Innovative Industrial Properties Reports Default by PharmaCann on All Leases

Rhea-AI Summary

Innovative Industrial Properties (IIP) reported that PharmaCann has defaulted on its lease obligations for December 2024. The default affects all eleven properties leased to PharmaCann, which represent 17% of IIP's total rental revenues. PharmaCann failed to pay $4.2 million in rent for six properties across Illinois, Massachusetts, Michigan, New York, Ohio, and Pennsylvania. While PharmaCann paid $90,000 for the remaining five properties, cross-default provisions triggered defaults on these leases as well. IIP has applied security deposits to cover the defaulted rent, including penalties and interest, and plans to aggressively enforce its rights, potentially including eviction proceedings.

Positive

• Security deposits were available to cover the full defaulted rent amount
• Company maintains legal rights to enforce lease terms and pursue eviction

Negative

• 17% of total rental revenue is affected by the default
• $4.2 million in monthly rent payments defaulted on six properties
• All eleven PharmaCann properties now in default due to cross-default provisions
• Risk of potential tenant loss and property vacancy

Insights

REIT Investment Analyst

The default by PharmaCann on $4.2 million in December rent payments across six major properties marks a severe disruption to IIP's revenue stream, impacting 17% of their total rental revenues. This default scenario is particularly concerning as it triggers cross-default provisions affecting all eleven leased properties, even those where rent was current. The situation exposes significant concentration risk in IIP's portfolio and highlights broader challenges in the cannabis real estate sector.

Security deposit utilization provides temporary coverage but depletes this important safety buffer. The stark disparity between the $4.2 million defaulted amount and the $90,000 in paid rent across the remaining properties indicates severe cash flow issues at PharmaCann. The geographic spread of affected properties across six states (Illinois, Massachusetts, Michigan, New York, Ohio and Pennsylvania) complicates potential recovery efforts and property re-leasing strategies.

For investors, this event signals potential near-term earnings pressure and raises questions about tenant quality across IIP's portfolio. The need for aggressive enforcement actions, including possible eviction proceedings, suggests a protracted resolution process that could impact property performance and valuations.

Cannabis Industry Analyst

This default represents more than just a landlord-tenant dispute - it's a bellwether event for the U.S. cannabis industry's health. PharmaCann, a major multi-state operator, defaulting across multiple states signals severe operational challenges in the cannabis sector. The scale of default, particularly in key markets like New York and Illinois, reflects broader industry headwinds including price compression, oversupply and regulatory hurdles.

The timing and magnitude of this default suggest systematic cash flow problems rather than temporary operational issues. This could trigger a domino effect in the cannabis real estate sector, potentially leading to property value reassessments and stricter lending criteria. The cross-default provisions activation across all properties indicates the sophisticated nature of these lease agreements but also highlights the interconnected risks in cannabis real estate portfolios.

SAN DIEGO--(BUSINESS WIRE)-- Innovative Industrial Properties, Inc. (IIP), through indirect, wholly owned subsidiaries serving as landlords, previously entered into leases (collectively, the Leases) with PharmaCann Inc. and its affiliates (collectively, PharmaCann) as tenants for eleven properties that IIP owns, which represented 17% of IIP’s total rental revenues for the three and nine months ended September 30, 2024.

On December 19, 2024, PharmaCann defaulted on its obligations to pay rent for the month of December under six of the eleven Leases, for properties located in Illinois, Massachusetts, Michigan, New York, Ohio and Pennsylvania. December rent, including base rent, property management fees and estimated tax and insurance payments, totaled $4.2 million for these six properties. IIP applied security deposits held by IIP pursuant to these Leases for the payment in full of the defaulted rent, in addition to late penalties and interest.

Although PharmaCann paid rent in full under the remaining five Leases totaling $90,000 for the month of December, as a result of cross-default provisions contained in each of the Leases, on December 19, 2024, PharmaCann also defaulted on its obligations under these five Leases, as a result of the non-payment of rent on the other six Leases.

IIP is continuing discussions with PharmaCann regarding the Leases and expects to enforce its rights under the Leases aggressively, which may include, but is not limited to, commencing eviction proceedings as IIP deems necessary.

About Innovative Industrial Properties

Innovative Industrial Properties, Inc. is a self-advised Maryland corporation focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated cannabis facilities. Innovative Industrial Properties, Inc. has elected to be taxed as a real estate investment trust, commencing with the year ended December 31, 2017. Additional information is available at www.innovativeindustrialproperties.com.

This press release contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements about IIP’s expectations regarding enforcement of its rights under the Leases. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, and they include, but are not limited to, statements regarding future rent collection, occupancy and enforcement of rights under the Leases. Words such as “project,” “expect,” “may” or similar expressions that convey the prospective nature of events or outcomes are generally indicative of forward-looking statements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. IIP does not undertake any obligation to update, modify or withdraw any forward-looking statements as a result of new information, future events or otherwise.

Although IIP believes that the expectations reflected in any of its forward-looking statements are reasonable, actual results may differ from anticipated results, sometimes materially. Factors that could cause results to differ from those projected or assumed in any forward-looking statement include, but are not limited to, those factors found in IIP’s filings with the U.S. Securities and Exchange Commission, including those set forth under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in IIP’s Annual Report on Form 10-K for the year ended December 31, 2023 and subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.

View source version on businesswire.com: https://www.businesswire.com/news/home/20241220495599/en/

IIP Contact:

David Smith

Chief Financial Officer

Innovative Industrial Properties, Inc.

(858) 997-3332

Source: Innovative Industrial Properties

FAQ

How much rental revenue did IIPR lose from PharmaCann's December 2024 default?

PharmaCann defaulted on $4.2 million in rent payments for six properties, while paying $90,000 for five other properties.

What percentage of IIPR's rental revenue is affected by the PharmaCann default?

The PharmaCann leases represent 17% of IIP's total rental revenues as of September 30, 2024.

How many IIPR properties are affected by the PharmaCann default?

All eleven properties leased to PharmaCann are affected due to cross-default provisions, despite only six having direct payment defaults.

What actions is IIPR taking in response to PharmaCann's lease defaults?

IIP has applied security deposits to cover the defaulted rent and plans to aggressively enforce its rights, including possible eviction proceedings.

Which states have IIPR properties affected by the PharmaCann default?

The defaulted properties are located in Illinois, Massachusetts, Michigan, New York, Ohio, and Pennsylvania.