cost of these acquisitions, which could adversely affect our operating results and financial condition.
−Removed: We compete for the acquisition of properties suitable for the retail sale, cultivation or production of regulated cannabis with other entities engaged in retail, agricultural and real estate investment activities, including corporate agriculture companies, cultivators and producers of cannabis, private equity investors, and other real estate investors (including public and private REITs).
−Removed: These competitors may prevent us from acquiring desirable properties, may cause an increase in the price we must pay for properties or may result in us having to lease our properties on less favorable terms than we expect.
−Removed: Our competitors may have greater financial and operational resources than we do and may be willing to pay more for certain assets or may be willing to accept more risk than we believe can be prudently managed.
−Removed: In particular, larger companies may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies.
−Removed: Our competitors may also adopt transaction structures similar to ours, which would decrease our competitive advantage in offering flexible transaction terms.
−Removed: In addition, due to a number of factors, including but not limited to potential greater clarity of the laws and regulations governing cannabis by state and federal governments, the number of entities and the amount of funds competing for suitable investment properties may increase, resulting in increased demand and increased prices paid for these properties.
−Removed: If we pay higher prices for properties or enter into leases for such properties on less favorable terms than we expect, our profitability and ability to generate cash flow and make distributions to our stockholders may decrease.
−Removed: We also compete as a provider of capital to regulated cannabis operators with alternative financing sources to these companies, including both equity and debt financing alternatives.
−Removed: For example, many larger, publicly traded multi-state cannabis operators are able to raise significant capital through public equity offerings, in addition to access to significant debt financing options.
−Removed: Furthermore, changes in federal regulations pertaining to cannabis could also lead to increased access to U.S.
−Removed: 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).
−Removed: 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.
−Removed: 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”), the Cannabis Administration and Opportunity Act (the “CAO Act”) and the States Reform Act.
−Removed: If it became law, the MORE Act would, among other things, remove cannabis as a Schedule I controlled substance under CSA, eliminate criminal penalties for anyone who manufactures, distributes, or possesses cannabis, and make available U.S.
−Removed: Small Business Administration funding for regulated cannabis operators.
−Removed: 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.
−Removed: In February 2022, the SAFE Banking Act was reintroduced again for the sixth time in the U.S.
−Removed: House of Representatives and passed, as an amendment attached to the America COMPETES Act;
−Removed: the bill is expected to be reintroduced in the U.S.
−Removed: Senate for consideration.
−Removed: 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 FDA and certain other federal regulatory agencies, and establish a federal taxation framework for regulated cannabis sales.
−Removed: Senator Chuck Schumer publicly indicated that he intends to introduce a revised version of the CAO Act in April 2022.
−Removed: In November 2021, the States Reform 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.
−Removed: Department of Agriculture, the FDA and certain other federal regulatory agencies, and establish a lower federal excise tax on cannabis products than other current proposals.
−Removed: 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 (including consolidation that may occur as
−Removed: a result of authorization of interstate commerce in cannabis), and such operators would have greater access to alternative financing sources with lower costs of capital.
−Removed: 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.
−Removed: Our growth will depend upon future acquisitions of regulated cannabis facilities, and we may be unable to consummate acquisitions on advantageous terms.
−Removed: Our growth strategy is focused on the acquisition of specialized industrial real estate assets on favorable terms as opportunities arise.
−Removed: Our ability to acquire these real estate assets on favorable terms is subject to the following risks:
−Removed: ● competition from other potential acquirers or increased availability of alternative debt and equity financing sources for tenants may significantly increase the purchase price of a desired property and/or negatively impact the lease terms we are able to secure with our tenants;
−Removed: ● we may not successfully purchase and lease our properties to meet our expectations;
−Removed: ● we may be unable to obtain the necessary equity or debt financing to consummate an acquisition on satisfactory terms or at all;
−Removed: ● agreements for the acquisition of properties are typically subject to closing conditions, including satisfactory completion of due diligence investigations, and we may spend significant time and money and divert management attention on potential acquisitions that we do not consummate;
−Removed: ● we may acquire properties without any recourse, or with only limited recourse, for liabilities, whether known or unknown, against the former owners of the properties.
−Removed: Our failure to consummate acquisitions on advantageous terms without substantial expense or delay would impede our growth and negatively affect our results of operations and our ability to generate cash flow and make distributions to our stockholders.
−Removed: There may only be a limited number of regulated cannabis facilities operated by suitable tenants available for us to acquire, which could adversely affect the return on our common stock.
−Removed: We target regulated cannabis facilities for acquisition and leasing to licensed operators under triple-net lease agreements.
−Removed: In light of the current regulatory landscape regarding regulated cannabis, including but not limited to, the rigorous state licensing processes, limits on the number of licenses granted in certain states and in counties within such states, zoning regulations related to regulated cannabis facilities, the inability of potential tenants to open bank accounts necessary to pay rent and other expenses and the ever-changing federal and state regulatory landscape, we may have only a limited number of regulated cannabis facilities available to purchase that are operated by licensees that we believe would be suitable tenants.
−Removed: These tenants may also have increased access to alternative equity and debt financing sources over time, which may limit our ability to negotiate leasing arrangements that meet our investment criteria.
−Removed: Our inability to locate suitable investment properties and tenants would have a material adverse effect on our ability to generate cash flow and make distributions to our stockholders.
Many of our existing tenants are, and we expect that many of our future tenants will be, companies with limited histories of operations and may be unable to pay rent with funds from operations or at all, which could adversely affect our cash available to make distributions to our stockholders or otherwise impair the value of our common stock.
Single tenants currently occupy our properties generally, and we expect that single tenants will occupy our properties that we acquire in the future.
−Removed: Therefore, the success of our investments will be materially dependent on the
−Removed: financial stability of these tenants.
+Added: Therefore, the success of our investments will be materially dependent on the financial stability of these tenants.
We rely on our management team to perform due diligence investigations of our potential tenants, related guarantors and their properties, operations and prospects, of which there is generally little or no publicly available operating and financial information.
7 unchanged sentences
The success of our tenants will also heavily depend on the growth and development of the state markets in which the tenants operate, many of which have a very limited history or are still in the stages of establishing the regulatory framework.
−Removed: For example, in California, the illicit market for cannabis remains a much larger portion of overall sales in the state, and state and local authorities have assessed significant taxes on regulated cannabis products, both of which have had the impact of significantly limiting the growth and profitability for operators in the state’s regulated cannabis market.
−Removed: In our evaluation of our existing leases with tenants at our properties, we determined to record associated revenue on a cash basis due to the uncertainty of collectability of lease payments from tenants due to the U.S.
−Removed: federal regulatory uncertainty surrounding the regulated cannabis industry and our tenants’ limited operating history (for more information, see the section entitled “Critical Accounting Policies — Revenue Recognition” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information).
+Added: For example, in California, the illicit market for cannabis remains a much larger portion of overall sales in the state according to Global Go Analytics, and state and local authorities have assessed significant taxes on regulated cannabis products, both of which have had the impact of significantly limiting the growth and profitability for operators in the state’s regulated cannabis market.
+Added: In recent months, pricing for regulated cannabis products has dropped significantly, driven in part by the lack of effective enforcement on the illicit market, while input costs, including labor, supplies and construction materials, have increased significantly as a result of the broader higher inflationary environment.
+Added: In our evaluation of our existing leases with tenants at our properties, we record associated revenue on a cash basis due to the uncertainty of collectability of lease payments from tenants due to the U.S.
+Added: federal regulatory uncertainty surrounding the regulated cannabis industry and our tenants’ limited operating history (for more information, see Note 2 “Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements – Revenue Recognition” in our consolidated financial statements included in this report).
Some of our tenants may be subject to significant debt obligations and may rely on debt financing to make rent payments to us.
2 unchanged sentences
Furthermore, we may be unable to monitor and evaluate tenant credit quality on an on-going basis.
+Added: According to Viridian, total equity and debt capital raising for public and private cannabis companies in North America decreased by more than 65% in 2022 versus 2021.
+Added: Even more pronounced, total capital raised for the U.S.
+Added: regulated cannabis cultivation and retail sector was down over 70% in 2022 versus 2021, with equity capital raised in the sector down over 96% and no equity deal in 2022 raising more than $25 million, according to Viridian.
Any lease payment defaults by a tenant could adversely affect our cash flows and cause us to reduce the amount of distributions to stockholders.
−Removed: In the event of a default by a tenant, we may also experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property as operators of regulated cannabis cultivation and production facilities are generally subject to extensive state licensing requirements.
+Added: In the event of a default by a tenant, we may also experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property as operators of regulated cannabis cultivation and production facilities are generally subject to extensive state licensing requirements, including limited licenses in certain states.
+Added: In addition, applicable state licensing authorities may have little experience re-leasing a cannabis property, which may extend the delays we experience in re-leasing a property.
Furthermore, we will not operate any of the facilities that we purchase.
+Added: In July 2022, Kings Garden, a tenant of ours at six properties that we own in southern California, defaulted on its obligations to pay rent.
+Added: In November 2022, Parallel defaulted on its obligations to pay rent at one of our properties in Pennsylvania, and Green Peak defaulted on its obligations to pay rent at one our properties in Michigan.
+Added: In February 2023, Parallel defaulted on its obligations to pay rent at one of our properties in Texas.
+Added: See Part I, Item 3.
+Added: Legal Proceedings and Note
+Added: 11 “Commitments and Contingencies — Litigation” to our consolidated financial statements for more information regarding Kings Garden, Parallel and Green Peak.
+Added: Because we lease our properties to a limited number of tenants, and to the extent we depend on a limited number of tenants in the future, the inability of any single tenant to make its lease payments could adversely affect our business and our ability to make distributions to our stockholders.
+Added: As of December 31, 2022, we owned 110 properties.
+Added: Five of our tenants, PharmaCann (at eleven of our properties), Parallel (at four of our properties), Ascend (at four of our properties), Green Thumb (at three of our properties) and Trulieve (at six of our properties), represented approximately 14%, 10%, 9%, 7% and 7%, respectively, of our rental revenues (including tenant reimbursements) for the twelve months ended December 31, 2022.
+Added: Lease payment defaults by any of our tenants or a significant decline in the value of any single property would materially adversely affect our business, financial position and results of operations, including our ability to make distributions to our stockholders.
+Added: Our lack of diversification also increases the potential that a single underperforming investment or tenant could have a material adverse effect on our cash flows and the price we could realize from the sale of our properties.
+Added: Any adverse change in the financial condition of any of our tenants, including but not limited to the state cannabis markets not developing and growing in ways that we or our tenants projected, or any adverse change in the political climate regarding cannabis where our properties are located, would subject us to a significant risk of loss.
+Added: In addition, failure by any of our tenants to comply with the terms of its lease agreement with us could require us to find another lessee for the applicable property.
+Added: We may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing that property.
+Added: Furthermore, we cannot assure you that we will be able to re-lease that property for the rent we currently receive, or at all, or that a lease termination would not result in our having to sell the property at a loss.
+Added: The result of any of the foregoing risks could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.
+Added: In July 2022, Kings Garden, a tenant of ours at six properties that we own in southern California, defaulted on its obligations to pay rent.
+Added: In November 2022, Parallel defaulted on its obligations to pay rent at one of our properties in Pennsylvania, and Green Peak defaulted on its obligations to pay rent at one our properties in Michigan.
+Added: In February 2023, Parallel defaulted on its obligations to pay rent at one of our properties in Texas.
+Added: See Part I, Item 3.
+Added: Legal Proceedings and Note 11 “Commitments and Contingencies — Litigation” to our consolidated financial statements for more information regarding Kings Garden, Parallel and Green Peak.
Because our real estate investments consist of primarily industrial and greenhouse properties suitable for cultivation and production of cannabis, our rental revenues are significantly influenced by demand for these facilities generally, and a decrease in such demand would likely have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio.
Because our portfolio of properties primarily consists of industrial and greenhouse properties used in the regulated cannabis industry, we are subject to risks inherent in investments in a single industry.
−Removed: A decrease in the demand for
−Removed: cannabis cultivation and processing facilities would have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio.
−Removed: Demand for cannabis cultivation and processing facilities has been and could be adversely affected by changes in current favorable state or local laws relating to cultivation and production of cannabis or any change in the federal government’s current enforcement posture with respect to state-licensed cannabis operations, among others.
+Added: A decrease in the demand for cannabis cultivation and processing facilities would have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio.
+Added: Demand for cannabis cultivation and processing facilities has been and could be adversely affected by changes in current favorable state or local laws relating to cultivation and production of cannabis or any change in the federal government’s current enforcement posture with respect to state-licensed cannabis operations, among others, including but not limited to changes to local zoning and other laws that no longer allow a facility to be utilized for regulated cannabis activities.
To the extent that any of these conditions occur, they are likely to affect demand and market rents for cannabis cultivation and processing facilities, which could cause a decrease in our rental revenue.
Any such decrease could impair our ability to make distributions to you.
−Removed: We do not currently and do not expect in the future to invest in other real estate or businesses to hedge against the risk that industry trends might decrease the profitability of our facilities leased for cannabis operations.
+Added: Other than with respect to our property located in San Bernardino, California, we do not currently and do not expect in the future to invest in other real estate or businesses to hedge against the risk that industry trends might decrease the profitability of our facilities leased for cannabis operations.
Our real estate investments consist of primarily industrial and greenhouse properties suitable for cultivation and production of cannabis, which may be difficult to sell or re-lease upon tenant defaults or lease terminations, either of which would adversely affect returns to stockholders.
12 unchanged sentences
These and other limitations may affect our ability to sell or re-lease properties, which may adversely affect returns to our stockholders.
+Added: Certain regulated cannabis operators have recently announced that they are consolidating operations or shuttering certain operations to reduce costs, which if prolonged, could have a material negative impact on operators’ demand for regulated cannabis facilities, including our existing tenants.
+Added: In July 2022, Kings Garden, a tenant of ours at six properties that we own in southern California, defaulted on its obligations to pay rent.
+Added: In November 2022, Parallel defaulted on its obligations to pay rent at one of our properties in Pennsylvania, and Green Peak defaulted on its obligations to pay rent at one our properties in Michigan.
+Added: In February 2023, Parallel defaulted on its obligations to pay rent at one of our properties in Texas.
+Added: See Part I, Item 3.
+Added: Legal Proceedings and Note 11 “Commitments and Contingencies — Litigation” to our consolidated financial statements for more information regarding Kings Garden, Parallel and Green Peak.
+Added: We have a limited operating history, and may not be able to continue to operate our business successfully or generate sufficient cash flow to sustain distributions to our stockholders.
+Added: We completed our initial public offering and commenced real estate operations with the acquisition of our first property in December 2016, and have a limited operating history.
+Added: We are subject to many of the business risks and uncertainties associated with any new business enterprise.
+Added: Furthermore, our properties are concentrated in the regulated cannabis industry, an industry in its very early stages of development, and we cannot predict how tenant demand and competition for these properties will change over time.
+Added: We cannot assure you that we will be able to operate our business successfully or profitably or find additional suitable investments.
+Added: Our ability to provide attractive risk-adjusted returns to our stockholders over the long term is dependent on our ability both to generate sufficient cash flow to pay an attractive dividend and to achieve capital appreciation, and we cannot assure you we will do either.
+Added: There can be no assurance that
+Added: we will be able to continue to generate sufficient revenue from operations to pay our operating expenses and make distributions to stockholders.
+Added: The results of our operations and the execution on our business plan depend on several factors, including the availability of additional opportunities for investment, the performance of our existing properties and tenants, the evolution of tenant demand for regulated cannabis facilities, competition, the evolution of alternative capital sources for potential tenants, the availability of adequate equity and debt financing, the federal and state regulatory environment relating to the regulated cannabis industry, conditions in the financial markets and economic conditions.
The assets we acquire may be subject to impairment charges.
3 unchanged sentences
If we determine that an impairment has occurred, we would be required to make an adjustment to the net carrying value of the asset which could have an adverse effect on our results of operations in the period in which the impairment charge is recorded.
+Added: In July 2022, Kings Garden, a tenant of ours at six properties that we own in southern California, defaulted on its obligations to pay rent.
+Added: In November 2022, Parallel defaulted on its obligations to pay rent at one of our properties in Pennsylvania, and Green Peak defaulted on its obligations to pay rent at one of our properties in Michigan.
+Added: In February 2023, Parallel defaulted on its obligations to pay rent at one of our properties in Texas.
+Added: See Part I, Item 3.
+Added: Legal Proceedings and Note 11 “Commitments and Contingencies — Litigation” to our consolidated financial statements for more information regarding Kings Garden, Parallel and Green Peak.
+Added: While we have not determined that an impairment has occurred with respect to these properties, as we periodically evaluate these and other properties, we may be required to make an adjustment to the net carrying value of one or more of these properties in the future.
+Added: We have identified a material weakness in our system of internal controls pursuant to Section 404 of the Sarbanes-Oxley Act of 2002.
+Added: If not remediated, this material weakness could result in material misstatements in our consolidated financial statements.
+Added: We may be unable to develop, implement and maintain appropriate controls in future periods.
+Added: As previously disclosed in our Quarterly Report on Form 10-Q for the period ending September 30, 2022, our management identified a material weakness in our internal control over financial reporting.
+Added: A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis.
+Added: Management has concluded that, because of this material weakness, our internal control over financial reporting was not effective as of December 31, 2022.
+Added: These operational deficiencies related to the Company’s reviews and approvals of requests for funding disbursements by the Company for tenant improvements at the Company’s properties previously leased to Kings Garden.
+Added: As a result of the material weakness, the Company’s management, under the supervision of the Audit Committee of the Board of Directors and with participation of the Company’s Chief Executive Officer and Chief Financial Officer, concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2022.
+Added: Although we are working to remedy the ineffectiveness of the Company’s internal control over financial reporting, there can be no assurance as to when the remediation plan will be fully developed and implemented.
+Added: Until our remediation plan is fully implemented, our management will continue to devote significant time, attention and financial resources to these efforts.
+Added: If we do not complete our remediation in a timely fashion, or at all, or if our remediation plan is inadequate, there will continue to be an increased risk that our future consolidated financial statements could contain errors that will be undetected.
+Added: Further and continued determinations that there are one or more material weaknesses in the effectiveness of the Company’s internal control over financial reporting could also reduce our ability to obtain financing or could increase the cost of any financing we obtain and require additional expenditures of both money and our management’s time to comply with applicable requirements.
+Added: For more information relating to the Company’s internal control over financial reporting, the material weakness that existed as of December 31, 2022 and the remediation activities undertaken by us, see Part II, Item 9A, “Controls and Procedures” of this Annual Report on Form 10-K.
+Added: We face significant risks associated with the development and redevelopment of properties that we acquire.
+Added: In many instances, we engage in development or redevelopment of properties that we acquire.
+Added: Development and redevelopment activities entail risks that could adversely impact our financial condition and results of operations, including:
+Added: ● construction costs, which may exceed our or our tenant’s original estimates due to increases in materials, labor or other costs, which could make the project less profitable for our tenant, require us or our tenant to commit additional funds to complete the project and adversely impact our tenant’s business and prospects as a result;
+Added: ● permitting or construction delays, which may result in increased project costs, as well as deferred revenue and delayed commencement of operations by our tenant;
+Added: ● unavailability of raw materials when needed, which may result in project delays, stoppages or interruptions, which could make the project less profitable;
+Added: ● claims for warranty, product liability and construction defects after a property has been built;
+Added: ● health and safety incidents and site accidents;
+Added: ● poor performance or nonperformance by, or disputes with, any of our contractors, subcontractors or other third parties on whom we rely;
+Added: ● a contractor, subcontractor or other third party on whom we rely files for bankruptcy or commits fraud before completing a project that we have funded in part or in full;
+Added: ● unforeseen engineering, environmental or geological problems, which may result in delays or increased costs;
+Added: ● changes in local zoning, permitting and other requirements which may impact the permitted use or scope of a project;
+Added: ● labor stoppages, slowdowns or interruptions;
+Added: ● a default on an existing lease of a property under development or redevelopment by the tenant, exposing us to potential vacancy for a property that is not ready for its intended use;
+Added: ● liabilities, expenses or project delays, stoppages or interruptions as a result of challenges by third parties in legal proceedings;
+Added: ● weather-related and geological interference, including hurricanes, landslides, earthquakes, floods, drought, wildfires and other events, which may result in delays or increased costs.
+Added: The realization of any of the risks above or other delays in development and redevelopment activities at a property may also materially adversely impact our tenant’s ability to commence, continue or expand its operations, which may result in that tenant defaulting on its rent obligations to us.
+Added: As of February 28, 2023, we had properties consisting of an aggregate of approximately 1.6 million rentable square feet under development or redevelopment, and we had committed
+Added: to provide construction funding and fund tenant improvements at our properties in the future totaling up to approximately $131.8 million.
+Added: For one of our properties located in San Bernardino, California, as of December 31, 2022, we are evaluating alternative non-cannabis uses for the property, due in part to changes in the zoning of the property that no longer allow for regulated cannabis cultivation and processing.
+Added: In November 2022, Green Peak defaulted on its obligations to pay rent at one of our properties in Michigan, which was under redevelopment, and in February 2023, Parallel defaulted on its obligations to pay rent at one of our properties in Texas, which was under development.
+Added: Ongoing inflation for construction and labor costs, labor shortages and global supply chain issues also continue to adversely impact costs and timing for completion of our development and redevelopment projects, which are resulting in cost overruns and delays in commencing operations on certain projects.
+Added: We are currently subject to securities lawsuits and we may be subject to similar or other litigation in the future, which may divert management’s attention and have a material adverse effect on our business, financial condition and results of operations.
+Added: A purported securities class action lawsuit has been filed against us and certain of our executive officers alleging that the Company made false or misleading statements regarding its business.
+Added: According to the filed complaint, the p laintiff is seeking an undetermined amount of damages, interest, attorneys’ fees and costs and other relief on behalf of the putative classes of all persons who acquired shares of the Company’s common stock between August 7, 2020 and August 4, 2022.
+Added: Derivative lawsuits also have been filed against us and certain of our officers and directors asserting putative derivative claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets against our directors and certain of our officers.
+Added: According to the filed complaint, t he plaintiffs are seeking declaratory relief, direction to reform and improve corporate governance and internal procedures, and an undetermined amount of damages, restitution, interest, and attorneys’ fees and costs.
+Added: See Note 11 “Commitments and Contingencies” for a full description of these actions.
+Added: We will continue to incur legal fees in connection with these pending cases, including expenses for the reimbursement of legal fees of our officers and directors under indemnification obligations.
+Added: The expense of continuing to defend such litigation may be significant.
+Added: We intend to defend these lawsuits vigorously, but there can be no assurance that we will be successful in any defense.
+Added: If any of the lawsuits are adversely decided, we may be liable for significant damages directly or under our indemnification obligations, which could adversely affect our business, results of operations and cash flows.
+Added: Further, the amount of time that will be required to resolve these lawsuits is unpredictable and these actions may divert management's attention from the day-to-day operations of our business, which could adversely affect our business, results of operations and cash flows.
+Added: We cannot predict the outcome of these lawsuits and we may be subject to other similar securities litigation in the future.
+Added: Monitoring and defending against legal actions, whether or not meritorious, is time-consuming for our management and detracts from our ability to fully focus our internal resources on our business activities.
+Added: In addition, we may incur substantial legal fees and costs in connection with litigation.
+Added: Although we have insurance, coverage could be denied or prove to be insufficient.
+Added: We are not currently able to estimate the possible cost to us from the currently pending lawsuits, and we cannot be certain how long it may take to resolve these matters or the possible amount of any damages that we may be required to pay.
+Added: We have not established any reserves for any potential liability relating to these or future lawsuits.
+Added: It is possible that we could, in the future, incur judgments or enter into settlements of claims for monetary damages.
+Added: A decision adverse to our interests on these actions could result in the payment of substantial damages and could have a material adverse effect on our business, results of operations and financial condition.
+Added: In addition, the uncertainty of the currently pending lawsuits could lead to volatility in our stock price.
+Added: The ultimate outcome of litigation could have a material adverse effect on our business and the trading price for our securities.
+Added: Inflation may adversely affect our business and our tenants’ financial condition and results of operations.
+Added: Increased inflation could have a more pronounced negative impact on any variable rate debt we incur in the future and on our results of operations.
+Added: We also enter into leases that generally provide for fixed increases in rent.
+Added: During times when inflation is greater than increases in rent as provided for in our leases, rent increases may not keep up with the rate of inflation.
+Added: Likewise, even though net leases reduce our exposure to rising property expenses due to inflation, substantial inflationary pressures and increased costs may have an adverse impact on our tenants if increases in their operating expenses exceed increases in their revenues, which may adversely affect our tenants’ ability to pay rent.
+Added: Substantial inflation in the cost of construction materials and labor may also adversely impact our and our tenants’ ability to complete building projects on budget and on time, which may also materially adversely impact our tenants’ ability to commence operations of facilities and consequently our tenants’ ability to pay rent.
+Added: Competition for the acquisition of properties suitable for the retail sale, cultivation or production of regulated cannabis and alternative financing sources for licensed operators may impede our ability to make acquisitions or increase the cost of these acquisitions, which could adversely affect our operating results and financial condition.
+Added: We compete for the acquisition of properties suitable for the retail sale, cultivation or production of regulated cannabis with other entities engaged in retail, agricultural and real estate investment activities, including corporate agriculture companies, cultivators and producers of cannabis, private equity investors, and other real estate investors (including public and private REITs).
+Added: These competitors may prevent us from acquiring desirable properties, may cause an increase in the price we must pay for properties or may result in us having to lease our properties on less favorable terms than we expect.
+Added: Our competitors may have greater financial and operational resources than we do and may be willing to pay more for certain assets or may be willing to accept more risk than we believe can be prudently managed.
+Added: In particular, larger companies may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies.
+Added: Our competitors may also adopt transaction structures similar to ours, which would decrease our competitive advantage in offering flexible transaction terms.
+Added: In addition, due to a number of factors, including but not limited to potential greater clarity of the laws and regulations governing cannabis by state and federal governments, the number of entities and the amount of funds competing for suitable investment properties may increase, resulting in increased demand and increased prices paid for these properties.
+Added: If we pay higher prices for properties or enter into leases for such properties on less favorable terms than we expect, our profitability and ability to generate cash flow and make distributions to our stockholders may decrease.
+Added: We also compete as a provider of capital to regulated cannabis operators with alternative financing sources to these companies, including both equity and debt financing alternatives.
+Added: For example, many larger, publicly traded multi-state cannabis operators are able to raise significant capital through public equity offerings, in addition to access to significant debt financing options.
+Added: Furthermore, changes in federal regulations pertaining to cannabis could also lead to increased access to U.S.
+Added: 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).
+Added: 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.
+Added: If any of the proposed bills in Congress focused on the regulated cannabis industry became law, there could 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 (including consolidation that may occur as a result of authorization of interstate commerce in cannabis), and such operators would have greater access to alternative financing sources with lower costs of capital.
+Added: 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.
+Added: Our growth will depend upon future acquisitions of regulated cannabis facilities, and we may be unable to consummate acquisitions on advantageous terms.
+Added: Our growth strategy is focused on the acquisition of specialized industrial real estate assets on favorable terms as opportunities arise.
+Added: Our ability to acquire these real estate assets on favorable terms is subject to the following risks:
+Added: ● competition from other potential acquirers or increased availability of alternative debt and equity financing sources for tenants may significantly increase the purchase price of a desired property and/or negatively impact the lease terms we are able to secure with our tenants;
+Added: ● we may not successfully purchase and lease our properties to meet our expectations;
+Added: ● we may be unable to obtain the necessary equity or debt financing to consummate an acquisition on satisfactory terms or at all;
+Added: ● agreements for the acquisition of properties are typically subject to closing conditions, including satisfactory completion of due diligence investigations, and we may spend significant time and money and divert management attention on potential acquisitions that we do not consummate;
+Added: ● we may acquire properties without any recourse, or with only limited recourse, for liabilities, whether known or unknown, against the former owners of the properties.
+Added: Our failure to consummate acquisitions on advantageous terms without substantial expense or delay would impede our growth and negatively affect our results of operations and our ability to generate cash flow and make distributions to our stockholders.
+Added: There may only be a limited number of regulated cannabis facilities operated by suitable tenants available for us to acquire, which could adversely affect the return on our common stock.
+Added: We target regulated cannabis facilities for acquisition and leasing to licensed operators under triple-net lease agreements.
+Added: In light of the current regulatory landscape regarding regulated cannabis, including but not limited to, the rigorous state licensing processes, limits on the number of licenses granted in certain states and in counties within such states, zoning regulations related to regulated cannabis facilities, the inability of potential tenants to open bank accounts necessary to pay rent and other expenses and the ever-changing federal and state regulatory landscape, we may have only a limited number of regulated cannabis facilities available to purchase that are operated by licensees that we believe would be suitable tenants.
+Added: These tenants may also have increased access to alternative equity and debt financing sources over time, which may limit our ability to negotiate leasing arrangements that meet our investment criteria.
+Added: Our inability to locate suitable investment properties and tenants would have a material adverse effect on our ability to generate cash flow and make distributions to our stockholders.
+Added: Our and our tenants’ businesses may be materially and adversely affected by the impact of global pandemics.
+Added: We cannot predict the extent to which global pandemics may impact our business and operating results and those of our tenants, but their impact may include the following:
+Added: ● a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant actions;
+Added: ● the temporary inability of consumers and patients to purchase our tenant’s cannabis products due to a number of factors, including but limited to illness, dispensary closures or limitations on operations (including but not limited to shortened operating hours, social distancing requirements and mandated “curbside only” pickup), quarantine, financial hardship, and “stay at home” orders, could severely impact our tenants’ businesses,
+Added: financial condition and liquidity and may cause one or more of our tenants to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations;
+Added: ● difficulty accessing equity and debt capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations and our tenants’ ability to fund their business operations and meet their obligations to us;
+Added: ● workforce disruptions for our tenants, as a result of infections, quarantines, stay at home orders or other factors, could result in a material reduction in our tenants’ cannabis cultivation, manufacturing, distribution and/or sales capacity;
+Added: ● because of the federal regulatory uncertainty relating to the regulated cannabis industry, our tenants may not be eligible for financial relief available to other businesses, including federal assistance programs;
+Added: ● restrictions on public events for the regulated cannabis industry limit the opportunity for our tenants to market and sell their products and promote their brands;
+Added: ● delays in construction at our properties may adversely impact our tenants’ ability to commence operations and generate revenues from projects, including but not limited to delays caused by:
+Added: o construction moratoriums by local, state or federal government authorities;
+Added: o delays by applicable governmental authorities in providing the necessary authorizations to continue construction or commence operations;
+Added: o reductions in construction team sizes to effectuate social distancing and other requirements;
+Added: o infection by one or more members of a construction team necessitating a partial or full shutdown of construction;
+Added: o manufacturing and supply chain disruptions for materials sourced from other geographies which may be experiencing shutdowns and/or restrictions on transportation of such materials;
+Added: ● a general decline in business activity in the regulated cannabis industry would adversely affect our ability to grow our portfolio of regulated cannabis properties;
+Added: ● the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, would result in a deterioration in our ability to ensure business continuity during a disruption.
+Added: The extent to which pandemics impact our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the outbreak or mitigate its impact, and the extent of the direct and indirect economic effects of the pandemic and containment measures, among others.
Our tenants may be unable to renew or otherwise maintain their licenses or other requisite authorizations for their cannabis operations, which may result in such tenants not being able to operate their businesses and defaulting on their lease payments to us.
1 unchanged sentence
We rely on our tenants to renew or otherwise maintain the requisite state and local cannabis licenses and other authorizations on a continuous basis.
−Removed: If one or more of our tenants are unable to renew or otherwise maintain its licenses or other state and local authorizations necessary to continue its cannabis operations, such tenants may default on their lease payments to us.
+Added: If one or more of our tenants are unable to renew or otherwise maintain its licenses or other state and
+Added: local authorizations necessary to continue its cannabis operations, such tenants may default on their lease payments to us.
Any such noncompliance by our tenants of state and local laws, rules and regulations may also subject us, as the owner of such properties, to potential penalties, fines or other liabilities.
1 unchanged sentence
In the event of a default by a tenant, we may also experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property as operators of cannabis cultivation and production facilities are generally subject to extensive state licensing requirements, including required state and local authorizations for a new tenant to take over operations at a facility.
+Added: In July 2022, Kings Garden, a tenant of ours at six properties that we own in southern California, defaulted on its obligations to pay rent.
+Added: In November 2022, Parallel defaulted on its obligations to pay rent at one of our properties in Pennsylvania, and Green Peak defaulted on its obligations to pay rent at one our properties in Michigan.
+Added: In February 2023, Parallel defaulted on its obligations to pay rent at one of our properties in Texas.
+Added: See Part I, Item 3.
+Added: Legal Proceedings and Note 11 “Commitments and Contingencies — Litigation” to our consolidated financial statements for more information regarding Kings Garden, Parallel and Green Peak.
We acquired our properties, and expect to acquire other properties, “as-is,” which increases the risk of an investment that requires us to remedy defects or costs without recourse to the prior owner.
16 unchanged sentences
● potentially adverse tax consequences.
−Removed: We face significant risks associated with the development and redevelopment of properties that we acquire.
−Removed: In many instances, we engage in development or redevelopment of properties that we acquire.
−Removed: Development and redevelopment activities entail risks that could adversely impact our financial condition and results of operations, including:
−Removed: ● construction costs, which may exceed our or our tenant’s original estimates due to increases in materials, labor or other costs, which could make the project less profitable for our tenant, require us or our tenant to commit additional funds to complete the project and adversely impact our tenant’s business and prospects as a result;
−Removed: ● permitting or construction delays, which may result in increased project costs, as well as deferred revenue and delayed commencement of operations by our tenant;
−Removed: ● unavailability of raw materials when needed, which may result in project delays, stoppages or interruptions, which could make the project less profitable;
−Removed: ● claims for warranty, product liability and construction defects after a property has been built;
−Removed: ● health and safety incidents and site accidents;
−Removed: ● poor performance or nonperformance by, or disputes with, any of our contractors, subcontractors or other third parties on whom we rely;
−Removed: ● unforeseen engineering, environmental or geological problems, which may result in delays or increased costs;
−Removed: ● labor stoppages, slowdowns or interruptions;
−Removed: ● liabilities, expenses or project delays, stoppages or interruptions as a result of challenges by third parties in legal proceedings;
−Removed: ● weather-related and geological interference, including hurricanes, landslides, earthquakes, floods, drought, wildfires and other events, which may result in delays or increased costs.
−Removed: The realization of any of the risks above or other delays in development and redevelopment activities at a property may also materially adversely impact our tenant’s ability to commence, continue or expand its operations, which may result in that tenant defaulting on its rent obligations to us.
−Removed: As of February 23, 2022, we had properties consisting of an aggregate of approximately 2.4 million rentable square feet under development or redevelopment, and we had committed to provide construction funding and fund tenant improvements at our properties in the future totaling up to approximately $268.6 million.
Some of our tenants could be susceptible to bankruptcy, which would affect our ability to generate rents from them and therefore negatively affect our results of operations.
1 unchanged sentence
Because cannabis remains illegal under federal law, there is no assurance that federal bankruptcy courts will provide relief for parties who engage in cannabis-related businesses.
−Removed: Recent bankruptcy court rulings have
−Removed: denied bankruptcy relief for certain cannabis businesses on the basis that businesses cannot violate federal law and then claim the benefits of federal bankruptcy for such activity and on the basis that courts cannot ask a bankruptcy trustee to take possession of, and distribute cannabis assets, as such action would violate the CSA.
+Added: Recent bankruptcy court rulings have denied bankruptcy relief for certain cannabis businesses on the basis that businesses cannot violate federal law and then claim the benefits of federal bankruptcy for such activity and on the basis that courts cannot ask a bankruptcy trustee to take possession of, and distribute cannabis assets, as such action would violate the CSA.
Any inability of our tenants to seek bankruptcy protection may impact their ability to secure financing for their operations and prevent our tenants from utilizing the benefits of reorganization of their businesses under bankruptcy protection to operate in a financially sustainable way, thereby reducing the probability that such a tenant would be able to honor its lease obligations with us.
43 unchanged sentences
While outdoor cultivation is gaining acceptance in many states with favorable climates for such growth, we expect that most of our properties will continue to utilize indoor cultivation methods.
−Removed: Any extended interruption of the power supply to our properties, particularly those using indoor cultivation methods, would likely harm our tenants’ crops and processing capabilities, which could result in their inability to make
−Removed: lease payments to us for our properties.
+Added: Any extended interruption of the power supply to our properties, particularly those using indoor cultivation methods, would likely harm our tenants’ crops and processing capabilities, which could result in their inability to make lease payments to us for our properties.
Any lease payment defaults by a tenant could adversely affect our cash flows and cause us to reduce the amount of distributions to stockholders.
5 unchanged sentences
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.
+Added: In January 2023, we amended our construction loan agreement to provide up to an additional $4.5 million for the development as a result of costs incurred by the developer that were in excess of the original budget, making our total potential investment in the project $23.0 million.
We may invest in other such loans in the future.
13 unchanged sentences
A ground lease agreement permits a tenant to develop and/or operate a land parcel (property) during the lease period, after which the land parcel and all improvements revert back to the property owner.
−Removed: Under a ground lease,
−Removed: property improvements are owned by the property owner unless an exception is created and all relevant taxes incurred during the lease period are paid for by the tenant.
+Added: Under a ground lease, property improvements are owned by the property owner unless an exception is created and all relevant taxes incurred during the lease period are paid for by the tenant.
Ground leases typically have a long duration generally ranging from 50 to 99 years with additional extension options.
13 unchanged sentences
As a result, federal prosecutors could, and still can, use their prosecutorial discretion to decide to prosecute actors compliant with their state laws.
−Removed: Although there have not been any identified prosecutions of state law compliant cannabis entities, there can be no assurance that the federal government will not enforce federal laws against the regulated cannabis industry generally, including our tenants and us.
+Added: Although there have not been any identified prosecutions of state law compliant
+Added: cannabis entities, there can be no assurance that the federal government will not enforce federal laws against the regulated cannabis industry generally, including our tenants and us.
Attorney General Merrick Garland, who was confirmed as U.S.
1 unchanged sentence
Congress previously enacted an omnibus spending bill that includes the Rohrabacher-Blumenauer Amendment prohibiting the DOJ (which includes the DEA) from using funds appropriated by that bill to prevent states from implementing their medical-use cannabis laws.
−Removed: This provision will expire on March 11, 2022.
+Added: This provision will expire on September 30, 2023.
There can be no assurance that Congress will approve inclusion of a similar prohibition in future appropriations bills to prevent DOJ from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law.
3 unchanged sentences
Furthermore, while we target the acquisition of medical-use cannabis facilities, our leases do not prohibit cannabis cultivation for adult-use that is permissible under the state and local laws where our facilities are located, such as in Arizona, California, Colorado, Illinois, Massachusetts, Michigan, Nevada, New Jersey, New York, Virginia and Washington.
−Removed: Consequently, certain of our tenants currently (and additional tenants may in the future) cultivate adult-use cannabis in our medical-use cannabis facilities, as permitted by such state and local laws now or in the future, which may in turn subject the tenant, us and our properties to greater and/or different federal legal and other
−Removed: risks as compared to facilities where cannabis is cultivated exclusively for medical use, including not providing protection under the Congressional spending bill provision described above.
+Added: Consequently, certain of our tenants currently (and additional tenants may in the future) cultivate adult-use cannabis in our medical-use cannabis facilities, as permitted by such state and local laws now or in the future, which may in turn subject the tenant, us and our properties to greater and/or different federal legal and other risks as compared to facilities where cannabis is cultivated exclusively for medical use, including not providing protection under the Congressional spending bill provision described above.
Additionally, financial transactions involving proceeds generated by cannabis-related conduct can form the basis for prosecution under the federal money laundering statutes, unlicensed money transmitter statutes and the Bank Secrecy Act.
11 unchanged sentences
Federal prosecutors have significant discretion and no assurance can be given that the federal prosecutor in each judicial district where we purchase a property will not choose to strictly enforce the federal laws governing cannabis operations.
−Removed: Any change in the federal government’s enforcement posture with respect to state-licensed cannabis operations, including the enforcement postures of individual federal prosecutors in judicial districts where we purchase properties, would result in our inability to execute our business plan, and we would likely suffer significant losses with respect to our investment in cannabis facilities in the United States, which would adversely affect the trading price of our securities.
+Added: Any change in the federal government’s enforcement posture with respect to state-licensed cannabis operations, including the enforcement postures of individual federal prosecutors in judicial districts where we purchase properties, would result in our inability to execute our business plan, and we would likely suffer significant losses with
+Added: respect to our investment in cannabis facilities in the United States, which would adversely affect the trading price of our securities.
Furthermore, following any such change in the federal government’s enforcement position, we could be subject to criminal prosecution, which could lead to imprisonment and/or the imposition of penalties, fines, or forfeiture.
4 unchanged sentences
For example, Arizona, California, Colorado, Illinois, Massachusetts, Michigan, Nevada, New Jersey, New York, Virginia and Washington permit licensed adult-use cannabis operations, and our leases with tenants in those states allow for adult-use cannabis operations to be conducted at the properties in compliance with state and local laws.
+Added: Our ability to grow our business depends on state laws pertaining to the cannabis industry.
+Added: Continued development of the cannabis industry depends upon continued legislative authorization of cannabis at the state level.
+Added: The status quo of, or progress in, the regulated cannabis industry is not assured and any number of factors could slow or halt further progress in this area.
+Added: While there may be ample public support for legislative action permitting the cannabis operations, numerous factors impact the legislative process.
+Added: For example, many states that voted to legalize medical and/or adult-use cannabis have seen significant delays in the drafting and implementation of industry regulations and issuance of licenses.
+Added: In addition, burdensome regulation at the state level could slow or stop further development of the cannabis industry, such as limiting the medical conditions for which medical cannabis can be recommended by physicians for treatment, not strictly enforcing regulations for non-licensed cannabis operators, restricting the form in which medical cannabis can be consumed, imposing significant registration requirements on physicians and patients or imposing significant taxes on the growth, processing and/or retail sales of cannabis, which could have the impact of dampening growth of the cannabis industry and making it difficult for cannabis businesses, including our tenants, to operate profitably in those states.
+Added: Any one of these factors could slow or halt additional legislative authorization of cannabis, which could harm our business prospects.
+Added: For example, we believe that California’s taxation of regulated cannabis at local and state governmental levels and ineffective enforcement policy with respect to illicit cannabis sales have significantly limited the growth and profitability of operators in that state.
+Added: According to Global Go Analytics, the illicit market for cannabis remains a much larger portion of overall sales in the state, and state and local authorities have assessed significant taxes on regulated cannabis products, both of which have had the impact of significantly limiting the growth and profitability for operators in the state’s regulated cannabis market.
+Added: Recently, many states have also experienced significant declines in unit pricing for regulated cannabis products, with that decline more pronounced in certain states than in others.
+Added: For example, according to New Leaf Data Services, spot wholesale cannabis flower prices in California and Michigan have each declined more than 30% during 2022.
+Added: As a result, certain regulated cannabis operators have announced that they are consolidating operations or shuttering certain operations to reduce costs, which if prolonged, could have a material negative impact on operators’ demand for regulated cannabis facilities, including our existing tenants.
New laws that are adverse to the business of our tenants may be enacted, and current favorable national, state or local laws or enforcement guidelines relating to cannabis operations may be modified or eliminated in the future.
6 unchanged sentences
In addition to litigation and reputational risks surrounding vaping-related lung injuries, bans or heightened regulations could have a material adverse impact on our tenants’ operations in those states and localities where such a ban or other restrictive regulation has been implemented.
−Removed: Our ability to grow our business depends on state laws pertaining to the cannabis industry.
−Removed: Continued development of the cannabis industry depends upon continued legislative authorization of cannabis at the state level.
−Removed: The status quo of, or progress in, the regulated cannabis industry is not assured and any number of factors could slow or halt further progress in this area.
−Removed: While there may be ample public support for legislative action permitting the cannabis operations, numerous factors impact the legislative process.
−Removed: For example, many states that voted to legalize medical and/or adult-use cannabis have seen significant delays in the drafting and implementation of industry regulations and issuance of licenses.
−Removed: In addition, burdensome regulation at the state level could slow or stop further development of the cannabis industry, such as limiting the medical conditions for which medical cannabis can be recommended by physicians for treatment, not strictly enforcing regulations for non-licensed cannabis operators, restricting the form in which medical cannabis can be consumed, imposing significant registration requirements on physicians and patients or imposing significant taxes on the growth, processing and/or retail sales of cannabis, which could have the impact of dampening growth of the cannabis industry and making it difficult for cannabis businesses, including our tenants, to operate profitably in those states.
−Removed: Any one of these factors could slow or halt additional legislative authorization of cannabis, which could harm our business prospects.
FDA regulation of cannabis and the possible registration of facilities where cannabis is grown could negatively affect the cannabis industry, which would directly affect our financial condition.
7 unchanged sentences
Financial transactions involving proceeds generated by cannabis-related conduct can form the basis for prosecution under the federal money laundering statutes, unlicensed money transmitter statute and the Bank Secrecy Act.
−Removed: Previous guidance issued by FinCEN clarified how financial institutions can provide services to cannabis-related businesses
−Removed: consistent with their obligations under the Bank Secrecy Act.
+Added: Previous guidance issued by FinCEN clarified how financial institutions can provide services to cannabis-related businesses consistent with their obligations under the Bank Secrecy Act.
However, this guidance does not provide any safe harbors or legal defenses from examination or regulatory or criminal enforcement actions by the DOJ, FinCEN or other federal regulators.
23 unchanged sentences
Any assets used in conjunction with the violation of federal law are potentially subject to federal forfeiture, even in states where cannabis is legal.
−Removed: In July 2017, the DOJ issued a new policy directive regarding asset forfeiture, referred to as the “equitable sharing program.” Under this new policy directive, federal authorities may adopt state and local forfeiture cases and prosecute them at the federal level, allowing for state and local agencies to keep up to 80% of any forfeiture revenue.
+Added: In July 2017, the DOJ issued a new policy directive regarding asset forfeiture, referred to as the “equitable sharing program.” Under this new policy directive, federal authorities may adopt state and local
+Added: forfeiture cases and prosecute them at the federal level, allowing for state and local agencies to keep up to 80% of any forfeiture revenue.
This policy directive represents a reversal of the DOJ’s policy under the Obama administration, and allows for forfeitures to proceed that are not in accord with the limitations imposed by state-specific forfeiture laws.
16 unchanged sentences
The presence of hazardous substances on a property may materially and adversely affect our ability to sell the property and we may incur substantial remediation costs.
−Removed: In addition, although we may require in our leases that tenants operate
−Removed: in compliance with all applicable laws and indemnify us against any environmental liabilities arising from a tenant’s activities on the property, we could nonetheless be subject to liability by virtue of our ownership interest and we cannot be sure that our tenants would satisfy their indemnification obligations to us.
+Added: In addition, although we may require in our leases that tenants operate in compliance with all applicable laws and indemnify us against any environmental liabilities arising from a tenant’s activities on the property, we could nonetheless be subject to liability by virtue of our ownership interest and we cannot be sure that our tenants would satisfy their indemnification obligations to us.
Such environmental liability exposure associated with properties we acquire could harm our business, financial condition, liquidity and results of operations.
4 unchanged sentences
We expect to acquire additional real estate assets, which we intend to finance primarily through newly issued equity or debt.
−Removed: We may not be in a position to take advantage of attractive investment opportunities for growth if we are unable, due to global or regional economic uncertainty, changes in the state or federal regulatory environment relating to the cannabis industry, restrictions that potential investors may have to own our equity or debt due to our tenant’s operations in the regulated cannabis industry, changes in market conditions for the regulated cannabis industry, our own operating or financial performance or otherwise, to access capital markets on a timely basis and on favorable terms or at all.
+Added: We may not be in a position to take advantage of attractive investment opportunities for growth if we are unable, due to global or regional economic uncertainty, changes in the state or federal regulatory environment relating to the
+Added: cannabis industry, restrictions that potential investors may have to own our equity or debt due to our tenant’s operations in the regulated cannabis industry, changes in market conditions for the regulated cannabis industry, our own operating or financial performance or otherwise, to access capital markets on a timely basis and on favorable terms or at all.
In addition, U.S.
10 unchanged sentences
In addition, securities clearing firms may refuse to accept deposits of our securities, which may negatively impact the trading of our securities and have a material adverse impact on our ability to obtain capital.
+Added: In recent months, general financial conditions have deteriorated significantly, which has also significantly reduced our access to capital.
+Added: If sustained, this would have a material adverse effect on our business, financial condition and results of operations , including our ability to continue to make acquisitions of new properties and fund draws for future improvements at existing properties.
Our Notes due 2026, Exchangeable Senior Notes and any future indebtedness reduce our cash available for distribution and may expose us to the risk of default.
23 unchanged sentences
Our senior management team has broad discretion over our investments, and our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in periodic filings with the SEC.
−Removed: We rely on the senior management team’s ability to execute acquisitions
−Removed: and dispositions of cannabis facilities, subject to the oversight and approval of our board of directors.
+Added: We rely on the senior management team’s ability to execute acquisitions and dispositions of cannabis facilities, subject to the oversight and approval of our board of directors.
Our senior management team is authorized to pursue acquisitions and dispositions of real estate investments in accordance with very broad investment guidelines, subject to approval of our board of directors.
24 unchanged sentences
A Maryland corporation’s board of directors may provide that its approval is subject to compliance with any terms and conditions determined by it.
−Removed: These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by a Maryland corporation’s board of directors prior to the time that the interested stockholder becomes an interested stockholder.
+Added: These provisions of the MGCL do not apply, however, to business combinations that
+Added: are approved or exempted by a Maryland corporation’s board of directors prior to the time that the interested stockholder becomes an interested stockholder.
The “control share” provisions of the MGCL provide that, subject to certain exceptions, a holder of “control shares” of a Maryland corporation (defined as shares which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) has no voting rights with respect to such shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquirer of control shares, our officers and our personnel who are also our directors.
96 unchanged sentences
As of February 28, 2023, 28,002,799 shares of our common stock were issued and outstanding, and we had reserved an additional 724,297 shares of common stock for future issuance under our 2016 Omnibus Incentive Plan (the “2016 Plan”) and 103,625 shares potentially issuable upon exchange of our Exchangeable Senior Notes (based on the exchange rate as of February 28, 2023).
−Removed: In addition, as of February 23, 2022, we had approximately $231.7 million in shares of common stock available for future issuance under the ATM Program.
−Removed: The existence of operating partnership units, Exchangeable Senior Notes, shares of Series A Preferred Stock, shares of our common stock reserved for issuance under our 2016 Plan and shares available for future issuance under the ATM Program may adversely affect the terms upon which we may be able to obtain additional capital through the sale of equity securities.
+Added: In addition, as of February 28, 2023, we had $500.0 million in shares of common stock available for future issuance under the ATM Program.
+Added: The existence of operating partnership units, Exchangeable Senior
+Added: Notes, shares of Series A Preferred Stock, shares of our common stock reserved for issuance under our 2016 Plan and shares available for future issuance under the ATM Program may adversely affect the terms upon which we may be able to obtain additional capital through the sale of equity securities.
We cannot assure you of our ability to make distributions in the future.
16 unchanged sentences
To the extent we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our stock.
−Removed: Our failure to meet the
−Removed: market’s expectations with regard to future earnings and cash distributions likely would materially and adversely affect the market price of our common stock and Series A Preferred Stock.
+Added: Our failure to meet the market’s expectations with regard to future earnings and cash distributions likely would materially and adversely affect the market price of our common stock and Series A Preferred Stock.
Risks Related to Our Taxation as a REIT
3 unchanged sentences
We believe that we have been organized and operated in such a manner as to qualify for taxation as a REIT under the Code for such taxable year and all subsequent taxable years to date, and intend to continue to operate in such a manner in the future.
−Removed: We have not requested and do not intend to request a ruling from the Internal Revenue Service (the “Service”) that we qualify as a REIT, and the statements in this report are not binding on the Service or any court.
+Added: We have not requested and do not intend to request a ruling from
+Added: the Internal Revenue Service (the “Service”) that we qualify as a REIT, and the statements in this report are not binding on the Service or any court.
Qualification as a REIT involves the application of highly technical and complex Code provisions and regulations promulgated by the U.S.
19 unchanged sentences
In addition, we will be subject to U.S.
−Removed: federal income tax at regular corporate rates to the extent that we distribute less than 100% of our net taxable income (including net capital gain) and will be subject to a 4% nondeductible excise tax on the amount by
−Removed: which our distributions in any calendar year are less than a minimum amount specified under U.S.
+Added: federal income tax at regular corporate rates to the extent that we distribute less than 100% of our net taxable income (including net capital gain) and will be subject to a 4% nondeductible excise tax on the amount by which our distributions in any calendar year are less than a minimum amount specified under U.S.
federal income tax laws.
26 unchanged sentences
In addition, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our total assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans, certain kinds of mortgage-backed securities and certain securities issued by other REITs.
−Removed: The remainder of our investment in securities (other than government securities, securities of corporations that are treated as taxable REIT subsidiaries (“TRSs”), and qualified
−Removed: REIT real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer.
+Added: The remainder of our investment in securities (other than government securities, securities of corporations that are treated as taxable REIT subsidiaries (“TRSs”), and qualified REIT real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer.
In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, no more than 20% of the value of our total securities can be represented by securities of one or more TRSs, and the aggregate value of debt instruments issued by public REITs held by us that are not otherwise secured by real property may not exceed 25% of the value of our total assets.
1 unchanged sentence
To meet these tests, we may be required to take or forgo taking actions that we would otherwise consider advantageous.
−Removed: For instance, in order to satisfy the gross income or asset tests applicable to REITs under the Code, we may be required to forego investments that we otherwise would make.
+Added: For instance, in order to satisfy the gross income or asset tests applicable to REITs under the Code, we
+Added: may be required to forego investments that we otherwise would make.
Furthermore, we may be required to liquidate from our portfolio otherwise attractive investments.
20 unchanged sentences
federal income tax rate applicable to dividend income from regular corporate dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of our common stock.
−Removed: Non-corporate stockholders, including individuals, generally may deduct 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after
−Removed: December 31, 2017 and before January 1, 2026.
+Added: Non-corporate stockholders, including individuals, generally may deduct 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026.
If we fail to qualify as a REIT, such stockholders may not claim this deduction with respect to dividends paid by us.
4 unchanged sentences
As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS.
−Removed: This could increase the cost of our hedging activities because our TRSs would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear.
+Added: This could increase the cost of our
+Added: hedging activities because our TRSs would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear.
In addition, losses in a TRS generally will not provide any tax benefit, except for being carried forward against future taxable income of such TRS, provided, however, losses in a TRS arising in taxable years beginning after December 31, 2017 may only be deducted against 80% of future taxable income in the TRS.
17 unchanged sentences
Section 280E of the Code provides that, with respect to any taxpayer, no deduction or credit is allowed for expenses incurred during a taxable year “in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the CSA) which is prohibited by federal law or the law of any State in which such trade or business is conducted.” Because cannabis is a Schedule I controlled substance under the CSA, Section 280E of the Code by its terms applies to the purchase and sale of cannabis products.
−Removed: If the Service were to take the position that, through our rental agreements with our state-licensed cannabis tenants, we are primarily or vicariously liable under federal law for “trafficking” a Schedule 1 substance (cannabis) under Section 280E
−Removed: of the Code or for any other violations of the CSA, the Service may apply the provisions of Section 280E of the Code to our company and disallow certain tax deductions, including for employee salaries, depreciation or interest expense.
+Added: If the Service were to take the position that, through our rental agreements with our state-licensed cannabis tenants, we are primarily or vicariously liable under federal law for “trafficking” a Schedule 1 substance (cannabis) under Section 280E of the Code or for any other violations of the CSA, the Service may apply the provisions of Section 280E of the Code to our company and disallow certain tax deductions, including for employee salaries, depreciation or interest expense.
If such tax deductions are disallowed, we would be unable to meet the distribution requirements applicable to REITs under the Code, which could cause us to incur U.S.
1 unchanged sentence
In addition, tax legislation originally introduced as the Tax Cuts and Jobs Act and signed into law in December 2017 (the “TCJA”) makes numerous changes to the tax rules that do not affect the REIT qualification rules directly, but may otherwise affect us or our stockholders.
−Removed: Among the changes made by the TCJA are permanently reducing the generally applicable corporate tax rate, generally reducing the tax rate applicable to individuals and other non-corporate taxpayers for tax years beginning after December 31, 2017 and before January 1, 2026, eliminating or modifying certain previously allowed deductions (including substantially limiting interest deductibility and, for individuals, the deduction for non-business state and local taxes), and, for taxable years beginning after December 31, 2017 and before January 1, 2026, providing for preferential rates of taxation through a deduction of up to 20% (subject to certain limitations) on most ordinary REIT dividends and certain trade or business income of non-corporate taxpayers.
+Added: Among the changes made by the TCJA are permanently reducing the generally applicable corporate tax rate, generally reducing the tax rate applicable to individuals and other non-corporate taxpayers for tax years beginning after December 31, 2017 and before January 1, 2026, eliminating or modifying certain previously allowed deductions (including substantially limiting interest deductibility and, for individuals, the deduction for non-business state and local taxes), and, for taxable years beginning after December 31, 2017 and before January 1, 2026, providing for preferential rates of taxation through a deduction of up to 20% (subject to certain limitations) on
+Added: most ordinary REIT dividends and certain trade or business income of non-corporate taxpayers.
The TCJA also imposes new limitations on the deduction of net operating losses, which may result in us having to make additional taxable distributions to our stockholders in order to comply with REIT distribution requirements or avoid taxes on retained income and gains.
19 unchanged sentences
As a result, if a claim were asserted against us based on ownership of any of these properties, we may have to pay substantial amounts to defend or settle the claim.
−Removed: magnitude of such unknown liabilities is high, individually or in the aggregate, our business, financial condition, liquidity and results of operations would be materially and adversely affected.
+Added: If the magnitude of such unknown liabilities is high, individually or in the aggregate, our business, financial condition, liquidity and results of operations would be materially and adversely affected.
UNRESOLVED STAFF COMMENTS
1 unchanged sentence
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.