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What changed in INNOVATIVE INDUSTRIAL PROPERTIES INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of INNOVATIVE INDUSTRIAL PROPERTIES INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+399 added−361 removedSource: 10-K (2025-02-21) vs 10-K (2024-02-27)

Top changes in INNOVATIVE INDUSTRIAL PROPERTIES INC's 2024 10-K

399 paragraphs added · 361 removed · 283 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

190 edited+78 added−37 removed443 unchanged
Biggest changeFor three of our properties (one located in San Bernardino, California and two located in Palm Springs, California), as of December 31, 2023, we were evaluating alternative non-cannabis uses for the properties, due in part to changes in the zoning of the property that no longer allow for regulated cannabis cultivation and processing. 20 Table of Contents 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.
Biggest changeOur 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. 21 Table of Contents Americans with Disabilities Act (“ADA”) and Other Building Regulations 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.
The Loan Agreement also allows the Operating Partnership, subject to the satisfaction of certain conditions, to request additional revolving loan commitments up to a specified amount. The Loan Agreement is subject to certain liquidity and operating covenants and includes customary representations and warranties, affirmative and negative covenants and events of default.
The Loan Agreement is subject to certain liquidity and operating covenants and includes customary representations and warranties, affirmative and negative covenants and events of default. The Loan Agreement also allows the Operating Partnership, subject to the satisfaction of certain conditions, to request additional revolving loan commitments up to a specified amount.
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.
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.
In particular, larger companies may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Our competitors may also adopt transaction structures similar to ours, which would decrease our competitive advantage in offering flexible transaction terms.
In particular, larger companies may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Our competitors may also adopt transaction structures similar to ours, which would decrease our competitive advantage in offering flexible transaction terms.
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: ​ ● a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant actions; ● 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; ● 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; ● 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; 32 Table of Contents ● 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; ● 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; ● 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: o construction moratoriums by local, state or federal government authorities; o delays by applicable governmental authorities in providing the necessary authorizations to continue construction or commence operations; o reductions in construction team sizes to effectuate social distancing and other requirements; o infection by one or more members of a construction team necessitating a partial or full shutdown of construction; and 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; ● a general decline in business activity in the regulated cannabis industry would adversely affect our ability to grow our portfolio of regulated cannabis properties; and ● 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.
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: ​ ● a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant actions; ● 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, 32 Table of Contents 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; ● 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; ● 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; ● 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; ● 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; ● 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: o construction moratoriums by local, state or federal government authorities; o delays by applicable governmental authorities in providing the necessary authorizations to continue construction or commence operations; o reductions in construction team sizes to effectuate social distancing and other requirements; o infection by one or more members of a construction team necessitating a partial or full shutdown of construction; and 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; ● a general decline in business activity in the regulated cannabis industry would adversely affect our ability to grow our portfolio of regulated cannabis properties; and ● 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.
Any lease payment defaults by a tenant could adversely affect our cash flows and cause us to reduce the amount of distributions to stockholders.
Any lease payment defaults by a tenant could adversely affect our cash flows and cause us to reduce the amount of distributions to stockholders.
The DOJ continues to have the right and power to prosecute crimes committed by banks and financial institutions, such as money laundering and violations of the Bank Secrecy Act, that occur in any state including states that have in some form legalized the sale of cannabis.
The DOJ continues to have the right and power to prosecute crimes committed by banks and financial institutions, such as money laundering and violations of the Bank Secrecy Act, that occur in any state including states that have in some form legalized the sale of cannabis.
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.
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.
In addition, for our tenants that are publicly traded companies, securities clearing firms may refuse to accept deposits of securities of those tenants, which may negatively impact the trading and valuations of such tenants and have a material adverse impact on our tenants’ ability to finance their operations and growth through the capital markets.
In addition, for our tenants that are publicly traded companies, securities clearing firms may refuse to accept deposits of securities of those tenants, which may negatively impact the trading and valuations of such tenants and have a material adverse impact on our tenants’ ability to finance their operations and growth through the capital markets.
Some of the factors that could negatively affect the share price or result in fluctuations in the price or trading volume of our common stock and preferred stock include: ● our actual or projected operating results, financial condition, cash flows and liquidity or changes in business strategy or prospects; ● changes in government policies, regulations or laws; ● the performance of our current properties and additional properties that we acquire; ● our ability to make acquisitions on preferable terms or at all; ● equity issuances by us, including issuances by us of shares of common stock under our ATM Program, or share resales by our stockholders, or the perception that such issuances or resales may occur; ● actual or anticipated accounting problems; ● publication of research reports about us, the real estate industry or the cannabis industry; ● changes in market valuations of similar companies; ● adverse market reaction to any increased indebtedness we may incur in the future; ● interest rate changes; ● additions to or departures of our senior management team; ● speculation in the press or investment community or negative press in general; ● our failure to meet, or the lowering of, our earnings estimates or those of any securities analysts; ● failure to maintain our qualification as a REIT; 50 Table of Contents ● refusal of securities clearing firms to accept deposits of our securities; ● a delisting of our common stock or preferred stock from the New York Stock Exchange (“NYSE”); ● the realization of any of the other risk factors presented in this report; ● actions by institutional stockholders; ● price and volume fluctuations in the stock market generally; and ● market and economic conditions generally, including the current state of the credit and capital markets and the market and economic conditions.
Some of the factors that could negatively affect the share price or result in fluctuations in the price or trading volume of our common stock and preferred stock include: ● our actual or projected operating results, financial condition, cash flows and liquidity or changes in business strategy or prospects; ● changes in government policies, regulations or laws; 50 Table of Contents ● the performance of our current properties and additional properties that we acquire; ● our ability to make acquisitions on preferable terms or at all; ● equity issuances by us, including issuances by us of shares of common stock under our ATM Program, or share resales by our stockholders, or the perception that such issuances or resales may occur; ● actual or anticipated accounting problems; ● publication of research reports about us, the real estate industry or the cannabis industry; ● changes in market valuations of similar companies; ● adverse market reaction to any increased indebtedness we may incur in the future; ● interest rate changes; ● additions to or departures of our senior management team; ● speculation in the press or investment community or negative press in general; ● our failure to meet, or the lowering of, our earnings estimates or those of any securities analysts; ● failure to maintain our qualification as a REIT; ● refusal of securities clearing firms to accept deposits of our securities; ● a delisting of our common stock or preferred stock from the New York Stock Exchange (“NYSE”); ● the realization of any of the other risk factors presented in this report; ● actions by institutional stockholders; ● price and volume fluctuations in the stock market generally; and ● market and economic conditions generally, including the current state of the credit and capital markets and the market and economic conditions.
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 by its terms applies to the purchase and sale of cannabis products.
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 by its terms applies to the purchase and sale of cannabis products.
To that end, we believe we offer a highly competitive compensation (including salary, bonuses and equity) and benefits package for each member of our team, which include the following: ● Comprehensive health insurance, including medical, dental and vision, to each employee and every member of his or her immediate family at no cost to the employee, with the same benefits to every employee, regardless of title; ● Four weeks of paid time off each year for each employee (increasing to five weeks after five years of service and to six weeks after ten years of service), which are in addition to Company holidays; 21 Table of Contents ● A severance plan applicable to all non-executive employees that assists with each employee’s financial security in the event his or her employment is terminated without cause or he or she resigns for good reason; ● A 401(k) plan with matching contributions from the Company; ● Disability insurance; ● Company sponsorship of continuing education courses related to our Company’s business, including commercial real estate, cannabis, property management, legal and accounting courses; ● Company reimbursement of up to $200 per year for each employee’s health and wellness activities, materials, equipment and/or classes; and ● Matching contribution by the Company, dollar-for-dollar, up to $2,500 per year per employee for donations to qualifying educational institutions.
To that end, we believe we offer a highly competitive compensation (including salary, bonuses and equity) and benefits package for each member of our team, which include the following: ● Comprehensive health insurance, including medical, dental and vision, to each employee and every member of his or her immediate family at no cost to the employee, with the same benefits to every employee, regardless of title; ● Four weeks of paid time off each year for each employee (increasing to five weeks after five years of service and to six weeks after ten years of service), which are in addition to Company holidays; ● A severance plan applicable to all non-executive employees that assists with each employee’s financial security in the event his or her employment is terminated without cause or he or she resigns for good reason; ● A 401(k) plan with matching contributions from the Company; ● Disability insurance; 22 Table of Contents ● Company sponsorship of continuing education courses related to our Company’s business, including commercial real estate, cannabis, property management, legal and accounting courses; ● Company reimbursement of up to $200 per year for each employee’s health and wellness activities, materials, equipment and/or classes; and ● Matching contribution by the Company, dollar-for-dollar, up to $2,500 per year per employee for donations to qualifying educational institutions.
Further, the impact of such decisions or rules, if any are promulgated, on existing state-regulated cannabis programs remains unclear, including but not limited to FDA and other federal regulatory agency involvement, the impact of such a decision on potential federal legislative reform such as proposals to de-schedule cannabis and provide greater access to capital markets for state-regulated cannabis operators, and the potential entry into the cannabis markets of large, well-capitalized companies as a result of any re-scheduling.
The impact of such decisions or rules, if any are promulgated, on existing state-regulated cannabis programs remains unclear, including but not limited to FDA and other federal regulatory agency involvement, the impact of such a decision on potential federal legislative reform such as proposals to de-schedule cannabis and provide greater access to capital markets for state-regulated cannabis operators, and the potential entry into the cannabis markets of large, well-capitalized companies as a result of any re-scheduling.
Development and redevelopment activities entail risks that could adversely impact our financial condition and results of operations, including: 28 Table of Contents ● 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; ● permitting or construction delays, which may result in increased project costs, as well as deferred revenue and delayed commencement of operations by our tenant; ● unavailability of raw materials when needed, which may result in project delays, stoppages or interruptions, which could make the project less profitable; ● claims for warranty, product liability and construction defects after a property has been built; ● health and safety incidents and site accidents; ● poor performance or nonperformance by, or disputes with, any of our contractors, subcontractors or other third parties on whom we rely; ● 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; ● unforeseen engineering, environmental or geological problems, which may result in delays or increased costs; ● changes in local zoning, permitting and other requirements which may impact the permitted use or scope of a project; ● labor stoppages, slowdowns or interruptions; ● 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; ● liabilities, expenses or project delays, stoppages or interruptions as a result of challenges by third parties in legal proceedings; and ● weather-related and geological interference, including hurricanes, landslides, earthquakes, floods, drought, wildfires and other events, which may result in delays or increased costs.
Development and redevelopment activities entail risks that could adversely impact our financial condition and results of operations, including: ● 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; ● permitting or construction delays, which may result in increased project costs, as well as deferred revenue and delayed commencement of operations by our tenant; ● unavailability of raw materials when needed, which may result in project delays, stoppages or interruptions, which could make the project less profitable; ● claims for warranty, product liability and construction defects after a property has been built; ● health and safety incidents and site accidents; ● poor performance or nonperformance by, or disputes with, any of our contractors, subcontractors or other third parties on whom we rely; ● 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; ● unforeseen engineering, environmental or geological problems, which may result in delays or increased costs; ● changes in local zoning, permitting and other requirements which may impact the permitted use or scope of a project; ● labor stoppages, slowdowns or interruptions; ● 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; ● liabilities, expenses or project delays, stoppages or interruptions as a result of challenges by third parties in legal proceedings; and ● weather-related and geological interference, including hurricanes, landslides, earthquakes, floods, drought, wildfires and other events, which may result in delays or increased costs.
In addition to smoking and vaporizing of dried leaves, cannabis can be incorporated into a variety of edibles, pills, spray products, transdermal patches and topicals, including salves, ointments, lotions and sprays with low or high levels of delta-9-tetrahydrocannabinol (“THC”), the principal psychoactive constituent of the cannabis plant.
In addition to smoking and vaporizing of dried leaves, cannabis can be incorporated into a variety of edibles, pills, spray products, transdermal patches, beverages, and topicals, including salves, ointments, lotions and sprays with low or high levels of delta-9-tetrahydrocannabinol (“THC”), the principal psychoactive constituent of the cannabis plant.
Construction loans involve an increased risk of loss and other risks that are different from owning and leasing properties, including the following risks: ● If we fail to fund our entire commitment on a construction loan or if a borrower otherwise fails to complete the construction of a project, there could be adverse consequences associated with the loan, including, but not limited to: a loss of the value of the property securing the loan, especially if the borrower is unable to raise funds to complete it from other sources; a borrower’s claim against us for failure to perform under the loan documents; increased costs to the borrower that the borrower is unable to pay; a bankruptcy or receivership filing by the borrower; and abandonment by the borrower of the collateral for the loan; 37 Table of Contents ● We are subject to the risk that a borrower may make business decisions with which we disagree and the management of such company may take risks or otherwise act in ways that do not serve our interests; ● A borrower may not be able to realize the value anticipated from the project and otherwise not have the resources to repay the amount owed under the construction loan at maturity; ● We may incur significant costs and assume significant liabilities in foreclosing on any property subject to a construction loan, in addition to costs and risks associated with completing construction of the property if construction was not completed; and ● If we foreclose on the property and take ownership, we may incur a significant loss on disposing of the property or, in the alternative, we may not be able to lease the property at all or on terms reasonably acceptable to us if we determine to continue to own the property.
Construction loans involve an increased risk of loss and other risks that are different from owning and leasing properties, including the following risks: ● If we fail to fund our entire commitment on a construction loan or if a borrower otherwise fails to complete the construction of a project, there could be adverse consequences associated with the loan, including, but not limited to: a loss of the value of the property securing the loan, especially if the borrower is unable to raise funds to complete it from other sources; a borrower’s claim against us for failure to perform under the loan documents; increased costs to the borrower that the borrower is unable to pay; a bankruptcy or receivership filing by the borrower; and abandonment by the borrower of the collateral for the loan; ● We are subject to the risk that a borrower may make business decisions with which we disagree and the management of such company may take risks or otherwise act in ways that do not serve our interests; ● A borrower may not be able to realize the value anticipated from the project and otherwise not have the resources to repay the amount owed under the construction loan at maturity; ● We may incur significant costs and assume significant liabilities in foreclosing on any property subject to a construction loan, in addition to costs and risks associated with completing construction of the property if construction was not completed; and ● If we foreclose on the property and take ownership, we may incur a significant loss on disposing of the property or, in the alternative, we may not be able to lease the property at all or on terms reasonably acceptable to us if we determine to continue to own the property.
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.
A number of 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.
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. 54 Table of Contents 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.
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. 55 Table of Contents 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.
Our ability to acquire these real estate assets on favorable terms is subject to the following risks: ● 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; 31 Table of Contents ● we may not successfully purchase and lease our properties to meet our expectations; ● we may be unable to obtain the necessary equity or debt financing to consummate an acquisition on satisfactory terms or at all; ● 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; and ● 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.
Our ability to acquire these real estate assets on favorable terms is subject to the following risks: ● 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; ● we may not successfully purchase and lease our properties to meet our expectations; ● we may be unable to obtain the necessary equity or debt financing to consummate an acquisition on satisfactory terms or at all; ● 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; and ● 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.
These principal risk and uncertainties relate to, among other things: Risks Related to Our Business ● 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. ● 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. 22 Table of Contents ● 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. ● 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. ● We face significant risks associated with the development and redevelopment of properties that we acquire. ● 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. ● Inflation may adversely affect our business and our tenants’ financial condition and results of operations. ● 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. ● Our growth will depend upon future acquisitions of regulated cannabis facilities. ● There may only be a limited number of cannabis facilities operated by suitable tenants available for acquisition. ● Our and our tenants’ businesses may be materially and adversely affected by global pandemics. ● Our tenants may be unable to renew or otherwise maintain their licenses for their cannabis operations. ● We acquire our properties “as-is,” which increases the risk of costs to remedy defects without recourse. ● Our property portfolio is and will be geographically concentrated in certain states. ● Some of our tenants could be susceptible to bankruptcy. ● 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. ● We are exposed to the potential impacts of future climate change. ● Liability for uninsured losses could adversely affect our financial condition. ● 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. ● 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. ​ Risks Related to Regulation ● Cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability and the inability of our tenants to execute our respective business plans. ● Certain of our tenants engage in operations for the adult-use cannabis industry, which may subject us and our properties to additional risks associated with such adult-use cannabis operations. ● New laws 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. ● Our ability to grow our business depends on state laws pertaining to the cannabis industry. ● FDA regulation of cannabis facilities could negatively affect the regulated cannabis industry. ● We and our tenants may have difficulty accessing the service of banks and other financial institutions. ● Property owners located in close proximity to our properties may assert claims against our cannabis facilities. ● Laws and regulations affecting the regulated cannabis industry are constantly changing, which could materially adversely affect our operations, and we cannot predict the impact that future regulations may have on us. ● Assets leased to cannabis businesses may be forfeited to the federal government. ● We may have difficulty accessing bankruptcy courts. ● The properties that we acquire are subject to extensive regulations, which may result in significant costs. ● Compliance with environmental laws could materially increase our operating expenses. ​ Risks Related to Financing Our Business ● Our growth depends on external sources of capital, which may not be available on favorable terms or at all. ● Our existing and future indebtedness could reduce our distributable cash and expose us to default risk. ● A downgrade in our investment grade credit rating could adversely affect our business and financial condition. ● Our Notes due 2026 include restrictive covenants that limit our operational flexibility. ​ 23 Table of Contents Risks Related to Our Organization and Structure ● Our senior management team manages our portfolio subject to very broad investment guidelines. ● Our board of directors may change our investment objectives and strategies without stockholder consent. ● Certain provisions of Maryland law could inhibit changes in control. ● Our authorized but unissued shares of common and preferred stock may prevent a change in our control. ● Severance agreements with our executive officers could be costly and prevent a change in our control. ● We depend on our Operating Partnership for cash flow and are structurally subordinated in right of payment. ● Our Operating Partnership may issue additional limited partnership interests to third parties without the consent of our stockholders, which would reduce the distributions we can make to our stockholders. ● If we issue limited partnership interests in our Operating Partnership in exchange for property, the value placed on such partnership interests may not accurately reflect their market value, which may dilute your interest in us. ● Our rights and the rights of our stockholders to take action against our directors and officers are limited. ● Our charter provisions make it difficult to remove directors, and to effect changes in management as a result. ● Ownership limitations may restrict change in control or business combination opportunities in which our stockholders might receive a premium for their shares. ● We plan to continue to operate our business so as not to require registration under the Investment Company Act. ​ Risks Related to Our Securities ● The market prices and trading volumes of our capital stock have been and may continue to be volatile. ● Capital stock eligible for future sale may have material and adverse effects on our share price. ● We cannot assure you of our ability to make distributions in the future. ● Our charter permits us to pay distributions from any source and, as a result, the amount of distributions paid at any time may not reflect the performance of our properties or as cash flow from operations. ● The market price of our capital stock could be materially, adversely affected by our level of cash distributions. ​ Risks Related to Our Taxation as a REIT ● 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. ● If Section 280E of the Code applies to us, tax deductions may be disallowed, resulting in federal income tax and potentially jeopardizing our REIT status. ● Complying with REIT requirements may cause us to forego attractive business opportunities or asset sales. ● The tax on prohibited transactions could limit what transactions we make or subject us to a 100% penalty tax. ● Our board of directors has the ability to revoke our REIT election without stockholder approval. ● Dividends payable by REITs do not qualify for the reduced tax rates on dividends from regular corporations. ● REIT requirements may limit our ability to hedge our liabilities effectively and result in tax liabilities. ● Re-characterization of sale-leaseback transactions may cause us to lose our REIT status. ● Non-U.S. stockholders will generally be subject to withholding tax with respect to our ordinary dividends. ● Legislative, regulatory or administrative changes could adversely affect us or our stockholders. ​ General Risk Factors ● We are dependent on our key personnel for our success. ● The occurrence of cyber incidents or cyberattacks could disrupt our operations and damage our business. ● Contingent or unknown liabilities could materially and adversely affect our business. ​ 24 Table of Contents Risks Related to Our Business 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.
These principal risk and uncertainties relate to, among other things: Risks Related to Our Business ● 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. ● Continuing unfavorable market dynamics affecting the regulated cannabis industry could adversely affect our business, liquidity and financial condition, and overall results of operations. ● 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. ● The assets we acquire may be subject to impairment charges. ● We face significant risks associated with the development and redevelopment of properties that we acquire. 23 Table of Contents ● 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. ● Inflation may adversely affect our business and our tenants’ financial condition and results of operations. ● 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. ● Our growth will depend upon future acquisitions of regulated cannabis facilities. ● There may only be a limited number of cannabis facilities operated by suitable tenants available for acquisition. ● Our and our tenants’ businesses may be materially and adversely affected by global pandemics. ● Our tenants may be unable to renew or otherwise maintain their licenses for their cannabis operations. ● We acquire our properties “as-is,” which increases the risk of costs to remedy defects without recourse. ● Our property portfolio is and will be geographically concentrated in certain states. ● Some of our tenants could be susceptible to bankruptcy. ● 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. ● We are exposed to the potential impacts of future climate change. ● Liability for uninsured losses could adversely affect our financial condition. ● 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. ● 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. ​ Risks Related to Regulation ● Cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability and the inability of our tenants to execute our respective business plans. ● Certain of our tenants engage in operations for the adult-use cannabis industry, which may subject us and our properties to additional risks associated with such adult-use cannabis operations. ● New laws 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. ● Our ability to grow our business depends on state laws pertaining to the cannabis industry. ● FDA regulation of cannabis facilities could negatively affect the regulated cannabis industry. ● We and our tenants may have difficulty accessing the service of banks and other financial institutions. ● Property owners located in close proximity to our properties may assert claims against our cannabis facilities. ● Laws and regulations affecting the regulated cannabis industry are constantly changing, which could materially adversely affect our operations, and we cannot predict the impact that future regulations may have on us. ● Assets leased to cannabis businesses may be forfeited to the federal government. ● We may have difficulty accessing bankruptcy courts. ● The properties that we acquire are subject to extensive regulations, which may result in significant costs. ● Compliance with environmental laws could materially increase our operating expenses. ​ Risks Related to Financing Our Business ● Our growth depends on external sources of capital, which may not be available on favorable terms or at all. ● Our existing and future indebtedness could reduce our distributable cash and expose us to default risk. ● A downgrade in our investment grade credit rating could adversely affect our business and financial condition. ● Our Notes due 2026 include restrictive covenants that limit our operational flexibility. ​ Risks Related to Our Organization and Structure ● Our senior management team manages our portfolio subject to very broad investment guidelines. ● Our board of directors may change our investment objectives and strategies without stockholder consent. ● Certain provisions of Maryland law could inhibit changes in control. ● Our authorized but unissued shares of common and preferred stock may prevent a change in our control. ● Severance agreements with our executive officers could be costly and prevent a change in our control. 24 Table of Contents ● We depend on our Operating Partnership for cash flow and are structurally subordinated in right of payment. ● Our Operating Partnership may issue additional limited partnership interests to third parties without the consent of our stockholders, which would reduce the distributions we can make to our stockholders. ● If we issue limited partnership interests in our Operating Partnership in exchange for property, the value placed on such partnership interests may not accurately reflect their market value, which may dilute your interest in us. ● Our rights and the rights of our stockholders to take action against our directors and officers are limited. ● Our charter provisions make it difficult to remove directors, and to effect changes in management as a result. ● Ownership limitations may restrict change in control or business combination opportunities in which our stockholders might receive a premium for their shares. ● We plan to continue to operate our business so as not to require registration under the Investment Company Act. ​ Risks Related to Our Securities ● The market prices and trading volumes of our capital stock have been and may continue to be volatile. ● Capital stock eligible for future sale may have material and adverse effects on our share price. ● We cannot assure you of our ability to make distributions in the future. ● Our charter permits us to pay distributions from any source and, as a result, the amount of distributions paid at any time may not reflect the performance of our properties or as cash flow from operations. ● The market price of our capital stock could be materially, adversely affected by our level of cash distributions. ● We may enter into forward sale transactions that subject us to certain risks. ​ Risks Related to Our Taxation as a REIT ● 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. ● If Section 280E of the Code applies to us, tax deductions may be disallowed, resulting in federal income tax and potentially jeopardizing our REIT status. ● Complying with REIT requirements may cause us to forego attractive business opportunities or asset sales. ● The tax on prohibited transactions could limit what transactions we make or subject us to a 100% penalty tax. ● Our board of directors has the ability to revoke our REIT election without stockholder approval. ● Dividends payable by REITs do not qualify for the reduced tax rates on dividends from regular corporations. ● REIT requirements may limit our ability to hedge our liabilities effectively and result in tax liabilities. ● Re-characterization of sale-leaseback transactions may cause us to lose our REIT status. ● Non-U.S. stockholders will generally be subject to withholding tax with respect to our ordinary dividends. ● Legislative, regulatory or administrative changes could adversely affect us or our stockholders. ● Any repurchase of our Notes due 2026 at a discount may result in cancellation of debt income. ​ General Risk Factors ● We are dependent on our key personnel for our success. ● The occurrence of cyber incidents or cyberattacks could disrupt our operations and damage our business. ● Contingent or unknown liabilities could materially and adversely affect our business. ​ Risks Related to Our Business 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.
Circumstances and developments related to operations in these markets that could negatively affect our business, financial condition, liquidity and results of operations include, but are not limited to, the following factors: ● the state regulated cannabis market fails to develop and grow in ways that we or our tenants projected; ● the responsibility of complying with multiple and, in some respects, conflicting state and federal laws in the United States, including with respect to cultivation and distribution of cannabis, licensing, banking and insurance; ● access to capital may be more restricted, or unavailable on favorable terms or at all in certain locations; ● difficulties and costs of staffing and managing operations; 34 Table of Contents ● unexpected changes in regulatory requirements and other laws; ● the impact of national, regional or state specific business cycles and economic instability; and ● potentially adverse tax consequences.
Circumstances and developments related to operations in these markets that could negatively affect our business, financial condition, liquidity and results of operations include, but are not limited to, the following factors: ● the state regulated cannabis market fails to develop and grow in ways that we or our tenants projected; ● the responsibility of complying with multiple and, in some respects, conflicting state and federal laws in the United States, including with respect to cultivation and distribution of cannabis, licensing, banking and insurance; ● access to capital may be more restricted, or unavailable on favorable terms or at all in certain locations; ● difficulties and costs of staffing and managing operations; ● unexpected changes in regulatory requirements and other laws; ● the impact of national, regional or state specific business cycles and economic instability; and ● potentially adverse tax consequences.
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.
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 47 Table of Contents votes entitled to be cast by the acquirer of control shares, our officers and our personnel who are also our directors.
Under our charter and Maryland General Corporation Law (the “MGCL”), our stockholders generally have a right to vote only on the following matters: ● the election or removal of directors; ● the amendment of our charter, except that our board of directors may amend our charter without stockholder approval to: o change our name; o change the name or other designation or the par value of any class or series of stock and the aggregate par value of our stock; o increase or decrease the aggregate number of shares of stock that we have the authority to issue; o increase or decrease the number of our shares of any class or series of stock that we have the authority to issue; and o effect certain reverse stock splits; ● our liquidation and dissolution; and ● our being a party to a merger, consolidation, sale or other disposition of all or substantially all of our assets or statutory share exchange.
Under our charter and Maryland General Corporation Law (the “MGCL”), our stockholders generally have a right to vote only on the following matters: ● the election or removal of directors; ● the amendment of our charter, except that our board of directors may amend our charter without stockholder approval to: o change our name; o change the name or other designation or the par value of any class or series of stock and the aggregate par value of our stock; 46 Table of Contents o increase or decrease the aggregate number of shares of stock that we have the authority to issue; o increase or decrease the number of our shares of any class or series of stock that we have the authority to issue; and o effect certain reverse stock splits; ● our liquidation and dissolution; and ● our being a party to a merger, consolidation, sale or other disposition of all or substantially all of our assets or statutory share exchange.
Contractual rent collected excludes tenant reimbursements. (2) 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 investment is recognized as a note receivable and is included in other assets, net on our consolidated balance sheet.
Contractual rent collected excludes tenant reimbursements. (2) 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 investment is recognized as a note receivable and is included in other assets, net on our consolidated balance sheets.
For some or all of 2024, 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.
For some or all of 2025, 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.
We intend to distribute our net income to our stockholders in a manner intended to satisfy the REIT 90% distribution requirement and to avoid U.S. federal income tax and the 4% nondeductible excise tax. However, we can 53 Table of Contents provide no assurances that we will have sufficient cash or other liquid assets to meet these requirements.
We intend to distribute our net income to our stockholders in a manner intended to satisfy the REIT 90% distribution requirement and to avoid U.S. federal income tax and the 4% nondeductible excise tax. However, we can 54 Table of Contents provide no assurances that we will have sufficient cash or other liquid assets to meet these requirements.
Our Properties Generally We have acquired and intend to continue to acquire specialized industrial real estate assets operated by state-licensed cannabis operators through sale-leaseback transactions and third-party purchases. In sale-leaseback transactions, concurrently upon closing of the acquisition, we lease the properties back to the sellers under long-term, triple-net lease agreements.
Our Properties Generally We have acquired and intend to continue to acquire specialized industrial real estate assets in the United States, operated by state-licensed cannabis operators, through sale-leaseback transactions and third-party purchases. In sale-leaseback transactions, concurrently upon closing of the acquisition, we lease the properties back to the sellers under long-term, triple-net lease agreements.
In recent months, general financial conditions have deteriorated significantly, which has also significantly reduced our access to capital. 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.
In recent years, general financial conditions have deteriorated significantly, which has also significantly reduced our access to capital. 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.
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, 2023 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contractual Rent ​ ​ ​ Total Invested Collected for Percentage ​ ​ ​ Number of ​ and Committed the Year Ended of ​ Tenant (1) ​ Properties ​ Capital (2) ​ December 31, 2023 (3) Total ​ PharmaCann Inc.
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, 2024 (dollars in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contractual Rent ​ ​ ​ Total Invested Collected for Percentage ​ ​ ​ Number of ​ and Committed the Year Ended of ​ Tenant (1) ​ Properties ​ Capital (2) ​ December 31, 2024 (3) Total ​ PharmaCann Inc.
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.
The result of any of the foregoing risks could materially and adversely affect our business, liquidity, financial condition and results of operations and our ability to make distributions to our stockholders.
States may restrict the number of regulated cannabis businesses permitted; impose significant taxes on regulated cannabis products, in addition to taxes imposed by local municipalities; take limited enforcement actions against non-licensed cannabis operators; restrict the method by which cannabis can be consumed; restrict the ability of alternative health care providers to recommend medical cannabis for treatment; limit the medical conditions that are eligible for cannabis treatment; or require registration of doctors and/or patients, each of which can limit growth of the regulated cannabis industry in those states.
States may restrict the number of regulated cannabis businesses permitted; impose significant taxes on regulated cannabis products, in addition to taxes imposed by local municipalities; take limited enforcement actions against non-licensed cannabis operators; restrict the method by which cannabis can be consumed; restrict the ability of alternative health care providers to recommend medical cannabis for treatment; limit the medical conditions that are eligible for cannabis 10 Table of Contents treatment; or require registration of doctors and/or patients, each of which can limit growth of the regulated cannabis industry in those states.
If 56 Table of Contents 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. federal income tax and fail to qualify as a REIT.
If 57 Table of Contents 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. federal income tax and fail to qualify as a REIT.
As of December 31, 2023, 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.
As of December 31, 2024, 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.
Financial markets for REITs and the cannabis industry have been volatile in general for an extended period of time, which has also significantly reduced our access to capital. This has contributed to a significant decrease in our investments in new properties in 2022 and 2023.
Financial markets for REITs and the cannabis industry have been volatile in general for an extended period of time, which has also significantly reduced our access to capital. This has contributed to a significant decrease in our investments in new properties in 2023 and 2024.
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.
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 investors.
If we fail to qualify as a REIT, such stockholders may not claim this deduction with respect to dividends paid by us. 55 Table of Contents Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.
If we fail to qualify as a REIT, such stockholders may not claim this deduction with respect to dividends paid by us. 56 Table of Contents Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.
This guidance essentially characterized as inefficient the use of federal law enforcement resources to prosecute those complying with state laws allowing the use, manufacture and distribution of cannabis where states have enacted laws legalizing cannabis in some form and have also implemented strong and effective regulatory and enforcement systems to control the cultivation, processing, distribution, sale and possession of cannabis, conduct in compliance with those laws and regulations was not a priority for the DOJ.
This guidance essentially characterized as inefficient the use of federal law enforcement resources to prosecute those complying with state laws allowing the use, manufacture and distribution of cannabis where 16 Table of Contents states have enacted laws legalizing cannabis in some form and have also implemented strong and effective regulatory and enforcement systems to control the cultivation, processing, distribution, sale and possession of cannabis, conduct in compliance with those laws and regulations was not a priority for the DOJ.
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.
If a property owner were to assert such a claim against us, we may be required to devote significant 42 Table of Contents 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.
We have provided expansion capital for many of our existing tenant operators as they expand operations in additional states and 8 Table of Contents locations within a state, as well as capital for continued enhancements of production capacity at existing facilities that these operators lease from us, which correspond to adjustments in rent under the applicable leases and other provisions in certain cases.
We have provided expansion capital for many of our existing tenant operators as they expand operations in additional states and locations within a state, as well as capital for continued enhancements of production capacity at existing facilities that these operators lease from us, which correspond to adjustments in rent under the applicable leases and other provisions in certain cases.
Senator Cory Booker made as a nominee, Attorney General Barr stated “I do not intend to go after parties who have complied with state law in reliance on the Cole Memo.” The DOJ under Mr. Barr did not take a formal position on federal enforcement of laws relating to cannabis. Attorney General Merrick Garland, who was confirmed as U.S.
Senator Cory Booker made as a nominee, Attorney General Barr stated “I do not intend to go after parties who have complied with state law in reliance on the Cole Memo.” The DOJ under Mr. Barr did not take a formal position on federal enforcement of laws relating to cannabis. Merrick Garland served as U.S.
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 43 Table of Contents be sure that our tenants would satisfy their indemnification obligations to us.
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.
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 39 Table of Contents securities.
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.
Any one of these factors could slow or halt additional legislative authorization of cannabis, which could harm our business prospects. ​ 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.
Any one of these factors could slow or halt additional legislative authorization of cannabis, which could harm our business prospects. ​ 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 40 Table of Contents of operators in that state.
Instead, the Cole Memo directed U.S. Attorney’s Offices discretion not to investigate or prosecute state law compliant participants in the medical cannabis industry who did not implicate one or more specifically identified federal government priorities, including preventing interstate diversion or distribution of cannabis to minors. 16 Table of Contents On January 4, 2018, then-U.S.
Instead, the Cole Memo directed U.S. Attorney’s Offices discretion not to investigate or prosecute state law compliant participants in the medical cannabis industry who did not implicate one or more specifically identified federal government priorities, including preventing interstate diversion or distribution of cannabis to minors. On January 4, 2018, then-U.S.
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. 41 Table of Contents The terms of our leases require that our tenants make rental payments via check or wire transfer.
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 terms of our leases require that our tenants make rental payments via check or wire transfer.
Payments of principal and interest on our Notes due 2026 and borrowings that we may incur in the future, including pursuant to the Revolving Credit Facility, may leave us with insufficient cash resources to operate our properties or to 44 Table of Contents pay the distributions currently contemplated or necessary to satisfy the requirements for REIT qualification.
Payments of principal and interest on our Notes due 2026 and borrowings that we may incur in the future, including pursuant to the Revolving Credit Facility, may leave us with insufficient cash resources to operate our properties or to pay the distributions currently contemplated or necessary to satisfy the requirements for REIT qualification.
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.
We are an internally-managed REIT focused on the acquisition, ownership and management of specialized industrial properties in the United States. Our properties are 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.
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 Overview 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.
Progress in the regulated cannabis industry is not assured and any number of factors could slow or halt progress in this area. 9 Table of Contents Market Opportunity The Regulated Cannabis Industry Overview 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.
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.
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 29 Table of Contents result in that tenant defaulting on its rent obligations to us.
In addition, we believe finding properties that are appropriate for the specific use of allowing regulated cannabis operators may be limited as more 15 Table of Contents 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.
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.
These cannabis-related SARs are divided into three categories - cannabis limited, cannabis priority, and cannabis terminated - based on the financial institution’s belief that the business in question follows state law, is operating outside of compliance with state law, or where the banking relationship has been terminated, respectively.
These cannabis-related SARs are divided into three categories - cannabis limited, cannabis priority, and cannabis terminated - based on the financial institution’s belief that the business in question follows state law, is operating outside of compliance with state law, or where the banking 39 Table of Contents relationship has been terminated, respectively.
Recent bankruptcy rulings have denied bankruptcies for dispensaries upon the justification that businesses cannot violate federal law and then claim the benefits of federal bankruptcy for the same activity and upon the justification that courts cannot ask a bankruptcy trustee to take possession of, and distribute cannabis assets as such action would violate the CSA.
Recent bankruptcy rulings have denied bankruptcies for dispensaries upon the justification that businesses cannot violate federal law and then claim the benefits of federal bankruptcy for the same activity and upon the justification that courts cannot 43 Table of Contents ask a bankruptcy trustee to take possession of, and distribute cannabis assets as such action would violate the CSA.
These ownership limits and other restrictions could have the effect of discouraging a takeover or other transaction in which 49 Table of Contents holders of our common stock might receive a premium for their shares over the then prevailing market price or which holders might believe to be otherwise in their best interests.
These ownership limits and other restrictions could have the effect of discouraging a takeover or other transaction in which holders of our common stock might receive a premium for their shares over the then prevailing market price or which holders might believe to be otherwise in their best interests.
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.
Concurrently with the issuance of the FinCEN Memorandum, the DOJ issued supplemental guidance (the “2014 Cole Memorandum”) 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.
In addition, our board of directors may, without stockholder approval, amend our charter to 47 Table of Contents increase the aggregate number of our shares of stock or the number of shares of stock of any class or series that we have the authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the terms of the classified or reclassified shares.
In addition, our board of directors may, without stockholder approval, amend our charter to increase the aggregate number of our shares of stock or the number of shares of stock of any class or series that we have the authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the terms of the classified or reclassified shares.
If we issue limited partnership interests in our Operating Partnership in exchange for property, the per unit value attributable to such interests will be determined based on negotiations with the property seller and, therefore, may not reflect the fair market value of such limited partnership interests if a public market for such limited partnership interests 48 Table of Contents existed.
If we issue limited partnership interests in our Operating Partnership in exchange for property, the per unit value attributable to such interests will be determined based on negotiations with the property seller and, therefore, may not reflect the fair market value of such limited partnership interests if a public market for such limited partnership interests existed.
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.
Based on the strong historical and projected growth in sales for the regulated cannabis industry, we expect to see continued 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.
As a result of these and other factors, if our tenants default under their leases, we may not be able to find new tenants that can successfully engage in the cultivation, processing or dispensing of regulated cannabis on the properties.
As a result of these and other factors, if our tenants default 18 Table of Contents under their leases, we may not be able to find new tenants that can successfully engage in the cultivation, processing or dispensing of regulated cannabis on the properties.
In August 2023, HHS recommended to the DEA that cannabis be reclassified from a Schedule I drug to a Schedule III drug under the CSA. HHS based this recommendation on an FDA review of cannabis’ classification pursuant to 42 Table of Contents President Biden’s executive order in October 2022.
In August 2023, HHS recommended to the DEA that cannabis be reclassified from a Schedule I drug to a Schedule III drug under the CSA. HHS based this recommendation on an FDA review of cannabis’ classification pursuant to President Biden’s executive order in October 2022.
If any one of these events were to occur, our financial condition, results of operations, cash flow, and our ability to make distributions to our stockholders could be materially and adversely affected. A downgrade in our investment grade credit rating could materially adversely affect our business and financial condition.
If any one of these events were to occur, our financial condition, results of operations, cash flow, and our ability to make distributions to our stockholders could be materially and adversely affected. 45 Table of Contents A downgrade in our investment grade credit rating could materially adversely affect our business and financial condition.
As of December 31, 2023, we had 21 full-time employees. Our corporate office is located at 1389 Center Drive, Suite 200, Park City, Utah 84098. Our telephone number is (858) 997-3332. 2023 Business Update Investments During 2023, we acquired two new properties and made additional investments into existing properties under development or redevelopment.
As of December 31, 2024, we had 22 full-time employees. Our corporate office is located at 1389 Center Drive, Suite 200, Park City, Utah 84098. Our telephone number is (858) 997-3332. 2024 Business Update Investments During 2024, we acquired two new properties and made additional investments into existing properties under development or redevelopment.
Should an uninsured loss occur, we could lose our capital investment or anticipated profits and cash flows from one or more properties. 36 Table of Contents If our properties’ access to adequate water and power supplies is interrupted, it could harm our ability to lease the properties for cannabis cultivation and production, thereby adversely affecting our ability to generate returns on our properties.
Should an uninsured loss occur, we could lose our capital investment or anticipated profits and cash flows from one or more properties. If our properties’ access to adequate water and power supplies is interrupted, it could harm our ability to lease the properties for cannabis cultivation and production, thereby adversely affecting our ability to generate returns on our properties.
Licenses, permits and approvals must be obtained from governmental authorities requiring such licenses, permits and approvals before chemicals and materials can be used at grow facilities. 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.
Licenses, permits and approvals must be obtained from 20 Table of Contents governmental authorities requiring such licenses, permits and approvals before chemicals and materials can be used at grow facilities. 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.
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.
We rely on the senior management team’s ability to execute acquisitions and dispositions of properties, 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.
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 rely on our management team to perform due diligence investigations of our 25 Table of Contents potential tenants, related guarantors and their properties, operations and prospects, of which there is generally little or no publicly available operating and financial information.
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. 57 Table of Contents ​ ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. ​
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. ​ ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. ​
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 As of December 31, 2023, we owned 108 properties located in 19 states.
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 As of December 31, 2024, we owned 109 properties located in 19 states.
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.
If one or more of our tenants are unable to renew or otherwise maintain its licenses or other state and 33 Table of Contents local authorizations necessary to continue its cannabis operations, such tenants may default on their lease payments to us.
We may also issue 14 Table of Contents common stock to permanently finance properties that were previously financed by debt securities or draws from our Revolving Credit Facility. However, we cannot assure you that we will have access to the capital markets at times and on terms that are acceptable to us.
We may also issue common stock to permanently finance properties that were previously financed by debt securities or draws from our Revolving Credit Facility. However, we cannot assure you that we will have access to the capital markets at times and on terms that are acceptable to us.
In many instances, we will generally not be entitled to financial results or other credit-related data from our tenants. See the section “Risks Related to Our Business” under Item 1A, “Risk Factors.” Competition The current market for properties that meet our investment objectives is limited.
In many instances, we will generally not be entitled to 15 Table of Contents financial results or other credit-related data from our tenants. See the section “Risks Related to Our Business” under Item 1A, “Risk Factors.” Competition The current market for properties that meet our investment objectives is limited.
Department of Health and Human Services (“HHS”) recommended to the DEA that cannabis be reclassified from a Schedule I drug to a Schedule III drug under the CSA. HHS based this recommendation on a Food and Drug Administration (“FDA”) review of cannabis’ classification pursuant to President Biden’s executive order in October 2022.
In August 2023, the U.S. Department of Health and Human Services (“HHS”) recommended to the DEA that cannabis be reclassified from a Schedule I drug to a Schedule III drug under the CSA. HHS based this recommendation on a Food and Drug Administration (“FDA”) review of cannabis’ classification pursuant to President Biden’s executive order in October 2022.
Likewise, even though net leases reduce our exposure to rising property expenses due to inflation, 30 Table of Contents 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.
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.
If general economic instability or downturn leads to an inability to borrow at attractive rates or at all, our ability to obtain capital to finance the purchase of real estate assets could be negatively impacted.
If general economic instability or downturn leads to an inability to borrow at attractive rates or at all, our 44 Table of Contents ability to obtain capital to finance the purchase of real estate assets could be negatively impacted.
In addition, because we are a holding company, your claims as stockholders will be structurally subordinated to all existing and future liabilities and obligations of our Operating Partnership and its subsidiaries.
In addition, because we are a holding company, your claims as stockholders will be structurally subordinated to all existing and future liabilities and 48 Table of Contents obligations of our Operating Partnership and its subsidiaries.
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. Capital raising activities by U.S.
We intend to file 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. Capital raising activities by U.S.
The FinCEN Memorandum sets forth extensive requirements for financial institutions to meet if they want to offer bank accounts to 18 Table of Contents cannabis-related businesses and echoed the enforcement priorities of the Cole Memo.
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.
The ultimate outcome of litigation could have a material adverse effect on our business and the trading price for our securities. Inflation may adversely affect our business and our tenants’ financial condition and results of operations.
The ultimate outcome of litigation could have a material adverse effect on our business and the trading price for our securities. 30 Table of Contents Inflation may adversely affect our business and our tenants’ financial condition and results of operations.
Any such issuance could result in dilution of the equity of our stockholders. Sales of substantial amounts of shares of our common stock in the public market, or the perception that such sales might occur, could adversely affect the market price of our common stock.
Any such issuance could result in dilution of the equity of our 51 Table of Contents stockholders. Sales of substantial amounts of shares of our common stock in the public market, or the perception that such sales might occur, could adversely affect the market price of our common stock.
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. In July 2022, Kings Garden, Inc.
For example, Arizona, California, Colorado, Illinois, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Jersey, New York, Ohio, 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. 12 Table of Contents In July 2022, Kings Garden, Inc.
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. ​ As of December 31, 2023, we owned 108 properties.
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. ​ As of December 31, 2024, we owned 109 properties.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe audit committee engages in regular discussions with management regarding our significant financial risk exposures and the measures implemented to monitor and control these risks, including those that may result from material cybersecurity threats. ​ 58 Table of Contents Our management, represented by our Chief Operating Officer, Catherine Hastings, leads our cybersecurity risk assessment and management processes and oversees their implementation and maintenance.
Biggest changeThe audit committee engages in regular discussions with management regarding our significant financial risk exposures and the measures implemented to monitor and control these risks, including those that may result from material cybersecurity threats. ​ Our management, represented by our Chief Operating Officer, Catherine Hastings, leads our cybersecurity risk assessment and management processes and oversees their implementation and maintenance. Ms.
Ms. Hastings is an experienced risk management professional, having previously served as our Chief Financial Officer and Treasurer from 2017 until March 2023, and as Vice President, internal audit of BioMed Realty Trust, Inc. (formerly NYSE: BMR) until December 2016, having joined BioMed Realty in 2009. Ms.
Hastings is an experienced risk management professional, having previously served as our Chief Financial Officer and Treasurer from 2017 until March 2023, and as Vice President, internal audit of BioMed Realty Trust, Inc. (formerly NYSE: BMR) until December 2016, having joined BioMed Realty in 2009. Ms.
Depending on the nature of the services provided, the sensitivity and quantity of information processed, and the identity of the service provider, our vendor management process may include reviewing the cybersecurity practices of such provider, conducting security assessments, and conducting periodic reassessments during their engagement. ​ We are not aware of any risks from cybersecurity threats, including as a result of any cybersecurity incidents, which have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition.
Depending on the nature of the services provided, the sensitivity and quantity of information processed, and the identity of the service provider, our vendor management process may include reviewing the cybersecurity practices of such provider, conducting security assessments, and conducting periodic reassessments during their engagement. ​ We are not aware of any risks from cybersecurity threats, including as a result of any cybersecurity incidents, which have materially affected or are reasonably likely to materially affect us, including our business strategy, results of 59 Table of Contents operations, or financial condition.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS For a description of our legal proceedings, see Note 11 “Commitments and Contingencies — Litigation” to our consolidated financial statements, which is hereby incorporated by reference. ​ ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ​ 59 Table of Contents PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS For a description of our legal proceedings, see Note 11 “Commitments and Contingencies — Litigation” to our consolidated financial statements, which is hereby incorporated by reference. ​ ITEM 4. MINE SAFETY DISCLOSURES Not applicable. ​ 60 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 59 ​ ​ PART II ​ Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 60 Item 6. [Reserved] 61 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 62 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 79 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 60 ​ ​ PART II ​ Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 61 Item 6. [Reserved] 62 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 63 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 79 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSuch shares of our common stock were issued in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended. ​ For information regarding our outstanding indebtedness, which includes our Notes due 2026 and our Exchangeable Senior Notes, see Note 7 “Debt” in the notes to our consolidated financial statements. ​
Biggest changeSuch shares of our common stock were issued in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended. ​ For information regarding our Exchangeable Senior Notes, see Note 7 “Debt” in the notes to our consolidated financial statements. ​
Information about our equity compensation plans and other related stockholder matters is incorporated by reference in Item 12 of Part III of this Annual Report on Form 10-K. 60 Table of Contents Stock Performance Graph The following graph shows a comparison from January 1, 2019 to December 31, 2023 of cumulative total stockholder return, calculated on a dividends reinvested basis, for Innovative Industrial Properties, Inc., the S&P 500 Stock Index, or the S&P 500, and the MSCI US REIT Index, which includes all tax-qualified equity REITs listed in the United States.
Information about our equity compensation plans and other related stockholder matters is incorporated by reference in Item 12 of Part III of this Annual Report on Form 10-K. 61 Table of Contents Stock Performance Graph The following graph shows a comparison from January 1, 2020 to December 31, 2024 of cumulative total stockholder return, calculated on a dividends reinvested basis, for Innovative Industrial Properties, Inc., the S&P 500 Stock Index, or the S&P 500, and the MSCI US REIT Index, which includes all tax-qualified equity REITs listed in the United States.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the NYSE under the symbol “IIPR.” As of February 27, 2024, there were 32 holders of record of our common shares. This number excludes our common shares owned by stockholders holding under nominee security position listings.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the NYSE under the symbol “IIPR.” As of February 14, 2025, there were 32 holders of record of our common shares. This number excludes our common shares owned by stockholders holding under nominee security position listings.
Source: SNL Financial ​ Recent Sales of Unregistered Securities During the year ended December 31, 2023, we issued 32,200 shares of our common stock upon exchange by holders of $2.0 million of outstanding principal amount of our Exchangeable Senior Notes.
Source: SNL Financial ​ Recent Sales of Unregistered Securities During the year ended December 31, 2024, we issued 28,408 shares of our common stock upon exchange by holders of $4.3 million of outstanding principal amount of our Exchangeable Senior Notes.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe table below is a reconciliation of net income attributable to common stockholders to FFO, Normalized FFO and AFFO for the years ended December 31, 2023, 2022 and 2021 (in thousands, except share and per share amounts): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2023 2022 2021 Net income attributable to common stockholders ​ $ 164,236 $ 153,034 $ 112,638 Real estate depreciation and amortization ​ 67,194 ​ 61,303 ​ 41,776 Gain on sale of real estate ​ — ​ (3,601) ​ — FFO attributable to common stockholders (basic) ​ ​ 231,430 ​ ​ 210,736 ​ ​ 154,414 Cash and non-cash interest expense on Exchangeable Senior Notes ​ ​ 219 ​ ​ 546 ​ ​ 7,517 FFO attributable to common stockholders (diluted) ​ ​ 231,649 ​ ​ 211,282 ​ ​ 161,931 Financing expense ​ ​ — ​ ​ 367 ​ ​ — Litigation-related expense ​ ​ 2,480 ​ ​ 3,010 ​ ​ — Loss (gain) on exchange of Exchangeable Senior Notes ​ ​ (22) ​ ​ 125 ​ ​ 3,692 Normalized FFO attributable to common stockholders (diluted) ​ ​ 234,107 ​ ​ 214,784 ​ ​ 165,623 Interest income on seller-financed note (1) ​ ​ 1,342 ​ ​ — ​ ​ — Stock-based compensation ​ 19,581 ​ 17,507 ​ 8,616 Non-cash interest expense ​ 1,375 ​ 1,255 ​ 715 Above-market lease amortization ​ ​ 92 ​ ​ 91 ​ ​ 4 AFFO attributable to common stockholders (diluted) ​ $ 256,497 ​ $ 233,637 ​ $ 174,958 FFO per common share – diluted ​ $ 8.20 ​ $ 7.64 ​ $ 6.17 Normalized FFO per common share – diluted ​ $ 8.29 ​ $ 7.76 ​ $ 6.31 AFFO per common share – diluted ​ $ 9.08 ​ $ 8.45 ​ $ 6.66 Weighted average common shares outstanding – basic ​ 27,977,807 ​ 27,345,047 ​ 23,903,017 Restricted stock and RSUs ​ ​ 196,821 ​ ​ 116,046 ​ ​ 96,174 PSUs ​ ​ — ​ ​ — ​ ​ 81,414 Dilutive effect of Exchangeable Senior Notes ​ ​ 81,169 ​ ​ 202,076 ​ ​ 2,180,550 Weighted average common shares outstanding – diluted ​ 28,255,797 ​ 27,663,169 ​ 26,261,155 ​ (1) Amount reflects the non-refundable interest paid on the seller-financed note issued to us by the buyer in connection with our disposition of a portfolio of four properties in southern California previously leased to affiliates of Vertical, which is recognized as a deposit liability and is included in other liabilities in our consolidated balance sheet as of December 31, 2023, as the transaction did not qualify for recognition as a completed sale. ​ 74 Table of Contents ​ The tables below are reconciliations of quarterly net income attributable to common stockholders to FFO, Normalized FFO and AFFO for the years ended December 31, 2023 and 2022 (in thousands, except share and per share amounts): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended (1) ​ December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Net income attributable to common stockholders ​ $ 41,295 $ 41,256 ​ $ 40,931 $ 40,754 Real estate depreciation and amortization ​ 17,098 ​ 16,678 ​ 16,704 ​ 16,714 FFO attributable to common stockholders (basic) ​ ​ 58,393 ​ ​ 57,934 ​ ​ 57,635 ​ ​ 57,468 Cash and non-cash interest expense on Exchangeable Senior Notes ​ ​ 50 ​ ​ 50 ​ ​ 50 ​ ​ 69 FFO attributable to common stockholders (diluted) ​ ​ 58,443 ​ ​ 57,984 ​ ​ 57,685 ​ ​ 57,537 Litigation-related expense ​ ​ 152 ​ ​ 1,112 ​ ​ 670 ​ ​ 546 Loss (gain) on exchange of Exchangeable Senior Notes ​ ​ — ​ ​ — ​ ​ — ​ ​ (22) Normalized FFO attributable to common stockholders (diluted) ​ ​ 58,595 ​ ​ 59,096 ​ ​ 58,355 ​ ​ 58,061 Interest income on seller-financed note (2) ​ ​ 403 ​ ​ 402 ​ ​ 403 ​ ​ 134 Stock-based compensation ​ 4,934 ​ ​ 4,934 ​ ​ 4,884 ​ ​ 4,829 Non-cash interest expense ​ ​ 383 ​ ​ 335 ​ ​ 331 ​ ​ 326 Above-market lease amortization ​ 23 ​ ​ 23 ​ ​ 23 ​ ​ 23 AFFO attributable to common stockholders (diluted) ​ $ 64,338 ​ $ 64,790 ​ $ 63,996 ​ $ 63,373 FFO per common share – diluted ​ $ 2.07 ​ $ 2.05 ​ $ 2.04 ​ $ 2.04 Normalized FFO per common share – diluted ​ $ 2.07 ​ $ 2.09 ​ $ 2.07 ​ $ 2.06 AFFO per common share – diluted ​ $ 2.28 ​ $ 2.29 ​ $ 2.26 ​ $ 2.25 Weighted-average common shares outstanding – basic ​ 27,996,393 ​ ​ 27,983,004 ​ ​ 27,981,517 ​ ​ 27,949,747 Restricted stock and RSUs ​ ​ 206,667 ​ ​ 206,919 ​ ​ 201,462 ​ ​ 171,741 Dilutive effect of Exchangeable Senior Notes ​ ​ 76,774 ​ ​ 75,682 ​ ​ 74,260 ​ ​ 102,210 Weighted-average common shares outstanding – diluted ​ 28,279,834 ​ 28,265,605 ​ 28,257,239 ​ 28,223,698 ​ 75 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended (1) ​ December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022 Net income attributable to common stockholders ​ $ 41,168 $ 37,278 ​ $ 39,876 $ 34,712 Real estate depreciation and amortization ​ ​ 16,302 ​ ​ 15,900 ​ ​ 15,233 ​ ​ 13,868 Gain on sale of real estate ​ ​ (3,601) ​ ​ — ​ ​ — ​ ​ — FFO attributable to common stockholders (basic) ​ ​ 53,869 ​ ​ 53,178 ​ ​ 55,109 ​ ​ 48,580 Cash and non-cash interest expense ​ ​ 72 ​ ​ 72 ​ ​ 68 ​ ​ 334 FFO attributable to common stockholders (diluted) ​ ​ 53,941 ​ ​ 53,250 ​ ​ 55,177 ​ ​ 48,914 Financing expense ​ ​ 249 ​ ​ 14 ​ ​ 104 ​ ​ — Litigation-related expense ​ ​ 779 ​ ​ 2,112 ​ ​ 119 ​ ​ — Loss (gain) on exchange of Exchangeable Senior Notes ​ ​ — ​ ​ — ​ ​ 7 ​ ​ 118 Normalized FFO attributable to common stockholders (diluted) ​ ​ 54,969 ​ ​ 55,376 ​ ​ 55,407 ​ ​ 49,032 Stock-based compensation ​ ​ 4,312 ​ ​ 4,379 ​ ​ 4,437 ​ ​ 4,379 Non-cash interest expense ​ ​ 321 ​ ​ 316 ​ ​ 311 ​ ​ 307 Above-market lease amortization ​ ​ 23 ​ ​ 23 ​ ​ 23 ​ ​ 23 AFFO attributable to common stockholders (diluted) ​ $ 59,625 ​ $ 60,094 ​ $ 60,178 ​ $ 53,741 FFO per common share – diluted ​ $ 1.92 ​ $ 1.89 ​ $ 1.97 ​ $ 1.86 Normalized FFO per common share – diluted ​ $ 1.95 ​ $ 1.97 ​ $ 1.98 ​ $ 1.86 AFFO per common share – diluted ​ $ 2.12 ​ $ 2.13 ​ $ 2.15 ​ $ 2.04 Weighted-average common shares outstanding – basic ​ 27,938,804 ​ ​ 27,938,568 ​ ​ 27,850,561 ​ ​ 25,620,253 Restricted stock and RSUs ​ ​ 117,831 ​ ​ 118,567 ​ ​ 82,387 ​ ​ 110,457 PSUs ​ ​ — ​ ​ — ​ ​ — ​ ​ 102,333 Dilutive effect of Exchangeable Senior Notes ​ ​ 103,626 ​ ​ 100,799 ​ ​ 103,742 ​ ​ 507,181 Weighted-average common shares outstanding – diluted ​ 28,160,261 ​ 28,157,934 ​ 28,036,690 ​ 26,340,224 (1) The sum of quarterly financial data may vary from annual data due to rounding and differences in the dilutive effect of potentially issuable shares of each reporting period.
Biggest changePrior to the lease modifications on January 1, 2024, which extended the initial lease terms, the leases were classified as operating leases and the lease payments received were recognized as rental revenue and therefore, included in net income attributable to common stockholder. ​ 75 Table of Contents ​ The tables below are reconciliations of quarterly net income attributable to common stockholders to FFO, Normalized FFO and AFFO for the years ended December 31, 2024 and 2023 (in thousands, except share and per share amounts): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended (1) ​ December 31, 2024 September 30, 2024 June 30, 2024 March 31, 2024 Net income attributable to common stockholders ​ $ 39,461 $ 39,651 ​ $ 41,655 $ 39,090 Real estate depreciation and amortization ​ 18,240 ​ 17,944 ​ 17,473 ​ 17,150 Disposition-contingent lease termination fee, net of loss on sale of real estate (2) ​ — ​ ​ — ​ ​ (451) ​ ​ — FFO attributable to common stockholders (basic) ​ ​ 57,701 ​ ​ 57,595 ​ ​ 58,677 ​ ​ 56,240 Cash and non-cash interest expense on Exchangeable Senior Notes ​ ​ — ​ ​ — ​ ​ — ​ ​ 28 FFO attributable to common stockholders (diluted) ​ ​ 57,701 ​ ​ 57,595 ​ ​ 58,677 ​ ​ 56,268 Litigation-related expense ​ ​ 268 ​ ​ 210 ​ ​ 164 ​ ​ 146 Normalized FFO attributable to common stockholders (diluted) ​ ​ 57,969 ​ ​ 57,805 ​ ​ 58,841 ​ ​ 56,414 Interest income on seller-financed note (3) ​ ​ 30 ​ ​ 268 ​ ​ 403 ​ ​ 403 Deferred lease payments received on sales-type leases (4) ​ ​ 568 ​ ​ 1,452 ​ ​ 1,462 ​ ​ 1,456 Stock-based compensation ​ 4,315 ​ ​ 4,316 ​ ​ 4,371 ​ ​ 4,315 Non-cash interest expense ​ ​ 456 ​ ​ 419 ​ ​ 401 ​ ​ 388 Above-market lease amortization ​ 23 ​ ​ 23 ​ ​ 23 ​ ​ 23 AFFO attributable to common stockholders (diluted) ​ $ 63,361 ​ $ 64,283 ​ $ 65,501 ​ $ 62,999 FFO per common share – diluted ​ $ 2.02 ​ $ 2.02 ​ ​ 2.06 ​ ​ 1.98 Normalized FFO per common share – diluted ​ $ 2.03 ​ $ 2.02 ​ ​ 2.06 ​ ​ 1.98 AFFO per common share – diluted ​ $ 2.22 ​ $ 2.25 ​ ​ 2.29 ​ ​ 2.21 Weighted-average common shares outstanding – basic ​ 28,254,565 ​ ​ 28,254,565 ​ ​ 28,250,843 ​ ​ 28,145,017 Restricted stock and RSUs ​ ​ 299,770 ​ ​ 299,770 ​ ​ 300,582 ​ ​ 278,890 PSUs ​ ​ — ​ ​ 25,352 ​ ​ 20,713 ​ ​ — Dilutive effect of Exchangeable Senior Notes ​ ​ — ​ ​ — ​ ​ — ​ ​ 38,079 Weighted-average common shares outstanding – diluted ​ 28,554,335 ​ 28,579,687 ​ 28,572,138 ​ 28,461,986 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended (1) ​ December 31, 2023 September 30, 2023 June 30, 2023 March 31, 2023 Net income attributable to common stockholders ​ $ 41,295 $ 41,256 ​ $ 40,931 $ 40,754 Real estate depreciation and amortization ​ ​ 17,098 ​ ​ 16,678 ​ ​ 16,704 ​ ​ 16,714 FFO attributable to common stockholders (basic) ​ ​ 58,393 ​ ​ 57,934 ​ ​ 57,635 ​ ​ 57,468 Cash and non-cash interest expense on Exchangeable Senior Notes ​ ​ 50 ​ ​ 50 ​ ​ 50 ​ ​ 69 FFO attributable to common stockholders (diluted) ​ ​ 58,443 ​ ​ 57,984 ​ ​ 57,685 ​ ​ 57,537 Litigation-related expense ​ ​ 152 ​ ​ 1,112 ​ ​ 670 ​ ​ 546 Loss (gain) on exchange of Exchangeable Senior Notes ​ ​ — ​ ​ — ​ ​ — ​ ​ (22) Normalized FFO attributable to common stockholders (diluted) ​ ​ 58,595 ​ ​ 59,096 ​ ​ 58,355 ​ ​ 58,061 Interest income on seller-financed note (3) ​ ​ 403 ​ ​ 402 ​ ​ 403 ​ ​ 134 Stock-based compensation ​ ​ 4,934 ​ ​ 4,934 ​ ​ 4,884 ​ ​ 4,829 Non-cash interest expense ​ ​ 383 ​ ​ 335 ​ ​ 331 ​ ​ 326 Above-market lease amortization ​ ​ 23 ​ ​ 23 ​ ​ 23 ​ ​ 23 AFFO attributable to common stockholders (diluted) ​ $ 64,338 ​ $ 64,790 ​ $ 63,996 ​ $ 63,373 FFO per common share – diluted ​ $ 2.07 ​ ​ 2.05 ​ ​ 2.04 ​ ​ 2.04 Normalized FFO per common share – diluted ​ $ 2.07 ​ ​ 2.09 ​ ​ 2.07 ​ ​ 2.06 AFFO per common share – diluted ​ $ 2.28 ​ ​ 2.29 ​ ​ 2.26 ​ ​ 2.25 Weighted-average common shares outstanding – basic ​ 27,996,393 ​ ​ 27,983,004 ​ ​ 27,981,517 ​ ​ 27,949,747 Restricted stock and RSUs ​ ​ 206,667 ​ ​ 206,919 ​ ​ 201,462 ​ ​ 171,741 Dilutive effect of Exchangeable Senior Notes ​ ​ 76,774 ​ ​ 75,682 ​ ​ 74,260 ​ ​ 102,210 Weighted-average common shares outstanding – diluted ​ 28,279,834 ​ 28,265,605 ​ 28,257,239 ​ 28,223,698 (1) The sum of quarterly financial data may vary from annual data due to rounding and differences in the dilutive effect of potentially issuable shares of each reporting period.
(2) Amount reflects the non-refundable interest paid on the seller-financed note issued to us by the buyer in connection with our disposition of a portfolio of four properties in southern California previously leased to affiliates of Vertical, which is recognized as a deposit liability and is included in other liabilities in our consolidated balance sheet as of December 31, 2023, as the transaction did not qualify for recognition as a completed sale.
(2) Amount reflects the non-refundable interest paid on the seller-financed note issued to us by the buyer in connection with our disposition of a portfolio of four properties in southern California previously leased to affiliates of Vertical, which is recognized as a deposit liability and is included in other liabilities in our consolidated balance sheet as of December 31, 2024 and 2023, as the transaction did not qualify for recognition as a completed sale.
In addition, this competition may put pressure on us to reduce the rental rates below those that we expect to charge for the properties that we acquire, which would adversely affect our financial results. 64 Table of Contents Operating Expenses Our operating expenses include general and administrative expenses, including personnel costs, stock-based compensation, and legal, accounting and other expenses related to corporate governance, public reporting and compliance with the various provisions of U.S. securities laws.
In addition, this competition may put pressure on us to reduce the rental rates below those that we expect to charge for the properties that we acquire, which would adversely affect our financial results. 65 Table of Contents Operating Expenses Our operating expenses include general and administrative expenses, including personnel costs, stock-based compensation, and legal, accounting and other expenses related to corporate governance, public reporting and compliance with the various provisions of U.S. securities laws.
The properties that we acquire consist of real estate assets that support the regulated cannabis industry. Most states where we own properties issue licenses for cannabis operations for a limited period.
The properties that we acquire consist of primarily real estate assets that support the regulated cannabis industry. Most states where we own properties issue licenses for cannabis operations for a limited period.
Because substantially all our leases are triple net, our tenants are generally responsible for the maintenance, insurance and property taxes associated with the properties they lease from us.
Because substantially all of our leases are triple net, our tenants are generally responsible for the maintenance, insurance and property taxes associated with the properties they lease from us.
In order for us to qualify as a REIT under the Code, the relevant sections of our charter provide that, subject to certain exceptions, no person or entity may own, or be deemed to own, by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of our outstanding shares of stock or Series A Preferred Stock or more than 9.8% (in value or number of shares, whichever is more restrictive) of our outstanding common stock or any class or series of our outstanding preferred stock. 65 Table of Contents Results of Operations Investments See Note 6 “Investments in Real Estate” in the notes to the consolidated financial statements for information regarding our investments in real estate and property portfolio activity during the year ended December 31, 2023.
In order for us to qualify as a REIT under the Code, the relevant sections of our charter provide that, subject to certain exceptions, no person or entity may own, or be deemed to own, by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of our outstanding shares of stock or Series A Preferred Stock or more than 9.8% (in value or number of shares, whichever is more restrictive) of our outstanding common stock or any class or series of our outstanding preferred stock. 66 Table of Contents Results of Operations Investments See Note 6 “Investments in Real Estate” in the notes to the consolidated financial statements for information regarding our investments in real estate and property portfolio activity during the year ended December 31, 2024.
After completing this process, we determined that for each of the operating properties evaluated, undiscounted cash flows over the holding period were in excess of carrying value and, therefore, we did not record any impairment losses for these properties for the years ended December 31, 2023, 2022 and 2021.
After completing this process, we determined that for each of the operating properties evaluated, undiscounted cash flows over the holding period were in excess of carrying value and, therefore, we did not record any impairment losses for these properties for the years ended December 31, 2024, 2023 and 2022.
Liquidity and Capital Resources Liquidity is a measure of our ability to meet potential cash requirements. We expect to use significant cash to acquire additional properties, develop and redevelop existing properties, pay dividends to our stockholders, fund our operations, service our Exchangeable Senior Notes and Notes due 2026 and meet other general business needs.
Liquidity and Capital Resources Liquidity is a measure of our ability to meet potential cash requirements. We expect to use significant cash to acquire additional properties, develop and redevelop existing properties, pay dividends to our stockholders, fund our operations, service our Notes due 2026 and meet other general business needs.
The use of different assumptions can affect the amount of consideration allocated to the acquired depreciable/amortizable asset, which in turn can impact our net income due to the recognition of the related depreciation/amortization expense in our consolidated statements of operations. ​ We depreciate buildings and improvements where we are considered the owner for accounting purposes based on our evaluation of the estimated useful life of each specific asset, not to exceed 40 years.
The use of different assumptions can affect the amount of consideration allocated to the acquired depreciable/amortizable asset, which in turn can impact our net income due to the recognition of the related depreciation/amortization expense in our consolidated statements of operations. ​ 77 Table of Contents We depreciate buildings and improvements where we are considered the owner for accounting purposes based on our evaluation of the estimated useful life of each specific asset, not to exceed 40 years.
See Note 2 “Summary of Significant Accounting Policies and Procedures” in the notes to the consolidated financial statements for further information regarding the tenants in our portfolio that represented the largest percentage of our total rental revenues for the year ended December 31, 2023.
See Note 2 “Summary of Significant Accounting Policies and Procedures” in the notes to the consolidated financial statements for further information regarding the tenants in our portfolio that represented the largest percentage of our total rental revenues for the year ended December 31, 2024.
When we conclude that we are the owner of improvements for accounting purposes using the factors discussed above, we record the cost to construct the improvements as our capital asset. 77 Table of Contents We evaluate our real estate assets for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a given asset may not be recoverable.
When we conclude that we are the owner of improvements for accounting purposes using the factors discussed above, we record the cost to construct the improvements as our capital asset. We evaluate our real estate assets for potential impairment whenever events or changes in circumstances indicate that the carrying amount of a given asset may not be recoverable.
Additionally, market dynamics and the regulatory regime in the states where they operate create challenges that may impact our tenants’ businesses and/or decrease future demand for regulated cannabis cultivation and production facilities.
Market dynamics and the regulatory regime in the states where they operate create challenges that impact our tenants’ businesses and may decrease future demand for regulated cannabis cultivation and production facilities.
Our computation of FFO, Normalized FFO and AFFO may differ from the methodology for calculating FFO, Normalized FFO and AFFO utilized by other equity REITs and, accordingly, may not be comparable to such REITs. 73 Table of Contents Further, FFO, Normalized FFO and AFFO do not represent cash flow available for management’s discretionary use.
Our computation of FFO, Normalized FFO and AFFO may differ from the methodology for calculating FFO, Normalized FFO and AFFO utilized by other equity REITs and, accordingly, may not be comparable to such REITs. Further, FFO, Normalized FFO and AFFO do not represent cash flow available for management’s discretionary use.
This discussion of our critical accounting estimates is intended to supplement the description of our accounting policies in the footnotes to our consolidated financial statements and to provide additional 76 Table of Contents insight into the information used by management when evaluating significant estimates and assumptions.
This discussion of our critical accounting estimates is intended to supplement the description of our accounting policies in the footnotes to our consolidated financial statements and to provide additional insight into the information used by management when evaluating significant estimates and assumptions.
For a discussion of such risk factors, see Item 1A, “Risk Factors.” Overview 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.
For a discussion of such risk factors, see Item 1A, “Risk Factors.” Overview We are an internally-managed REIT focused on the acquisition, ownership and management of specialized industrial properties in the United States. Our properties are leased to experienced, state-licensed operators for their regulated cannabis facilities.
No other properties accounted for more than 5% of our net real estate held for investment at December 31, 2023.
No other properties accounted for more than 5% of our net real estate held for investment at December 31, 2024.
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.
Labor 64 Table of Contents 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.
Our ability to continue to pay dividends is dependent upon our ability to continue to generate cash flows, service any debt obligations we have, including our Exchangeable Senior Notes, and make accretive new investments. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2023 ​ 2022 2021 Ordinary income distributions ​ $ 7.700000 $ 6.929636 ​ $ 5.340000 Long-term capital gain distributions (1) ​ — ​ 0.100364 ​ — Total ​ $ 7.700000 ​ $ 7.030000 ​ $ 5.340000 ​ (1) Unrecaptured Section 1250 Gain of $0.058864 represents additional characterization of and is part of long-term capital gain distributions for the year ended December 31, 2022. ​ The common stock distribution with a record date of December 29, 2023 was a split-year distribution, with $0.83 allocable to 2023 for federal income tax purposes and $0.99 allocable to 2024 for federal income tax purposes.
Our ability to continue to pay dividends is dependent upon our ability to continue to generate cash flows, service any debt obligations we have, including our Notes due 2026, and make accretive new investments. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ 2024 ​ 2023 2022 Ordinary income distributions ​ $ 7.440000 $ 7.700000 ​ $ 6.929636 Long-term capital gain distributions (1) ​ — ​ — ​ 0.100364 Total ​ $ 7.440000 ​ $ 7.700000 ​ $ 7.030000 ​ (1) Unrecaptured Section 1250 Gain of $0.058864 represents additional characterization of and is part of long-term capital gain distributions for the year ended December 31, 2022. ​ The common stock distribution with a record date of December 31, 2024 was a split-year distribution, with $0.83 allocable to 2024 for federal income tax purposes and $1.07 allocable to 2025 for federal income tax purposes.
As of December 31, 2023, we had invested approximately $2.4 billion in the aggregate (consisting of purchase price and funding of draws for improvements submitted by tenants, if any, but excluding transaction costs) and had committed an additional approximately $40.1 million to fund draws to certain tenants and vendors for improvements at our properties.
As of December 31, 2024, we had invested $2.4 billion in the aggregate (consisting of purchase price and funding of draws for improvements submitted by tenants, if any, but excluding transaction costs) and had committed an additional $38.3 million to fund draws to certain tenants and vendors for improvements at our properties.
During the year ended December 31, 2023, we received cash interest payments of approximately $1.3 million, which has been recorded as a liability as of December 31, 2023.
During the year ended December 31, 2024, we received cash interest payments of $1.1 million, which has been recorded as a liability as of December 31, 2024.
Cash flows provided by operating activities primarily related to contractual rent and security deposits from our properties, partially offset by general and administrative expense, interest expense, property expense in excess of tenant reimbursements and property expenses at properties that were not leased.
Cash flows provided by operating activities were generally from contractual rent and tenant reimbursements from our properties, partially offset by our general and administrative expense, interest expense, property expenses in excess of tenant reimbursements and property expenses at properties that were not leased.
Financing Activities Cash flows used in financing activities for the year ended December 31, 2023 were approximately $195.6 million, primarily related to dividend payments of approximately $204.1 million to common and preferred stockholders, approximately $561,000 related to payment of deferred financing costs on the Revolving Credit Facility, and approximately $568,000 related to the net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees, partially offset by approximately $9.6 million in net proceeds from the issuance of our common stock.
Cash flows used in financing activities for the year ended December 31, 2023 were $195.6 million, primarily related to dividend payments of $204.1 million to common and preferred stockholders and $1.1 million related to the net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees 69 Table of Contents and payment of deferred financing costs, partially offset by $9.6 million in net proceeds from the issuance of our common stock.
During 2023, we declared cash dividends on our common stock totaling $7.22 per share, and cash dividends on our Series A Preferred Stock totaling $2.25 per share.
During 2024, we declared cash dividends on our common stock totaling $7.52 per share, and cash dividends on our Series A Preferred Stock totaling $2.25 per share.
If a tenant defaults on one of our leases or the lease term expires with no tenant renewal, we would incur property costs not paid by the tenant during the time it takes to re-lease or sell the property. As of December 31, 2023, we owned 108 properties.
If a tenant defaults on one of our leases or the lease term expires with no tenant renewal, we would incur property costs not paid by the tenant during the time it takes to re-lease or sell the property.
In addition, as we have not met all of the held-for-sale criteria, land and building and improvements with gross carrying values of approximately $3.4 million and approximately $13.9 million, respectively, and accumulated depreciation of approximately $1.6 million as of December 31, 2023, remain on the consolidated balance sheet, and the buildings and improvements continue to be depreciated.
In addition, as we have not met all of the held-for-sale criteria, land and building and improvements with gross carrying values of $3.4 million and $13.9 million, respectively, and accumulated depreciation of $2.0 million as of December 31, 2024, remain on the consolidated balance sheets, and the buildings and improvements continue to be depreciated.
We do not include in our operating portfolio the following properties (all of which were under development/redevelopment as of December 31, 2023, and together are expected to comprise approximately 715,000 rentable square feet upon completion of development/redevelopment): ● Inland Center Drive in San Bernardino, California; ● Perez Road in Cathedral City, California (pre-leased); ● 63795 19th Avenue in Palm Springs, California; ● Leah Avenue in San Marcos, Texas; and ● Davis Highway in Dimondale, Michigan (pre-leased). 62 Table of Contents Factors Impacting Our Operating Results Our results of operations are affected by a number of factors and depend on the rental revenue we receive from the properties that we acquire, the timing of lease expirations, general market conditions, the regulatory environment in the cannabis industry, and the competitive environment for real estate assets that support the regulated cannabis industry.
We do not include in our operating portfolio the following properties (all of which were under development/redevelopment as of December 31, 2024, and together are expected to comprise 491,000 rentable square feet upon completion of development/redevelopment): ● 63795 19th Avenue in Palm Springs, California (pre-leased); ● Inland Center Drive in San Bernardino, California; and ● Leah Avenue in San Marcos, Texas. ​ Factors Impacting Our Operating Results Our results of operations are affected by a number of factors and depend on the rental revenue we receive from the properties that we acquire, the timing of lease expirations, general market conditions, the regulatory environment in the cannabis industry, and the competitive environment for real estate assets that support the regulated cannabis industry. 63 Table of Contents Rental Revenues We receive income primarily from rental revenue generated by the properties that we acquire.
Many of our tenants are tenants at multiple properties. We seek to manage our portfolio-level risk through geographic diversification and by minimizing dependence on any single property or tenant. At December 31, 2023, our largest property was located in New York and accounted for approximately 5.4% of our net real estate held for investment.
We seek to manage our portfolio-level risk through geographic diversification and by minimizing dependence on any single property or tenant. At December 31, 2024, our largest property was located in New York and accounted for 5.5% of our net real estate held for investment.
Conditions in Our Markets Positive or negative changes in regulatory, economic or other conditions, drought, and natural disasters in the markets where we acquire properties may affect our overall financial performance.
Conditions in Our Markets Positive or negative changes in regulatory, economic or other conditions, drought, and natural disasters in the markets where we acquire properties may affect our overall financial performance. Our tenants primarily operate in the regulated cannabis industry.
Other Revenues. Other revenues for the year ended December 31, 2023 consists of interest revenue related to leases for property acquisitions that did not satisfy the requirements for sale-leaseback accounting.
Other revenues for the years ended December 31, 2024 and 2023 consist of interest revenue related to leases for property acquisitions that did not satisfy the requirements for sale-leaseback accounting.
Interest Rate Risk As of December 31, 2023, we had $300.0 million principal amount of Notes due 2026 and approximately $4.4 million principal amount of Exchangeable Senior Notes outstanding at fixed interest rates, and therefore, if interest rates decline, our required payments may exceed those based on current market rates.
Interest Rate Risk As of December 31, 2024, we had $300.0 million principal amount of Notes due 2026 outstanding at a fixed interest rate of 5.50%, and therefore, if interest rates decline, our required payments may exceed those based on current market rates.
There were no amounts outstanding under the Loan Agreement as of December 31, 2023. See Note 7 “Debt” to our consolidated financial statements included in this report for more information.
There were no amounts outstanding under the Revolving Credit Facility as of December 31, 2024. See Note 7 “Debt” to our consolidated financial statements included in this report for more information.
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.
Unit Pricing for Regulated Cannabis Products Many states have experienced 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.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2022 for a comparison of the years ended December 31, 2022 and December 31, 2021.
See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on February 27, 2024, for a comparison of the years ended December 31, 2023 and December 31, 2022.
Management believes that net income, as defined by GAAP, is the most appropriate earnings measurement. However, management believes FFO and FFO per share to be supplemental measures of a REIT’s performance because they provide an understanding of the operating performance of our properties without giving effect to certain significant non-cash items, primarily depreciation expense.
However, management believes FFO and FFO per share to be supplemental measures of a REIT’s performance because they provide an understanding of the operating performance of our properties without giving effect to certain significant non-cash items, primarily depreciation expense.
During the year ended December 31, 2023, we sold 101,061 shares of our common stock under the ATM Program for net proceeds of approximately $9.6 million. ​ 70 Table of Contents 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 of our Operating Partnership and other securities to the extent necessary or advisable to meet our liquidity needs.
During the year ended December 31, 2024, we sold 402,673 shares of our Series A Preferred Stock pursuant to the ATM Program for net proceeds of $9.6 million. ​ We intend to file an automatic shelf registration statement, which may permit us, from time to time, to offer and sell common stock, preferred stock, warrants, debt securities of our Operating Partnership and other securities to the extent necessary or advisable to meet our liquidity needs.
In addition, the terms of the indenture provide that if the debt rating on the Notes due 2026 is downgraded or withdrawn entirely, interest on the Notes due 2026 will increase to a range of 6.0% to 6.5% based on such debt rating.
Management believes that it was in compliance with those covenants as of December 31, 2024. In addition, the terms of the indenture provide that if the debt rating on the Notes due 2026 is downgraded or withdrawn entirely, interest on the Notes due 2026 will increase to a range of 6.0% to 6.5% based on such debt rating.
In September 2023, we regained possession of the four remaining properties that Kings Garden had occupied, where Kings Garden paid stipulated rent during its period of occupancy until September 20, 2023. In November 2022, Parallel defaulted on its obligations to pay rent at one of our properties in Pennsylvania, and we regained possession of that property in October 2023.
In July 2022, Kings Garden defaulted on its obligations to pay rent at all of the properties that Kings Garden leases from us. In September 2023, we regained possession of the four remaining properties that Kings Garden had occupied, where Kings Garden paid stipulated rent during its period of occupancy until September 20, 2023.
Property expenses are generally reimbursable to us by the tenants under the terms of the leases. General and Administrative Expense . General and administrative expense for the year ended December 31, 2023 increased by approximately $4.3 million, or 11%, to approximately $42.8 million, compared to approximately $38.5 million for the year ended December 31, 2022.
Property expenses related to leased properties are generally reimbursable to us by the tenants under the terms of the leases. General and Administrative Expense . General and administrative expense for the year ended December 31, 2024 decreased by $5.4 million, or 13%, to $37.4 million, compared to $42.8 million for the year ended December 31, 2023.
Reduced Capital Availability for Tenants and the Company In recent years, financial markets have been volatile, reflecting heightened geopolitical risks and material tightening of financial conditions since the U.S. Federal Reserve began increasing interest rates in spring of 2022 and continued uncertainty regarding monetary policy.
Capital Availability for Tenants Recently, financial markets have been volatile, reflecting heightened geopolitical risks and material tightening of financial conditions since the U.S. Federal Reserve began increasing interest rates in spring of 2022 and continued uncertainty regarding monetary policy. Driven in part by overall macroeconomic conditions, since 2021 capital availability has declined for regulated cannabis operators.
For these reasons, management has deemed it appropriate to disclose and discuss FFO and FFO per share. We compute normalized funds from operations (“Normalized FFO”) by adjusting FFO, as defined by NAREIT, to exclude certain GAAP income and expense amounts that we believe are infrequent and unusual in nature and/or not related to our core real estate operations.
We compute normalized funds from operations (“Normalized FFO”) by adjusting FFO, as defined by NAREIT, to exclude certain GAAP income and expense amounts that we believe are infrequent and unusual in nature and/or not 73 Table of Contents related to our core real estate operations.
A decrease of 5% in the estimated unguaranteed residual value of our properties would result in changes to the lease classifications of two leases that were modified during the year ended December 31, 2023.
A decrease of 5% in the estimated unguaranteed residual value of our properties would result in a change to the lease classification of one lease that was modified during the year ended December 31, 2024.
The common stock distribution with a record date of December 31, 2021 was a split-year distribution, with $0.10 allocable to 2021 for federal income tax purposes and $1.40 allocable to 2022 for federal income tax purposes.
The common stock distribution with a record date of December 29, 2023 was a split-year distribution, with $0.83 allocable to 2023 for federal income tax purposes and $0.99 allocable to 2024 for federal income tax purposes.
Our undiscounted cash flow and fair value calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flow and property fair values, including determining our estimated holding period. We are also required to make a number of assumptions relating to future economic and market events and prospective operating trends.
Our undiscounted cash flow and fair value calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flow and property fair values, including determining our estimated holding period.
The Notes due 2026 are the Operating Partnership’s general unsecured obligations, are fully and unconditionally guaranteed by us and all of the direct and indirect subsidiaries of the Operating Partnership, and rank equally in right of payment with all of the Operating Partnership’s existing and future senior unsecured indebtedness, including the Exchangeable Senior Notes.
The Notes due 2026 are the Operating Partnership’s general unsecured obligations, and rank equally in right of payment with all of the Operating Partnership’s existing and future senior unsecured indebtedness, including the Exchangeable Senior Notes which matured in February 2024.
Cash Flows The following summary discussion of our cash flows is based on the consolidated statements of cash flows in Item 8, “Financial Statements and Supplementary Data” and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2023 ​ 2022 Change Net cash provided by (used in) operating activities ​ $ 255,543 $ 234,130 ​ $ 21,413 Net cash provided by (used in) investing activities ​ (6,788) ​ (396,201) ​ 389,413 Net cash provided by (used in) financing activities ​ (195,628) ​ 164,224 ​ (359,852) Ending cash, cash equivalents and restricted cash ​ 141,699 ​ 88,572 ​ 53,127 ​ Operating Activities Cash flows provided by operating activities for the years ended December 31, 2023 and 2022 were approximately $255.5 million and $234.1 million, respectively.
Cash Flows The following summary discussion of our cash flows is based on the consolidated statements of cash flows in Item 8, “Financial Statements and Supplementary Data” and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, ​ ​ ​ ​ 2024 ​ 2023 Change Net cash provided by (used in) operating activities ​ $ 258,446 $ 255,543 ​ $ 2,903 Net cash provided by (used in) investing activities ​ (55,996) ​ (6,788) ​ (49,208) Net cash provided by (used in) financing activities ​ (197,904) ​ (195,628) ​ (2,276) Ending cash, cash equivalents and restricted cash ​ 146,245 ​ 141,699 ​ 4,546 ​ Operating Activities Cash flows provided by operating activities for the years ended December 31, 2024 and 2023 were $258.4 million and $255.5 million, respectively.
As of December 31, 2023, we had 21 full-time employees. As of December 31, 2023, we owned 108 properties comprising approximately 8.9 million square feet (including approximately 1.4 million rentable square feet under development/redevelopment) in 19 states.
As of December 31, 2024, we had 22 full-time employees. As of December 31, 2024, we owned 109 properties comprising 9.0 million square feet (including 666,000 rentable square feet under development/redevelopment) in 19 states.
Also in November 2022, Green Peak defaulted on its obligations to pay rent at one of our properties in Michigan. In March 2023, a receiver was appointed over substantially all of Green Peak’s assets, and we subsequently regained possession of one property that was under redevelopment as a regulated cannabis cultivation and processing facility and three retail properties in Michigan.
During 2023, a receiver was appointed over substantially all of Green Peak’s assets, and we regained possession of one property that was under redevelopment as a regulated cannabis cultivation and processing facility and three retail properties in Michigan. In February 2024, we regained possession of the remaining regulated cannabis cultivation and processing facility that was leased to Green Peak.
Contractual Obligations The following table summarizes our contractual obligations as of December 31, 2023 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments Due ​ ​ ​ Exchangeable ​ ​ ​ ​ ​ ​ by Year Notes due 2026 ​ Senior Notes Interest Office Rent Total 2024 ​ $ — ​ $ 4,436 ​ $ 16,523 ​ $ 511 ​ $ 21,470 2025 ​ ​ — ​ — ​ 16,500 ​ 526 ​ 17,026 2026 ​ ​ 300,000 ​ — ​ 6,646 ​ 543 ​ 307,189 2027 ​ ​ — ​ — ​ — ​ 45 ​ 45 2028 ​ ​ — ​ — ​ — ​ — ​ — Total ​ $ 300,000 ​ $ 4,436 ​ $ 39,669 ​ $ 1,625 ​ $ 345,730 ​ As of December 31, 2023, we had (1) approximately $18.7 million outstanding in commitments related to improvement allowances, which generally may be requested by the tenants at any time up until a date that is near the expiration of the initial term of the applicable lease; (2) approximately $11.8 million outstanding in commitments related to contracts with vendors for improvements at our properties, which are expected to be incurred by December 31, 2024; and (3) $1.0 million outstanding in commitments to fund a construction loan.
The common stock distribution with a record date of December 30, 2022 was a split-year distribution, with $0.33 allocable to 2022 for federal income tax purposes and $1.47 allocable to 2023 for federal income tax purposes. 72 Table of Contents Contractual Obligations The following table summarizes our contractual obligations as of December 31, 2024 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Payments Due ​ ​ ​ ​ ​ ​ ​ ​ by Year Notes due 2026 Interest Office Rent Total 2025 ​ $ — ​ $ 16,500 ​ $ 526 ​ $ 17,026 2026 ​ ​ 300,000 ​ 6,646 ​ 543 ​ 307,189 2027 ​ ​ — ​ — ​ 45 ​ 45 2028 ​ ​ — ​ — ​ — ​ — 2029 ​ ​ — ​ — ​ — ​ — Thereafter ​ ​ — ​ — ​ — ​ — Total ​ $ 300,000 ​ $ 23,146 ​ $ 1,114 ​ $ 324,260 ​ As of December 31, 2024, we had (1) $37.1 million outstanding in commitments related to improvement allowances, which generally may be requested by the tenants at any time up until a date that is near the expiration of the initial term of the applicable lease; (2) $1.2 million outstanding in commitments related to contract with vendors for improvements at our properties; and (3) $0.2 million outstanding in commitments to fund a construction loan.
For all periods presented FFO (diluted), Normalized FFO, AFFO and FFO, Normalized FFO and AFFO per diluted share include the dilutive impact of the assumed full exchange of the Exchangeable Senior Notes for shares of common stock.
Other than for the three months ended December 31, 2024, September 30, 2024 and June 30, 2024, FFO (diluted), Normalized FFO, AFFO and FFO, Normalized FFO and AFFO per diluted share include the dilutive impact of the assumed full exchange of the Exchangeable Senior Notes for shares of common stock.
Cash flows provided by financing activities for the year ended December 31, 2022 were approximately $164.2 million, primarily related to approximately $351.9 million in net proceeds from the issuance of our common stock, partially offset by dividend payments of approximately $185.3 million to common and preferred stockholders and approximately $2.4 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees.
Financing Activities Cash flows used in financing activities for the year ended December 31, 2024 were $197.9 million, primarily related to dividend payments of $213.5 million to common and preferred stockholders, principal payment on the Exchangeable Senior Notes of $4.4 million, and $1.4 million related to the net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees and payment of deferred financing costs, partially offset by $11.8 million in net proceeds from the issuance of our common stock and $9.6 million in net proceeds from the issuance of our Series A Preferred Stock pursuant to our ATM program.
Likewise, during certain periods, the U.S. credit markets have experienced significant price volatility, dislocations, and liquidity disruptions, which may impact our access to and cost of capital. We continually monitor the commercial real estate and U.S. credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly.
Impact of Real Estate and Credit Markets In the commercial real estate market, property prices generally continue to fluctuate. Likewise, during certain periods, the U.S. credit markets have experienced significant price volatility, dislocations, and liquidity disruptions, which may impact our access to and cost of capital.
In May 2021, we received an investment grade rating from a ratings agency. We sought to obtain an investment grade rating to facilitate access to the investment grade unsecured debt market as part of our overall strategy to maximize our financial flexibility and manage our overall cost of capital.
We sought to obtain an investment grade rating to facilitate access to the investment grade unsecured debt market as part of our overall strategy to maximize our financial flexibility and manage our overall cost of capital. On May 25, 2021, our Operating Partnership issued $300.0 million aggregate principal amount of Notes due 2026.
Cash flows used in investing activities for the year ended December 31, 2022 included approximately $545.9 million of purchases of investments in real estate, funding of draws for improvements and construction, and funding of construction loan and other investments in the aggregate, partially offset by approximately $126.2 million of net maturities of short-term investments and receipt of $23.5 million of proceeds from sale of one of our Pennsylvania properties previously leased to a subsidiary of Maitri Holdings, LLC.
Investing Activities Cash flows used in investing activities for the year ended December 31, 2024 included $82.6 million of purchases of investments in real estate, funding of draws for improvements and construction, and funding of construction loan and other investments in the aggregate, partially offset by $9.1 million in proceeds related to the sale of our Los Angeles, California property and $17.5 million of net maturities of short-term investments.
Significant adverse changes in the critical accounting estimates used in the impairment evaluation are required for the undiscounted cash flows over the holding period to be less than the carrying value as of December 31, 2023. Impact of Real Estate and Credit Markets In the commercial real estate market, property prices generally continue to fluctuate.
Significant adverse changes in the critical accounting estimates and judgements used in the impairment evaluation would need to occur for the undiscounted cash flows over the holding period to be less than the carrying value for each operating property evaluated as of December 31, 2024.
For the three months ended March 31, 2022, 102,333 shares issuable upon vesting of the PSUs were dilutive, as the performance thresholds for vesting of these PSUs were met as measured as of March 31, 2022.
For the three months ended September 30 and June 30, 2024, 25,352 shares and 20,713 shares, respectively, issuable upon vesting of the PSUs were dilutive, as the performance thresholds for vesting of these PSUs were met as measured as of the respective periods.
Depreciation and amortization expense for the year ended December 31, 2023 increased by approximately $5.9 million, or 10%, to approximately $67.2 million, compared to approximately $61.3 million for the year ended December 31, 2022.
Compensation expense for the year ended December 31, 2024 and 2023 included $17.3 million and $19.6 million, respectively, of non-cash stock-based compensation. Depreciation and Amortization Expense. Depreciation and amortization expense for the year ended December 31, 2024 increased by $3.6 million, or 5%, to $70.8 million, compared to $67.2 million for the year ended December 31, 2023.
Comparison of the Years Ended December 31, 2023 and 2022 (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ ​ 2023 2022 Change Revenues: ​ ​ ​ ​ ​ Rental (including tenant reimbursements) $ 307,349 ​ $ 274,377 ​ $ 32,972 Other 2,157 ​ 1,982 ​ 175 Total revenues 309,506 ​ 276,359 ​ 33,147 ​ ​ ​ ​ ​ ​ ​ ​ ​ Expenses: ​ ​ Property expenses 24,893 ​ 10,520 ​ 14,373 General and administrative expense 42,832 ​ 38,520 ​ 4,312 Depreciation and amortization expense 67,194 ​ 61,303 ​ 5,891 Total expenses 134,919 ​ 110,343 ​ 24,576 Gain on sale of real estate ​ — ​ ​ 3,601 ​ ​ (3,601) Income from operations 174,587 ​ 169,617 ​ 4,970 Interest and other income 8,446 ​ 3,195 ​ 5,251 Interest expense ​ (17,467) ​ ​ (18,301) ​ ​ 834 Gain (loss) on exchange of Exchangeable Senior Notes 22 ​ (125) ​ 147 Net income 165,588 ​ 154,386 ​ 11,202 Preferred stock dividends (1,352) ​ (1,352) ​ — Net income attributable to common stockholders $ 164,236 ​ $ 153,034 ​ $ 11,202 ​ Revenues Rental Revenues.
Comparison of the Years Ended December 31, 2024 and 2023 (in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ ​ 2024 2023 Change Revenues: ​ ​ ​ ​ ​ ​ Rental (including tenant reimbursements) ​ $ 306,936 ​ $ 307,349 ​ $ (413) Other ​ 1,581 ​ 2,157 ​ (576) Total revenues ​ 308,517 ​ 309,506 ​ (989) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Expenses: ​ ​ ​ Property expenses ​ 28,472 ​ 24,893 ​ 3,579 General and administrative expense ​ 37,444 ​ 42,832 ​ (5,388) Depreciation and amortization expense ​ 70,807 ​ 67,194 ​ 3,613 Total expenses ​ 136,723 ​ 134,919 ​ 1,804 Gain (loss) on sale of real estate ​ ​ (3,449) ​ ​ — ​ ​ (3,449) Income from operations ​ 168,345 ​ 174,587 ​ (6,242) Interest income ​ 10,988 ​ 8,446 ​ 2,542 Interest expense ​ ​ (17,672) ​ ​ (17,467) ​ ​ (205) Gain (loss) on exchange of Exchangeable Senior Notes ​ — ​ 22 ​ (22) Net income ​ 161,661 ​ 165,588 ​ (3,927) Preferred stock dividends ​ (1,804) ​ (1,352) ​ (452) Net income attributable to common stockholders ​ $ 159,857 ​ $ 164,236 ​ $ (4,379) ​ ​ Revenues Rental Revenues.
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.
Inflation and Supply Chain Constraints The U.S. economy has experienced a sustained increase in inflation rates in recent years, which we believe is negatively impacting our tenants. 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.
Other revenues for the year ended December 31, 2023 increased by approximately $175,000, or 9%, to approximately $2.2 million, compared to approximately $2.0 million for the year ended December 31, 2022.
Interest income for the year ended December 31, 2024 increased by $2.6 million, or 30%, to $11.0 million, compared to $8.4 million for the year ended December 31, 2023.
The approximately $5.9 million increase was related to depreciation and amortization on properties that we acquired and the placement into service of construction at certain of our properties, of which approximately $1.0 million was related to the two properties we acquired in 2023, approximately $1.7 million was related to nine properties we acquired in 2022, and the remaining increase related to properties acquired prior to 2022.
The increase in depreciation and amortization expense was primarily related to depreciation on the two properties we acquired in 2024 and the placement into service of construction and improvements at certain of our properties. Loss on Sale of Real Estate.
According to Viridian, as of December 31, 2023, cannabis stock prices (as measured by the MSOS ETF) had declined 87% since their February 2021 peak. Also according to Viridian, mergers and acquisitions activity in the North American regulated cannabis industry declined significantly in 2023 to $1.75 billion, down from $4.95 billion in 2022. Capital raising activities by U.S.
Also, according to Viridian, mergers and acquisitions activity in the North American regulated cannabis industry declined in 2024 to $1.2 billion, down from $1.8 billion in 2023. Capital raising activities by U.S. REITs continued to increase in 2024 with $85 billion of capital raised compared to $62 billion in 2023.
It is possible that a property we acquire in the future would be subject to a mortgage, which we may assume. 78 Table of Contents Impact of Inflation The U.S. economy has experienced a sustained increase in inflation rates in recent years. We enter into leases that generally provide for fixed increases in rent.
As of December 31, 2024, we had no outstanding borrowings on our Revolving Credit Facility. Impact of Inflation The U.S. economy has experienced a sustained increase in inflation rates in recent years. We enter into leases that generally provide for fixed increases in rent.
Rental revenues for the year ended December 31, 2023 increased by approximately $33.0 million, or 12%, to approximately $307.4 million, compared to approximately $274.4 million for the year ended December 31, 2022.
Rental revenues for the year ended December 31, 2024 were $306.9 million, compared to $307.4 million for the year ended December 31, 2023, reflecting a decrease of $0.4 million or less than 1%.
To the extent additional resources are needed, we expect to fund our investment activity generally through equity or debt issuances either in the public or private markets along with draws on our Revolving Credit Facility. Where possible, we also may issue limited partnership interests in our Operating Partnership to acquire properties from existing owners seeking a tax-deferred transaction.
For the year ended December 31, 2024, property expenses included $4.1 million in non-reimbursed costs related to vacant properties or non-payment. To the extent additional resources are needed, we expect to fund our investment activity generally through equity or debt issuances either in the public or private markets along with draws on our Revolving Credit Facility.
Driven in part by overall macroeconomic conditions, capital availability has significantly declined for regulated cannabis operators. According to Viridian, worldwide cannabis capital raises in 2023 constituted a multi-year low, with less than $2 billion in total capital raises, versus over $4.3 billion in 2022 and over $12 billion in 2021.
According to Viridian Capital Advisors (“Viridian”), worldwide cannabis capital raises in 2024 increased slightly over 2023, with less than $2.3 billion in total capital raises, versus over $1.9 billion in 2023, $4.3 billion in 2022 and over $12.0 billion in 2021.
The Loan Agreement also allows the Operating Partnership, subject to the satisfaction of certain conditions, to request additional revolving loan commitments up to a specified amount. The Loan Agreement is subject to certain liquidity and operating covenants and includes customary representations and warranties, affirmative and negative covenants and events of default.
The Loan Agreement is subject to certain liquidity and operating covenants and includes customary representations and warranties, affirmative and negative covenants and events of default. There were no amounts outstanding under the Loan Agreement as of December 31, 2024.
In February 2023, Parallel also defaulted on its obligations to pay rent at one of our properties in Texas, and we regained possession of that property in March 2023. See Part I, Item 3. Legal Proceedings and Note 11 “Commitments and Contingencies — Litigation” to our consolidated financial statements for more information regarding Kings Garden, Parallel and Green Peak.
In February 2023, Parallel also defaulted on its obligations to pay rent at one of our properties in Texas, and we regained possession of that property in March 2023. In May 2024, Temescal Wellness defaulted on its obligations to pay rent at one of our properties in Massachusetts and we regained possession of that property in September 2024.
Cash flows provided by operating activities increased from 2022 to 2023 primarily due to leases for properties we acquired during these time periods, annual escalations of base rent on our leases, and amendments to existing leases to increase improvement allowances at those properties, which resulted in a corresponding increase in base rents, partially offset by rent payment defaults by certain tenants, higher cash compensation to employees and higher public company costs. 68 Table of Contents Investing Activities Cash flows used in investing activities for the year ended December 31, 2023 included approximately $189.0 million of purchases of investments in real estate, funding of draws for improvements and construction, and funding of construction loan and other investments in the aggregate, partially offset by approximately $182.2 million of net maturities of short-term investments.
Cash flows used in investing activities for the year ended December 31, 2023 included $189.0 million of purchases of investments in real estate, funding of draws for improvements and construction, and funding of construction loan and other investments in the aggregate, partially offset by $182.2 million of net maturities of short-term investments.
We expect to incur some property-level operating costs from time to time in periods during which properties that become vacant are being remarketed or re-positioned.
We directly pay for all property insurance and most property taxes, which are typically reimbursed to us by our tenants. Some tenants have elected to pay property taxes directly. From time to time, we incur non-reimbursed property-level operating costs when properties become vacant and are being re-marketed or re-positioned.
The increase was primarily due to the recognition of property taxes incurred and paid or to be paid by us starting in January 2023, as described above. The increase was also due to new property acquisitions and additional investment in existing properties which resulted in higher property insurance premiums and property taxes that we paid for our properties.
The increase was primarily due to additional investment in existing properties, which resulted in higher property tax that we paid for our properties, as well as higher property expenses related to properties that we have regained possession of but not yet leased.
Of the approximately $40.1 million committed to fund draws to certain tenants and vendors for improvements at our properties, approximately $9.6 million was incurred but not funded as of December 31, 2023.
Of the $38.3 million committed to fund draws to certain tenants and vendors for improvements at our properties, $11.4 million was incurred but not funded as of December 31, 2024. Of these properties, we include 106 properties in our operating portfolio, which were 98.3% leased as of December 31, 2024, with a weighted-average remaining lease term of 13.7 years.
REITs continued to be subdued in 2023, after experiencing a significant decline in the latter part of 2022. According to the NAREIT, U.S. REIT 2023 capital raising was modestly higher than 2022, though 2022 represented the lowest level since 2009. Significant Tenants and Concentrations of Risk As of December 31, 2023, we owned 108 properties located in 19 states.
According to the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”), U.S. REIT 2024 capital raising was higher than 2022 and 2023, but remained lower than 2019-2021 levels. Significant Tenants and Concentrations of Risk As of December 31, 2024, we owned 109 properties located in 19 states. Many of our tenants are tenants at multiple properties.
During the year ended December 31, 2023, we issued 32,200 shares of our common stock upon exchange by holders of $2.0 million of outstanding principal amount of our Exchangeable Senior Notes. ​ In January 2023, we terminated the previously existing “at-the-market” offering 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 the ATM Program up to $500.0 million in shares of our common stock.
Such purchases, if any, will be upon such terms and at such prices as we may determine, and will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. ​ In February 2024, we issued 28,408 shares of our common stock and paid $4.3 million in cash upon exchange by holders of $4.3 million principal amount of Exchangeable Senior Notes and paid off the remaining $0.1 million principal amount, in accordance with terms of the indenture for the Exchangeable Senior Notes. ​ In May 2024, we terminated the previously existing “at-the-market” offering program (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 (the “ATM Program”), including on a forward basis, shares of our common stock and 9.00% Series A Cumulative Redeemable Preferred Stock, $0.001 par value per share (the “Series A Preferred Stock”) , up to an aggregate offering price of $500.0 million .
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. ​ 63 Table of Contents Inflation and Supply Chain Constraints The U.S. economy has experienced a sustained increase in inflation rates in recent years, which we believe is negatively impacting our tenants.
As a result, certain regulated cannabis operators have consolidated operations or shuttered certain operations to reduce costs, which could have a negative impact on operators’ demand for regulated cannabis facilities, including our existing tenants.
Rental revenues for the year ended December 31, 2023 included the application of approximately $8.7 million of security deposits applied for rent for our leases with five tenants and approximately $888,000 of security deposits applied for tenant reimbursements for property insurance premiums and property taxes for our leases with three tenants.
For the year ended December 31, 2024, we applied $7.7 million of security deposits for payment of contractual rent on properties leased to six tenants. For the year ended December 31, 2023, we applied $8.7 million of security deposits for payment of contractual rent on properties leased to five tenants.
The remaining approximately $19.7 million increase in rental revenue was attributable to: ● The two properties we acquired in 2023 which generated approximately $5.2 million of rental revenue in 2023; ● The nine properties we acquired in 2022 which generated approximately $17.8 million of rental revenue in 2023, including a rent adjustment on a lease amendment for an additional improvement allowance at one of these properties, compared to approximately $10.2 million in 2022, a net increase of approximately $7.6 million; and ● A net increase of approximately $6.9 million in rental revenue generated by properties we acquired prior to 2022, including contractual rent escalations, rent adjustments for amendments to leases for additional improvement allowances at existing properties that resulted in adjustments to rent.
The decrease was partially offset by the $3.9 million disposition-contingent lease termination fee that was received in 67 Table of Contents connection with the sale of our property in Los Angeles, California, amendments to leases for additional improvement allowances at existing properties that resulted in adjustments to rent, revenue from the two properties we acquired in 2024 and contractual rent escalations on our other existing properties.
Furthermore, as permitted under Rule 13-01(a)(4)(vi) of Regulation S-X, we have excluded the summarized financial information for the Operating Partnership and the Subsidiary Guarantors because the combined assets, liabilities, and results of operations of the Operating Partnership and the Subsidiary Guarantors are not materially different than the corresponding amounts in our consolidated financial statements, and management believes such summarized financial information would be repetitive and would not provide incremental value to investors. 72 Table of Contents Non-GAAP Financial Information and Other Metrics In addition to the required GAAP presentations, we use certain non-GAAP performance measures as we believe these measures improve the understanding of our operational results.
Non-GAAP Financial Information and Other Metrics In addition to the required GAAP presentations, we use certain non-GAAP performance measures as we believe these measures improve the understanding of our operational results.
There were no amounts outstanding under the Loan Agreement as of December 31, 2023. See Note 7 “Debt” to our consolidated financial statements included in this report for more information.
Amount relates to the sale of one property in Los Angeles, California (see Note 6 “Investments in Real Estate” to our consolidated financial statements included in this report for more information). Interest Income .
For each property where such an indicator occurred, we completed an impairment evaluation.
We are also required to make a number of assumptions relating to future economic and market events and prospective operating trends. 78 Table of Contents For each property where such an indicator occurred, we completed an impairment evaluation.
The potential impact of current economic challenges on the Company’s financial condition, results of operations, and cash flows is subject to change and continues to depend on the extent and duration of these risks and uncertainties.
The resulting adverse impact on the Company’s and our tenants’ financial condition, results of operations, and cash flows depends on the extent and duration of these challenges in the regulated cannabis markets where we own properties, which are further described below.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our Notes due 2026 bear interest at a fixed rate of 5.50% per annum until maturity, and is the only debt we have outstanding (the remaining principal amount of our Exchangeable Senior Notes was exchanged or paid off in full in February 2024).
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our Notes due 2026 bear interest at a fixed rate of 5.50% per annum until maturity and is the only debt we have outstanding.
Our investments in short-term money market funds, certificates of deposit and short-term investments in obligations of the U.S. government with an original maturity at the time of purchase of greater than three months are less sensitive to market fluctuations than a portfolio of long-term securities.
Our investments in short-term money market funds, certificates of deposit and short-term investments in obligations of the U.S. government with an original maturity at the time of purchase of greater than 90 days are less sensitive to market fluctuations than a portfolio of long-term securities.
Accordingly, we believe that a significant change in interest rates would not have a material effect on the consolidated financial statements. ​
Accordingly, we believe that a significant change in interest rates would not have a material effect on the consolidated financial statements. ​ 79 Table of Contents
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Our Revolving Credit Facility bears interest at a variable rate based on the greater of the prime rate and an applicable margin and a stipulated interest rate; therefore, if interest rates increase, our required payments on any amounts outstanding on our Revolving Credit Facility may also increase.

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