INNOVATIVE INDUSTRIAL PROPERTIES INC (Form: 10-Q, Received: 08/04/2022 16:31:18)

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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO _________

Commission file number: 001-37949

Innovative Industrial Properties, Inc.

(Exact Name of Registrant as Specified in Its Charter)


Maryland	81-2963381
(State or other jurisdiction of incorporation or	(I.R.S. Employer Identification No.)
organization)

1389 Center Drive, Suite 200 Park City, UT 84098	(858) 997-3332
(Address of principal executive offices)	(Registrant’s telephone number)

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbols (s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	IIPR	New York Stock Exchange
Series A Preferred Stock, par value $0.001 per share	IIPR-PA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☑	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☐
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

As of August 4, 2022 there were 27,973,429 shares of common stock outstanding.

Table of Contents

INNOVATIVE INDUSTRIAL PROPERTIES, INC.

FORM 10-Q – QUARTERLY REPORT

JUNE 30, 2022

TABLE OF CONTENTS

PART I


Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to the Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36

PART II


Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

Innovative Industrial Properties, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)


	June 30,		December 31,
Assets	2022		2021
Real estate, at cost:
Land	$	136,123	$	122,386
Buildings and improvements		1,220,821		979,417
Tenant improvements		699,856		620,301
Construction in progress		68,909		—
Total real estate, at cost		2,125,709		1,722,104
Less accumulated depreciation		(109,100)		(81,938)
Net real estate held for investment		2,016,609		1,640,166
Construction loan receivable		17,698		12,916
Cash and cash equivalents		45,432		81,096
Restricted cash		530		5,323
Investments		309,442		324,889
Right of use office lease asset		1,921		1,068
In-place lease intangible assets, net		9,535		9,148
Other assets, net		24,515		9,996
Total assets	$	2,425,682	$	2,084,602
Liabilities and stockholders’ equity
Exchangeable Senior Notes, net	$	6,374	$	32,232
Notes due 2026, net		294,478		293,860
Tenant improvements and construction funding payable		31,210		46,274
Accounts payable and accrued expenses		6,428		7,718
Dividends payable		49,439		38,847
Rent received in advance and tenant security deposits		59,899		52,805
Other liabilities		2,082		1,167
Total liabilities		449,910		472,903
Commitments and contingencies (Notes 6 and 11)
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 50,000,000 shares authorized: 9.00% Series A cumulative redeemable preferred stock, $15,000 liquidation preference ($25.00 per share), 600,000 shares issued and outstanding at June 30, 2022 and December 31, 2021		14,009		14,009
Common stock, par value $0.001 per share, 50,000,000 shares authorized: 27,973,429 and 25,612,541 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		28		26
Additional paid-in capital		2,056,568		1,672,882
Dividends in excess of earnings		(94,833)		(75,218)
Total stockholders’ equity		1,975,772		1,611,699
Total liabilities and stockholders’ equity	$	2,425,682	$	2,084,602

See the accompanying notes to the condensed consolidated financial statements.

Table of Contents

Innovative Industrial Properties, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

(In thousands, except share and per share amounts)


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Revenues:
Rental (including tenant reimbursements)	$	69,995	$	48,867	$	134,109	$	91,752
Other		516		—		906		—
Total revenues		70,511		48,867		135,015		91,752

Expenses:
Property expenses		2,427		482		4,409		1,252
General and administrative expense		8,707		5,604		17,484		11,204
Depreciation and amortization expense		15,233		9,841		29,101		18,680
Total expenses		26,367		15,927		50,994		31,136
Income from operations		44,144		32,940		84,021		60,616
Interest and other income		581		91		638		215
Interest expense		(4,504)		(3,692)		(9,270)		(5,565)
Loss on exchange of Exchangeable Senior Notes		(7)		—		(125)		—
Net income		40,214		29,339		75,264		55,266
Preferred stock dividends		(338)		(338)		(676)		(676)
Net income attributable to common stockholders	$	39,876	$	29,001	$	74,588	$	54,590
Net income attributable to common stockholders per share (Note 8):
Basic	$	1.42	$	1.21	$	2.77	$	2.27
Diluted	$	1.42	$	1.17	$	2.75	$	2.22
Weighted-average shares outstanding:
Basic		27,850,561		23,889,761		26,741,568		23,889,580
Diluted		28,036,690		26,168,682		27,159,774		26,166,494

See accompanying notes to the condensed consolidated financial statements.

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Innovative Industrial Properties, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)


	Three Months Ended June 30, 2022											Three Months Ended June 30, 2021
	Series A		Shares of			Additional		Dividends in		Total		Series A		Shares of			Additional		Dividends in		Total
	Preferred		Common	Common		Paid-In-		Excess of		Stockholders’		Preferred		Common	Common		Paid-In		Excess of		Stockholders’
	Stock		Stock	Stock		Capital		Earnings		Equity		Stock		Stock	Stock		Capital		Earnings		Equity
Balances at beginning of period	$	14,009	26,107,769	$	26	$	1,718,234	$	(85,608)	$	1,646,661	$	14,009	23,926,317	$	24	$	1,557,776	$	(54,191)	$	1,517,618
Net income		—	—		—		—		40,214		40,214		—	—		—		—		29,339		29,339
Issuance of unvested restricted stock, net of forfeitures		—	2,811		—		—		—		—		—	1,987		—		—		—		—
Exchange of Exchangeable Senior Notes		—	47,059		—		3,014		—		3,014		—	—		—		—		—		—
Net proceeds from sale of common stock		—	1,815,790		2		330,883		—		330,885		—	—		—		—		—		—
Preferred stock dividend		—	—		—		—		(338)		(338)		—	—		—		—		(338)		(338)
Common stock dividend		—	—		—		—		(49,101)		(49,101)		—	—		—		—		(33,584)		(33,584)
Stock-based compensation		—	—		—		4,437		—		4,437		—	—		—		2,132		—		2,132
Balances at end of period	$	14,009	27,973,429	$	28	$	2,056,568	$	(94,833)	$	1,975,772	$	14,009	23,928,304	$	24	$	1,559,908	$	(58,774)	$	1,515,167


	Six Months Ended June 30, 2022											Six Months Ended June 30, 2021
	Series A		Shares of			Additional		Dividends in		Total		Series A		Shares of			Additional		Dividends in		Total
	Preferred		Common	Common		Paid-In		Excess of		Stockholders’		Preferred		Common	Common		Paid-In		Excess of		Stockholders’
	Stock		Stock	Stock		Capital		Earnings		Equity		Stock		Stock	Stock		Capital		Earnings		Equity
Balances at beginning of period	$	14,009	25,612,541	$	26	$	1,672,882	$	(75,218)	$	1,611,699	$	14,009	23,936,928	$	24	$	1,559,059	$	(48,120)	$	1,524,972
Adjustment to opening balance upon adoption of ASU 2020-06 (Note 2)		—	—		—		(1,340)		728		(612)		—	—		—		—		—		—
Net income		—	—		—		—		75,264		75,264		—	—		—		—		55,266		55,266
Issuance of unvested restricted stock, net of forfeitures		—	15,174		—		(2,441)		—		(2,441)		—	(8,624)		—		(3,384)		—		(3,384)
Exchange of Exchangeable Senior Notes		—	412,901		—		26,665		—		26,665		—	—		—		—		—		—
Net proceeds from sale of common stock		—	1,932,813		2		351,986		—		351,988		—	—		—		—		—		—
Preferred stock dividend		—	—		—		—		(676)		(676)		—	—		—		—		(676)		(676)
Common stock dividend		—	—		—		—		(94,931)		(94,931)		—	—		—		—		(65,244)		(65,244)
Stock-based compensation		—	—		—		8,816		—		8,816		—	—		—		4,233		—		4,233
Balances at end of period	$	14,009	27,973,429	$	28	$	2,056,568	$	(94,833)	$	1,975,772	$	14,009	23,928,304	$	24	$	1,559,908	$	(58,774)	$	1,515,167

See accompanying notes to the condensed consolidated financial statements.

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Innovative Industrial Properties, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	For the Six Months Ended
	June 30,
	2022		2021
Cash flows from operating activities
Net income	$	75,264	$	55,266
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		29,101		18,680
Loss on exchange of Exchangeable Senior Notes		125		—
Other non-cash adjustments		127		47
Stock-based compensation		8,816		4,233
Amortization of discounts on short-term investments		(513)		(199)
Amortization of debt discount and issuance costs		689		1,174
Changes in assets and liabilities
Other assets, net		2,568		220
Accounts payable, accrued expenses and other liabilities		(1,290)		2,278
Rent received in advance and tenant security deposits		7,094		7,693
Net cash provided by operating activities		121,981		89,392

Cash flows from investing activities
Purchases of investments in real estate		(129,562)		(99,073)
Funding of draws for tenant improvements and construction		(291,408)		(152,052)
Funding of construction loan and other investments		(21,360)		(6,000)
Deposits in escrow for acquisitions		(600)		(150)
Purchases of short-term investments		(219,040)		(439,878)
Maturities of short-term investments		235,000		410,000
Net cash used in investing activities		(426,970)		(287,153)

Cash flows from financing activities
Issuance of common stock, net of offering costs		351,988		—
Gross proceeds from issuance of Notes due 2026		—		300,000
Payment of deferred financing costs from issuance of Notes due 2026		—		(6,484)
Dividends paid to common stockholders		(84,339)		(61,387)
Dividends paid to preferred stockholders		(676)		(676)
Taxes paid related to net share settlement of equity awards		(2,441)		(3,384)
Net cash provided by financing activities		264,532		228,069
Net (decrease) increase in cash, cash equivalents and restricted cash		(40,457)		30,308
Cash, cash equivalents and restricted cash, beginning of period		86,419		126,006
Cash, cash equivalents and restricted cash, end of period	$	45,962	$	156,314

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	8,876	$	2,696
Supplemental disclosure of non-cash investing and financing activities:
Accrual for draws for tenant improvements and construction funding	$	31,210	$	60,670
Deposits applied for acquisitions		25		200
Accrual for common and preferred stock dividends declared		49,439		33,922
Accrual for deferred financing costs		—		196
Exchange of Exchangeable Senior Notes for common stock		26,665		—
Operating lease liability for obtaining right of use asset		1,017		—

See accompanying notes to the condensed consolidated financial statements.

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Innovative Industrial Properties, Inc.

Notes to the Condensed Consolidated Financial Statements

June 30, 2022

(Unaudited)

1. Organization

As used herein, the terms “we”, “us”, “our” or the “Company” refer to Innovative Industrial Properties, Inc., a Maryland corporation, and any of our subsidiaries, including IIP Operating Partnership, LP, a Delaware limited partnership (our “Operating Partnership”).

We are an internally-managed real estate investment trust (“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 have leased and expect to continue to lease our properties on a triple-net lease basis, where the tenant is responsible for all aspects of and costs related to the property and its operation during the lease term, including structural repairs, maintenance, real estate taxes and insurance.

We were incorporated in Maryland on June 15, 2016. We conduct our business through a traditional umbrella partnership real estate investment trust, or UPREIT structure, in which our properties are owned by our Operating Partnership, directly or through subsidiaries. We are the sole general partner of our Operating Partnership and own, directly or through subsidiaries, 100% of the limited partnership interests in our Operating Partnership.

2. Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements

Basis of Presentation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements.

This interim financial information should be read in conjunction with the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. Any references to square footage or occupancy percentage, and any amounts derived from these values in these notes to the condensed consolidated financial statements, are outside the scope of our independent registered public accounting firm’s review.

Management believes that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included. This interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, 2022.

Variable Interest Entities. From time to time, the Company may acquire properties utilizing a reverse like-kind exchange under Section 1031 of the Internal Revenue Code (“Reverse 1031 Exchange”) in order to defer taxable gains on the subsequent sale of real estate properties. During the six months ended June 30, 2022, the Company acquired four properties for a total purchase price of approximately $82.3 million, excluding transaction costs, as part of Reverse 1031 Exchanges. The acquired properties are in the possession of limited liability companies whose legal equity interests are owned by a qualified intermediary engaged to execute the Reverse 1031 Exchanges until the Reverse 1031 Exchanges are completed or terminated. The limited liability companies were deemed to be variable interest entities (“VIEs”) for which the Company is deemed to be the primary beneficiary as the Company has the ability to direct the activities of the entity that most significantly impact its economic performance and the Company has all of the risks and rewards of ownership. As such, the VIEs, including the acquired properties, are included in the Company’s condensed consolidated financial statements as a consolidated VIE until legal title is transferred to the Company upon the completion of the Reverse 1031 Exchanges. There were four consolidated VIEs on the Company’s condensed consolidated financial statements as of June 30, 2022.

Federal Income Taxes. We believe that we have operated our business so as to qualify to be taxed as a REIT for U.S. federal income tax purposes. Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income. Assuming our dividends equal or exceed our taxable net income, we generally will not be required to pay federal corporate income taxes on such income. The income taxes recorded on our condensed consolidated statements of income

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represent amounts paid for city and state income and franchise taxes and are included in general and administrative expenses in the accompanying the condensed consolidated statements of income.

Use of Estimates. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results may differ materially from these estimates and assumptions.

Reportable Segment. We are engaged in the business of providing real estate for the regulated cannabis industry. Our properties are similar in that they are leased to the state-licensed operators on a long-term triple-net basis, consist of improvements that are reusable and have similar economic characteristics. Our chief operating decision maker reviews financial information for our entire consolidated operations when making decisions related to assessing our operating performance. We have aggregated the properties into one reportable segment as the properties share similar long-term economic characteristics and have other similarities, including the fact that they are operated using consistent business strategies. The financial information disclosed herein represents all of the financial information related to our one reportable segment.

Acquisition of Real Estate Properties. Our investment in real estate is recorded at historical cost, less accumulated depreciation. Upon acquisition of a property, the tangible and intangible assets acquired and liabilities assumed are initially measured based upon their relative fair values. We estimate the fair value of land by reviewing comparable sales within the same submarket and/or region. We estimate the fair value of buildings and improvements and tenant improvements as if the property was vacant, taking into consideration current replacement costs and other relevant market rate information and may engage third-party valuation specialists. Acquisition costs are capitalized as incurred. All of our acquisitions to date were recorded as asset acquisitions.

The fair value of acquired in-place leases is derived based on our assessment of estimated lost revenue and costs incurred for the period required to lease the “assumed vacant” property to the occupancy level when purchased. The amounts recorded for acquired in-place leases are reflected as in-place lease intangible assets, net on our condensed consolidated balance sheets and are amortized on a straight-line basis as a component of depreciation and amortization expense over the remaining term of the applicable leases.

The fair value of the above-market component of an acquired in-place operating lease is based upon the present value (calculated using a market discount rate) of the difference between (i) the contractual rents to be paid pursuant to the lease over its remaining non-cancellable lease term and (ii) our estimate of the rents that would be paid using fair market rental rates and rent escalations at the date of acquisition measured over the remaining non-cancellable term of the lease. The amount recorded for one above-market operating lease is included in other assets, net on our condensed consolidated balance sheets and is amortized on a straight-line basis as a reduction of rental revenue over the remaining term of the applicable lease.

Cost Capitalization and Depreciation. We capitalize costs associated with development and redevelopment activities and tenant improvements when we are considered to be the accounting owner of the resulting assets. The development and redevelopment activities may be funded by us pursuant to the lease. We are generally considered the accounting owner for such improvements that are attached to or built into the premises, which are required under the lease to be surrendered to us upon the expiration or earlier termination of the lease. Typically, such improvements include, but are not limited to, ground up development, and enhanced HVAC, plumbing, electrical and other building systems.

Amounts capitalized are depreciated over estimated useful lives determined by management. We depreciate buildings and improvements and tenant improvements based on our evaluation of the estimated useful life of each specific asset, not to exceed 40 years. For the three months ended June 30, 2022 and 2021, we recognized depreciation expense of approximately $15.0 million and $9.8 million, respectively, which is included in depreciation and amortization expense in our condensed consolidated statements of income. For the six months ended June 30, 2022 and 2021, we recognized depreciation expense of approximately $28.7 million and $18.7 million, respectively, which are included in depreciation and amortization expense in our condensed consolidated statements of income. We depreciate office equipment and furniture and fixtures over estimated useful lives ranging from three to seven years. We depreciate the leasehold improvements at our corporate office over the shorter of the estimated useful lives or the remaining lease term.

Determining whether expenditures meet the criteria for capitalization and the assignment of depreciable lives requires management to exercise significant judgment. Project costs that are clearly associated with the acquisition and development or redevelopment of a real estate project, for which we are the accounting owner, are capitalized as a cost of that project. Expenditures that meet one or more of the following criteria generally qualify for capitalization:

●

the expenditure provides benefit in future periods; and

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●

the expenditure extends the useful life of the asset beyond our original estimates.

Provision for Impairment. On a quarterly basis, we review current activities and changes in the business conditions of all of our properties prior to and subsequent to the end of each quarter to determine the existence of any triggering events or impairment indicators requiring an impairment analysis. If triggering events or impairment indicators are identified, we review an estimate of the future undiscounted cash flows for the properties, including, if necessary, a probability-weighted approach if multiple outcomes are under consideration.

Long-lived assets are individually evaluated for impairment when conditions exist that may indicate that the carrying amount of a long-lived asset may not be recoverable. The carrying amount of a long-lived asset to be held and used is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Impairment indicators or triggering events for long-lived assets to be held and used are assessed by project and include significant fluctuations in estimated net operating income, occupancy changes, significant near-term lease expirations, current and historical operating and/or cash flow losses, construction costs, estimated completion dates, rental rates, and other market factors. We assess the expected undiscounted cash flows based upon numerous factors, including, but not limited to, construction costs, available market information, current and historical operating results, known trends, current market/economic conditions that may affect the property, and our assumptions about the use of the asset, including, if necessary, a probability-weighted approach if multiple outcomes are under consideration. Upon determination that an impairment has occurred, a write-down is recognized to reduce the carrying amount to its estimated fair value. We may adjust depreciation of properties that are expected to be disposed of or redeveloped prior to the end of their useful lives. No impairment losses were recognized during the six months ended June 30, 2022 and 2021.

Revenue Recognition. Our leases are triple-net leases, an arrangement under which the tenant maintains the property while paying us rent. We account for our current leases as operating leases and record revenue for each of our properties on a cash basis due to the uncertain regulatory environment in the United States pertaining to the regulated cannabis industry, the limited operating history of certain tenants and the resulting uncertainty of collectability of lease payments from each tenant over the duration of the lease term. Contractually obligated reimbursements from tenants for recoverable real estate taxes, insurance and operating expenses are included in rental revenues in the period when such costs are reimbursed by the tenants. Contractually obligated real estate taxes that are paid directly by the tenant to the tax authorities are not reflected in our condensed consolidated financial statements.

Construction Loan. In June 2021, we executed a construction loan agreement with a developer, pursuant to which we agreed to lend up to $18.5 million for the development of a regulated cannabis cultivation and processing facility in California. We have an option to purchase the property, and may execute a negotiated lease with an affiliate of the developer or with another third party, if we determine to exercise our purchase option. The developer is required to complete construction by December 1, 2022, subject to extension in certain circumstances. Interest on the construction loan is payable at maturity, which is December 25, 2022. As of June 30, 2022, we had funded approximately $17.7 million of the construction loan.

Cash and Cash Equivalents. We consider all highly-liquid investments with original maturities of three months or less to be cash equivalents. As of June 30, 2022 and December 31, 2021, approximately $32.6 million and $72.0 million, respectively, were invested in short-term money market funds, obligations of the U.S. government and certificates of deposit with an original maturity at the time of purchase of less than or equal to three months.

Restricted Cash. Restricted cash relates to cash held in escrow accounts for future draws for improvements for tenants in accordance with certain lease agreements.

Investments. Investments consist of obligations of the U.S. government and certificates of deposit with an original maturity at the time of purchase of greater than three months. Investments are classified as held-to-maturity and stated at amortized cost.

Exchangeable Notes. The liability and equity components of exchangeable debt instruments that may be settled in cash upon exchange, including partial cash settlement, are required to be separately accounted for in a manner that reflects the issuer’s nonexchangeable debt borrowing rate. The initial proceeds from the sale of our Exchangeable Senior Notes (as defined below) were allocated between a liability component and an equity component in a manner that reflects interest expense at the rate of similar nonexchangeable debt that could have been issued at such time. The equity component represents the excess initial proceeds received over the fair value of the liability component of the Exchangeable Senior Notes as of the date of issuance. We measured the estimated fair value of the debt component of our Exchangeable Senior Notes as of the date of issuance based on our estimated nonexchangeable debt borrowing rate with the assistance of a third-party valuation specialist as we do not have a history of borrowing arrangements and there is limited empirical data available related to the Company’s industry due to the regulatory uncertainty of the cannabis market in which the Company’s tenants operate. The equity component of our Exchangeable Senior Notes was reflected within additional paid-

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in capital on our condensed consolidated balance sheets, and the resulting debt discount was amortized over the period during which the Exchangeable Senior Notes are expected to be outstanding (through the maturity date) as additional non-cash interest expense.

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 simplifies the accounting for convertible debt by eliminating the beneficial conversion and cash conversion accounting models, and convertible debt proceeds, unless issued with a substantial premium or an embedded conversion feature, will no longer be allocated between debt and equity components. ASU 2020-06 also updates the earnings per share calculation and requires entities to assume share settlement when the convertible debt can be settled in cash or shares. We adopted ASU 2020-06 on January 1, 2022 and recognized a cumulative-effect adjustment of approximately $728,000 to the opening balance of retained earnings and derecognized approximately $1.3 million of the remaining equity component relating to the outstanding principal balance of our Exchangeable Senior Notes at the date of adoption.

Deferred Financing Costs. The deferred financing costs that are included as a reduction in the net book value of the related liability on our condensed consolidated balance sheets reflect issuance and other costs related to our debt obligations. These costs are amortized as non-cash interest expense using the effective interest method over the life of the related obligations.

Stock-Based Compensation. Stock-based compensation for equity awards is based on the grant date fair value of the equity awards and is recognized over the requisite service or performance period. If awards are forfeited prior to vesting, we reverse any previously recognized expense related to such awards in the period during which the forfeiture occurs and reclassify any non-forfeitable dividends and dividend equivalents previously paid on these awards from retained earnings to compensation expense. Forfeitures are recognized as incurred. Certain equity awards are subject to vesting based upon the satisfaction of various market conditions. Forfeiture of share awards with market-based restrictions does not result in a reversal of previously recognized share-based compensation expense.

Lease Accounting. We adopted Topic 842 effective as of January 1, 2019 using the effective date method and elected the package of practical expedients that allows an entity not to reassess upon adoption (i) whether an expired or existing contract contains a lease, (ii) whether a lease classification related to expired or existing lease arrangements, and (iii) whether costs incurred on expired or existing leases qualify as initial direct costs, and as a lessor, the practical expedient not to separate certain non-lease components, such as common area maintenance, from the lease component if the timing and pattern of transfer are the same for the non-lease component and associated lease component, and the lease component would be classified as an operating lease if accounted for separately. We also elected the lessor practical expedient, allowing us to continue to amortize previously capitalized initial direct leasing costs incurred prior to the adoption of Topic 842.

As lessee, we recognized a liability to account for our future obligations and a corresponding right-of-use asset related to our corporate office lease. The lease liability was initially measured based on the present value of the future lease payments discounted using the estimated incremental borrowing rate of 7.25%, which was the interest rate that we estimate we would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments. In November 2021, we amended the lease to extend the term from April 2025 to January 2027 in connection with an expansion of the leased space which did not commence until February 2022. As a result of the lease amendment, we re-measured the lease liability relating to the existing leased space and measured the lease liability relating to the expansion space based on the present value of the respective future lease payments (excluding the extension option that we are not reasonably certain to exercise), discounted using the estimated incremental borrowing rate of 5.5%, which was the interest rate that we estimate we would have to pay to borrow on a collateralized basis over a similar term for an amount equal to the lease payments. Subsequently, the lease liability is accreted by applying a discount rate established at the lease commencement date to the lease liability balance as of the beginning of the period and is reduced by the payments made during the period.

The right-of-use asset is measured based on the corresponding lease liability. We did not incur any initial direct leasing costs and any other consideration exchanged with the landlord prior to the commencement of the lease. Subsequently, the right-of-use asset is amortized on a straight-line basis during the lease term. For the three months ended June 30, 2022 and 2021, we recognized office lease expense of approximately $122,000 and $57,000, respectively, which are included in general and administrative expense in our condensed consolidated statements of income. For the six months ended June 30, 2022 and 2021, we recognized office lease expense of approximately $223,000 and $114,000, respectively, which are included in general and administrative expense in our condensed consolidated statements of income. For the six months ended June 30, 2022 and 2021, amounts paid and classified as operating activities in our condensed consolidated statements of cash flows for the office lease were approximately $161,000 and $117,000, respectively.

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As lessor, for each of our real estate transactions involving the leaseback of the related property to the seller or affiliates of the seller, we determine whether these transactions qualify as sale and leaseback transactions under the accounting guidance. For these transactions, we consider various inputs and assumptions including, but not necessarily limited to, lease terms, renewal options, discount rates, and other rights and provisions in the purchase and sale agreement, lease and other documentation to determine whether control has been transferred to the Company or remains with the lessee. A transaction involving a sale leaseback will be treated as a purchase of a real estate property if it is considered to transfer control of the underlying asset from the lessee. A lease will be classified as direct-financing if risks and rewards are conveyed without the transfer of control and will be classified as a sales-type lease if control of the underlying asset is transferred to the lessee. Otherwise, the lease is treated as an operating lease. These criteria also include estimates and assumptions regarding the fair value of the leased facilities, minimum lease payments, the economic useful life of the facilities, the existence of a purchase option, and certain other terms in the lease agreements. The lease accounting guidance requires accounting for a transaction as a financing in a sale leaseback when the seller-lessee is provided an option to purchase the property from the landlord at the tenant’s option. Substantially all of our leases continued to be classified as operating leases and we continue to record revenue for each of our properties on a cash basis. Our tenant reimbursable revenue and property expenses continue to be presented on a gross basis as rental revenue and as property expenses, respectively, on our condensed consolidated statements of income. Property taxes paid directly by the lessee to a third party continue to be excluded from our condensed consolidated financial statements.

Lease amendments are evaluated to determine if the modification grants the lessee an additional right-of-use not included in the original lease and if the lease payments increase commensurate with the standalone price of the additional right-of-use, adjusted for the circumstances of the particular contract. If both conditions are present, the lease amendment is accounted for as a new lease that is separate from the original lease.

Our leases generally contain options to extend the lease terms at the prevailing market rate or at the expiring rental rate at the time of expiration. Certain of our leases provide the lessee with a right of first refusal or right of first offer in the event we market the leased property for sale.

Concentration of Credit Risk. As of June 30, 2022, we owned 110 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Texas, Virginia and Washington. The ability of any of our tenants to honor the terms of their leases is dependent upon the economic, regulatory, competition, natural and social factors affecting the community in which that tenant operates.

The following table sets forth the five tenants in our portfolio that represented the largest percentage of our total rental revenues for the three and six months ended June 30, 2022 and 2021, including tenant reimbursements:


	For the Three Months Ended			For the Six Months Ended
	June 30, 2022			June 30, 2022
		Percentage of			Percentage of
	Number of	Rental		Number of	Rental
	Leases	Revenue		Leases	Revenue
PharmaCann Inc. ("PharmaCann")	11	13	%	11	14	%
SH Parent, Inc. ("Parallel")	4	10	%	4	10	%
Ascend Wellness Holdings, Inc. ("Ascend")	4	10	%	4	9	%
Kings Garden Inc.	6	8	%	6	8	%
Trulieve Cannabis Corp. ("Trulieve")	6	6	%	6	7	%


	For the Three Months Ended
	June 30, 2021
		Percentage of
	Number of	Rental
	Leases	Revenue
PharmaCann	5	13	%
Parallel	4	10	%
Ascend	3	9	%
Cresco Labs Inc.	5	8	%
Kings Garden Inc.	5	7	%

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	For the Six Months Ended
	June 30, 2021
		Percentage of
	Number of	Rental
	Leases	Revenue
PharmaCann	5	13	%
Ascend	3	9	%
Parallel	4	8	%
Cresco Labs Inc.	5	8	%
Curaleaf Holdings, Inc.	4	7	%

In each of the tables above, these leases include leases with affiliates of each entity, for which the entity has provided a corporate guaranty.

On July 13, 2022, Kings Garden defaulted on its obligations to pay rent at all of the properties it leases with us. See Note 12 “Subsequent Events” to our condensed consolidated financial statements included in this report for more information.

As of June 30, 2022 and December 31, 2021, none of our properties individually represented more than 5% of our net real estate held for investment.

We have deposited cash with a financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of June 30, 2022, we had cash accounts in excess of FDIC insured limits. We have not experienced any losses in such accounts.

3. Common Stock

As of June 30, 2022, the Company was authorized to issue up to 50,000,000 shares of common stock, par value $0.001 per share, and there were 27,973,429 shares of common stock issued and outstanding.

In April 2022, we issued 1,815,790 shares of common stock in an underwritten public offering, including the exercise in full of the underwriters’ option to purchase an additional 236,842 shares, resulting in net proceeds of approximately $330.9 million.

We are party to equity distribution agreements with certain sales agents, pursuant to which we may offer and sell from time to time through an “at-the-market” offering program (the “ATM Program”) up to $500.0 million in shares of our common stock. During the six months ended June 30, 2022, we sold 117,023 shares of our common stock for net proceeds of approximately $21.1 million under the ATM Program, which includes the payment of approximately $434,000 to one sales agent as commission for such sales.

During the three and six months ended June 30, 2022, we issued 47,059 and 412,901 shares, respectively, of our common stock upon exchange by holders of approximately $3.1 million and $26.9 million, respectively, of outstanding principal amount of our Exchangeable Senior Notes.

4. Preferred Stock

As of June 30, 2022, the Company was authorized to issue up to 50,000,000 shares of preferred stock, par value $0.001 per share, and there were issued and outstanding 600,000 shares of 9.00% Series A Cumulative Redeemable Preferred Stock, $0.001 par value per share (the “Series A Preferred Stock”). Generally, the Company is not permitted to redeem the Series A Preferred Stock prior to October 19, 2022, except in limited circumstances relating to the Company’s ability to qualify as a REIT and in certain other circumstances related to a change of control/delisting (as defined in the articles supplementary for the Series A Preferred Stock). On or after October 19, 2022, the Company may, at its option, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, for cash at a redemption price of $25.00 per share, plus all accrued and unpaid dividends on such Series A Preferred Stock up to, but excluding the redemption date. Holders of the Series A Preferred Stock generally have no voting rights except for limited voting rights if the Company fails to pay dividends for six or more quarterly periods (whether or not consecutive) and in certain other circumstances.

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5. Dividends

The following table describes the dividends declared by the Company during the six months ended June 30, 2022:

Amount

Dividend

Declaration Date

Security Class

Per Share

Period Covered

Paid Date

Amount

(In thousands)

March 14, 2022

Common stock

1.75

January 1, 2022 to March 31, 2022

April 14, 2022

45,830

March 14, 2022

Series A preferred stock

0.5625

January 15, 2022 to April 14, 2022

April 14, 2022

338

June 15, 2022

Common stock

1.75

March 1, 2022 to June 30, 2022

July 15, 2022

49,101

June 15, 2022

Series A preferred stock

0.5625

April 15, 2022 to July 14, 2022

July 15, 2022

338

6. Investments in Real Estate

Acquisitions

The Company acquired the following properties during the six months ended June 30, 2022 (dollars in thousands):


				Rentable
				Square		Purchase		Transaction
Property	Market	Closing Date		Feet⁽¹⁾		Price		Costs		Total
4Front MA	Massachusetts		January 28, 2022		57,000	$	16,000	$	20	$	16,020	⁽²⁾
Ascend NJ	New Jersey		February 10, 2022		114,000		35,400		8		35,408	⁽³⁾
Verano PA	Pennsylvania		March 23, 2022		3,000		2,750		68		2,818
Kings Garden CA	California		March 25, 2022		23,000		8,158		11		8,169	⁽⁴⁾
MCP MD	Maryland		April 13, 2022		84,000		25,000		290		25,290	⁽⁵⁾
Harvest AZ	Arizona		April 27, 2022		17,000		5,238		11		5,249	⁽⁵⁾
TILT MA	Massachusetts		May 16, 2022		104,000		40,000		32		40,032	⁽⁵⁾
Texas Original TX	Texas		June 14, 2022		85,000		12,040		23		12,063	⁽⁵⁾⁽⁶⁾
Total					487,000	$	144,586	$	463	$	145,049	⁽⁷⁾

(1)

Includes expected rentable square feet at completion of construction of certain properties.

(2)

The acquisition of the property did not satisfy the requirements for sale-leaseback accounting and therefore, the transaction is recognized as a note receivable and is included in other assets, net on our condensed consolidated balance sheet.

(3)

The tenant is expected to complete improvements at the property, for which we agreed to provide funding of up to $4.6 million.

(4)

The purchase price includes $1.8 million holdback held in an escrow account, which is subject to distribution to the seller upon seller’s completion of certain improvements at the property. As of June 30, 2022, we have distributed approximately $1.4 million of the holdback. The remaining approximately $400,000 is included in restricted cash on our condensed consolidated balance sheet.

(5)

The acquisitions of the MCP MD, Harvest AZ, TILT MA and Texas Original TX properties were made through consolidated VIEs utilizing Reverse 1031 Exchanges that were entered into at the time each of the properties was acquired. See Note 2 “Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements – Variable Interest Entities” for more information regarding the Company’s Reverse 1031 Exchanges and consolidation of VIEs.

(6)

The tenant is expected to complete improvements at the property, for which we agreed to provide funding of up to approximately $10.0 million. The purchase price includes approximately $908,000 attributable to the property which did not satisfy the requirements for sale-leaseback accounting; therefore, this amount is recognized as a note receivable and is included in other assets, net on our condensed consolidated balance sheet.

(7)

Approximately $16.9 million was included in other assets; $1.8 million was included in restricted cash; approximately $10.5 million was allocated to land; approximately $115.1 million was allocated to building and improvements; and approximately $798,000 was allocated to in-place leases.

The properties acquired during the three and six months ended June 30, 2022 generated approximately $1.3 million and $3.0 million of rental revenues (including tenant reimbursements), respectively, and approximately $954,000 and $2.2 million of net operating income after deducting property and depreciation expenses, respectively. The properties acquired during the three and six months ended June 30, 2021 generated approximately $1.8 million and $4.8 million of rental revenue (including tenant reimbursements), respectively, and approximately $1.5 million and $4.0 million of net operating income after deducting property and depreciation expenses, respectively. During the three and six months ended June 30, 2022, the acquisition of the properties which did not satisfy the requirements for sale-leaseback accounting generated approximately $516,000 and $906,000 of interest revenue, respectively, which is included in other revenue on our condensed consolidated statements of income.

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In addition, we acquired additional land adjacent to one of our existing properties in Pennsylvania on February 2, 2022. In connection with the acquisition, we amended the lease for the existing property to incorporate this land into the leased area and reduced the existing improvement allowance under the lease by an amount equal to the purchase price for the land, which was approximately $3.3 million.

Acquired In-Place Lease Intangible Assets

In-place lease intangible assets and related accumulated amortization as of June 30, 2022 and December 31, 2021 is as follows (in thousands):


	June 30, 2022		December 31, 2021
In-place lease intangible assets	$	9,979	$	9,181
Accumulated amortization		(444)		(33)
In-place lease intangible assets, net	$	9,535	$	9,148

Amortization of in-place lease intangible assets classified in depreciation and amortization expense in our condensed consolidated statements of income was approximately $213,000 and $411,000 for the three and six months ended June 30, 2022, respectively. The remaining weighted-average amortization period of the value of acquired in-place leases was approximately 11.2 years, and the estimated annual amortization of the value of the acquired in-place leases as of June 30, 2022 is as follows (in thousands):


Year	Amount
2022 (six months ending December 31)	$	430
2023		860
2024		860
2025		860
2026		860
Thereafter		5,665
Total	$	9,535

Above-Market Lease

The above-market lease and related accumulated amortization included in other assets, net on our condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021 is as follows (in thousands):


	June 30, 2022		December 31, 2021
Above-market lease	$	1,054	$	1,054
Accumulated amortization		(50)		(4)
Above-market lease, net	$	1,004	$	1,050

The above-market lease is amortized on a straight-line basis as a reduction to rental revenue over the remaining lease term of approximately 10.9 years. For the three and six months ended June 30, 2022, the amortization of the above-market lease was approximately $23,000 and $46,000, respectively.

Lease Amendments

In February 2022, we amended our lease with Green Peak Industries, Inc. at one of our Michigan properties, increasing the improvement allowance under the lease by $18.0 million to a total of approximately $47.5 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

In March 2022, we amended our lease with Holistic Industries Inc. at one of our Michigan properties, increasing the improvement allowance under the lease by $3.5 million to a total of $22.3 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

In March 2022, we amended our lease with a subsidiary of Ascend at one of our Michigan properties, increasing the improvement allowance under the lease by $4.4 million to a total of $19.4 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

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In March 2022, we amended our lease with a subsidiary of Ascend at one of our Massachusetts properties, increasing the improvement allowance under the lease by $14.9 million to a total of approximately $37.2 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

In April 2022, we amended our lease and development agreement with PharmaCann at one of our New York properties, increasing the construction fund by $45.0 million to a total of approximately $78.5 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

In June 2022, we amended our lease with a subsidiary of Curaleaf Holdings, Inc. (“Curaleaf”) at one of our Illinois properties, increasing the improvement allowance under the lease by approximately $10.9 million to a total of $29.5 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

In June 2022, we amended our lease with Sozo Health, Inc. at one of our Michigan properties, increasing the improvement allowance by approximately $1.2 million to a total of approximately $7.0 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

In June 2022, we amended our lease with a subsidiary of Curaleaf at one of our Pennsylvania properties, increasing the improvement allowance by $35.0 million to a total of approximately $47.4 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

In June 2022, we amended our lease with a subsidiary of Green Thumb Industries Inc. at one of our Pennsylvania properties, increasing the improvement allowance by $55.0 million to a total $74.3 million, which also resulted in a corresponding adjustment to the base rent for the lease at the property.

Including all of our properties, during the six months ended June 30, 2022, we capitalized costs of approximately $276.3 million and funded approximately $291.4 million relating to improvements and construction activities at our properties.

Future contractual minimum rent (including base rent and property management fees) under the operating leases as of June 30, 2022 for future periods is summarized as follows (in thousands):


Year	Contractual Minimum Rent
2022 (six months ending December 31)	$	148,023
2023		307,933
2024		316,846
2025		326,222
2026		335,909
Thereafter		4,810,212
Total	$	6,245,145

7. Debt

Exchangeable Senior Notes

As of June 30, 2022, our Operating Partnership had outstanding approximately $6.5 million principal amount of 3.75% Exchangeable Senior Notes due 2024 (the “Exchangeable Senior Notes”). The Exchangeable Senior Notes are senior unsecured obligations of our Operating Partnership, are fully and unconditionally guaranteed by us and our Operating Partnership’s subsidiaries and are exchangeable for cash, shares of our common stock, or a combination of cash and shares of our common stock, at our Operating Partnership’s option, at any time prior to the close of business on the second scheduled trading day immediately preceding the stated maturity date. The exchange rate for the Exchangeable Senior Notes at June 30, 2022 was 15.62234 shares of our common stock per $1,000 principal amount of Notes and the exchange price at June 30, 2022 was approximately $64.01 per share of our common stock. The exchange rate and exchange price are subject to adjustment in certain circumstances. The Exchangeable Senior Notes will pay interest semiannually on March 15 and September 15 of each year at a rate of 3.75% per annum and will mature on February 21, 2024, unless earlier exchanged or repurchased in accordance with their terms. Our Operating Partnership will not have the right to redeem the Exchangeable Senior Notes prior to maturity, but may be required to repurchase the Exchangeable Senior Notes from holders under certain circumstances. At June 30, 2022, the if-exchanged value of the Exchangeable Senior Notes exceeded the principal amount by approximately $4.6 million.

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During the three and six months ended June 30, 2022, we issued 47,059 and 412,901 shares, respectively, of our common stock upon exchanges by holders of approximately $3.1 million and $26.9 million, respectively, of outstanding principal amount of our Exchangeable Senior Notes and recognized a loss on the exchanges totaling approximately $7,000 and $125,000 for the three and six months ended June 30, 2022, respectively, resulting from the difference between the fair value and carrying value of the debt as of the date of the exchange. The issuance of the shares pursuant to the exchanges resulted in a non-cash increase to our additional paid-in capital account of approximately $3.0 million and $26.7 million for the three and six months ended June 30, 2022, respectively.

The following table details our interest expense related to the Exchangeable Senior Notes (in thousands):



	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Cash coupon	$	55	$	1,348	$	331	$	2,696
Amortization of debt discount		—		284		—		566
Amortization of issuance cost		13		247		71		490
Total interest expense	$	68	$	1,879	$	402	$	3,752

The following table details the carrying value of our Exchangeable Senior Notes (in thousands):


	June 30, 2022		December 31, 2021
Principal amount	$	6,453	$	33,373
Unamortized discount		—		(612)
Unamortized issuance cost		(79)		(529)
Carrying value	$	6,374	$	32,232

Accrued interest payable for the Exchangeable Senior Notes as of June 30, 2022 and December 31, 2021 was approximately $71,000 and $365,000, respectively, and is included in accounts payable and accrued expenses on our condensed consolidated balance sheets.

Notes due 2026

On May 25, 2021, our Operating Partnership issued $300.0 million aggregate principal amount of its 5.50% Senior Notes due 2026 (the “Notes due 2026”). The Notes due 2026 are senior unsecured obligations of our Operating Partnership, are fully and unconditionally guaranteed by us and our Operating Partnership’s subsidiaries and rank equally in right of payment with all of the Operating Partnership’s existing and future senior unsecured indebtedness, including the Exchangeable Senior Notes. However, the Notes due 2026 are effectively subordinated to any of the Company’s, the Operating Partnership’s and the Operating Partnership’s subsidiaries’ future secured indebtedness to the extent of the value of the assets securing such indebtedness. Interest at a rate of 5.50% per year is payable on May 15 and November 15 of each year, beginning on November 15, 2021, until the stated maturity date of May 25, 2026. The terms of the Notes due 2026 are governed by an indenture, dated May 25, 2021, among the Operating Partnership, as issuer, the Company and the Operating Partnership’s subsidiaries, as guarantors, TMI Trust Company, as trustee (as successor-in-interest to GLAS Trust Company LLC), and Securities Transfer Corporation, as registrar (as successor-in-interest to GLAS Trust Company LLC). 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 connection with the issuance of the Notes due 2026, we recorded approximately $6.8 million of issuance costs, which are being amortized using the effective interest method and recognized as non-cash interest expense over the term of the Notes due 2026.

The following table details our interest expense related to the Notes due 2026 (in thousands):


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
Cash coupon	$	4,125	$	1,695	$	8,250	$	1,695
Amortization of issuance cost		311		118		618		118
Total interest expense	$	4,436	$	1,813	$	8,868	$	1,813

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The following table details the carrying value of our Notes due 2026 (in thousands):


	June 30, 2022		December 31, 2021
Principal amount	$	300,000	$	300,000
Unamortized issuance cost		(5,522)		(6,140)
Carrying value	$	294,478	$	293,860

The Operating Partnership may redeem some or all of the Notes due 2026 at its option at any time at the applicable redemption price. If the Notes due 2026 are redeemed prior to February 25, 2026, the redemption price will be equal to 100% of the principal amount of the Notes due 2026 being redeemed, plus a make-whole premium and accrued and unpaid interest thereon to, but excluding, the applicable redemption date. If the Notes due 2026 are redeemed on or after February 25, 2026, the redemption price will be equal to 100% of the principal amount of the Notes due 2026 being redeemed, plus accrued and unpaid interest thereon to, but excluding, the applicable redemption date.

The terms of the indenture for the Notes due 2026 require compliance with various financial covenants, including minimum level of debt service coverage and limits on the amount of total leverage and secured debt maintained by the Operating Partnership. Management believes that it was in compliance with those covenants as of June 30, 2022.

Accrued interest payable for the Notes due 2026 as of June 30, 2022 and December 31, 2021 was approximately $2.1 million and is included in accounts payable and accrued expenses on our condensed consolidated balance sheets.

The following table summarizes the principal payments on our outstanding indebtedness as of June 30, 2022 (in thousands):


Payments Due
by Year	Amount
2022 (six months ended December 31)	$	—
2023		—
2024		6,453
2025		—
2026		300,000
Thereafter		—
Total	$	306,453

8. Net Income Per Share

Grants of restricted stock and restricted stock units (“RSUs”) of the Company in share-based payment transactions are considered participating securities prior to vesting and, therefore, are considered in computing basic earnings per share under the two-class method. The two-class method is an earnings allocation method for calculating earnings per share when a company’s capital structure includes either two or more classes of common stock or common stock and participating securities. Earnings per basic share under the two-class method is calculated based on dividends declared on common shares and other participating securities (“distributed earnings”) and the rights of participating securities in any undistributed earnings, which represents net income remaining after deduction of dividends accruing during the period. The undistributed earnings are allocated to all outstanding common shares and participating securities based on the relative percentage of each security to the total number of outstanding participating securities. Earnings per basic share represents the summation of the distributed and undistributed earnings per share class divided by the total number of shares.

Through June 30, 2022, all of the Company’s participating securities received dividends or dividend equivalents at an equal dividend rate per share or unit. As a result, distributions to participating securities for the three and six months ended June 30, 2022 and 2021 have been included in net income attributable to common stockholders to calculate net income per basic and diluted share.

The 103,742 and 304,348 shares necessary to settle the Exchangeable Senior Notes on the if-exchanged method basis were dilutive for the three and six months ended June 30, 2022, respectively, and were included in the computation of diluted earnings per share. The 2,182,691 shares necessary to settle the Exchangeable Senior Notes on the if-exchanged method basis were dilutive for the three and six months ended June 30, 2021, and were included in the computation of diluted earnings per share.

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For the three and six months ended June 30, 2022 and 2021, as the performance thresholds for vesting of the performance share units (“PSUs”) were not met as measured as of the respective dates, they were excluded from the calculation of weighted average common shares outstanding – diluted for all periods presented (see Note 10 for further discussion of PSUs).

Computations of net income per basic and diluted share (in thousands, except share and per share data) were as follows:


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Net income	$	40,214	$	29,339	$	75,264	$	55,266
Preferred stock dividends		(338)		(338)		(676)		(676)
Distribution to participating securities		(207)		(137)		(409)		(263)
Net income attributable to common stockholders used to compute net income per share - basic		39,669		28,864		74,179		54,327
Dilutive effect of Exchangeable Senior Notes		68		1,879		402		3,752
Net income attributable to common stockholders used to compute net income per share - diluted	$	39,737	$	30,743	$	74,581	$	58,079

Weighted-average common shares outstanding:
Basic		27,850,561		23,889,761		26,741,568		23,889,580
Restricted stock and RSUs		82,387		96,230		113,858		94,223
PSUs		—		—		—		—
Dilutive effect of Exchangeable Senior Notes		103,742		2,182,691		304,348		2,182,691
Diluted		28,036,690		26,168,682		27,159,774		26,166,494
Net income attributable to common stockholders per share:
Basic	$	1.42	$	1.21	$	2.77	$	2.27
Diluted	$	1.42	$	1.17	$	2.75	$	2.22

9. Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Accounting guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Includes other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs that are supported by little or no market activities, therefore requiring an entity to develop its own assumptions.

The following table presents the carrying value and approximate fair value of financial instruments at June 30, 2022 and December 31, 2021 (in thousands):


	At June 30, 2022				At December 31, 2021

	Carrying Value		Fair Value		Carrying Value		Fair Value
Investments⁽¹⁾	$	309,442	$	308,489	$	324,889	$	324,772
Exchangeable Senior Notes⁽²⁾	$	6,374	$	10,877	$	32,232	$	134,270
Notes due 2026⁽²⁾	$	294,478	$	272,379	$	293,860	$	318,486

(1)

Short-term investments consisting of obligations of the U.S. government with an original maturity at the time of purchase of greater than three months are classified as held-to-maturity and valued using Level 1 inputs.

(2)

The fair value is determined based upon Level 2 inputs as the Exchangeable Senior Notes and Notes due 2026 were trading in the private market.

As of June 30, 2022 and December 31, 2021, cash equivalent instruments consisted of $32.6 million and $72.0 million, respectively, in short-term money market funds that were measured using the net asset value per share that have not been classified

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using the fair value hierarchy. The fund invests primarily in short-term U.S. Treasury and government securities. Short-term investments consisting of certificate of deposits and obligations of the U.S. government are stated at amortized cost, which approximates their relative fair values due to the short-term maturities and market rates of interest of these instruments.

The carrying amounts of financial instruments such as cash equivalents invested in certificates of deposit, obligations of the U.S. government with an original maturity at the time of purchase of less than or equal to three months, construction loan receivable, accounts payable, accrued expenses and other liabilities approximate their fair values due to the short-term maturities and market rates of interest of these instruments.

10. Common Stock Incentive Plan

Our board of directors adopted our 2016 Omnibus Incentive Plan (the “2016 Plan”) to enable us to motivate, attract and retain the services of directors, employees and consultants considered essential to our long-term success. The 2016 Plan offers our directors, employees and consultants an opportunity to own our stock or rights that will reflect our growth, development and financial success. Under the terms of the 2016 Plan, the aggregate number of shares of our common stock subject to options, restricted stock, stock appreciation rights, restricted stock units and other awards, will be no more than 1,000,000 shares. Any equity awards that lapse, expire, terminate, are canceled or are forfeited (including forfeitures in connection with satisfaction of tax withholdings obligations of the recipient) are re-credited to the 2016 Plan’s reserve for future issuance. The 2016 Plan automatically terminates on the date which is ten years following the effective date of the 2016 Plan.

A summary of the restricted stock activity under the 2016 Plan and related information for the six months ended June 30, 2022 is included in the table below:


		Weighted-
	Unvested	Average
	Restricted	Grant Date Fair
	Stock	Value
Balance at December 31, 2021	37,767	$	92.49
Granted	21,645	$	215.69
Vested	(16,064)	$	80.47
Forfeited⁽¹⁾	(9,282)	$	56.94
Balance at March 31, 2022	34,066	$	186.12
Granted	2,811	$	128.11
Vested	(1,987)	$	181.27
Balance at June 30, 2022	34,890	$	181.72

(1)

Shares that were forfeited to cover the employees’ tax withholding obligation upon vesting.

The remaining unrecognized compensation cost of approximately $5.1 million for restricted stock awards is expected to be recognized over a weighted-average amortization period of approximately 2.2 years as of June 30, 2022. The fair value of restricted stock that vested during the six months ended June 30, 2022 was approximately $6.9 million.

The following table summarizes our RSU activity for the six months ended June 30, 2022. RSUs are issued as part of the Innovative Industrial Properties, Inc. Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”), which allows a select group of management and our non-employee directors to defer receiving certain of their cash and equity-based compensation. RSUs are subject to vesting conditions of the Deferred Compensation Plan and have the same economic rights as shares of restricted stock under the 2016 Plan:


		Weighted-Average
	Restricted	Grant Date Fair
	Stock Units	Value
Balance at December 31, 2021	60,326	$	120.24
Granted	20,853	$	215.84
Balance at March 31, 2022	81,179	$	144.79
Granted	2,498	$	128.11
Balance at June 30, 2022	83,677	$	144.30

The remaining unrecognized compensation cost of approximately $6.5 million for RSU awards is expected to be recognized over an amortization period of approximately 2.1 years as of June 30, 2022.

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In January 2021, we issued 70,795 “target” PSUs to a select group of officers, which vest and are settled in shares of common stock (“2021 PSU Award Shares”) based on the Company’s total stockholder return over a period commencing on January 11, 2021 and ending on December 31, 2023 (the “2021 PSU Performance Period”) relative to two different comparator groups of companies. In January 2022, we issued 102,641 “target” PSUs to a select group of officers, which vest and are settled in shares of common stock (referred to herein together with the 2021 PSU Award Shares as the “Award Shares”) based on the Company’s total stockholder return over a period commencing on January 11, 2022 and ending on December 31, 2024 (referred to herein together with the 2021 PSU Performance Period as the “Performance Periods”) relative to two different comparator groups of companies.

At the end of the applicable Performance Periods, a recipient of PSUs may receive as few as zero Award Shares or as many as 150% of the number of target PSUs in Award Shares, plus deemed dividends. PSUs will also be reduced as necessary so the total value at the vesting date does not exceed 800% of the grant date PSU price, and if the Company’s absolute total stockholder return during the applicable Performance Periods is negative, the payout of Award Shares is capped at the target number of PSUs, notwithstanding the Company’s outperformance of comparator groups. No dividends are paid to the recipient during the applicable Performance Periods. At the end of the applicable Performance Periods, if the Company’s total stockholder return is such that the recipient earns Award Shares, the recipient will receive additional shares of common stock relating to dividends deemed to have been paid and reinvested on the Award Shares. The recipient of the Award Shares may not sell, transfer or otherwise dispose of the Award Shares for a one-year period following the vesting date of the Award Shares.

The grant date fair values of the PSUs granted in January 2021 and January 2022 were $12.0 million and $20.0 million, respectively. The fair values were calculated using a Monte Carlo simulation pricing model based on the following assumptions:


		2021 PSU Award		2022 PSU Award
	Fair Value Assumptions		Fair Value Assumptions
Valuation date		January 6, 2021		January 7, 2022
Fair value per share on valuation date		$169.51		$194.86
Expected term		3 years		3 years
Expected price volatility		57.64%		55.99%
Risk-free interest rate		0.20%		1.17%
Discount for post vesting restriction		12.44%		12.22%

The expected share price volatility was based on the historical volatility of our shares of common stock over a period of approximately the applicable Performance Periods. The risk-free interest rate was based on the zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the applicable valuation date. The discount for the post vesting restriction was estimated using the Finnerty model.

Stock-based compensation for market-based PSU awards is based on the grant date fair value of the equity awards and is recognized over the applicable Performance Period. For the three and six months ended June 30, 2022, we recognized stock-based compensation expense of approximately $2.7 million and $5.3 million, respectively, relating to PSU awards. For the three and six months ended June 30, 2021, we recognized stock-based compensation expense of approximately $1.0 million and $2.0 million, respectively, relating to PSU awards. As of June 30, 2022, the remaining unrecognized compensation cost of approximately $22.7 million relating to PSU awards is expected to be recognized over the remaining Performance Period of approximately 2.3 years.

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11. Commitments and Contingencies

Office Lease. The future contractual lease payments for our office lease and the reconciliation to the office lease liability reflected in other liabilities in our condensed consolidated balance sheets as of June 30, 2022 is presented in the table below (in thousands):


Year	Amount
2022 (six months ending December 31)	$	241
2023		496
2024		511
2025		526
2026		543
Thereafter		45
Total future contractual lease payments		2,362
Effect of discounting		(305)
Office lease liability	$	2,057

Improvement Allowances. As of June 30, 2022, we had approximately $194.4 million of 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.

Construction Loan. As of June 30, 2022, we had approximately $802,000 of commitments related to our construction loan for the development of a regulated cannabis cultivation and processing facility in California. The developer is required to complete construction by December 1, 2022, subject to extension in certain circumstances.

Environmental Matters. We follow the policy of monitoring our properties, both targeted acquisition and existing properties, for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liabilities that would have a material adverse effect on our financial condition, results of operations and cash flow, or that we believe would require disclosure or the recording of a loss contingency.

Litigation.

Class Action Lawsuit

On April 25, 2022, a federal securities class action lawsuit was filed against the Company and certain of its officers. The case was named Michael V. Malozzi, individually and on behalf of others similarly situated v. Innovative Industrial Properties, Inc., Paul Smithers, Catherine Hastings and Andy Bui, Case No. 2-22-cv-02359, and was filed in the U.S. District Court for the District of New Jersey. The lawsuit was purportedly brought on behalf of purchasers of our common stock and alleges that we and certain of our officers made false or misleading statements regarding our business in violation of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), SEC Rule 10b-5, and Section 20(a) of the Exchange Act. According to the filed complaint, the plaintiff is seeking an undetermined amount of damages, interest, attorneys’ fees and costs and other relief on behalf of the putative classes of all persons who acquired shares of the Company’s common stock between May 7, 2020 and April 13, 2022. It is possible that similar lawsuits may yet be filed in the same or other courts that name the same or additional defendants. We intend to defend the lawsuit vigorously. However, at this time, we cannot predict the probable outcome of this action, and, accordingly, no amounts have been accrued in the Company’s condensed consolidated financial statements.

Derivative Action Lawsuit

On July 26, 2022, a derivative action lawsuit was filed against the Company and certain of its officers and directors. The case was named John Rice, derivatively on behalf of Innovative Industrial Properties, Inc. v. Paul Smithers, Catherine Hastings, Andy Bui, Alan Gold, Gary Kreitzer, Mary Curran, Scott Shoemaker, David Stecher, and Innovative Industrial Properties, Inc., and was filed in the Circuit Court for Baltimore City, Maryland. The lawsuit asserts putative derivative claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets against the directors and certain officers of the Company. The plaintiffs are seeking declaratory relief, direction to reform and improve corporate governance and internal procedures, and an undetermined amount of damages, restitution, interest, and attorneys’ fees and costs. The Company intends to vigorously defend this lawsuit. However, at this time, the Company cannot predict the probable outcome of this action, and, accordingly, no amounts have been accrued in the Company’s condensed consolidated financial statements.

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Kings Garden Lawsuit

On July 13, 2022, one of our tenants, Kings Garden Inc. (“Kings Garden”), defaulted on its obligations to pay base rent and property management fees for the month of July under each of its six leases with our indirect, wholly owned subsidiary, IIP-CA 2 LP, and defaulted on its obligations to reimburse us for certain insurance premiums at the properties incurred by us that are payable by Kings Garden as operating expenses under such leases. Kings Garden’s monetary default under its leases with us was approximately $2.2 million in the aggregate, consisting of approximately $1.8 million of base rent and property management fees for the month of July and approximately $382,000 of insurance premiums, but excluding applicable late charges and default interest. We applied a portion of the security deposits under the leases, totaling approximately $2.3 million, as payment for these amounts, as well as applicable late charges and default interest through July 13, 2022. Of the six properties leased to Kings Garden, four were operational, with an expansion project at one of those properties, and the other two properties were in development or redevelopment as of June 30, 2022.

On July 25, 2022, IIP-CA 2 LP filed a lawsuit against Kings Garden. The case was named IIP-CA 2 LP, a Delaware limited partnership v. Kings Garden Inc., a Nevada corporation, CK Endeavors, Inc., a California corporation, and JM Endeavors, Inc., a California corporation, and was filed in the Superior Court of the State of California. The lawsuit asserts claims for breach of contract, declaratory relief, and injunctive relief. On August 2, 2022, the case was amended to be named IIP-CA 2 LP, a Delaware limited partnership v. Kings Garden Inc., a Nevada corporation, CK Endeavors, Inc., a California corporation, JM Endeavors, Inc., a California corporation, Michael King, an individual, Gary LaSalle, an individual, Charles Kieley, an individual, and Laurie Kibby, an individual, and to include claims relating to construction at the expansion project and the property that was under redevelopment as of June 30, 2022 for breach of implied covenant of good faith and fair dealing, fraud, negligent misrepresentation, conversion, theft by false pretenses, money had and received, and violations of the Racketeer Influenced and Corrupt Organization Act (18 U.S.C. Section 1962(c)). We are seeking monetary damages, interest, attorneys’ fees, and declaratory and injunctive relief. Although there is at least a reasonable possibility that a loss may have been incurred in connection with the default by Kings Garden and the related construction projects, as of June 30, 2022, we are unable to make such an estimate.

We may, from time to time, be a party to other legal proceedings, which arise in the ordinary course of our business. Although the results of these proceedings, claims, inquiries, and investigations cannot be predicted with certainty, we do not believe that the final outcome of these matters is reasonably likely to have a material adverse effect on our business, financial condition, or results of operations. Regardless of final outcomes, however, any such proceedings, claims, inquiries, and investigations may nonetheless impose a significant burden on management and employees and may come with significant defense costs or unfavorable preliminary and interim rulings.

12. Subsequent Events

Tenant Default

We previously entered into leases (collectively, the “Kings Garden Leases”) with Kings Garden, as tenant, for six properties located in southern California. On July 13, 2022, Kings Garden defaulted on its obligations to pay base rent and property management fees for the month of July under each of the Kings Garden Leases, and defaulted on its obligations to reimburse us for certain insurance premiums at the properties incurred by us that are payable by Kings Garden as operating expenses under the Kings Garden Leases. Kings Garden’s monetary default under all of the Kings Garden Leases was approximately $2.2 million in the aggregate, consisting of approximately $1.8 million of base rent and property management fees for the month of July and approximately $382,000 of insurance premiums, but excluding applicable late charges and default interest. We applied a portion of the security deposits under the Kings Garden Leases, totaling approximately $2.3 million, as payment for these amounts, as well as applicable late charges and default interest through July 13, 2022. As of August 4, 2022, we had not received any additional payments from Kings Garden under any of the Kings Garden Leases, and have approximately $373,000 remaining of security deposits under the Kings Garden Leases.

Tenant Rent Abatement

On July 1, 2022, we amended our lease with Calyx Peak, Inc. at our Missouri property, abating the base rent for the period from July 1, 2022 through December 31, 2022. As of August 4, 2022, the property was under construction and not yet operational, and construction has been delayed in part due to delays in procurement of construction materials.

On July 29, 2022, we amended our lease with Green Peak Industries, Inc. at one of our Michigan properties, abating the base rent and property management fee for the period from August 1, 2022 through October 31, 2022. As of August 4, 2022, the property was

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under construction and not yet operational, and construction has been delayed in part due to delays in procurement of construction materials.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated financial statements and notes thereto appearing elsewhere in this report. We make statements in this report that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, our statements regarding anticipated growth in our funds from operations and anticipated market and regulatory conditions, our strategic direction, demographics, results of operations, plans and objectives are forward-looking statements. Forward-looking statements involve numerous risks and uncertainties, and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases. You can also identify forward-looking statements by discussions of strategy, plans or intentions. The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: rates of default on leases for our assets, concentration of our portfolio of assets and limited number of tenants; the estimated growth in and evolving market dynamics of the regulated cannabis market inflation dynamics; the impact of the ongoing COVID-19 pandemic, or future pandemics, on us, our business, our tenants, or the economy generally; war and other hostilities, including the conflict in Ukraine; our business and investment strategy; our projected operating results; actions and initiatives of the U.S. or state governments and changes to government policies and the execution and impact of these actions, initiatives and policies, including the fact that cannabis remains illegal under federal law; availability of suitable investment opportunities in the regulated cannabis industry; our understanding of our competition and our potential tenants’ alternative financing sources; the demand for regulated cannabis facilities; the expected medical-use or adult-use cannabis legalization in certain states; shifts in public opinion regarding regulated cannabis; the additional risks that may be associated with certain of our tenants cultivating, processing and/or dispensing adult-use cannabis in our facilities; the state of the U.S. economy generally or in specific geographic areas; economic trends and economic recoveries; our ability to access equity or debt capital; financing rates for our target assets; our expected leverage; our level of indebtedness, which could reduce funds available for other business purposes and reduce our operational flexibility; covenants in our debt instruments, which may limit our flexibility and adversely affect our financial condition; our ability to maintain our investment grade credit rating; changes in the values of our assets; our expected portfolio of assets; our expected investments; interest rate mismatches between our assets and our borrowings used to fund such investments; changes in interest rates and the market value of our assets; the degree to which any interest rate or other hedging strategies may or may not protect us from interest rate volatility; the impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters; our ability to maintain our qualification as a REIT; our ability to maintain our exemption from registration under the Investment Company Act of 1940; availability of qualified personnel; and market trends in our industry, interest rates, real estate values, the securities markets or the general economy.

The risks included here are not exhaustive, and additional factors could adversely affect our business and financial performance, including factors and risks included in other sections of this report. In addition, we discussed a number of material risks in our Annual Report on Form 10-K for the year ended December 31, 2021, in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, and in Part II, Item 1A below. Those risks continue to be relevant to our performance and financial condition. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on our Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Any forward-looking statement made by us speaks only of the date on which we make it. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. Stockholders and investors are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented in the Company’s filings and reports.

The purpose of this Management’s Discussion and Analysis (“MD&A”) is to provide an understanding of the Company’s consolidated financial condition, results of operations and cash. MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s condensed consolidated financial statements and accompanying notes.

Overview

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We are an internally-managed REIT focused on the acquisition, ownership and management of specialized properties leased to experienced, state-licensed operators for their regulated cannabis facilities. We have leased and expect to continue to lease our properties on a triple-net lease basis, where the tenant is responsible for all aspects of and costs related to the property and its operation during the lease term, including structural repairs, maintenance, real estate taxes and insurance.

As of June 30, 2022, we owned 110 properties that were 100% leased to state-licensed cannabis operators and comprising an aggregate of approximately 8.6 million rentable square feet (including approximately 2.5 million rentable square feet under development/redevelopment) in 19 states, with a weighted-average remaining lease term of approximately 16 years. As of June 30, 2022, we had invested approximately $2.1 billion in the aggregate (consisting of purchase price and funding of draws for construction funding and improvements submitted by tenants, if any, but excluding transaction costs) and had committed an additional approximately $225.2 million to fund draws to certain tenants and sellers for construction and improvements at our properties. Of the approximately $225.2 million committed to fund draws to certain tenants and sellers for construction and improvements at our properties, approximately $30.8 million was incurred as of June 30, 2022. These statistics do not include an $18.5 million loan commitment from us to a developer for construction of a regulated cannabis cultivation and processing facility in California, of which we have funded approximately $17.7 million as of June 30, 2022. Rent collection (calculated as base rent and property management fees collected as a percentage of contractually due base rent and property management fees for the applicable period) was approximately 99% for the six months ended June 30, 2022. Subsequent to June 30, 2022, Kings Garden defaulted on its obligations to pay any rent at the six properties that Kings Garden leases from us (See Part II, Item 1. Legal Proceedings and Note 12 “Subsequent Events” to our condensed consolidated financial statements included in this report for more information).

Factors Impacting Our Operating Results

Our results of operations are affected by a number of factors and depend on the rental revenues we receive from the properties that we acquire, the timing of lease expirations, general market conditions, the regulatory environment in the regulated cannabis industry, and the competitive environment for real estate assets that support the regulated cannabis industry.

Rental Revenues

We receive income primarily from rental revenues generated by the properties that we acquire. The amount of rental revenues depends upon a number of factors, including:

●

our ability to enter into leases with increasing or market value rents for the properties that we acquire; and

●

rent collection, which primarily relates to each of our tenant’s financial condition and ability to make rent payments to us on time.

The properties that we acquire consist of real estate assets that support the regulated cannabis industry. Changes in federal law and current favorable state or local laws in the cannabis industry may impair our ability to renew or re-lease properties and the ability of our tenants to fulfill their lease obligations and could materially and adversely affect our ability to maintain or increase rental rates for our properties.

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. The success of our tenants in operating their businesses and their ability to pay rent continue to be significantly influenced by many challenges including the impact of inflation, labor shortages, supply chain constraints on their cost of doing business, and the ongoing COVID-19 Pandemic. 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. 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.

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Market Dynamics in Regulated Cannabis State Programs

States vary significantly in their market dynamics, driven by many factors, including, but not limited to, regulatory frameworks, enforcement policies with respect to illicit, unlicensed cannabis operations, taxation and licensing structures. For example, in California, according to Global Go Analytics, the illicit market for cannabis remains a much larger portion of overall sales in the state, and state and local authorities have assessed significant taxes on regulated cannabis products, both of which have had the impact of significantly limiting the growth and profitability for operators in the state’s regulated cannabis market.

Recently, many states have experienced significant declines in unit pricing for regulated cannabis products, with that decline more pronounced in certain states than in others. For example, according to New Leaf Data Services, a provider of financial, business and industry data in the cannabis sector, spot wholesale cannabis flower prices in California and Michigan have each declined more than 30% during the six months ended June 30, 2022. Approximately 12% and 13% of our rental revenues for the six months ended June 30, 2022, were derived from our properties located in California and Michigan, respectively.

Inflation and Supply Chain Constraints

Recently, inflation has trended significantly higher than in prior periods, which may be negatively impacting some of 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. Ongoing labor shortages and global supply chain issues, driven in part by the COVID-19 pandemic, geopolitical issues and the war in Ukraine, 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.

Reduced Capital Availability for Tenants and the Company

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, capital availability has significantly declined for regulated cannabis operators and for the Company. According to Viridian Capital Advisors, total equity and debt capital raising for public and private cannabis companies in North America decreased by approximately 64% year-to-date through July 1, 2022 ($2.6 billion) versus the prior year’s period ($7.3 billion). In addition, debt issuance year-to-date through July 1, 2022 for cannabis companies represents the most significant percentage of capital raised of the comparable periods of the past four years according to Viridian Capital Advisors, as equity values of cannabis companies have declined significantly.

COVID-19 Pandemic

The ongoing COVID-19 pandemic, or the future outbreak of any other highly infectious or contagious diseases, could materially and adversely impact or cause disruption to our tenants and their operations, and in turn our performance, financial condition, results of operations and cash flows. The extent to which the ongoing COVID-19 pandemic impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the outbreak and containment measures, among others. Furthermore, the impacts of a potential worsening of global economic conditions, acts of war or other hostilities, including the conflict in Ukraine, and the continued disruptions to, and volatility in, the credit and financial markets, supply chains and consumer spending as well as other unanticipated consequences remain unknown.

Our tenants’ ability to pay their rent obligations to us depends, in part, on whether our tenants can continue their regulated cannabis operations and the ability and willingness of consumers to visit dispensary businesses. In the large majority of states that have legalized cannabis, state governmental authorities have recognized both medical-use and adult-use cannabis operations, including supply chain activities such as cultivation, processing, distribution and dispensary activities, as “essential businesses”, allowing them to remain open and operational. While laws and practices vary from state to state, state and local governmental authorities and regulated cannabis businesses have taken additional measures to ensure the safety and well-being of employees, patients and consumers, including but not limited to restrictions associated with social distancing requirements and additional levels of protection for medical cannabis patients with more vulnerability to health complications from COVID-19. Despite these measures, cannabis dispensaries may experience declines in customer traffic or may be required to close in response to new government regulatory orders, which may result from a prolonged outbreak or resurgence of COVID-19 cases, and could have a significant adverse financial impact on certain of our tenants.

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Significant Tenants and Concentrations of Risk

As of June 30, 2022, we owned 110 properties located in 19 states. 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 June 30, 2022, none of our properties accounted for 5% or more of our net real estate held for investment. See Note 2 in the notes to the condensed consolidated financial statements for further information regarding the tenants in our portfolio that represented the largest percentage of our total rental revenues for the three and six months ended June 30, 2022. See Note 12 “Subsequent Events” in the notes to the condensed consolidated financial statements regarding the status of the Kings Garden Leases.

Competitive Environment

We face competition from a diverse mix of market participants, including but not limited to, other companies with similar business models, independent investors, hedge funds, lenders and other real estate investors, as well as potential tenants (cannabis operators themselves), all of whom may compete with us in our efforts to acquire real estate zoned for regulated cannabis operations. Competition from others may diminish our opportunities to acquire a desired property on favorable terms or at all. 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.

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. We generally structure our leases so that the tenant is responsible for taxes, maintenance, insurance and structural repairs with respect to the premises throughout the lease term. Increases or decreases in such operating expenses will impact our overall financial performance.

Our Qualification as a REIT

We have been organized and operate our business so as to qualify to be taxed as a REIT for U.S. federal income tax purposes. Shares of our common stock and Series A Preferred Stock are subject to restrictions on ownership and transfer that are intended, among other purposes, to assist us in qualifying and maintaining our qualification as a REIT. 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.

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Results of Operations

Investments in Real Estate

See Note 6 in the notes to the condensed consolidated financial statements for information regarding our investments in real estate activity and property portfolio activity during the six months ended June 30, 2022.

Comparison of the Three and Six Months Ended June 30, 2022 and 2021

The following table sets forth the results of our operations (in thousands):


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Revenues:
Rental (including tenant reimbursements)	$	69,995	$	48,867	$	134,109	$	91,752
Other		516		—		906		—
Total revenues		70,511		48,867		135,015		91,752

Expenses:
Property expenses		2,427		482		4,409		1,252
General and administrative expense		8,707		5,604		17,484		11,204
Depreciation and amortization expense		15,233		9,841		29,101		18,680
Total expenses		26,367		15,927		50,994		31,136
Income from operations		44,144		32,940		84,021		60,616
Interest and other income		581		91		638		215
Interest expense		(4,504)		(3,692)		(9,270)		(5,565)
Loss on exchange of Exchangeable Senior Notes		(7)		—		(125)		—
Net income		40,214		29,339		75,264		55,266
Preferred stock dividends		(338)		(338)		(676)		(676)
Net income attributable to common stockholders	$	39,876	$	29,001	$	74,588	$	54,590

Revenues.

Rental Revenues. Rental revenues for the three months ended June 30, 2022 increased by approximately $21.1 million, or 43%, to approximately $70.0 million, compared to approximately $48.9 million for the three months ended June 30, 2021. Approximately $1.3 million of the increase in rental revenues was generated by the properties acquired during the three months ended June 30, 2022. The remaining approximately $19.8 million increase in rental revenues was generated by properties we acquired in prior periods, including contractual rent escalations and amendments to leases for additional improvement allowances and construction funding at existing properties that resulted in adjustments to rent. Rental revenues for the three months ended June 30, 2022 and 2021 included approximately $2.5 million and $498,000, respectively, of tenant reimbursements for property insurance premiums and property taxes.

Rental revenues for the six months ended June 30, 2022 increased by $42.3 million, or 46%, to approximately $134.1 million, compared to approximately $91.8 million for the six months ended June 30, 2021. Approximately $3.0 million of the increase in rental revenues was generated by the properties acquired during the six months ended June 30, 2022. The remaining approximately $39.3 million increase in rental revenues was generated by properties we acquired in prior periods, including contractual rent escalations and amendments to leases for additional improvement allowances and construction funding at existing properties that resulted in adjustments to rent. Rental revenues for the six months ended June 30, 2022 and 2021 included approximately $4.4 million and $1.2 million, respectively, of tenant reimbursements for property insurance premiums and property taxes.

Other Revenues. Other revenues for the three and six months ended June 30, 2022 consists of interest revenue related to leases for property acquisitions that did not satisfy the requirements for sale-leaseback accounting.

Expenses.

Property Expenses. Property expenses for the three and six months ended June 30, 2022 increased by approximately $1.9 million and $3.2 million respectively, compared to the three and six months ended June 30, 2021. The increase was due to property insurance

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premiums and property taxes paid for newly acquired properties and the completion of development or redevelopment of existing properties.

General and Administrative Expense. General and administrative expense for the three months ended June 30, 2022 increased by approximately $3.1 million to approximately $8.7 million, compared to approximately $5.6 million for the three months ended June 30, 2021. General and administrative expense for the six months ended June 30, 2022 increased by approximately $6.3 million to approximately $17.5 million, compared to approximately $11.2 million for the six months ended June 30, 2021. The increase in general and administrative expense was primarily due to higher compensation to employees, the hiring of additional employees and higher public company costs, travel and occupancy costs. Compensation expense for the three and six months ended June 30, 2022 included approximately $4.4 million and $8.8 million, respectively, of non-cash stock-based compensation. Compensation expense for the three and six months ended June 30, 2021 included approximately $2.1 million and $4.2 million, respectively of non-cash stock-based compensation.

Depreciation and Amortization Expense. The increase in depreciation and amortization expense was related to depreciation on properties that we acquired and the placement into service of construction and improvements at certain of our properties.

Interest and Other Income. Interest and other income for the three months ended June 30, 2022 increased by approximately $490,000 compared to the three months ended June 30, 2021. The increase was due to higher balances of interest-bearing investments resulting from proceeds from our common stock offerings and higher interest rates on our interest-bearing investments. Interest and other income for the six months ended June 30, 2022 increased by approximately $423,000 compared to the six months ended June 30, 2021. The increase was due to higher balances of interest bearing investments resulting from proceeds from our common stock offerings and higher interest rates on our interest-bearing investments.

Interest Expense. Interest expense consists of interest on our Exchangeable Senior Notes issued in February 2019 and our Notes due 2026 issued in May 2021. Interest expense for the three months ended June 30, 2022 and 2021 included approximately $324,000 and $649,000, respectively, of non-cash interest expense; and interest expense for the six months ended June 30, 2022 and 2021 included approximately $689,000 and $1.2 million, respectively, of non-cash interest expense.

Cash Flows

Comparison of the Six Months Ended June 30, 2022 and 2021 (in thousands)


	Six Months Ended June 30,
	2022		2021		Change
Net cash provided by operating activities	$	121,981	$	89,392	$	32,589
Net cash used in investing activities		(426,970)		(287,153)		(139,817)
Net cash provided by financing activities		264,532		228,069		36,463
Ending cash, cash equivalents and restricted cash		45,962		156,314		(110,352)

Operating Activities

Cash flows provided by operating activities for the six months ended June 30, 2022 and 2021 were approximately $122.0 million and $89.4 million, respectively. Cash flows provided by operating activities were generally from contractual rent and security deposits from our properties, partially offset by our general and administrative expense.

Investing Activities

Cash flows used in investing activities for the six months ended June 30, 2022 were approximately $427.0 million, of which approximately $442.9 million related to investments in real estate and funding of draws for a portion of the improvement allowances, construction funding at our properties and other investments, partially offset by approximately $15.9 million related to net maturities of short-term investments. Cash flows used in investing activities for the six months ended June 30, 2021 were approximately $287.2 million, of which approximately $257.3 million primarily related to the purchase of investment in real estate and funding of draws for a portion of the improvement allowances and construction funding at our properties. The remaining approximately $29.9 million related to net purchases and maturities of short-term investments.

Financing Activities

Net cash provided by financing activities of approximately $264.5 million during the six months ended June 30, 2022 was the result of approximately $352.0 million in net proceeds from the issuance of our common stock, partially offset by dividend payments

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of approximately $85.1 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.

Net cash provided by financing activities of approximately $228.1 million during the six months ended June 30, 2021 was the result of approximately $293.5 million in net proceeds from the issuance of our Notes due 2026, partially offset by dividend payments of approximately $62.0 million to common and preferred stockholders and approximately $3.4 million related to net share settlement of equity awards to pay the required withholding taxes upon vesting of restricted stock for certain employees.

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.

Sources and Uses of Cash

We derive all of our revenues from the leasing of our properties and collecting rental income, which includes operating expense reimbursements, based on contractual arrangements with our tenants. This source of revenue represents our primary source of liquidity to fund our dividends, interest payments on Exchangeable Senior Notes and Notes due 2026, general and administrative expenses, property development and redevelopment activities, property operating expenses and other expenses incurred related to managing our existing portfolio and investing in additional properties. 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. If a tenant defaults on one of our leases or the lease term expires with no tenant renewal, we would incur the property costs not paid by the tenant during the time it takes to re-lease or sell the property. As of June 30, 2022, the weighted-average remaining terms of our leases was approximately 16 years and we owned 110 properties that were 100% leased. Rent collection (calculated as base rent and property management fees collected as a percentage of contractually due base rent and property management fees for the applicable period) was approximately 99% for the six months ended June 30, 2022. Subsequent to June 30, 2022, Kings Garden defaulted on its obligations to pay any rent at the six properties that Kings Garden leases from us (See Part II, Item 1. Legal Proceedings and Note 12 “Subsequent Events” to our condensed consolidated financial statements included in this report for more information). We expect to incur some property-level operating costs from time to time in periods during which properties that become vacant are being remarketed. In addition, we may recognize an expense for certain property costs, such as insurance premiums and real estate taxes billed in arrears, if we believe the tenant is likely to vacate the property before making payment on those obligations or may be unable to pay such costs in a timely manner. Property costs are generally not significant to our operations, but the amount of property costs can vary quarter to quarter based on the number of property vacancies and whether we have any underperforming properties. We may advance certain property costs on behalf of our tenants but expect that the majority of these costs will be reimbursed by the tenant and do not anticipate that they will be significant to our operations.

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. Where possible, we also may issue limited partnership interests in our Operating Partnership to acquire properties from existing owners seeking a tax-deferred transaction.

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. On May 25, 2021, our Operating Partnership issued $300.0 million aggregate principal amount of Notes due 2026. The Notes due 2026 are the Operating Partnership’s general unsecured and unsubordinated 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 terms of the Notes due 2026 are governed by an indenture, which requires compliance with various financial covenants including limits on the amount of total leverage and secured debt maintained by the Operating Partnership and which require the Operating Partnership to maintain minimum levels of debt service coverage. Management believes that it was in compliance with those covenants as of June 30, 2022. Subject to the terms of the indenture, any new subsidiary of the Operating Partnership will also guarantee the Notes due 2026. 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 April 2022, we issued 1,815,790 shares of common stock in an underwritten public offering, which includes the exercise in full of the underwriters’ option to purchase an additional 236,842 shares, resulting in net proceeds of approximately $330.9 million.

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We are party to equity distribution agreements with six sales agents, pursuant to which we may offer and sell from time to time through an “at-the-market” offering program, or ATM Program, up to $500.0 million in shares of our common stock. In March 2022, we sold 117,023 shares of our common stock for net proceeds of approximately $21.1 million under the ATM Program. As of June 30, 2022, the remaining amount available to be sold under the ATM Program was approximately $209.9 million.

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 and other securities to the extent necessary or advisable to meet our liquidity needs.

We expect to meet our liquidity needs through cash and short-term investments on hand, cash flows from operations and cash flow from sources discussed above. We believe that our liquidity and sources of capital are adequate to satisfy our cash requirements. We cannot, however, be certain that these sources of funds will be available at a time and upon terms acceptable to the Company in sufficient amounts to meet our liquidity needs. Our investment guidelines also provide that our aggregate borrowings (secured and unsecured) will not exceed 50% of the cost of our tangible assets at the time of any new borrowing, subject to our board of directors’ discretion.

In recent months, financial markets have been volatile in general, 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 investments for improvements at existing properties.

Dividends

The Company is required to pay dividends to its stockholders at least equal to 90% of its taxable income in order to qualify and maintain its qualification as a REIT. As a result of this distribution requirement, our Operating Partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can. 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 Notes due 2026, and make accretive new investments.

The following table describes the dividends declared by the Company during the six months ended June 30, 2022:

Amount

Declaration

Per

Dividend

Date

Security Class

Share

Period Covered

Paid Date

Dividend Amount

(In thousands)

March 14, 2022

Common stock

1.75

January 1, 2022 to March 31, 2022

April 14, 2022

45,830

March 14, 2022

Series A preferred stock

0.5625

January 15, 2022 to April 14, 2022

April 14, 2022

338

June 15, 2022

Common stock

1.75

March 1, 2022 to June 30, 2022

July 15, 2022

49,101

June 15, 2022

Series A preferred stock

0.5625

April 15, 2022 to July 14, 2022

July 15, 2022

338

Contractual Obligations

The following table summarizes our contractual obligations as of June 30, 2022 (in thousands):


Payments Due			Exchangeable
by Year	Notes due 2026		Senior Notes		Interest		Office Rent		Total
2022 (six months ending December 31)	$	—	$	—	$	8,371	$	241	$	8,612
2023		—		—		16,742		496		17,238
2024		—		6,453		16,534		511		23,498
2025		—		—		16,500		526		17,026
2026		300,000		—		6,646		543		307,189
Thereafter		—		—		—		45		45
Total	$	300,000	$	6,453	$	64,793	$	2,362	$	373,608

Additionally, as of June 30, 2022, we had approximately $194.4 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. As of June 30, 2022, we also had approximately $802,000 outstanding in commitments to fund a construction

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loan, which the developer is required to complete by December 1, 2022, subject to extension in certain circumstances. The commitments discussed in this paragraph are excluded from the table of contractual obligations above, as improvement allowances 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 and construction loan funding generally may be requested by the borrower from time to time, subject to satisfaction of certain conditions.

Non-GAAP Financial Information

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. We continually evaluate the usefulness, relevance, limitations, and calculation of our reported non-GAAP performance measures to determine how best to provide relevant information to the public and thus such reported measures could change.

Funds from Operations, Normalized Funds from Operations and Adjusted Funds from Operations

Funds from operations (“FFO”) and FFO per share are operating performance measures adopted by the National Association of Real Estate Investment Trusts, Inc. (“NAREIT”). NAREIT defines FFO as the most commonly accepted and reported measure of a REIT’s operating performance equal to net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property, depreciation, amortization and impairment related to real estate properties, and after adjustments for unconsolidated partnerships and joint ventures.

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. Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate assets diminishes predictably over time. However, real estate values instead have historically risen or fallen with market conditions. We believe that by excluding the effect of depreciation, FFO and FFO per share can facilitate comparisons of operating performance between periods. We report FFO and FFO per share because these measures are observed by management to also be the predominant measures used by the REIT industry and by industry analysts to evaluate REITs and because FFO per share is consistently reported, discussed, and compared by research analysts in their notes and publications about REITs. 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. Exclusion of these items from similar FFO-type metrics is common within the equity REIT industry, and management believes that presentation of Normalized FFO and Normalized FFO per share provides investors with a metric to assist in their evaluation of our operating performance across multiple periods and in comparison to the operating performance of other companies, because it removes the effect of unusual items that are not expected to impact our operating performance on an ongoing basis. Normalized FFO is used by management in evaluating the performance of our core business operations. Items included in calculating FFO that may be excluded in calculating Normalized FFO include certain transaction-related gains, losses, income or expense or other non-core amounts as they occur.

Management believes that adjusted funds from operations (“AFFO”) and AFFO per share are also appropriate supplemental measures of a REIT’s operating performance. We calculate AFFO by adjusting Normalized FFO for certain non-cash items.

For the three and six months ended June 30, 2022 and 2021, FFO (diluted), Normalized FFO and 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. As a result, for purposes of calculating FFO (diluted), cash and non-cash interest expense of the Exchangeable Senior Notes was added back to FFO, and the total diluted weighted-average common shares outstanding increased by 103,742 shares and 304,348 shares for the three and six months ended June 30, 2022, respectively, which were the potentially issuable shares as if the Exchangeable Senior Notes were exchanged at the beginning of the period.

For the three and six months ended June 30, 2021, for purposes of calculating FFO (diluted), cash and non-cash interest expense of the Exchangeable Senior Notes was added back to FFO, and the total diluted weighted-average common shares outstanding increased by 2,182,691 shares for both periods, which were the potentially issuable shares as if the Exchangeable Senior Notes were exchanged at the beginning of the period.

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For the three and six months ended June 30, 2022 and 2021, as the performance thresholds for vesting of the PSUs were not met as measured as of the respective dates, they were excluded from the calculation of weighted average common shares outstanding – diluted for all periods presented.

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 and AFFO do not represent cash flow available for management’s discretionary use. FFO, Normalized FFO and AFFO should not be considered as an alternative to net income (computed in accordance with GAAP) as an indicator of our financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to pay dividends or make distributions. FFO, Normalized FFO and AFFO should be considered only as supplements to net income computed in accordance with GAAP as measures of operations.

The table below is a reconciliation of net income attributable to common stockholders to FFO, Normalized FFO and AFFO for the three and six months ended June 30, 2022 and 2021 (in thousands, except share and per share amounts):


	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Net income attributable to common stockholders	$	39,876	$	29,001	$	74,588	$	54,590
Real estate depreciation and amortization		15,233		9,841		29,101		18,680
FFO attributable to common stockholders (basic)		55,109		38,842		103,689		73,270
Cash and non-cash interest expense on Exchangeable Senior Notes		68		1,879		402		3,752
FFO attributable to common stockholders (diluted)		55,177		40,721		104,091		77,022
Acquisition-related expense		—		11		95		19
Financing expense		104		—		104		—
Loss on exchange of Exchangeable Senior Notes		7		—		125		—
Normalized FFO attributable to common stockholders (diluted)		55,288		40,732		104,415		77,041
Stock-based compensation		4,437		2,132		8,816		4,233
Non-cash interest expense		311		118		618		118
Above-market lease amortization		23		—		46		—
AFFO attributable to common stockholders (diluted)	$	60,059	$	42,982	$	113,895	$	81,392
FFO per common share – diluted	$	1.97	$	1.56	$	3.83	$	2.94
Normalized FFO per common share – diluted	$	1.97	$	1.56	$	3.84	$	2.94
AFFO per common share – diluted	$	2.14	$	1.64	$	4.19	$	3.11
Weighted average common shares outstanding – basic		27,850,561		23,889,761		26,741,568		23,889,580
Restricted stock and RSUs		82,387		96,230		113,858		94,223
PSUs		—		—		—		—
Dilutive effect of Exchangeable Senior Notes		103,742		2,182,691		304,348		2,182,691
Weighted average common shares outstanding – diluted		28,036,690		26,168,682		27,159,774		26,166,494

Critical Accounting Estimates

Our condensed consolidated financial statements have been prepared in accordance with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates and assumptions.

We continually evaluate the estimates and assumptions we use to prepare our consolidated financial statements. Our critical accounting estimates are defined as accounting estimates or assumptions made in accordance with GAAP, which involve a significant level of estimation uncertainty or subjectivity and have had or are reasonably likely to have a material impact on our financial condition or results of operations. The following critical accounting estimates discussion reflects what we believe are the most significant estimates and assumptions used in the preparation of our consolidated financial statements. 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 further discussion of our significant accounting policies, see Note 2 “Significant Accounting Policies and Procedures” to our condensed consolidated financial statements included in this report.

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Acquisition of Rental Property, Depreciation and Impairment

All of our acquisitions of rental properties to date were accounted for as asset acquisitions and not business combinations because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings, and related intangible assets). The accounting model for asset acquisitions requires that the acquisition consideration (including acquisition costs) be allocated to the individual assets acquired and liabilities assumed on a relative fair value basis.

We exercise judgement to determine key assumptions used in each valuation technique. For example, we are required to use judgment and make a number of assumptions, including those related to projected growth in rental rates and operating expenses, anticipated trends and market/economic conditions. 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 condensed consolidated statements of income.

We depreciate buildings and improvements and tenant 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. Determining whether expenditures meet the criteria for capitalization and the assignment of depreciable lives requires management to exercise significant judgment.

The determination of whether we are or the tenant is the owner of tenant improvements for accounting purposes is subject to significant judgment. In making that determination, we consider numerous factors and perform a detailed evaluation of each individual lease. No one factor is determinative in reaching a conclusion. The factors we evaluate include but are not limited to the following:

●

whether the lease agreement requires landlord approval of how the tenant improvement allowance is spent prior to installation of the tenant improvements;

●

whether the lease agreement requires the tenant to provide evidence to the landlord supporting the cost and what the tenant improvement allowance was spent on prior to payment by the landlord for such tenant improvements;

●

whether the tenant improvements are unique to the tenant or reusable by other tenants;

●

whether the tenant is permitted to alter or remove the tenant improvements without the consent of the landlord or without compensating the landlord for any lost utility or diminution in fair value; and

●

whether the ownership of the tenant improvements remains with the landlord or remains with the tenant at the end of the lease term.

When we conclude that we are the owner of tenant improvements for accounting purposes using the factors discussed above, we record the cost to construct the tenant 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. We evaluate our real estate assets for impairment on a property-by-property basis. Indicators we use to determine whether an impairment evaluation is necessary include:

●

deterioration in rental rates for a specific property;

●

deterioration of a given rental submarket;

●

significant change in strategy or use of a specific property or any other event that could result in a decreased holding period, including classifying a property as held for sale, or significant development delay;

●

evidence of material physical damage to the property; and

●

default by a significant tenant when any of the other indicators above are present.

When we evaluate for potential impairment our real estate assets to be held and used, we first evaluate whether there are any indicators of impairment. If any impairment indicators are present for a specific real estate asset, we then perform an undiscounted cash flow analysis and compare the net carrying amount of the real estate asset to the real estate asset’s estimated undiscounted future cash flow over the anticipated holding period. If the estimated undiscounted future cash flow is less than the net carrying amount of the real estate asset, we perform an impairment loss calculation to determine if the fair value of the real estate asset is less than the net carrying value of the real estate asset. Our impairment loss calculation compares the net carrying amount of the real estate asset to the real estate asset’s estimated fair value, which may be based on estimated discounted future cash flow calculations or third-party valuations or appraisals. We recognize an impairment loss if the amount of the asset’s net carrying amount exceeds the asset’s estimated fair value. If we recognize an impairment loss, the estimated fair value of the asset becomes its new cost basis. For a depreciable long-lived asset, the new cost basis would be depreciated (amortized) over the remaining useful life of that asset. If a real

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estate asset is designated as real estate held for sale, it is carried at the lower of the net carrying value or estimated fair value less costs to sell, and depreciation ceases.

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 and selecting the discount or capitalization rate that reflects the risk inherent in future cash flow. Estimating projected cash flow is highly subjective as it requires assumptions related to future rental rates, tenant allowances, operating expenditures, property taxes, capital improvements, and occupancy levels. We are also required to make a number of assumptions relating to future economic and market events and prospective operating trends. Determining the appropriate capitalization rate also requires significant judgment and is typically based on many factors including the prevailing rate for the market or submarket, as well as the quality and location of the properties. Further, capitalization rates can fluctuate resulting from a variety of factors in the overall economy or within regional markets. If the actual net cash flow or actual market capitalization rates significantly differ from our estimates, the impairment evaluation for an individual asset could be materially affected.

For each property where such an indicator occurred, we completed an impairment evaluation. 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 three and six months ended June 30, 2022 and 2021.

Stock-Based Compensation

Compensation cost for all share-based awards requires an estimate of fair value on the grant date and compensation cost is recognized on a straight-line basis over the service vesting period, which represents the requisite service period. The grant date fair value for compensation programs that contain market conditions, like modifiers based on total stockholder return (a “market condition”), are performed using complex pricing valuation models that require the input of assumptions, including judgments to estimate expected stock price volatility, expected life, and forfeiture rate. See Note 10 “Common Stock Incentive Plan” to our condensed consolidated financial statements included in this report for further discussion the assumptions and estimates.

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. 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.

Interest Rate Risk

As of June 30, 2022, we had $300.0 million principal amount of Notes due 2026 and approximately $6.5 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. It is possible that a property we acquire in the future would be subject to a mortgage, which we may assume.

Impact of Inflation

The U.S. economy has experienced an increase in inflation rates recently. We enter into leases that generally provide for fixed increases in rent. During times when inflation is greater than the fixed increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation.

Seasonality

Our business has not been, and we do not expect our business in the future to be, subject to material seasonal fluctuations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our Exchangeable Senior Notes bear interest at a fixed rate of 3.75% per annum until maturity and our Notes due 2026 bear interest at a fixed rate of 5.50% per annum until maturity, and collectively are 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

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a portfolio of long-term securities. Accordingly, we believe that a significant change in interest rates would not have a material effect on condensed consolidated financial statements.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, including ensuring that such information is accumulated and communicated to our Company’s management, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of June 30, 2022 (the end of the period covered by this Quarterly Report).

Changes in Internal Control Over Financial Reporting

There have been no changes in our system of internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II

ITEM 1. LEGAL PROCEEDINGS

Class Action Lawsuit

Derivative Action Lawsuit

Kings Garden Lawsuit

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ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, and in Part II, “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, which could materially affect our business, financial condition and/or results of operations. Except to the extent updated below or to the extent additional factual information disclosed elsewhere in this Quarterly Report on Form 10-Q relates to such risk factors, there have been no material changes to the risk factors described in the “Risk Factors” sections in our Annual Report on Form 10-K for the year ended December 31, 2021 and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. The risks as updated below and as described in our Annual Report on Form 10-K and subsequent Quarterly Report on Form 10-Q are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.

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 June 30, 2022, we owned 110 properties. Five of our tenants, PharmaCann Inc. (at eleven of our properties), Parallel (at four of our properties), Ascend (at four of our properties), Kings Garden (at six of our properties) and Trulieve (at six of our properties), represented approximately 14%, 10%, 9%, 8% and 7%, respectively, of our rental revenues (including tenant reimbursements) for the six months ended June 30, 2022. Lease payment defaults by any of our tenants or a significant decline in the value of any single property would materially adversely affect our business, financial position and results of operations, including our ability to make distributions to our stockholders. Our lack of diversification also increases the potential that a single underperforming investment or tenant could have a material adverse effect on our cash flows and the price we could realize from the sale of our properties. Any adverse change in the financial condition of any of our tenants, including but not limited to the state cannabis markets not developing and growing in ways that we or our tenants projected, or any adverse change in the political climate regarding cannabis where our properties are located, would subject us to a significant risk of loss.

In addition, failure by any of our tenants to comply with the terms of its lease agreement with us could require us to find another lessee for the applicable property. We may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing that property. Furthermore, we cannot assure you that we will be able to re-lease that property for the rent we currently receive, or at all, or that a lease termination would not result in our having to sell the property at a loss. 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.

On July 13, 2022, Kings Garden defaulted on its obligations to pay rent at all of the properties it leases with us. See Part II, Item 1. Legal Proceedings and Note 12 “Subsequent Events” to our condensed consolidated financial statements included in this report for more information.

Many of our existing tenants are, and we expect that many of our future tenants will be, companies with limited histories of operations and may be unable to pay rent with funds from operations or at all, which could adversely affect our cash available to make distributions to our stockholders or otherwise impair the value of our common stock.

Single tenants currently occupy our properties generally, and we expect that single tenants will occupy our properties that we acquire in the future. Therefore, the success of our investments will be materially dependent on the financial stability of these tenants. We rely on our management team to perform due diligence investigations of our potential tenants, related guarantors and their properties, operations and prospects, of which there is generally little or no publicly available operating and financial information. We may not learn all of the material information we need to know regarding these businesses through our investigations, and these businesses are subject to numerous risks and uncertainties, including but not limited to regulatory risks and the rapidly evolving market dynamics of each state’s regulated cannabis program. As a result it is possible that we could enter into a sale-leaseback

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arrangement with tenants or otherwise lease properties to tenants that ultimately are unable to pay rent to us, which could adversely impact our cash available for distributions.

Many of our existing tenants are, and we expect that many of our future tenants will be, companies with limited histories of operations that are not profitable when they enter triple-net leasing arrangements with us and therefore, may be unable to pay rent with funds from operations. Many of our current tenants are not profitable and have experienced losses since inception, or have been profitable for only a short period of time. As a result, many of our current tenants have made, and we expect that many of our future tenants will make, initial rent payments to us from proceeds from the sale of the property, in the case of sale-leaseback transactions, or other cash on hand, including cash received from debt financings.

In addition, in general, our tenants are more vulnerable to adverse conditions resulting from federal and state regulations affecting their businesses or industries or other changes in the marketplace for their products, and have limited access to traditional forms of financing. For example, during the COVID-19 pandemic, our tenants were generally not able to access federal assistance programs that were available to companies in other industries, due to cannabis being a Schedule 1 controlled substance under the CSA. The success of our tenants will also heavily depend on the growth and development of the state markets in which the tenants operate, many of which have a very limited history or are still in the stages of establishing the regulatory framework. For example, in California, the illicit market for cannabis remains a much larger portion of overall sales in the state according to Global Go Analytics, and state and local authorities have assessed significant taxes on regulated cannabis products, both of which have had the impact of significantly limiting the growth and profitability for operators in the state’s regulated cannabis market. In recent months, pricing for regulated cannabis products has dropped significantly, driven in part by the lack of effective enforcement on the illicit market, while input costs, including labor, supplies and construction materials, have increased significantly as a result of the broader higher inflationary environment.

In our evaluation of our existing leases with tenants at our properties, we determined to record associated revenue on a cash basis due to the uncertainty of collectability of lease payments from tenants due to the U.S. federal regulatory uncertainty surrounding the regulated cannabis industry and our tenants’ limited operating history (for more information, see Note 2 “Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements – Revenue Recognition” in our condensed consolidated financial statements included in this report).

Some of our tenants may be subject to significant debt obligations and may rely on debt financing to make rent payments to us. Tenants that are subject to significant debt obligations may be unable to make their rent payments if there are adverse changes in their business plans or prospects, the regulatory environment in which they operate or in general economic conditions. In addition, the payment of rent and debt service may reduce the working capital available to tenants for the start-up phase of their business. Furthermore, we may be unable to monitor and evaluate tenant credit quality on an on-going basis.

According to Viridian Capital Advisors, total equity and debt capital raising for public and private cannabis companies in North America decreased by approximately 64% year-to date through July 1, 2022 ($2.6 billion) versus the prior year’s period ($7.3 billion). In addition, debt issuance year-to-date through July 1, 2022 for cannabis companies represents the most significant percentage of capital raised of the comparable periods of the past four years according to Viridian Capital Advisors, as equity values of cannabis companies have declined significantly.

Any lease payment defaults by a tenant could adversely affect our cash flows and cause us to reduce the amount of distributions to stockholders. In the event of a default by a tenant, we may also experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property as operators of regulated cannabis cultivation and production facilities are generally subject to extensive state licensing requirements. Furthermore, we will not operate any of the facilities that we purchase.

Our ability to grow our business depends on state laws pertaining to the cannabis industry.

Continued development of the cannabis industry depends upon continued legislative authorization of cannabis at the state level. The status quo of, or progress in, the regulated cannabis industry is not assured and any number of factors could slow or halt further progress in this area. While there may be ample public support for legislative action permitting the cannabis operations, numerous factors impact the legislative process. For example, many states that voted to legalize medical and/or adult-use cannabis have seen

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significant delays in the drafting and implementation of industry regulations and issuance of licenses. In addition, burdensome regulation at the state level could slow or stop further development of the cannabis industry, such as limiting the medical conditions for which medical cannabis can be recommended by physicians for treatment, not strictly enforcing regulations for non-licensed cannabis operators, restricting the form in which medical cannabis can be consumed, imposing significant registration requirements on physicians and patients or imposing significant taxes on the growth, processing and/or retail sales of cannabis, which could have the impact of dampening growth of the cannabis industry and making it difficult for cannabis businesses, including our tenants, to operate profitably in those states. 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. Recently, many states have also experienced significant declines in unit pricing for regulated cannabis products, with that decline more pronounced in certain states than in others. For example, according to New Leaf Data Services, spot wholesale cannabis flower prices in California and Michigan have each declined more than 30% during the six months ended June 30, 2022.

We face significant risks associated with the development and redevelopment of properties that we acquire.

In many instances, we engage in development or redevelopment of properties that we acquire. 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;

●

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.

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. As of August 4, 2022, we had properties consisting of an aggregate of approximately 2.2 million rentable square feet under development or redevelopment, and we had committed to provide construction funding and fund tenant improvements at our properties in the future totaling up to approximately $209.6 million.

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Ongoing inflation for construction and labor costs, labor shortages and global supply chain issues, driven in part by the COVID-19 pandemic, geopolitical issues and the war in Ukraine, also continue to adversely impact costs and timing for completion of our development and redevelopment projects, which are resulting in cost overruns and delays in commencing operations on certain projects.

The assets we acquire may be subject to impairment charges.

We periodically evaluate the real estate investments we acquire and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based upon factors such as market conditions, tenant performance and legal structure. For example, the termination of a lease by a tenant may lead to an impairment charge. If we determine that an impairment has occurred, we would be required to make an adjustment to the net carrying value of the asset which could have an adverse effect on our results of operations in the period in which the impairment charge is recorded.

On July 13, 2022, Kings Garden, a tenant of ours at six properties that we own in southern California, defaulted on its obligations to pay rent. See Part II, Item 1. Legal Proceedings and Note 12 “Subsequent Events” to our condensed consolidated financial statements included in this report for more information. While we have not determined that an impairment has occurred with respect to these properties, as we periodically evaluate these and other properties, we may be required to make an adjustment to the net carrying value of one or more of these properties in the future.

Our growth depends on external sources of capital, which may not be available on favorable terms or at all. In addition, banks, financial institutions, and other capital market participants may be reluctant to enter into lending and other financing transactions with us because we acquire properties used in the cultivation and production of cannabis. If one or more of these sources of funding is unavailable to us, it could have a material adverse effect on our business, financial condition, liquidity and results of operations.

We expect to acquire additional real estate assets, which we intend to finance primarily through newly issued equity or debt. We may not be in a position to take advantage of attractive investment opportunities for growth if we are unable, due to global or regional economic uncertainty, changes in the state or federal regulatory environment relating to the cannabis industry, restrictions that potential investors may have to own our equity or debt due to our tenant’s operations in the regulated cannabis industry, changes in market conditions for the regulated cannabis industry, our own operating or financial performance or otherwise, to access capital markets on a timely basis and on favorable terms or at all. In addition, U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gain and that it pay U.S. federal income tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. Because we intend to grow our business, this limitation may require us to raise additional equity or incur debt at a time when it may be disadvantageous to do so.

Our access to capital will depend upon a number of factors over which we have little or no control, including general market conditions, restrictions imposed on potential investors and other capital markets participants due to our tenants’ operations in the regulated cannabis industry, and the market’s perception of our current and potential future earnings. 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. In addition, banks and other financial institutions may be reluctant to enter into lending transactions with us, particularly secured lending, because we intend to acquire properties used in the cultivation, production or dispensing of cannabis. If this source of funding is unavailable to us, our growth may be limited and our levered return on the properties we purchase may be lower.

If we are unable to obtain capital on terms and conditions that we find acceptable, we likely will have to reduce the number of properties we can purchase. In addition, our ability to refinance all or any debt we may incur in the future, on acceptable terms or at all, is subject to all of the above factors, and will also be affected by our future financial position, results of operations and cash flows, which additional factors are also subject to significant uncertainties, and therefore we may be unable to refinance any debt we may incur in the future, as it matures, on acceptable terms or at all. All of these events would have a material adverse effect on our business, financial condition, liquidity and results of operations.

In addition, securities clearing firms may refuse to accept deposits of our securities, which may negatively impact the trading of our securities and have a material adverse impact on our ability to obtain capital.

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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.

We are currently subject to securities lawsuits and we may be subject to similar or other litigation in the future, which may divert management’s attention and have a material adverse effect on our business, financial condition and results of operations.

A purported securities class action lawsuit was filed against us and certain of our executive officers alleging that the Company made false or misleading statements regarding its business. According to the filed complaint, the plaintiff is seeking an undetermined amount of damages, interest, attorneys’ fees and costs and other relief on behalf of the putative classes of all persons who acquired shares of the Company’s common stock between May 7, 2020 and April 13, 2022. A derivative action lawsuit was also filed against us and certain of our officers and directors asserting putative derivative claims for breach of fiduciary duty, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets against our directors and certain of our officers. According to the filed complaint, the plaintiffs are seeking declaratory relief, direction to reform and improve corporate governance and internal procedures, and an undetermined amount of damages, restitution, interest, and attorneys’ fees and costs.

We will continue to incur legal fees in connection with these pending cases, including expenses for the reimbursement of legal fees of our officers and directors under indemnification obligations. The expense of continuing to defend such litigation may be significant. We intend to defend these lawsuits vigorously, but there can be no assurance that we will be successful in any defense. If any of the lawsuits are adversely decided, we may be liable for significant damages directly or under our indemnification obligations, which could adversely affect our business, results of operations and cash flows. Further, the amount of time that will be required to resolve these lawsuits is unpredictable and these actions may divert management's attention from the day-to-day operations of our business, which could adversely affect our business, results of operations and cash flows.

We cannot predict the outcome of these lawsuits and we may be subject to other similar securities litigation in the future. Monitoring and defending against legal actions, whether or not meritorious, is time-consuming for our management and detracts from our ability to fully focus our internal resources on our business activities. In addition, we may incur substantial legal fees and costs in connection with litigation. Although we have insurance, coverage could be denied or prove to be insufficient. We are not currently able to estimate the possible cost to us from the currently pending lawsuits, and we cannot be certain how long it may take to resolve these matters or the possible amount of any damages that we may be required to pay. We have not established any reserves for any potential liability relating to these or future lawsuits. It is possible that we could, in the future, incur judgments or enter into settlements of claims for monetary damages. A decision adverse to our interests on these actions could result in the payment of substantial damages and could have a material adverse effect on our business, results of operations and financial condition. In addition, the uncertainty of the currently pending lawsuits could lead to volatility in our stock price. The ultimate outcome of litigation could have a material adverse effect on our business and the trading price for our securities.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended June 30, 2022, we issued 47,059 shares of our common stock upon exchange by holders of approximately $3.1 million of outstanding principal amount of our Exchangeable Senior Notes. Such shares of our common stock were issued in reliance on Section 3(a)(9) of the Securities Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


Exhibit Number		Description of Exhibit

3.1*		Certificate of Formation of IIP-AZ 3 LLC.
3.2*		Certificate of Limited Partnership of IIP-CA 6 LP.
3.3*		Certificate of Formation of IIP-CO 3 LLC.
3.4*		Certificate of Formation of IIP-CO 4 LLC.
3.5*		Certificate of Formation of IIP-MA 8 LLC.
3.6*		Certificate of Formation of IIP-MD 3 LLC.
3.7*		Certificate of Formation of IIP-PA 9 LLC.
3.8*		Certificate of Formation of IIP-TX 2 LLC.
10.1*		Limited Liability Company Agreement of IIP-AZ 3 LLC.
10.2*		Limited Partnership Agreement of IIP-CA 6 LP.
10.3*		Limited Liability Company Agreement of IIP-CO 3 LLC.
10.4*		Limited Liability Company Agreement of IIP-CO 4 LLC.
10.5*		Limited Liability Company Agreement of IIP-MA 8 LLC.
10.6*		Limited Liability Company Agreement of IIP-MD 3 LLC.
10.7*		Limited Liability Company Agreement of IIP-PA 9 LLC.
10.8*		Limited Liability Company Agreement of IIP-TX 2 LLC.
22.1*		List of Subsidiary Guarantors.
31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101INS*		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*		Inline XBRL Taxonomy Extension Schema Document.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104*		Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101).

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

INNOVATIVE INDUSTRIAL PROPERTIES, INC.

By:	/s/ Paul Smithers
Paul Smithers
President, Chief Executive Officer and Director
(Principal Executive Officer)


By:	/s/ Catherine Hastings
Catherine Hastings
Chief Financial Officer and Treasurer
(Principal Financial Officer)

Dated August 4, 2022

Exhibit 3.1

STATE of DELAWARE

LIMITED LIABILITY COMPANY

CERTIFICATE of FORMATION of

IIP-AZ 3 LLC

The undersigned, being an authorized person, for the purpose of forming a limited liability company under the Delaware Limited Liability Company Act, Chapter 18, Title 6, Delaware Code, Section 18-101 et seq (the “Act”), hereby certifies pursuant to Section 18-201.

FIRST:The name of the limited liability company is IIP-AZ 3 LLC.

SECOND:The address of its registered office in the State of Delaware is 850 New Burton Road, Suite 201, Dover, Delaware 19904, County of Kent. The name of its Registered Agent at such address is COGENCY GLOBAL INC.

THIRD:This Certificate of Formation shall be effective upon filing.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation of IIP-AZ 3 LLC this 7^th day of April, 2022.

/s/ Brian Wolfe

Brian Wolfe, Authorized Person

Exhibit 3.2

STATE OF DELAWARE CERTIFICATE OF LIMITED PARTNERSHIP

●

The Undersigned, desiring to form a limited partnership pursuant to the Delaware Revised Uniform Limited Partnership Act, 6 Delaware Code, Chapter 17, do hereby certify as follows:

●

First: The name of the limited partnership is

IIP-CA 6 LP

●

Second: The address of its registered office in the State of Delaware is

1209 Orange Street

Zip code 19801

in the city of Wilmington.

. The name of the Registered Agent at such address is

The Corporation Trust Company.

●

Third: The name and mailing address of each general partner is as follows:

IIP-GP LLC

c/o Innovative Industrial Properties, Inc. 11440 West Bernardo Court, Suite 100

San Diego, CA 92127

●

In Witness Whereof, the undersigned has executed this Certificate of Limited

Partnership as of 26th

day of

August, 2021

By: /s/ Brian Wolfe  General Partner

Name:

Brian Wolfe, General Counsel of IIP-GP LLC

(type or print name)

Exhibit 3.3

STATE of DELAWARE

LIMITED LIABILITY COMPANY

CERTIFICATE of FORMATION of

IIP-CO 3 LLC

FIRST:The name of the limited liability company is IIP-CO 3 LLC.

THIRD:This Certificate of Formation shall be effective upon filing.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation of IIP-CO 3 LLC this 24th day of September, 2021.

/s/ Brian Wolfe

Brian Wolfe, Authorized Person

Exhibit 3.4

STATE of DELAWARE

LIMITED LIABILITY COMPANY

CERTIFICATE of FORMATION of

IIP-CO 4 LLC

FIRST:The name of the limited liability company is IIP-CO 4 LLC.

THIRD:This Certificate of Formation shall be effective upon filing.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation of IIP-CO 4 LLC this 24th day of September, 2021.

/s/ Brian Wolfe

Brian Wolfe, Authorized Person

Exhibit 3.5

STATE of DELAWARE

LIMITED LIABILITY COMPANY

CERTIFICATE of FORMATION of

IIP-MA 8 LLC

FIRST:The name of the limited liability company is IIP-MA 8 LLC.

THIRD:This Certificate of Formation shall be effective upon filing.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation of IIP-MA 8 LLC this 7^th day of April, 2022.

/s/ Brian Wolfe

Brian Wolfe, Authorized Person

Exhibit 3.6

STATE of DELAWARE

LIMITED LIABILITY COMPANY

CERTIFICATE of FORMATION of

IIP-MD 3 LLC

FIRST:The name of the limited liability company is IIP-MD 3 LLC.

THIRD:This Certificate of Formation shall be effective upon filing.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation of IIP-MD 3 LLC this 7^th day of April, 2022.

/s/ Brian Wolfe

Brian Wolfe, Authorized Person

Exhibit 3.7

STATE of DELAWARE

LIMITED LIABILITY COMPANY

CERTIFICATE of FORMATION of

IIP-PA 9 LLC

FIRST:The name of the limited liability company is IIP-PA 9 LLC.

THIRD:This Certificate of Formation shall be effective upon filing.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation of IIP-PA 9 LLC this 7^th day of April, 2022.

/s/ Brian Wolfe

Brian Wolfe, Authorized Person

Exhibit 3.8

STATE of DELAWARE

LIMITED LIABILITY COMPANY

CERTIFICATE of FORMATION of

IIP-TX 2 LLC

FIRST:The name of the limited liability company is IIP-TX 2 LLC.

THIRD:This Certificate of Formation shall be effective upon filing.

IN WITNESS WHEREOF, the undersigned has executed this Certificate of Formation of IIP-TX 2 LLC this 8th day of April, 2022.

/s/ Brian Wolfe

Brian Wolfe, Authorized Person

Exhibit 10.1

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

Of
IIP-AZ 3 LLC,
a Delaware limited liability company

THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT is entered into and shall be effective for all purposes as of April 27, 2022 (“Effective Date”) by CDECRE, LLC, a Delaware limited liability company (the “Member”).

RECITALS

WHEREAS, IIP-AZ 3 LLC (the “Company”) is a Delaware limited liability company formed under the Act pursuant to the filing of the Certificate with the Secretary of State (as defined in Section 1.1 below), and is governed by the Limited Liability Agreement dated as of April 7, 2022 (the “Original LLC Agreement”);

WHEREAS, IIP assigned all of its right, title and interest in the Company to the Member pursuant to that certain Assignment of Membership Interest Agreement, dated as of April 27, 2022;

WHEREAS, the Member desires now to amend and restate the Original LLC Agreement in its entirety upon the terms and conditions set forth herein; and

WHEREAS, this Agreement shall replace and supersede the Original LLC Agreement in its entirety upon the execution hereof.

NOW, THEREFORE, in consideration of the foregoing Recitals, which are incorporated herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Member, intending to be legally bound, hereby agrees that the Original LLC Agreement is hereby amended and restated in its entirety as follows:

ARTICLE 1
DEFINITIONS

Any term not defined in this Agreement has the meaning ascribed to it in the Act. As used in this Agreement, the following terms have the following meanings:

“Act” means the Delaware Limited Liability Company Act, 6 Del. Code §§ 18-101 et. seq., as such act may from time to time be amended, including any successor statute.

“Affiliate” means, with respect to any Person (i) any individual, corporation, limited liability company, partnership, trust or other legal entity directly or indirectly controlling, controlled by or under common control with such Person, (ii) any officer, director, general partner, member or trustee of such Person or (iii) any individual who is an officer, director, general partner, member or trustee of any Person described in clauses (i) or (ii) of this

sentence. For purposes of this definition, the terms “controlling,” “controlled by” or “under common control with” shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, or the power to elect at least 50% of the directors, general partners, members or persons exercising similar authority with respect to such Person.

“Agreement” or “Limited Liability Company Agreement” means this Limited Liability Company Agreement of IIP-AZ 3 LLC as amended from time to time, which shall constitute the limited liability company agreement of the Company for purposes of the Act. Words such as “herein,” “hereinafter,” “hereof,” “hereto” and “hereunder” refer to this Agreement as a whole, unless the context otherwise requires.

“Bankruptcy” means with respect to any Person:

(a)

having an order entered for relief with respect to that Person under the Federal Bankruptcy Code,

(b)

not paying, or admitting in writing that Person’s inability to pay, that Person’s debts generally as they become due,

(c)

making an assignment for the benefit of creditors,

(d)

applying for, seeking, consenting to, or acquiescing in the appointment of a receiver, custodian, trustee, examiner, liquidator, or similar official for that Person or any substantial part of that Person’s property or failing to cause the discharge of the same within 60 days of appointment,

(e)

instituting any proceeding seeking the entry of any order for relief under the Federal Bankruptcy Code to adjudicate that Person a bankrupt or insolvent, or failing to cause dismissal of such proceeding within 60 days of the institution thereof, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment, or composition of that Person or that Person’s debts, under any law relating to bankruptcy, insolvency, or reorganization or relief of debtors, or failing to file an answer or other pleading denying the material allegations of any such proceeding filed against that Person, or

(f)

taking any action to authorize or effect any of the foregoing actions or failing to contest in good faith the appointment of a receiver, trustee, examiner, liquidator, or similar official for that Person or any substantial part of that Person’s property.

“Certificate” means the certificate of formation filed in the office of the Secretary of State on April 7, 2022 pursuant to Section 2.2.

“Company” means IIP-AZ 3 LLC, a Delaware limited liability company, created by the Certificate filed under the Act with the Secretary of State.

“IIP” shall mean IIP Operating Partnership, LP, a Delaware limited partnership.

“Indemnified Person” means the Manager, any officer of the Company, and any Affiliate which performs services for the benefit of the Company, each of their respective partners,

officers, directors, trustees, shareholders, members or employees and such other Persons as the Member may designate from time to time, in its sole and absolute discretion.

“Liquidator” means the Manager or such other Person appointed by the Member acting in the capacity of liquidating trustee of the Company.

“Manager” means IIP or any Person who is designated as the Manager in accordance with Section 3.2.

“Member” or “Members” means CDECRE, LLC, a Delaware limited liability company, or any Person who has been duly admitted as a Member pursuant to Section 5.1, who has not ceased to be a Member in accordance with the provisions of this Limited Liability Company Agreement.

“Person” means any individual, partnership (whether general or limited), limited liability company, corporation, trust, estate, association, nominee or other entity.

“Property” means 300 East Cherry Street, Cottonwood, Arizona 83626 to be acquired by the Company, as well as any cash, and any improvements thereto, and including both tangible and intangible property.

“Secretary of State” means the Secretary of State of the State of Delaware.

ARTICLE 2
formation and organization

2.1	Business Conducted in the Name of the Company

All Company business must be conducted in the name of the Company or such other names that comply with applicable law as the Manager may select from time to time. Title to all assets of the Company shall be taken and held only in the name of the Company.

2.2	Authorized Person; Registered Office; Registered Agent; Principal Office in the United States; Other Offices

The Certificate was executed by an authorized person of the Company for purposes of filing the Certificate. Pursuant to Section 18-204 of the Act, the Manager or any officer of the Company shall be authorized persons of the Company from and after the date of filing of the Certificate for purposes of executing all certificates required to be filed with the Secretary of State.

The registered agent of the Company in the State of Delaware shall be the initial registered agent designated in the Certificate or such other Person(s) as the Manager may designate from time to time in the manner provided by law. The principal office of the Company shall be c/o CDECRE, LLC, 231 S. LaSalle Street, 13^th Floor, Chicago, IL, or such other place(s) as the Manager may designate from time to time. The Company may have such other offices as the Manager may determine from time to time.

2.3	Purpose

The primary purpose and nature of the business to be conducted by the Company is to acquire, operate, maintain and repair the Property, including, without limitation, negotiate and execute leases; negotiate water rates and sewer rents; permit and license fees; and any other costs or charges which are normal, necessary and usual to the operation, maintenance and repair of the Property.

2.4

Term

The Company shall continue in existence indefinitely except as may be specified in or pursuant to this Limited Liability Company Agreement or as otherwise required by the Act.

ARTICLE 3
MANAGEMENT OF THE COMPANY

3.1	Actions by the Member

The Member shall not have authority to act for or on behalf of the Company, or to bind the Company in any way, solely by virtue of being a Member of the Company.

3.2	Manager

The business and affairs of the Company shall be managed by the Manager. The Manager shall have full, exclusive and complete discretion, power and authority, subject in all cases to the provisions of this Agreement and the requirements of applicable law, to manage, control, administer and operate the business and affairs of the Company for the purposes herein stated, to make all decisions affecting such business and affairs, to adopt such accounting rules and procedures as it deems appropriate in the conduct of the business and affairs of the Company and to do all things it deems necessary or desirable in the conduct of the business and affairs of the Company. The Manager may appoint and delegate responsibilities to such officers and other agents as it deems appropriate in its sole discretion.

The initial Manager shall be IIP and in the event IIP resigns within the first six (6) months following the Effective Date, IIP shall have the right to appoint a new Person as the succeeding Manager. Member shall not have the authority to remove and replace the Manager without IIP’s prior consent for the first six (6) months following the Effective Date. Thereafter, Member shall have the authority to remove and replace the Manager with or without cause. The Manager need not be a member of the Company.

3.3 Officers

3.3.1 Appointment of Officers. The Manager may appoint one or more officers of the Company using any titles and may delegate all or some decision-making duties and responsibilities to such persons. Any such officers shall serve at the pleasure of the Manager. Unless otherwise determined by the Manager, any officer(s) so appointed shall have such authority and responsibility as is generally attributable to the holders of such offices in corporations incorporated under the laws of the State of Delaware. No delegation of authority hereunder shall cause the Manager to cease to be the Manager. The following individuals are hereby designated as the initial officers of the Company:

NameTitle

Alan Gold

Executive Chairman

Paul Smithers

President and Chief Executive Officer

Catherine Hastings

Chief Financial Officer and Treasurer

Brian Wolfe

Vice President, General Counsel and Secretary

3.3.2Compensation of Officers. The salaries, if any, of all officers of the Company shall be fixed by or in a manner prescribed by the Manager.

3.3.3Third Party Reliance. Third parties dealing with the Company shall be entitled to rely conclusively upon the power and authority of the officers of the Company as set forth herein.

3.3.4Execution of Instruments. All checks, drafts, bills of exchange, acceptances, bonds, endorsements, notes or other obligations or evidences of indebtedness of the Company, and all deeds, mortgages, indentures, bills of sale, conveyances, endorsements, assignments, transfers, stock powers or other instruments of transfer, contracts, agreements, dividends or other orders, powers of attorney, proxies, waivers, consents, returns, reports, certificates, demands, notices or documents and other instruments or rights of any nature may be signed, executed, verified, acknowledged and delivered by such officer or officers or such other Person or Persons (whether or not officers, agents or employees of the Company) as the Manager may from time to time designate.

3.4	Liability to Third Parties/Indemnification

3.4.1No Member, Manager or officer of the Company shall have any personal obligation for any obligations, losses, debts, claims, expenses or encumbrances (collectively, “liabilities”) of or against the Company or its assets, whether such liabilities arise in contract, tort or otherwise, except to the extent that any such liabilities are expressly assumed in writing by such Member, Manager or officer of the Company or such liabilities were the direct result of the fraud or willful misconduct of such Member, Manager or officer of the Company.

3.4.2The Company shall defend, indemnify and hold harmless each Indemnified Person, to the extent permitted by Delaware law, from and against any loss, liability, damage, cost or expense, including reasonable attorneys’ fees (collectively, “loss”) incurred by reason of any demands, claims, suits, actions, or proceedings solely arising out of (a) the Indemnified Person’s relationship to the Company or (b) such Indemnified Person’s capacity as the Manager or an officer; except to the extent such loss arises from an activity where the Indemnified Person is finally determined by a court of competent jurisdiction to have acted in bad faith and in a manner that either involved fraud, willful misconduct or gross negligence or a knowing violation of criminal law. Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding, and no less often than monthly, upon receipt of an undertaking by and on behalf of the Indemnified Person to repay such amount, if it shall ultimately be determined that such Indemnified Person is not entitled to be indemnified by the Company.

ARTICLE 4
CAPITAL CONTRIBUTIONS

4.1	Capital Contributions

The Member may, but shall not be required to, make capital contributions to the Company.

4.2	Return of Capital Contributions

Except as provided elsewhere in this Limited Liability Company Agreement, the Member is not entitled to the return of any part of its capital contributions or to be paid interest in respect of its capital contributions. An unrepaid capital contribution is not a liability of the Company.

ARTICLE 5
admission of additional members;

TRANSACTIONS OF MEMBERS WITH THE COMPANY

5.1	Admission of Members

A new Member (including the admission of a Person as a Member in substitution of the existing Member) may be admitted at such times and on such terms and conditions (including the amount of such Person’s capital contributions and the resulting membership interest) as may be determined by the Manager. No such admission shall be effective until the new Member has agreed in writing to be governed by all the terms and conditions of this Limited Liability Company Agreement, and any of the provisions of this Limited Liability Company Agreement shall have been amended or modified to take into account such additional Members as agreed by the Member and the additional Members.

5.2	Business Transactions of Member with Limited Liability Company

Except as otherwise provided in this Agreement, a Member may lend money to and transact other business with the Company and, subject to applicable law, has the same rights and obligations with respect to the transaction as a Person who is not a Member.

ARTICLE 6
PROFIT, LOSS, INCOME and DEDUCTIONS

6.1	Determination of Profit and Loss

The profit and loss of the Company shall be determined in accordance with the accounting methods followed for federal income tax purposes and otherwise in accordance with sound accounting principles and procedures applied in a consistent manner. An accounting shall be made for each taxable year by the accountants employed by the Company as soon as possible after the close of each such taxable year to determine the profit or loss of the Company, which shall be credited or debited, as the case may be, to the Member.

6.2	Allocation of Profits, Losses, Income and Deductions; Distributions

One hundred percent (100%) of the profits, losses, income and deductions of the Company shall be allocated to the Member, subject to the Management Agreement entered into by and between the Company and Manager dated as of the Effective Date.

ARTICLE 7
DISSOLUTIONS

7.1	Events of Dissolution

The Company shall be dissolved and its affairs shall be wound up upon the first to occur of the following:

(a)

the sale or disposition of all or substantially all of the Company assets, and the distribution of the proceeds thereof to the Member;

(b)

a determination by the Member to dissolve;

(c)

the occurrence of an event that makes it unlawful for the Company’s business to be continued;

(d)

the entry of a decree of judicial dissolution under the Act; or

(e)

the death, adjudication of incompetency or Bankruptcy of the Member.

7.2	Winding Up

Upon dissolution under Section 7.1, the Company shall conduct no further business, except for taking such action as shall be necessary for the winding up of the affairs of the Company and the liquidation and the distribution of its assets to the Member pursuant to the provisions of this Limited Liability Company Agreement, and thereupon the Manager shall act as Liquidator of the Company within the meaning of the Act and immediately proceed to wind up and terminate the business and affairs of the Company.

7.3	Sale of Company Assets

Upon dissolution, the Liquidator shall sell such of the Company assets as it deems necessary or appropriate. In lieu of the sale of any or all of the Company Property, the Liquidator may convey, distribute and assign all or any part of the Company Property to the Member in such form of ownership as shall be determined by the Liquidator to be applicable to the jurisdiction where the Property is located. A full accounting shall be made of the accounts of the Company and of the Company’s assets, liabilities and income, from the date of the last accounting to the date of such dissolution. The profits and losses of the Company shall be determined to the date of dissolution and transferred as provided in Section 6, to the Member. In accounting for distributions of Company Property, such Property shall be valued at its fair value at the date of dissolution as determined in good faith by the Manager. Any difference between the valuation of Company Property and its book value shall be considered as though it represented profit or loss, and shall be allocated to the Member as provided in Section 6. Any gain or loss on disposition of Company Property shall be credited or charged to the Member in

the same manner as the difference between the valuation of Company Property and its book value.

7.4	Distribution Upon Liquidation

Immediately following the Company’s liquidation, the Company assets shall be applied in the following order of priority:

(a)

first, to the payment and discharge of, or the making of reasonable provisions for, all of the Company’s debts and liabilities to the Member and Persons other than the Member, including contingent, conditional and unmatured liabilities of the Company, and the expenses of dissolution and winding-up, in the order of priority as provided by law, including the establishment of a reserve fund for contingent, conditional and unmatured claims as deemed necessary and reasonable by the Liquidator; and

(b)

second, all remaining assets to the Member.

ARTICLE 8
MEMBERSHIP INTERESTS; SECURITY PROVISIONS

8.1	Interests.

A Member’s interests in the Company shall be represented by the membership interests and units (“Membership Interests”) issued to such Member by the Company. No more than one class of Membership Interests shall be issued. All of a Member’s Membership Interests, in the aggregate, represent such Member’s entire limited liability company interest in the Company. The Member hereby agrees that its Membership Interests shall for all purposes be personal property. A Member has no interest in specific property of the Company.

8.2	Uniform Commercial Code.

Each Membership Interest in the Company shall constitute a “security” within the meaning of, and governed by, (i) Article 8 of the Uniform Commercial Code (including Section 8-102(a)(15) thereof) as in effect from time to time in the State of Delaware, and (ii) Article 8 of the Uniform Commercial Code of any other applicable jurisdiction that now or hereafter substantially includes the 1994 revisions to Article 8 thereof as adopted by the American Law Institute and the National Conference of Commissioners on Uniform State Laws and approved by the American Bar Association on February 14, 1995 (and each limited liability company interest in the Company shall be treated as such a “security” for all such purposes, including, without limitation perfection of the security interest therein under Articles 8 and 9 of each applicable Uniform Commercial Code as the Company has “opted-in” to such provisions). The Company shall maintain books for the purpose of registering the transfer of the Membership Interests. Notwithstanding any provision of this Agreement to the contrary, to the extent that any provision of this Agreement is inconsistent with any non-waivable provision of Article 8 of the Uniform Commercial Code as in effect in the State of Delaware (DE Code § 8-101, et seq.), (the “UCC”), such provision of Article 8 of the UCC shall control.

8.3	Membership Interest Certificates.

Upon the issuance of Membership Interests to any Member in accordance with the provisions of this Agreement, the Company may issue one or more Interest Certificates (as defined herein) in the name of such Member. Each such Interest Certificate shall be denominated in terms of the percentage of Membership Interests evidenced by such Interest Certificate and shall be signed by the Company. “Interest Certificate” means a certificate issued by the Company which evidences the ownership of one or more Interests. Each Interest Certificate shall bear, in effect, the following legend: “Each limited liability company interest in the Company represented by this certificate evidences an interest in the Company and shall constitute a “security” within the meaning of, and governed by, (i) Article 8 of the Uniform Commercial Code (including Section 8-102(a)(15) thereof) as in effect from time to time in the State of Delaware and (ii) Article 8 of the Uniform Commercial Code of any other applicable jurisdiction that now or hereafter substantially includes the 1994 revisions to Article 8 thereof as adopted by the American Law Institute and the National Conference of Commissioners on Uniform State Laws and approved by the American Bar Association on February 14, 1995 (and each limited liability company interest in the Company shall be treated as such a “security” for all such purposes, including, without limitation perfection of the security interest therein under Articles 8 and 9 of each applicable Uniform Commercial Code as the Company has “opted-in” to such provisions). This provision shall not be amended, and no such purported amendment to this provision shall be effective until all outstanding certificates have been surrendered for cancellation.

ARTICLE 9
General PROVISIONS

9.1	Governing Law

This Limited Liability Company Agreement is governed by and shall be construed in accordance with the laws of the State of Delaware, excluding any conflict-of-laws rules or principle that might refer the governance or the construction of this Limited Liability Company Agreement to the law of another jurisdiction.

9.2	Severability

In the event that any provision of this Agreement shall be held to be invalid or unenforceable, the same shall not affect in any respect whatsoever the validity or enforceability of the remainder of this Limited Liability Company Agreement.

9.3	Survival of Rights

Except as provided herein to the contrary, this Limited Liability Company Agreement shall be binding upon and inure to the benefit of the signatories hereto (as well as to all future parties who are admitted as Members in this Company) and Indemnified Persons, their respective heirs, executors, legal representatives, and permitted successors and assigns.

9.4	No Third-Party Beneficiaries

Except as otherwise expressly provided in this Agreement, nothing in this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies.

9.5	Section Headings

Section headings contained in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning or interpretation of this Agreement or any of its terms and conditions.

9.6	Waiver

No consent or waiver, express or implied by the Member or the Company, to the breach or default by the Member in the performance of its obligations under this Limited Liability Company Agreement shall be deemed or construed to be a consent or waiver to any other breach or default.

9.7	Securities Laws Restrictions

The interests described in this Agreement have not been registered under the Securities Act of 1933, as amended, or under the securities laws of the State of Delaware or any other jurisdiction. Consequently, these interests may not be sold, transferred, assigned, pledged, hypothecated or otherwise disposed of, except in accordance with the provisions of such laws and this Agreement. By executing this Agreement, the Member represents and acknowledges that it is acquiring its interest for investment purposes only and without a view to distribution.

9.8	Amendment

This Agreement may not be amended or modified except by a writing signed by each of the Member and Manager.

EXECUTED as of the date first written above.

MEMBER:

CDECRE, LLC,
a Delaware limited liability company

By:/s/ Mary Cunningham

Name: Mary Cunningham

Title: President

MANAGER

IIP Operating Partnership, LP,
a Delaware limited partnership

By: /s/ Brian Wolfe________________

Name: Brian Wolfe

Title: Vice President, General Counsel and Secretary

Exhibit 10.2

LIMITED PARTNERSHIP AGREEMENT

IIP-CA 6 LP

This LIMITED PARTNERSHIP AGREEMENT (as amended from time to time, this “Agreement”) of IIP-CA 6 LP, a Delaware limited partnership (the “Partnership”), is entered into as of August 26, 2021, by and between IIP-GP LLC, a Delaware limited liability company, as the initial general partner (in such capacity, the “General Partner”), and IIP Operating Partnership, LP, a Delaware limited partnership, as limited partner (the “Limited Partner”).

RECITALS

WHEREAS, the General Partner and the Limited Partner have formed a limited partnership pursuant to and in accordance with the Delaware Revised Uniform Limited Partnership Act (6 Del. C. § 17-101, et seq.), as amended from time to time (the “Act”); and

WHEREAS, the General Partner and the Limited Partner desire to enter into this Agreement to provide for the Partnership’s management and to provide for certain other matters, all as permitted under the Act.

NOW, THEREFORE, in consideration of the covenants and promises contained herein and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

1.Formation. Upon the filing of the Certificate of Limited Partnership in the Office of the Secretary of State of the State of Delaware as required by the Act, the Partnership was formed as a limited partnership under the Act for the purposes and upon the terms and conditions hereinafter set forth.

2.Name. The name of the limited partnership formed hereby is “IIP-CA 6 LP”.

3.Purpose. The purpose of the Partnership is to engage in any and all lawful businesses, purposes or activities and exercise any powers in which a limited partnership may be engaged under applicable law (including, without limitation, the Act).

4.Registered Office. The address of the registered office of the Partnership in the State of Delaware is c/o The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.

5.Registered Agent. The name and address of the registered agent of the Partnership for service of process on the Partnership in the State of Delaware are The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.

6.Partners. The names and the business, residence or mailing addresses of the General Partner and the Limited Partner are as follows:

General Partner

IIP-GP LLC

11440 West Bernardo Court, Suite 100

San Diego, California 92127

Limited Partner

IIP Operating Partnership, LP

11440 West Bernardo Court, Suite 100

San Diego, California 92127

7.Addition, Substitution and Removal of General Partners. The party serving as General Partner shall serve in such capacity at the pleasure of the Limited Partner, and the Limited Partner in its sole and absolute discretion may at any time and from time to time designate one or more new or additional general partners of the Partnership, replace the General Partner with a substitute general partner of the Partnership, and/or otherwise remove any General Partner from the Partnership. Each person or entity designated by the Limited Partner to serve as a general partner of the Partnership shall be referred to as the “General Partner” hereunder for so long as such person or entity serves in such capacity. Any party so designated as an additional or substitute General Partner shall become a party to this Agreement upon its execution of a counterpart signature page or joinder to this Agreement in any form approved by the Limited Partner, as evidenced by the Limited Partner’s written approval thereof, and any additional, substitute or replacement General Partner shall continue the activities of the Partnership without dissolution of the Partnership. Any removal, substitution or replacement of a General Partner by the Limited Partner shall be evidenced by the Limited Partner in writing, and following its removal, substitution or replacement, the prior General Partner shall have no rights or interests of any kind in respect of the Partnership. In connection with any addition, removal, substitution or replacement of any general partner(s) of the Partnership, the partners of the Partnership will cause all necessary filings to be made with the Secretary of State of the State of Delaware.

8.Dissolution. The Partnership shall dissolve, and its affairs shall be wound up, at such time as (a) the partners of the Partnership unanimously approve in writing, (b) an event of withdrawal of a general partner has occurred under the Act, (c) there are no limited partners of the Partnership unless the Partnership is continued in accordance with the Act, or (d) an entry of a decree of judicial dissolution has occurred under Section 17-802 of the Act; provided, however, the Partnership shall not be dissolved and required to be wound up upon an event of withdrawal of a general partner described in Section 8(b) if (i) at the time of the occurrence of such event there is at least one remaining general partner of the Partnership who is hereby authorized to and does carry on the business of the Partnership, or (ii) within 90 days after the occurrence of such event, a majority of the limited partners of the Partnership agree in writing or vote to continue the business of the Partnership and to the appointment, effective as of the date of such event, if required, of one or more additional general partners of the Partnership.

9.Capital Contributions. The Limited Partner and General Partner have made capital contributions to the Partnership as set forth in the books and records of the Partnership.

10.Additional Contributions. The partners of the Partnership shall make additional capital contributions to the Partnership only at such times and upon such terms and conditions as may be mutually agreed by all partners, each acting in its sole and absolute discretion.

11.Allocations of Profit and Losses. The Partnership’s profits and losses shall be allocated in proportion to the capital contributions of the partners of the Partnership.

12.Capital Accounts. A capital account shall be maintained for each partner of the Partnership in accordance with Treasury Regulations Section 1.704-1(b)(2)(iv).

13.Distributions. At any time determined by the General Partner, the General Partner may cause the Partnership to distribute any cash held by it to the partners of the Partnership that is not reasonably necessary for the operation of the Partnership. Such distributions shall be made to the partners in proportion to their then current positive capital account balances. Notwithstanding anything to the contrary contained in this Agreement, the Partnership, and the General Partner on behalf of the Partnership, shall not be required to make a distribution to any partner on account of its interest in the Partnership if such distribution would violate the Act or other applicable law.

14.Management of Partnership. Subject to Section 7, the General Partner shall have exclusive control over the business of the Partnership and shall have all rights, powers and authority generally conferred by law or necessary, advisable or consistent in connection therewith. The General Partner may, in its discretion, appoint such officers of the Partnership as the General Partner may deem necessary or advisable to manage the day-to-day business affairs of the Partnership (the “Officers”). The Officers shall serve at the pleasure of the General Partner. To the extent delegated by the General Partner, the Officers shall have the authority to act on behalf of, bind and execute and deliver documents in the name and on behalf of the Partnership. No such delegation shall cause the General Partner to cease to be a partner of the Partnership. Such Officers shall have such authority and responsibility as is generally attributable to the holders of such offices in corporations incorporated under the laws of Delaware. The Limited Partner shall have no right to participate in or vote upon any Partnership matters except as specifically provided by this Agreement or required by any mandatory provision of the Act. Notwithstanding any other provision of this Agreement, the General Partner has the authority to bind the Partnership and is authorized to execute and deliver any document on behalf of the Partnership without any vote or consent of any other partner or other person or entity.

15.Transfer or Pledge. A partner’s interest in the Partnership shall not be assigned, pledged, sold or otherwise transferred, in whole or in part, without the prior written consent of the General Partner, which consent may be given or withheld in the General Partner’s sole and absolute discretion. No assignee of a partner’s interest in the Partnership shall be admitted into the Partnership as a substituted partner without: (a) the prior written consent of the

General Partner, which consent may be given or withheld in the General Partner’s sole and absolute discretion; and (b) such assignee executing a counterpart to this Agreement.

16.Withdrawal. No partner of the Partnership may withdraw from the Partnership without the consent of the General Partner.

17.

Additional Limited Partners.

(a)Additional limited partners may be admitted to the Partnership only with the unanimous written consent of the existing partners of the Partnership.

(b)After the admission of any additional limited partners pursuant to this Section 17, the Partnership shall continue as a limited partnership under the Act without dissolution.

(c)The admission of additional limited partners to the Partnership pursuant to this Section 17 shall be accomplished by the execution of a counterpart signature page or joinder to this Agreement executed by such additional limited partner and if necessary the amendment of this Agreement and any other actions as may be required by the Act.

17.Governing Law. This Agreement, and all rights and remedies in connection therewith, shall be governed by, and construed under, the laws of the State of Delaware, without regard to otherwise governing principles of conflicts of law or choice of laws.

18.Amendments. This Agreement may be amended or modified from time to time only by a written instrument executed by the General Partner.

19.Indemnification. The Partnership shall indemnify and hold harmless the partners to the full extent permitted by law from and against any and all losses, claims, demands, costs, damages, liabilities, expenses of any nature (including attorneys’ fees and disbursements), judgments, fines, settlements, and other amounts (collectively, “Costs”) arising from any and all claims, demands, actions, suits, or proceedings (civil, criminal, administrative, or investigative) (collectively, “Actions”) in which any partner may be involved, or threatened to be involved as a party or otherwise, relating to the performance or nonperformance of any act concerning the activities of the Partnership. In addition, to the extent permitted by law, the General Partner may cause the Partnership to indemnify and hold harmless any officers of the Partnership from and against any and all Costs arising from any or all actions arising in connection with the business of the Partnership or by virtue of such person’s capacity as an agent of the Partnership. The rights of indemnification contained in this Section 19 shall be cumulative of, and in addition to, any and all rights, remedies and recourse to which any indemnified party shall be entitled, whether pursuant to the provisions of this Agreement, at law or in equity. All rights to indemnification hereunder shall survive the dissolution of the Partnership and the death, retirement, incompetency, insolvency or bankruptcy of any partner.

20.Counterparts.This Agreement may be executed in any number of multiple counterparts, each of which shall be deemed to be an original copy and all of which together shall constitute one agreement, binding on all parties hereto.

(Signature Page Follows)

IN WITNESS WHEREOF, the parties hereto, intending to be bound hereby, have duly executed this Agreement as of the date first set forth above.

GENERAL PARTNER

IIP-GP LLC

By:__/s/ Brian Wolfe______________

Name: Brian Wolfe

Title: Vice President, General Counsel and Secretary

LIMITED PARTNER

IIP OPERATING PARTNERSHIP, LP

By:__/s/ Brian Wolfe_______________

Name: Brian Wolfe

Title: Vice President, General Counsel and Secretary

S-1

Exhibit 10.3

LIMITED LIABILITY COMPANY AGREEMENT

IIP-CO 3 LLC

a Delaware limited liability company

Effective as of September 24, 2021

LIMITED LIABILITY COMPANY AGREEMENT

IIP-CO 3 LLC

This LIMITED LIABILITY COMPANY AGREEMENT (“Agreement”) of IIP-CO 3 LLC (the “Company”) is effective as of the 24th day of September, 2021.

1.Formation of Limited Liability Company. IIP Operating Partnership, LP, a Delaware limited partnership (the “Member”), through its attorney in fact, formed the Company as a limited liability company pursuant to the provisions of the Delaware Limited Liability Company Act (as such may be amended or succeeded from time to time, the “Act”). The rights and obligations of the Member and the administration of the Company shall be governed by this Agreement and the Act. To the extent this Agreement is inconsistent in any respect with the Act, this Agreement shall control.

2.Member. The Member is the sole member of the Company.

3.Purpose. The Company may engage in any and all businesses or activities in which a limited liability company may be engaged under applicable law (including, without limitation, the Act).

4.Name. The name of the Company shall be “IIP-CO 3 LLC.”

5.Principal Place of Business; Other Places of Business. The principal place of business of the Company is 11440 West Bernardo Court, Suite 100, San Diego, CA 92127. The Company may have such other offices as the Member may designate from time to time.

6.Designated Agent for Service of Process. The agent for service of process in Delaware as of the effective date of this Agreement is COGENCY GLOBAL INC., 850 New Burton Road, Suite 201, Dover, Delaware 19904.

7.Term of Company. The Company commenced on the date the Certificate of Formation was properly filed with the Secretary of State of the State of Delaware and shall exist in perpetuity or until its business and affairs are earlier wound up following proper dissolution.

8.Management of Company. All decisions relating to the business, affairs, and properties of the Company shall be made by the Member. The Member may appoint one or more managers and/or officers of the Company using any titles and may delegate all or some decision-making duties and responsibilities to such persons. Any such managers and/or officers shall serve at the pleasure of the Member. To the extent delegated by the Member, managers and/or officers shall have the authority to act on behalf of, bind, and execute and deliver documents in the name and on behalf of the Company. In addition, unless otherwise determined by the Member, any officer(s) so appointed shall have such authority and responsibility as is generally attributable to the holders of such offices in corporations incorporated under the laws of the State of Delaware. No delegation of authority hereunder shall cause the Member to cease

to be a Member. The following individuals are hereby designated as the initial officers of the Company:

NameTitle

Alan Gold

Executive Chairman

Paul Smithers

President and Chief Executive Officer

Catherine Hastings

Chief Financial Officer and Treasurer

Brian Wolfe

Vice President, General Counsel and Secretary

9.Other Activities. The Member and its agents, representatives and affiliates may engage or invest in, and devote their time to, any other business venture or activity of any nature and description (independently or with others), whether or not such other activity may be deemed or construed to be in competition with the Company. The Company shall not have any right by virtue of this Agreement or the relationship created hereby in or to such other venture or activity (or to the income or proceeds derived therefrom), and the pursuit thereof, even if competitive with the business of the Company, shall not be deemed wrongful or improper.

10.Standards of Conduct. Whenever the Member is required or permitted to make a decision, take or approve an action, or omit to do any of the foregoing, then the Member shall be entitled to consider only such interests and factors, including its own, as it desires, and shall have no duty or obligation to consider any other interests or factors whatsoever. To the extent that the Member has, at law or in equity, duties (including, without limitation, fiduciary duties) to the Company or other person bound by the terms of this Agreement, the Member acting in accordance with this Agreement shall not be liable to the Company or any such other person for its good faith reliance on the provisions of this Agreement. The provisions of this Agreement, to the extent that they restrict the duties of the Member otherwise existing at law or in equity, replace such other duties to the greatest extent permitted under applicable law.

11.Limited Liability. Except as otherwise required by any non-waivable provision of the Act or other applicable law, the Member shall not be personally liable in any manner whatsoever for any debt, liability, or other obligation of the Company, whether such debt, liability, or other obligation arises in contract, tort, or otherwise.

12.Contributions. The capital contributions of the Member are reflected on the books and records of the Company.

13.Distributions. Each distribution of cash or other property by the Company shall be made 100% to the Member. Each item of income, gain, loss, deduction, credit, and other tax items of the Company shall be allocated 100% to the Member.

14.Indemnification. The Company shall indemnify and hold harmless the Member to the full extent permitted by law from and against any and all losses, claims, demands, costs, damages, liabilities, expenses of any nature (including attorneys’ fees and disbursements),

judgments, fines, settlements, and other amounts (collectively, “Costs”) arising from any and all claims, demands, actions, suits, or proceedings (civil, criminal, administrative, or investigative) (collectively, “Actions”) in which the Member may be involved, or threatened to be involved as a party or otherwise, relating to the performance or nonperformance of any act concerning the activities of the Company. In addition, to the extent permitted by law, the Member may cause the Company to indemnify and hold harmless any managers and/or officers from and against any and all Costs arising from any or all actions arising in connection with the business of the Company or by virtue of such person’s capacity as an agent of the Company. Notwithstanding the foregoing, any and all indemnification obligations of the Company shall be satisfied only from the assets of the Company, and the Member shall have no liability or responsibility therefor.

15.Dissolution and Winding Up. The Company shall dissolve and its business and affairs shall be wound up pursuant to a written instrument executed by the Member. In such event, after satisfying creditors, all remaining assets shall be distributed to the Member.

16.Amendments. This Agreement may be amended or modified from time to time only by a written instrument executed by the Member.

17.Governing Law. The validity and enforceability of this Agreement shall be governed by and construed in accordance with the laws of Delaware without regard to other principles of conflicts of law.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement effective as of the date first set forth above.

MEMBER

IIP Operating Partnership, LP

a Delaware limited partnership

By: Innovative Industrial Properties, Inc.,

its sole general partner

By: /s/ Brian Wolfe

Name: Brian Wolfe

Title: Vice President

COMPANY

IIP-CO 3 LLC,

a Delaware limited liability company

By:IIP Operating Partnership, LP,

its sole Member

By: Innovative Industrial Properties, Inc.,

its sole general partner

By: /s/ Brian Wolfe

Name: Brian Wolfe

Title: Vice President

Exhibit 10.4

LIMITED LIABILITY COMPANY AGREEMENT

IIP-CO 4 LLC

a Delaware limited liability company

Effective as of September 24, 2021

LIMITED LIABILITY COMPANY AGREEMENT

IIP-CO 4 LLC

This LIMITED LIABILITY COMPANY AGREEMENT (“Agreement”) of IIP-CO 4 LLC (the “Company”) is effective as of the 24th day of September, 2021.

2.Member. The Member is the sole member of the Company.

3.Purpose. The Company may engage in any and all businesses or activities in which a limited liability company may be engaged under applicable law (including, without limitation, the Act).

4.Name. The name of the Company shall be “IIP-CO 4 LLC.”

to be a Member. The following individuals are hereby designated as the initial officers of the Company:

NameTitle

Alan Gold

Executive Chairman

Paul Smithers

President and Chief Executive Officer

Catherine Hastings

Chief Financial Officer and Treasurer

Brian Wolfe

Vice President, General Counsel and Secretary

12.Contributions. The capital contributions of the Member are reflected on the books and records of the Company.

16.Amendments. This Agreement may be amended or modified from time to time only by a written instrument executed by the Member.

17.Governing Law. The validity and enforceability of this Agreement shall be governed by and construed in accordance with the laws of Delaware without regard to other principles of conflicts of law.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement effective as of the date first set forth above.

MEMBER

IIP Operating Partnership, LP

a Delaware limited partnership

By: Innovative Industrial Properties, Inc.,

its sole general partner

By: /s/ Brian Wolfe

Name: Brian Wolfe

Title: Vice President

COMPANY

IIP-CO 4 LLC,

a Delaware limited liability company

By:IIP Operating Partnership, LP,

its sole Member

By: Innovative Industrial Properties, Inc.,

its sole general partner

By: /s/ Brian Wolfe

Name: Brian Wolfe

Title: Vice President

Exhibit 10.5

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

Of
IIP-MA 8 LLC,
a Delaware limited liability company

THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT is entered into and shall be effective for all purposes as of May 16, 2022 (“Effective Date”) by CDECRE, LLC, a Delaware limited liability company (the “Member”).

RECITALS

WHEREAS, IIP-MA 8 LLC (the “Company”) is a Delaware limited liability company formed under the Act pursuant to the filing of the Certificate with the Secretary of State (as defined in Section 1.1 below), and is governed by the Limited Liability Agreement dated as of April 7, 2022 (the “Original LLC Agreement”);

WHEREAS, IIP assigned all of its right, title and interest in the Company to the Member pursuant to that certain Assignment of Membership Interest Agreement, dated as of May 16, 2022;

WHEREAS, the Member desires now to amend and restate the Original LLC Agreement in its entirety upon the terms and conditions set forth herein; and

WHEREAS, this Agreement shall replace and supersede the Original LLC Agreement in its entirety upon the execution hereof.

ARTICLE 1
DEFINITIONS

Any term not defined in this Agreement has the meaning ascribed to it in the Act. As used in this Agreement, the following terms have the following meanings:

“Act” means the Delaware Limited Liability Company Act, 6 Del. Code §§ 18-101 et. seq., as such act may from time to time be amended, including any successor statute.

“Agreement” or “Limited Liability Company Agreement” means this Limited Liability Company Agreement of IIP-MA 8 LLC as amended from time to time, which shall constitute the limited liability company agreement of the Company for purposes of the Act. Words such as “herein,” “hereinafter,” “hereof,” “hereto” and “hereunder” refer to this Agreement as a whole, unless the context otherwise requires.

“Bankruptcy” means with respect to any Person:

(a)

having an order entered for relief with respect to that Person under the Federal Bankruptcy Code,

(b)

not paying, or admitting in writing that Person’s inability to pay, that Person’s debts generally as they become due,

(c)

making an assignment for the benefit of creditors,

(d)

(e)

(f)

“Certificate” means the certificate of formation filed in the office of the Secretary of State on April 7, 2022 pursuant to Section 2.2.

“Company” means IIP-MA 8 LLC, a Delaware limited liability company, created by the Certificate filed under the Act with the Secretary of State.

“IIP” shall mean IIP Operating Partnership, LP, a Delaware limited partnership.

“Indemnified Person” means the Manager, any officer of the Company, and any Affiliate which performs services for the benefit of the Company, each of their respective partners,

officers, directors, trustees, shareholders, members or employees and such other Persons as the Member may designate from time to time, in its sole and absolute discretion.

“Liquidator” means the Manager or such other Person appointed by the Member acting in the capacity of liquidating trustee of the Company.

“Manager” means IIP or any Person who is designated as the Manager in accordance with Section 3.2.

“Person” means any individual, partnership (whether general or limited), limited liability company, corporation, trust, estate, association, nominee or other entity.

“Property” means the real property located at 30 Mozzone Street, Taunton, Massachusetts 02780 to be acquired by the Company, as well as any cash, and any improvements thereto, and including both tangible and intangible property.

“Secretary of State” means the Secretary of State of the State of Delaware.

ARTICLE 2
formation and organization

2.1	Business Conducted in the Name of the Company

2.2	Authorized Person; Registered Office; Registered Agent; Principal Office in the United States; Other Offices

2.3	Purpose

The primary purpose and nature of the business to be conducted by the Company is to acquire, operate, maintain and repair the Property, including, without limitation, negotiate and

execute leases; negotiate water rates and sewer rents; permit and license fees; and any other costs or charges which are normal, necessary and usual to the operation, maintenance and repair of the Property.

2.4

Term

The Company shall continue in existence indefinitely except as may be specified in or pursuant to this Limited Liability Company Agreement or as otherwise required by the Act.

ARTICLE 3
MANAGEMENT OF THE COMPANY

3.1	Actions by the Member

The Member shall not have authority to act for or on behalf of the Company, or to bind the Company in any way, solely by virtue of being a Member of the Company.

3.2	Manager

3.3 Officers

NameTitle

Alan Gold

Executive Chairman

Paul Smithers

President and Chief Executive Officer

Catherine Hastings

Chief Financial Officer and Treasurer

Brian Wolfe

Vice President, General Counsel and Secretary

3.3.2Compensation of Officers. The salaries, if any, of all officers of the Company shall be fixed by or in a manner prescribed by the Manager.

3.3.3Third Party Reliance. Third parties dealing with the Company shall be entitled to rely conclusively upon the power and authority of the officers of the Company as set forth herein.

3.4	Liability to Third Parties/Indemnification

ARTICLE 4
CAPITAL CONTRIBUTIONS

4.1	Capital Contributions

The Member may, but shall not be required to, make capital contributions to the Company.

4.2	Return of Capital Contributions

ARTICLE 5
admission of additional members;

TRANSACTIONS OF MEMBERS WITH THE COMPANY

5.1	Admission of Members

5.2	Business Transactions of Member with Limited Liability Company

ARTICLE 6
PROFIT, LOSS, INCOME and DEDUCTIONS

6.1	Determination of Profit and Loss

6.2	Allocation of Profits, Losses, Income and Deductions; Distributions

One hundred percent (100%) of the profits, losses, income and deductions of the Company shall be allocated to the Member.

ARTICLE 7
DISSOLUTIONS

7.1	Events of Dissolution

The Company shall be dissolved and its affairs shall be wound up upon the first to occur of the following:

(a)

the sale or disposition of all or substantially all of the Company assets, and the distribution of the proceeds thereof to the Member;

(b)

a determination by the Member to dissolve;

(c)

the occurrence of an event that makes it unlawful for the Company’s business to be continued;

(d)

the entry of a decree of judicial dissolution under the Act; or

(e)

the death, adjudication of incompetency or Bankruptcy of the Member.

7.2	Winding Up

7.3	Sale of Company Assets

7.4	Distribution Upon Liquidation

Immediately following the Company’s liquidation, the Company assets shall be applied in the following order of priority:

(a)

(b)

second, all remaining assets to the Member.

ARTICLE 8
MEMBERSHIP INTERESTS; SECURITY PROVISIONS

8.1	Interests.

8.2	Uniform Commercial Code.

8.3	Membership Interest Certificates.

denominated in terms of the percentage of Membership Interests evidenced by such Interest Certificate and shall be signed by the Company. “Interest Certificate” means a certificate issued by the Company which evidences the ownership of one or more Interests. Each Interest Certificate shall bear, in effect, the following legend: “Each limited liability company interest in the Company represented by this certificate evidences an interest in the Company and shall constitute a “security” within the meaning of, and governed by, (i) Article 8 of the Uniform Commercial Code (including Section 8-102(a)(15) thereof) as in effect from time to time in the State of Delaware and (ii) Article 8 of the Uniform Commercial Code of any other applicable jurisdiction that now or hereafter substantially includes the 1994 revisions to Article 8 thereof as adopted by the American Law Institute and the National Conference of Commissioners on Uniform State Laws and approved by the American Bar Association on February 14, 1995 (and each limited liability company interest in the Company shall be treated as such a “security” for all such purposes, including, without limitation perfection of the security interest therein under Articles 8 and 9 of each applicable Uniform Commercial Code as the Company has “opted-in” to such provisions). This provision shall not be amended, and no such purported amendment to this provision shall be effective until all outstanding certificates have been surrendered for cancellation.

ARTICLE 9
General PROVISIONS

9.1	Governing Law

9.2	Severability

9.3	Survival of Rights

9.4	No Third-Party Beneficiaries

Except as otherwise expressly provided in this Agreement, nothing in this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies.

9.5	Section Headings

9.6	Waiver

9.7	Securities Laws Restrictions

9.8	Amendment

This Agreement may not be amended or modified except by a writing signed by each of the Member and Manager.

EXECUTED as of the date first written above.

MEMBER:

CDECRE, LLC,
a Delaware limited liability company

By:/s/ Mary Cunningham

Name: Mary Cunningham

Title: President

MANAGER

IIP Operating Partnership, LP,
a Delaware limited partnership

By: /s/ Brian Wolfe

Name: Brian Wolfe

Title: Vice President, General Counsel and Secretary

Exhibit 10.6

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

Of
IIP-MD 3 LLC,
a Delaware limited liability company

THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT is entered into and shall be effective for all purposes as of April 13, 2022 (“Effective Date”) by CDECRE, LLC, a Delaware limited liability company (the “Member”).

RECITALS

WHEREAS, IIP-MD 3 LLC (the “Company”) is a Delaware limited liability company formed under the Act pursuant to the filing of the Certificate with the Secretary of State (as defined in Section 1.1 below), and is governed by the Limited Liability Agreement dated as of April 7, 2022 (the “Original LLC Agreement”);

WHEREAS, IIP assigned all of its right, title and interest in the Company to the Member pursuant to that certain Assignment of Membership Interest Agreement, dated as of April 13, 2022;

WHEREAS, the Member desires now to amend and restate the Original LLC Agreement in its entirety upon the terms and conditions set forth herein; and

WHEREAS, this Agreement shall replace and supersede the Original LLC Agreement in its entirety upon the execution hereof.

ARTICLE 1
DEFINITIONS

Any term not defined in this Agreement has the meaning ascribed to it in the Act. As used in this Agreement, the following terms have the following meanings:

“Act” means the Delaware Limited Liability Company Act, 6 Del. Code §§ 18-101 et. seq., as such act may from time to time be amended, including any successor statute.

“Agreement” or “Limited Liability Company Agreement” means this Limited Liability Company Agreement of IIP-MD 3 LLC as amended from time to time, which shall constitute the limited liability company agreement of the Company for purposes of the Act. Words such as “herein,” “hereinafter,” “hereof,” “hereto” and “hereunder” refer to this Agreement as a whole, unless the context otherwise requires.

“Bankruptcy” means with respect to any Person:

(a)

having an order entered for relief with respect to that Person under the Federal Bankruptcy Code,

(b)

not paying, or admitting in writing that Person’s inability to pay, that Person’s debts generally as they become due,

(c)

making an assignment for the benefit of creditors,

(d)

(e)

(f)

“Certificate” means the certificate of formation filed in the office of the Secretary of State on April 7, 2022 pursuant to Section 2.2.

“Company” means IIP-MD 3 LLC, a Delaware limited liability company, created by the Certificate filed under the Act with the Secretary of State.

“IIP” shall mean IIP Operating Partnership, LP, a Delaware limited partnership.

“Indemnified Person” means the Manager, any officer of the Company, and any Affiliate which performs services for the benefit of the Company, each of their respective partners,

officers, directors, trustees, shareholders, members or employees and such other Persons as the Member may designate from time to time, in its sole and absolute discretion.

“Liquidator” means the Manager or such other Person appointed by the Member acting in the capacity of liquidating trustee of the Company.

“Manager” means IIP or any Person who is designated as the Manager in accordance with Section 3.2.

“Person” means any individual, partnership (whether general or limited), limited liability company, corporation, trust, estate, association, nominee or other entity.

“Property” means 560 Western Maryland Parkway, Hagerstown, MD to be acquired by the Company, as well as any cash, and any improvements thereto, and including both tangible and intangible property.

“Secretary of State” means the Secretary of State of the State of Delaware.

ARTICLE 2
formation and organization

2.1	Business Conducted in the Name of the Company

2.2	Authorized Person; Registered Office; Registered Agent; Principal Office in the United States; Other Offices

2.3	Purpose

The primary purpose and nature of the business to be conducted by the Company is to acquire, operate, maintain and repair the Property, including, without limitation, negotiate and

2.4

Term

The Company shall continue in existence indefinitely except as may be specified in or pursuant to this Limited Liability Company Agreement or as otherwise required by the Act.

ARTICLE 3
MANAGEMENT OF THE COMPANY

3.1	Actions by the Member

The Member shall not have authority to act for or on behalf of the Company, or to bind the Company in any way, solely by virtue of being a Member of the Company.

3.2	Manager

3.3 Officers

NameTitle

Alan Gold

Executive Chairman

Paul Smithers

President and Chief Executive Officer

Catherine Hastings

Chief Financial Officer and Treasurer

Brian Wolfe

Vice President, General Counsel and Secretary

3.3.2Compensation of Officers. The salaries, if any, of all officers of the Company shall be fixed by or in a manner prescribed by the Manager.

3.3.3Third Party Reliance. Third parties dealing with the Company shall be entitled to rely conclusively upon the power and authority of the officers of the Company as set forth herein.

3.4	Liability to Third Parties/Indemnification

ARTICLE 4
CAPITAL CONTRIBUTIONS

4.1	Capital Contributions

The Member may, but shall not be required to, make capital contributions to the Company.

4.2	Return of Capital Contributions

ARTICLE 5
admission of additional members;

TRANSACTIONS OF MEMBERS WITH THE COMPANY

5.1	Admission of Members

5.2	Business Transactions of Member with Limited Liability Company

ARTICLE 6
PROFIT, LOSS, INCOME and DEDUCTIONS

6.1	Determination of Profit and Loss

6.2	Allocation of Profits, Losses, Income and Deductions; Distributions

ARTICLE 7
DISSOLUTIONS

7.1	Events of Dissolution

The Company shall be dissolved and its affairs shall be wound up upon the first to occur of the following:

(a)

the sale or disposition of all or substantially all of the Company assets, and the distribution of the proceeds thereof to the Member;

(b)

a determination by the Member to dissolve;

(c)

the occurrence of an event that makes it unlawful for the Company’s business to be continued;

(d)

the entry of a decree of judicial dissolution under the Act; or

(e)

the death, adjudication of incompetency or Bankruptcy of the Member.

7.2	Winding Up

7.3	Sale of Company Assets

the same manner as the difference between the valuation of Company Property and its book value.

7.4	Distribution Upon Liquidation

Immediately following the Company’s liquidation, the Company assets shall be applied in the following order of priority:

(a)

(b)

second, all remaining assets to the Member.

ARTICLE 8
MEMBERSHIP INTERESTS; SECURITY PROVISIONS

8.1	Interests.

8.2	Uniform Commercial Code.

8.3	Membership Interest Certificates.

ARTICLE 9
General PROVISIONS

9.1	Governing Law

9.2	Severability

9.3	Survival of Rights

9.4	No Third-Party Beneficiaries

Except as otherwise expressly provided in this Agreement, nothing in this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies.

9.5	Section Headings

9.6	Waiver

9.7	Securities Laws Restrictions

9.8	Amendment

This Agreement may not be amended or modified except by a writing signed by each of the Member and Manager.

EXECUTED as of the date first written above.

MEMBER:

CDECRE, LLC,
a Delaware limited liability company

By:/s/ Mary Cunningham

Name: Mary Cunningham

Title: President

MANAGER

IIP Operating Partnership, LP,
a Delaware limited partnership

By: /s/ Brian Wolfe

Name: Brian Wolfe

Title: Vice President, General Counsel and Secretary

Exhibit 10.7

LIMITED LIABILITY COMPANY AGREEMENT

IIP-PA 9 LLC

a Delaware limited liability company

Effective as of April 7, 2022

LIMITED LIABILITY COMPANY AGREEMENT

IIP-PA 9 LLC

This LIMITED LIABILITY COMPANY AGREEMENT (“Agreement”) of IIP-PA 9 LLC (the “Company”) is effective as of the 7th day of April, 2022.

2.Member. The Member is the sole member of the Company.

3.Purpose. The Company may engage in any and all businesses or activities in which a limited liability company may be engaged under applicable law (including, without limitation, the Act).

4.Name. The name of the Company shall be “IIP-PA 9 LLC.”

to be a Member. The following individuals are hereby designated as the initial officers of the Company:

NameTitle

Alan Gold

Executive Chairman

Paul Smithers

President and Chief Executive Officer

Catherine Hastings

Chief Financial Officer and Treasurer

Brian Wolfe

Vice President, General Counsel and Secretary

12.Contributions. The capital contributions of the Member are reflected on the books and records of the Company.

16.Amendments. This Agreement may be amended or modified from time to time only by a written instrument executed by the Member.

17.Governing Law. The validity and enforceability of this Agreement shall be governed by and construed in accordance with the laws of Delaware without regard to other principles of conflicts of law.

[Remainder of page intentionally left blank]

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement effective as of the date first set forth above.

MEMBER

IIP Operating Partnership, LP

a Delaware limited partnership

By: Innovative Industrial Properties, Inc.,

its sole general partner

By: /s/ Brian Wolfe

Name: Brian Wolfe

Title: Vice President

COMPANY

IIP-PA 9 LLC,

a Delaware limited liability company

By:IIP Operating Partnership, LP,

its sole Member

By: Innovative Industrial Properties, Inc.,

its sole general partner

By: /s/ Brian Wolfe

Name: Brian Wolfe

Title: Vice President

Exhibit 10.8

AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT

Of
IIP-TX 2 LLC,
a Delaware limited liability company

THIS AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT is entered into and shall be effective for all purposes as of June 14, 2022 (“Effective Date”) by CDECRE, LLC, a Delaware limited liability company (the “Member”).

RECITALS

WHEREAS, IIP-TX 2 LLC (the “Company”) is a Delaware limited liability company formed under the Act pursuant to the filing of the Certificate with the Secretary of State (as defined in Section 1.1 below), and is governed by the Limited Liability Agreement dated as of April 8, 2022 (the “Original LLC Agreement”);

WHEREAS, IIP assigned all of its right, title and interest in the Company to the Member pursuant to that certain Assignment of Membership Interest Agreement, dated as of June 14, 2022;

WHEREAS, the Member desires now to amend and restate the Original LLC Agreement in its entirety upon the terms and conditions set forth herein; and

WHEREAS, this Agreement shall replace and supersede the Original LLC Agreement in its entirety upon the execution hereof.

ARTICLE 1
DEFINITIONS

Any term not defined in this Agreement has the meaning ascribed to it in the Act. As used in this Agreement, the following terms have the following meanings:

“Act” means the Delaware Limited Liability Company Act, 6 Del. Code §§ 18-101 et. seq., as such act may from time to time be amended, including any successor statute.

“Agreement” or “Limited Liability Company Agreement” means this Limited Liability Company Agreement of IIP-TX 2 LLC as amended from time to time, which shall constitute the limited liability company agreement of the Company for purposes of the Act. Words such as “herein,” “hereinafter,” “hereof,” “hereto” and “hereunder” refer to this Agreement as a whole, unless the context otherwise requires.

“Bankruptcy” means with respect to any Person:

(a)

having an order entered for relief with respect to that Person under the Federal Bankruptcy Code,

(b)

not paying, or admitting in writing that Person’s inability to pay, that Person’s debts generally as they become due,

(c)

making an assignment for the benefit of creditors,

(d)

(e)

(f)

“Certificate” means the certificate of formation filed in the office of the Secretary of State on April 7, 2022 pursuant to Section 2.2.

“Company” means IIP-TX 2 LLC, a Delaware limited liability company, created by the Certificate filed under the Act with the Secretary of State.

“IIP” shall mean IIP Operating Partnership, LP, a Delaware limited partnership.

“Indemnified Person” means the Manager, any officer of the Company, and any Affiliate which performs services for the benefit of the Company, each of their respective partners,

officers, directors, trustees, shareholders, members or employees and such other Persons as the Member may designate from time to time, in its sole and absolute discretion.

“Liquidator” means the Manager or such other Person appointed by the Member acting in the capacity of liquidating trustee of the Company.

“Manager” means IIP or any Person who is designated as the Manager in accordance with Section 3.2.

“Person” means any individual, partnership (whether general or limited), limited liability company, corporation, trust, estate, association, nominee or other entity.

“Property” means the approximately twenty-five acres of real property located in Bastrop, Texas to be acquired by the Company, as well as any cash, and any improvements thereto, and including both tangible and intangible property.

“Secretary of State” means the Secretary of State of the State of Delaware.

ARTICLE 2
formation and organization

2.1	Business Conducted in the Name of the Company

2.2	Authorized Person; Registered Office; Registered Agent; Principal Office in the United States; Other Offices

2.3	Purpose

The primary purpose and nature of the business to be conducted by the Company is to acquire, operate, maintain and repair the Property, including, without limitation, negotiate and

2.4

Term

The Company shall continue in existence indefinitely except as may be specified in or pursuant to this Limited Liability Company Agreement or as otherwise required by the Act.

ARTICLE 3
MANAGEMENT OF THE COMPANY

3.1	Actions by the Member

The Member shall not have authority to act for or on behalf of the Company, or to bind the Company in any way, solely by virtue of being a Member of the Company.

3.2	Manager

3.3 Officers

NameTitle

Alan Gold

Executive Chairman

Paul Smithers

President and Chief Executive Officer

Catherine Hastings

Chief Financial Officer and Treasurer

Brian Wolfe

Vice President, General Counsel and Secretary

3.3.2Compensation of Officers. The salaries, if any, of all officers of the Company shall be fixed by or in a manner prescribed by the Manager.

3.3.3Third Party Reliance. Third parties dealing with the Company shall be entitled to rely conclusively upon the power and authority of the officers of the Company as set forth herein.

3.4	Liability to Third Parties/Indemnification

ARTICLE 4
CAPITAL CONTRIBUTIONS

4.1	Capital Contributions

The Member may, but shall not be required to, make capital contributions to the Company.

4.2	Return of Capital Contributions

ARTICLE 5
admission of additional members;

TRANSACTIONS OF MEMBERS WITH THE COMPANY

5.1	Admission of Members

5.2	Business Transactions of Member with Limited Liability Company

ARTICLE 6
PROFIT, LOSS, INCOME and DEDUCTIONS

6.1	Determination of Profit and Loss

6.2	Allocation of Profits, Losses, Income and Deductions; Distributions

One hundred percent (100%) of the profits, losses, income and deductions of the Company shall be allocated to the Member.

ARTICLE 7
DISSOLUTIONS

7.1	Events of Dissolution

The Company shall be dissolved and its affairs shall be wound up upon the first to occur of the following:

(a)

the sale or disposition of all or substantially all of the Company assets, and the distribution of the proceeds thereof to the Member;

(b)

a determination by the Member to dissolve;

(c)

the occurrence of an event that makes it unlawful for the Company’s business to be continued;

(d)

the entry of a decree of judicial dissolution under the Act; or

(e)

the death, adjudication of incompetency or Bankruptcy of the Member.

7.2	Winding Up

7.3	Sale of Company Assets

7.4	Distribution Upon Liquidation

Immediately following the Company’s liquidation, the Company assets shall be applied in the following order of priority:

(a)

(b)

second, all remaining assets to the Member.

ARTICLE 8
MEMBERSHIP INTERESTS; SECURITY PROVISIONS

8.1	Interests.

8.2	Uniform Commercial Code.

8.3	Membership Interest Certificates.

ARTICLE 9
General PROVISIONS

9.1	Governing Law

9.2	Severability

9.3	Survival of Rights

9.4	No Third-Party Beneficiaries

Except as otherwise expressly provided in this Agreement, nothing in this Agreement is intended to confer upon any Person other than the parties hereto any rights or remedies.

9.5	Section Headings

9.6	Waiver

9.7	Securities Laws Restrictions

9.8	Amendment

This Agreement may not be amended or modified except by a writing signed by each of the Member and Manager.

EXECUTED as of the date first written above.

MEMBER:

CDECRE, LLC,
a Delaware limited liability company

By:/s/ Mary Cunningham

Name: Mary Cunningham

Title: President

MANAGER

IIP Operating Partnership, LP,
a Delaware limited partnership

By: /s/ Brian Wolfe

Name: Brian Wolfe

Title: Vice President, General Counsel and Secretary

Exhibit 22.1

Guarantor Subsidiaries

Subsidiary		State of Formation/Organization
IIP-AZ 1 LLC		Delaware
IIP-AZ 2 LLC		Delaware
IIP-AZ 3 LLC		Delaware
IIP-CA 1 LP		Delaware
IIP-CA 2 LP		Delaware
IIP-CA 3 LP		Delaware
IIP-CA 4 LP		Delaware
IIP-CA 5 LP		Delaware
IIP-CA 6 LP		Delaware
IIP-CO 1 LLC		Delaware
IIP-CO 2 LLC		Delaware
IIP-CO 3 LLC		Delaware
IIP-CO 4 LLC		Delaware
IIP-FL 1 LLC		Delaware
IIP-FL 2 LLC		Delaware
IIP-FL 3 LLC		Delaware
IIP-GP LLC		Delaware
IIP-IL 1 LLC		Delaware
IIP-IL 2 LLC		Delaware
IIP-IL 3 LLC		Delaware
IIP-IL 4 LLC		Delaware
IIP-IL 5 LLC		Delaware
IIP-IL 6 LLC		Delaware
IIP-MA 1 LLC		Delaware
IIP-MA 2 LLC		Delaware
IIP-MA 3 LLC		Delaware
IIP-MA 4 LLC		Delaware
IIP-MA 5 LLC		Delaware
IIP-MA 6 LLC		Delaware
IIP-MA 7 LLC		Delaware
IIP-MA 8 LLC		Delaware
IIP-MD 1 LLC		Delaware
IIP-MD 2 LLC		Delaware
IIP-MD 3 LLC		Delaware
IIP-MI 1 LLC		Delaware
IIP-MI 2 LLC		Delaware
IIP-MI 3 LLC		Delaware
IIP-MI 4 LLC		Delaware
IIP-MI 5 LLC		Delaware
IIP-MI 6 LLC		Delaware
IIP-MI 7 LLC		Delaware
IIP-MI 8 LLC		Delaware
IIP-MN 1 LLC		Delaware
IIP-ND 1 LLC		Delaware
IIP-NJ 1 LLC		Delaware
IIP-NJ 2 LLC		Delaware
IIP-NJ 3 LLC		Delaware
IIP-NV 1 LLC		Delaware
IIP-NY 1 LLC		Delaware
IIP-NY 2 LLC		Delaware

IIP-OH 1 LLC		Delaware
IIP-OH 2 LLC		Delaware
IIP-OH 3 LLC		Delaware
IIP-OH 4 LLC		Delaware
IIP-PA 1 LLC		Delaware
IIP-PA 2 LLC		Delaware
IIP-PA 3 LLC		Delaware
IIP-PA 4 LLC		Delaware
IIP-PA 5 LLC		Delaware
IIP-PA 6 LLC		Delaware
IIP-PA 7 LLC		Delaware
IIP-PA 8 LLC		Delaware
IIP-PA 9 LLC		Delaware
IIP-TX 1 LLC		Delaware
IIP-TX 2 LLC		Delaware
IIP-VA 1 LLC		Delaware
IIP-WA 1 LLC		Delaware

Exhibit 31.1

Innovative Industrial Properties, Inc.

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Paul Smithers, certify that:

1) I have reviewed this Quarterly Report on Form 10-Q of Innovative Industrial Properties, Inc.;

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report, any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: August 4, 2022

	/s/ Paul Smithers
	Paul Smithers
	Chief Executive Officer, President and Director

Exhibit 31.2

Innovative Industrial Properties, Inc.

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Catherine Hastings, certify that:

1) I have reviewed this Quarterly Report on Form 10-Q of Innovative Industrial Properties, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: August 4, 2022

	/s/ Catherine Hastings
	Catherine Hastings
	Chief Financial Officer and Treasurer

Exhibit 32.1

Innovative Industrial Properties, Inc.

Certification Pursuant to

18 U.S.C. Section 1350,

as Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report on Form 10-Q of Innovative Industrial Properties, Inc. (the "Company") for the period ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Paul Smithers, Chief Executive Officer, President and Director of the Company, and I, Catherine Hastings, Chief Financial Officer and Treasurer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


August 4, 2022

	/s/ Paul Smithers
	Paul Smithers
	Chief Executive Officer, President and Director

	/s/ Catherine Hastings
	Catherine Hastings
	Chief Financial Officer and Treasurer