Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
Investing in our common stock involves a high
degree of risk. You should not invest in our stock unless you are able to bear the complete loss of your investment. You should carefully
consider the risks described below, as well as other information provided to you in this annual report on Form 10-K, including information
in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Cautionary Note Regarding
Forward-Looking Information and Factors That May Affect Future Results” before making an investment decision. The risks and uncertainties
described below are not the only ones facing Zoned Properties. Additional risks and uncertainties not presently known to us or that we
currently believe are immaterial may also impair our business operations. If any of the following risks actually occur, our business,
financial condition or results of operations could be materially adversely affected, the value of our common stock could decline, and
you may lose all or part of your investment.
Risks Related to Our Business and Our Industry
There is substantial doubt as to our ability
to continue as a going concern.
Our consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the
normal course of business. As reflected in elsewhere and in our consolidated financial statements, we had a net loss of $2,854,415 and
had cash provided by operations of $781,476 during the year ended December 31, 2025. Additionally, as of December 31, 2025, we had cash
of $837,767 and stockholders’ equity of $3,067,626. Furthermore, on December 31, 2025 and effective January 1, 2026, we entered
into Amended and Restated Absolute Net Lease Agreements with certain tenants (See elsewhere in this Form10-K and Note 14 – Subsequent
Events). The Amended and Restated Absolute Net Lease Agreements include, among other provisions, (i) a right of first refusal with a right
of first refusal period of up to 60 days and (ii) a short-term exclusive option that permits the tenant to purchase, on an all-or-none
basis, three leased properties (Chino Valley, Green Valley and Kingman). The Purchase Option originally stated that the Purchase Option
may be exercised during an option period ending March 30, 2026; however, the parties have subsequently agreed that optionee will have
until April 10, 2026 to exercise the Purchase Option, and if exercised, requires a closing no later than June 30, 2026. Additionally,
on January 15, 2026, the Company and its subsidiaries entered into an Asset Purchase Agreement to sell substantially all of its properties
to a company owned by management (See elsewhere in this Form 10-K and Note 14 – Subsequent Events on our consolidated financial
statements and MBO risk factor below). The closing of the Asset Purchase Agreement is contingent upon the Buyer obtaining financing. If
the Company sells some or all of its properties, it will have minimal or no operations. These factors raise substantial doubt about our
ability to continue as a going concern for a period of twelve months from the issuance date of this Annual Report. There can be no assurance
that we will sell our properties. If we sell our properties, our cash flow provided by operating activities would decrease substantially
and we may need to raise capital through debt and/or equity financings to fund any ongoing operations, we may need to curtail our operations,
or we may decide to liquidate the Company. Our consolidated financial statements do not include any adjustments related to the recoverability
and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to
continue as a going concern.
Because we have limited operating history
in the real estate industry, we may not succeed.
We have limited operating history or experience
in procuring, building out or leasing real estate for agricultural purposes, specifically legalized marijuana grow facilities, or with
respect to any other activity in the cannabis industry. Moreover, we are subject to all risks inherent in developing a new business enterprise.
Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered
in connection with establishing a new business and the competitive and regulatory environment in which we operate. For example, the regulated
cannabis industry is new and may not succeed, particularly should the federal government change course and decide to prosecute those
dealing in medical marijuana. If that happens there may not be an adequate market for our properties or other activities we propose to
engage in.
You should further consider, among other factors,
our prospects for success in light of the risks and uncertainties encountered by companies that, like us, are in their early stages.
For example, unanticipated expenses, delays and or complications with build outs, zoning issues, legal disputes with neighbors, local
governments, communities and or tenants. We may not successfully address these risks and uncertainties or successfully implement our
operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations and could
impair the value of our common stock to the point investors may lose their entire investment.
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Although we generate positive cash flows
from operations, we may need to raise additional capital to fund our expansion.
We may need to raise additional funds through
public or private debt or equity financings, as well as obtain credit from vendors to be able to fully execute our business plan. If
we cannot raise additional capital, we may be otherwise unable to achieve our goals or continue our property development. While we believe
that we will be able to raise the capital we need to continue our operations, there can be no assurances that we will be successful in
these efforts or will be able to resolve any liquidity issues or eliminate our operating losses. In addition, any additional capital
raised through the sale of equity may dilute your ownership interest. We may not be able to raise additional funds on favorable terms,
or at all. If we are unable to obtain additional funds or credit from our vendors, we may be unable to execute our business plan and
you could lose your investment.
Because we may be unable to identify and/or
successfully acquire properties which are suitable for our business, our financial condition may be negatively affected.
Our business plan involves the identification
and the successful acquisition of properties, which are zoned for legalized cannabis businesses, including cultivation and retail. The
properties we acquire will be leased to regulated cannabis operators. Local governments must approve and adopt zoning ordinances for
medical cannabis facilities and retail dispensaries. A lack of properly zoned real estate may reduce our prospects and limit our opportunity
for growth and or increase the cost at which suitable properties are available to us. Conversely a surplus of real estate zoned for medical
cannabis establishments may reduce demand and prices we are able to charge for properties we may have previously acquired.
In addition, some jurisdictions, such as Arizona,
impose limits on the number of medical cannabis dispensaries that will be permitted to operate within designated geographic areas. Such
limitations inherently place constraints on the number of properties we acquire for lease to operators in the cannabis industry.
If we fail to diversify our property investment
portfolio or advisory and real estate services offered, downturns relating to certain industries or business sectors or the financial
stability of our significant tenants may have a significant adverse impact on our assets and our ability to pay our operating expenses
or pay dividends than if we had a diversified property portfolio and service offerings.
While we intend to diversify our portfolio of
properties, we are not required to observe specific diversification criteria. Therefore, our total assets are concentrated into a limited
number of tenants who were considered significant tenants. To the extent that our total assets are concentrated in a limited number of
tenants that are in the regulated cannabis industry, downturns relating generally to such industry or business sector, or a decline in
the financial stability of our Significant Tenants may result in defaults on all of our leases within a short time period, which may reduce
our net income and the value of our common stock and accordingly, limit our ability to pay or operating expenses or pay dividends to our
stockholders. As of December 31, 2025 and 2024, we had an asset concentration related to our Significant Tenant leases at our Tempe, Chino
Valley and Green Valley, Arizona properties and our property located in Pleasant Ridge, Michigan. As of December 31, 2025 and 2024, the
Significant Tenants collectively leased approximately 47.2% and 55.4% of the Company’s total assets, respectively. Additionally,
the Company had an asset concentration related its Surprise, AZ property, which leased approximately 19.4% of the Company’s total
assets as of December 31, 2025. If our tenants are prohibited from operating or cannot pay their rent, we may not have enough working
capital to support our operations and we would have to seek out new tenants at rental rates per square foot that may be less than our
current rate per square foot.
Any adverse economic or real estate developments
in the medical cannabis industry could adversely affect our operating results and our ability to collect rent from out tenants, pay our
operating expenses or pay dividends to our stockholders.
Our properties may be subject to impairment charges.
We routinely evaluate our real estate assets for
impairment indicators. The judgment regarding the existence of impairment indicators is based on factors such as market conditions, tenant
performance and lease structure. For example, the early termination of, or default under, a lease by a tenant may lead to an impairment
charge. The financial failure of, or other default by, a single tenant under its lease may result in a significant impairment loss. If
we determine that an impairment has occurred, we would be required to make a downward adjustment to the net carrying value of the property,
which could have a material adverse effect on our results of operations in the period in which the impairment charge is recorded. We recorded
an impairment charge related to our Woodward Property in the year ended December 31, 2025, and may record future impairments based on
actual results and changes in circumstances. Negative developments in the real estate market may cause management to reevaluate assumptions
used in its impairment analysis. Changes in management’s assumptions based on actual results may have a material impact on our financial
statements. See also “—We may be unable to sell the Woodward Property for its carrying value, or at all” below, Note
2—Summary of Significant Accounting Policies—Rental Properties, and Note 14—Subsequent Events to our consolidated financial
statements in this Annual Report on Form 10-K for additional information.
We may be unable to sell the Woodward Property
for its carrying value, or at all.
During the third quarter of 2025, New Tenant,
our current tenant in the Woodward Property, faced operational challenges that impaired its ability to meet contractual rent obligations.
Beginning in July 2025, New Tenant remitted approximately 50% of the rent then due. In August 2025, the Company sent a demand notice
to New Tenant to remit full payment of outstanding rent. In September 2025, New Tenant remitted full payment of all outstanding rent
that was previously due and has received all rent payments due through December 31, 2025. Subsequent to year-end 2025, the Company sent
New Tenant at the Woodward Property a written notice default related to the New Tenant’s failure to (i) make timely rental payments
and (ii) fulfill its obligations related to non-monetary terms under the Woodward Lease. As of the date of this filing, the Company remains
in discussions with New Tenant about curing these events of default and regarding future operations at the Woodward Property.
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In an effort to avoid litigation related to the
defaults under the lease, the Company is currently in negotiations to sell the Woodward Property to the New Tenant for approximately $600,000
in cash plus the assumption of the notes payable outstanding on the Woodward Property. If the Company sells the Woodward Property for
$600,000, the net carrying value of the Woodward Property of approximately $2,700,000 would exceed the $600,000 sale price by $2,100,000.
While the Company believes the sale is likely
to occur, there is a possibility that the sale will fail to occur, in which case there is a strong likelihood that the New Tenant will
be unable to continue paying rent, causing an ongoing default under the lease. Based on these conditions, our projected future cash flows,
anticipated holding periods, and market conditions have changed. Accordingly, during the year ended December 31, 2025, we recorded an
impairment loss of $2,100,000.
Because our business is dependent upon
continued market acceptance by our tenants’ consumers, any negative trends will adversely affect our business operations.
Out tenants are substantially dependent on continued
market acceptance and proliferation of consumers of regulated cannabis. We believe that as cannabis becomes more accepted, the stigma
associated with cannabis use will diminish and as a result, consumer demand will continue to grow. And while we believe that the market
and opportunity in the cannabis space continues to grow, we cannot predict the future growth rate and size of the market. Any negative
outlook on the cannabis industry will adversely affect our tenants’ business operations and their ability to pay rent to us.
In addition, it is believed by many that large
well-funded businesses may have a strong economic opposition to the cannabis industry. We believe that the pharmaceutical industry clearly
does not want to cede control of any product that could generate significant revenue. For example, medical cannabis will likely adversely
impact the existing market for the current “marijuana pill” sold by the mainstream pharmaceutical industry, should cannabis
displace other drugs or encroach upon the pharmaceutical industry’s products. The pharmaceutical industry is well funded with a
strong and experienced lobby that eclipses the funding of the medical cannabis movement. Any inroads the pharmaceutical could make in
halting the impending cannabis industry could have a detrimental impact on our proposed business.
Because we buy and lease property, we will
be subject to general real estate risks.
We will be subject to risks generally incident
to the ownership of real estate, including: (a) changes in general economic or local conditions; (b) changes in supply of, or demand
for, similar or competing properties in the area; (c) bankruptcies, financial difficulties or defaults by tenants or other parties; (d)
increases in operating costs, such as taxes and insurance; (e) the inability to achieve full stabilized occupancy at rental rates adequate
to produce targeted returns; (f) periods of high interest rates and tight money supply; (g) excess supply of rental properties in the
market area; (h) liability for uninsured losses resulting from natural disasters or other perils; (i) liability for environmental hazards;
and (j) changes in tax, real estate, environmental, zoning or other laws or regulations. For these and other reasons, no assurance can
be given that we will be profitable.
Our growth depends on external sources
of capital, which may not be available on favorable terms or at all. In addition, banks and other financial institutions may be reluctant
to enter into lending transactions with us, including secured lending, because our properties are used in the cannabis industry. If this
source of funding is unavailable to us, our growth may be limited and our business may be materially adversely affected.
Our ability to acquire, operate and sell properties,
engage in the business activities that we have planned and achieve positive financial performance depends, in large measure, on our ability
to obtain financing in amounts and on terms that are favorable. The capital markets in the United States in general, and in the cannabis
sector in particular, have undergone a turbulent period in which lending was severely restricted. Although there appear to be signs that
financial institutions are resuming lending, the market has not yet returned to its pre-2008 state. The cannabis sector has experienced
significant volatility and such volatility is expected to continue in 2026. Obtaining favorable financing in the current environment
remains challenging.
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In order to grow our business, we may seek financing
through newly issued equity or debt. 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 medical-use 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.
Our access to capital will depend upon a number
of factors over which we have little or no control, including general market conditions and the market’s perception of our current
and potential future earnings. If general economic instability or downturn, or volatility within the cannabis sector, leads to an inability
to borrow at attractive rates or at all, our ability to obtain capital could be negatively impacted. In addition, banks and other financial
institutions may be reluctant to enter into lending transactions with us, particularly secured lending, because our properties are used
in the cultivation, production or dispensing of medical-use cannabis. If this source of funding is unavailable to us, our growth may
be limited and our business may be materially adversely affected.
If we are unable to obtain capital on terms and
conditions that we find acceptable, we likely will have to curtail operations and reduce the number of properties we purchase in the
future. In addition, our ability to refinance all or any debt we may incur in the future, on acceptable terms or at all, is subject to
all of the above factors, and will also be affected by our future financial position, results of operations and cash flows, which additional
factors are also subject to significant uncertainties, and therefore we may be unable to refinance any debt we may incur in the future,
as it matures, on acceptable terms or at all. All of these events would have a material adverse effect on our business, financial condition,
liquidity and results of operations.
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.
Because we will compete with others for
suitable properties, competition will result in higher costs that could materially affect our financial condition.
We will experience competition for real estate
investments from individuals, corporations and other entities engaged in real estate investment activities, many of whom have greater
financial resources than us. Competition for investments may have the effect of increasing costs and reducing returns to our investors.
Because we are liable for hazardous substances
on our properties, environmental liabilities are possible and can be costly.
Federal, state and local laws impose liability
on a landowner for releases or the otherwise improper presence on the premises of hazardous substances. This liability is without regard
to fault for, or knowledge of, the presence of such substances. A landowner may be held liable for hazardous materials brought onto a
property before it acquired title and for hazardous materials that are not discovered until after it sells the property. Similar liability
may occur under applicable state law. Sellers of properties may make only limited representations as to the absence of hazardous substances.
If any hazardous materials are found within our properties in violation of law at any time, we may be liable for all cleanup costs, fines,
penalties and other costs. This potential liability will continue after we sell the properties and may apply to hazardous materials present
within the properties before we acquire the properties. If losses arise from hazardous substance contamination, which cannot be recovered
from a responsible party, the financial viability of the properties may be adversely affected. It is possible that we will purchase properties
with known or unknown environmental problems, which may require material expenditures for remediation.
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Because we may not be adequately insured,
we could experience significant liability for uninsured events.
While our tenants currently carry comprehensive
insurance on our properties, including fire, liability and extended coverage insurance, there are certain risks that may be uninsurable
or not insurable on terms that management believes to be economical. For example, management may not obtain insurance against floods,
terrorism, mold-related claims, or earthquake insurance. If such an event occurs to, or causes the damage or destruction of, a property,
we could suffer financial losses.
If we are found non-compliance with the
Americans with Disabilities Act, we will be subject to significant liabilities.
If any of our properties are not in compliance
with the Americans with Disabilities Act of 1990, as amended (the “ADA”), we may be required to pay for any required improvements.
Under the ADA, public accommodations must meet certain federal requirements related to access and use by disabled persons. The ADA requirements
could require significant expenditures and could result in the imposition of fines or an award of damages to private litigants. We cannot
assure that ADA violations do not or will not exist at any of our properties.
Our inability to effectively manage our
growth could harm our business and materially and adversely affect our operating results and financial condition .
Our strategy envisions growing our business.
Any growth in or expansion of our business is likely to continue to place a strain on our management and administrative resources, infrastructure
and systems. As with other growing businesses, we expect that we will need to further refine and expand our business development capabilities,
our systems and processes and our access to financing sources. We also will need to hire, train, supervise and manage new employees.
These processes are time consuming and expensive, will increase management responsibilities and will divert management attention. We
cannot assure you that we will be able to:
●
expand our business effectively
or efficiently or in a timely manner;
●
allocate our human resources
optimally;
●
meet our capital needs;
●
identify and hire qualified
employees or retain valued employees; or
●
effectively incorporate
the components of any business or product line that we may acquire in our effort to achieve growth.
Our inability or failure to manage our growth
and expansion effectively could harm our business, and materially and adversely affect our operating results and financial condition.
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Unfavorable global economic, business or
political conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely
affected by general conditions in the global economy and in the global financial markets, including conditions that are outside of our
control, including the impact of health and safety concerns, such as those relating to the current COVID-19 outbreak and conflicts in
Ukraine and the Middle East. The most recent global financial crisis caused extreme volatility and disruptions in the capital and credit
markets. A severe or prolonged economic downturn could result in a variety of risks to our business, including weakened demand for our
properties and our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could
strain our tenants, possibly resulting in delays in tenant payments. Any of the foregoing could harm our business and we cannot anticipate
all the ways in which the current economic climate and financial market conditions could adversely impact our business.
We hold our cash and cash equivalents that
we use to meet our working capital and operating expense needs in deposit accounts that could be adversely affected if the financial
institution holding such funds fail.
We hold our cash and cash equivalents that we
use to meet our working capital and operating expense needs in deposit accounts at one financial institution. The balance held in these
accounts exceeds the Federal Deposit Insurance Corporation, or FDIC, standard deposit insurance limit of $250,000. If the financial institution
in which we hold such funds fails or is subject to significant adverse conditions in the financial or credit markets, we could be subject
to a risk of loss of all or a portion of such uninsured funds or be subject to a delay in accessing all or a portion of such uninsured
funds. Any such loss or lack of access to these funds could adversely impact our short-term liquidity and ability to meet our operating
expense obligations, including payroll obligations.
We will be required to attract and retain
top quality talent to compete in the marketplace.
We believe our future growth and success will
depend in part on our ability to attract and retain highly skilled managerial, sales and marketing, and finance personnel. There can
be no assurance of success in attracting and retaining such personnel. Shortages in qualified personnel could limit our ability to compete
in the marketplace.
We are dependent on Bryan McLaren, our
Chief Executive Officer, Chief Financial Officer and Chairman of the Board, and the loss of this officer could harm our business and
prevent us from implementing our business plan in a timely manner.
In view of his direct relationships with industry
partners that directly contribute to our business development strategy, our success depends substantially upon the continued services
of Mr. McLaren. We previously purchased a one-year key person life insurance policy on Mr. McLaren with a base coverage amount of $8,000,000
renewable annually at a 10-year fixed guaranteed premium. The policy was renewed in January 2026. The loss of Mr. McLaren’s services
could have a material adverse effect on our business and operations.
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Risks Related to the Proposed MBO
The MBO transaction is a “related party
transaction,” which may lead to actual or perceived conflicts of interest.
The Buyer, BPB Partners, LLC, is owned by our
Chairman and CEO, our President and COO, and another member of the Company’s management. Because our executive leadership is on
both sides of the transaction, there is an inherent risk of conflicts of interest regarding the negotiation of the purchase price and
terms.
Although a Special Transactions Committee of independent
directors overseen the process, dissatisfied stockholders may still challenge the fairness of the transaction. Legal challenges or proxy
contests related to these conflicts could delay the closing, result in significant legal costs, or prevent the MBO from being consummated.
The transaction is subject to a “majority
of the minority” stockholder approval, which may be difficult to obtain.
A condition to closing the MBO is the approval
by a majority of the voting power held by “uninterested” stockholders (excluding shares held by the Buyer’s principals).
If our non-management stockholders do not perceive the purchase price or the transaction terms as favorable, they may vote against the
proposal. Failure to obtain stockholder approval would prevent the closing of the MBO, even if a simple majority of total voting power
is achieved.
The final Purchase Price is subject to significant
adjustments based on interim real estate transactions, which creates uncertainty.
The $7.0 million base Purchase Price is not fixed
and will fluctuate based on several factors before closing:
● Additional Assets: If we acquire new real estate before closing, the price increases by the cash paid
but decreases by any debt issued.
● Asset Sales (Pleasant Ridge & CKG Properties): The price will shift depending on whether these properties
are sold to third parties or retained and transferred to the Buyer.
These variables make it difficult for stockholders
to value the total consideration of the deal at the time of voting and may impact our final liquidity position.
The Buyer must raise sufficient capital
to fund the Purchase Price, and there is no guarantee they will be able to do so.
The MBO APA includes a closing condition that
the Buyer must raise the capital required, in its sole discretion, to fund the Purchase Price. The Buyer does not currently have a committed
financing arrangement disclosed in the APA. If capital markets tighten or if the Buyer’s creditworthiness is questioned, the Buyer
may be unable to secure funding, leading to a termination of the agreement.
The Company retains the right to terminate
the MBO APA if it receives a proposal on terms more favorable to stockholders than the MBO.
While this is intended to maximize stockholder
value, it creates uncertainty regarding the finality of the deal. If a superior proposal is pursued, we may owe the Buyer termination
fees (if applicable) or suffer from prolonged operational distraction and potential loss of our current executive leadership.
The Buyer has a broad right to terminate
the MBO APA based on due diligence.
Pursuant to the MBO APA, the Buyer has a 180-day
due diligence period (expiring July 14, 2026) during which the Buyer can terminate the MBO APA for any reason in its sole discretion.
If the Buyer terminates during this period, our stock price may decline significantly as the market reacts to the failed MBO.
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Failure to complete the MBO could negatively
impact our business and financial results.
If the MBO is not completed for any reason, we
will have incurred substantial costs without realizing the benefits. In addition, we may face a management void or decreased morale if
our top executives, who own the Buyer, remain in their roles after a failed transaction. Our ability to pursue alternative strategic transactions
may be limited by the time and resources already expended on the MBO.
If the MBO closes, following the closing,
we will be a “shell company” with no remaining operations, which may limit the liquidity of our common stock.
If and when the MBO closes, we will have sold
substantially all of our operating assets and intellectual property to the Buyer. We would then be classified as a “shell company”
under SEC rules, which carries significant regulatory burdens. We will no longer have an active business to generate revenue, and our
sole remaining assets will likely be the cash proceeds (net of transaction costs and liabilities) and potentially the CKG Note. Additionally,
the availability of Rule 144 for resales of our securities by stockholders will be significantly limited.
Our Board may elect to liquidate and dissolve
the Company, and the timing and amount of any distributions are uncertain.
If the Board determines that it is in the best
interest of stockholders to liquidate the Company following the MBO, if consummated, rather than pursuing a reverse takeover (“RTO”):
● We
must satisfy all remaining corporate liabilities, including potential tax obligations and
“tail” insurance, before any cash is distributed to stockholders.
● The
liquidation process can be lengthy. Stockholders may not receive a distribution for several
months or even years following the Closing.
● There
is no guarantee that the net proceeds available for distribution will equal or exceed the
current trading price of our common stock.
We may seek a RTO or a new business activity,
which involves significant risks and uncertainty. The Board may choose to use the remaining public shell to acquire a new, unrelated business
through an RTO.
Any such transaction would likely involve the
issuance of a significant number of new shares, which would substantially dilute the ownership of our existing stockholders. We may be
unable to identify a suitable target, or we may acquire a business with undisclosed liabilities or a failing business model. An RTO typically
results in a change of control where our current stockholders would no longer hold a majority interest in the combined entity.
Stockholders may be required to approve
a change in our primary business purpose or a formal plan of liquidation.
Under Nevada law and our governing documents,
the sale of all or substantially all of our assets requires a stockholder vote. If the MBO is approved but a subsequent liquidation or
RTO is not, we may continue to incur the high costs of being a public company without any operational revenue to offset those costs. This
could rapidly deplete the $7.0 million (as adjusted) Purchase Price, leaving little to no value for stockholders.
The loss of our executive leadership team
upon closing of the proposed MBO will leave the Company without experienced management.
Since the Buyer is comprised of our CEO, COO,
and other key personnel, these individuals will likely focus their efforts on the newly acquired private business (BPB Partners, LLC)
after the closing. The remaining public shell will be left without its primary leadership team to manage the transition, liquidation,
or search for an RTO target. Hiring a new management team to oversee a shell company would incur significant additional administrative
expenses.
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Risks Related to Government Regulation
Marijuana remains illegal under federal
law, and the ongoing transition to Schedule III, along with the new restrictions on hemp-derived products, creates significant regulatory
uncertainty that could disrupt our business plan.
While cannabis is in the final stages of reclassification
from Schedule I to Schedule III under the CSA following a December 2025 executive order, it remains a controlled substance. The possession,
distribution, cultivation, and use of cannabis continue to be violations of federal law. Even if reclassified to Schedule III, cannabis
will remain subject to strict FDA oversight and the CSA’s registration requirements. Any failure by our tenants to comply with these
evolving federal standards, or a decision by the federal government to strictly enforce remaining prohibitions, would materially and adversely
affect our ability to execute our business plan.
The shift in federal enforcement priorities
and the absence of a formal Cole Memo reinstatement create unpredictability.
In January 2018, the DOJ rescinded the Cole Memo,
and as of March 2026, Attorney General Pamela Bondi has not formally reinstated it. While the current administration has signaled a focus
on “states’ rights” and the illicit market, federal prosecutors maintain broad discretion to prosecute state-legal cannabis
activities. Although Attorney General Bondi has historically overseen a well-regulated medical market in Florida, her national enforcement
priorities remain subject to change. Any shift toward a more aggressive enforcement posture against state-licensed operators would jeopardize
our real estate investments and could subject the Company to criminal prosecution, fines, or asset forfeiture.
New federal “Total THC” limits
on hemp products may force tenants into more restrictive regulatory regimes or out of business.
The Continuing Appropriations and Extensions Act
of 2026, effective November 12, 2026, imposes a strict cap of 0.4 mg of “total THC” per container for finished hemp products.
This change effectively reclassifies many previously legal hemp-derived products (such as Delta-8 and THCA flower) as “marijuana”
under the CSA. Tenants currently operating in the hemp space may be forced to obtain more costly cannabis licenses or cease operations
entirely. Failure of our tenants to adapt to these new “total THC” restrictions by the late-2026 deadline could result in lease
defaults and a loss of rental income for the Company.
The Rohrabacher-Farr Amendment provides
limited protection and must be renewed annually.
The Rohrabacher-Farr Amendment, which prohibits
the DOJ from using federal funds to interfere with state-legal medical marijuana programs, has been renewed through the 2026 appropriations
cycle. However, this protection is temporary and notably does not extend to adult-use (recreational) programs. If Congress fails to renew
this amendment, or if our tenants transition to adult-use operations not covered by the rider, the risk of federal prosecution increases
significantly.
Owners of properties located in close proximity
to our properties may assert claims against us regarding the use of the property as a marijuana dispensary or marijuana cultivation and
processing facility, which if successful, could materially and adversely affect our business.
Owners of properties located in close proximity
to our properties may assert claims against us regarding the use of our properties as cannabis dispensaries or for cannabis cultivation
and processing, including assertions that the use of the property constitutes a nuisance that diminishes the market value of such owner’s
nearby property. Such property owners may also attempt to assert such a claim in federal court as a civil matter under the Racketeer
Influenced and Corrupt Organizations Act. If a property owner were to assert such a claim against us, we may be required to devote significant
resources and costs to defending ourselves against such a claim, and if a property owner were to be successful on such a claim, our tenants
may be unable to continue to operate their business in its current form at the property, which could materially adversely impact the
tenant’s business and the value of our property, our business and financial results and the trading price of our securities.
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We and our tenants may have difficulty
accessing the services of banks, which may make it difficult to contract for real estate needs.
Financial transactions involving proceeds generated
by marijuana-related conduct can form the basis for prosecution under the federal money laundering statutes, unlicensed money transmitter
statute and the Bank Secrecy Act. Previous guidance issued by the Financial Crimes Enforcement Network, a division of the U.S. Department
of the Treasury (“FinCEN”), clarifies how financial institutions can provide services to marijuana-related businesses consistent
with their obligations under the Bank Secrecy Act. Prior to the DOJ’s announcement in 2018 of the rescission of the Cole Memo and
related memoranda, supplemental guidance from the DOJ directed federal prosecutors to consider the federal enforcement priorities enumerated
in the Cole Memo when determining whether to charge institutions or individuals with any of the financial crimes described above based
upon marijuana-related activity.
Consequently, those businesses involved in the
marijuana industry continue to encounter difficulty establishing banking relationships, which may increase over time. Our inability to
maintain our current bank accounts would make it difficult for us to operate our business, increase our operating costs, and pose additional
operational, logistical and security challenges and could result in our inability to implement our business plan.
The inability of our current and potential tenants
to open accounts and continue using the services of banks will limit their ability to enter into triple-net lease arrangements with us
or may result in their default under our lease agreements, either of which could materially harm our business and the trading price of
our securities.
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 the value of our common stock.
Our success is dependent on the financial stability
of our 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.
We may not learn all of the material information we need to know regarding these businesses through our investigations, and these businesses
are subject to numerous risks and uncertainties, including but not limited to regulatory risks and the rapidly evolving market dynamics
of each state’s regulated cannabis program. As a result, it is possible that we could lease properties to tenants that ultimately
are unable to pay rent to us, which could adversely impact our business.
In addition, in general, our tenants are more
vulnerable to adverse conditions resulting from federal and state regulations affecting their businesses or industries or other changes
in the marketplace for their products, and have limited access to traditional forms of financing. For example, during the COVID-19 pandemic,
our tenants were generally not able to access federal assistance programs that were available to companies in other industries, due to
cannabis being a Schedule I controlled substance under the CSA. 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.
Some of our tenants may be subject to significant
debt obligations and may rely on debt financing to make rent payments to us. Tenants that are subject to significant debt obligations
may be unable to make their rent payments if there are adverse changes in their business plans or prospects, the regulatory environment
in which they operate or in general economic conditions. In addition, the payment of rent and debt service may reduce the working capital
available to tenants for the start-up phase of their business. Furthermore, we may be unable to monitor and evaluate tenant credit quality
on an on-going basis.
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Any lease payment defaults by a tenant could
adversely affect our cash flows. 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.
Continuing unfavorable market dynamics
affecting the regulated cannabis industry could adversely affect our business, liquidity and financial condition, and overall results
of operations.
Market dynamics in the regulated cannabis industry
have negatively impacted our tenants’ ability to make their lease payments on the properties they lease from us. Regulated cannabis
operators have experienced, among other things:
●
federal, state and local
taxation and regulatory burdens;
●
declines in unit pricing
for regulated cannabis products;
●
ineffective state and local
law enforcement efforts to curtail the illicit production and sale of cannabis; and
●
limited access to capital
on acceptable terms or at all.
As a result of these unfavorable market dynamics,
certain regulated cannabis operators, including some of our tenants, have consolidated operations or shuttered certain operations to
reduce costs, which may lead to increased default rates on the leases for our properties.
Failure by any of our tenants to comply with
the terms of its lease agreement with us could require us to seek another lessee for the applicable property. 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. In addition, we may experience delays in enforcing our rights as landlord and may incur
substantial costs in protecting our investment and re-leasing properties on which any of our tenants default on their lease obligations.
The result of any of the foregoing risks could materially and adversely affect our business, liquidity, financial condition and results
of operations.
Laws and regulations affecting the regulated
cannabis and marijuana industry are constantly changing, which could materially adversely affect our operations, and we cannot predict
the impact that future regulations may have on us.
Local, state and federal marijuana laws and regulations
are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance
or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and
result in a material adverse effect on its operations. In addition, it is possible that regulations may be enacted in the future that
will be directly applicable to our proposed business. We cannot predict the nature of any future laws, regulations, interpretations or
applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and
if promulgated, could have on our business.
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FDA regulation of marijuana and the possible
registration of facilities where medical marijuana is grown could negatively affect the marijuana industry, which would directly affect
our financial condition.
Should the federal government legalize marijuana
for medical use, it is possible that the FDA would seek to regulate it under the Food, Drug and Cosmetics Act of 1938. Additionally,
the FDA may issue rules and regulations including cGMPs (certified good manufacturing practices) related to the growth, cultivation,
harvesting and processing of medical marijuana. Clinical trials may be needed to verify efficacy and safety. It is also possible that
the FDA would require that facilities where medical marijuana is grown be registered with the FDA and comply with certain federally prescribed
regulations. In the event that some or all of these regulations are imposed, we do not know what the impact would be on the medical marijuana
industry, what costs, requirements and possible prohibitions may be enforced. If we or our tenants are unable to comply with the regulations
and or registration as prescribed by the FDA, we and or our tenants may be unable to continue to operate their and our business in its
current form or at all.
Risks Related to Our Common Stock
Our common stock is quoted on the OTCQB,
which may limit the liquidity and price of our common stock more than if our common stock were listed on The NASDAQ Stock Market or another
national exchange.
Our securities are currently quoted on the OTCQB,
an inter-dealer automated quotation system for equity securities. Quotation of our securities on the OTCQB may limit the liquidity and
price of our securities more than if our securities were listed on The NASDAQ Stock Market (“NASDAQ”) or another national
exchange. As an OTCQB company, we do not attract the extensive analyst coverage that accompanies companies listed on national securities
exchanges. Further, institutional and other investors may have investment guidelines that restrict or prohibit investing in securities
traded on the OTCQB. These factors may have an adverse impact on the trading and price of our common stock.
The trading price of our common stock may
decrease due to factors beyond our control.
The stock market from time to time has experienced
extreme price and volume fluctuations, which have particularly affected the market prices for smaller reporting companies and which often
have been unrelated to the operating performance of the companies. These broad market fluctuations may adversely affect the market price
of our common stock. If our shareholders sell substantial amounts of their common stock in the public market, the price of our common
stock could fall. These sales also might make it more difficult for us to sell equity, or equity-related securities, in the future at
a price we deem appropriate.
The market price of our common stock may also
fluctuate significantly in response to the following factors, most of which are beyond our control:
●
variations in our quarterly
operating results,
●
changes in general economic
conditions and in the real estate industry,
●
changes in market valuations
of similar companies,
●
announcements by us or
our competitors of significant new contracts, acquisitions, strategic partnerships or joint ventures, or capital commitments,
●
loss of a major customer,
partner or joint venture participant and
●
the addition or loss of
key managerial and collaborative personnel.
Any such fluctuations may adversely affect the
market price of our common stock, regardless of our actual operating performance. As a result, stockholders may be unable to sell their
shares, or may be forced to sell them at a loss.
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The market price for our common shares
is particularly volatile given our status as a relatively unknown company with a small and thinly traded public float, limited operating
history and lack of profits which could lead to wide fluctuations in our share price. You may be unable to sell your common shares at
or above your purchase price, which may result in substantial losses to you.
The market for our common shares is characterized
by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile
than a seasoned issuer for the indefinite future. The volatility in our share price is attributable to a number of factors. First, as
noted above, our common shares are sporadically and thinly traded. As a consequence of this lack of liquidity, the trading of relatively
small quantities of shares by our shareholders may disproportionately influence the price of those shares in either direction. The price
for our shares could, for example, decline precipitously in the event that a large number of our common shares are sold on the market
without commensurate demand, as compared to a seasoned issuer which could better absorb those sales without adverse impact on its share
price. Secondly, we are a speculative or “risky” investment due to our limited operating history and lack of profits to date.
As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of their investment in
the event of negative news or lack of progress, be more inclined to sell their shares on the market more quickly and at greater discounts
than would be the case with the stock of a seasoned issuer. Many of these factors are beyond our control and may decrease the market
price of our common shares, regardless of our operating performance. We cannot make any predictions or projections as to what the prevailing
market price for our common shares will be at any time, including as to whether our common shares will sustain their current market prices,
or as to what effect that the sale of shares or the availability of common shares for sale at any time will have on the prevailing market
price.
Our preferred stockholders together have
voting control, which will limit your ability to influence the outcome of important transactions, including a change in control.
Each of our preferred stockholders beneficially
owns 1,000,000 shares of our preferred stock. Each share of preferred stock entitles the holder to 50 votes per share. In contrast, each
share of our common stock has one vote per share. Each of our two preferred stockholders holds approximately 45.5% and 45.8% of the voting
power of our outstanding capital stock, respectively. Because of the 50-to-1 voting ratio between our preferred stock and our common
stock, our preferred stockholders together control a majority of the combined voting power of our capital stock and therefore are able
to control all matters submitted to our stockholders for approval. The preferred stockholders may also have interests that differ from
yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentrated control may have the
effect of delaying, preventing or deterring a change in control of our company, could deprive our stockholders of an opportunity to receive
a premium for their capital stock as part of a sale of our company and might ultimately affect the market price of our common stock.
We may face continuing challenges in complying
with the Sarbanes-Oxley Act, and any failure to comply or any adverse result from management’s evaluation of our internal control
over financial reporting may have an adverse effect on our stock price.
As a smaller reporting company as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are required to evaluate our internal
control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Section 404 requires
us to include an internal control report with our Annual Report on Form 10-K. The report must include management’s assessment of
the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure
of any material weaknesses in internal control over financial reporting that we have identified.
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Failure to comply, or any adverse results from
such evaluation, could result in a loss of investor confidence in our financial reports and have an adverse effect on the trading price
of our equity securities. Management concluded that our internal control over financial reporting as of December 31, 2024 were not effective.
Management realizes there are deficiencies in the design or operation of our internal control over financial reporting that adversely
affect our internal controls, and management considers such deficiencies to be material weaknesses. As of the end of our 2025 fiscal
year, management identified the following material weaknesses:
●
we had not implemented
comprehensive entity-level internal controls;
●
we had not implemented
adequate system and manual controls; and
●
we did not have sufficient
segregation of duties.
Achieving continued compliance with Section 404
may require us to incur significant costs and expend significant time and management resources. We cannot assure you that we will be
able to fully comply with Section 404 or that we will be able to conclude that our internal control over financial reporting is effective
at fiscal year-end. As a result, investors could lose confidence in our reported financial information, which could have an adverse effect
on the trading price of our securities.
We have never paid dividends on our common
stock and cannot guarantee that we will pay dividends to our stockholders in the future.
We have never paid dividends on our common stock.
For the foreseeable future, we intend to retain our future earnings, if any, in order to reinvest in the development and growth of our
business and, therefore, do not intend to pay dividends on our common stock. However, in the future, our board of directors may declare
dividends on our common stock. Any future determination to pay dividends will be at the discretion of our board of directors and will
depend on our financial condition, results of operations, capital requirements, and such other factors as our board of directors deems
relevant. Accordingly, investors may need to sell their shares of our common stock to realize a return on their investment, and they
may not be able to sell such shares at or above the price paid for them. We cannot guarantee that we will pay dividends to our stockholders
in the future.
Our common stock is a “penny stock”
under SEC rules. It may be more difficult to resell securities classified as “penny stock.”
Our common stock is considered a “penny
stock” under applicable SEC rules (generally defined as non-exchange traded stock with a per-share price below $5.00). Unless we
maintain a per-share price above $5.00, these rules impose additional sales practice requirements on broker-dealers that recommend the
purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited
investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks.
Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure
document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson
in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account,
provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s
written agreement to the transaction.
Legal remedies available to an investor in “penny
stocks” may include the following:
● If
a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities
laws, the investor may be able to cancel the purchase and receive a refund of the investment.
● If
a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that
committed the fraud for damages.
However, investors who have signed arbitration
agreements may have to pursue their claims through arbitration.
These requirements may have the effect of reducing
the level of trading activity, if any, in the secondary market for a security that is or becomes subject to the penny stock rules. The
additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our
securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability
of broker-dealers to sell our common stock and may affect your ability to resell our common stock.
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Many brokerage firms will discourage or refrain
from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual
investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments.
For these reasons, penny stocks may have a limited
market and, consequently, limited liquidity. We can give no assurance that our common stock will not be classified as a “penny
stock” in the future.
Rule 144 Related Risks
Pursuant to Rule 144, a person who has beneficially
owned restricted shares of our common stock for at least six months is entitled to sell his or her securities provided that: (i) such
person is not deemed to have been one of our affiliates at the time of, or at any time during the three months preceding, a sale, (ii)
we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale and (iii) if the sale occurs
prior to satisfaction of a one-year holding period, we provide current information at the time of sale.
Persons who have beneficially owned restricted
shares of our common stock for at least six months but who are our affiliates at the time of, or at any time during the three months
preceding a sale, would be subject to additional restrictions, by which such person would be entitled to sell within any three-month
period only a number of securities that does not exceed the greater of either of the following:
●
1% of the total number
of securities of the same class then outstanding; or
●
the average weekly trading
volume of such securities during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale;
provided , in each case that we are subject
to the Exchange Act periodic reporting requirements for at least three months before the sale. Such sales by affiliates must also comply
with the manner of sale, current public information and notice provisions of Rule 144.
In addition, as a former shell company, we are
subject to additional restrictions. Historically, the SEC staff has taken the position that Rule 144 is not available for the resale
of securities initially issued by companies that are, or previously were, shell companies, such as Zoned Properties. Rule 144 is not
available for resale of securities issued by any shell companies (other than business combination related shell companies) or any issuer
that has been at any time previously a shell company. The SEC has provided an exception to this prohibition, however, if the following
conditions are met:
●
The issuer of the securities
that was formerly a shell company has ceased to be a shell company,
●
The issuer of the securities
is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act,
●
The issuer of the securities
has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter
period that the issuer was required to file such reports and materials), other than current reports on Form 8-K, and
●
At least one year has elapsed
from the time that the issuer filed current comprehensive disclosure with the SEC reflecting its status as an entity that is not
a shell company.
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