Innovative Industrial Properties
Annual Report 2020

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K(Mark One)☑ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31, 2020OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Transition Period From _______to ________Commission File Number: 001-37949Innovative Industrial Properties, Inc.(Exact name of registrant as specified in its charter)Maryland81-2963381(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.) 1389 Center Drive, Suite 200, Park City, UT 84098(858) 997-3332(Address of principal executive offices)(Registrant’s telephone number)Securities registered pursuant to Section 12(b) of the Act:Title of Each ClassName of Each Exchange on Which RegisteredCommon Stock, par value $0.001 per shareNew York Stock ExchangeSeries A Preferred Stock, par value $0.001 per shareNew York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act:None.Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES þ NO ◻Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. YES ◻ NO þIndicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for suchshorter 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 þ 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(Section 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 þ 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 emerging growth company. Seethe 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 þAccelerated 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 financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reportingunder Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☑The aggregate market value of the common stock held by non-affiliates of the Registrant was approximately $2.2 billion, based upon the last reported sale price of $123.56 per shareon the New York Stock Exchange on June 28, 2020, the last business day of the Registrant’s most recently completed second quarter.As of February 25, 2021, there were 23,926,317 shares of common stock outstanding.DOCUMENTS INCORPORATED BY REFERENCEPortions of Innovative Industrial Properties, Inc.’s Proxy Statement with respect to its 2021 Annual Meeting of Stockholders to be filed not later than 120 days after the end ofthe registrant’s fiscal year are incorporated by reference into Part III hereof.Table of Contents INNOVATIVE INDUSTRIAL PROPERTIES, INC. FORM 10-K – ANNUAL REPORT DECEMBER 31, 2020 TABLE OF CONTENTS PART I Business Item 1. Item 1A. Risk Factors Item 1B. Unresolved Staff Comments Item 2. Item 3. Item 4. Properties Legal Proceedings Mine Safety Disclosures PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 6. Item 7. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9. Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Item 12. Item 13. Item 14. Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services Item 15. Item 16. Exhibits, Financial Statement Schedule Form 10-K Summary Signatures PART IV SIGNATURES 2 5 20 51 52 53 53 54 56 57 69 69 69 69 72 72 72 72 72 72 73 74 75 Table of Contents CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS We make statements in this report that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). In particular, 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, as well as 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: ● the impact of the COVID-19 pandemic, or future pandemics, on us, our business, our tenants, or the economy generally; ● 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; ● rates of default on leases for our assets; ● 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 cultivation and processing facilities; ● concentration of our portfolio of assets and limited number of tenants ● the estimated growth in and evolving market dynamics of the regulated cannabis market; ● 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 adult-use cannabis in our cultivation 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; 3 Table of Contents ● financing rates for our target assets; ● our expected leverage; ● 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 real estate investment trust (“REIT”) for U.S. federal income tax purposes; ● our ability to maintain our exemption from registration under the Investment Company Act of 1940 (the “Investment Company Act”); ● availability of qualified personnel; and ● market trends in our industry, interest rates, real estate values, the securities markets or the general economy. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a further discussion of these and other factors that could impact our future results, performance or transactions, see Item 1A, “Risk Factors.” Market data and industry forecasts and projections used in this Annual Report on Form 10-K have been obtained from independent industry sources. Forecasts, projections and other forward-looking information obtained from such sources are subject to similar qualifications and uncertainties as other forward-looking statements in this report. 4 Table of Contents ITEM 1. BUSINESS General PART I 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, or our Operating Partnership. We are an internally-managed REIT focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated state-licensed cannabis facilities. 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. As of December 31, 2020, we had 15 full-time employees. Our corporate office is located at 1389 Center Drive, Suite 200, Park City, Utah 84098. Our telephone number is (858) 997-3332. 2020 Highlights Investments During 2020, we acquired 20 properties, comprising approximately 2.3 million additional rentable square feet. As of December 31, 2020, we owned 66 properties that were 99.3% leased (based on square footage) to state-licensed cannabis operators and comprising an aggregate of approximately 5.4 million rentable square feet (including approximately 2.0 million rentable square feet under development/redevelopment) in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Virginia and Washington, with a weighted-average remaining lease term of approximately 16.6 years. As of December 31, 2020, we had invested an aggregate of approximately $1.0 billion (consisting of purchase price and development and tenant reimbursement commitments funded, if any, but excluding transaction costs) and had committed an additional approximately $287.8 million to reimburse certain tenants and sellers for completion of construction and tenant improvements at our properties. These statistics treat our Los Angeles, California property as not leased, due to the tenant being in receivership and its ongoing default in its obligation to pay rent at that location as of December 31, 2020. For more information regarding our properties and tenants, see the sections entitled “— Tenant Concentration” and “— Geographic Concentration” below. 5 Table of Contents Financial Results Rental revenues (including tenant reimbursements) Net income attributable to common stockholders Net income attributable to common stockholders per share – diluted AFFO(1) AFFO per share – diluted(1) Dividends per share of common stock declared Years Ended December 31, 2020 2019 Percentage Increase (dollars in thousands, except per share data) $ 44,667 $ 116,896 $ 22,123 $ 64,378 $ $ 2.03 3.27 $ 34,895 $ 97,773 3.27 $ 5.00 $ 2.83 $ 4.47 $ 162 % 191 % 61 % 180 % 53 % 58 % (1) For a definition and discussion of adjusted funds from operations (“AFFO”) and a reconciliation of AFFO to net income attributable to common stockholders, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Capital Raising During 2020, we raised approximately $1.0 billion in net proceeds from public offerings of common stock, as described below: ● In January 2020, we completed a follow-on offering of common stock, including the exercise in full of the underwriters’ option to purchase additional shares, resulting in net proceeds of approximately $239.6 million. ● In May 2020, we completed a follow-on offering of common stock, including the exercise in full of the underwriters’ option to purchase additional shares, resulting in net proceeds of approximately $114.9 million. ● In July 2020, we completed a follow-on offering of common stock, including the exercise in full of the underwriters’ option to purchase additional shares, resulting in net proceeds of approximately $248.2 million. ● In September 2019 and November 2020, we entered into 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, or ATM Program, shares of our common stock. During the year ended December 31, 2020, we issued shares of common stock under the ATM Program resulting in net proceeds totaling approximately $401.3 million. As of December 31, 2020, we had a total of approximately $231.7 million of common stock available for future issuance under our ATM Program. Our Properties Generally We have acquired and intend to continue to acquire specialized industrial real estate assets operated by state-licensed cannabis operators, primarily for medical use, through sale-leaseback transactions and third-party purchases. In sale-leaseback transactions, concurrently upon closing of the acquisition, we lease the properties back to the sellers under long-term, triple- net lease agreements. We target properties owned by licensed operators that have been among the top candidates in the state licensing process and have been granted one or more licenses to operate multiple facilities. Based on our properties and ongoing review of potential acquisitions, indoor cultivation facilities generally have similar shells as standard light industrial buildings or greenhouses. However, based on our diligence, regulated cannabis cultivation process typically requires a finely tuned environment to achieve consistent high quality and specificity in cannabinoid levels and to maximize yields, which translates into certain capital improvements in the building’s infrastructure. These improvements can include enhanced HVAC systems for climate and humidity control, high capacity electrical and plumbing systems, specialized lighting systems, and sophisticated building management, cultivation monitoring and security systems. Through our sale-leaseback strategy, we serve as a source of capital to these licensed regulated cannabis operators, allowing them to redeploy their sale proceeds into their core operations to grow their business and achieve higher returns. We may also purchase properties from third parties and fund the necessary 6 Table of Contents tenant improvements through a long-term lease with an identified tenant, which provides those tenants with increased cash flow to deploy in their operating businesses. As of December 31, 2020, the tenant at each of our leased properties is responsible for paying all structural repairs, maintenance expenses, insurance and real estate taxes related to the property during the term of the applicable lease. For additional information on our properties as of December 31, 2020, see Item 2, “Properties.” Our Competitive Strengths We believe that we have the following competitive strengths: ● Experienced and Committed Management Team. Alan Gold, our executive chairman, and other members of our senior management team have substantial experience in all aspects of the real estate industry, including acquisitions, dispositions, construction, development, management, finance and capital markets. In particular, in August 2004, Mr. Gold and Gary Kreitzer, vice chairman of our board of directors, founded BioMed Realty Trust, Inc. (formerly NYSE: BMR) (“BioMed Realty”), an internally-managed REIT focused on acquiring, developing, owning, leasing and managing laboratory and office space for the life science industry, an industry they believed to be underserved by commercial property investors and lenders and poised for significant growth. Mr. Gold served as chairman of the board of directors and chief executive officer and Mr. Kreitzer served as executive vice president and a member of the board of directors from the founding of BioMed Realty in 2004 through the acquisition of BioMed Realty by an affiliate of The Blackstone Group, L.P. in 2016. ● Recurring Revenue with Contractual Escalations. As of December 31, 2020, we had acquired 66 properties that were 99.3% (based on square footage) leased on triple-net leasing arrangements to licensed cannabis operators with a weighted-average remaining lease term of approximately 16.6 years, and which are subject to contractual rental rate increases. Along with our existing portfolio, we expect to continue to enter into additional similar transactions structured to provide recurring revenue with contractual escalations. ● Focus on Underserved Industry with Less Competition. Our focus on specialized industrial real estate assets leased to tenants in the regulated cannabis industry may result in less competition from existing REITs and institutional buyers due to the unique nature of the real estate and its tenants. Moreover, we believe the banking industry’s general reluctance to finance owners of state-licensed cannabis facilities, coupled with the licensed operators’ need for capital to fund the growth of their operations, will continue to provide opportunities for us to acquire specialized industrial properties and execute long-term leases that are structured to generate stable and increasing rental revenue. ● Demonstrated Investment Acumen. We utilize rigorous underwriting standards for evaluating acquisitions and potential tenants to ensure that they meet our strategic and financial criteria. Our extensive experience and relationships in the real estate and regulated cannabis industry enable us to identify, negotiate and close on acquisitions and leases with established operators and other operators who have been among the top candidates in the rigorous state licensing process. ● Positive Regulated Cannabis Industry Trends. Based on the tremendous historical and projected growth for the regulated cannabis industry, we expect to see significant spending by state-licensed cannabis operators on their existing and new state-licensed cannabis facilities, presenting an opportunity for us to be a key capital provider in their expansion initiatives. Our Business Objectives and Growth Strategies Our principal business objective is to maximize stockholder returns through a combination of (1) distributions to our stockholders, and (2) sustainable long-term growth in cash flows from increased rents, which we hope to pass on to stockholders in the form of increased distributions. Our primary strategy to achieve our business objective is to acquire and own a portfolio of specialized industrial properties, including regulated cannabis facilities leased to tenants holding 7 Table of Contents the requisite state licenses to operate in the regulated cannabis industry. This strategy includes the following components: ● Owning Specialized Industrial Properties and Related Real Estate Assets for Income. We primarily acquire regulated cannabis facilities from licensed operators who will continue their cultivation, processing and/or dispensing operations after our acquisition of the property. We expect to hold acquired properties for investment and to generate stable and increasing rental income from leasing these properties to licensed operators. ● Expanding as Additional States Enact Regulated Cannabis Programs. We acquire properties in the United States, with a focus on states that have established regulated cannabis programs. As of December 31, 2020, we owned properties in 17 states, and we expect that our acquisition opportunities will continue to expand as additional states establish regulated cannabis programs and license new operators. ● Providing Expansion Capital to Existing Tenants as an Additional Source of Income. We have provided expansion capital for many of our existing tenant operators as they expand operations in additional states and locations within a state, as well as capital for continued enhancements of production capacity at existing facilities that these operators lease from us, which correspond to adjustments in rent under the applicable leases and other provisions in certain cases. We expect to continue to focus on executing on these expansion initiatives with our tenant operators. ● Preserving Financial Flexibility on our Balance Sheet. We are focused on maintaining a conservative capital structure, in order to provide us flexibility in financing our growth initiatives. As of December 31, 2020, we had no debt, other than approximately $143.75 million of 3.75% exchangeable senior notes maturing in 2024 (the “Exchangeable Senior Notes”), representing a fixed cash interest obligation of approximately $5.4 million and representing approximately 7.9% of our total gross assets of $1.8 billion. Our Target Markets Our target markets include states that have established medical-use cannabis programs. As of December 31, 2020, we owned 66 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Virginia and Washington. According to the National Conference of State Legislatures, as of December 31, 2020, 36 states and the District of Columbia have legalized cannabis for medical use, 15 states have legalized cannabis for adult-use, and an additional eleven states have legalized “low THC, high cannabidiol (CBD)” products for medical reasons in limited situations. Although these states have approved the regulated use of cannabis, the applicable state and local laws and regulations vary widely. For example, most states’ laws allow commercial production and sales through dispensaries and set forth rigorous licensing requirements; in other states the licensing rules are unclear. In some states, dispensaries are mandated to operate on a not-for-profit basis. Some states permit home cultivation activities. The states also differ on the form in which they permit cannabis to be sold. For example, some states do not permit cannabis-infused products such as concentrates, edibles and topicals, while other states ban smoking cannabis. In addition, we expect other factors will be important in the development and growth of the regulated cannabis industry in the United States, including the timeframes for developing regulations and issuing licenses in states that recently passed laws allowing for regulated cannabis; continued legislative authorization of cannabis at the state level; support from local municipalities within a state; federal, state and local taxation of regulated cannabis products; and the level of enforcement against illicit, non-licensed cannabis activities in a state. Progress in the regulated cannabis industry, while encouraging, is not assured and any number of factors could slow or halt progress in this area. 8 Table of Contents Market Opportunity The Regulated Medical-Use Cannabis Industry Overview We believe that a convergence of changing public attitudes and increased legalization momentum in various states toward regulated cannabis, and medical-use cannabis in particular, creates an attractive opportunity to invest in the industrial real estate sector with a focus on regulated medical-use cannabis facilities. We also believe that the increased sophistication of the regulated cannabis industry and the development of strong business, operational and compliance practices have made the sector more attractive for investment. Increasingly, state-licensed cannabis cultivation, processing and dispensing facilities are becoming sophisticated business enterprises that use state-of-the-art technologies and well-honed business and operational processes to produce and dispense at scale high-quality, high-consistency cannabis products that drive in part their financial performance. In the United States, the development and growth of the regulated cannabis industry has generally been driven by state law and regulation, and accordingly, the market varies on a state-by-state basis. State laws that legalize and regulate medical- use cannabis allow patients to consume cannabis for medicinal reasons with a designated healthcare provider’s recommendation, subject to various requirements and limitations. States have authorized numerous medical conditions as qualifying conditions for treatment with medical-use cannabis, which vary significantly from state to state and may include, among others, treatment for cancer, glaucoma, HIV/AIDs, wasting syndrome, pain, nausea, seizures, muscle spasms, multiple sclerosis, post-traumatic stress disorder (PTSD), migraines, arthritis, Parkinson’s disease, Alzheimer’s, lupus, residual limb pain, spinal cord injuries, inflammatory bowel disease and terminal illness. As of December 31, 2020, 36 states, plus the District of Columbia, have passed laws allowing their citizens to use medical cannabis. We believe that the following conditions, which are described in more detail below, create an attractive opportunity to invest in industrial real estate assets that support the regulated cannabis industry: ● significant industry growth in recent years and expected continued growth; ● a continuing shift in public opinion and increasing momentum toward the legalization of cannabis under state law, and in particular medical-use cannabis; and ● limited access to capital by industry participants in light of risk perceived by financial institutions of violating federal laws and onerous regulatory guidelines for offering banking services to cannabis-related businesses. Industry Growth and Trends According to New Frontier Data, state-legal cannabis sales in the United States grew to an estimated $20.1 billion in 2020, an increase of 52% over 2019’s total of $13.2 billion, and is expected to grow to over $41.0 billion by 2025. As the industry continues to evolve, new ways to consume regulated cannabis products are being developed in order for patients to have the treatment needed for their condition and provide consumers safe, consistent and appealing options. In addition to smoking and vaporizing of dried leaves, cannabis can be incorporated into a variety of edibles, pills, spray products, transdermal patches and topicals, including salves, ointments, lotions and sprays with low or high levels of delta-9- tetrahydrocannabinol (“THC”), the principal psychoactive constituent of the cannabis plant. As with any nascent but growing industry, operational and business practices evolve and become more sophisticated over time. We believe that the quality and experience of industry participants and the development of sound business, operational and compliance practices have strengthened significantly over time, increasing the attractiveness for investment in the regulated cannabis industry. 9 Table of Contents Shifting Public Attitudes and State Law and Legislative Activity We believe that the growth of the regulated cannabis industry has been fueled, in part, by the rapidly changing public attitudes in the United States. A 2019 poll by Quinnipiac University found that 93% of Americans support patient access to medical-use cannabis, if recommended by a doctor, which was the same level of support from a similar poll conducted by Quinnipiac University in 2018. In a poll by Gallup conducted in late 2020, a record-high 68% of Americans supported legalization of cannabis in the United States. As of December 31, 2020, 36 states, plus the District of Columbia, have passed laws allowing their citizens to use medical cannabis. The first state to permit the use of cannabis for medicinal purposes was California in 1996, upon adoption of the Compassionate Care Act. The law allowed doctors to recommend cannabis for serious medical conditions and patients were permitted to use, possess and grow cannabis themselves. Several other states adopted medical-use cannabis laws in 1998 and 1999, and the remaining medical-use cannabis states adopted their laws on various dates through 2020. In addition, as of December 31, 2020, 15 states have legalized cannabis for adult-use. Following the approval of state-regulated cannabis, state programs must be developed and businesses must be licensed before commencing cannabis sales. Some states have developed the necessary procedures and licensing requirements quickly, while other states have taken years to develop their programs for production and sales of cannabis. Even where regulatory frameworks for regulated cannabis production and sales are in place, states tend to revise these rules over time. These revisions often impact sales, making it difficult to predict the potential of new markets. States may restrict the number of regulated cannabis businesses permitted; impose significant taxes on regulated cannabis products, in addition to taxes imposed by local municipalities; take limited enforcement actions against non-licensed cannabis operators; restrict the method by which medical cannabis can be consumed; restrict the ability of alternative health care providers to recommend medical cannabis for treatment; limit the medical conditions that are eligible for cannabis treatment; or require registration of doctors and/or patients, each of which can limit growth of the regulated cannabis industry in those states. Alternatively, states may relax their initial regulations relating to regulated cannabis production and sales and take other actions to support the growth of the regulated cannabis program, which would likely accelerate growth of the regulated cannabis industry in such states. Access to Capital To date, the status of state-licensed cannabis under federal law has limited the ability of state-licensed industry participants to fully access the U.S. banking system and traditional financing sources. These limitations, when combined with the high costs of maintaining licensed and stringently regulated cannabis facilities, substantially increase the cost of production. While future changes in federal and state laws may ultimately open up financing options that have not been widely available to date in this industry, we believe that our sale-leaseback and other real estate solutions to state-licensed industry participants will continue to be attractive capital options for regulated operators. Market Opportunity and Associated Risks We focus on purchasing specialized industrial real estate assets for the regulated medical-use cannabis industry. We believe that our sale-leaseback and other real estate solutions offer an attractive alternative to state-licensed medical-cannabis operators who may have limited access to traditional financing alternatives. We have acquired and intend to continue to acquire medical-use cannabis facilities in states that permit medical-use cannabis operations. Notwithstanding the foregoing market opportunity and trends, and despite legalization at the state level, we continue to believe that the current state of federal law creates significant uncertainty and potential risks associated with investing in medical-use cannabis facilities, including but not limited to potentially heightened risks related to the use of such facilities for adult-use cannabis operations, if a state passes such laws. For a more complete description of these risks, see the sections “— Governmental Regulation” below and “Risks Related to Regulation” under Item 1A, “Risk Factors.” 10 Table of Contents Tenant Concentration As of December 31, 2020, all of our revenues were derived from 66 properties. The following table sets forth the tenants in our property portfolio that represented the largest percentage of our total rental revenue for the year ended December 31, 2020: Tenant(1) PharmaCann, Inc. Ascend Wellness Holdings, LLC Cresco Labs, LLC Curaleaf Holdings, Inc. Holistic Industries, Inc. Green Thumb Industries, Inc. Totals Number of Leases 5 3 5 4 4 3 24 Percentage of Rental Revenue (2) 18 % 10 % 10 % 7 % 6 % 6 % 57 % (1) (2) Includes leases with affiliates of each entity, for which the entity has provided a corporate guaranty. Includes tenant reimbursements. Many of our tenants have limited histories of operations, and have not yet been profitable, or have been profitable only for a short period of time. For some or all of 2021, we expect that many of our tenants will continue to incur losses as their expenses increase in connection with the expansion of their operations, and that they have made and will continue to make rent payments to us from proceeds from the sale of the applicable property or cash on hand, and not funds from operations. Furthermore, each of our leases does not prohibit the tenant from conducting adult-use cannabis operations at the applicable property, provided such operations are in compliance with applicable state and local laws. As such, our tenant may conduct adult-use cannabis operations at the property it leases from us, which in turn could expose that tenant, us and our property to different and greater risks, including heightened risks of enforcement of federal laws. For example, Arizona, California, Colorado, Illinois, Massachusetts, Michigan, New Jersey and Washington permit licensed adult-use cannabis operations, and our leases with tenants in those states allow for adult-use cannabis operations to be conducted at the properties in compliance with state and local laws. See each of the discussions under Item 1A, “Risk Factors,” under the captions “Many of our existing tenants are, and we expect that many of our future tenants will be, start-up businesses and may be unable to pay rent with funds from operations or at all, which could adversely affect our cash available to make distributions to our stockholders or otherwise impair the value of our common stock,” and “Because we lease our properties to a limited number of tenants, and to the extent we depend on a limited number of tenants in the future, the inability of any single tenant to make its lease payments could adversely affect our business and our ability to make distributions to our stockholders.” 11 Table of Contents Geographic Concentration The following table sets forth certain state-by-state information regarding our property portfolio for the year ended and as of December 31, 2020 (dollars in thousands): State Arizona California Colorado Florida Illinois Maryland Massachusetts Michigan Minnesota Nevada New Jersey New York North Dakota Ohio Pennsylvania Virginia Washington Total / Average Rentable Sq. Ft.(2) Number of Percent Properties Leased(1) 2 12 3 3 6 1 6 12 1 1 3 2 1 4 7 1 1 66 100 % 360,000 521,000 93 66,000 100 713,000 100 672,000 100 72,000 100 647,000 100 611,000 100 89,000 100 43,000 100 165,000 100 167,000 100 33,000 100 220,000 100 788,000 100 82,000 100 100 114,000 99 % 5,363,000 $ Rental Revenue for the Year Ended December 31, 2020 (3) $ Percentage of Rental Revenue 3,466 10,766 1,956 8,186 19,449 15,450 3,041 15,093 1,581 1,399 2,107 1,440 6,923 5,623 18,377 1,935 104 116,896 3.0 % 9.2 1.7 7.0 16.6 13.2 2.6 12.9 1.4 1.2 1.8 1.2 5.9 4.8 15.7 1.7 0.1 100 % (1) Percent leased based on square footage. These statistics treat our Los Angeles, California property as not leased, due to tenant being in receivership and its ongoing default in its obligations to pay rent at that location as of December 31, 2020. Includes approximately 2.0 million square feet under development/redevelopment. Includes tenant reimbursements of approximately $4.6 million. (2) (3) See each of the discussions under Item 1A, “Risk Factors,” under the caption “Our properties are, and are expected to continue to be, geographically concentrated in states that permit medical-use cannabis cultivation, and we will be subject to social, political and economic risks of doing business in these states and any other state in which we may own property.” The regulated medical-use cannabis market is in its early stages; is generally subject to strict regulations providing for, among other things, limited medical conditions for treatment with medical-use cannabis, limitations on the form in which medical cannabis can be consumed and enhanced registration requirements for patients and physicians; is subject in many instances to significant taxation burdens at the federal, state and local levels; competes in many instances with non-licensed cannabis operators due in part to limited enforcement by state and local authorities; and may face opposition from local municipalities within a state, any of which may contribute to a particular market not growing and developing in the way that we or our tenants projected. Our Financing Strategy We intend to meet our long-term liquidity needs through cash flow from operations and the issuance of equity and debt securities, including common stock, preferred stock and exchangeable notes. Where possible, we also may issue limited partnership interests in our Operating Partnership to acquire properties from existing owners seeking a tax-deferred transaction. We expect to issue equity and debt securities at times when we believe that our stock price is at a level that allows for the reinvestment of offering proceeds in accretive property acquisitions. We may also issue common stock to permanently finance properties that were previously financed by debt securities. However, we cannot assure you that we will have access to the capital markets at times and on terms that are acceptable to us. Our ability to access the capital markets and to obtain other financing arrangements is also significantly limited by our focus on serving the medical-use cannabis industry. Our investment guidelines provide that our aggregate borrowings (secured and 12 Table of Contents unsecured) will not exceed 50% of the cost of our tangible assets at the time of any new borrowing, subject to our board of directors’ discretion. We have filed an automatic shelf registration statement, which may permit us, from time to time, to offer and sell common stock, preferred stock, warrants and other securities to the extent necessary or advisable to meet our liquidity needs. Risk Management As of December 31, 2020, we owned 66 properties located in 17 states. Many of our tenants are tenants at multiple properties. We will continue to attempt to diversify the investment size and location of our portfolio of properties in order to manage our portfolio-level risk. Over the long term, we intend that no single property will exceed 20% of our total assets and that properties leased to a single tenant (individually or together with its affiliates) will not exceed 20% of our total assets. Notwithstanding the foregoing, the industry continues to experience significant consolidation among regulated cannabis operators, and certain of our tenant operators may combine, increasing the concentration of our tenant portfolio with those consolidated operators. We expect that single tenants will continue to occupy our properties pursuant to triple-net lease arrangements in general and, therefore, the success of our investments will be materially dependent on the financial stability of these tenants. Many of our existing tenants have limited histories of operations, and have not yet been profitable, or have been profitable only for a short period of time. As such, we expect that many of our current and future tenants will continue to incur losses as their expenses increase in connection with the expansion of their operations, and that they have made and will make rent payments to us from proceeds from the sale of the applicable property or cash on hand, and not funds from operations. We also expect the success of our tenants, and their ability to make rent payments to us, to significantly depend on the projected growth and development of the applicable state market; as many of these state markets have a very limited history, and other state markets are still forming their regulations, issuing licenses and otherwise establishing the market framework, significant uncertainty exists as to whether these markets will develop in the way that we or our tenants project. We evaluate the credit quality of our tenants and any guarantors on an ongoing basis by reviewing, where available, the publicly filed financial reports, press releases and other publicly available industry information regarding our tenants and any guarantors. In addition, we monitor the payment history data for all of our tenants and, in some instances, we monitor our tenants by periodically conducting site visits and meeting with the tenants to discuss their operations. In many instances, we will generally not be entitled to financial results or other credit-related data from our tenants. See the section “Risks Related to Our Business” under Item 1A, “Risk Factors.” Competition The current market for properties that meet our investment objectives is limited. In addition, we believe finding properties that are appropriate for the specific use of allowing medical-use cannabis operators may be limited as more competitors enter the market, and as regulated cannabis operators obtain greater access to alternative financing sources, including but not limited to equity and debt financing sources. For example, according to analysis by MJResearchCo, North American cannabis companies either closed or announced more than $1.6 billion in capital raising in January 2021 alone, representing a significant increase in the pace of capital raising for regulated cannabis operators. We face significant competition from a diverse mix of market participants, including but not limited to, other companies with similar business models, independent investors, hedge funds and other real estate investors, hard money lenders, and cannabis operators themselves, all of whom may compete with us in our efforts to acquire real estate zoned for regulated cannabis facilities. In some instances, we will be competing to acquire real estate with persons who have no interest in the cannabis industry, but have identified value in a piece of real estate that we may be interested in acquiring. These competitors may prevent us from acquiring desirable properties or may cause an increase in the price we must pay for properties. Our competitors may have greater financial and operational resources than we do and may be willing to pay more for certain assets or may be willing to accept more risk than we believe can be prudently managed. In 13 Table of Contents particular, larger companies may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Our competitors may also adopt transaction structures similar to ours, which would decrease our competitive advantage in offering flexible transaction terms. In addition, due to a number of factors, including but not limited to potential greater clarity of the laws and regulations governing regulated cannabis by state and federal governments, the number of entities and the amount of funds competing for suitable investment properties may increase substantially, resulting in increased demand and increased prices paid for these properties. Furthermore, changes in federal regulations pertaining to cannabis could also lead to increased access to U.S. capital markets for our competitors and for regulated cannabis operators (including but not limited to access to the Nasdaq Stock Market and/or the New York Stock Exchange). We compete for the acquisition of properties primarily based on purchase price and the lease terms (including rental rates, lease duration and tenant improvement allowances, among others) in our sale leaseback and other real estate capital transactions. If we pay higher prices for properties or offer lease terms that are less attractive for us, our profitability may decrease, and you may experience a lower return on our common stock. Increased competition for properties may also preclude us from acquiring those properties that would generate attractive returns to us. Governmental Regulation Federal Laws Applicable to the Medical-Use Cannabis Industry Cannabis (with the exception of hemp containing no more than 0.3% THC by dry weight) is illegal under U.S. federal law. In those states in which the use of cannabis has been legalized, its use remains a violation of federal law pursuant to the Controlled Substances Act of 1970 (the “CSA”). The CSA classifies marijuana (cannabis) as a Schedule I controlled substance, and as such, both medical and adult use cannabis are illegal under U.S. federal law. Moreover, on two separate occasions the U.S. Supreme Court ruled that the CSA trumps state law. That means that the federal government may enforce U.S. drug laws against companies operating in accordance with state cannabis laws, creating a climate of legal uncertainty regarding the production and sale of cannabis. Unless and until Congress amends the CSA with respect to cannabis (and the President approves such amendment), there is a risk that the federal law enforcement authorities responsible for enforcing the CSA, including the U.S. Department of Justice (“DOJ”) and the Drug Enforcement Agency (“DEA”), may enforce current federal law. Under the Obama administration, the DOJ previously issued memoranda, including the so-called “Cole Memo” on August 29, 2013, providing internal guidance to federal prosecutors concerning enforcement of federal cannabis prohibitions under the CSA. This guidance essentially characterized use of federal law enforcement resources to prosecute those complying with state laws allowing the use, manufacture and distribution of cannabis as an inefficient use of such federal resources where states have enacted laws legalizing cannabis in some form and have also implemented strong and effective regulatory and enforcement systems to control the cultivation, processing, distribution, sale and possession of cannabis, conduct in compliance with those laws and regulations was not a priority for the DOJ. Instead, the Cole Memo directed U.S. Attorney’s Offices discretion not to investigate or prosecute state law compliant participants in the medical cannabis industry who did not implicate certain identified federal government priorities, including preventing interstate diversion or distribution of cannabis to minors. On January 4, 2018, then-U.S. Attorney General Jeff Sessions issued a written memorandum rescinding the Cole Memo and related internal guidance issued by the DOJ regarding federal law enforcement priorities involving cannabis (the “Sessions Memo”). The Sessions Memo instructs federal prosecutors to enforce the laws enacted by Congress and to follow well-established principles that govern all federal prosecutors when deciding whether to pursue prosecutions related to cannabis activities. As a result, federal prosecutors could, and still can, use their prosecutorial discretion to decide to prosecute actors compliant with their state laws. The Sessions Memo states that “these principles require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.” The Sessions Memo went on to state that given the DOJ’s well-established general principles, “previous nationwide guidance specific to marijuana is unnecessary and is rescinded, effective immediately.” Although there have not been any identified prosecutions of state law compliant cannabis entities, there can be no assurance that the federal government will not enforce federal laws 14 Table of Contents relating to cannabis in the future and it remains unclear what impact the Sessions Memo will have on the regulated cannabis industry, if any. Jeff Sessions resigned as U.S. Attorney General on November 7, 2018. On February 14, 2019, William Barr was confirmed as U.S. Attorney General. However, in a written response to questions from U.S. Senator Cory Booker made as a nominee, Attorney General Barr stated “I do not intend to go after parties who have complied with state law in reliance on the Cole Memo.” The DOJ under Mr. Barr did not take a formal position on federal enforcement of laws relating to cannabis. Mr. Barr has stated publicly that his preference would be to have a uniform federal rule against cannabis, but, absent such a uniform rule, his preference would be to permit the existing federal approach of leaving it up to the states to make their own decisions. Acting Attorney General Monty Wilkinson, who began in his position on January 20, 2021, has not provided a clear policy directive for the United States as it pertains to state-legal cannabis-related activities. President Biden has nominated Merrick Garland to serve as Attorney General in his administration. It is not yet known whether the DOJ under President Biden and Attorney General Garland, if confirmed, will re-adopt the Cole Memo or announce a substantive cannabis enforcement policy, and there can be no assurances that DOJ or other law enforcement authorities will not seek to vigorously enforce existing laws. One legislative safeguard for the medical cannabis industry, appended to federal appropriations legislation, remains in place. Commonly referred to as the “Rohrabacher-Blumenauer Amendment”, this so-called “rider” provision has been appended to the Consolidated Appropriations Acts since 2015. Under the terms of the Rohrabacher-Blumenauer rider, the federal government is prohibited from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law. On December 27, 2020, Congress passed an omnibus spending bill that again included the Rohrabacher-Blumenauer Amendment, extending its application until September 30, 2021. There is no assurance that Congress will approve inclusion of a similar prohibition on DOJ spending in the appropriations bills for future years. In USA vs. McIntosh, the United States Circuit Court of Appeals for the Ninth Circuit held that this provision prohibits the DOJ from spending funds from relevant appropriations acts to prosecute individuals who engage in conduct permitted by state medical-use cannabis laws and who strictly comply with such laws. However, the Ninth Circuit’s opinion, which only applies in the states of Alaska, Arizona, California, Hawaii and Idaho, also held that persons who do not strictly comply with all state laws and regulations regarding the distribution, possession and cultivation of medical-use cannabis have engaged in conduct that is unauthorized, and in such instances the DOJ may prosecute those individuals. Furthermore, while we target the acquisition of medical-use cannabis facilities, our leases do not prohibit cannabis cultivation for adult-use that is permissible under the state and local laws where our facilities are located. Consequently, certain of our tenants cultivate, process and/or dispense adult-use cannabis now (and may in the future) in our facilities that are permitted by such state and local laws, which may in turn subject the tenant, us and our properties to greater and/or different federal legal and other risks than exclusively medical-use cannabis facilities, including not providing protection under the above Congressional spending provision. Federal prosecutors have significant discretion and no assurance can be given that the federal prosecutor in each judicial district where we purchase a property will not choose to strictly enforce the federal laws governing cannabis production, processing or distribution. Any change in the federal government’s enforcement posture with respect to state-licensed cultivation of medical-use cannabis, including the enforcement postures of individual federal prosecutors in judicial districts where we purchase properties, would result in our inability to execute our business plan, and we would likely suffer significant losses with respect to our investment in medical-use cannabis facilities in the United States, which would adversely affect the trading price of our securities. Furthermore, following any such change in the federal government’s enforcement position, we could be subject to criminal prosecution, which could lead to imprisonment and/or the imposition of penalties, fines, or forfeiture. See Item 1A, “Risk Factors – Risks Relating to Regulation.” State Laws Applicable to the Medical-Use Cannabis Industry In most states that have legalized medical-use cannabis in some form, the growing, processing and/or dispensing of cannabis generally requires that the operator obtain one or more licenses in accordance with applicable state requirements. In addition, many states regulate various aspects of the growing, processing and/or dispensing of medical- 15 Table of Contents use cannabis. Local governments in some cases also impose rules and regulations on the manner of operating cannabis businesses. As a result, applicable state and local laws and regulations vary widely, including, but not limited to, regulations governing the medical cannabis program (such as the type of cannabis products permitted under the program, qualifications and registration of health professionals that may recommend treatment with medical cannabis, and the types of medical conditions that qualify for medical cannabis), product testing, the level of enforcement by state and local authorities on non- licensed cannabis operators, state and local taxation of regulated cannabis products, local municipality bans on operations and operator licensing processes and renewals. As a result of these and other factors, if our tenants default under their leases, we may not be able to find new tenants that can successfully engage in the cultivation, processing or dispensing of medical cannabis on the properties. There is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed, amended or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends or repeals the CSA with respect to medical and/or adult-use cannabis (and as to the timing or scope of any such potential amendment or repeal there can be no assurance), there is a significant risk that federal authorities may enforce current federal law. If the federal government begins to enforce federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing applicable state laws are repealed or curtailed, our business, results of operations, financial condition and prospects would be materially adversely affected. Laws Applicable to Financial Services for Cannabis Industry All banks are subject to federal law, whether the bank is a national bank or state-chartered bank. At a minimum, all banks maintain federal deposit insurance which requires adherence to federal law. Violation of federal law could subject a bank to loss of its charter. Financial transactions involving proceeds generated by cannabis-related conduct can form the basis for prosecution under the federal money laundering statutes, unlicensed money transmitter statutes and the Bank Secrecy Act. For example, under the Bank Secrecy Act, banks must report to the federal government any suspected illegal activity, which would include any transaction associated with a cannabis-related business. These reports must be filed even though the business is operating in compliance with applicable state and local laws. Therefore, financial institutions that conduct transactions with money generated by cannabis-related conduct could face criminal liability under the Bank Secrecy Act for, among other things, failing to identify or report financial transactions that involve the proceeds of cannabis-related violations of the CSA. Despite these laws, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued a memorandum on February 14, 2014 (the “FinCEN Memorandum”) outlining the pathways for financial institutions to bank state-sanctioned cannabis businesses in compliance with federal enforcement priorities. Concurrently with the FinCEN Memorandum, the DOJ issued supplemental guidance directing federal prosecutors to consider the federal enforcement priorities enumerated in the Cole Memo with respect to federal money laundering, unlicensed money transmitter and Bank Secrecy Act offenses based on cannabis-related violations of the CSA. The FinCEN Memorandum sets forth extensive requirements for financial institutions to meet if they want to offer bank accounts to cannabis-related businesses and echoed the enforcement priorities of the Cole Memo. Under these guidelines, financial institutions must submit a Suspicious Activity Report (“SAR”) in connection with all cannabis-related banking activities by any client of such financial institution, in accordance with federal money laundering laws. These cannabis-related SARs are divided into three categories - cannabis limited, cannabis priority, and cannabis terminated - based on the financial institution’s belief that the business in question follows state law, is operating outside of compliance with state law, or where the banking relationship has been terminated, respectively. This is a level of scrutiny that is far beyond what is expected of any normal banking relationship. As a result, many banks are hesitant to offer any banking services to cannabis-related businesses, including opening bank accounts. While we currently maintain banking relationships, our inability to maintain those accounts or the lack of access to bank accounts or other banking services in the future, would make it difficult for us to operate our business, increase our operating costs, and pose additional operational, logistical and security challenges. Similarly, if our proposed tenants are unable to access banking services, they will not be able to enter into triple-net leasing arrangements with us, as our leases will require rent payments to be made by check or wire transfer. 16 Table of Contents The rescission of the Cole Memo has not yet affected the status of the FinCEN Memorandum, nor has the Department of the Treasury given any indication that it intends to rescind the FinCEN Memorandum itself. Although the FinCEN Memorandum remains intact, it is unclear whether the current administration will continue to follow the guidelines of the FinCEN Memorandum. The DOJ continues to have the right and power to prosecute crimes committed by banks and financial institutions, such as money laundering and violations of the Bank Secrecy Act, that occur in any state including states that have in some form legalized the sale of cannabis. Further, the conduct of the DOJ’s enforcement priorities could change for any number of reasons. A change in the DOJ’s priorities could result in the DOJ’s prosecuting banks and financial institutions for crimes that were not previously prosecuted. In addition, for our tenants that are publicly traded companies, securities clearing firms may refuse to accept deposits of securities of those tenants, which may negatively impact the trading and valuations of such tenants and have a material adverse impact on our tenants’ ability to finance their operations and growth through the capital markets. The increased uncertainty surrounding financial transactions related to cannabis activities may also result in financial institutions discontinuing services to the cannabis industry. See Item 1A, “Risk Factors – Risks Relating to Regulation.” Agricultural Regulation The medical-use cannabis properties that we acquire are used primarily for cultivation and production of medical-use cannabis and are subject to the laws, ordinances and regulations of state, local and federal governments, including laws, ordinances and regulations involving land use and usage, water rights, treatment methods, disturbance, the environment, and eminent domain. Each governmental jurisdiction has its own distinct laws, ordinances and regulations governing the use of agricultural lands. Many such laws, ordinances and regulations seek to regulate water usage and water runoff because water can be in limited supply, as is the case in certain locations where our properties are located. In addition, runoff from rain or from irrigation is governed by laws, ordinances and regulations from state, local and federal governments. Additionally, if any of the water used on or running off from our properties flows to any rivers, streams, ponds, the ocean or other waters, there may be specific laws, ordinances and regulations governing the amount of pollutants, including sediments, nutrients and pesticides, that such water may contain. We believe that our existing properties have, and other properties that we acquire in the future will have, sources of water, including wells and/or surface water that provide sufficient amounts of water necessary for the current operations at each location. However, should the need arise for additional water from wells and/or surface water sources, we may be required to obtain additional permits or approvals or to make other required notices prior to developing or using such water sources. Permits for drilling water wells or withdrawing surface water may be required by federal, state and local governmental entities pursuant to laws, ordinances, regulations or other requirements, and such permits may be difficult to obtain due to drought, the limited supply of available water within the districts of the states in which our properties are located or other reasons. In addition to the regulation of water usage and water runoff, state, local and federal governments also seek to regulate the type, quantity and method of use of chemicals and materials for growing crops, including fertilizers, pesticides and nutrient rich materials. Such regulations could include restricting or preventing the use of such chemicals and materials near residential housing or near water sources. Further, some regulations have strictly forbidden or significantly limited the use of certain chemicals and materials. Licenses, permits and approvals must be obtained from governmental authorities requiring such licenses, permits and approvals before chemicals and materials can be used at grow facilities. Reports on the usage of such chemicals and materials must be submitted pursuant to applicable laws, ordinances, and regulations and the terms of the specific licenses, permits and approvals. Failure to comply with laws, ordinances and regulations, to obtain required licenses, permits and approvals or to comply with the terms of such licenses, permits and approvals could result in fines, penalties and/or imprisonment. The use of land for agricultural purposes in certain jurisdictions is also subject to regulations governing the protection of endangered species. When agricultural lands border, or are in close proximity to, national parks, protected 17 Table of Contents natural habitats or wetlands, the agricultural operations on such properties must comply with laws, ordinances and regulations related to the use of chemicals and materials and avoid disturbance of habitats, wetlands or other protected areas. Because properties we own may be used for growing medical-use cannabis, there may be other additional land use and zoning regulations at the state or local level that affect our properties that may not apply to other types of agricultural uses. For example, certain states in which our properties are located require stringent security systems in place at grow facilities, and require stringent procedures for disposal of waste materials. As an owner of agricultural lands, we may be liable or responsible for the actions or inactions of our tenants with respect to these laws, regulations and ordinances. Environmental Matters Our properties and the operations thereon are subject to federal, state and local environmental laws, ordinances and regulations, including laws relating to water, air, solid wastes and hazardous substances. Our properties and the operations thereon are also subject to federal, state and local laws, ordinances, regulations and requirements related to the federal Occupational Safety and Health Act, as well as comparable state statutes relating to the health and safety of our employees and others working on our properties. Although we believe that we and our tenants are in material compliance with these requirements, there can be no assurance that we will not incur significant costs, civil and criminal penalties and liabilities, including those relating to claims for damages to persons, property or the environment resulting from operations at our properties. Furthermore, many of our properties have been repurposed for regulated cannabis operations, and historically were utilized for other purposes, including heavy industrial uses, which expose us to additional risks associated with historical releases of substances at the properties. Real Estate Industry Regulation Generally, the ownership and operation of real properties are subject to various laws, ordinances and regulations, including regulations relating to zoning, land use, water rights, wastewater, storm water runoff and lien sale rights and procedures. These laws, ordinances or regulations, such as the Comprehensive Environmental Response and Compensation Liability Act and its state analogs, or any changes to any such laws, ordinances or regulations, could result in or increase the potential liability for environmental conditions or circumstances existing, or created by tenants or others, on our properties. Laws related to upkeep, safety and taxation requirements may result in significant unanticipated expenditures, loss of our properties or other impairments to operations, any of which would adversely affect our cash flows from operating activities. Our property management activities, to the extent we are required to engage in them due to lease defaults by tenants or vacancies on certain properties, will likely be subject to state real estate brokerage laws and regulations as determined by the particular real estate commission for each state. Americans with Disabilities Act (“ADA”) and Other Building Regulations All of our properties are required to comply with the Americans with Disabilities Act (“ADA”), which generally requires that buildings be made accessible to people with disabilities. Compliance with ADA requirements may require removal of access barriers, and noncompliance may result in imposition of fines by the U.S. government or an award of damages to private litigants, or both. The tenants to whom we lease space in our properties are generally obligated by law to comply with the ADA provisions, and typically under tenant leases are obligated to cover costs associated with compliance. We are required to operate the properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental entities and become applicable to the properties. Seasonality Our business has not been, and we do not expect it to become subject to, material seasonal fluctuations. 18 Table of Contents Available Information We make available to the public free of charge through our internet website our Definitive Proxy Statement, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the SEC. Our internet website address is www.innovativeindustrialproperties.com. The SEC also maintains electronic versions of the Company’s reports on its website at www.sec.gov. You can also access on our website our Code of Business Conduct and Ethics, Corporate Governance Guidelines, Audit Committee Charter, Compensation Committee Charter, and Nominating and Corporate Governance Committee Charter. The content of our website is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our website are intended to be inactive textual references only. Human Capital Our employees are our most valuable asset, and we believe we have an inclusive and engaging work environment, where each person is an integrated member of the team and is critical to our company’s continued success. We meet regularly as a full team, including throughout the COVID-19 pandemic, where each member is encouraged to actively participate in a wide range of topics relating to our company’s execution. We are also committed to the health and safety of our employees. During 2020 and to date, as a result of the COVID-19 pandemic, we have implemented a number of safety protocols to protect our employees, including protocols regarding social distancing and working remotely. Our experienced team adapted quickly to these changes and has managed our business successfully during this challenging time. While we are a young company, having commenced real estate operations and completed our initial public offering in December 2016, we have a seasoned, committed team of employees with substantial experience in all aspects of the real estate industry, including acquisitions, dispositions, construction, development, management, finance and capital markets. We believe that attracting, developing, engaging and retaining our team is an absolute priority. To that end, we believe we offer a highly competitive compensation (including salary, bonuses and equity) and benefits package for each member of our team, which include the following: ● Comprehensive health insurance, including medical, dental and vision, to each employee and every member of his or her immediate family at no cost to the employee, with the same benefits to every employee, regardless of title; ● Four weeks of paid time off each year for each employee (increasing to five weeks after five years of service and to six weeks after ten years of service), which are in addition to Company holidays; ● A severance plan applicable to all non-executive employees that assists with each employee’s financial security in the event his or her employment is terminated without cause or he or she resigns for good reason; ● A 401(k) plan with matching contributions from the Company; ● Disability insurance; ● Company sponsorship of continuing education courses related to our Company’s business, including commercial real estate, cannabis, property management, legal and accounting courses; and ● Matching contribution by the Company, dollar-for-dollar, up to $2,500 per year per employee for donations to qualifying educational institutions. 19 Table of Contents We are also proud to be an equal opportunity workplace and employer. We are committed to the principle of equal employment opportunity for all employees and to providing employees with an inclusive work environment free of discrimination and harassment. All employment decisions are based on qualifications, merit and business needs, without regard to race, color, creed, gender, religion, sex, national origin, ancestry, pregnancy, age, marital status, registered domestic partner status, sexual orientation, gender identity, protected medical condition, genetic information, physical or mental disability, veteran status, or any other status protected by the laws or regulations in the locations where we operate. ITEM IA. RISK FACTORS Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment. Risk Factors Summary The following is a summary of the principal risks and uncertainties that could adversely affect our business, cash flows, financial condition and/or results of operations, and these adverse impacts may be material. This summary is qualified in its entirety by reference to the more detailed descriptions of the risks and uncertainties included in this Item 1A below and you should read this summary together with those more detailed descriptions. These principal risk and uncertainties relate to, among other things: Risks Related to Our Business ● The current COVID-19 pandemic, or a similar future outbreak, could materially and adversely impact or cause disruption to our tenants and their operations, and in turn our business. ● We have a limited operating history, and may not be able to continue to operate our business successfully. ● The inability of any single tenant to make its lease payments could adversely affect our business. ● Competition for the acquisition of properties suitable for regulated cannabis operations and alternative financing sources for licensed operators may make new acquisitions difficult or less economically attractive. ● Our growth will depend upon future acquisitions of medical-use cannabis facilities, and we may be unable to consummate acquisitions on advantageous terms. ● There may only be a limited number of cannabis facilities operated by suitable tenants available for acquisition. ● Many of our tenants are, and we expect that many of our future tenants will be, companies with limited histories of operations and may be unable to pay rent with funds from operations or at all. ● We are focused on properties leased to licensed cannabis operators, and a decrease in demand for these types of facilities would have a greater impact on us than if we had a more diversified property portfolio. ● Our real estate investments consist of primarily properties suitable for cultivation and production of cannabis, which may be difficult to sell or re-lease upon tenant defaults or lease terminations. ● The assets we acquire may be subject to impairment charges. ● Our tenants may be unable to renew or otherwise maintain their licenses for their cannabis operations, which may result in such tenants not being able to operate their businesses and defaulting on their lease payments. ● We acquire our properties “as-is,” which increases the risk of costs to remedy defects without recourse. ● Our property portfolio is and will be geographically concentrated in certain states that make us subject to social, political and economic risks of doing business in these states. ● We face significant risks associated with the development and redevelopment of properties that we acquire. ● Some of our tenants could be susceptible to bankruptcy. 20 Table of Contents ● Our tenants may be subject to Section 280E of the Internal Revenue Code of 1986, as amended (the “Code”), because of the nature of their business activities, which could have an adverse impact on their financial condition due to a disallowance of certain tax deductions. ● We have acquired and may continue to acquire and lease cannabis retail stores and dispensaries, which present additional risks in comparison to properties for the cultivation and production of medical-use cannabis. ● Liability for uninsured losses could adversely affect our financial condition. ● If our properties’ access to adequate water and power supplies is interrupted, it could harm our ability to lease the properties for medical-use cannabis cultivation and production. ● We may have a difficult time obtaining the insurance policies with our focus on the regulated cannabis industry. ● We may purchase properties subject to ground leases. Risks Related to Regulation ● Cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability and the inability of our tenants to execute our respective business plans. ● Certain of our tenants engage in operations for the adult-use cannabis industry, which may subject us and our properties to additional risks associated with such adult-use cannabis operations. ● New laws adverse to the business of our tenants may be enacted, and current favorable national, state or local laws or enforcement guidelines relating to cannabis operations may be modified or eliminated in the future. ● Our ability to grow our business depends on state laws pertaining to the cannabis industry. ● US Food and Drug Administration (“FDA”) regulation of cannabis facilities could negatively affect the medical-use cannabis industry. ● We and our tenants may have difficulty accessing the service of banks and other financial institutions. ● Property owners located in close proximity to our properties may assert claims against our cannabis facilities. ● Laws and regulations affecting the regulated cannabis industry are constantly changing, which could materially adversely affect our operations, and we cannot predict the impact that future regulations may have on us. ● Assets leased to cannabis businesses may be forfeited to the federal government. ● We may have difficulty accessing bankruptcy courts. ● The properties that we acquire are subject to extensive regulations, which may result in significant costs. ● Compliance with environmental laws could materially increase our operating expenses. Risks Related to Financing Our Business ● Our growth depends on external sources of capital, which may not be available on favorable terms or at all. ● Our current and future indebtedness reduces our distributable cash and may expose us to default risk. Risks Related to Our Organization and Structure ● Our senior management team manages our portfolio subject to very broad investment guidelines. ● Our board of directors may change our investment objectives and strategies without stockholder consent. ● Certain provisions of Maryland law could inhibit changes in control. ● Our authorized but unissued shares of common and preferred stock may prevent a change in our control. ● Severance agreements with our executive officers could be costly and prevent a change in our control. ● We depend on our Operating Partnership for cash flow and are structurally subordinated in right of payment. ● Our Operating Partnership may issue additional limited partnership interests to third parties without the consent of our stockholders, which would reduce the distributions we can make to our stockholders. ● If we issue limited partnership interests in our Operating Partnership in exchange for property, the value placed on such partnership interests may not accurately reflect their market value, which may dilute your interest in us. ● Our rights and the rights of our stockholders to take action against our directors and officers are limited. ● Our charter provisions make it difficult to remove directors, and to effect changes in management as a result. ● Ownership limitations may restrict change in control or business combination opportunities in which our stockholders might receive a premium for their shares. ● We plan to continue to operate our business so as not to require registration under the Investment Company Act. Risks Related to Our Securities ● The market prices and trading volumes of our capital stock have been and may continue to be volatile. ● Capital stock eligible for future sale may have material and adverse effects on our share price. ● We cannot assure you of our ability to make distributions in the future. 21 Table of Contents ● Our charter permits us to pay distributions from any source and, as a result, the amount of distributions paid at any time may not reflect the performance of our properties or as cash flow from operations. ● The market price of our capital stock could be materially, adversely affected by our level of cash distributions. ● Our Exchangeable Senior Notes and future offerings of debt or preferred equity securities, which may rank senior to existing capital stock, may materially and adversely affect the market price of our common stock. Risks Related to Our Taxation as a REIT ● Our failure to qualify or remain qualified as a REIT would subject us to U.S. federal income tax and applicable state and local taxes, which reduce our distributable cash and negatively impact us. ● The REIT distribution requirements could adversely affect our ability to execute our business plan, and require us to make unfavorable borrowing decisions or subject us to tax. ● If Section 280E of the Code applies to us, tax deductions may be disallowed, resulting in federal income tax and potentially jeopardizing our REIT status. ● Complying with REIT requirements may cause us to forego attractive business opportunities or asset sales. ● The tax on prohibited transactions could limit what transactions we make or subject us to a 100% penalty tax. ● Our board of directors has the ability to revoke our REIT election without stockholder approval. ● Dividends payable by REITs do not qualify for the reduced tax rates on dividends from regular corporations. ● REIT requirements may limit our ability to hedge our liabilities effectively and result in tax liabilities. ● Re-characterization of sale-leaseback transactions may cause us to lose our REIT status. ● Non-U.S. stockholders will generally be subject to withholding tax with respect to our ordinary dividends. ● Legislative, regulatory or administrative changes could adversely affect us or our stockholders. Risks Related to General and Other Factors ● We are dependent on our key personnel for our success. ● The occurrence of cyber incidents or cyberattacks could disrupt our operations and damage our business. ● Contingent or unknown liabilities could materially and adversely affect our business. ● We cannot predict every event and circumstance that may affect our business. Risks Related to Our Business The current COVID-19 pandemic, or the future outbreak of any other highly infectious or contagious diseases, could materially and adversely impact or cause disruption to our tenants and their operations, and in turn our performance, financial condition, results of operations and cash flows. Throughout 2020 and to date, the ongoing COVID-19 pandemic has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. Many countries, including the United States, have instituted quarantines, mandated business and school closures and restricted travel. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including the regulated cannabis industry. COVID-19 (or a future pandemic) could have material and adverse effects on our tenants and their operations, and in turn on our performance, financial condition, results of operations and cash flows due to, among other factors: ● a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant actions; ● the temporary inability of consumers and patients to purchase our tenant’s cannabis products due to a number of factors, including but limited to illness, dispensary closures or limitations on operations (including but not limited to shortened operating hours, social distancing requirements and mandated “curbside only” pickup), quarantine, financial hardship, and “stay at home” orders, could severely impact our tenants’ businesses, financial condition and liquidity and may cause one or more of our tenants to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations; ● difficulty accessing equity and debt capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to 22 Table of Contents capital necessary to fund business operations and our tenants’ ability to fund their business operations and meet their obligations to us; ● workforce disruptions for our tenants, as a result of infections, quarantines, stay at home orders or other factors, could result in a material reduction in our tenants’ cannabis cultivation, manufacturing, distribution and/or sales capacity; ● because of the federal regulatory uncertainty relating to the regulated cannabis industry, our tenants may not be eligible for financial relief available to other businesses, including federal assistance programs; ● restrictions on public events for the regulated cannabis industry limit the opportunity for our tenants to market and sell their products and promote their brands; ● delays in construction at our properties may adversely impact our tenants’ ability to commence operations and generate revenues from projects, including but not limited to delays caused by: o o o o construction moratoriums by local, state or federal government authorities; delays by applicable governmental authorities in providing the necessary authorizations to continue construction or commence operations; reductions in construction team sizes to effectuate social distancing and other requirements; infection by one or more members of a construction team necessitating a partial or full shutdown of construction; and o manufacturing and supply chain disruptions for materials sourced from other geographies which may be experiencing shutdowns and/or restrictions on transportation of such materials; ● a general decline in business activity in the regulated cannabis industry would adversely affect our ability to grow our portfolio of regulated cannabis properties; and ● the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, would result in a deterioration in our ability to ensure business continuity during a disruption. The extent to which COVID-19 impacts our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the continued scope, severity and duration of the pandemic, the actions taken to contain the outbreak or mitigate its impact, and the extent of the direct and indirect economic effects of the pandemic and containment measures, among others. During 2020, we granted temporary base rent deferrals to certain affected tenants. See Note 6 in the Notes to the Consolidated Financial Statements for further information regarding these base rent deferrals. COVID-19 presents material uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows. We have a limited operating history, and may not be able to continue to operate our business successfully or generate sufficient cash flow to sustain distributions to our stockholders. We completed our initial public offering and commenced real estate operations with the acquisition of our first property in December 2016, and have a limited operating history. We are subject to many of the business risks and uncertainties associated with any new business enterprise. Furthermore, our properties are concentrated in the regulated cannabis industry, an industry in its very early stages of development, and we cannot predict how tenant demand and competition for these properties will change over time. We cannot assure you that we will be able to operate our business successfully or profitably or find additional suitable investments. Our ability to provide attractive risk-adjusted returns to our stockholders over the long term is dependent on our ability both to generate sufficient cash flow to pay an attractive 23 Table of Contents dividend and to achieve capital appreciation, and we cannot assure you we will do either. There can be no assurance that we will be able to continue to generate sufficient revenue from operations to pay our operating expenses and make distributions to stockholders. The results of our operations and the execution on our business plan depend on several factors, including the availability of additional opportunities for investment, the performance of our existing properties and tenants, the evolution of tenant demand for regulated cannabis facilities, competition, the evolution of alternative capital sources for potential tenants, the availability of adequate equity and debt financing, the federal and state regulatory environment relating to the regulated cannabis industry, conditions in the financial markets and economic conditions. Because we lease our properties to a limited number of tenants, and to the extent we depend on a limited number of tenants in the future, the inability of any single tenant to make its lease payments could adversely affect our business and our ability to make distributions to our stockholders. As of December 31, 2020, we owned 66 total properties. Six of our tenants, PharmaCann, Inc. (at five of our properties), Ascend Wellness Holdings, LLC (at three of our properties), Cresco Labs, LLC (at five of our properties), Curaleaf Holdings, Inc. (at four of our properties), Holistic Industries, Inc. (at four of our properties) and Green Thumb Industries, Inc. (at three of our properties), represented approximately 18%, 10%, 10%, 7%, 6% and 6%, respectively, of our rental revenues (including tenant reimbursements) for the year ended December 31, 2020. 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. For example, the tenant at our property located in Los Angeles, California was in receivership and defaulted on its obligation to pay rent to us for all of 2020. 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. Competition for the acquisition of properties suitable for the retail sale, cultivation or production of medical-use cannabis and alternative financing sources for licensed operators may impede our ability to make acquisitions or increase the cost of these acquisitions, which could adversely affect our operating results and financial condition. We compete for the acquisition of properties suitable for the retail sale, cultivation or production of medical-use cannabis with other entities engaged in retail, agricultural and real estate investment activities, including corporate agriculture companies, cultivators and producers of medical-use cannabis, private equity investors, and other real estate investors (including public and private REITs). These competitors may prevent us from acquiring desirable properties, may cause an increase in the price we must pay for properties or may result in us having to lease our properties on less favorable terms than we expect. Our competitors may have greater financial and operational resources than we do and may be willing to pay more for certain assets or may be willing to accept more risk than we believe can be prudently managed. In particular, larger companies may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Our competitors may also adopt transaction structures similar to ours, which would decrease our competitive advantage in offering flexible transaction terms. In addition, due to a number of factors, including but not limited to potential greater clarity of the laws and regulations governing medical-use cannabis by state and federal governments, the number of entities and the amount of funds competing for suitable investment properties may increase, resulting in increased demand and increased prices paid for these properties. If we pay higher prices for properties or enter into leases for such properties on less favorable terms than we expect, our profitability and ability to generate cash flow and make distributions to our stockholders may decrease. 24 Table of Contents We also compete as a provider of capital to regulated cannabis operators with alternative financing sources to these companies, including both equity and debt financing alternatives. For example, many larger, publicly traded multi-state cannabis operators are able to raise significant capital through public equity offerings, in addition to access to significant debt financing options. Furthermore, changes in federal regulations pertaining to cannabis could also lead to increased access to U.S. capital markets for our competitors and for regulated cannabis operators (including but not limited to access to the Nasdaq Stock Market and/or the New York Stock Exchange). According to analysis by MJResearchCo, North American cannabis companies either closed or announced more than $1.6 billion in capital raising in January 2021 alone, representing a significant increase in the pace of capital raising for regulated cannabis operators. Increased competition for properties as a result of greater clarity of the federal regulatory environment may also preclude us from acquiring those properties that would generate attractive returns to us. By way of example, Congress has introduced several proposed bills focused on the regulated cannabis industry, including the Marijuana Opportunity Reinvestment and Expungement Act (the “MORE Act”) and the Secure and Fair Enforcement (SAFE) Banking Act (the “SAFE Banking Act”). If it became law, the MORE Act, which was passed by the U.S. House of Representatives in December 2020, would, among other things, remove cannabis as a Schedule I controlled substance under the CSA and make available U.S. Small Business Administration funding for regulated cannabis operators. If it became law, the SAFE Banking Act would, among other things, provide protection from federal prosecution to banks and other financial institutions that provide financial services to state-licensed, compliant cannabis operators, which may include the provision of loans by financial institutions to such operators. If any of the proposed bills in Congress became law, there would be further increased competition for the acquisition of properties that can be leased to licensed medical-use cannabis operators, and such operators would have greater access to alternative financing sources with lower costs of capital. These factors may reduce the number of operators that wish to enter into lease transactions with us or renew leases with us, or may result in us having to enter into leases on less favorable terms with tenants, each of which may significantly adversely impact our profitability and ability to generate cash flow and make distributions to our stockholders. Our growth will depend upon future acquisitions of medical-use cannabis facilities, and we may be unable to consummate acquisitions on advantageous terms. Our growth strategy is focused on the acquisition of specialized industrial real estate assets on favorable terms as opportunities arise. Our ability to acquire these real estate assets on favorable terms is subject to the following risks: ● competition from other potential acquirers or increased availability of alternative debt and equity financing sources for tenants may significantly increase the purchase price of a desired property and/or negatively impact the lease terms we are able to secure with our tenants; ● we may not successfully purchase and lease our properties to meet our expectations; ● we may be unable to obtain the necessary equity or debt financing to consummate an acquisition on satisfactory terms or at all; ● agreements for the acquisition of properties are typically subject to closing conditions, including satisfactory completion of due diligence investigations, and we may spend significant time and money and divert management attention on potential acquisitions that we do not consummate; and ● we may acquire properties without any recourse, or with only limited recourse, for liabilities, whether known or unknown, against the former owners of the properties. Our failure to consummate acquisition on advantageous terms without substantial expense or delay would impede our growth and negatively affect our results of operations and our ability to generate cash flow and make distributions to our stockholders. 25 Table of Contents There may only be a limited number of medical-use cannabis facilities operated by suitable tenants available for us to acquire, which could adversely affect the return on our common stock. We target medical-use cannabis facilities for acquisition and leasing to licensed operators under triple-net lease agreements. We also target properties owned by established operators or operators that have been among the top candidates in the rigorous state licensing process and have been granted one or more licenses to operate multiple facilities. In light of the current regulatory landscape regarding medical-use cannabis, including but not limited to, the rigorous state licensing processes, limits on the number of licenses granted in certain states and in counties within such states, zoning regulations related to medical-use cannabis facilities, the inability of potential tenants to open bank accounts necessary to pay rent and other expenses and the ever-changing federal and state regulatory landscape, we may have only a limited number of medical- use cannabis facilities available to purchase that are operated by licensees that we believe would be suitable tenants. These tenants may also have increased access to alternative equity and debt financing sources over time, which may limit our ability to negotiate leasing arrangements that meet our investment criteria. Our inability to locate suitable investment properties and tenants would have a material adverse effect on our ability to generate cash flow and make distributions to our stockholders. Many of our existing tenants are, and we expect that many of our future tenants will be, companies with limited histories of operations and may be unable to pay rent with funds from operations or at all, which could adversely affect our cash available to make distributions to our stockholders or otherwise impair the value of our common stock. Single tenants currently occupy our properties, 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 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 most 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. The success of our tenants will 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, 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 of the regulated cannabis market. 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 medical-use cannabis industry and our tenants’ limited operating history and (for more information, see the section entitled “Critical Accounting Policies — Revenue Recognition” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for more information). 26 Table of Contents 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. In October 2019, a court appointed a receiver over all property and assets of the tenant at our Los Angeles, California property and that tenant subsequently defaulted on its obligations to pay rent to us for all of 2020. 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 medical-use 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. Because our real estate investments consist of primarily industrial and greenhouse properties suitable for cultivation and production of medical-use cannabis, our rental revenues are significantly influenced by demand for these facilities generally, and a decrease in such demand would likely have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio. Because our portfolio of properties primarily consists of industrial and greenhouse properties used in the regulated medical-use cannabis industry, we are subject to risks inherent in investments in a single industry. A decrease in the demand for medical-use cannabis cultivation and processing facilities would have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio. Demand for medical-use cannabis cultivation and processing facilities has been and could be adversely affected by changes in current favorable state or local laws relating to cultivation and production of medical-use cannabis or any change in the federal government’s current enforcement posture with respect to state-licensed medical-use cannabis operations, among others. To the extent that any of these conditions occur, they are likely to affect demand and market rents for medical-use cannabis cultivation and processing facilities, which could cause a decrease in our rental revenue. Any such decrease could impair our ability to make distributions to you. We do not currently and do not expect in the future to invest in other real estate or businesses to hedge against the risk that industry trends might decrease the profitability of our facilities leased for medical-use cannabis operations. Our real estate investments consist of primarily industrial and greenhouse properties suitable for cultivation and production of medical-use cannabis, which may be difficult to sell or re-lease upon tenant defaults or lease terminations, either of which would adversely affect returns to stockholders. While our business objectives consist of principally acquiring and deriving rental income from industrial and greenhouse properties used in the regulated medical-use cannabis industry, we expect that at times we will deem it appropriate or desirable to sell or otherwise dispose of certain properties we own. These types of properties are relatively illiquid compared to other types of real estate and financial assets. This illiquidity could limit our ability to quickly dispose of properties in response to changes in regulatory, economic or other conditions. Therefore, our ability at any time to sell assets may be restricted and this lack of liquidity may limit our ability to make changes to our portfolio promptly, which could materially and adversely affect our financial performance. We cannot predict the various market conditions affecting the properties that we expect to acquire that will exist in the future. Due to the uncertainty of regulatory and market conditions which may affect the future disposition of the real estate assets we expect to acquire, we cannot assure you that we will be able to sell these assets at a profit in the future. Accordingly, the extent to which we will realize potential appreciation (or depreciation) on the real estate investments we have acquired and expect to acquire will depend upon regulatory and other market conditions. In addition, in order to maintain our REIT status, we may not be able to sell properties when we would otherwise choose to do so, due to market conditions or changes in our strategic plan. Furthermore, we may be required to make expenditures to correct defects or to make improvements before a property can be sold and we cannot assure you that we will have funds available to correct such defects or to make such 27 Table of Contents improvements. With these kinds of properties, if the current lease is terminated or not renewed, we may be required to make expenditures and rent concessions in order to lease the property to another tenant. In addition, in the event we are forced to sell or re-lease the property, we may have difficulty finding qualified purchasers who are willing to buy the property or tenants who are willing to lease the property on terms that we expect, or at all. As our properties are concentrated in the regulated cannabis industry, a shift in property preferences by regulated cannabis operators, including but not limited to changing preferences regarding location and types of improvements, could have a significant negative impact on the desirability of our properties to prospective tenants when we need to re-lease them, in addition to other challenges, such as obtaining the necessary state and local authorizations for a new tenant to commence operations at the property. These and other limitations may affect our ability to sell or re-lease properties, which may adversely affect returns to our stockholders. 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. Our tenants may be unable to renew or otherwise maintain their licenses or other requisite authorizations for their cannabis operations, which may result in such tenants not being able to operate their businesses and defaulting on their lease payments to us. Most states where we own properties issue licenses for medical-use cannabis operations for a limited period. We rely on our tenants to renew or otherwise maintain the requisite state and local cannabis licenses and other authorizations on a continuous basis. If one or more of our tenants are unable to renew or otherwise maintain its licenses or other state and local authorizations necessary to continue its cannabis operations, such tenants may default on their lease payments to us. Any such noncompliance by our tenants of state and local laws, rules and regulations may also subject us, as the owner of such properties, to potential penalties, fines or other liabilities. Any lease payment defaults by a tenant or additional liability on us 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 medical-use cannabis cultivation and production facilities are generally subject to extensive state licensing requirements, including required state and local authorizations for a new tenant to take over operations at a facility. We acquired our properties, and expect to acquire other properties, “as-is,” which increases the risk of an investment that requires us to remedy defects or costs without recourse to the prior owner. We acquired our properties, and expect to acquire other real estate properties, “as is” with only limited representations and warranties from the property seller regarding matters affecting the condition, use and ownership of the property. There may also be environmental conditions associated with properties we acquire of which we are unaware despite our diligence efforts or that we have identified during diligence, including with respect to historical heavy industrial uses of the properties. In particular, medical-use cannabis facilities may present environmental concerns of which we are not currently aware. If environmental contamination exists on properties we acquire or develops after acquisition, we could become subject to liability for the contamination. As a result, if defects in the property (including any building on the property) or other matters adversely affecting the property are discovered, including but not limited to environmental matters, we may not be able to pursue a claim for any or all damages against the property seller. Such a situation could harm our business, financial condition, liquidity and results of operations. 28 Table of Contents Our properties are, and are expected to continue to be, geographically concentrated in states that permit medical-use cannabis cultivation, and we will be subject to social, political and economic risks of doing business in these states and any other state in which we may own property. As of February 25, 2021, we owned properties in 17 states, and we expect that the properties that we acquire will be geographically concentrated in these states and other states that have established medical-use cannabis programs. See “Geographic Concentration” under Item 1, “Business” for a table of properties owned by us and organized by state as of December 31, 2020. Circumstances and developments related to operations in these markets that could negatively affect our business, financial condition, liquidity and results of operations include, but are not limited to, the following factors: ● the state medical-use cannabis market fails to develop and grow in ways that we or our tenants projected; ● the responsibility of complying with multiple and, in some respects, conflicting state and federal laws in the United States, including with respect to cultivation and distribution of medical-use cannabis, licensing, banking and insurance; ● access to capital may be more restricted, or unavailable on favorable terms or at all in certain locations; ● difficulties and costs of staffing and managing operations; ● unexpected changes in regulatory requirements and other laws; ● the impact of national, regional or state specific business cycles and economic instability; and ● potentially adverse tax consequences. 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; ● unforeseen engineering, environmental or geological problems, which may result in delays or increased costs; ● labor stoppages, slowdowns or interruptions; 29 Table of Contents ● 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 February 25, 2021, we had properties consisting of an aggregate of approximately 2.0 million rentable square feet under development or redevelopment. As of February 25, 2021, we had committed to provide construction funding and fund tenant improvements at our properties in the future totaling up to approximately $328.7 million. Some of our tenants could be susceptible to bankruptcy, which would affect our ability to generate rents from them and therefore negatively affect our results of operations. In addition to the risk of tenants being unable to make regular rent payments, certain of our tenants may depend on debt, which could make them especially susceptible to bankruptcy in the event that their cash flows are insufficient to satisfy their debt. Because cannabis remains illegal under federal law, there is no assurance that federal bankruptcy courts will provide relief for parties who engage in cannabis-related businesses. Recent bankruptcy court rulings have denied bankruptcy relief for certain cannabis businesses on the basis that businesses cannot violate federal law and then claim the benefits of federal bankruptcy for such activity and on the basis that courts cannot ask a bankruptcy trustee to take possession of, and distribute cannabis assets, as such action would violate the CSA. Any inability of our tenants to seek bankruptcy protection may impact their ability to secure financing for their operations and prevent our tenants from utilizing the benefits of reorganization of their businesses under bankruptcy protection to operate in a financially sustainable way, thereby reducing the probability that such a tenant would be able to honor its lease obligations with us. Generally, under bankruptcy law, a tenant who is the subject of bankruptcy proceedings may continue (“assume”) or give up (“reject”) any unexpired lease of non-residential real property. If a bankrupt tenant decides to give up (reject) a lease, any claim for breach of the lease is treated as a general unsecured claim in the tenant’s bankruptcy case, subject to certain exceptions for collateral and guarantees. In the event one of our tenants is permitted to seek bankruptcy protection in the U.S., our general unsecured claim would likely be capped at the amount the tenant owed us for unpaid rent prior to the bankruptcy unrelated to the termination, plus the greater of one year of lease payments or 15% of the lease payments payable under the remaining term of the lease, but in no case more than three years of lease payments. In addition to the cap on our damages for breach of the lease, even if our claim is timely submitted to the bankruptcy court, there is no guaranty that the tenant’s bankruptcy estate would have sufficient funds to satisfy the claims of general unsecured creditors. Finally, a bankruptcy court could re-characterize a net lease transaction as a disguised secured lending transaction. If that were to occur, we would not be treated as the owner of the property, but might have additional rights as a secured creditor. This would mean our claim in bankruptcy court could be limited to the amount we paid for the property, which could adversely impact our financial condition. Any bankruptcy, if allowed, of one of our tenants would result in a loss of lease payments to us, as well as an increase in our costs to carry the property. In October 2019, a court appointed a receiver over all property and assets of the tenant at our Los Angeles, California property. That tenant subsequently defaulted on its lease payments to us for all of 2020. Our tenants may be subject to Section 280E of the Code because of the nature of their business activities, which could have an adverse impact on their financial condition due to a disallowance of certain tax deductions. Section 280E of the Code provides that, with respect to any taxpayer, no deduction or credit is allowed for expenses incurred during a taxable year “in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the CSA) which is prohibited by federal law or the law of any state in which such trade or business is conducted.” Because cannabis is a Schedule I controlled substance under the CSA, Section 280E by its terms applies to the purchase and sale of medical-use cannabis products. Our tenants are engaged in the cultivation, processing and sale of cannabis 30 Table of Contents and cannabis-related products, and therefore may be subject to Section 280E. Application of the provisions of Section 280E to our tenants would result in the disallowance of certain tax deductions, including for depreciation or interest expense, which could have an adverse impact on their respective financial condition and ability to make lease payments to us. Any lease payment defaults by a tenant could adversely affect our results of operations and cash flows, and cause us to reduce the amount of distributions to our stockholders. We have acquired and may continue to acquire cannabis retail stores and dispensaries and enter into leases with licensed operators for those properties, which present additional risks and challenges in comparison to properties for the cultivation and production of medical-use cannabis. We have acquired and may continue to acquire cannabis retail stores and dispensaries and enter into leases with licensed operators for those locations. Cannabis retail stores and dispensaries entail risks that could adversely impact our financial condition and results of operations, and that are in addition to risks associated with regulated cannabis cultivation and processing facilities, including but not limited to: ● the impact of the continued evolution of the retail distribution model for cannabis and customer preferences, including the impact of e-commerce and home delivery on demand for cannabis retail space; ● negative perceptions by customers of the safety, convenience and attractiveness of cannabis dispensaries; ● the handling of significant cash transactions and cannabis inventory at the property, which may increase security risks associated with dispensary operations; ● local real estate conditions (such as an oversupply of, or a reduction in demand for, cannabis retail space); ● our and our tenants’ ability to procure and maintain appropriate levels of property and casualty insurance; and ● risks associated with data breaches through cyberattacks, cyber intrusions or otherwise that expose customer personal information at dispensaries, which may result in liability and reputational damage to our tenants and our company. The realization of any of the risks above, among others, with respect to one or more of our properties or tenants could have a material adverse impact on our business. Liability for uninsured losses could adversely affect our financial condition. While the terms of our leases with our tenants generally require property and casualty insurance, losses from disaster-type occurrences, such as earthquakes, hurricanes, floods and weather-related disasters, and other types of insurance, such as landlord’s rental loss insurance, may be either uninsurable or not insurable on economically viable terms, due in part to our properties’ locations, construction types and concentration on the regulated cannabis industry. Should an uninsured loss occur, we could lose our capital investment or anticipated profits and cash flows from one or more properties. If our properties’ access to adequate water and power supplies is interrupted, it could harm our ability to lease the properties for medical-use cannabis cultivation and production, thereby adversely affecting our ability to generate returns on our properties. In order to lease the properties that we acquire, these properties require access to sufficient water and power to make them suitable for the cultivation and production of medical-use cannabis. Although we expect to acquire properties with sufficient access to water, should the need arise for additional wells from which to obtain water, we would be required to obtain permits prior to drilling such wells. Permits for drilling water wells are required by state and county regulations, and such permits may be difficult to obtain due to the limited supply of water in areas where we acquire properties. Similarly, our properties may be subject to governmental regulations relating to the quality and disposition of rainwater 31 Table of Contents runoff or other water to be used for irrigation. In such case, we could incur costs necessary in order to retain this water. If we are unable to obtain or maintain sufficient water supply for our properties, our ability to lease them for the cultivation and production of medical-use cannabis would be seriously impaired, which would have a material adverse impact on the value of our assets and our results of operations. Historically, states that have legalized medical-use cannabis cultivation have typically required that such cultivation take place indoors. Indoor cultivation of medical-use cannabis requires significant power for growing lights and ventilation and air conditioning to remove the hot air generated by the growing lights. While outdoor cultivation is gaining acceptance in many states with favorable climates for such growth, we expect that most of our properties will continue to utilize indoor cultivation methods. Any extended interruption of the power supply to our properties, particularly those using indoor cultivation methods, would likely harm our tenants’ crops and processing capabilities, which could result in their inability to make lease payments to us for our properties. Any lease payment defaults by a tenant could adversely affect our cash flows and cause us to reduce the amount of distributions to stockholders. Due to our involvement in the regulated medical-use cannabis industry, we may have a difficult time obtaining the various insurance policies that are desired to operate our business, which may expose us to additional risks and financial liabilities. Insurance that is otherwise readily available, such as workers’ compensation, general liability and directors’ and officers’ insurance, is more difficult for us to find and more expensive, because we lease our properties to companies in the regulated medical-use cannabis industry. There are no guarantees that we will be able to find such insurance in the future, or that the cost will be affordable to us. If we are forced to go without such insurance or with less insurance than we would prefer, it may prevent us from entering into certain business sectors, may inhibit our growth, and may expose us to additional risk and financial liabilities. We may purchase properties subject to ground leases that expose us to the loss of such properties upon breach or termination of the ground leases. A ground lease agreement permits a tenant to develop and/or operate a land parcel (property) during the lease period, after which the land parcel and all improvements revert back to the property owner. Under a ground lease, property improvements are owned by the property owner unless an exception is created and all relevant taxes incurred during the lease period are paid for by the tenant. Ground leases typically have a long duration generally ranging from 50 to 99 years with additional extension options. As a lessee under a ground lease, we would be exposed to the possibility of losing the property upon termination, or an earlier breach by us, of the ground lease, which could have a material adverse effect on our business, financial condition and results of operations, our ability to make distributions to our stockholders and the trading price of our common stock. Risks Related to Regulation Cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability and the inability of our tenants to execute our respective business plans. Cannabis is a Schedule I controlled substance under the CSA. Even in those jurisdictions in which cannabis has been legalized at the state level, the possession, distribution, cultivation, manufacture and use of cannabis all remain violations of federal law that are punishable by imprisonment, substantial fines and forfeiture. Moreover, individuals and entities may violate federal law if they intentionally aid and abet another in violating these federal controlled substance laws, or conspire with another to violate them. The U.S. Supreme Court has ruled in United States v. Oakland Cannabis Buyers’ Coop. and Gonzales v. Raich that it is the federal government that has the right to regulate and criminalize the sale, possession and use of cannabis, even for medical purposes. We would likely be unable to execute our business plan if the federal government were to strictly enforce federal law regarding cannabis. In January 2018, the DOJ rescinded certain memoranda, including the so-called “Cole Memo” issued on August 29, 2013 under the Obama Administration, which had characterized enforcement of federal cannabis prohibitions under the CSA to prosecute those complying with state regulatory systems allowing the use, manufacture and distribution of 32 Table of Contents medical cannabis as an inefficient use of federal investigative and prosecutorial resources when state regulatory and enforcement efforts are effective with respect to enumerated federal enforcement priorities under the CSA. In rescinding the Cole Memo, DOJ instructed its prosecutors to enforce the laws enacted by Congress and to follow well-established principles that govern all federal prosecutions when deciding whether to pursue prosecutions related to cannabis activities. As a result, federal prosecutors could, and still can, use their prosecutorial discretion to decide to prosecute actors compliant with their state laws. Although there have not been any identified prosecutions of state law compliant cannabis entities, there can be no assurance that the federal government will not enforce federal laws against the regulated cannabis industry generally, including our tenants and us. Furthermore, Acting Attorney General Monty Wilkinson, who began in his position on January 20, 2021, has not provided a clear policy directive for the United States as it pertains to state-legal cannabis-related activities. President Biden has nominated Merrick Garland to serve as Attorney General in his administration. It is not yet known whether the DOJ under President Biden and Attorney General Garland, if confirmed, will re-adopt the Cole Memo or announce a substantive cannabis enforcement policy which may result in DOJ increasing its enforcement actions against the regulated cannabis industry, including our tenants and us. Congress previously enacted an omnibus spending bill that includes a provision prohibiting the DOJ (which includes the DEA) from using funds appropriated by that bill to prevent states from implementing their medical-use cannabis laws. This provision, however, expires on September 30, 2021, and there is no assurance that Congress will approve inclusion of a similar prohibition in future appropriations bills to prevent DOJ from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law. In USA vs. McIntosh, the U.S. Court of Appeals for the Ninth Circuit held that this provision prohibits the DOJ from spending funds from relevant appropriations acts to prosecute individuals who engage in conduct permitted by state medical-use cannabis laws and who strictly comply with such laws. However, the Ninth Circuit’s opinion, which only applies to the states of Alaska, Arizona, California, Hawaii, and Idaho, also held that persons who do not strictly comply with all state laws and regulations regarding the distribution, possession and cultivation of medical-use cannabis have engaged in conduct that is unauthorized, and in such instances the DOJ may prosecute those individuals. Furthermore, while we target the acquisition of medical-use cannabis facilities, our leases do not prohibit cannabis cultivation for adult-use that is permissible under the state and local laws where our facilities are located, such as in Arizona, California, Colorado, Illinois, Massachusetts, Michigan, New Jersey and Washington. Consequently, certain of our tenants currently (and additional tenants may in the future) cultivate adult-use cannabis in our medical-use cannabis facilities, as permitted by such state and local laws now or in the future, which may in turn subject the tenant, us and our properties to greater and/or different federal legal and other risks as compared to facilities where cannabis is cultivated exclusively for medical use, including not providing protection under the Congressional spending bill provision described above. Additionally, financial transactions involving proceeds generated by cannabis-related conduct can form the basis for prosecution under the federal money laundering statutes, unlicensed money transmitter statutes and the Bank Secrecy Act. The penalties for violation of these laws include imprisonment, substantial fines and forfeiture. Prior to the DOJ’s rescission of the Cole Memo, supplemental guidance from the DOJ issued under the Obama administration directed federal prosecutors to consider the federal enforcement priorities enumerated in the Cole Memo when determining whether to charge institutions or individuals with any of the financial crimes described above based upon cannabis-related activity. This supplemental guidance was followed by the February 14, 2014 FinCEN Memorandum outlining the pathways for financial institutions to bank state- sanctioned cannabis businesses in compliance with federal enforcement priorities. Under these guidelines, financial institutions must submit a SAR in connection with all cannabis-related banking activities by any client of such financial institution, in accordance with federal money laundering laws. These cannabis-related SARs are divided into three categories - cannabis limited, cannabis priority, and cannabis terminated - based on the financial institution’s belief that the business in question follows state law, is operating outside of compliance with state law, or where the banking relationship has been terminated, respectively. The FinCEN Memorandum states that in some circumstances, it is permissible for banks to provide services to cannabis-related businesses without risking prosecution for violation of federal money laundering laws. Although the Cole Memo has been rescinded, the FinCEN Memorandum technically remains intact; however, it is unclear whether the current administration will continue to follow the FinCEN Memorandum. The DOJ continues to have the right and power to prosecute crimes committed by banks and financial institutions, such as money laundering and violations of the Bank 33 Table of Contents Secrecy Act, that occur in any state including states that have in some form legalized the sale of cannabis. Further, the conduct of the DOJ’s enforcement priorities could change for any number of reasons. A change in the DOJ’s priorities could result in the DOJ’s prosecuting banks and financial institutions for crimes that were not previously prosecuted. Federal prosecutors have significant discretion and no assurance can be given that the federal prosecutor in each judicial district where we purchase a property will not choose to strictly enforce the federal laws governing cannabis operations. Any change in the federal government’s enforcement posture with respect to state-licensed cannabis operations, including the enforcement postures of individual federal prosecutors in judicial districts where we purchase properties, would result in our inability to execute our business plan, and we would likely suffer significant losses with respect to our investment in cannabis facilities in the United States, which would adversely affect the trading price of our securities. Furthermore, following any such change in the federal government’s enforcement position, we could be subject to criminal prosecution, which could lead to imprisonment and/or the imposition of penalties, fines, or forfeiture. Certain of our tenants engage in operations for the adult-use cannabis industry in addition to or in lieu of operations for the medical-use cannabis industry, and such tenants, we and our properties may be subject to additional risks associated with such adult-use cannabis operations. Our existing leases at our properties do not, and we expect that leases that we enter into with future tenants at other properties we acquire will not, prohibit cannabis operations for adult-use that is permissible under state and local laws where our facilities are located and certain of our tenants are currently engaged in operations for the adult-use cannabis industry, which may subject our tenants, us and our properties to different and greater risks, including greater prosecution risk for aiding and abetting violation of the CSA and federal laws governing money laundering. For example, the prohibition in the current omnibus spending bill that prohibits the DOJ from using funds appropriated by Congress to prevent states from implementing their medical-use cannabis laws does not extend to adult-use cannabis laws. In addition, while we may purchase properties in states that only permit medical-use cannabis at the time of acquisition, such states may in the future authorize by state legislation or popular vote the legalization of adult-use cannabis, thus permitting our tenants to engage in adult-use cannabis operations at our properties. For example, Arizona, California, Colorado, Illinois, Massachusetts, Michigan, New Jersey and Washington permit licensed adult-use cannabis operations, and our leases with tenants in those states allow for adult-use cannabis operations to be conducted at the properties in compliance with state and local laws. New laws that are adverse to the business of our tenants may be enacted, and current favorable national, state or local laws or enforcement guidelines relating to cannabis operations may be modified or eliminated in the future. We have acquired and are targeting for acquisition properties that are owned by state-licensed cannabis operators. Relevant state or local laws may be amended or repealed, or new laws may be enacted in the future to eliminate existing laws permitting cannabis operations. If our tenants were forced to close their operations, we would need to replace those tenants with tenants who are not engaged in the cannabis industry, who most likely pay significantly lower rents. Moreover, any changes in state or local laws that reduce or eliminate the ability to conduct cannabis operations would likely result in a high vacancy rate for the kinds of properties that we seek to acquire, which would depress our lease rates and property values. In addition, we would realize an economic loss on any and all improvements made to properties that were specific to the cannabis industry. For example, in connection with the Centers for Disease Control and Prevention identifying cases of vaping-related lung injuries, certain state and local governments had instituted temporary bans. In addition to litigation and reputational risks surrounding vaping-related lung injuries, bans or heightened regulations could have a material adverse impact on our tenants’ operations in those states and localities where such a ban or other restrictive regulation has been implemented. Our ability to grow our business depends on state laws pertaining to the cannabis industry. Continued development of the medical-use cannabis industry depends upon continued legislative authorization of cannabis at the state level. The status quo of, or progress in, the regulated medical-use 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 34 Table of Contents 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 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 medical-use 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 medical-use cannabis, which could harm our business prospects. FDA regulation of medical-use cannabis and the possible registration of facilities where medical-use cannabis is grown could negatively affect the medical-use cannabis industry, which would directly affect our financial condition. Should the federal government legalize cannabis for medical-use, it is possible that the FDA would seek to regulate it under the Food, Drug and Cosmetics Act of 1938 or under the Public Health Service Act. Additionally, the FDA may issue rules, regulations, or guidance including certified good manufacturing practices, related to the growth, cultivation, harvesting and processing of medical cannabis. If regulated by the FDA as a drug, clinical trials may be needed to verify efficacy and safety. It is also possible that the FDA would require that facilities where medical-use cannabis is grown register with the FDA and comply with certain federally prescribed regulations. In the event that some or all of these regulations or enforcement actions are imposed, we do not know what the impact this would have on the cannabis industry, including what costs, requirements and possible prohibitions may be enforced. If we or our tenants are unable to comply with the regulations or registration as prescribed by the FDA, we and or our tenants may be unable to continue to operate their and our business in its current form or at all. We and our tenants may have difficulty accessing the service of banks and other financial institutions, which may make it difficult to contract for real estate needs. Financial transactions involving proceeds generated by cannabis-related conduct can form the basis for prosecution under the federal money laundering statutes, unlicensed money transmitter statute and the Bank Secrecy Act. Previous guidance issued by FinCEN clarified how financial institutions can provide services to cannabis-related businesses consistent with their obligations under the Bank Secrecy Act. However, this guidance does not provide any safe harbors or legal defenses from examination or regulatory or criminal enforcement actions by the DOJ, FinCEN or other federal regulators. Thus, most banks and other financial institutions in the United States do not appear to be comfortable providing banking services to cannabis- related businesses, or relying on this guidance, which can be amended or revoked at any time by the executive branch. In addition to the foregoing, banks may refuse to process debit card payments and credit card companies generally refuse to process credit card payments for cannabis-related businesses. Prior to the DOJ’s announcement in January 2018 of the rescission of the Cole Memo and related memoranda, supplemental guidance from the DOJ directed federal prosecutors to consider the federal enforcement priorities enumerated in the Cole Memo when determining whether to charge institutions or individuals with any of the financial crimes described above based upon cannabis-related activity. It remains unclear what impact the rescission of the Cole Memo will have, but federal prosecutors may increase enforcement activities against institutions or individuals that are conducting financial transactions related to cannabis activities. The increased uncertainty surrounding financial transactions related to cannabis activities may also result in financial institutions discontinuing services to the cannabis industry. Consequently, those businesses involved in the regulated medical-use cannabis industry continue to encounter difficulty establishing banking relationships, which may increase over time. Our inability to maintain our current bank accounts would make it difficult for us to operate our business, increase our operating costs, and pose additional operational, logistical and security challenges and could result in our inability to implement our business plan. The terms of our leases require that our tenants make rental payments via check or wire transfer. Only a small percentage of financial institutions in the United States currently provide banking services to licensed cannabis operators. The inability of our current and potential tenants to open accounts and continue using the services of banks 35 Table of Contents will limit their ability to enter into triple-net lease arrangements with us or may result in their default under our lease agreements, either of which could materially harm our business and the trading price of our securities. In addition, for our tenants that are publicly traded companies, securities clearing firms may refuse to accept deposits of securities of those tenants, which may negatively impact the trading and valuations of such tenants and have a material adverse impact on our tenants’ ability to finance their operations and growth through the capital markets. In addition, federal money laundering statutes and Bank Secrecy Act regulations discourage financial institutions from working with any organization that sells a controlled substance, regardless of whether the state it resides in permits cannabis sales. While the United States House of Representatives has passed the SAFE Banking Act, which would permit commercial banks to offer services to cannabis companies that are in compliance with state law, it remains under consideration by the Senate, and if Congress fails to pass the SAFE Banking Act, the Company’s inability, or limitations on the Company’s ability, to open or maintain bank accounts, obtain other banking services and/or accept credit card and debit card payments may make it difficult for the Company to operate and conduct its business as planned or to operate efficiently. Owners of properties located in close proximity to our properties may assert claims against us regarding the use of the property as a medical cannabis cultivation, processing or dispensing facility, which if successful, could materially and adversely affect our business. Owners of properties located in close proximity to our properties may assert claims against us regarding the use of our properties for medical cannabis cultivation, processing or dispensing, including assertions that the use of the property constitutes a nuisance that diminishes the market value of such owner’s nearby property. Such property owners may also attempt to assert such a claim in federal court as a civil matter under the Racketeer Influenced and Corrupt Organizations Act. If a property owner were to assert such a claim against us, we may be required to devote significant resources and costs to defending ourselves against such a claim, and if a property owner were to be successful on such a claim, our tenants may be unable to continue to operate their business in its current form at the property, which could materially adversely impact the tenant’s business and the value of our property, our business and financial results and the trading price of our securities. Laws and regulations affecting the regulated cannabis industry are constantly changing, which could materially adversely affect our operations, and we cannot predict the impact that future regulations may have on us. Local, state and federal cannabis laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. It is also possible that regulations may be enacted in the future that will be directly applicable to our business. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business. Assets leased to cannabis businesses may be forfeited to the federal government. Any assets used in conjunction with the violation of federal law are potentially subject to federal forfeiture, even in states where cannabis is legal. In July 2017, the DOJ issued a new policy directive regarding asset forfeiture, referred to as the “equitable sharing program.” Under this new policy directive, federal authorities may adopt state and local forfeiture cases and prosecute them at the federal level, allowing for state and local agencies to keep up to 80% of any forfeiture revenue. This policy directive represents a reversal of the DOJ’s policy under the Obama administration, and allows for forfeitures to proceed that are not in accord with the limitations imposed by state-specific forfeiture laws. This new policy directive may lead to increased use of asset forfeitures by local, state and federal enforcement agencies. If the federal government decides to initiate forfeiture proceedings against cannabis businesses, such as the medical-use cannabis facilities that we have acquired and intend to acquire, our investment in those properties may be lost. 36 Table of Contents We may have difficulty accessing bankruptcy courts. As discussed above, cannabis is illegal under federal law. Therefore, there is a compelling argument that the federal bankruptcy courts cannot provide relief for parties who engage in the cannabis or cannabis related businesses. Recent bankruptcy rulings have denied bankruptcies for dispensaries upon the justification that businesses cannot violate federal law and then claim the benefits of federal bankruptcy for the same activity and upon the justification that courts cannot ask a bankruptcy trustee to take possession of, and distribute cannabis assets as such action would violate the CSA. Therefore, we may not be able to seek the protection of the bankruptcy courts and this could materially affect our business or our ability to obtain credit. The properties that we acquire are subject to extensive regulations, which may result in significant costs and materially and adversely affect our business, financial condition, liquidity and results of operations. Our properties are and other properties that we expect to acquire will be subject to various laws and regulatory requirements. For example, local property regulations, including restrictive covenants of record, may restrict the use of properties we acquire and may require us to obtain approval from local authorities with respect to the properties that we expect to acquire, including prior to acquiring a property or when developing or undertaking renovations. Among other things, these restrictions may relate to cultivation, processing or dispensing of medical-use cannabis, the use of water and the discharge of waste water, fire and safety, seismic conditions, asbestos-cleanup or hazardous material abatement requirements. Our failure to obtain such regulatory approvals could have a material adverse effect on our business, financial condition, liquidity and results of operations. Furthermore, we cannot assure you that the regulatory requirements and statutory prohibitions relating to properties used in cannabis operations will not materially and adversely affect us or the timing or cost of any future acquisitions, developments or renovations, or that additional regulations will not be adopted that would increase such delays or result in additional prohibition or costs. Compliance with environmental laws could materially increase our operating expenses. There may be environmental conditions associated with properties we acquire of which we are unaware. If environmental contamination exists on properties we acquire, we could become subject to liability for the contamination. The presence of hazardous substances on a property may materially and adversely affect our ability to sell the property and we may incur substantial remediation costs. In addition, although we may require in our leases that tenants operate in compliance with all applicable laws and indemnify us against any environmental liabilities arising from a tenant’s activities on the property, we could nonetheless be subject to liability by virtue of our ownership interest and we cannot be sure that our tenants would satisfy their indemnification obligations to us. Such environmental liability exposure associated with properties we acquire could harm our business, financial condition, liquidity and results of operations. Risks Related to Financing Our Business Our growth depends on external sources of capital, which may not be available on favorable terms or at all. In addition, banks and other financial institutions may be reluctant to enter into lending transactions with us, including secured lending, because we acquire properties used in the cultivation and production of medical-use 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. 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 medical-use cannabis industry, changes in market conditions for the regulated cannabis industry, our own operating or financial performance or otherwise, to access capital markets on a timely basis and on favorable terms or at all. 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. 37 Table of Contents Our access to capital will depend upon a number of factors over which we have little or no control, including general market conditions and the market’s perception of our current and potential future earnings. If general economic instability or downturn 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 medical-use 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. Our Exchangeable Senior Notes and any future indebtedness reduce our cash available for distribution and may expose us to the risk of default. In February 2019, we issued $143.75 million aggregate principal amount of Exchangeable Senior Notes. Payments of principal and interest on our Exchangeable Senior Notes and borrowings that we may incur in the future may leave us with insufficient cash resources to operate the properties that we expect to acquire or to pay the distributions currently contemplated or necessary to satisfy the requirements for REIT qualification. Our level of debt and the limitations imposed on us by these debt agreements could have significant material and adverse consequences, including the following: ● our cash flow may be insufficient to meet our required principal and interest payments; ● we may be unable to borrow additional funds as needed or on favorable terms, or at all; ● we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness; ● to the extent we borrow debt that bears interest at variable rates, increases in interest rates could materially increase our interest expense; ● we may be forced to dispose of one or more of the properties that we expect to acquire, possibly on disadvantageous terms; ● we may default on our obligations or violate restrictive covenants, in which case the lenders may accelerate these debt obligations; and ● our default under any loan with cross default provisions could result in a default on other indebtedness. If any one of these events were to occur, our financial condition, results of operations, cash flow, and our ability to make distributions to our stockholders could be materially and adversely affected. 38 Table of Contents Risks Related to Our Organization and Structure Our senior management team manages our portfolio subject to very broad investment guidelines. Our senior management team has broad discretion over our investments, and our stockholders will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments that are not described in periodic filings with the SEC. We rely on the senior management team’s ability to execute acquisitions and dispositions of medical-use cannabis facilities, subject to the oversight and approval of our board of directors. Our senior management team is authorized to pursue acquisitions and dispositions of real estate investments in accordance with very broad investment guidelines, subject to approval of our board of directors. Our board of directors may change our investment objectives and strategies without stockholder consent. Our board of directors determines our major policies, including with regard to financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Under our charter and Maryland General Corporation Law (the “MGCL”), our stockholders generally have a right to vote only on the following matters: ● the election or removal of directors; ● the amendment of our charter, except that our board of directors may amend our charter without stockholder approval to: o o o o change our name; change the name or other designation or the par value of any class or series of stock and the aggregate par value of our stock; increase or decrease the aggregate number of shares of stock that we have the authority to issue; increase or decrease the number of our shares of any class or series of stock that we have the authority to issue; and o effect certain reverse stock splits; ● our liquidation and dissolution; and ● our being a party to a merger, consolidation, sale or other disposition of all or substantially all of our assets or statutory share exchange. All other matters are subject to the discretion of our board of directors. Certain provisions of Maryland law could inhibit changes in control. Under the MGCL, “business combinations” (including a merger, consolidation, statutory share exchange or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and an “interested stockholder” or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. An interested stockholder is defined as: (a) any person who beneficially owns 10% or more of the voting power of the then-outstanding voting stock of the corporation; or (b) an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding stock of the corporation. 39 Table of Contents A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. A Maryland corporation’s board of directors may provide that its approval is subject to compliance with any terms and conditions determined by the board of directors prior to the time that the interested stockholder becomes an interested stockholder. Thereafter, any such business combination must generally be recommended by the board of directors of such corporation and approved by the affirmative vote of at least: ● 80% of the votes entitled to be cast by holders of outstanding voting stock of the corporation; and ● two-thirds of the votes entitled to be cast by holders of voting stock of the corporation, other than shares held by the interested stockholder with whom (or with whose affiliate) the business combination is to be effected, or held by an affiliate or associate of the interested stockholder unless, among other conditions, the corporation’s common stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares. A Maryland corporation’s board of directors may provide that its approval is subject to compliance with any terms and conditions determined by it. These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by a Maryland corporation’s board of directors prior to the time that the interested stockholder becomes an interested stockholder. The “control share” provisions of the MGCL provide that, subject to certain exceptions, a holder of “control shares” of a Maryland corporation (defined as shares which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) has no voting rights with respect to such shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquirer of control shares, our officers and our personnel who are also our directors. Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock. Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock. There can be no assurance that such provision will not be amended or eliminated at any time in the future by our board of directors. The “unsolicited takeover” provisions of Title 3, Subtitle 8 of the MGCL, or Subtitle 8, permit our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, some of which (for example, a classified board) we do not yet have. Our charter provides that vacancies on our board may be filled only by the remaining directors and for the remainder of the full term of the directorship in which the vacancy occurred. Through provisions in our charter and bylaws unrelated to Subtitle 8, we already (i) require the affirmative vote of stockholders entitled to cast not less than two-thirds of all of the votes entitled to be cast generally in the election of directors for the removal of any director from the board, only with cause, (ii) vest in the board of directors the exclusive power to fix the number of directorships and (iii) require, unless called by our chairman of the board, our chief executive officer or our board of directors, the written request of stockholders entitled to cast not less than a majority of all votes entitled to be cast at such a meeting to call a special meeting of our stockholders. These provisions may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us under the circumstances that otherwise could provide the holders of shares of common stock with the opportunity to realize a premium over the then current market price. Our authorized but unissued shares of common and preferred stock may prevent a change in our control. Our charter permits our board of directors to authorize us to issue additional shares of our authorized but unissued common or preferred stock. In addition, our board of directors may, without stockholder approval, amend our charter to 40 Table of Contents increase the aggregate number of our shares of stock or the number of shares of stock of any class or series that we have the authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the terms of the classified or reclassified shares. As a result, our board of directors may establish a class or series of shares of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders. Severance agreements with our executive officers could be costly and prevent a change in our control. The severance agreements that we entered into with our executive officers provide that, if their employment with us terminates under certain circumstances (including upon a change in our control), we may be required to pay them significant amounts of severance compensation, including accelerated vesting of equity awards, thereby making it costly to terminate their employment. Furthermore, these provisions could delay or prevent a transaction or a change in our control that might involve a premium paid for our common stock or otherwise be in the best interests of our stockholders. Because of our holding company structure, we depend on our Operating Partnership and its subsidiaries for cash flow and we will be structurally subordinated in right of payment to the obligations of such operating subsidiary and its subsidiaries. We are a holding company with no business operations of our own. Our only significant asset is and will be the general and limited partnership interests in our Operating Partnership. We conduct, and intend to continue to conduct, all of our business operations through our Operating Partnership. Accordingly, our only source of cash to pay our obligations is distributions from our Operating Partnership and its subsidiaries of their net earnings and cash flows. We cannot assure our stockholders that our Operating Partnership or its subsidiaries will be able to, or be permitted to, make distributions to us that will enable us to make distributions to our stockholders from cash flows from operations. Each of our Operating Partnership’s subsidiaries is or will be a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from such entities. In addition, because we are a holding company, your claims as stockholders will be structurally subordinated to all existing and future liabilities and obligations of our Operating Partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our Operating Partnership and its subsidiaries will be able to satisfy your claims as stockholders only after all of our and our Operating Partnership’s and its subsidiaries’ liabilities and obligations have been paid in full. Furthermore, U.S. bankruptcy courts have generally refused to grant bankruptcy protections to cannabis businesses. Our Operating Partnership may issue additional limited partnership interests to third parties without the consent of our stockholders, which would reduce our ownership percentage in our Operating Partnership and would have a dilutive effect on the amount of distributions made to us by our Operating Partnership and, therefore, the amount of distributions we can make to our stockholders. We are the sole general partner of our Operating Partnership and own, directly or through subsidiaries, 100% of the outstanding partnership interests in our Operating Partnership. We may, in connection with our acquisition of properties or otherwise, cause our Operating Partnership to issue additional limited partnership interests to third parties. Such issuances would reduce our ownership percentage in our Operating Partnership and affect the amount of distributions made to us by our Operating Partnership and, therefore, the amount of distributions we can make to our stockholders. Because our stockholders will not directly own any interest in our Operating Partnership, our stockholders will not have any voting rights with respect to any such issuances or other partnership level activities of our Operating Partnership. If we issue limited partnership interests in our Operating Partnership in exchange for property, the value placed on such partnership interests may not accurately reflect their market value, which may dilute your interest in us. If we issue limited partnership interests in our Operating Partnership in exchange for property, the per unit value attributable to such interests will be determined based on negotiations with the property seller and, therefore, may not reflect the fair market value of such limited partnership interests if a public market for such limited partnership interests 41 Table of Contents existed. If the value of such limited partnership interests is greater than the value of the related property, your interest in us may be diluted. Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests. We have entered into indemnification agreements with each of our executive directors and officers that provide for indemnification to the maximum extent permitted by Maryland law. Maryland law permits us to include in our charter a provision eliminating the liability of our directors and officers and our stockholders for money damages except for liability resulting from: ● actual receipt of an improper benefit or profit in money, property or services; or ● active and deliberate dishonesty that was established by a final judgment and was material to the cause of action. Our charter authorizes us to obligate ourselves and our bylaws obligate us, to the fullest extent permitted by Maryland law in effect from time to time, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to: ● any present or former director or officer who is made or threatened to be made a party to or witness in the proceeding by reason of his or her service in that capacity; or ● any individual who, while a director or officer of our company and at our request, serves or has served as a director, officer, partner, manager, member or trustee of another corporation, REIT, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to or witness in the proceeding by reason of his or her service in that capacity. Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our management. Our charter provides that, subject to the rights of holders of any series of preferred stock, a director may be removed only with cause upon the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast generally in the election of directors. Vacancies may be filled only by a vote of the majority of the remaining directors in office, even if less than a quorum. These requirements make it more difficult to change our management by removing and replacing directors and may prevent a change in control of our company that is in the best interests of our stockholders. Ownership limitations may restrict change in control or business combination opportunities in which our stockholders might receive a premium for their shares. In order for us to qualify as a REIT under the Code, shares of our stock must be owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of our stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made). 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 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, including our 9.00% Series A Cumulative Redeemable Preferred Stock (the “Series A Preferred Stock”). These ownership limits and other restrictions could have the effect of discouraging a takeover or other transaction in which 42 Table of Contents holders of our common stock might receive a premium for their shares over the then prevailing market price or which holders might believe to be otherwise in their best interests. We plan to continue to operate our business so that we are not required to register as an investment company under the Investment Company Act. We engage primarily in the business of investing in real estate and we have not and do not intend to register as an investment company under the Investment Company Act. If our primary business were to change in a manner that would require us register as an investment company under the Investment Company Act, we would have to comply with substantial regulation under the Investment Company Act which could restrict the manner in which we operate and finance our business and could materially and adversely affect our business operations and results. Risks Related to Our Securities The market prices and trading volumes of our common stock and Series A Preferred Stock have been and may continue to be volatile. The market prices for our common stock and Series A Preferred Stock have been, and may continue to be, volatile. In addition, the trading volume in our common stock and Series A Preferred Stock has fluctuated and may continue to fluctuate, resulting in significant price variations. Some of the factors that could negatively affect the share price or result in fluctuations in the price or trading volume of our common stock and preferred stock include: ● our actual or projected operating results, financial condition, cash flows and liquidity or changes in business strategy or prospects; ● changes in government policies, regulations or laws; ● the performance of our current properties and additional properties that we acquire; ● our ability to make acquisitions on preferable terms or at all; ● equity issuances by us, including issuances by us of shares of common stock in connection with exchanges of our Exchangeable Senior Notes or under our ATM Program, or share resales by our stockholders, or the perception that such issuances or resales may occur; ● actual or anticipated accounting problems; ● publication of research reports about us, the real estate industry or the cannabis industry; ● changes in market valuations of similar companies; ● adverse market reaction to any increased indebtedness we may incur in the future; ● interest rate changes; ● additions to or departures of our senior management team; ● speculation in the press or investment community or negative press in general; ● our failure to meet, or the lowering of, our earnings estimates or those of any securities analysts; 43 Table of Contents ● failure to maintain our qualification as a REIT; ● refusal of securities clearing firms to accept deposits of our securities; ● a delisting of our common stock or preferred stock from the New York Stock Exchange (“NYSE”); ● the realization of any of the other risk factors presented in this report; ● actions by institutional stockholders; ● price and volume fluctuations in the stock market generally; and ● market and economic conditions generally, including the current state of the credit and capital markets and the market and economic conditions. Market factors unrelated to our performance could also negatively impact the market price of our common stock and preferred stock. One of the factors that investors may consider in deciding whether to buy or sell our common stock or Series A Preferred Stock is our distribution rate as a percentage of our stock price relative to market interest rates. If market interest rates increase, prospective investors may demand a higher distribution rate or seek alternative investments paying higher dividends or interest. As a result, interest rate fluctuations and conditions in capital markets can affect the market value of our common stock or Series A Preferred Stock. Common stock and preferred stock eligible for future sale may have material and adverse effects on our share price. Subject to applicable law, our board of directors, without stockholder approval, may authorize us to issue additional shares of our common stock or to raise capital through the issuance of preferred stock (including equity or debt securities convertible into preferred stock), options, warrants and other rights, on terms and for consideration as our board of directors in its sole discretion may determine. Any such issuance could result in dilution of the equity of our stockholders. Sales of substantial amounts of shares of our common stock in the public market, or the perception that such sales might occur, could adversely affect the market price of our common stock. Our charter also authorizes our board of directors, without stockholder approval, to designate and issue one or more classes or series of preferred stock (including equity or debt securities convertible into preferred stock) and to set or change the voting, conversion or other rights, preferences, restrictions, limitations as to dividends or other distributions and qualifications or terms or conditions of redemption of each class of shares so issued. If any preferred stock is publicly offered, the terms and conditions of such preferred stock (including any equity or debt securities convertible into preferred stock) will be set forth in a registration statement registering the issuance of such preferred stock or equity or debt securities convertible into preferred stock. Because our board of directors has the power to establish the preferences and rights of each class or series of preferred stock, it may afford the holders of any series or class of preferred stock preferences, powers, and rights senior to the rights of holders of common stock or other preferred stock. If we ever create and issue additional preferred stock or equity or debt securities convertible into preferred stock with a distribution preference over common stock or preferred stock, payment of any distribution preferences of new outstanding preferred stock would reduce the amount of funds available for the payment of distributions on the common stock and junior preferred stock. Further, holders of preferred stock are normally entitled to receive a preference payment if we liquidate, dissolve, or wind up before any payment is made to the common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of additional preferred stock may delay, prevent, render more difficult or tend to discourage a merger, tender offer, or proxy contest, the assumption of control by a holder of a large block of our securities, or the removal of incumbent management. Furthermore, we 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. 44 Table of Contents Additionally, from time to time we also may issue shares of our common stock or operating partnership units of our Operating Partnership in connection with property acquisitions. We may grant additional demand or piggyback registration rights in connection with these issuances. Sales of substantial amounts of our common stock or operating partnership units of our Operating Partnership, or the perception that these sales could occur, may adversely affect the prevailing market price of our common stock or may adversely affect the terms upon which we may be able to obtain additional capital through the sale of equity securities. As of February 25, 2021, 23,926,317 shares of our common stock were issued and outstanding, and we had reserved an additional 770,563 shares of common stock for future issuance under our 2016 Omnibus Incentive Plan (the “2016 Plan”) and 2,158,837 shares potentially issuable upon exchange of our Exchangeable Senior Notes (based on the exchange rate as of February 25, 2021). In addition, as of February 25, 2021, we had approximately $231.7 million in shares of common stock available for future issuance under the ATM Program. The existence of operating partnership units, Exchangeable Senior Notes, shares of Series A Preferred Stock, shares of our common stock reserved for issuance under our 2016 Plan and shares available for future issuance under the ATM Program may adversely affect the terms upon which we may be able to obtain additional capital through the sale of equity securities. We cannot assure you of our ability to make distributions in the future. We may be unable to pay or maintain cash dividends, and may borrow money, sell assets or use offering proceeds to make distributions to our stockholders, if we are unable to make distributions from cash flows from operations. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain (which does not equal net income as calculated in accordance with U.S. generally accepted accounting principles (“GAAP”)), 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. We may not continue our current level of distributions to stockholders. Our board of directors will determine future distributions based on a number of factors, including cash available for distribution, economic conditions, operating results, our financial condition, especially in relation to our anticipated future capital needs, then current expansion plans, the distribution requirements for REITs, and other factors our board deems relevant. In addition, we may borrow money, sell assets or use offering proceeds to make distributions to our stockholders, if we are unable to make distributions from cash flows from operations. Our charter permits us to pay distributions from any source and, as a result, the amount of distributions paid at any time may not reflect the performance of our properties or as cash flow from operations. Our organizational documents permit us to make distributions from any source. To the extent that our cash available for distribution is insufficient to cover our distributions, we expect to use our cash on hand, the proceeds from the issuance of securities in the future, the proceeds from borrowings or other sources to pay distributions. It is possible that any distributions declared will be paid from our cash on hand or future issuances of shares of our common stock or preferred stock, which would constitute a return of capital to our stockholders. If we fund distributions from borrowings, sales of properties, future issuances of securities or cash on hand, we will have fewer funds available for the acquisition of additional properties resulting in potentially fewer investments, less diversification of our portfolio and a reduced overall return to our stockholders. In addition, the value of our shares of common stock and preferred stock may be diluted because funds that would otherwise be available to make investments would be diverted to fund distributions. The market price of our common stock and Series A Preferred Stock could be materially and adversely affected by our level of cash distributions. The market value of our common stock and Series A Preferred Stock is based primarily upon the market’s perception of our growth potential and our current and potential future cash distributions, whether from operations, sales or re-financings, and is secondarily based upon the real estate market value of our underlying assets. For that reason, our stock may trade at prices that are higher or lower than our net asset value per share. To the extent we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our stock. Our failure to meet the 45 Table of Contents market’s expectations with regard to future earnings and cash distributions likely would materially and adversely affect the market price of our common stock and Series A Preferred Stock. Our Exchangeable Senior Notes and future offerings of debt or preferred equity securities, which may rank senior to our common stock and existing preferred stock, may materially and adversely affect the market price of our common stock. Our Exchangeable Senior Notes rank senior to our common stock and existing preferred stock. If we decide to issue additional debt securities in the future, which would rank senior to our common stock and existing preferred stock, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any preferred equity securities or convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock and/or existing preferred stock and may result in dilution to owners of our common stock and existing preferred stock. We and, indirectly, our stockholders will bear the cost of issuing and servicing such securities. Because our decision to issue debt or preferred equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our common stock and existing preferred stock will bear the risk of our future offerings reducing the market price of our common stock and existing preferred stock and diluting the value of their stock holdings in us. Risks Related to Our Taxation as a REIT Our failure to qualify or remain qualified as a REIT would subject us to U.S. federal income tax and applicable state and local taxes, which would reduce the amount of cash available for distribution to our stockholders and have significant adverse consequences on the market price of our common stock and existing preferred stock. We have made an election to be taxed as a REIT under Sections 856 through 860 of the Code commencing with our taxable year ended December 31, 2017. We believe that we have been organized and operated in such a manner as to qualify for taxation as a REIT under the Code for such taxable year and all subsequent taxable years to date, and intend to continue to operate in such a manner in the future. We have not requested and do not intend to request a ruling from the Internal Revenue Service (the “Service”) that we qualify as a REIT, and the statements in this report are not binding on the Service or any court. Qualification as a REIT involves the application of highly technical and complex Code provisions and regulations promulgated by the U.S. Treasury Department thereunder (“Treasury Regulations”) for which there are limited judicial and administrative interpretations. Accordingly, we cannot provide assurance that we will qualify or remain qualified as a REIT. To qualify as a REIT, we must meet, on an ongoing basis, various tests regarding the nature and diversification of our assets and our income, the ownership of our outstanding stock, and the amount of our distributions to stockholders. Our ability to satisfy these asset tests depends upon the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to manage successfully the composition of our income and assets on an ongoing basis. Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT. Thus, while we intend to operate in a manner to qualify as a REIT, in view of the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, we cannot provide assurance that we will so qualify for any particular year. These considerations also might restrict the types of income we can realize, or assets that we can acquire in the future. If we fail to qualify as a REIT in any taxable year, and we do not qualify for certain statutory relief provisions, we would be required to pay U.S. federal income tax, including any applicable alternative minimum tax (for taxable years beginning before December 31, 2017), on our taxable income at regular corporate rates (and possibly increased state and local taxes. We will not be able to deduct distributions to our stockholders in any year in which we fail to qualify, nor will we be required to make distributions to our stockholders. In such a case, we might need to borrow money, sell assets, or reduce or even cease making distributions in order to pay our taxes. Our payment of income tax would reduce significantly the amount of cash available for distribution to our stockholders. If we fail to qualify as a REIT, all 46 Table of Contents distributions to stockholders, to the extent of current and accumulated earnings and profits, will be taxable to the stockholders as dividend income (which may be subject to tax at preferential rates) and corporate distributions may be eligible for the dividends received deduction if they satisfy the relevant provisions of the Code. Furthermore, if we fail to qualify as a REIT, we no longer would be required to distribute substantially all of our net taxable income to our stockholders. In addition, unless we were eligible for certain statutory relief provisions, we could not re-elect to qualify as a REIT until the fifth calendar year following the year in which we failed to qualify. We might not be entitled to the statutory relief described in this paragraph in all circumstances. The REIT distribution requirements could adversely affect our ability to execute our business plan, require us to borrow funds during unfavorable market conditions or subject us to tax, which would reduce the cash available for distribution to our stockholders. To qualify as a REIT, we must distribute to our stockholders, on an annual basis, at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain. In addition, we will be subject to U.S. federal income tax at regular corporate rates to the extent that we distribute less than 100% of our net taxable income (including net capital gain) and will be subject to a 4% nondeductible excise tax on the amount by which our distributions in any calendar year are less than a minimum amount specified under U.S. federal income tax laws. We intend to distribute our net income to our stockholders in a manner intended to satisfy the REIT 90% distribution requirement and to avoid U.S. federal income tax and the 4% nondeductible excise tax. However, we can provide no assurances that we will have sufficient cash or other liquid assets to meet these requirements. Difficulties in meeting the distribution requirements might arise due to competing demands for available funds or timing differences between tax reporting and cash receipts. In addition, if the Service were to disallow certain of our deductions, such as employee salaries, depreciation or interest expense, by alleging that we, through our rental agreements with our state-licensed medical cannabis tenants, are primarily or vicariously liable for “trafficking” a Schedule 1 substance (cannabis) under Section 280E of the Code or otherwise, we would be unable to meet the distribution requirements and would fail to qualify as a REIT. Likewise, if any governmental entity were to impose fines on us for our business involvement in state-licensed medical-use cannabis, such fines would not be deductible and the inability to deduct such fines could also cause us to be unable to satisfy the distribution requirement. We may also generate less cash flow than taxable income in a particular year. In such event, we may be required to use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable or, to the extent possible, make a taxable distribution of our stock in order to satisfy the REIT 90% distribution requirement and to avoid U.S. federal income tax and the 4% nondeductible excise tax in that year. Under certain circumstances, we may be able to rectify a failure to meet the distribution requirement for a year by paying “deficiency dividends” to stockholders in a later year, which may be included in our deduction for dividends paid for the earlier year. Thus, we may be able to avoid being taxed on amounts distributed as deficiency dividends; however, we will be required to pay penalties and interest based upon the amount of any deduction taken for deficiency dividends. If we do not have sufficient cash to distribute, we may incur U.S. federal income tax, U.S. federal excise tax and/or our REIT status may be jeopardized. If we are deemed to be subject to Section 280E of the Code because of the business activities of our tenants, the resulting disallowance of tax deductions could cause us to incur U.S. federal income tax and jeopardize our REIT status. Section 280E of the Code provides that, with respect to any taxpayer, no deduction or credit is allowed for expenses incurred during a taxable year “in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the CSA) which is prohibited by federal law or the law of any State in which such trade or business is conducted.” Because cannabis is a Schedule I controlled substance under the CSA, Section 280E by its terms applies to the purchase and sale of medical-use cannabis products. Although we will not be engaged in the purchase, sale, growth, cultivation, harvesting, or processing of medical-use cannabis products, we will lease our properties to tenants who will engage in such activities, and therefore our tenants will likely be subject to Section 280E. If the Service were to take the position that, through our rental agreements with our state-licensed medical-use cannabis tenants, we are primarily or vicariously liable under federal law for “trafficking” a Schedule 1 substance (cannabis) under section 280E of the Code or for any other violations of the CSA, the Service may seek to apply the provisions of Section 280E to our company and disallow 47 Table of Contents certain tax deductions, including for employee salaries, depreciation or interest expense. If such tax deductions are disallowed, we would be unable to meet the distribution requirements applicable to REITs under the Code, which could cause us to incur U.S. federal income tax and fail to qualify as a REIT. Because we are not engaged in the purchase and/or sale of a controlled substance, we do not believe that we will be subject to the disallowance provisions of Section 280E, and neither we nor our tax advisors are aware of any tax court cases or guidance from the Service in which a taxpayer not engaged in the purchase or sale of a controlled substance was disallowed deductions under Section 280E. However, there is no assurance that the Service will not take such a position either currently or in the future. Complying with REIT requirements may cause us to forego otherwise attractive business opportunities or liquidate otherwise attractive investments. To qualify as a REIT, we must ensure that we meet the REIT gross income tests annually. In addition, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our total assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans, certain kinds of mortgage-backed securities and certain securities issued by other REITs. The remainder of our investment in securities (other than government securities, securities of corporations that are treated as taxable REIT subsidiaries (“TRSs”), and qualified REIT real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, no more than 20% of the value of our total securities can be represented by securities of one or more TRSs, and the aggregate value of debt instruments issued by public REITs held by us that are not otherwise secured by real property may not exceed 25% of the value of our total assets. If we fail to comply with these asset requirements at the end of any calendar quarter, we generally must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. To meet these tests, we may be required to take or forgo taking actions that we would otherwise consider advantageous. For instance, in order to satisfy the gross income or asset tests applicable to REITs under the Code, we may be required to forego investments that we otherwise would make. Furthermore, we may be required to liquidate from our portfolio otherwise attractive investments. In addition, we may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders. Thus, compliance with the REIT requirements may hinder our investment performance. The tax on prohibited transactions could limit our ability to engage in certain transactions or subject us to a 100% penalty tax. We are subject to a 100% tax on any income from a prohibited transaction. “Prohibited transactions” generally include sales or other dispositions of property (other than property treated as foreclosure property under the Code) that is held as inventory or primarily for sale to customers in the ordinary course of a trade or business by a REIT, either directly or indirectly through certain pass-through subsidiaries. Although we do not intend to hold a significant amount of assets as inventory or primarily for sale to customers in the ordinary course of our business, the characterization of an asset sale as a prohibited transaction depends on the particular facts and circumstances. The Code provides a safe harbor that, if met, allows a REIT to avoid being treated as engaged in a prohibited transaction. It is likely that we may sell certain properties that have not met all of the requirements of such safe harbor if we believe the transaction would not be a prohibited transaction based on a facts and circumstances analysis. If the Service were to successfully argue that such a sale was in fact a prohibited transaction, we would be subject to a 100% penalty tax with respect to such sale. 48 Table of Contents The ability of our board of directors to revoke our REIT election without stockholder approval may cause adverse consequences to our stockholders. Our charter provides that the board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if the board of directors determines that it is no longer in our best interest to attempt to, or continue to, qualify as a REIT. If we cease to qualify as a REIT, we would become subject to U.S. federal income tax on our net taxable income and we generally would no longer be required to distribute any of our net taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders. Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations, which could adversely affect the value of our common stock. The maximum U.S. federal income tax rate for certain qualified dividends payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends (other than capital gain dividends) payable by REITs, however, generally are not eligible for the reduced rates. Although the reduced U.S. federal income tax rate applicable to dividend income from regular corporate dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of our common stock. Non-corporate stockholders, including individuals, generally may deduct 20% of dividends from a REIT, other than capital gain dividends and dividends treated as qualified dividend income, for taxable years beginning after December 31, 2017 and before January 1, 2026. If we fail to qualify as a REIT, such stockholders may not claim this deduction with respect to dividends paid by us. Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities. The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets, if properly identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a TRS generally will not provide any tax benefit, except for being carried forward against future taxable income of such TRS, provided, however, losses in a TRS arising in taxable years beginning after December 31, 2017 may only be deducted against 80% of future taxable income in the TRS. Re-characterization of sale-leaseback transactions may cause us to lose our REIT status. We purchase many properties and lease them back to the sellers of such properties. While we will use our best efforts to structure any such sale-leaseback transaction so that the lease will be characterized as a “true lease,” thereby allowing us to be treated as the owner of the property for federal income tax purposes, the Service could challenge such characterization. In the event that any sale-leaseback transaction is challenged and re-characterized as a financing transaction or loan for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale- leaseback transaction were so re-characterized, we might fail to satisfy the REIT qualification “asset tests” or the “income tests” and, consequently, lose our REIT status effective with the year of re-characterization. Alternatively, the amount of our REIT taxable income could be recalculated which might also cause us to fail to meet the distribution requirement for a taxable year. 49 Table of Contents Non-U.S. stockholders will generally be subject to withholding tax with respect to our ordinary dividends. Non-U.S. stockholders generally will be subject to U.S. federal withholding tax on ordinary dividends received from us at a 30% rate, subject to reduction under an applicable treaty or a statutory exemption under the Code. Legislative, regulatory or administrative changes could adversely affect us or our stockholders. At any time, the U.S. federal income tax laws or Treasury Regulations governing REITs or the administrative interpretations of those laws or regulations may be changed, possibly with retroactive effect, and may adversely affect us and our stockholders. We cannot predict if or when any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective or whether any such law, regulation or interpretation may take effect retroactively. It remains unclear what impact the rescission of the Cole Memo may have on our ability to qualify as a REIT. If rescission of the Cole Memo is followed by strict enforcement of federal prohibitions regarding cannabis, the Service could seek to apply the provisions of Section 280E of the Code to our company. Section 280E of the Code provides that, with respect to any taxpayer, no deduction or credit is allowed for expenses incurred during a taxable year “in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the CSA) which is prohibited by federal law or the law of any State in which such trade or business is conducted.” Because cannabis is a Schedule I controlled substance under the CSA, Section 280E of the Code by its terms applies to the purchase and sale of medical-use cannabis products. If the Service were to take the position that, through our rental agreements with our state-licensed medical-use cannabis tenants, we are primarily or vicariously liable under federal law for “trafficking” a Schedule 1 substance (cannabis) under Section 280E of the Code or for any other violations of the CSA, the Service may apply the provisions of Section 280E of the Code to our company and disallow certain tax deductions, including for employee salaries, depreciation or interest expense. If such tax deductions are disallowed, we would be unable to meet the distribution requirements applicable to REITs under the Code, which could cause us to incur U.S. federal income tax and fail to qualify as a REIT. In addition, tax legislation originally introduced as the Tax Cuts and Jobs Act and signed into law in December 2017 (the “TCJA”) makes numerous changes to the tax rules that do not affect the REIT qualification rules directly, but may otherwise affect us or our stockholders. Among the changes made by the TCJA are permanently reducing the generally applicable corporate tax rate, generally reducing the tax rate applicable to individuals and other non-corporate taxpayers for tax years beginning after December 31, 2017 and before January 1, 2026, eliminating or modifying certain previously allowed deductions (including substantially limiting interest deductibility and, for individuals, the deduction for non-business state and local taxes), and, for taxable years beginning after December 31, 2017 and before January 1, 2026, providing for preferential rates of taxation through a deduction of up to 20% (subject to certain limitations) on most ordinary REIT dividends and certain trade or business income of non-corporate taxpayers. The TCJA also imposes new limitations on the deduction of net operating losses, which may result in us having to make additional taxable distributions to our stockholders in order to comply with REIT distribution requirements or avoid taxes on retained income and gains. The effect of the significant changes made by the TCJA is highly uncertain, and administrative guidance will be required in order to fully evaluate the effect of many provisions. The effect of any technical corrections with respect to the TCJA could have an adverse effect on us or our stockholders. Risks Related to General and Other Factors We are dependent on our key personnel for our success. We depend upon the efforts, experience, diligence, skill and network of business contacts of our senior management team, and our success will depend on their continued service. The departure of any of our executive officers or key personnel could have a material adverse effect on our business. If any of our key personnel were to cease their employment, our operating results could suffer. Further, we do not intend to maintain key person life insurance that would provide us with proceeds in the event of death or disability of any of our key personnel. 50 Table of Contents We believe our future success depends upon our senior management team’s ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such skilled personnel. If we lose or are unable to obtain the services of key personnel, our ability to implement our investment strategies could be delayed or hindered, and the value of our common stock may decline. Furthermore, we may retain independent contractors to provide various services for us, including administrative services, transfer agent services and professional services. Such contractors have no fiduciary duty to us and may not perform as expected or desired. The occurrence of cyber incidents or cyberattacks could disrupt our operations, result in the loss of confidential information and/or damage our business relationships and reputation. We rely on technology to run our business, and as such we are subject to risk from cyber incidents, including cyberattacks attempting to gain unauthorized access to our systems to disrupt operations, corrupt data or steal confidential information, and other electronic security breaches. While we have implemented measures to help mitigate these threats, such measures cannot guarantee that we will be successful in preventing a cyber incident. The occurrence of a cyber incident or cyberattack could disrupt our operations, compromise the confidential information of our employees or tenants, and/or damage our business relationships and reputation. Contingent or unknown liabilities could materially and adversely affect our business, financial condition, liquidity and results of operations. We acquired our properties and may in the future acquire properties, subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a claim were asserted against us based on ownership of any of these properties, we may have to pay substantial amounts to defend or settle the claim. If the magnitude of such unknown liabilities is high, individually or in the aggregate, our business, financial condition, liquidity and results of operations would be materially and adversely affected. We cannot predict every event and circumstance that may affect our business, and therefore, the risks and uncertainties discussed herein may not be the only ones you should consider. We are not aware of any other publicly-traded REIT that focuses on the acquisition, ownership and management of medical-use cannabis facilities. Therefore, we may encounter risks of which we are not aware at this time, which could have a material adverse impact on our business. ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. 51 Table of Contents ITEM 2. PROPERTIES As of December 31, 2020, we owned the following 66 properties, which were 99.3% leased (based on square footage) with a weighted-average remaining lease term of approximately 16.6 years: Market Closing Date Rentable Square Feet(1) Property Pharm AZ Pharm AZ Retail Sacramento CA Kings Garden CA Portfolio Esperanza CA Vertical CA Portfolio Columbia Care CO LivWell CO Retail Portfolio Trulieve FL Parallel FL Portfolio Ascend IL Cresco IL Portfolio Curaleaf IL PharmaCann IL GTI IL Holistic MD PharmaCann MA Holistic MA Trulieve MA Ascend MA Cresco MA 4Front MA Green Peak MI Emerald Growth MI Ascend MI LivWell MI Green Peak MI Retail Portfolio Cresco MI Holistic MI Vireo MN MJardin NV Curaleaf NJ Columbia Care NJ Portfolio PharmaCann NY Vireo NY Curaleaf ND PharmaCann OH Vireo OH Cresco OH GTI OH Jushi PA Maitri PA Green Leaf PA PharmaCann PA GTI PA Curaleaf PA Holistic PA Green Leaf VA 4Front WA Total Arizona Arizona California California California California Colorado Colorado Florida Florida Illinois Illinois Illinois Illinois Illinois Maryland Massachusetts Massachusetts Massachusetts December 15, 2017 September 19, 2019 February 8, 2019 Various July 23, 2019 Various October 30, 2018 Various October 23, 2019 Various December 21, 2018 October 22, 2019 October 30, 2019 October 30, 2019 March 6, 2020 May 26, 2017 May 31, 2018 July 12, 2018 July 26, 2019 Massachusetts April 2, 2020 Massachusetts Massachusetts Michigan Michigan Michigan June 30, 2020 December 17, 2020 August 2, 2018 June 7, 2019 July 2, 2019 Michigan Michigan Michigan Michigan Minnesota Nevada New Jersey New Jersey October 9, 2019 Various April 22, 2020 September 1, 2020 November 8, 2017 July 12, 2019 July 13, 2020 July 16, 2020 New York December 19, 2016 New York October 23, 2017 North Dakota Ohio Ohio Ohio Ohio Pennsylvania Pennsylvania Pennsylvania Pennsylvania Pennsylvania December 20, 2019 March 13, 2019 May 14, 2019 January 24, 2020 January 31, 2020 April 6, 2018 April 24, 2019 May 20, 2019 August 9, 2019 November 12, 2019 Pennsylvania December 20, 2019 Pennsylvania Virginia Washington June 10, 2020 January 15, 2020 December 17, 2020 $ Investment(2) (In thousands) 20,000 2,500 12,710 69,972 (3) 13,000 (4) 17,300 (5) 11,250 (6) 3,349 (7) 17,000 60,308 (8) 41,891 (9) 45,454 (10) 23,300 (11) 27,426 (12) 35,833 (13) (14) (15) 21,721 30,500 14,750 43,500 33,775 (16) (17) 8,904 15,500 15,799 10,000 19,750 41,500 (18) 11,784 (19) 10,510 (20) (21) 7,904 9,710 9,489 (22) 18,940 (23) 13,033 (24) 30,000 (25) 6,717 (26) (27) 12,190 20,000 3,550 10,600 (28) 9,566 (29) 13,381 (30) 21,402 (31) 13,592 (32) (33) 25,730 39,600 25,749 (34) 358,000 2,000 43,000 364,000 35,000 79,000 58,000 8,000 120,000 593,000 165,000 90,000 120,000 66,000 231,000 72,000 58,000 55,000 150,000 199,000 118,000 67,000 56,000 45,000 145,000 156,000 31,000 115,000 63,000 89,000 43,000 111,000 54,000 127,000 40,000 33,000 58,000 11,000 50,000 101,000 89,000 51,000 266,000 54,000 148,000 72,000 108,000 82,000 114,000 5,363,000 $ (35) 15,007 19,750 17,500 1,022,696 (1) (2) Includes estimated rentable square feet at completion of construction. Includes purchase price and development and tenant reimbursement commitments funded, if any. Excludes transaction costs and development and tenant reimbursement commitments not funded as of December 31, 2020. (3) Portfolio consists of four properties acquired on April 16, 2019, one property acquired on May 12, 2020 and one property acquired on November 16, 2020. Excludes available tenant improvement allowance of $25.0 million. 52 Table of Contents (4) In January 2020, the tenant defaulted on its obligations to pay rent to us pursuant to our lease. As of December 31, 2020, this tenant was in receivership and in ongoing default of its rent obligations. In January 2021, the property was leased to a new tenant. (5) Portfolio consists of three properties acquired on August 29, 2019 and one property acquired on September 11, 2019. In November and December 2020, affiliates of Medical Investor Holdings LLC (“Vertical”) made partial payments of contractual rent due and approximately $424,000 of security deposits were applied to the payment of rent and associated lease penalties. (6) Columbia Care, Inc. acquired The Green Solution during 2020. (7) Portfolio consists of one property acquired on February 19, 2020 and one property acquired on February 21, 2020. Excludes remaining tenant improvement allowance of approximately $801,000. (8) Portfolio consists of one property acquired on March 11, 2020 and one property acquired on September 18, 2020. Excludes remaining aggregate tenant improvement allowances of approximately $39.6 million. (9) Excludes remaining tenant improvement allowance of approximately $9.1 million. (10) Portfolio consists of two properties and excludes remaining tenant improvement allowance of approximately $1.1 million. (11) Curaleaf Holdings, Inc. (“Curaleaf”) acquired GR Companies, Inc. (“Grassroots”) during 2020. Excludes remaining tenant improvement allowance of approximately $5.8 million. (12) Excludes remaining tenant improvement allowance of approximately $574,000. (13) Excludes remaining tenant improvement allowance of approximately $14.2 million. (14) Excludes remaining tenant improvement allowance of approximately $679,000. (15) Excludes remaining tenant improvement allowance of $3.0 million. (16) Excludes remaining tenant improvement allowance of approximately $15.2 million. (17) Excludes remaining tenant improvement allowance of approximately $19.8 million. (18) Excludes remaining tenant improvement allowance of $500,000. (19) Portfolio consists of one property acquired on October 25, 2019, three properties acquired on November 4, 2019, one property acquired on November 8, 2019 and one property acquired on November 25, 2019. Excludes remaining tenant improvement allowance of approximately $28,000. (20) Excludes remaining tenant improvement allowance of approximately $21.5 million. (21) Excludes remaining tenant improvement allowance of approximately $17.1 million. (22) Excludes remaining tenant improvement allowance of approximately $111,000. (23) Excludes remaining tenant improvement allowance of approximately $16.1 million. (24) Portfolio consists of two properties. Excludes remaining tenant improvement allowance of approximately $952,000. (25) Excludes available tenant improvement allowance of $31.0 million. (26) Excludes remaining tenant improvement allowance of approximately $43,000. (27) Curaleaf acquired Grassroots during 2020. (28) Excludes available tenant improvement allowance of approximately $2.9 million. (29) Excludes remaining tenant improvement allowance of approximately $22.6 million. (30) Vireo Health, Inc. transferred its ownership in the subsidiary tenant at the property to Jushi Holdings Inc. Excludes remaining tenant improvement allowance of approximately $2.4 million. (31) Excludes remaining tenant improvement allowance of approximately $848,000. (32) Excludes remaining tenant improvement allowance available of approximately $29.4 million. (33) Excludes remaining construction funding of approximately $2.3 million. (34) Curaleaf acquired Grassroots during 2020. Excludes remaining tenant improvement allowance of approximately $891,000. (35) Excludes remaining tenant improvement allowance of approximately $4.2 million. See Item 1., “Business — Our Properties,” for more information about our properties. ITEM 3. LEGAL PROCEEDINGS We may, from time to time, be a party to legal proceedings, which arise in the ordinary course of our business. We are not aware of any pending or threatened litigation that, if resolved against us, would have a material adverse effect on our consolidated financial position, results of operations or cash flows. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 53 Table of Contents PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the NYSE under the symbol “IIPR.” As of February 25, 2021, there were 17 holders of record of our common shares. This number excludes our common shares owned by stockholders holding under nominee security position listings. We have elected to be treated as a REIT for U.S. federal income tax purposes. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain (which does not equal net income as calculated in accordance with GAAP), 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. To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax, we intend to make quarterly distributions of all or substantially all of our taxable income to holders of our common stock out of assets legally available therefor. However, we cannot assure you that distributions will be made or sustained. Any distributions we make will be at the direction of our board of directors and will depend upon a number of factors, including our actual results of operations, economic conditions, maintenance of REIT qualification and the applicable provisions of the MGCL and such other factors as our board may determine in its sole discretion. Our organizational documents permit us to make distributions from any source. If our cash available for distribution is insufficient to cover our distributions, we expect to use the proceeds from the issuance of securities, the proceeds from borrowings or other sources to pay distributions. During our initial years of operation, we expect that a portion of our distributions declared may be paid from offering proceeds, which would constitute a return of capital to our stockholders. We anticipate that our distributions generally will be taxable as ordinary income to our stockholders, although a portion of the distributions may be designated by us as qualified dividend income or capital gain or may constitute a return of capital. We will furnish annually to each of our stockholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain. There were no unregistered sales of equity securities during the quarter ended December 31, 2020. Information about our equity compensation plans and other related stockholder matters is incorporated by reference in Item 12 of Part III of this annual report on Form 10-K. 54 Table of Contents Stock Performance Graph The following graph shows a comparison from December 1, 2016 (the date that our common stock first began trading on the NYSE) to December 31, 2020 of cumulative total stockholder return, calculated on a dividends reinvested basis, for Innovative Industrial Properties, Inc., the S&P 500 Stock Index, or the S&P 500, and the FTSE NAREIT All Equity REITs Index, which includes all tax-qualified equity REITs listed in the United States. Note that historic stock price performance is not necessarily indicative of future stock price performance. The stock performance graph should not be deemed filed or incorporated by reference into any other filing made by us under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate the stock performance graph by reference in another filing. Source: SNL Financial 55 Table of Contents ITEM 6. SELECTED FINANCIAL DATA The following tables set forth our selected consolidated financial and operating data on a historical basis. The following data should be read in conjunction with our financial statements and notes thereto and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. As of and for the years ended December 31, 2020 2019 2017 (dollars in thousands, except per share data) 2018 As of and for the period from June 15, 2016 (date of incorporation) through December 31, 2016 Statements of Operations: Total revenues Income / (loss) from operations Net income / (loss) Preferred stock dividends Net income / (loss) attributable to common stockholders Net income / (loss) attributable to common stockholders per share - basic Net income / (loss) attributable to common stockholders per share - diluted Cash dividends declared per common share Cash dividends declared per preferred share Balance Sheet Data (at period end): Total assets Exchangeable senior notes, net Total liabilities Total equity Other Data: Cash flows provided by / (used in): Operating activities Investing activities Financing activities $ $ $ $ $ $ 116,896 69,737 65,730 (1,352) $ $ 44,667 24,935 23,475 (1,352) 14,787 5,338 6,985 (1,352) $ 6,420 (223) (72) (323) 267 (4,446) (4,392) — 64,378 22,123 5,633 (395) (4,392) 3.28 3.27 4.47 2.25 $ $ $ $ 2.06 2.03 2.83 2.25 $ $ $ $ 0.76 $ (0.13) $ (4.56) 0.75 1.20 2.25 (0.13) $ $ $ $ 0.55 $ $ 0.5375 (4.56) — — $ 1,768,081 136,693 243,109 1,524,972 $ 745,857 134,654 197,847 548,010 $ 281,466 — 17,174 264,292 $ 80,028 $ — 6,479 73,549 63,327 — 2,888 60,439 $ 110,814 (1,027,115) 924,991 $ 44,934 (340,630) 399,962 $ 15,693 (199,255) 184,854 $ 5,015 (38,645) 12,385 $ 1,693 (30,032) 61,342 56 Table of Contents ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. We make statements in this section that are forward-looking statements within the meaning of the federal securities laws. For a complete discussion of forward-looking statements, see the section above entitled “Cautionary Statement Regarding Forward-Looking Statements.” Certain risk factors may cause our actual results, performance or achievements to differ materially from those expressed or implied by the following discussion. For a discussion of such risk factors, see Item 1A, “Risk Factors.” Overview We are an internally-managed REIT focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated medical-use 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. 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. As of December 31, 2020, we had 15 full-time employees. As of December 31, 2020, we owned 66 properties that were 99.3% leased (based on square footage) to state- licensed cannabis operators and comprising an aggregate of approximately 5.4 million rentable square feet (including approximately 2.0 million rentable square feet under development/redevelopment) in 17 states, with a weighted-average remaining lease term of approximately 16.6 years. As of December 31, 2020, we had invested an aggregate of approximately $1.0 billion (consisting of purchase price and development and tenant reimbursement commitments funded, if any, but excluding transaction costs) and had committed an additional approximately $287.8 million to reimburse certain tenants and sellers for completion of construction and tenant improvements at our properties. These statistics treat our Los Angeles, California property as not leased, due to the tenant being in receivership and its ongoing default in its obligation to pay rent at that location as of December 31, 2020. Factors Impacting Our Operating Results Our results of operations are affected by a number of factors and depend on the rental revenue we receive from the properties that we acquire, the timing of lease expirations, general market conditions, the regulatory environment in the medical-use cannabis industry, and the competitive environment for real estate assets that support the regulated medical-use cannabis industry. Rental Revenues We receive income primarily from rental revenue generated by the properties that we acquire. The amount of rental revenue 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 current and future 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 medical-use cannabis industry. Changes in 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. 57 Table of Contents Conditions in Our Markets Positive or negative changes in regulatory, economic or other conditions and natural disasters in the markets where we acquire properties may affect our overall financial performance. 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 and other real estate investors, hard money lenders, as well as would-be tenants, cannabis operators themselves, all of whom may compete with us in our efforts to acquire real estate zoned for cannabis cultivation and production 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, legal, accounting, and other expenses related to corporate governance, public reporting and compliance with the various provisions of U.S. securities laws. We generally expect to structure our leases so that the tenant is responsible for real estate 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. 58 Table of Contents Results of Operations Investments See Note 6 in the notes to the consolidated financial statements for information regarding our investments in real estate and property portfolio activity during the year ended December 31, 2020. Comparison of the Years Ended December 31, 2020, 2019 and 2018 (in thousands) Revenues: Rental (excluding tenant reimbursements) Tenant reimbursements Total revenues Expenses: Property expenses General and administrative expense Depreciation expense Total expenses Income from operations Interest and other income Interest expense Net income Preferred stock dividends Net income attributable to common stockholders Revenues Years Ended December 31, 2019 2020 2018 Increase / (Decrease) 2019 vs. 2020 vs. 2018 2019 $ 112,255 4,641 116,896 $ 43,352 1,315 44,667 $ 14,342 445 14,787 $ 68,903 3,326 72,229 $ 29,010 870 29,880 4,952 14,182 28,025 47,159 69,737 3,424 (7,431) 65,730 (1,352) $ 64,378 1,315 9,818 8,599 19,732 24,935 4,846 (6,306) 23,475 (1,352) $ 22,123 445 6,375 2,629 9,449 5,338 1,647 3,637 4,364 19,426 27,427 44,802 (1,422) — (1,125) 42,255 6,985 (1,352) $ 5,633 — $ 42,255 870 3,443 5,970 10,283 19,597 3,199 (6,306) 16,490 — $ 16,490 Rental (excluding tenant reimbursements). Rental revenues for the year ended December 31, 2020 increased by approximately $68.9 million, or 159%, to approximately $112.3 million, compared to approximately $43.4 million for the year ended December 31, 2019. The increase in rental revenue was attributable to: ● The 20 properties we acquired in 2020 which generated approximately $25.6 million of rental revenue in 2020; ● The 35 properties we acquired in 2019 which generated approximately $54.5 million of rental revenue in 2020, including related rents on the amendments which increased the tenant improvement allowances on eight of the leases, compared to approximately $15.7 million in 2019, an increase of approximately $38.8 million; and ● The amendments to increase the tenant improvement allowances of seven properties we acquired prior to 2019 and the annual rent escalations on the eleven properties we acquired prior to 2019, which collectively resulted in approximately $4.5 million in additional rental revenue during the year ended December 31, 2020. Rental revenues for the year ended December 31, 2020 included approximately $379,000 of rent and associated lease penalties received through the drawdown of the security deposit at our Los Angeles, California property where the tenant was in receivership and defaulted on its lease obligations commencing in January 2020; and approximately $424,000 of rent received through the drawdown of security deposits at our properties leased to Vertical in southern California, in which Vertical made partial payments of contractual rent due. Rental revenues for the year ended December 31, 2020 also included drawdown of part of the security deposits totaling approximately $940,000 at certain properties leased to three tenants to pay part of the rent and associated lease penalties in accordance with the rent deferral programs described in Note 6 in the notes to the consolidated financial statements. 59 Table of Contents Rental revenues for the year ended December 31, 2019 increased by approximately $29.0 million, or 202%, to approximately $43.4 million, compared to approximately $14.3 million for the year ended December 31, 2018. The increase in rental revenue was attributable to: ● The 35 properties we acquired 2019 which generated approximately $15.7 million of rental revenue in 2019; ● The six properties we acquired in 2018 which generated approximately $14.7 million of rental revenue in 2019, including related rents on the amendments which increased the tenant improvement allowances on five of the leases, compared to approximately $2.8 million in 2018, an increase of approximately $11.9 million; and ● The amendments to increase the tenant improvement allowances of two properties we acquired prior to 2018 and the annual rent escalations on the five properties we acquired prior to 2018 which resulted in approximately $1.4 million in additional rental revenue during the year ended December 31, 2019. Tenant Reimbursements. Tenant reimbursements related to reimbursements by tenants for property insurance premiums and real estate taxes paid at certain properties. Tenant reimbursements for the year ended December 31, 2020 included approximately $43,000 of reimbursements received through the drawdown of the remaining security deposit at our Los Angeles, California property. The increase in tenant reimbursements for each year primarily related to the additional properties that we acquired over the years. Expenses Property Expenses. Property expenses related to property insurance premiums and real estate taxes paid at certain of our properties, which are reimbursable by the tenants in accordance with the leases. The increase in property expenses for each year primarily related to the additional properties that we acquired over the three years. General and Administrative Expense. General and administrative expense for the year ended December 31, 2020 increased by approximately $4.4 million, or 44%, to approximately $14.2 million, compared to $9.8 million for the year ended December 31, 2019. The increase in general and administrative expense was primarily due to higher compensation to employees, the hiring of additional employees and higher public company, travel and occupancy costs. General and administrative expense for the year ended December 31, 2019 increased by approximately $3.4 million, or 54%, to approximately $9.8 million, compared to $6.4 million for the year ended December 31, 2018. The increase in general and administrative expense was primarily due to higher compensation to employees, the hiring of additional employees and higher public company, travel and occupancy costs. Compensation expense for the years ended December 31, 2020, 2019 and 2018 included approximately $3.3 million, $2.5 million and $1.5 million, respectively, of non-cash stock-based compensation. Depreciation Expense. The increase in depreciation expense for each year was related to depreciation on properties that we acquired in the respective current and prior years, and the placement into service of tenant improvements and construction funding at certain of our properties. Interest and Other Income. Interest and other income primarily related to interest earned on our short-term investments and cash and cash equivalents. The decrease in interest and other income for the year ended December 31, 2020 compared to 2019 was due to lower rates earned on interest bearing investments and cash balances. The increase in interest and other income for the year ended December 31, 2019 compared to 2018 was due to amortization of discounts on short-term investments and higher interest bearing investment and cash balances. Interest Expense. Interest expense related to our Exchangeable Senior Notes issued in February 2019. Preferred Stock Dividends. Preferred stock dividends related to dividends for our Series A Preferred Stock, which we issued in October 2017. 60 Table of Contents Cash Flows The following summary discussion of our cash flows is based on the consolidated statements of cash flows in Item 8, “Financial Statements and Supplementary Data” and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below (in thousands): Net cash provided by operating activities Net cash used in investing activities Net cash provided by financing activities Ending cash, cash equivalents and restricted cash $ 2020 110,814 (1,027,115) 924,991 126,006 Years Ended December 31, 2019 $ 44,934 (340,630) 399,962 117,316 2018 $ 15,693 (199,255) 184,854 13,050 Cash flows provided by operating activities for the years ended December 31, 2020, 2019 and 2018 were approximately $110.8 million, $44.9 million and $15.7 million, respectively. Cash flows provided by operating activities primarily related to contractual rent and security deposits from our properties, partially offset by general and administrative expenses. Cash flows provided by operating activities increased from 2018 to 2019 and from 2019 to 2020 primarily due to leases for properties we acquired during these time periods, annual escalations of base rent on our leases, and amendments to existing leases to increase tenant improvement allowances at those properties, which resulted in a corresponding increase in base rents, partially offset by higher cash compensation to employees and higher public company, travel and occupancy costs. Cash flows used in investing activities for the years ended December 31, 2020, 2019 and 2018 were approximately $1.0 billion, $340.6 million and $199.3 million, respectively. Cash flows used in investing activities increased from 2018 to 2019 and from 2019 to 2020 primarily related to the purchases of new properties and additional funding of tenant improvement allowances, construction funding and net purchases and maturities of short-term investments. Cash flows provided by financing activities for the year ended December 31, 2020 were approximately $925.0 million, primarily related to approximately $1.0 billion in net proceeds from our follow-on public offerings of common stock completed in January, May and July 2020 and sales of common stock during 2020 under our ATM Program, partially offset by approximately $76.8 million in dividend payments to holders of our common stock and Series A Preferred Stock and approximately $2.2 million in withholding taxes paid by us related to net share settlement of restricted stock awards that vested for certain employees. Cash flows provided by financing activities for the year ended December 31, 2019 were approximately $400.0 million, primarily related to approximately $286.3 million in net proceeds from our follow-on public offering of common stock completed in July 2019 and sales of common stock during 2019 under our ATM Program, and approximately $138.5 million in net proceeds from the issuance of our Exchangeable Senior Notes in February 2019, partially offset by approximately $23.9 million in dividend payments to holders of our common stock and Series A Preferred Stock and approximately $939,000 in withholding taxes paid by us related to net share settlement of restricted stock awards that vested for certain employees. Cash flows provided by financing activities for the year ended December 31, 2018 were approximately $184.9 million, primarily related to approximately $193.2 million in net proceeds from our follow-on public offerings of common stock completed in January and October 2018, partially offset by approximately $7.9 million in dividend payments to holders of our common stock and Series A Preferred Stock and approximately $390,000 in withholding taxes paid by us related to net share settlement of restricted stock awards that vested 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 meet other general business needs. 61 Table of Contents Sources and Uses of Cash We derive all of our revenues from the leasing of our properties, collecting rental income and operating expense reimbursements based on contractual arrangements with our tenants. This source of revenue represents our primary source of liquidity to fund our dividends, Exchangeable Senior Notes interest payments, 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. 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 January 2020, we issued 3,412,969 shares of common stock, including the exercise in full of the underwriters’ option to purchase an additional 445,170 shares, resulting in net proceeds of approximately $239.6 million. In May 2020, we issued 1,550,648 shares of common stock, including the exercise in full of the underwriter’s option to purchase an additional 202,259 shares, resulting in net proceeds of approximately $114.9 million. In July 2020, we issued 3,085,867 shares of common stock, including the exercise in full of the underwriters’ option to purchase an additional 402,504 shares, resulting in net proceeds of approximately $248.2 million. In September 2019, we entered into equity distribution agreements with three sales agents, pursuant to which we were able to offer and sell from time to time through an “at-the-market” offering program (the “Prior ATM Program”) up to $250.0 million in shares of our common stock. During the year ended December 31, 2020, we sold 1,499,382 shares of our common stock at a weighted-average sales price of $94.23 per share for net proceeds of approximately $138.4 million under the Prior ATM Program, which includes the payment of approximately $2.8 million to one sales agent as commission for such sales. In November 2020, we terminated the Prior ATM Program and entered into new 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 (the “New ATM Program”) up to $500.0 million in shares of our common stock. During the year ended December 31, 2020, we sold 1,762,500 shares of our common stock at a weighted-average sales price of $152.25 per share for net proceeds of approximately $262.9 million under the New ATM Program, which includes the payment of approximately $5.4 million to one sales agent as commission for such sales. As of December 31, 2020, we had approximately $231.7 million in shares of common stock available for issuance under the New ATM Program. We expect to meet our liquidity needs through cash and short-term investments on hand, cash flows from operations and cash flows 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 its 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. 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. During 2020, we declared cash dividends on our common stock totaling $4.47 per share, and cash dividends on our Series A Preferred Stock totaling $2.25 per share. Our ability to continue to pay dividends is dependent upon our ability to continue to generate cash flows, service any debt obligations we have, including our Exchangeable Senior Notes, and make accretive new investments. 62 Table of Contents Contractual Obligations The following table summarizes our contractual obligations as of December 31, 2020 (in thousands): Payments Due by Year 2021 2022 2023 2024 2025 Thereafter Total Exchangeable Senior Notes Interest Office Rent Total $ $ — $ — — 143,749 — — $ 143,749 $ 5,391 5,391 5,391 764 — — $ 16,937 $ 235 242 249 256 88 — $ 1,070 5,626 5,633 5,640 144,769 88 — 161,756 Additionally, as of December 31, 2020, we had approximately $250.7 million outstanding in commitments related to tenant 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 and approximately $624,000 of commitments relating to construction funding for the development of a property in Pennsylvania, which we funded in full in February 2021. Non-GAAP Financial Information and Other Metrics Funds from Operations and Adjusted Funds from Operations 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 (“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 and 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. 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 adding to FFO certain non-cash or infrequent or unpredictable expenses which may impact comparability, consisting of non-cash stock-based compensation expense and non-cash interest expense generally. For the three months ended December 31, 2020, FFO (diluted), AFFO and 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 2,158,837 shares for the period, which were the potentially issuable shares as if the Exchangeable Senior Notes were exchanged at the beginning of the period. These adjustments applied only for the three months ended December 31, 2020. The 63 Table of Contents Exchangeable Senior Notes were anti-dilutive for purposes of calculating earnings per diluted share for all other periods presented, and as such, were treated as anti-dilutive for purposes of calculating FFO, AFFO and FFO and AFFO per diluted share for all fiscal years presented and the three months ended December 31, 2019. Our computation of FFO and AFFO may differ from the methodology for calculating 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 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 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 and AFFO for the years ended December 31, 2020, 2019 and 2018 (in thousands, except share and per share amounts): Net income attributable to common stockholders Real estate depreciation FFO attributable to common stockholders Stock-based compensation Non-cash interest expense AFFO attributable to common stockholders FFO per share – basic FFO per share – diluted AFFO per share – basic AFFO per share – diluted Weighted average shares outstanding – basic Weighted average shares outstanding – diluted Years Ended December 31, 2019 22,123 $ $ $ 2020 64,378 $ 28,025 92,403 3,330 2,040 97,773 $ 4.75 $ 4.72 $ 5.03 $ $ 5.00 19,443,602 19,557,619 $ 8,599 30,722 2,495 1,678 34,895 $ 2.91 $ 2.88 $ 3.31 $ $ 3.27 10,546,016 10,684,068 2018 $ 5,633 2,629 8,262 1,465 — 9,727 $ 1.16 $ 1.13 $ 1.36 $ $ 1.34 7,138,952 7,285,801 The table below is a reconciliation of quarterly net income attributable to common stockholders to FFO and AFFO for the years ended December 31, 2020 and 2019 (in thousands, except share and per share amounts): Three Months Ended (1) Net income attributable to common stockholders Real estate depreciation FFO attributable to common stockholders (basic) Cash and non-cash interest expense FFO attributable to common stockholders (diluted) Stock-based compensation Non-cash interest expense AFFO attributable to common stockholders FFO per common share – basic FFO per common share – diluted AFFO per common share – basic AFFO per common share – diluted Weighted-average common shares outstanding – basic Restricted stock and restricted stock units Dilutive effect of Exchangeable Senior Notes Weighted-average common shares outstanding – diluted $ $ $ $ $ $ 20,995 $ 12,972 $ December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 11,534 4,907 16,441 — 16,441 825 501 17,767 1.04 1.03 1.13 1.12 8,726 29,721 1,866 31,587 842 — $ $ $ $ $ 18,877 7,646 26,523 — 26,523 841 513 27,877 1.23 1.22 1.29 1.28 6,746 19,718 — 19,718 822 507 21,047 1.12 1.12 1.20 1.19 32,429 1.30 1.26 1.36 1.29 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 22,804,185 114,077 2,158,837 21,594,637 114,088 — 17,530,721 134,108 — 15,784,296 113,795 — 25,077,099 21,708,725 17,644,829 15,898,091 64 Table of Contents . Net income attributable to common stockholders Real estate depreciation FFO available to common stockholders Stock-based compensation Non-cash interest expense AFFO available to common stockholders FFO per common share – basic FFO per common share – diluted AFFO per common share – basic AFFO per common share – diluted Weighted-average common shares outstanding – basic Restricted stock Weighted-average common shares outstanding – diluted Three Months Ended (1) $ $ $ $ $ December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 3,303 1,218 4,521 563 208 5,292 0.47 0.46 0.55 0.54 9,664,775 132,901 3,074 $ 1,615 4,689 623 484 5,796 $ 0.49 $ 0.48 $ 0.60 $ $ 0.59 9,667,079 140,424 6,182 $ 2,221 8,403 655 489 9,547 0.77 0.76 0.87 0.86 10,918,477 139,220 9,564 $ 3,545 13,109 654 497 14,260 1.10 1.09 1.20 1.18 11,905,021 139,581 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 12,044,602 11,057,697 9,807,503 9,797,676 (1) The sum of quarterly financial data may vary from annual data due to rounding and differences in the dilutive effect of potentially issuable shares of each reporting period. Critical Accounting Policies Our consolidated financial statements have been prepared in accordance with GAAP, which require 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 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. Set forth below is a summary of our accounting policies that we believe are critical to the preparation of our consolidated financial statements. Our accounting policies are more fully discussed in Note 2 to the consolidated financial statements. Acquisition of Rental Property, Depreciation and Impairment Upon acquisition of 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, the fair value of buildings on an as-if vacant basis and may engage third-party valuation specialists. Acquisition costs are capitalized as incurred since all of our acquisitions to date were recorded as asset acquisitions. We depreciate each of our buildings and improvements over its estimated remaining useful life, not to exceed 40 years. We depreciate tenant improvements at our buildings where we are considered the owner over the estimated useful lives of the improvements, not to exceed 40 years. We review current activities and changes in the business conditions of all of our properties 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 65 Table of Contents 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. Revenue Recognition Our existing tenant leases and future tenant leases are generally expected to be triple-net leases, an arrangement under which the tenant maintains the property while paying us rent and property management fees. We account for our leases as operating leases. Operating leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term, unless the collectability of lease payments is not probable. Rental increases based upon changes in the U.S. Consumer Price Index (“CPI”) are recognized only after the changes in the indexes have occurred and are then applied according to the lease agreements. Contractually obligated reimbursements from tenants for recoverable real estate taxes, insurance and operating expenses are included in rental revenue in the period when such costs are incurred. Contractually obligated real estate taxes that are paid directly by the tenant to the tax authorities are not reflected in our consolidated financial statements. We record revenue for each of our properties on a cash basis due to the uncertain regulatory environment in the United States relating to the medical-use cannabis industry and the uncertainty of collectability of lease payments from each tenant due to its limited operating history. Exchangeable Notes The “Debt with Conversion and Other Options” Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification requires the liability and equity components of exchangeable debt instruments that may be settled in cash upon exchange, including partial cash settlement, to be separately accounted for in a manner that reflects the issuer’s nonexchangeable debt borrowing rate. The initial proceeds from the sale of exchangeable notes are 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 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 respective issuance dates 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 is reflected within additional paid-in capital on our consolidated balance sheets, and the resulting debt discount is 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. The additional non-cash interest expense attributable to our Exchangeable Senior Notes will increase in subsequent periods through the maturity date as the Exchangeable Senior Notes accrete to the par value over the same period. Lease Accounting In February 2016, the FASB issued ASU 2016-02, Leases; in July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases — Targeted Improvements; and in December 2018, the FASB issued ASU 2018-20, Narrow-Scope Improvements for Lessors. This group of ASUs is collectively referred to as Topic 842 and was effective for the Company for its consolidated financial statements for the year ended December 31, 2019. 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 66 Table of Contents 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 related to our corporate office lease, which has a remaining lease term of approximately 4.3 years as of December 31, 2020, excluding the extension option that we are not reasonably certain to exercise, and a corresponding right-of-use asset. The lease liability is measured based on the present value of the future lease payments discounted using the estimated incremental borrowing rate of 7.25%, which is 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. 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 in Topic 842. 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. Our leases continued to be classified as operating leases under Topic 842 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 consolidated statements of income. In April 2020, in response to the coronavirus pandemic and associated severe economic disruption, we amended leases at certain of our properties to provide for temporary base rent and property management fee deferrals through June 30, 2020. The FASB has issued additional guidance for companies to account for any coronavirus related rent concessions in the form of FASB staff and board members' remarks at the April 8, 2020 public meeting and the FASB staff question-and-answer document issued on April 10, 2020. We have elected the practical expedient which allows us to not have to evaluate whether concessions provided in response to coronavirus pandemic are lease modifications. This relief is subject to certain conditions being met, including ensuring the total remaining lease payments are substantially the same or less as compared to the original lease payments prior to the concession being granted. Lease amendments that are not associated with the coronavirus pandemic 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. One of our leases that was entered into prior to 2019 provides the lessee with a purchase option to purchase the leased property at the end of the initial lease term in September 2034, subject to the satisfaction of certain conditions. The purchase option provision allows the lessee to purchase the leased property at the greatest of (a) the fair value; (b) 67 Table of Contents the value determined by dividing the then-current base rent by 8%; and (c) an amount equal to our gross investment in the property (including the purchase price at acquisition and any additional investment in the property made by us during the term of the lease), indexed to inflation. At December 31, 2020, our gross investment in the property with the purchase option was approximately $30.5 million. At December 31, 2020, the purchase option was not exercisable. Stock-Based Compensation Stock-based compensation for equity awards is based on the grant date fair value of the equity instrument and is recognized over the requisite service 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 previously paid on these awards from retained earnings to compensation expense. Income Taxes We have been organized to operate our business so as to qualify to be taxed as a REIT, for U.S. federal income tax purposes, commencing with our taxable year ended December 31, 2018. Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable income for U.S. federal income tax purposes. As long as our dividends equal or exceed our taxable net income, we generally will not be required to pay U.S. federal income tax on such income. The Tax Cuts and Jobs Act was enacted in December 2018 and is generally effective for tax years beginning in 2018. See also Item 1A, “Risk Factors,” under the caption “Legislative, regulatory or administrative changes could adversely affect us or our stockholders.” Adoption of New or Revised Accounting Standards Prior to December 31, 2019, as an “emerging growth company” under the JOBS Act, we took advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We ceased being emerging growth company on December 31, 2019 and as a result, are no longer eligible to delay adoption of such new or revised accounting pronouncements applicable to public companies. 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. Off-Balance Sheet Arrangements We have no unconsolidated investments or any other off-balance sheet arrangements. Interest Rate Risk In February 2019, our Operating Partnership issued $143.75 million aggregate principal amount of the Exchangeable Senior Notes, which bears interest at a fixed rate of 3.75% per annum until maturity. The Exchangeable Senior Notes are the only debt we have outstanding. At this time, we have no plans to issue additional debt instruments. It is possible that a property we acquire in the future would be subject to a mortgage, which we may assume. Impact of Inflation We enter into leases that generally provide for annual fixed increases in rent, and in certain cases have entered into leases that provide for annual increases in rent equal to the greater of a fixed increase and the increase in annual CPI. We 68 Table of Contents expect these lease provisions to result in rent increases over time. During times when inflation is greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation. Seasonality We do not expect our business to be subject to material seasonal fluctuations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our Exchangeable Senior Notes bears interest at a fixed rate of 3.75% per annum until maturity and is the only debt we have outstanding. Our investments in short-term money market funds, certificates of deposit and short-term investments in obligations of the U.S. government with an original maturity at the time of purchase of greater than three months are less sensitive to market fluctuations than a portfolio of long-term securities. Accordingly, we believe that a significant change in interest rates would not have a material effect on consolidated financial statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this Item 8 is incorporated by reference to our Financial Statements beginning on page F-1 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures Our management, under the supervision and with the participation of our principal executive and principal 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 Exchange Act 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 principal financial officers have concluded that such disclosure controls and procedures were effective as of December 31, 2020 (the end of the period covered by this Annual Report). Changes in Internal Control Over Financial Reporting There were no changes during the quarter ended December 31, 2020 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Limitations on Controls Our system of internal control over financial reporting was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 69 Table of Contents Management’s Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)). Our management, including our principal executive officer and principal financial officer, evaluated, as of December 31, 2020, the effectiveness of our internal control over financial reporting using the framework in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our principal executive officer and financial officer concluded that our internal controls, as of December 31, 2020, were effective. BDO USA, LLP has issued an attestation report on the effectiveness of the Company’s internal control over financial reporting, which appears in this Annual Report on Form 10-K. 70 Table of Contents Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors Innovative Industrial Properties, Inc. Park City, Utah Opinion on Internal Control over Financial Reporting We have audited Innovative Industrial Properties, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and schedule, and our report dated February 25, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, “Management’s Report on Internal Control over Financial Reporting”. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ BDO USA, LLP San Diego, California February 25, 2021 71 Table of Contents ITEM 9B. OTHER INFORMATION None. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information concerning our directors, executive officers and corporate governance required by Item 10 will be included in the Proxy Statement to be filed relating to our 2021 Annual Meeting of Stockholders and is incorporated herein by reference. Pursuant to instruction G(3) to Form 10-K, information concerning audit committee financial expert disclosure set forth under the heading “Information Regarding the Board — Committees of the Board — Audit Committee” will be included in the Proxy Statement to be filed relating to Innovative Industrial Properties, Inc.’s 2021 Annual Meeting of Stockholders and is incorporated herein by reference. Pursuant to instruction G(3) to Form 10-K, information concerning compliance with Section 16(a) of the Exchange Act concerning our directors and executive officers set forth under the heading entitled “General — Section 16(a) Beneficial Ownership Reporting Compliance” will be included in the Proxy Statement to be filed relating to Innovative Industrial Properties, Inc.’s 2021 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The information concerning our executive compensation required by Item 11 will be included in the Proxy Statement to be filed relating to our 2021 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information concerning the security ownership of certain beneficial owners and management, our equity compensation plans and related stockholder matters required by Item 12 will be included in the Proxy Statement to be filed relating to our 2021 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information concerning certain relationships and related transactions and director independence required by Item 13 will be included in the Proxy Statement to be filed relating to our 2021 Annual Meeting of Stockholders and is incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information concerning our principal accountant fees and services required by Item 14 will be included in the Proxy Statement to be filed relating to our 2021 Annual Meeting of Stockholders and is incorporated herein by reference. 72 Table of Contents ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE (a)(1) and (2) Financial Statements and Schedule: PART IV Please refer to the Index to Consolidated Financial Statements included under Part II, Item 8, Financial Statements and Supplementary Data. (3) Exhibits Exhibit Number 1.1 3.1 3.2 4.1 4.2 4.3* 10.1 10.2+ 10.3+ 10.4+ 10.5+ 10.6+ 10.7+ 10.8+ 10.9+ 10.10+ 10.11+ 10.12+ 10.13+ 10.14 10.15 10.16 10.17 10.18 21.1* 23.1* Description of Exhibit Form of Equity Distribution Agreement, dated as of November 6, 2020, between Innovative Industrial Properties, Inc., IIP Operating Partnership, LP and each sales agent.(1) Second Articles of Amendment and Restatement of Innovative Industrial Properties, Inc. (including Articles Supplementary Classifying Innovative Industrial Properties, Inc.’s 9.00% Series A Cumulative Redeemable Preferred Stock).(2) Second Amended and Restated Bylaws of Innovative Industrial Properties, Inc.(3) Form of Certificate for Common Stock.(4) Indenture, dated as of February 21, 2019, among IIP Operating Partnership, LP, as issuer, Innovative Industrial Properties, Inc. and the subsidiaries of IIP Operating Partnership, LP, as guarantors, and GLAS Trust Company LLC, as trustee, including the Form of Note representing IIP Operating Partnership, LP’s 3.75% Exchangeable Senior Notes due 2024.(5) Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as amended. Agreement of Limited Partnership of IIP Operating Partnership, LP.(6) 2016 Omnibus Incentive Plan.(6) Form of Restricted Stock Award Agreement for Officers.(7) Form of Restricted Stock Award Agreement for Directors.(7) Form of Restricted Stock Unit Award Agreement.(8) Form of Performance Share Unit Award Agreement.(9) Form of Indemnification Agreement between Innovative Industrial Properties, Inc. and each of its Directors and Officers.(6) Severance and Change of Control Agreement dated as of January 18, 2017 among Innovative Industrial Properties, Inc., IIP Operating Partnership, LP and Alan Gold.(10) Severance and Change of Control Agreement dated as of January 18, 2017 among Innovative Industrial Properties, Inc., IIP Operating Partnership, LP and Paul Smithers.(10) Severance and Change of Control Agreement dated as of January 18, 2017 among Innovative Industrial Properties, Inc., IIP Operating Partnership, LP and Brian Wolfe.(10) Severance and Change of Control Agreement dated as of June 7, 2017 among Innovative Industrial Properties, Inc., IIP Operating Partnership, LP and Catherine Hastings.(11) Director Compensation Policy.(9) Innovative Industrial Properties, Inc. Nonqualified Deferred Compensation Plan.(12) Lease Agreement, dated as of May 31, 2018, between IIP-MA 1 LLC and PharmaCannis Massachusetts Inc. (13) First Amendment dated November 13, 2018 to Lease Agreement, dated as of May 31, 2018, between IIP-MA 1 LLC and PharmaCannis Massachusetts Inc.(14) Second Amendment dated September 24, 2019 to Lease Agreement, dated as of May 31, 2018, between IIP- MA 1 LLC and PharmaCannis Massachusetts Inc.(15) Third Amendment dated February 24, 2020 to Lease Agreement dated May 31, 2018 between IIP-MA 1 LLC and PharmaCannis Massachusetts Inc.(16) Fourth Amendment dated December 11, 2020 to Lease Agreement dated May 31, 2018 between IIP-MA 1 LLC and PharmaCannis Massachusetts Inc.(17) List of Subsidiaries of Innovative Industrial Properties, Inc. Consent of BDO USA, LLP. 73 Table of Contents 31.1* 31.2* 32.1* 101.INS* 101.SCH* 101.CAL* 101.DEF* 101.LAB* 101.PRE* 104* Certifications of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certifications of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 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. XBRL Instance Document. XBRL Taxonomy Extension Schema Document. XBRL Taxonomy Extension Calculation Linkbase Document. XBRL Taxonomy Extension Definition Linkbase Document. XBRL Taxonomy Extension Label Linkbase Document. XBRL Taxonomy Extension Presentation Linkbase Document. Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101). * + (1) (2) (3) (4) (7) (5) (6) Filed herewith. Indicates management contract or compensatory plan. Incorporated by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on November 6, 2020. Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Quarterly Report on Form 10-Q filed with the SEC on August 6, 2020. Incorporated by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on June 4, 2020. Incorporated by reference to Innovative Industrial Properties, Inc.’s Registration Statement on Form S-11, as amended (File No. 333-214148), filed with the SEC on November 17, 2016. Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on February 21, 2019. Incorporated by reference to Innovative Industrial Properties, Inc.’s Registration Statement on Form S-11, as amended (File No. 333-214148), filed with the SEC on October 17, 2016. Incorporated by reference to Innovative Industrial Properties, Inc.’s Registration Statement on Form S-8 (File No. 333-214919), filed with the SEC on December 6, 2016. Incorporated by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on January 6, 2020. (8) (9) Incorporated by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on January 15, 2021. (10) Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on January 24, 2017. (11) Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on June 8, 2017. (12) Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on November 18, 2019. (13) Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on May 31, 2018. (14) Incorporated herein by reference to Innovative Industrial Properties, Inc.’s Annual Report on Form 10-K filed with the SEC on March 14, 2019. (15) Incorporated by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on September 25, 2019. (16) Incorporated by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on February 25, 2020. (17) Incorporated by reference to Innovative Industrial Properties, Inc.’s Current Report on Form 8-K filed with the SEC on December 14, 2020. ITEM 16. FORM 10-K SUMMARY None. 74 Table of Contents 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. SIGNATURES 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) By: /s/ Andy Bui Andy Bui Vice President, Chief Accounting Officer (Principal Accounting Officer) Dated February 25, 2021 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated. Name Capacity Date /s/ Alan Gold Alan Gold /s/ Gary Kreitzer Gary Kreitzer /s/ Mary Curran Mary Curran /s/ Paul Smithers Paul Smithers /s/ Scott Shoemaker Scott Shoemaker /s/ David Stecher David Stecher Executive Chairman February 25, 2021 Vice Chairman February 25, 2021 Director February 25, 2021 President, Chief Executive Officer and Director Director Director February 25, 2021 February 25, 2021 February 25, 2021 75 Table of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Innovative Industrial Properties, Inc. (a) Financial Statements: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2020 and 2019 Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018 Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 Notes to Consolidated Financial Statements (b) Financial Statement Schedule: Schedule III – Real Estate and Accumulated Depreciation as of December 31, 2020 F-2 F-4 F-5 F-6 F-7 F-8 F-25 F-1 Table of Contents Report of Independent Registered Public Accounting Firm Stockholders and Board of Directors Innovative Industrial Properties, Inc. Park City, Utah Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Innovative Industrial Properties, Inc. (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013)] issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 25, 2021 expressed an unqualified opinion thereon. Change in Accounting Method Related to Leases As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases during the year ended December 31, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-2 Table of Contents Real Estate Acquisitions - Fair Value of Assets Acquired As described in Note 6 to the consolidated financial statements, the Company’s consolidated real estate property acquisitions totaled approximately $241.2 million for the year ended December 31, 2020. Certain of the 2020 acquisitions involved significant judgments in estimating the fair values of the assets acquired for which management may obtain assistance from third-party valuation specialists. We identified the estimation of the fair values of the land acquired for certain of the 2020 property acquisitions as a critical audit matter due to the limited number of recent comparable transactions. Auditing these acquisitions involved a high degree of auditor judgment and subjectivity in performing procedures and evaluating the reasonableness of the key valuation inputs and assumptions relating to the fair value estimates for land, including the extent of specialized skill or knowledge needed. The primary procedures we performed to address this critical audit matter included: ● Evaluating the reasonableness of the key valuation inputs and assumptions used by the Company as compared to relevant market data. ● Utilizing personnel with specialized knowledge and skill in valuation to assist in the evaluation of the assumptions and methodologies used, including the comparison to available market data, in the preparation of the fair value measurements for certain land acquired. /s/ BDO USA, LLP We have served as the Company’s auditor since 2016. San Diego, California February 25, 2021 F-3 Table of Contents Innovative Industrial Properties, Inc. Consolidated Balance Sheets (In thousands, except share and per share amounts) Assets Real estate, at cost: Land Buildings and improvements Tenant improvements Total real estate, at cost Less accumulated depreciation Net real estate held for investment Cash and cash equivalents Restricted cash Investments Right of use office lease asset Other assets, net Total assets Liabilities and stockholders’ equity Exchangeable senior notes, net Tenant improvements and construction funding payable Accounts payable and accrued expenses Dividends payable Office lease liability Rent received in advance and tenant security deposits Total liabilities 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 December 31, 2020 and 2019 Common stock, par value $0.001 per share, 50,000,000 shares authorized: 23,936,928 and 12,637,043 shares issued and outstanding at December 31, 2020 and 2019, respectively Additional paid-in capital Dividends in excess of earnings Total stockholders’ equity Total liabilities and stockholders’ equity December 31, December 31, 2020 2019 $ $ $ $ 75,660 644,932 339,647 1,060,239 (40,195) 1,020,044 126,006 — 619,275 980 1,776 $ 1,768,081 $ 136,693 36,500 4,641 30,065 1,057 34,153 243,109 48,652 382,035 87,344 518,031 (12,170) 505,861 82,244 35,072 119,595 1,202 1,883 745,857 134,654 24,968 3,417 12,975 1,202 20,631 197,847 14,009 14,009 24 1,559,059 (48,120) 1,524,972 $ 1,768,081 $ 13 553,932 (19,944) 548,010 745,857 See the accompanying notes to the consolidated financial statements. F-4 Table of Contents Innovative Industrial Properties, Inc. Consolidated Statements of Income (In thousands, except share and per share amounts) Revenues: Rental (including tenant reimbursements) Total revenues Expenses: Property expenses General and administrative expense Depreciation expense Total expenses Income from operations Interest and other income Interest expense Net income Preferred stock dividends Net income attributable to common stockholders Net income attributable to common stockholders per share (Note 8): Basic Diluted Weighted-average shares outstanding: Basic Diluted Years Ended December 31, 2019 2020 2018 $ 116,896 116,896 $ $ 44,667 44,667 14,787 14,787 4,952 14,182 28,025 47,159 69,737 3,424 (7,431) 65,730 (1,352) 64,378 3.28 3.27 $ $ $ 1,315 9,818 8,599 19,732 24,935 4,846 (6,306) 23,475 (1,352) 22,123 2.06 2.03 $ $ $ 445 6,375 2,629 9,449 5,338 1,647 — 6,985 (1,352) 5,633 0.76 0.75 $ $ $ 19,443,602 19,557,619 10,546,016 10,684,068 7,138,952 7,285,801 See accompanying notes to the consolidated financial statements. F-5 Table of Contents Innovative Industrial Properties, Inc. Consolidated Statements of Stockholders’ Equity (In thousands, except share and per share amounts) Balance, December 31, 2017 Net income Net proceeds from sale of common stock Preferred stock dividend Common stock dividend Net issuance of unvested restricted stock Stock based compensation Balance, December 31, 2018 Net income Equity component of exchangeable senior notes Net proceeds from sale of common stock Preferred stock dividend Common stock dividend Net issuance of unvested restricted stock Stock based compensation Balance, December 31, 2019 Net income Exchange of exchangeable senior notes Net proceeds from sale of common stock Preferred stock dividend Common stock dividend Net issuance of unvested restricted stock Stock-based compensation Balance, December 31, 2020 Series A Shares of Preferred Stock Common Stock 3,501,147 $ — 14,009 — — — — — — 14,009 — — — — — 6,210,000 — — 64,653 — 9,775,800 — — 2,825,500 — — — — 14,009 — — 35,743 — 12,637,043 — 14 — — — 11,311,366 — — — — 14,009 (11,495) — 23,936,928 $ $ Common Stock Additional Paid-In- Capital Dividends in Excess of Earnings Total Stockholders' Equity $ 4 — 6 — — — — 10 — — 3 — — — — 13 — — 11 — — — — 24 $ 66,248 — $ (6,712) $ 6,985 73,549 6,985 193,217 — — (390) 1,465 260,540 — — (1,352) (9,188) — — (10,267) 23,475 193,223 (1,352) (9,188) (390) 1,465 264,292 23,475 5,569 — 5,569 286,267 — — (939) 2,495 553,932 — 1 1,003,962 — — — (1,352) (31,800) — — (19,944) 65,730 — — (1,352) (92,554) 286,270 (1,352) (31,800) (939) 2,495 548,010 65,730 1 1,003,973 (1,352) (92,554) (2,166) 3,330 $ 1,559,059 — — (2,166) 3,330 $ (48,120) $ 1,524,972 See accompanying notes to the consolidated financial statements. F-6 Table of Contents Innovative Industrial Properties, Inc. Consolidated Statements of Cash Flows (In thousands) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation Other non-cash adjustments Stock-based compensation Amortization of discounts on short-term investments Amortization of debt discounts and issuance costs Changes in assets and liabilities Other assets, net Accounts payable and accrued expenses Rent received in advance and tenant security deposits Net cash provided by operating activities Cash flows from investing activities Purchases of investments in real estate Reimbursements of tenant improvements and construction funding Deposits in escrow for acquisitions Purchases of short-term investments Maturities of short-term investments Net cash used in investing activities Cash flows from financing activities Issuance of common stock, net of offering costs Net proceeds from issuance of exchangeable senior notes Dividends paid to common stockholders Dividends paid to preferred stockholders Taxes paid related to net share settlement of equity awards Net cash provided by financing activities Net increase in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, beginning of period Cash, cash equivalents and restricted cash, end of period Supplemental disclosure of cash flow information: Cash paid during the year for interest Supplemental disclosure of non-cash investing and financing activities: Accrual for reimbursements of tenant improvements and construction funding Deposits applied for acquisitions Accrual for common and preferred stock dividends declared Accrual for stock issuance costs Operating lease liability for obtaining right of use asset Years Ended December 31, 2019 2020 2018 $ 65,730 $ 23,475 $ 6,985 28,025 162 3,330 (2,791) 2,040 (428) 1,224 13,522 110,814 8,599 — 2,495 (3,738) 1,678 (619) 1,427 11,617 44,934 2,629 — 1,465 (955) — (173) 886 4,856 15,693 (240,509) (289,517) (200) (1,077,867) 580,978 (1,027,115) (259,889) (84,677) (650) (255,664) 260,250 (340,630) (57,474) (22,293) — (184,988) 65,500 (199,255) 1,003,973 — (75,464) (1,352) (2,166) 924,991 8,690 117,316 126,006 286,292 138,545 (22,584) (1,352) (939) 399,962 104,266 13,050 $ 117,316 $ $ 5,391 36,500 650 30,065 — — 3,055 24,968 — 12,975 22 1,211 193,223 — (6,642) (1,337) (390) 184,854 1,292 11,758 13,050 — 2,433 — 3,759 — — $ $ $ $ $ $ See accompanying notes to the consolidated financial statements. F-7 Table of Contents 1. Organization Innovative Industrial Properties, Inc. Notes to Consolidated Financial Statements 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 medical-use 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. Information with respect to rentable square footage is unaudited. 2. Summary of Significant Accounting Policies and Procedures and Recent Accounting Pronouncements Basis of Presentation. The consolidated financial statements include all of the accounts of the Company, the Operating Partnership and all of our wholly owned subsidiaries, presented in accordance with U.S. generally accepted accounting principles. The Company considered the impact of COVID-19 on its assumptions and estimates used and determined that there were no material adverse impacts on the Company's results of operations and financial position at December 31, 2020. A prolonged outbreak could have a material adverse impact on the financial results and business operations of the Company. See Note 6 for further discussion. Federal Income Taxes. 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 consolidated statement of operations represent amounts paid for city and state income and franchise taxes and are included in general and administrative expenses in the accompanying consolidated statements of operations. Use of Estimates. The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. 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 industries. Our properties are similar in that they are leased to the state-licensed operators on long-term triple-net basis, consist of improvements that are reusable and have similar economic characteristics. Our chief operating decision makers review 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. F-8 Table of Contents 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, the fair value of buildings on an as-if vacant basis and may engage third-party valuation specialists. Acquisition costs are capitalized as incurred since all of our acquisitions to date were recorded as asset acquisitions. Depreciation. We consider the period of future benefit of the assets to determine the appropriate estimated useful lives. Depreciation of our assets is charged to expense on a straight-line basis over the estimated useful lives. We periodically evaluate whether certain useful lives remain appropriate in accordance with authoritative guidance. During 2020, we completed a review of the estimated useful life of our buildings and improvements and extended the maximum useful life from 35 years to 40 years based on the condition of the buildings and the extent of the improvements. This was accounted for as a change in accounting estimate and was made on a prospective basis effective January 1, 2020. For the year ended December 31, 2020, depreciation expense was lower by approximately $1.4 million than it would have been had the useful life of these assets not been extended, with a diluted earnings per share impact of $0.08 per share. We depreciate tenant improvements at our buildings where we are considered the owner over the estimated useful lives of the improvements, not to exceed 40 years. We depreciate office equipment and furniture and fixtures over estimated useful lives ranging from three to six years. We depreciate the leasehold improvements at our corporate office over the shorter of the estimated useful lives or the initial lease term. Provision for Impairment. We review current activities and changes in the business conditions of all of our properties 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 years ended December 31, 2020, 2019 and 2018. Revenue Recognition. Our leases are triple-net leases, an arrangement under which the tenant maintains the property while paying us rent. We anticipate that all leases will be accounted for as operating leases. Operating leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term, unless the collectability of lease payments is not probable. Rental increases based upon changes in the consumer price index are recognized only after the changes in the indexes have occurred and are then applied according to the lease agreements. Contractually obligated reimbursements from tenants for recoverable real estate taxes, insurance and operating expenses are included in rental revenue 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 consolidated financial statements. We record revenue for each of our properties on a cash basis due to the uncertain regulatory environment in the United States relating to the medical-use cannabis industry and the uncertainty of collectability of lease payments from each tenant due to its limited operating history. F-9 Table of Contents Cash and Cash Equivalents. We consider all highly-liquid investments with original maturities of three months or less to be cash equivalents. As of December 31, 2020 and 2019, $98.3 million and $60.1 million, respectively, were invested in short-term money market funds, obligations of the U.S. government with an original maturity at the time of purchase of less than or equal to three months and certificates of deposit. Restricted Cash. Restricted cash relates to cash held in escrow accounts for the reimbursement of tenant improvements for tenants in accordance with certain lease agreements. As of December 31, 2020, all of the cash held in the escrow accounts were disbursed in accordance with the lease agreements. Investments. Investments consist of obligations of the U.S. government 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 “Debt with Conversion and Other Options” Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification requires the liability and equity components of exchangeable debt instruments that may be settled in cash upon exchange, including partial cash settlement, to be separately accounted for in a manner that reflects the issuer’s nonexchangeable debt borrowing rate. The initial proceeds from the sale of exchangeable notes are 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 notes as of the date of issuance. We measured the estimated fair value of the debt component of our Exchangeable Senior Notes (as defined below) as of the respective issuance dates 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 is reflected within additional paid-in capital on our consolidated balance sheets, and the resulting debt discount is 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. The additional non-cash interest expense attributable to our Exchangeable Senior Notes will increase in subsequent periods through the maturity date as the Exchangeable Senior Notes accrete to the par value over the same period. Deferred Financing Costs. The deferred financing costs that are included as a reduction in the principal amount of the Exchangeable Senior Notes on our consolidated balance sheets reflect issuance and other costs related to our Exchangeable Senior Notes. These costs are amortized as non-cash interest expense using the effective interest method over the life of the Exchangeable Senior Notes. 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 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 previously paid on these awards from retained earnings to compensation expense. Forfeitures are recognized as incurred. Lease Accounting. In February 2016, the FASB issued ASU 2016-02, Leases; in July 2018, the FASB issued ASU 2018- 10, Codification Improvements to Topic 842, Leases, and ASU 2018-11, Leases - Targeted Improvements; and in December 2018, the FASB issued ASU 2018-20, Narrow-Scope Improvements for Lessors. This group of ASUs is collectively referred to as Topic 842 and was effective for the Company for its consolidated financial statements for the year ended December 31, 2019. 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. F-10 Table of Contents As lessee, we recognized a liability to account for our future obligations related to our corporate office lease, which has a remaining lease term of approximately 4.3 years and 5.3 years as of December 31, 2020 and 2019, respectively, excluding the extension option that we are not reasonably certain to exercise, and a corresponding right-of-use asset. The lease liability is measured based on the present value of the future lease payments discounted using the estimated incremental borrowing rate of 7.25%, which is 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 years ended December 31, 2020, 2019 and 2018, we recognized office lease expense of approximately $229,000, $82,000 and $83,000, respectively, which are included in general and administrative expense in our consolidated statements of income. For the years ended December 31, 2020, 2019 and 2018, amounts paid and classified as operating activities in our consolidated statements of cash flows for the office lease were approximately $172,000, $87,000 and $77,000, respectively. 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. 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 consolidated statements of income. Property taxes paid directly by the lessee to a third party continue to be excluded from our consolidated financial statements. Internal leasing costs of approximately $122,000 capitalized during the year ended December 31, 2019 were written off and included in general and administrative expenses on our consolidated statement of income for the year ended December 31, 2019. These costs were capitalized in accordance with the lease accounting standards existing prior to January 1, 2019 and did not qualify for capitalization. The election of the practical expedients available for implementation under the standard permits us to continue to account for our leases that commenced before January 1, 2019 under the previously existing lease accounting guidance for the remainder of their lease terms, and to apply the new lease accounting guidance to leases commencing or modified after January 1, 2019. As a result, there was no restatement of prior issued financial statements and, similarly, no cumulative effect adjustment to opening equity. In April 2020, in response to the coronavirus pandemic and associated severe economic disruption, we amended leases at certain of our properties to provide for temporary base rent and property management fee deferrals through June 30, 2020. The FASB has issued additional guidance for companies to account for any coronavirus related rent concessions in the form of FASB staff and board members' remarks at the April 8, 2020 public meeting and the FASB staff question-and-answer document issued on April 10, 2020. We have elected the practical expedient which allows us to not have to evaluate whether concessions provided in response to coronavirus pandemic are lease modifications. This relief is subject to certain conditions being met, including ensuring the total remaining lease payments are substantially the same or less as compared to the original lease payments prior to the concession being granted. Lease amendments that are not associated with the coronavirus pandemic 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 F-11 Table of Contents particular contract. If both conditions are present, the lease amendment is accounted for as a new lease that is separate from the original lease. One of our leases that was entered into prior to 2019 provides the lessee with a purchase option to purchase the leased property at the end of the initial lease term in September 2034, subject to the satisfaction of certain conditions. The purchase option provision allows the lessee to purchase the leased property at the greatest of (a) the fair value; (b) the value determined by dividing the then-current base rent by 8%; and (c) an amount equal to our gross investment in the property (including the purchase price at acquisition and any additional investment in the property made by us during the term of the lease), indexed to inflation. At December 31, 2020, our gross investment in the property with the purchase option was approximately $30.5 million. At December 31, 2020, the purchase option was not exercisable. Our leases generally contain options to extend the lease terms at the prevailing market 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. Recent Accounting Pronouncements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses, which changes the impairment model for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, companies will be required to use a new forward- looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. In November 2018, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments — Credit Losses, which among other updates, clarifies that receivables arising from operating leases are not within the scope of this guidance and should be evaluated in accordance with Topic 842. For available-for-sale debt securities with unrealized losses, companies will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. These standards were effective for the Company on January 1, 2020 and did not have a material impact on our consolidated financial statements. In August 2020, the FASB issued 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. 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. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 and is to be adopted through a cumulative-effect adjustment to the opening balance of retained earnings either at the date of adoption or in the first comparative period presented. Upon adoption of ASU 2020-06, convertible debt proceeds, unless issued with a substantial premium or an embedded conversion feature, will no longer be allocated between debt and equity components. This will reduce the issue discount and result in less non-cash interest expense in our consolidated financial statements. Additionally, ASU 2020-06 will result in the reporting of a diluted earnings per share, if the effect is dilutive, in our consolidated financial statements, regardless of our settlement intent. Concentration of Credit Risk. As of December 31, 2020, we owned 66 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Virginia, and Washington. The ability of any of our tenants to honor the terms of its lease is dependent upon the economic, regulatory, competition, natural and social factors affecting the community in which that tenant operates. Three of our tenants, PharmaCann Inc. (“PharmaCann”) (at five of our properties), Ascend Wellness Holdings, LLC (“Ascend”) (at three of our properties), and Cresco Labs, LLC (“Cresco”) (at five of our properties), represented approximately 18%, 10%, and 10%, respectively, of our rental revenues (including tenant reimbursements) for the year ended December 31, 2020. Two of our tenants, PharmaCann (at five of our properties) and Ascend (at two of our properties), represented approximately 26% and 12%, respectively, of our rental revenues (including tenant reimbursements) for the year ended December 31, 2019. Four of our tenants, PharmaCann (at two of our properties), Holistic Industries, Inc. (“Holistic”) (at one property), Vireo Health, Inc. (“Vireo”) (at three properties), and The Pharm, LLC (“The Pharm”) (at one property), represented approximately 38%, 18%, 16% and 16%, respectively, of our rental revenues (including tenant reimbursements) for the year ended December 31, 2018. At December 31, 2020, none of our properties individually represented more than 5% of our net real estate held for investment. At December 31, 2019, one of our properties in New York accounted for 6% of our net real estate held for investment. F-12 Table of Contents We have deposited cash with a financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of December 31, 2020, we had cash accounts in excess of FDIC insured limits. We have not experienced any losses in such accounts. 3. Common Stock As of December 31, 2020, the Company was authorized to issue up to 50,000,000 shares of common stock, par value $0.001 per share, and there were 23,936,928 shares of common stock issued and outstanding. In January 2020, we issued 3,412,969 shares of common stock, including the exercise in full of the underwriters’ option to purchase an additional 445,170 shares, resulting in net proceeds of approximately $239.6 million. In May 2020, we issued 1,550,648 shares of common stock, including the exercise in full of the underwriter’s option to purchase an additional 202,259 shares, resulting in net proceeds of approximately $114.9 million. In July 2020, we issued 3,085,867 shares of common stock, including the exercise in full of the underwriters’ option to purchase an additional 402,504 shares, resulting in net proceeds of approximately $248.2 million. In September 2019, we entered into equity distribution agreements with three sales agents, pursuant to which we were able to offer and sell from time to time through an “at-the-market” offering program (the “Prior ATM Program”) up to $250.0 million in shares of our common stock. During the year ended December 31, 2020, we sold 1,499,382 shares of our common stock for net proceeds of approximately $138.4 million under the Prior ATM Program. In November 2020, we terminated the Prior ATM Program and entered into new 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 (the “New ATM Program”) up to $500.0 million in shares of our common stock. During the year ended December 31, 2020, we sold 1,762,500 shares of our common stock for net proceeds of approximately $262.9 million under the New ATM Program. 4. Preferred Stock As of December 31, 2020, 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. F-13 Table of Contents 5. Dividends The following table describes the dividends declared by the Company during the years ended December 31, 2020, 2019 and 2018: Declaration Date Security Class Amount Per Share Period Covered Dividend Paid Date Dividend Amount (In thousands) March 15, 2018 March 15, 2018 June 15, 2018 June 15, 2018 September 14, 2018 September 14, 2018 December 14, 2018 December 14, 2018 March 12, 2019 March 12, 2019 June 14, 2019 June 14, 2019 September 13, 2019 September 13, 2019 December 10, 2019 December 10, 2019 March 13, 2020 March 13, 2020 June 15, 2020 June 15, 2020 September 15, 2020 September 15, 2020 December 14, 2020 December 14, 2020 Common stock Series A preferred stock Common stock Series A preferred stock Common stock Series A preferred stock Common stock Series A preferred stock Common stock Series A preferred stock Common stock Series A preferred stock Common stock Series A preferred stock Common stock Series A preferred stock Common stock Series A preferred stock Common stock Series A preferred stock Common stock Series A preferred stock Common stock Series A preferred stock 0.25 0.5625 0.25 0.5625 0.35 0.5625 0.35 0.5625 0.45 0.5625 0.60 0.5625 0.78 0.5625 1.00 0.5625 1.00 0.5625 1.06 0.5625 1.17 0.5625 1.24 0.5625 January 1, 2018 to March 31, 2018 January 15, 2018 to April 14, 2018 April 1, 2018 to June 30, 2018 April 16, 2018 April 16, 2018 July 16, 2018 April 15, 2018 to July 14, 2018 July 16, 2018 July 1, 2018 to September 30, 2018 October 15, 2018 July 15, 2018 to October 14, 2018 October 15, 2018 October 1, 2018 to December 31, 2018 October 15, 2018 to January 14, 2019 January 1, 2019 to March 31, 2019 January 15, 2019 to April 14, 2019 April 1, 2019 to June 30, 2019 January 15, 2019 January 15, 2019 April 15, 2019 April 15, 2019 July 15, 2019 April 15, 2019 to July 14, 2019 July 15, 2019 July 1, 2019 to September 30, 2019 October 15, 2019 July 15, 2019 to October 14, 2019 October 15, 2019 October 1, 2019 to December 31, 2019 October 15, 2019 to January 14, 2020 January 1, 2020 to March 31, 2020 January 15, 2020 to April 14, 2020 April 1, 2020 to June 30, 2020 January 15, 2020 January 15, 2020 April 15, 2020 April 15, 2020 July 15, 2020 April 15, 2020 to July 14, 2020 July 15, 2020 July 1, 2020 to September 30, 2020 October 15, 2020 July 15, 2020 to October 14, 2020 October 15, 2020 October 1, 2020 to December 31, 2020 October 15, 2020 to January 14, 2021 January 15, 2021 January 15, 2021 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 1,696 338 1,696 338 2,375 338 3,421 338 4,412 338 5,885 338 8,866 338 12,637 338 17,070 338 19,770 338 25,987 338 29,727 338 All dividends declared during the years ended December 31, 2020, 2019 and 2018 were characterized as ordinary income for federal income tax purposes, except for $1.02 of the common stock dividend with a record date of December 31, 2020, which is allocable to 2021 and for which the tax treatment has not been finalized. $0.49 of the common stock dividend with a record date of December 31, 2019 was allocated to 2020, approximately $0.15 of the common stock dividend with a record date of December 31, 2018 was allocated to 2019 and all of the common stock dividend with a record date of December 29, 2017 were allocated to 2018. F-14 Table of Contents 6. Investments in Real Estate The Company acquired the following properties during the year ended December 31, 2020 (dollars in thousands): Property Market Closing Date Green Leaf VA Cresco OH GTI OH LivWell CO Retail Portfolio GTI IL Parallel FL Wimauma Ascend MA Cresco MI Kings Garden CA Holistic PA Cresco MA Curaleaf NJ Columbia Care NJ Portfolio Holistic MI Parallel FL Lakeland Kings Garden CA 4Front WA 4Front MA Total Virginia Ohio Ohio Colorado Illinois Florida Massachusetts Michigan California Pennsylvania Massachusetts New Jersey New Jersey Michigan Florida California Washington Massachusetts January 15, 2020 January 24, 2020 January 31, 2020 Various March 6, 2020 March 11, 2020 April 2, 2020 April 22, 2020 May 12, 2020 June 10, 2020 June 30, 2020 July 13, 2020 July 16, 2020 September 1, 2020 September 18, 2020 November 16, 2020 December 17, 2020 December 17, 2020 Rentable Square Feet(1) 82,000 50,000 101,000 8,000 231,000 373,000 199,000 115,000 70,000 108,000 118,000 111,000 54,000 63,000 220,000 192,000 114,000 67,000 2,276,000 Initial Purchase Price $ 11,740 10,600 2,900 3,300 9,000 35,300 26,750 5,000 17,500 8,870 7,750 5,500 12,385 6,200 19,550 25,375 17,500 15,500 $ 240,720 Transaction Costs $ $ 73 12 27 27 23 26 20 16 12 12 19 59 55 11 7 20 10 10 439 Total $ 11,813 (2) 10,612 (3) 2,927 (4) 3,327 (5) 9,023 (6) 35,326 (7) 26,770 (8) 5,016 (9) 17,512 8,882 (10) 7,769 (11) 5,559 (12) 12,440 (13) 6,211 (14) 19,557 (15) 25,395 (16) 17,510 15,510 $ 241,159 (17) Includes expected rentable square feet at completion of construction of certain properties. (1) (2) We agreed to provide reimbursement to the tenant for development at the property of up to approximately $8.0 million, all of which we incurred and funded as of December 31, 2020. (3) The tenant is expected to complete redevelopment of the property for which we initially agreed to provide reimbursement of up to approximately $1.9 million. In June 2020, we amended the lease, which increased the tenant improvement allowance by $1.0 million to a total of approximately $2.9 million. Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $13.5 million. As of December 31, 2020, we incurred approximately $561,000 of the redevelopment costs, of which none was funded. (4) The tenant is expected to complete redevelopment of the property for which we initially agreed to provide reimbursement of up to $4.3 million. In October 2020, we amended this lease to increase the tenant improvement allowance by $25.0 million to a total of $29.3 million. As of December 31, 2020, we incurred approximately $7.6 million of the redevelopment costs, of which we funded approximately $6.7 million. (5) The portfolio consists of two retail properties, with one property closing on February 19, 2020 and one property closing on February 21, 2020. The tenant is expected to complete tenant improvements at one of the properties, for which we agreed to provide reimbursement of up to $850,000. As of December 31, 2020, we incurred and funded approximately $49,000 of the redevelopment costs. (6) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to $41.0 million. As of December 31, 2020, we incurred approximately $29.9 million of the redevelopment costs, of which we funded approximately $26.8 million. (7) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to $8.2 million. As of December 31, 2020, we incurred approximately $4.3 million of the redevelopment costs, of which we funded approximately $3.3 million. (8) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to approximately $22.3 million. As of December 31, 2020, we incurred approximately $8.7 million of the redevelopment costs, of which we funded approximately $7.0 million. (9) The tenant is expected to complete redevelopment of the property for which we initially agreed to provide reimbursement of up to $11.0 million. In June 2020, we amended the lease, which increased the tenant improvement allowance by $16.0 million to a total of $27.0 million. As of December 31, 2020, we incurred approximately $10.2 million of the redevelopment costs, of which we funded approximately $5.5 million. (10) The tenant is expected to complete redevelopment of the property for which we initially agreed to provide reimbursement of up to approximately $6.4 million. In December 2020, we amended the lease, which increased tenant improvement allowance by $4.0 million to a total of approximately $10.4 million. As of December 31, 2020, we incurred approximately $7.3 million of the redevelopment costs, of which we funded approximately $6.1 million. (11) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to $21.0 million. As of December 31, 2020, we incurred approximately $3.1 million of the redevelopment costs, of which we funded approximately $1.2 million. (12) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to $29.5 million. As of December 31, 2020, we incurred approximately $20.9 million of the redevelopment costs, of which we funded approximately $13.4 million. (13) Portfolio consists of two properties. The tenant is expected to complete redevelopment of one of the properties for which we agreed to provide reimbursement of up to $1.6 million. As of December 31, 2020, we incurred approximately $1.1 million of the redevelopment costs, of which we funded approximately $648,000. (14) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to $18.8 million. As of December 31, 2020, we incurred approximately $4.4 million of the redevelopment costs, of which we funded approximately $1.7 million. F-15 Table of Contents (15) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to approximately $36.9 million. As of December 31, 2020, we incurred approximately $2.7 million of the redevelopment costs, of which we funded approximately $2.2 million. (16) The tenant is expected to complete redevelopment of the property for which we agreed to provide reimbursement of up to $25.0 million. As of December 31, 2020, we had not incurred any of the redevelopment costs. (17) Approximately $27.0 million was allocated to land and approximately $214.2 million was allocated to buildings and improvements. Lease Amendments In January 2020, we amended our lease with GPI which, among other things, canceled the remaining tenant improvement allowance of approximately $15.2 million and adjusted the corresponding base rent. As of December 31, 2020, our total investment in the property was approximately $15.8 million. In January 2020, we amended our lease with a subsidiary of Vireo at one of our Pennsylvania properties, making available an additional $4.5 million in funding for tenant improvements at the property. In April 2020, we amended the lease to decrease the funding for tenant improvements at the property by $300,000. In August 2020, Vireo transferred its ownership interest in the subsidiary tenant at the property to Jushi Holdings Inc., and we amended the lease to increase the funding for tenant improvements at the property by $2.0 million. As a result, the total tenant improvement allowance for the property is approximately $10.0 million, and assuming full payment of the allowance, our total investment in the property will be $15.8 million. As of December 31, 2020, we incurred approximately $8.7 million of the redevelopment costs, of which we funded approximately $7.6 million. In January 2020, we amended our lease with a subsidiary of The Pharm at one of our Arizona properties, making available an additional $2.0 million in funding for tenant improvements at the property, and making the total tenant improvement allowance $5.0 million. As of December 31, 2020, we incurred and funded the full amount of the redevelopment costs, making our total investment in the property $20.0 million. In January 2020, we amended our lease with the tenant of our Sacramento, California property, making available an additional approximately $1.3 million in funding for tenant improvements at the property, and making the total tenant improvement allowance approximately $6.0 million. As of December 31, 2020, we incurred and funded the full amount of the redevelopment costs, making our total investment in the property approximately $12.7 million. In February 2020, we amended our lease with a subsidiary of Maitri Medicinals, LLC (“Maitri”) at one of our Pennsylvania properties, making available an additional $6.0 million in funding for tenant improvements at the property, and making the total tenant improvement allowance $16.0 million. As of December 31, 2020, we incurred $16.0 million of the redevelopment costs, of which we funded approximately $15.2 million. In February 2020, we amended our lease and development agreement with a subsidiary of PharmaCann at one of our Massachusetts properties, making available an additional $4.0 million in construction funding at the property, with the total construction funding being $27.5 million. We also canceled the optional commitment to provide construction funding of $4.0 million for PharmaCann at one of our Pennsylvania properties. As of December 31, 2020, we incurred and funded the full amount of the construction funding, making our total investment in the Massachusetts property was $30.5 million. In March 2020, we amended our lease with a subsidiary of Holistic at our Maryland property, making available a $5.5 million tenant improvement allowance at the property. Assuming full payment of the funding, our total investment in the property will be $22.4 million. As of December 31, 2020, we incurred $5.5 million of the redevelopment costs, of which we funded approximately $4.8 million. In April 2020, we amended our leases with two subsidiaries of Vireo for one of our properties in New York and our property in Minnesota, making available an additional approximately $1.4 million in funding for tenant improvements at the properties in the aggregate, and making the total tenant improvement allowances approximately $10.1 million in the aggregate. Assuming full payment of the funding, our total investment in the property in New York will be approximately $6.8 million and our total investment in the property in Minnesota will be approximately $9.7 million. As of December 31, 2020, we incurred approximately $10.1 million of the tenant improvement allowances in the aggregate, of which we funded approximately $10.0 million. F-16 Table of Contents In response to the coronavirus pandemic and associated severe economic disruption, in April 2020, we amended leases at certain of our properties to provide for temporary base rent and property management fee deferrals through June 30, 2020. Each of the tenants remained responsible for the payment of all other costs under the applicable lease during the deferral period. ● We amended each of our leases with GPI in Michigan to apply a part of GPI’s security deposit at each property for payment of the April 2020 base rent and property management fee, defer the base rent and property management fee for May and June 2020, and amortize the replenishment of the security deposit and payment of the base rent and property management fee deferral over an 18 month period commencing on July 1, 2020. ● We amended our lease with Maitri in Pennsylvania to apply a part of Maitri’s security deposit for payment of the April 2020 base rent and property management fee, defer the base rent and property management fee for May and June 2020, and amortize the replenishment of the security deposit and the base rent and property management fee deferral over an 18 month period commencing on July 1, 2020. ● We amended each of our leases with affiliates of Medical Investor Holdings LLC (“Vertical”) in southern California to apply a part of Vertical’s security deposit at each property for a partial payment of the March 2020 base rent and property management fee and payment in full of the April 2020 base rent and property management fee, defer the base rent and property management fee for May and June 2020, and amortize the replenishment of the security deposit and payment of the base rent and property management fee deferral over an 18 month period commencing on July 1, 2020. Pursuant to these amendments, (1) a total of approximately $940,000 of security deposits were applied to the payment of base rent, property management fees and associated lease penalties for March and April 2020, including approximately $185,000 related to the partial payment of base rent and property management fees by Vertical for March 2020; (2) a total of approximately $743,000 in base rent and property management fees were deferred for May 2020; (3) a total of approximately $781,000 in base rent and property management fees were deferred for June 2020; and (4) a total of approximately $52,000 per month in replenishment of security deposits and approximately $85,000 per month in repayments of base rent and property management fee deferrals are required to be paid each month over an 18 month period commencing on July 1, 2020. Vertical made partial payments of contractual rent due for November and December 2020 and approximately $424,000 of security deposits were applied to the payment of rent and associated lease penalties. In June 2020, we amended our lease and development agreement with a subsidiary of PharmaCann at one of our Illinois properties, making available an additional $3.0 million in construction funding at the property, and making the total available construction funding $10.0 million. As of December 31, 2020, we incurred approximately $9.5 million of the redevelopment costs, of which we funded approximately $9.4 million. In June 2020, we amended our lease with a subsidiary of Green Leaf Medical, LLC at one of our Pennsylvania properties, making available $30.0 million in funding for tenant improvements at the property. Assuming full payment of the tenant improvement allowance, our total investment in the property will be $43.0 million. As of December 31, 2020, we incurred approximately $828,000 of the redevelopment costs, of which we funded approximately $592,000. In August 2020, we amended our lease with a subsidiary of GR Companies, Inc. (“Grassroots”) at one of our Pennsylvania properties, making available an additional approximately $1.5 million in funding for tenant improvements at the property, and making the total tenant improvement allowance approximately $12.4 million. Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $26.6 million. As of December 31, 2020, we incurred approximately $12.0 million of the redevelopment costs, of which we funded approximately $11.5 million. Grassroots was acquired by Curaleaf Holdings, Inc. in 2020. In August 2020, we amended our lease with a subsidiary of Grassroots at one of our Illinois properties, making available an additional $844,000 in funding for tenant improvements at the property, and making the total tenant improvement allowance at the property approximately $18.6 million. Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $29.1 million. As of December 31, 2020, we incurred approximately $13.9 million of the redevelopment costs, of which we funded approximately $12.8 million. In August 2020, we amended our lease with a subsidiary of Ascend at one of our Illinois properties, making available an additional $18.0 million in funding for tenant improvements at the property, and making the total tenant F-17 Table of Contents improvement allowance at the property $32.0 million. Assuming full payment of the additional funding, our total investment in the property will be $51.0 million. As of December 31, 2020, we incurred approximately $25.1 million of the redevelopment costs, of which we funded approximately $22.9 million. In October 2020, we amended our lease with a subsidiary of GTI at one of our Ohio properties, making available an additional $25.0 million in funding for tenant improvements at the property, and making the total tenant improvement allowance $29.3 million. Assuming full payment of the tenant improvement allowance, our total investment in the property will be $32.2 million. As of December 31, 2020, we incurred approximately $7.6 million of the redevelopment costs, of which we funded approximately $6.7 million. In October 2020, we amended our lease with GPI at one of our Michigan retail properties, making available an additional $525,000 in funding for tenant improvements at the property, and making the total tenant improvement allowance approximately $1.8 million. Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $3.4 million. As of December 31, 2020, we incurred approximately $1.8 million of the redevelopment costs, of which we funded approximately $1.7 million. In November 2020, we amended our lease and development agreement with PharmaCann at one of our Pennsylvania properties, making available an additional $2.0 million in construction funding at the property, and making the total construction funding approximately $27.1 million. Assuming full payment of the construction funding, our total investment in the property will be $28.0 million. As of December 31, 2020, we incurred approximately $26.4 million of the redevelopment costs, of which we funded approximately $24.8 million. In December 2020, we amended our lease and entered into a development agreement with PharmaCann at one of our New York properties, making available $31.0 million in construction funding at the property. Assuming full payment of the construction funding, our total investment in the property will be $61.0 million. As of December 31, 2020, we incurred approximately $70,000 of the construction costs, of which none was funded. In December 2020, we amended our lease with Holistic at one of our Pennsylvania properties, making available an additional $4.0 million in funding for tenant improvements at the property, and making the total tenant improvement allowance approximately $10.4 million. Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $19.3 million. As of December 31, 2020, we incurred approximately $7.3 million of the redevelopment costs, of which we funded approximately $6.1 million. In December 2020, we amended our lease with Holistic at one of our Massachusetts properties, making available an additional $3.0 million in funding for tenant improvements at the property, and making the total tenant improvement allowance $5.0 million. Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $17.8 million. As of December 31, 2020, we incurred approximately $2.1 million of the redevelopment costs, of which we funded $2.0 million. Including all of our properties, during the year ended December 31, 2020, we capitalized costs of approximately $301.0 million and funded approximately $289.5 million relating to tenant improvements and construction activities at our properties. The properties acquired during 2020 generated approximately $27.2 million of rental revenue (including tenant reimbursements) and approximately $20.7 million of net operating income after deducting property and depreciation expenses for the year ended December 31, 2020. The properties acquired during 2019 generated approximately $16.3 million of rental revenue (including tenant reimbursements) and approximately $12.5 million net operating income after deducting property and depreciation expenses for the year ended December 31, 2019. F-18 Table of Contents Future contractual minimum rent (including base rent, supplemental base rent (with respect to our lease with PharmaCann at one of our New York properties) and property management fees) under the operating leases as of December 31, 2020 for future periods is summarized as follows (in thousands): Year Contractual Minimum Rent 2021 2022 2023 2024 2025 Thereafter Total 7. Exchangeable Senior Notes $ $ 174,805 182,348 187,798 193,418 199,309 2,836,452 3,774,130 In February 2019, our Operating Partnership issued $143.75 million of 3.75% Exchangeable Senior Notes due 2024 (the “Exchangeable Senior Notes”) in a private offering, including the exercise in full of the initial purchasers’ option to purchase additional 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 December 31, 2020 was 15.01810 shares of our common stock per $1,000 principal amount of Exchangeable Senior Notes and the exchange price at December 31, 2020 was approximately $66.59 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 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. Upon our issuance of the Exchangeable Senior Notes, we recorded an approximately $5.8 million discount based on the implied value of the exchange option and an assumed effective interest rate of 4.65%, as well as approximately $5.2 million of initial issuance costs, of which approximately $5.0 million and $200,000 were allocated to the liability and equity components, respectively, based on their relative fair values. Issuance costs allocated to the liability component are being amortized using the effective interest method and recognized as non-cash interest expense over the expected term of the Exchangeable Senior Notes. The following table details our interest expense related to the Exchangeable Senior Notes (in thousands): Cash coupon Amortization of debt discount Amortization of issuance cost Total interest expense December 31, 2020 December 31, 2019 5,391 1,093 947 7,431 $ $ 4,628 898 780 6,306 $ $ The following table details the carrying value of our Exchangeable Senior Notes on our consolidated balance sheets (in thousands): Principal amount Unamortized discount Unamortized issuance costs Carrying value December 31, 2020 December 31, 2019 $ $ 143,749 (3,785) (3,271) 136,693 $ $ 143,750 (4,878) (4,218) 134,654 Accrued interest payable for the Exchangeable Senior Notes was approximately $1.6 million as of both December 31, 2020 and 2019, and is included in accounts payable and accrued expenses on our consolidated balance sheets. F-19 Table of Contents 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 and dividend equivalents 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 December 31, 2020, all of the Company’s participating securities received dividends or dividend equivalents at an equal dividend rate per share. As a result, distributions to participating securities have been included in net income attributable to common stockholders to calculate net income per basic and diluted share. We have considered the dilutive effect of the 2,158,837 and 2,100,307 potentially issuable shares necessary to settle the Exchangeable Senior Notes on the if exchanged method basis for the years ended December 31, 2020 and 2019, respectively, and as this effect was anti-dilutive, these shares necessary to settle the Exchangeable Senior Notes were excluded from diluted earnings per share. Computations of net income per basic and diluted share were as follows (in thousands, except share and per share data): Net income Preferred stock dividends Distribution to participating securities Net income attributable to common stockholders used to compute net income per share Weighted-average common shares outstanding: Basic Diluted Net income attributable to common stockholders per share: Basic Diluted 9. Fair Value of Financial Instruments Years Ended December 31, 2019 2020 2018 $ 65,730 (1,352) (509) $ 23,475 (1,352) (396) 6,985 (1,352) (178) 63,869 $ 21,727 $ 5,455 $ $ 19,443,602 19,557,619 10,546,016 10,684,068 7,138,952 7,285,801 $ $ 3.28 3.27 $ $ 2.06 2.03 $ $ 0.76 0.75 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. F-20 Table of Contents The following table presents the carrying value in the consolidated financial statements and approximate fair value of financial instruments at December 31, 2020 and 2019: Investments(1) Exchangeable Senior Notes(2) At December 31, 2020 At December 31, 2019 Carrying Value Fair Value Carrying Value Fair Value $ $ 619,275 136,693 $ $ 619,270 397,663 $ $ 119,595 134,654 $ $ 119,673 185,558 (1) 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 were trading in the private market as of December 31, 2020. As of December 31, 2020 and 2019, cash equivalent instruments consisted of approximately $98.3 million and $60.1 million, respectively, in short-term money market funds that were measured using the net asset value per share that have not been classified 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 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, accounts payable, accrued expenses and other liabilities approximate their relative 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 withholding obligations of the recipient) are recredited to the 2016 Plan’s reserve for future issuance. The 2016 Plan has a term of ten years until December 5, 2026. A summary of the restricted stock activity under the 2016 Plan and related information for the years ended December 31, 2020, 2019 and 2018 is included in the table below: Nonvested balance at December 31, 2017 Granted Vested Forfeited(1) Nonvested balance at December 31, 2018 Granted Vested Forfeited(1) Nonvested balance at December 31, 2019 Granted Vested Forfeited(1) Nonvested balance at December 31, 2020 (1) All of these shares were forfeited to cover the employees’ tax withholding obligation upon vesting. F-21 Restricted Shares 106,839 76,732 (24,133) (12,079) 147,359 56,460 (43,556) (20,717) 139,546 17,057 (51,705) (28,552) 76,346 Weighted- Average Grant Date Fair Value $ $ $ $ $ $ $ $ $ $ $ $ $ 18.01 29.72 18.45 18.67 23.98 55.82 25.82 18.98 37.03 75.96 40.07 19.72 50.14 Table of Contents The remaining unrecognized compensation cost of approximately $1.8 million for restricted stock awards is expected to be recognized over a weighted-average amortization period of approximately 1.4 years as of December 31, 2020. The fair value of restricted stock that vested in 2020, 2019 and 2018 was approximately $6.0 million, $3.2 million and $1.2 million, respectively. A summary of the RSU activity under the 2016 Plan and related information for the year ended December 31, 2020 is included in the table below. There was no RSU activity for the years ended December 31, 2019 and 2018. RSUs have the same economic rights as shares of restricted stock under the 2016 Plan: Balance at December 31, 2019 Granted Balance at December 31, 2020 Weighted- Unvested Average Grant Date RSUs Fair Value — $ $ $ 36,687 36,687 — 76.06 76.06 The remaining unrecognized compensation cost of approximately $1.8 million for RSU awards is expected to be recognized over an amortization period of approximately 1.9 years as of December 31, 2020. 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 our consolidated balance sheet as of December 31, 2020 is presented in the table below (in thousands): Year 2021 2022 2023 2024 2025 Thereafter Total future contractual lease payments Effect of discounting Office lease liability $ Amount 235 242 249 256 88 — 1,070 (13) 1,057 $ Tenant Improvement Allowances. As of December 31, 2020, we had approximately $250.7 million of commitments related to tenant 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 Funding. As of December 31, 2020, we had approximately $624,000 of commitments relating to construction funding for the development of a property in Pennsylvania, which we funded in full in February 2021. 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. We may, from time to time, be a party to legal proceedings, which arise in the ordinary course of our business. We are not aware of any pending or threatened litigation that, if resolved against us, would have a material adverse effect on our consolidated financial position, results of operations or cash flows. Deferred Compensation Plan. In November 2019, we adopted the Innovative Industrial Properties, Inc. Nonqualified Deferred Compensation Plan (the “Plan”), which allows a select group of management and our non-employee directors to defer receipt of their compensation, including up to 80% of base salary, 100% of bonus, 100% of F-22 Table of Contents director fees and 100% of restricted equity awards. The Plan assets are held in a rabbi trust which is consolidated and included in the consolidated financial statements. 12. Related Party Transactions Private Airplane Reimbursement. Alan Gold, our executive chairman, utilizes a private airplane from time to time exclusively for company business travel purposes, which airplane is owned by an entity controlled by Mr. Gold. We reimburse Mr. Gold for the company-related use of the airplane by Mr. Gold and our other executives, including out-of-pocket operating costs, on terms we believe are comparable to those we could secure from an independent third party. As approved by our audit committee, for the years ended December 31, 2020, 2019 and 2018, we paid approximately $309,000, $308,000 and $202,000, respectively, to Mr. Gold on account of such expenses. 13. Subsequent Events Subsequent to December 31, 2020, the Company acquired the following properties, including commitments to fund tenant improvements and construction, and made the following additional funds available to tenants for improvements at the Company’s existing properties (dollars in thousands): Property Holistic CA Harvest FL Kings Garden CA LivWell MI Market California Florida California Michigan Closing Date January 7, 2021 January 22, 2021 February 5, 2021 February 16, 2021 Total Rentable Square Feet (1) N/A 295,000 180,000 N/A 475,000 Initial Purchase Price N/A 23,800 1,350 N/A 25,150 $ $ $ Tenant Improvement Commitments 11,000 10,750 51,375 6,895 80,020 $ $ Total (2) 11,000 (3) 34,550 (4) 52,725 (5) 6,895 (6) $ 105,170 Includes expected rentable square feet at completion of construction of certain properties. (1) (2) Excludes transaction costs. (3) The amount relates to the tenant improvement allowance provided in connection with a new lease executed at one of our California properties located in Los Angeles, the prior tenant of which was under receivership. Assuming full payment of the tenant improvement allowance, our total investment in the property will be approximately $24.0 million. As of February 24, 2021, we had not funded any of the tenant improvement allowance. (4) The tenant is expected to complete tenant improvements at the property, for which we agreed to provide reimbursement of up to approximately $10.8 million. As of February 24, 2021, we had not funded any of the tenant improvement allowance. (5) The amounts relate to the acquisition of additional land adjacent to an existing property and a lease amendment which provided a tenant improvement allowance and resulted in a corresponding adjustment to base rent for lease at the property. The tenant is expected to complete construction of two new buildings on the property comprising approximately 180,000 square feet in the aggregate, for which we agreed to provide reimbursement of up to approximately $51.4 million. As of February 24, 2021, we had not funded any of the tenant improvement allowance. (6) The amount relates to a lease amendment which increased the tenant improvement allowance under a lease at one of our Michigan properties by approximately $6.9 million to a total of approximately $29.9 million, and also resulted in a corresponding adjustment to the base rent for the lease at the property. As of February 24, 2021, we had funded approximately $29.8 million of the tenant improvement allowance. Rent Collections Update (as of February 24, 2021) We collected 100% of contractual rent due for the three months ended December 31, 2020 and 100% of contractual rent due for the months of January and February 2021 across our total portfolio, other than: ● The tenant at our Los Angeles, California property that was in receivership until we signed a new lease with Holistic for the entire property on January 7, 2021; and ● Vertical, the tenant at certain properties in southern California, which made partial payments of contractual rent due during these time periods. The properties that Vertical occupies represented less than one percent of our total gross assets at December 31, 2020. We have not provided deferrals of any rent obligations to any tenant since July 1, 2020. F-23 Table of Contents 14. Quarterly Financial Information (unaudited) The Company’s selected quarterly information for the years ended December 31, 2020 and 2019 (in thousands, except share and per share data) was as follows. Revenues: Rental (including tenant reimbursements) Total revenues Expenses: Property expenses General and administrative expense Depreciation expense Total expenses Income from operations Interest and other income Interest expense Net income Preferred stock dividends Net income attributable to common stockholders Net income attributable to common stockholders per share: Basic Diluted Weighted-average shares outstanding: Basic Diluted(2) Revenues: December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 Three Months Ended(1) $ $ $ $ 37,093 37,093 $ 34,327 34,327 $ 24,346 24,346 $ 21,130 21,130 1,019 4,487 8,726 14,232 22,861 338 (1,866) 21,333 (338) 20,995 0.91 0.91 $ $ $ 2,919 3,339 7,646 13,904 20,423 653 (1,861) 19,215 (338) 18,877 0.87 0.86 $ $ $ 414 3,010 6,746 10,170 14,176 989 (1,855) 13,310 (338) 12,972 0.73 0.73 $ $ $ 600 3,346 4,907 8,853 12,277 1,444 (1,849) 11,872 (338) 11,534 0.72 0.72 22,804,185 25,077,099 21,594,637 21,708,725 17,530,721 17,644,829 15,784,296 15,898,091 December 31, 2019 September 30, 2019 June 30, 2019 March 31, 2019 Three Months Ended(1) Rental (including tenant reimbursements) $ Total revenues Expenses: Property expenses General and administrative expense Depreciation expense Total expenses Income from operations Interest and other income Interest expense Net income Preferred stock dividends Net income attributable to common stockholders Net income attributable to common stockholders per share: Basic Diluted Weighted-average shares outstanding: Basic Diluted $ $ $ 17,672 17,672 $ 11,555 11,555 $ $ 8,617 8,617 374 3,151 3,545 7,070 10,602 1,144 (1,844) 9,902 (338) 9,564 0.79 0.78 $ $ $ 357 2,156 2,221 4,734 6,821 1,537 (1,838) 6,520 (338) 6,182 0.56 0.55 $ $ $ 337 2,593 1,615 4,545 4,072 1,172 (1,832) 3,412 (338) 3,074 0.31 0.30 $ $ $ 6,823 6,823 247 1,918 1,218 3,383 3,440 993 (792) 3,641 (338) 3,303 0.34 0.33 11,905,021 12,044,602 10,918,477 11,057,697 9,667,079 9,807,503 9,664,775 9,797,676 (1) The sum of quarterly financial data may vary from the annual data due to rounding. (2) For the three months ended December 31, 2020, net income attributable to common stockholders per diluted share included 2,158,837 potentially issuable shares as if the Exchangeable Senior Notes were exchanged at the beginning of the period. This adjustment applied only for the three months ended December 31, 2020. The Exchangeable Senior Notes were anti-dilutive for purposes of calculating net income attributable to common stockholders per diluted share for all other periods presented. F-24 Table of Contents INNOVATIVE INDUSTRIAL PROPERTIES, INC. SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION As of December 31, 2020 (In thousands) Initial Costs Total Costs Year Building and Costs Capitalized Subsequent to Building and Accumulated Net Cost Built/Renovated Land Improvements Acquisition Land Improvements Total $ 20,030 $ 2,528 12,730 1995/2017 2019 1990/2019 $ 398 1,216 1,376 $ 398 1,216 1,376 19,632 1,312 11,354 14,629 811 5,321 5,003 501 6,033 $ $ $ Depreciation Basis (2,136) $ 17,894 (68) (616) 2,460 12,114 Year Acquired 2017 2019 2019 State Colorado Florida California California Arizona Arizona California Florida Illinois Illinois Illinois Illinois Illinois Maryland Property Pharm AZ Pharm AZ Retail Sacramento CA Kings Garden CA Portfolio Esperanza CA Vertical CA Portfolio California Columbia Care CO Colorado LivWell CO Retail Portfolio Trulieve FL Parallel FL Portfolio Ascend IL Cresco IL Portfolio Curaleaf IL PharmaCann IL GTI IL Holistic MD PharmaCann MA Massachusetts Massachusetts Holistic MA Massachusetts Trulieve MA Massachusetts Ascend MA Massachusetts Cresco MA Massachusetts 4Front MA Green Peak MI Michigan Emerald Growth MI Ascend MI LivWell MI Green Peak MI Retail Portfolio Cresco MI Holistic MI Vireo MN MJardin NV Curaleaf NJ Columbia Care NJ Portfolio PharmaCann NY Vireo NY Curaleaf ND PharmaCann OH Vireo OH Cresco OH GTI OH Jushi PA Maitri PA Green Leaf PA PharmaCann PA GTI PA Curaleaf PA Holistic PA Green Leaf VA New Jersey New York New York North Dakota Ohio Ohio Ohio Ohio Pennsylvania Pennsylvania Pennsylvania Pennsylvania Pennsylvania Pennsylvania Pennsylvania Virginia Michigan Michigan Michigan Minnesota Nevada New Jersey Michigan Michigan Michigan Various(1)(8) 1926/1976 Various(2) 1978/2018 Various(3) 2019 Various(4) 2015(8) Various(5)(8) 1984(8) 1992/2020 2015(8) 2017 2019 1980/2018 1890(8) 1938(8) 1880(8) 1991/2019 2018 1960/2020 1929(8) 1940/2020 Various(6) 1930(8) (8) 2015/2017 1984/2020 1964(8) Various(7)(8) 2016 1970/2015 2018/2020 2019 1986/2020 2018/2020 1937/2020 1959/2020 1970/2019 1988/2020 (8) 1927/2017 1980/2019 1930/2020 2019/2020 8,994 1,713 3,393 2,101 546 274 3,258 563 3,215 350 201 739 2,785 3,030 1,059 694 2,202 650 2,316 1,933 389 409 1,237 2,562 1,385 6,211 427 1,088 702 466 7,600 303 191 712 22 235 239 275 233 1,353 954 1,435 1,228 941 231 61,062 11,307 13,939 9,176 2,781 16,729 51,625 18,457 29,602 10,191 17,807 8,284 8,410 — 11,717 2,831 24,568 7,119 13,194 3,559 6,489 4,360 17,791 7,512 3,631 — 2,644 2,768 4,857 11,974 22,475 3,157 9,743 — 1,014 10,377 2,688 5,603 6,249 11,854 — 19,098 13,080 7,941 11,582 — 8,994 — 1,713 — 3,393 — 2,101 51 — 546 274 6,893 24,943 13,596 13,866 9,540 29,871 11,405 27,512 2,036 40,029 8,598 3,144 3,258 563 3,215 350 201 739 2,785 3,030 1,059 694 2,202 650 — 2,316 1,933 10,300 3,139 14,882 22,912 1,755 10,179 4,397 6,617 5,770 20,955 1,090 70 3,327 2,271 19,310 2,501 568 7,542 8,570 15,887 833 26,467 19,302 12,045 7,242 7,937 389 409 1,237 2,562 1,385 6,211 427 1,088 702 466 7,600 303 191 712 22 235 239 275 233 1,353 954 1,435 1,228 941 231 F-25 61,062 11,307 70,056 13,020 (1,584) (424) 68,472 12,596 2019/2020 2019 13,939 9,176 17,332 11,277 2,832 16,729 3,378 17,003 (519) (754) 16,813 10,523 (63) (636) 3,315 16,367 58,518 43,400 43,198 24,057 27,347 38,155 19,815 27,512 13,753 42,860 33,166 10,263 13,194 13,859 9,628 19,242 40,703 9,267 13,810 4,397 9,261 8,538 25,812 13,064 22,545 6,484 12,014 19,310 3,515 10,945 10,230 14,173 22,136 12,687 26,467 38,400 25,125 15,183 19,519 61,776 43,963 46,413 24,407 27,548 38,894 22,600 30,542 14,812 43,554 35,368 10,913 15,510 15,792 10,017 19,651 41,940 11,829 15,195 10,608 9,688 9,626 26,514 13,530 30,145 6,787 12,205 20,022 3,537 11,180 10,469 14,448 22,369 14,040 27,421 39,835 26,353 16,124 19,750 (1,020) (2,318) (1,965) (1,022) (985) (711) (2,187) (1,119) (887) (2,309) (569) (102) (15) (1,068) (492) (584) (1,968) (403) (105) (13) (776) (476) (288) (169) (2,509) (631) (407) (685) (295) (250) (306) (1,052) (913) (646) (337) (1,815) (1,013) (227) (738) 60,756 41,645 44,448 23,385 26,563 38,183 20,413 29,423 13,925 41,245 34,799 10,811 15,495 14,724 9,525 19,067 39,972 11,426 15,090 10,595 8,912 9,150 26,226 13,361 27,636 6,156 11,798 19,337 3,242 10,930 10,163 13,396 21,456 13,394 27,084 38,020 25,340 15,897 19,012 2019 2018 2020 2019 2020 2018 2019 2019 2019 2020 2017 2018 2018 2019 2020 2020 2020 2018 2019 2019 2019 2019 2020 2020 2017 2019 2020 2020 2016 2017 2019 2019 2019 2020 2020 2018 2019 2019 2019 2019 2019 2020 2020 Table of Contents 4Front WA Total Washington 1997/2015 1,826 15,684 — 1,826 15,684 17,510 (20) 17,490 2020 $ 75,660 $ 545,690 $ 438,889 $ 75,660 $ 984,579 $1,060,239 $ (40,195) $1,020,044 (1) Portfolio consists of six properties constructed and renovated between 1980 and 2019. (2) Portfolio consists of four properties constructed and renovated between 1964 and 2020. (3) Portfolio consists of two properties constructed in 1998 and 2019. (4) Portfolio consists of two properties constructed in 1982 and 1994. Both properties were renovated in 2020. (5) Portfolio consists of two properties constructed in 2015 and 2016. Both properties were renovated in 2016. (6) Portfolio consists of six properties constructed and renovated between 1957 and 2019. (7) Portfolio consists of two properties constructed between 1962 and 1974. Both properties were renovated in 2020. (8) As of December 31, 2020, all or a portion of the property was under active development or redevelopment. A reconciliation of historical cost and related accumulated depreciation is as follows (in thousands): Investment in real estate, at cost: Balance at beginning of year Purchases of investments in real estate Additions and improvements Balance at end of year Accumulated Depreciation: Balance at beginning of year Depreciation expense Balance at end of year Years Ended December 31, 2019 2020 2018 $ 518,031 241,159 301,049 $ 1,060,239 $ $ (12,170) (28,025) (40,195) $ $ $ $ 150,930 259,889 107,212 518,031 (3,571) (8,599) (12,170) $ $ $ $ 68,730 57,474 24,726 150,930 (942) (2,629) (3,571) F-26 Exhibit 4.3 Description of Securities Registered Under Section 12 of the Securities Exchange Act of 1934, as amended As of December 31, 2020, Innovative Industrial Properties, Inc. (the “Company,” “we,” “us,” and “our”) had two classes of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): (1) our common stock, par value $0.001 per share, and (2) our Series A Preferred Stock, par value $0.001 per share. Description of Our Common Stock The following is a summary description of our common stock. This description does not purport to be complete and is subject to and qualified in its entirety by reference to the Maryland General Corporation Law (“MGCL”), and to our charter and our bylaws. For a more complete understanding of our common stock, we encourage you to read carefully our charter and our bylaws, copies of which are filed as exhibits to our Annual Report on Form 10-K. General. Our charter provides that we may issue up to 50,000,000 shares of common stock, $0.001 par value per share, and up to 50,000,000 shares of preferred stock, $0.001 par value per share, of which 690,000 shares are designated as Series A Preferred Stock pursuant to articles supplementary filed with the State of Maryland. Under the MGCL and other applicable law, our stockholders are not generally liable for our debts or obligations. Our charter authorizes our board of directors to amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue with the approval of a majority of our entire board of directors and without stockholder approval. Dividends. Subject to the preferential rights, if any, of holders of any other class or series of our stock (including our Series A Preferred Stock) and to the provisions of our charter regarding the restrictions on ownership and transfer of our stock, holders of outstanding shares of common stock are entitled to receive dividends on such shares of common stock out of assets legally available therefor if, as and when authorized by our board of directors and declared by us. Liquidation. Subject to the preferential rights, if any, of holders of any other class or series of our stock (including our Series A Preferred Stock) and to the provisions of our charter regarding the restrictions on ownership and transfer of our stock, the holders of outstanding shares of common stock are entitled to share ratably in our assets legally available for distribution to our stockholders in the event of our liquidation, dissolution or winding up after payment of or adequate provision for all our known debts and liabilities. Voting Rights. Subject to the provisions of our charter regarding the restrictions on ownership and transfer of our stock and except as may otherwise be specified in the terms of any class or series of stock, each outstanding share of common stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors, and, except as provided with respect to any other class or series of shares of our stock (including the Series A Preferred Stock), the holders of shares of common stock will possess the exclusive voting power. A plurality of the votes cast in the election of directors is sufficient to elect a director and there is no cumulative voting in the election of directors, which means that the holders of a majority of the outstanding shares of common stock can elect all of the directors then standing for election, and the holders of the remaining shares will not be able to elect any directors. Other Rights. Holders of shares of common stock have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have no preemptive rights to subscribe for any securities of the Company. Subject to the provisions of our charter regarding the restrictions on ownership and transfer of our stock, shares of common stock will have equal dividend, liquidation and other rights. Under the MGCL, a Maryland corporation generally cannot dissolve, amend its charter, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business, unless declared advisable by the board of directors and approved by the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter. However, a Maryland corporation may provide in its charter for approval of these matters by a lesser percentage, but not less than a majority of all the votes entitled to be cast on the matter. Our charter provides for approval of these matters by the affirmative vote of holders of shares entitled to cast a majority of all the votes entitled to be cast on the matter, except for amendments to our charter that would alter only the contract rights, as expressly set forth in the charter, of a specified class or series of stock (including the Series A Preferred Stock) with respect to which the holders of such class or series of stock have exclusive voting rights as provided in our charter. Also, our operating assets are held by our subsidiaries and these subsidiaries may be able to merge or sell all or substantially all of their assets without the approval of our stockholders. Power to Reclassify Our Unissued Shares of Stock. Our charter authorizes our board of directors to classify and reclassify any unissued shares of common or preferred stock into other classes or series of stock, including one or more classes or series of stock that have priority with respect to voting rights, dividends or upon liquidation over our common stock, and authorize us to issue the newly-classified shares. Prior to the issuance of shares of each new class or series, our board of directors is required by Maryland law and by our charter to: (a) designate that series or class to distinguish it from all other classes and series of capital stock outstanding, (b) specify the number of shares to be included in such class or series, and (c) to set, subject to the provisions of our charter regarding the restrictions on ownership and transfer of our stock described below, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Our board of directors may take these actions without stockholder approval unless stockholder approval is required by the terms of any other class of series of our stock or the rules of any stock exchange or automatic quotation system on which our securities may be listed or traded. Therefore, our board could authorize the issuance of shares of common or preferred stock with terms and conditions that could have the effect of delaying, deferring or preventing a change in control or other transaction that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders. Power to Increase or Decrease Authorized Shares of Stock and Issue Additional Shares of Common and Preferred Stock. We believe that the power of our board of directors to amend our charter to increase or decrease the number of authorized shares of our stock, to authorize us to issue additional authorized but unissued shares of common or preferred stock and to classify or reclassify unissued shares of common or preferred stock and thereafter to authorize us to issue such classified or reclassified shares of stock will provide us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs that might arise. Subject to the rights holders of the Series A Preferred Stock will have to approve the classification or issuance of shares of a class or series of our stock ranking senior to the Series A Preferred Stock, the additional classes or series, as well as the additional shares of common stock, will be available for issuance without further action by our stockholders, unless such approval is required by the terms of any other class or series of our stock or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded. Although our board of directors does not intend to do so, it could authorize us to issue a class or series of stock that could, depending upon the terms of the particular class or series, delay, defer or prevent a change in control or other transaction that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders. Restrictions on Ownership and Transfer. In order for us to qualify as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), shares of our stock must be owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be taxed as a REIT has been made) or during a proportionate part of a shorter taxable year. Also, under Section 856(h) of the Code, a REIT cannot be “closely held.” In this regard, not more than 50% of the value of the outstanding shares of stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made). Our charter contains restrictions on the ownership and transfer of shares of our common stock and other outstanding shares of stock. The relevant sections of our charter provide that, subject to the exceptions described below, 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 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; we refer to these limitations as the “ownership limits.” In addition, the Series A Preferred Stock articles supplementary provide that generally no person 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 in number of shares, whichever is more restrictive) of the outstanding Series A Preferred Stock. The constructive ownership rules under the Code are complex and may cause shares of stock owned actually or constructively by a group of related individuals or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% in value of the aggregate of our outstanding shares of stock and 9.8% (in value or in number of shares, whichever is more restrictive) of any class or series of our shares of stock (or the acquisition of an interest in an entity that owns, actually or constructively, shares of our stock by an individual or entity), could, nevertheless, cause that individual or entity, or another individual or entity, to violate the ownership limits. Our board of directors may, upon receipt of certain representations, undertakings and agreements and in its sole discretion, exempt (prospectively or retroactively) any person from the ownership limits and establish a different limit, or excepted holder limit, for a particular person if the person’s ownership in excess of the ownership limits will not then or in the future result in us failing the “closely held” test under Section 856(h) of the Code (without regard to whether the person’s interest is held during the last half of a taxable year) or otherwise cause us to fail to qualify as a REIT. In order to be considered by our board of directors for exemption, a person also must not own, actually or constructively, an interest in one of our tenants (or a tenant of any entity which we own or control) that would cause us to own, actually or constructively, more than a 9.9% interest in the tenant unless the revenue derived by us from such tenant is sufficiently small that, in the opinion of our board of directors, rent from such tenant would not adversely affect our ability to qualify as a REIT. The person seeking an exemption must provide such representations and undertakings to the satisfaction of our board of directors that it will not violate these two restrictions. The person also must agree that any violation or attempted violation of these restrictions will result in the automatic transfer to a trust of the shares of stock causing the violation. As a condition of granting an exemption or creating an excepted holder limit, our board of directors may, but is not be required to, obtain an opinion of counsel or private ruling from the Internal Revenue Service (the “Service”) satisfactory to our board of directors with respect to our qualification as a REIT and may impose such other conditions or restrictions as it deems appropriate. In connection with granting an exemption from the ownership limits or establishing an excepted holder limit or at any other time, our board of directors may increase or decrease the ownership limits. Any decrease in the ownership limits will not be effective for any person whose percentage ownership of shares of our stock is in excess of such decreased limits until such person’s percentage ownership of shares of our stock equals or falls below such decreased limits (other than a decrease as a result of a retroactive change in existing law, which will be effective immediately), but any further acquisition of shares of our stock in excess of such percentage ownership will be in violation of the applicable limits. Our board of directors may not increase or decrease the ownership limits if, after giving effect to such increase or decrease, five or fewer persons could beneficially own or constructively own in the aggregate more than 49.9% in value of the shares of our stock then outstanding. Prior to any modification of the ownership limits, our board of directors may require such opinions of counsel, affidavits, undertakings or agreements as it may deem necessary or advisable in order to determine or ensure our qualification as a REIT. Our charter further prohibits: ● any person from beneficially or constructively owning, applying certain attribution rules of the Code, shares of our stock that would result in us failing the “closely held” test under Section 856(h) of the Code (without regard to whether the stockholder’s interest is held during the last half of a taxable year) or otherwise cause us to fail to qualify as a REIT; and ● any person from transferring shares of our stock if such transfer would result in shares of our stock to be beneficially owned by fewer than 100 persons (determined without reference to any rules of attribution). Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of our stock that will or may violate the ownership limits or any of the other foregoing restrictions on ownership and transfer of our stock will be required to immediately give written notice to us or, in the case of a proposed or attempted transaction, give at least 15 days’ prior written notice to us, and provide us with such other information as we may request in order to determine the effect of such transfer on our qualification as a REIT. The ownership limits and the other restrictions on ownership and transfer of our stock will not apply if our board of directors determines that it is no longer in our best interests to continue to qualify as a REIT or that compliance with the restrictions on ownership and transfer of our stock is no longer required in order for us to qualify as a REIT. If any transfer of shares of our stock would result in shares of our stock to be beneficially owned by fewer than 100 persons, such transfer will be void from the time of such purported transfer and the intended transferee will acquire no rights in such shares. In addition, if any purported transfer of shares of our stock or any other event would otherwise result in: ● any person violating the ownership limits or such other limit established by our board of directors; or ● our Company to be “closely held” under Section 856(h) of the Code (without regard to whether the stockholder’s interest is held during the last half of a taxable year) or otherwise failing to qualify as a REIT, then that number of shares (rounded up to the nearest whole share) that would cause us to violate such restrictions will automatically be transferred to, and held by, a charitable trust for the exclusive benefit of one or more charitable organizations selected by us, and the intended transferee will acquire no rights in such shares. The transfer will be deemed to be effective as of the close of business on the business day prior to the date of the transfer in violation of the ownership limit or other event that results in the transfer to the charitable trust. A person who, but for the transfer of the shares to the charitable trust, would have beneficially or constructively owned the shares so transferred, or a “prohibited owner,” which, if appropriate in the context, also means any person who would have been the record owner of the shares that the prohibited owner would have so owned. If the transfer to the charitable trust as described above would not be effective, for any reason, to prevent violation of the applicable restriction on ownership and transfer contained in our charter, then our charter provides that the transfer of the shares will be void from the time of such purported transfer. Shares of stock transferred to a charitable trust are deemed offered for sale to us, or our designee, at a price per share equal to the lesser of (1) the price paid per share in the transaction that resulted in such transfer to the charitable trust (or, if the event that resulted in the transfer to the charitable trust did not involve a purchase of such shares of stock at market price, defined generally as the last reported sales price reported on the NYSE (or other applicable exchange), the market price per share of such stock on the day of the event which resulted in the transfer of such shares of stock to the charitable trust) and (2) the market price on the date we, or our designee, accept such offer. We may reduce the amount payable to the charitable trust by the amount of dividends and other distributions which have been paid to the prohibited owner and are owed by the prohibited owner to the charitable trust as described below. We may pay the amount of such reduction to the charitable trust for the benefit of the charitable beneficiary. We have the right to accept such offer until the trustee of the charitable trust has sold the shares held in the charitable trust as discussed below. Upon a sale to us, the interest of the charitable beneficiary in the shares sold terminates, and the charitable trustee must distribute the net proceeds of the sale to the prohibited owner. Within 20 days of receiving notice from us of the transfer of the shares to the charitable trust, the charitable trustee will sell the shares to a person or entity designated by the charitable trustee who could own the shares without violating the ownership limits or the other restrictions on ownership and transfer of our stock described above. Upon such sale, the interest of the charitable beneficiary in the shares will terminate and the charitable trustee must distribute to the prohibited owner an amount equal to the lesser of (1) the price paid by the prohibited owner for the shares in the transaction that resulted in the transfer to the charitable trust (or, if the event that resulted in the transfer to the charitable trust did not involve a purchase of such shares at market price, the market price per share of such stock on the day of the event that resulted in the transfer to the charitable trust) and (2) the sales proceeds (net of commissions and other expenses of sale) received by the charitable trust for the shares. The charitable trustee may reduce the amount payable to the prohibited owner by the amount of dividends and other distributions which have been paid to the prohibited owner and are owed by the prohibited owner to the charitable trust. Any net sales proceeds in excess of the amount payable to the prohibited owner will be immediately paid to the charitable beneficiary, together with any dividends and other distributions thereon. In addition, if, prior to discovery by us that shares of stock have been transferred to a charitable trust, such shares of stock are sold by a prohibited owner, then such shares will be deemed to have been sold on behalf of the charitable trust and to the extent that the prohibited owner received an amount for or in respect of such shares that exceeds the amount that such prohibited owner was entitled to receive, such excess amount will be paid to the charitable trust upon demand by the charitable trustee. The prohibited owner will have no rights in the shares held by the charitable trust. The charitable trustee will be designated by us and will be unaffiliated with us and with any prohibited owner. Prior to the sale of any shares by the charitable trust, the charitable trustee will receive, in trust for the charitable beneficiary, all distributions made by us with respect to such shares and may also exercise all voting rights with respect to such shares. Any dividend or other distribution paid prior to our discovery that shares of stock have been transferred to the charitable trust will be paid by the recipient to the charitable trust upon demand by the charitable trustee. These rights will be exercised for the exclusive benefit of the charitable beneficiary. Subject to Maryland law, effective as of the date that the shares have been transferred to the charitable trust, the charitable trustee will have the authority, at the charitable trustee’s sole discretion: ● to rescind as void any vote cast by a prohibited owner prior to our discovery that the shares have been transferred to the charitable trust; and ● to recast the vote in accordance with the desires of the charitable trustee acting for the benefit of the charitable beneficiary. However, if we have already taken irreversible action, then the charitable trustee may not rescind and recast the vote. If our board of directors determines in good faith that a proposed transfer would violate the restrictions on ownership and transfer of our stock set forth in our charter, our board of directors may take such action as it deems advisable to refuse to give effect to or to prevent such transfer, including, but not limited to, causing us to redeem shares of stock, refusing to give effect to the transfer on our books or instituting proceedings to enjoin the transfer. Every owner of more than 5% (or such lower percentage as required by the Code or the regulations promulgated thereunder) of the outstanding shares of all classes or series of our stock, including common stock, will be required to give written notice to us within 30 days after the end of each taxable year stating the name and address of such owner, the number of shares of each class and series of our stock that the person beneficially owns and a description of the manner in which such shares are held. Each such owner will be required to provide to us such additional information as we may request in order to determine the effect, if any, of such beneficial ownership on our qualification as a REIT and to ensure compliance with the ownership limits. In addition, each stockholder will, upon demand, be required to provide to us such information as we may request, in good faith, in order to determine our qualification as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance. Any certificates representing shares of our stock, or any written statements of information delivered in lieu of certificates, will bear a legend referring to the restrictions described above. These restrictions on ownership and transfer of our stock could delay, defer or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders. Transfer Agent and Registrar. The transfer agent and registrar for our common stock is Continental Stock Transfer & Trust. Listings. Our common stock is traded on the New York Stock Exchange (“NYSE”) under the ticker symbol “IIPR.” Description of Our Series A Preferred Stock The following description of our Series A Preferred Stock does not purport to be complete and is subject to and qualified in its entirety by reference to the articles supplementary setting forth the terms of the Series A Preferred Stock, to the MGCL and to our charter and bylaws, copies of which are filed as exhibits to our Annual Report on Form 10-K. General. Our board of directors has classified 690,000 shares of the Company’s authorized but unissued preferred stock as Series A Preferred Stock, and has approved articles supplementary setting forth the terms of the Series A Preferred Stock. Our board of directors may authorize the issuance and sale of additional shares of Series A Preferred Stock from time to time. Ranking. The Series A Preferred Stock ranks, with respect to dividend rights and rights upon voluntary or involuntary liquidation, dissolution or winding up of our affairs: ● senior to all classes or series of our common stock, and to any other class or series of our capital stock expressly designated as ranking junior to the Series A Preferred Stock; ● on parity with any future class or series of our capital stock expressly designated as ranking on parity with the Series A Preferred Stock (the “Parity Preferred Stock”); and ● junior to any other class or series of our capital stock expressly designated as ranking senior to the Series A Preferred Stock. The term “capital stock” does not include convertible or exchangeable debt securities, which, prior to conversion or exchange, will rank senior in right of payment to the Series A Preferred Stock. The Series A Preferred Stock will also rank junior in right of payment to our future debt obligations. Dividends. We pay cumulative dividends on the Series A Preferred Stock, when and as authorized by our board of directors, at a rate of 9.0% per annum of the $25.00 liquidation preference per share (equivalent to the fixed annual rate of $2.25 per share); provided that dividends on the Series A Preferred Stock shall accrue whether or not the Company has earnings, whether or not there are funds legally available for the payment of such dividends, and whether or not such dividends are authorized by our board of directors or declared by us. Dividends on the Series A Preferred Stock are payable quarterly in arrears on or about the 15th day of January, April, July and October of each year (or if such day is not a business day, on the next succeeding business day). The term “business day” means each day, other than a Saturday or a Sunday, which is not a day on which banks in New York, New York are authorized or required to close. The amount of any dividend payable on the Series A Preferred Stock for any dividend period is computed on the basis of a 360-day year consisting of twelve 30-day months. A dividend period is the respective period commencing on and including the 15th day of January, April, July and October of each year and ending on and including the day preceding the first day of the next succeeding dividend period (other than the initial dividend period and the dividend period during which any shares of Series A Preferred Stock shall be redeemed). Dividends are payable to holders of record as they appear in our stock records at the close of business on the applicable record date, which shall be the date designated by our board of directors as the record date for the payment of dividends that is not more than 35 and not fewer than ten days prior to the scheduled dividend payment date. Except as described in the next two paragraphs, unless full cumulative dividends on the Series A Preferred Stock for all past dividend periods that have ended shall have been or contemporaneously are declared and paid in cash or declared and a sum sufficient for the payment thereof is set apart for payment, we will not: ● declare and pay or declare and set apart for payment of dividends, and we will not declare and make any distribution of cash or other property, directly or indirectly, on or with respect to any shares of our common stock or shares of any other class or series of our capital stock ranking, as to dividends, on parity with or junior to the Series A Preferred Stock, for any period; or ● redeem, purchase or otherwise acquire for any consideration, or make any other distribution of cash or other property, directly or indirectly, on or with respect to, or pay or make available any monies for a sinking fund for the redemption of, any common stock or shares of any other class or series of our capital stock ranking, as to payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up, on parity with or junior to the Series A Preferred Stock. The foregoing sentence, however, will not prohibit: ● dividends payable solely in shares of capital stock ranking, as to payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up, junior to the Series A Preferred Stock; ● conversion into or exchange for other shares of any class or series of our capital stock ranking junior to the Series A Preferred Stock as to payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up; ● our purchase of shares of Series A Preferred Stock or any other class or series of capital stock ranking, as to payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up, on parity with or junior to the Series A Preferred Stock pursuant to our charter to the extent necessary to qualify or preserve our qualification as a REIT as discussed under “— Restrictions on Ownership and Transfer;” and ● our purchase of shares of any other class or series of capital stock ranking on parity with the Series A Preferred Stock as to payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Series A Preferred Stock. When we do not pay dividends in full (and do not set apart a sum sufficient to pay them in full) on the Series A Preferred Stock and the shares of any other class or series of capital stock ranking, as to dividends, on parity with the Series A Preferred Stock, we will declare any dividends upon the Series A Preferred Stock and each such other class or series of capital stock ranking, as to dividends, on parity with the Series A Preferred Stock pro rata, so that the amount of dividends declared per share of Series A Preferred Stock and such other class or series of capital stock will in all cases bear to each other the same ratio that accrued dividends per share on the Series A Preferred Stock and such other class or series of capital stock (which will not include any accrual in respect of unpaid dividends on such other class or series of capital stock for prior dividend periods if such other class or series of capital stock does not have a cumulative dividend) bear to each other. No interest, or sum of money in lieu of interest, will be payable in respect of any dividend payment or payments on the Series A Preferred Stock which may be in arrears. Holders of shares of Series A Preferred Stock are not entitled to any dividend, whether payable in cash, property or shares of capital stock, in excess of full cumulative dividends on the Series A Preferred Stock as described above. Any dividend payment made on the Series A Preferred Stock will first be credited against the earliest accrued but unpaid dividends due with respect to those shares which remain payable. Accrued but unpaid dividends on the Series A Preferred Stock will accrue as of the dividend payment date on which they first become payable. We do not intend to declare dividends on the Series A Preferred Stock, or pay or set apart for payment dividends on the Series A Preferred Stock, if the terms of any of our agreements, including any agreements relating to our indebtedness, prohibit such a declaration, payment or setting apart for payment or provide that such declaration, payment or setting apart for payment would constitute a breach of or default under such an agreement. Likewise, no dividends will be authorized by our board of directors and declared by us or paid or set apart for payment if such authorization, declaration or payment is restricted or prohibited by law. If a default or event of default under the terms of any future indebtedness occurs and is continuing, we may be precluded from paying certain distributions (other than those required to allow us to maintain our qualification as a REIT) under the terms of such future indebtedness. Further, our board of directors may elect not to pay distributions in the event of poor historical or projected cash flows. Liquidation Preference. Upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, before any distribution or payment shall be made to holders of shares of our common stock or any other class or series of capital stock ranking, as to rights upon any voluntary or involuntary liquidation, dissolution or winding up of our affairs, junior to the Series A Preferred Stock, holders of shares of Series A Preferred Stock will be entitled to be paid out of our assets legally available for distribution to our stockholders, after payment of or provision for our debts and other liabilities, a liquidation preference of $25.00 per share of Series A Preferred Stock, plus an amount per share equal to all accrued but unpaid dividends (whether or not authorized or declared) to, but not including, the date of payment. If, upon our voluntary or involuntary liquidation, dissolution or winding up, our available assets are insufficient to pay the full amount of the liquidating distributions on all outstanding shares of Series A Preferred Stock and the corresponding amounts payable on all shares of any other classes or series of our capital stock ranking, as to rights in the distribution of assets upon our liquidation, dissolution or winding up, on parity with the Series A Preferred Stock, then holders of shares of Series A Preferred Stock and such other classes or series of our capital stock ranking, as to rights in the distribution of assets upon our liquidation, dissolution or winding up, on parity with the Series A Preferred Stock will share ratably in any distribution of assets in proportion to the full liquidating distributions to which they would otherwise be respectively entitled. Holders of shares of Series A Preferred Stock are entitled to written notice of any distribution in connection with any voluntary or involuntary liquidation, dissolution or winding up of our affairs not less than 30 days and not more than 60 days prior to the distribution payment date. After payment of the full amount of the liquidating distributions to which they are entitled, holders of shares of Series A Preferred Stock will have no right or claim to any of our remaining assets. Our consolidation or merger with or into any other corporation, trust or other entity, or the voluntary sale, lease, transfer or conveyance of all or substantially all of our property or business, will not be deemed to constitute a liquidation, dissolution or winding up of our affairs and no such advance notice will be required. In determining whether a distribution (other than upon voluntary or involuntary liquidation), by dividend, redemption or other acquisition of shares of our capital stock or otherwise, is permitted under the MGCL, amounts that would be needed, if we were to be dissolved at the time of the distribution, to satisfy the preferential rights upon dissolution of holders of shares of Series A Preferred Stock will not be added to our total liabilities. Optional Redemption. Except with respect to the special optional redemption described below and in certain limited circumstances relating to our qualification and maintaining our qualification as a REIT as described in “— Restrictions on Ownership and Transfer,” we may not redeem the Series A Preferred Stock prior to October 19, 2022. On and after October 19, 2022, we may, at our option, upon not fewer than 30 and not more than 60 days’ written notice, 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 an amount equal to all accrued but unpaid dividends (whether or not authorized or declared) to, but not including, the date fixed for redemption, without interest, to the extent we have funds legally available for that purpose. If fewer than all of the outstanding shares of Series A Preferred Stock are to be redeemed, the shares of Series A Preferred Stock to be redeemed will be redeemed pro rata (as nearly as may be practicable without creating fractional shares) by lot, or by any other equitable method that we determine will not violate the 9.8% Series A Preferred Stock ownership limit. If such redemption is to be by lot and, as a result of such redemption, any holder of shares of Series A Preferred Stock, other than a holder of Series A Preferred Stock that has received an exemption from the ownership limit, would have actual, beneficial or constructive ownership of more than 9.8% of the issued and outstanding shares of Series A Preferred Stock by value or number of shares, whichever is more restrictive, because such holder’s shares of Series A Preferred Stock were not redeemed, or were only redeemed in part, then, except as otherwise provided in our charter, we will redeem the requisite number of shares of Series A Preferred Stock of such holder such that no holder will own in excess of the 9.8% Series A Preferred Stock ownership limit subsequent to such redemption. See “— Restrictions on Ownership and Transfer” below. In order for their shares of Series A Preferred Stock to be redeemed, holders must surrender their shares at the place, or in accordance with the book-entry procedures, designated in the notice of redemption. Holders will then be entitled to the redemption price of $25.00 per share plus an amount equal to all accrued but unpaid dividends payable upon redemption following surrender of the shares as detailed below. If a notice of redemption has been given (in the case of a redemption of the Series A Preferred Stock other than to qualify or preserve our qualification as a REIT), if the funds necessary for the redemption have been set apart by us in trust for the benefit of the holders of any shares of Series A Preferred Stock called for redemption and if irrevocable instructions have been given to pay the redemption price of  $25.00 per share plus an amount equal to all accrued but unpaid dividends, then from and after the redemption date, dividends will cease to accrue on such shares of Series A Preferred Stock and such shares of Series A Preferred Stock will no longer be deemed outstanding. At such time, all rights of the holders of such shares will terminate, except the right to receive the redemption price plus an amount equal to all accrued but unpaid dividends payable upon redemption, without interest. Unless full cumulative dividends on all shares of Series A Preferred Stock have been or contemporaneously are authorized, declared and paid or declared and a sum sufficient for the payment thereof set apart for payment for all past dividend periods that have ended, no shares of Series A Preferred Stock will be redeemed pursuant to the optional redemption right or the special optional redemption right described below under “— Special Optional Redemption,” unless all outstanding shares of Series A Preferred Stock are simultaneously redeemed and we will not purchase or otherwise acquire, directly or indirectly, any shares of Series A Preferred Stock or any class or series of our capital stock ranking, as to payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up, on parity with or junior to the Series A Preferred Stock (except by conversion into or exchange for our capital stock ranking junior to the Series A Preferred Stock as to payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up); provided, however, that whether or not the requirements set forth above have been met, we may purchase shares of Series A Preferred Stock or any other class or series of capital stock ranking, as to payment of dividends and the distribution of assets upon our liquidation, dissolution or winding up, on parity with or junior to the Series A Preferred Stock pursuant to our charter to the extent necessary to ensure that we meet the requirements for qualification as a REIT for federal income tax purposes, and we may purchase or acquire shares of Series A Preferred Stock or the Parity Preferred Stock pursuant to a purchase or exchange offer made on the same terms to holders of all outstanding shares of Series A Preferred Stock. See “— Restrictions on Ownership and Transfer” below. Notice of redemption will be mailed, postage prepaid, not less than 30 days nor more than 60 days prior to the redemption date, addressed to the respective holders of record of the Series A Preferred Stock to be redeemed at their respective addresses as they appear on our stock transfer records as maintained by our transfer agent named in “— Transfer Agent and Registrar.” No failure to give such notice or any defect therein or in the mailing thereof will affect the validity of the proceedings for the redemption of any shares of Series A Preferred Stock except as to the holder to whom notice was defective or not given; provided that, notice given to the last address of record will be deemed to be valid notice. In addition to any information required by law or by the applicable rules of any exchange upon which the Series A Preferred Stock may be listed or admitted to trading, each notice will state: ● the redemption date; ● the redemption price; ● the number of shares of Series A Preferred Stock to be redeemed; ● procedures of The Depository Trust Company (“DTC”) for book entry transfer of shares of Series A Preferred Stock for payment of the redemption price; ● that dividends on the shares of Series A Preferred Stock to be redeemed will cease to accrue on such redemption date; and ● that payment of the redemption price plus an amount equal to all accrued but unpaid dividends will be made upon book entry transfer of such Series A Preferred Stock in compliance with DTC’s procedures. If fewer than all of the shares of Series A Preferred Stock held by any holder are to be redeemed, the notice mailed to such holder will also specify the number of shares of Series A Preferred Stock held by such holder to be redeemed or the method for determining such number. Any such redemption may be made conditional on such factors as may be determined by our board of directors and as set forth in the notice of redemption. We are not required to provide such notice in the event we redeem Series A Preferred Stock in order to qualify or maintain our status as a REIT. If a redemption date falls after a dividend record date and on or prior to the corresponding dividend payment date, each holder of shares of the Series A Preferred Stock at the close of business on such dividend record date will be entitled to the dividend payable on such shares on the corresponding dividend payment date notwithstanding the redemption of such shares on or prior to such dividend payment date and each holder of shares of Series A Preferred Stock that surrenders such shares on such redemption date will be entitled to an amount equal to the dividends accruing after the end of the applicable dividend period, up to, but not including, the redemption date. Except as described above, we will make no payment or allowance for unpaid dividends, whether or not in arrears, on Series A Preferred Stock for which a notice of redemption has been given. All shares of Series A Preferred Stock that we redeem, repurchase or otherwise acquire will be retired and restored to the status of authorized but unissued shares of preferred stock, without designation as to series or class. Subject to applicable law and the limitation on purchases when dividends on the Series A Preferred Stock are in arrears, we may, at any time and from time to time either at a public or private sale, purchase all or any part of, the Series A Preferred Stock, including the purchase of shares of Series A Preferred Stock in open market transactions and individual purchases at such prices as we negotiate, in each case as duly authorized by our board of directors. Future debt instruments or senior capital stock may prohibit us from redeeming or otherwise repurchasing any shares of our capital stock, including the Series A Preferred Stock, except in limited circumstances. Special Optional Redemption. Upon the occurrence of a Change of Control/Delisting (as defined below), we may, at our option, redeem the Series A Preferred Stock, in whole or in part within 120 days after the first date on which such Change of Control/ Delisting occurred, by paying $25.00 per share, plus an amount equal to all accrued but unpaid dividends to, but not including, the redemption date. If, prior to the Change of Control/Delisting Conversion Date (as defined below), we have provided or provide notice of our election to redeem the Series A Preferred Stock (whether pursuant to our optional redemption right or our special optional redemption right), the holders of Series A Preferred Stock will not have the conversion right described below under “— Conversion Rights” with respect to the shares of Series A Preferred Stock subject to such notice. We will mail to you, if you are a record holder of the Series A Preferred Stock, a notice of redemption not fewer than 30 days nor more than 60 days before the redemption date. We will send the notice to your address shown on our stock transfer books. A failure to give notice of redemption or any defect in the notice or in its mailing will not affect the validity of the redemption of any Series A Preferred Stock except as to the holder to whom notice was defective. Each notice will state the following: ● the redemption date; ● the redemption price; ● the number of shares of Series A Preferred Stock to be redeemed; ● procedures of DTC for book entry transfer of shares of Series A Preferred Stock for payment of the redemption price; ● that dividends on the shares of Series A Preferred Stock to be redeemed will cease to accrue on such redemption date; ● that payment of the redemption price plus an amount equal to all accrued but unpaid dividends will be made upon book entry transfer of such Series A Preferred Stock in compliance with DTC’s procedures; ● that the Series A Preferred Stock is being redeemed pursuant to our special optional redemption right in connection with the occurrence of a Change of Control/Delisting and a brief description of the transaction or transactions constituting such Change of Control/Delisting; and ● that the holders of the Series A Preferred Stock to which the notice relates will not be able to tender such Series A Preferred Stock for conversion in connection with the Change of Control/ Delisting and each share of Series A Preferred Stock tendered for conversion that is selected, prior to the Change of Control/Delisting Conversion Date, for redemption will be redeemed on the related date of redemption instead of converted on the Change of Control/Delisting Conversion Date. If we redeem fewer than all of the outstanding shares of Series A Preferred Stock, the notice of redemption mailed to each stockholder will also specify the number of shares of Series A Preferred Stock that we will redeem from each stockholder or the method for determining such number. In this case, we will determine the number of shares of Series A Preferred Stock to be redeemed as described above in “— Optional Redemption.” If we have given a notice of redemption and have set apart sufficient funds for the redemption in trust for the benefit of the holders of the Series A Preferred Stock called for redemption, then from and after the redemption date, those shares of Series A Preferred Stock will be treated as no longer being outstanding, no further dividends will accrue and all other rights of the holders of those shares of Series A Preferred Stock will terminate. The holders of those shares of Series A Preferred Stock will retain their right to receive the redemption price for their shares and an amount equal to all accrued but unpaid dividends to, but not including, the redemption date, without interest. The holders of Series A Preferred Stock at the close of business on a dividend record date will be entitled to receive the dividend payable with respect to the Series A Preferred Stock on the corresponding payment date notwithstanding the redemption of the Series A Preferred Stock between such record date and the corresponding payment date or our default in the payment of the dividend due. Except as provided above, we will make no payment or allowance for unpaid dividends, whether or not in arrears, on Series A Preferred Stock for which a notice of redemption has been given as described herein. A “Change of Control/Delisting” is when, after the original issuance of the Series A Preferred Stock, any of the following has occurred and is continuing: ● the acquisition by any person, including any syndicate or group deemed to be a “person” under Section 13(d)(3) of the Exchange Act, of beneficial ownership, directly or indirectly, through a purchase, merger or other acquisition transaction or series of purchases, mergers or other acquisition transactions of stock of our Company entitling that person to exercise more than 50% of the total voting power of all stock of our Company entitled to vote generally in the election of our directors (except that such person will be deemed to have beneficial ownership of all securities that such person has the right to acquire, whether such right is currently exercisable or is exercisable only upon the occurrence of a subsequent condition); and ● following the closing of any transaction referred to in the bullet point above, neither we nor the acquiring or surviving entity has a class of common securities (or ADRs representing such securities) listed on the NYSE, the NYSE American or NASDAQ or listed or quoted on an exchange or quotation system that is a successor to the NYSE, the NYSE American or NASDAQ. Conversion Rights. Upon the occurrence of a Change of Control/Delisting, each holder of Series A Preferred Stock will have the right (unless, prior to the Change of Control/Delisting Conversion Date, we have provided or provide notice of our election to redeem the Series A Preferred Stock in whole or in part, as provided under “— Optional Redemption” or “— Special Optional Redemption”) to convert some or all of such holder’s shares of Series A Preferred Stock (the “Change of Control/Delisting Conversion Right”), on a date specified by us that can be no earlier than 20 days and no later than 35 days following the date of delivery of the Change of Control/Delisting Company Notice (as defined below) (the “Change of Control/Delisting Conversion Date”), into a number of shares of our common stock per share of Series A Preferred Stock (the “Common Stock Conversion Consideration”), which is equal to the lesser of: ● the quotient obtained by dividing (i) the sum of  (x) the liquidation preference amount of  $25.00 per share of Series A Preferred Stock, plus (y) the amount of any accrued but unpaid dividends (whether or not declared) to, but not including, the Change of Control/Delisting Conversion Date (unless the Change of Control/Delisting Conversion Date is after a record date for a Series A Preferred Stock dividend payment and prior to the corresponding Series A Preferred Stock dividend payment date, in which case no additional amount for such accrued but unpaid dividend will be included in this sum) by (ii) the Common Stock Price (as defined below); and ● 2.617801 (the “Share Cap”), subject to certain adjustments described below; subject, in each case, to provisions for the receipt of alternative consideration as described in this prospectus. The Share Cap is subject to pro rata adjustments for any share splits (including those effected pursuant to a distribution of our common stock), subdivisions or combinations (in each case, a “Share Split”) with respect to our common stock as follows: the adjusted Share Cap as the result of a Share Split will be the number of shares of our common stock that is equivalent to the product obtained by multiplying (i) the Share Cap in effect immediately prior to such Share Split by (ii) a fraction, the numerator of which is the number of shares of our common stock outstanding after giving effect to such Share Split and the denominator of which is the number of shares of our common stock outstanding immediately prior to such Share Split. For the avoidance of doubt, subject to the immediately succeeding sentence, the aggregate number of shares of our common stock (or equivalent Alternative Form Consideration (as defined below), as applicable) issuable in connection with the exercise of the Change of Control/Delisting Conversion Right and in respect of the Series A Preferred Stock initially offered hereby will not exceed 1,570,680 shares of common stock (or equivalent Alternative Form Consideration, as applicable) (the “Exchange Cap”). The Exchange Cap is subject to pro rata adjustments for any Share Splits on the same basis as the corresponding adjustment to the Share Cap. In the case of a Change of Control/Delisting pursuant to which our common stock will be converted into any combination of cash, securities or other property or assets (the “Alternative Form Consideration”), a holder of Series A Preferred Stock will receive upon conversion of such Series A Preferred Stock the kind and amount of Alternative Form Consideration that such holder would have owned or to which that holder would have been entitled to receive upon the Change of Control/Delisting had such holder held a number of shares of common stock equal to the Common Stock Conversion Consideration immediately prior to the effective time of the Change of Control/Delisting (the “Alternative Conversion Consideration” and the Common Stock Conversion Consideration or the Alternative Conversion Consideration, as may be applicable to a Change of Control/Delisting, is referred to as the “Conversion Consideration”). If the holders of our common stock have the opportunity to elect the form of consideration to be received in the Change of Control/Delisting, the Conversion Consideration will be deemed to be the kind and amount of consideration actually received by holders of a majority of our common stock that voted for such an election (if electing between two types of consideration) or holders of a plurality of our common stock that voted for such an election (if electing between more than two types of consideration), as the case may be, and will be subject to any limitations to which all holders of our common stock are subject, including, without limitation, pro rata reductions applicable to any portion of the consideration payable in the Change of Control/Delisting. Within 15 days following the occurrence of a Change of Control/Delisting, we will provide to holders of Series A Preferred Stock a notice of occurrence of the Change of Control/Delisting that describes the resulting Change of Control/Delisting Conversion Right (the “Change of Control/Delisting Company Notice”), which will state the following: ● the events constituting the Change of Control/Delisting; ● the date of the Change of Control/Delisting; ● the last date on which the holders of Series A Preferred Stock may exercise their Change of Control/Delisting Conversion Right; ● the method and period for calculating the Common Stock Price; ● the Change of Control/Delisting Conversion Date; ● that if, prior to the Change of Control/Delisting Conversion Date, we have provided or provide notice of our election to redeem all or any portion of the Series A Preferred Stock, holders will not be able to convert the shares of Series A Preferred Stock designated for redemption and such shares will be redeemed on the related redemption date, even if such shares have already been tendered for conversion pursuant to the Change of Control/Delisting Conversion Right; ● if applicable, the type and amount of Alternative Conversion Consideration entitled to be received per share of Series A Preferred Stock; ● the name and address of the paying agent and the conversion agent; and ● the procedures that the holders of Series A Preferred Stock must follow to exercise the Change of Control/Delisting Conversion Right. We will issue a press release for publication on Dow Jones & Company, Inc., Business Wire, PR Newswire or Bloomberg Business News (or, if these organizations are not in existence at the time of issuance of the press release, such other news or press organization as is reasonably calculated to broadly disseminate the relevant information to the public), or post a notice on our website, in any event prior to the opening of business on the first business day following any date on which we provide the notice described above to the holders of Series A Preferred Stock. To exercise the Change of Control/Delisting Conversion Right, the holders of Series A Preferred Stock will be required to deliver, on or before the close of business on the Change of Control/Delisting Conversion Date, the certificates (if any) or book entries representing Series A Preferred Stock to be converted, duly endorsed for transfer (if certificates are delivered), together with a completed written conversion notice to our transfer agent. The conversion notice must state: ● the relevant Change of Control/Delisting Conversion Date; ● the number of shares of Series A Preferred Stock to be converted; and ● that the Series A Preferred Stock is to be converted pursuant to the Change of Control/Delisting Conversion Right held by holders of Series A Preferred Stock. ● Holders of shares of Series A Preferred Stock may withdraw any notice of exercise of a Change of Control/Delisting Conversion Right (in whole or in part) by a written notice of withdrawal delivered to the transfer agent prior to the close of business on the business day prior to the Change of Control/Delisting Conversion Date. The notice of withdrawal must state: ● the number of withdrawn shares of Series A Preferred Stock; ● if certificated shares of Series A Preferred Stock have been issued, the certificate numbers of the withdrawn shares of Series A Preferred Stock; and ● the number of shares of Series A Preferred Stock, if any, which remain subject to the conversion notice. Notwithstanding the foregoing, if the shares of Series A Preferred Stock are held in global form, the conversion notice and/or the notice of withdrawal, as applicable, must comply with applicable procedures of DTC. We will not issue fractional shares of common stock upon the conversion of the Series A Preferred Stock. Instead, we will pay the cash value of any fractional share otherwise due, computed on the basis of the applicable Common Stock Price. The “Common Stock Price” will be (i) if the consideration to be received in the Change of Control/Delisting by the holders of our common stock is solely cash, the amount of cash consideration per share of our common stock, or (ii) if the consideration to be received in the Change of Control/Delisting by holders of our common stock is other than solely cash, (x) the average of the closing sale prices per share of our common stock (or, if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control/Delisting as reported on the principal U.S. securities exchange on which our common stock is then traded, or (y) if our common stock is not then listed for trading on a U.S. securities exchange, the average of the last quoted bid prices for our common stock in the over-the-counter market as reported by OTC Markets Group, Inc. or similar organization for the ten consecutive trading days immediately preceding, but not including, the effective date of the Change of Control/Delisting. Series A Preferred Stock as to which the Change of Control/Delisting Conversion Right has been properly exercised and for which the conversion notice has not been properly withdrawn will be converted into the applicable Conversion Consideration in accordance with the Change of Control/Delisting Conversion Right on the Change of Control/Delisting Conversion Date, unless prior to the Change of Control/Delisting Conversion Date we have provided or provide notice of our election to redeem such Series A Preferred Stock, whether pursuant to our optional redemption right or our special optional redemption right. If we elect to redeem Series A Preferred Stock that would otherwise be converted into the applicable Conversion Consideration on a Change of Control/Delisting Conversion Date, such Series A Preferred Stock will not be so converted and the holders of such shares will be entitled to receive on the applicable redemption date $25.00 per share, plus an amount equal to all accrued but unpaid dividends thereon to, but not including, the redemption date, in accordance with our optional redemption right or special optional redemption right. See “— Optional Redemption” and “— Special Optional Redemption” above. We will deliver amounts owing upon conversion no later than the third business day following the Change of Control/Delisting Conversion Date. In connection with the exercise of any Change of Control/Delisting Conversion Right, we will comply with all federal and state securities laws and stock exchange rules in connection with any conversion of Series A Preferred Stock into shares of our common stock. Notwithstanding any other provision of the Series A Preferred Stock, no holder of Series A Preferred Stock will be entitled to convert such Series A Preferred Stock into shares of our common stock to the extent that receipt of such common stock would cause such holder (or any other person) to exceed the share ownership limits contained in our charter, including the articles supplementary setting forth the terms of the Series A Preferred Stock, unless we provide an exemption from this limitation for such holder. See “— Restrictions on Ownership and Transfer” below. The Change of Control/Delisting conversion feature may make it more difficult for a party to take over our Company or discourage a party from taking over our Company. Except as provided above in connection with a Change of Control/Delisting, the Series A Preferred Stock is not convertible into or exchangeable for any other securities or property. No Maturity, Sinking Fund or Mandatory Redemption. The Series A Preferred Stock has no maturity date and we are not required to redeem the Series A Preferred Stock at any time. Accordingly, the Series A Preferred Stock will remain outstanding indefinitely unless we decide, at our option, to exercise our redemption right or, under circumstances where the holders of the Series A Preferred Stock have a conversion right, such holders convert the Series A Preferred Stock into our common stock. The Series A Preferred Stock is not subject to any sinking fund. Limited Voting Rights. Holders of shares of the Series A Preferred Stock generally do not have any voting rights, except as set forth below. If dividends on the Series A Preferred Stock are in arrears for six or more quarterly periods, whether or not consecutive (which we refer to as a preferred dividend default), the number of directors then constituting our board of directors will be increased by two and holders of shares of Series A Preferred Stock (voting separately as a single class together with the holders of the Parity Preferred Stock upon which like voting rights have been conferred and are exercisable (the “Voting Preferred Stock”)) will be entitled to vote for the election of two additional directors to serve on our board of directors, which we refer to as the Preferred Directors, until all unpaid dividends for past dividend periods that have ended shall have been declared and paid in full with respect to the Series A Preferred Stock and the Parity Preferred Stock. The Preferred Directors will be elected by a plurality of the votes cast in the election for a one-year term and each Preferred Director will serve until the next annual meeting of stockholders and until his successor is duly elected and qualified or until the Preferred Director’s right to hold the office terminates, whichever occurs earlier. The election will take place at: ● a special meeting called upon the written request of holders of at least 10% of the outstanding shares of Series A Preferred Stock and the Voting Preferred Stock, if this request is received more than 90 days before the date fixed for our next annual or special meeting of stockholders or, if we receive the request for a special meeting within 90 days before the date fixed for our next annual or special meeting of stockholders, at our annual or special meeting of stockholders; and ● each subsequent annual meeting (or special meeting held in its place) until all accrued dividends on the Series A Preferred Stock and the Parity Preferred Stock have been paid in full for all past dividend periods that have ended. If and when all accrued dividends on the Series A Preferred Stock and the Parity Preferred Stock shall have been declared and paid in full, holders of shares of Series A Preferred Stock and the Voting Preferred Stock shall be divested of the voting rights set forth above (subject to re-vesting in the event of each and every preferred dividend default) and the term and office of each Preferred Director so elected will terminate and the number of directors will be reduced accordingly. Any Preferred Director may be removed at any time with or without cause by the vote of, and may not be removed otherwise than by the vote of, the holders of record of a majority of the outstanding shares of Series A Preferred Stock and the Voting Preferred Stock (voting together as a single class). The Preferred Directors will each be entitled to one vote on any matter. So long as a preferred dividend default continues, any vacancy in the office of a Preferred Director may be filled by written consent of the Preferred Director remaining in office, or if none remains in office, by a vote of the holders of record of a majority of the outstanding shares of Series A Preferred Stock and the Voting Preferred Stock (voting together as a single class). So long as any shares of Series A Preferred Stock remain outstanding, in addition to any other vote or consent of stockholders required by our charter, we will not, without the affirmative vote or consent of the holders of at least two- thirds of the outstanding shares of Series A Preferred Stock voting together as a single class with the Voting Preferred Stock, authorize, create or issue, or increase the number of authorized or issued shares of, any class or series of capital stock ranking senior to the Series A Preferred Stock with respect to payment of dividends or the distribution of assets upon our liquidation, dissolution or winding up, or reclassify any of our authorized capital stock into such capital stock, or create, authorize or issue any obligation or security convertible into or evidencing the right to purchase such capital stock. In addition, so long as any shares of Series A Preferred Stock remain outstanding, we will not, without the affirmative vote or consent of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, amend, alter or repeal the provisions of our charter, or the terms of the Series A Preferred Stock, whether by merger, consolidation, transfer or conveyance of all or substantially all of our assets or otherwise, so as to materially and adversely affect any right, preference, privilege or voting power of the Series A Preferred Stock, except that with respect to the occurrence of any of the events set forth above, so long as the Series A Preferred Stock remains outstanding with the terms of the Series A Preferred Stock materially unchanged, taking into account that, upon the occurrence of an event set forth above, we may not be the surviving entity, the occurrence of such event will not be deemed to materially and adversely affect the rights, preferences, privileges or voting power of the Series A Preferred Stock, and in such case such holders shall not have any voting rights with respect to the events set forth above; provided, further, that such vote or consent will not be required with respect to any such amendment, alteration or repeal that equally affects the terms of the Series A Preferred Stock and the Voting Preferred Stock, if such amendment, alteration or repeal is approved by the affirmative vote or consent of the holders of two-thirds of the shares of Series A Preferred Stock and the Voting Preferred Stock (voting together as a single class). Furthermore, if holders of shares of the Series A Preferred Stock will receive the greater of the full trading price of the Series A Preferred Stock on the date of an event set forth above or the $25.00 per share liquidation preference pursuant to the occurrence of any of the events set forth above, then such holders shall not have any voting rights with respect to the events set forth above. So long as any shares of Series A Preferred Stock remain outstanding, the holders of shares of Series A Preferred Stock also will have the exclusive right to vote on any amendment, alteration or repeal of the provisions of our charter, or the terms of the Series A Preferred Stock on which holders of Series A Preferred Stock are otherwise entitled to vote pursuant to the paragraph set forth immediately above that would alter only the contract rights, as expressly set forth in our charter, of the Series A Preferred Stock, and the holders of any other classes or series of our capital stock will not be entitled to vote on such an amendment, alteration or repeal. With respect to any amendment, alteration or repeal of the provisions of our charter, or the terms of the Series A Preferred Stock, that equally affects the terms of the Series A Preferred Stock and the Voting Preferred Stock, so long as any shares of Series A Preferred Stock remain outstanding, the holders of shares of Series A Preferred Stock and the Voting Preferred Stock (voting together as a single class), also will have the exclusive right to vote on any amendment, alteration or repeal of the provisions of our charter, or the terms of the Series A Preferred Stock on which holders of Series A Preferred Stock are otherwise entitled to vote pursuant to the paragraph set forth immediately above, that would alter only the contract rights, as expressly set forth in our charter, of the Series A Preferred Stock and Voting Preferred Stock, and the holders of any other classes or series of our capital stock will not be entitled to vote on such an amendment, alteration or repeal. Holders of shares of Series A Preferred Stock will not be entitled to vote with respect to any increase in the total number of authorized shares of our common stock or preferred stock, any issuance or increase in the number of authorized shares of Series A Preferred Stock or the creation or issuance of any other class or series of capital stock, or any issuance or increase in the number of authorized shares of any class or series of capital stock, in each case ranking on parity with or junior to the Series A Preferred Stock with respect to the payment of dividends and the distribution of assets upon liquidation, dissolution or winding up. Holders of shares of Series A Preferred Stock will not have any voting rights with respect to, and the consent of the holders of shares of Series A Preferred Stock is not required for, the taking of any corporate action, including any merger or consolidation involving us or a sale of all or substantially all of our assets, regardless of the effect that such merger, consolidation or sale may have upon the powers, preferences, voting power or other rights or privileges of the Series A Preferred Stock, except as set forth above. In addition, the voting provisions above will not apply if, at or prior to the time when the act with respect to which the vote would otherwise be required would occur, we have redeemed or called for redemption upon proper procedures all outstanding shares of Series A Preferred Stock and sufficient funds, in cash, have been deposited in trust to effect such redemption. In any matter in which Series A Preferred Stock may vote (as expressly provided in the articles supplementary setting forth the terms of the Series A Preferred Stock), each share of Series A Preferred Stock shall be entitled to one vote per $25.00 of liquidation preference. As a result, each share of Series A Preferred Stock will be entitled to one vote. Restrictions on Ownership and Transfer. In order for us to maintain our qualification as a REIT under the Code, our shares of stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. Also, no more than 50% of the value of our outstanding shares of capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined by the Code to include certain entities) during the last half of any taxable year. To help us to maintain our qualification as a REIT, our charter, subject to certain exceptions, contains, and the Series A Preferred Stock articles supplementary contain, restrictions on the number of shares of our common stock, Series A Preferred Stock and our capital stock that a person may own. Our charter provides that generally no person may own, or be deemed to own by virtue of the attribution provisions of the Code, either more than 9.8% in value or in number of shares, whichever is more restrictive, of our aggregate outstanding shares of capital stock, or more than 9.8% in value or in number of shares, whichever is more restrictive, of our aggregate outstanding shares of common stock. In addition, the Series A Preferred Stock articles supplementary provide that generally no person may own, or be deemed to own by virtue of the attribution provisions of the Code, either more than 9.8% in value or in number of shares, whichever is more restrictive, of our aggregate outstanding shares of Series A Preferred Stock. The beneficial ownership and/or constructive ownership rules under the Code are complex and may cause shares of stock owned actually or constructively by a group of related individuals and/or entities to be owned constructively by one individual or entity. Transfer Agent and Registrar. The transfer agent and registrar for our Series A Preferred Stock is Continental Stock Transfer & Trust. Listings. Our Series A Preferred Stock is traded on the NYSE under the ticker symbol “IIPR Pr A.” Certain Provisions of Maryland law and our Charter and Bylaws The following summary of certain provisions of Maryland law and our charter and bylaws does not purport to be complete and is subject to and qualified in its entirety by reference to Maryland law and our charter and bylaws, copies of which are filed as exhibits to the Annual Report on Form 10-K. Our Board of Directors. Our charter and bylaws provide that the number of directors we have may be established only by our board of directors but may not be fewer than the minimum number required under the MGCL, which is one, and our bylaws provide that the number of our directors may not be more than 15. Because our board of directors has the power to amend our bylaws, it could modify the bylaws to change that range. Subject to the terms of any class or series of preferred stock, vacancies on our board of directors may be filled only by a majority of the remaining directors, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will hold office for the remainder of the full term of the directorship in which the vacancy occurred and until his or her successor is duly elected and qualifies. Except as may be provided with respect to any class or series of our stock, under the MGCL at each annual meeting of our stockholders, each of our directors is elected by our stockholders to serve until the next annual meeting of our stockholders and until his or her successor is duly elected and qualifies. A plurality of the votes cast in the election of directors is sufficient to elect a director, and holders of shares of common stock have no right to cumulative voting in the election of directors. Consequently, at each annual meeting of stockholders, the holders of a majority of the shares of common stock entitled to vote are able to elect all of our directors. The Series A Preferred Stock articles supplementary provides that if dividends on the Series A Preferred Stock are in arrears for six or more quarterly periods, whether or not consecutive, holders of shares of the Series A Preferred Stock (voting together as a class with other voting preferred stock) will be entitled to vote for the election of two additional directors to serve on our board of directors. The Series A Preferred Stock articles supplementary also separately provide for the election, term, removal and filling of any vacancy in the office of such directors elected by the holders of the Series A Preferred Stock. Removal of Directors. Our charter provides that, subject to the rights of holders of any class or series of our preferred stock to elect or remove one or more directors, a director may be removed only with cause and only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of directors. This provision, when coupled with the exclusive power of our board of directors to fill vacancies on our board of directors, precludes stockholders from (i) removing incumbent directors except with cause and upon a substantial affirmative vote and (ii) filling the vacancies created by such removal with their own nominees. No Appraisal Rights. As permitted by the MGCL, our charter provides that stockholders will not be entitled to exercise appraisal rights unless a majority of our board of directors determines that appraisal rights apply, with respect to all or any classes or series of stock, to one or more transactions occurring after the date of such determination in connection with which stockholders would otherwise be entitled to exercise appraisal rights. Dissolution. Our dissolution must be declared advisable by a majority of our board of directors and approved by the affirmative vote of stockholders entitled to cast not less than a majority of the votes entitled to be cast on such matter. Exclusive Forum for Certain Litigation. Our bylaws provide that, unless we consent in writing to an alternative forum, the state and federal courts in Baltimore, Maryland are the exclusive forum for certain litigation, including (i) derivative actions on our behalf, (ii) actions asserting claims of breach of any duty owed by any of our directors, officers or employees, (iii) actions asserting a claim against us or any of our directors, officers or other employees arising under the MGCL, our bylaws or our charter and (iv) actions governed by the internal affairs doctrine. Business Combinations. Under the MGCL, certain “business combinations” (including a merger, consolidation, statutory share exchange or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and an interested stockholder (defined generally as any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock or an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation) or an affiliate of such an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. Thereafter, any such business combination must generally be recommended by the board of directors of such corporation and approved by the affirmative vote of at least (1) 80% of the votes entitled to be cast by holders of outstanding voting stock of the corporation and (2) two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom (or with whose affiliate) the business combination is to be effected or held by an affiliate or associate of the interested stockholder, unless, among other conditions, the corporation’s common stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares. A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. A Maryland corporation’s board of directors may provide that its approval is subject to compliance with any terms and conditions determined by it. These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by a Maryland corporation’s board of directors prior to the time that the interested stockholder becomes an interested stockholder. Control Share Acquisitions. The MGCL provides that a holder of  “control shares” of a Maryland corporation acquired in a “control share acquisition” has no voting rights with respect to the control shares except to the extent approved by the affirmative vote of at least two-thirds of the votes entitled to be cast on the matter, excluding shares of stock in the corporation in respect of which any of the following persons is entitled to exercise or direct the exercise of the voting power of such shares in the election of directors: (i) a person who makes or proposes to make a control share acquisition, (ii) an officer of the corporation or (iii) an employee of the corporation who is also a director of the corporation. “Control shares” are voting shares of stock which, if aggregated with all other such shares of stock owned by the acquirer, or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following ranges of voting power: (i) one-tenth or more but less than one-third; (ii) one-third or more but less than a majority; or (iii) a majority or more of all voting power. Control shares do not include shares that the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval or shares acquired directly from the corporation. A “control share acquisition” means the acquisition of issued and outstanding control shares, subject to certain exceptions. A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses and delivering an “acquiring person statement” as described in the MGCL), may compel the board of directors to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the shares. If no request for a meeting is made, the corporation may itself present the question at any stockholders meeting. If voting rights are not approved at the meeting or if the acquiring person does not deliver an “acquiring person statement” as required by the statute, then, subject to certain conditions and limitations, the corporation may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquirer or as of any meeting of stockholders at which the voting rights of such shares are considered and not approved. If voting rights for control shares are approved at a stockholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition. The control share acquisition statute does not apply to (i) shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (ii) acquisitions approved or exempted by the charter or bylaws of the corporation. Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock. There can be no assurance that such provision will not be amended or eliminated at any time in the future by our board of directors. Subtitle 8. Subtitle 8 of the MGCL permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at least three independent directors to elect to be subject, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to any or all of five provisions of the MGCL which provide for: ● a classified board; ● a two-thirds vote requirement for removing a director; ● a requirement that the number of directors be fixed only by vote of the directors; ● a requirement that a vacancy on the board of directors be filled only by the remaining directors in office and (if the board of directors is classified) for the remainder of the full term of the class of directors in which the vacancy occurred; and ● a majority requirement for the calling of a stockholder-requested special meeting of stockholders. Our charter provides that vacancies on our board may be filled only by the remaining directors and for the remainder of the full term of the directorship in which the vacancy occurred. Through provisions in our charter and bylaws unrelated to Subtitle 8, we already (i) require the affirmative vote of stockholders entitled to cast not less than two-thirds of all of the votes entitled to be cast generally in the election of directors for the removal of any director from the board, only with cause, (ii) vest in the board of directors the exclusive power to fix the number of directorships and (iii) require, unless called by our chairman of the board, our chief executive officer or our board of directors, the written request of stockholders entitled to cast not less than a majority of all votes entitled to be cast at such a meeting to call a special meeting of our stockholders. Meetings of Stockholders. Pursuant to our bylaws, a meeting of our stockholders for the election of directors and the transaction of any business will be held annually on a date and at the time and place set by our board of directors. The chairman of our board of directors, our chief executive officer or our board of directors may call a special meeting of our stockholders. Subject to the procedural requirements specified in our bylaws, a special meeting of our stockholders to act on any matter that may properly be brought before a meeting of our stockholders must also be called by our secretary upon the written request of the stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting on such matter and containing the information required by our bylaws. Only the matters set forth in the notice of special meeting may be considered and acted upon at such meeting. Additionally, the Series A Preferred Stock articles supplementary provides the holders of Series A Preferred Stock certain rights to have a special meeting called upon their request in connection with the election of the preferred stock directors. Amendment to Our Charter and Bylaws. Except for amendments to the provisions of our charter relating to the removal of directors, and the vote required to amend this provision (which must be advised by our board of directors and approved by the affirmative vote of stockholders entitled to cast not less than two-thirds of all the votes entitled to be cast on the election), our charter generally may be amended only if advised by our board of directors and approved by the affirmative vote of stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter. As permitted by the MGCL, our charter contains a provision permitting our directors, without any action by our stockholders, to amend the charter to increase or decrease the aggregate number of shares of stock of any class or series that we have authority to issue. Our bylaws may be adopted, altered or repealed by the board of directors or by our stockholders, by the affirmative vote of a majority of the outstanding shares entitled to vote on the matter. Additionally, the Series A Preferred Stock articles supplementary provides the holders of Series A Preferred Stock with voting rights with respect to certain amendments to our charter. Advance Notice of Director Nominations and New Business. Our bylaws provide that, with respect to an annual meeting of stockholders, nominations of individuals for election to our board of directors and the proposal of other business to be considered by stockholders may be made only (i) pursuant to our notice of the meeting, (ii) by or at the direction of our board of directors or (iii) by a stockholder who was a stockholder of record both at the time of giving the notice required by our bylaws and at the time of the meeting, who is entitled to vote at the meeting on such business or in the election of such nominee and who has provided notice to us within the time period, and containing the information and other materials, specified by the advance notice provisions set forth in our bylaws. With respect to special meetings of stockholders, only the business specified in our notice of meeting may be brought before the meeting. Nominations of individuals for election to our board of directors may be made only (i) by or at the direction of our board of directors or (ii) provided that the meeting has been called for the purpose of electing directors, by a stockholder who was a stockholder of record both at the time of giving notice and at the time of the special meeting, who is entitled to vote at the meeting in the election of such nominee and who has provided notice to us within the time period, and containing the information and other materials, specified by the advance notice provisions set forth in our bylaws. Action by Stockholders. Our charter provides that stockholder action can be taken at an annual or special meeting of stockholders and by consent in lieu of a meeting if such consent is approved unanimously. These provisions, combined with the requirements of our bylaws regarding advance notice of nominations and other business to be considered at a meeting of stockholders and the calling of a stockholder-requested special meeting of stockholders, may have the effect of delaying consideration of a stockholder proposal. Anti-Takeover Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws. The provisions of the MGCL, our charter and our bylaws described above including, among others, the restrictions on ownership and transfer of our stock, the exclusive power of our board of directors to fill vacancies on the board and the advance notice provisions of our bylaws could delay, defer or prevent a change in control or other transaction that might involve a premium price for shares of our common stock or otherwise be in the best interests of our stockholders. Likewise, if our board of directors were to opt in to the classified board or other provisions of Subtitle 8 or if our board of directors were to opt in to the control share acquisition of the MGCL, these provisions of the MGCL could have similar anti-takeover effects. Subsidiaries of the Registrant Exhibit 21.1 The list below excludes subsidiaries in the same line of business (ownership and operation of commercial real estate) and includes the immediate parent of each excluded subsidiary. The list also excludes subsidiaries that in the aggregate, as a single subsidiary, would not constitute a significant subsidiary as of December 31, 2020. A total of 53 subsidiaries have been excluded. Subsidiary IIP Operating Partnership, LP Innovative Industrial Properties, LP IIPR, Inc. IIP-GP 2 LLC State of Incorporation/Formation Delaware Delaware Maryland Delaware Consent of Independent Registered Public Accounting Firm Exhibit 23.1 Innovative Industrial Properties, Inc. Park City, Utah We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-235731) and Form S-8 (No. 333-214919) of Innovative Industrial Properties, Inc. of our reports dated February 25, 2021, relating to the consolidated financial statements and financial statement schedule, and the effectiveness of Innovative Industrial Properties, Inc.’s internal control over financial reporting, which appear in this Form 10-K. /s/ BDO USA, LLP San Diego, California February 25, 2021 Exhibit 31.1 Innovative Industrial Properties, Inc. Annual Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Paul Smithers, certify that: I have reviewed this Annual Report on Form 10-K of Innovative Industrial Properties, Inc.; 1) 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: February 25, 2021 /s/ Paul Smithers Paul Smithers Chief Executive Officer, President and Director Exhibit 31.2 Innovative Industrial Properties, Inc. Annual Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Catherine Hastings, certify that: I have reviewed this Annual Report on Form 10-K of Innovative Industrial Properties, Inc.; 1) 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: February 25, 2021 /s/ Catherine Hastings Catherine Hastings Chief Financial Officer and Treasurer 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 Exhibit 32.1 In connection with the Annual Report on Form 10-K of Innovative Industrial Properties, Inc. (the "Company") for the year ended December 31, 2020, 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. February 25, 2021 /s/ Paul Smithers Paul Smithers Chief Executive Officer, President and Director /s/ Catherine Hastings Catherine Hastings Chief Financial Officer and Treasurer 

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