Q1 2024 Innovative Industrial Properties Inc Earnings Call

[music].

Operator: Good day, and welcome to the Innovative Industrial Properties Q1 2024 earnings call. All participants will be in listen-only mode.

Good day and welcome to the innovative industrial properties Q1, 'twenty 'twenty four earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note that this event is being recorded. I would now like to turn the conference over to Brian Wolfe, General Counsel. Please do so.

Brian J. Wolfe: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please.

Brian J. Wolfe: Please note this event is being recorded.

Operator: Now I'd like to turn the conference over to Brian Wolfe General Counsel. Please go ahead.

Brian J. Wolfe: Thank you for joining the call. Presenting today are Alan Gold, Executive Chairman; Paul Smithers, President and Chief Executive Officer; David Smith, Chief Financial Officer; Catherine Hastings, Chief Operating Officer; and Ben Regin, Chief Investment Officer. Before we begin, I'd like to remind everyone that statements made during today's conference call may be deemed forward-looking statements within the meaning of the Safe Harbor and the Private Security Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks, uncertainties, and other factors.

Brian J. Wolfe: Thank you for joining our call today around the gold executive Chairman Paul Smithers.

Brian J. Wolfe: President and Chief Executive Officer.

Brian J. Wolfe: Smith, Chief Financial Officer.

Brian J. Wolfe: Chief operating officer.

Brian J. Wolfe: Chief investment officer.

Brian J. Wolfe: Please refer to the documents filed by the company with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the full liquid statement. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. In addition, on today's call, we will discuss certain non-GAAP financial information, such as FFO, normalized FFO, and adjusted FFO.

Brian J. Wolfe: Before we begin I would like to remind everyone.

Brian J. Wolfe: During today's conference call.

Brian J. Wolfe: Yes.

Brian J. Wolfe: Private Securities Litigation Reform Act.

Speaker Change: All right.

Brian J. Wolfe: Actual results may differ materially.

Brian J. Wolfe: It is less uncertain.

Brian J. Wolfe: And other factors.

Brian J. Wolfe: Please refer to the documents filed by the company.

Brian J. Wolfe: Specifically the most recent reports on forms 10-K, and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the fall.

Brian J. Wolfe: We are not obligated to publicly update or revise them.

Brian J. Wolfe: These statements whether as a result.

Brian J. Wolfe: Future events or otherwise.

Brian J. Wolfe: Additionally, on today's call, we will discuss certain non-GAAP financial information such as.

Brian J. Wolfe: Normalized.

Brian J. Wolfe: And adjusted.

Brian J. Wolfe: You can find this information, together with reconciliations, to the most directly comparable GAAP financial measure in our earnings release issued yesterday, as well as in our 8K for Obamacare. I'll now hand the call over to Alan.

Brian J. Wolfe: You can find this information together with reconciliation to the most directly comparable GAAP financial measure.

Brian J. Wolfe: Yes.

Alan: Issued yesterday as well as in our 8-K.

Brian J. Wolfe: I'll now hand, the call over to Alan.

Alan D. Gold: Thank you, Brian, and welcome, everyone. We are pleased to discuss our results here today as we enter into our eighth full year of operation. The first four months of 2024 have been very productive for our team, with our focus on driving release activity and monitoring the completion of significant development projects at our property, along with continued support of our tenants in funding critical infrastructure improvements to both further enhance production capacity and efficiency and activate significant projects under development.

Alan: Thank you, Brian and welcome everyone. We are pleased to discuss our results year to date as we enter into our eighth full year of operations.

Alan D. Gold: The first four months of 2024 have been very productive for our team.

Alan D. Gold: Our focus on driving releasing activity and monitoring the completion of significant development projects at our properties.

Alan D. Gold: Along with continued support of our tenants and funding critical infrastructure improvements to both further enhance production capacity and efficiency and activate significant projects under development.

Alan D. Gold: In the first four months of 2024, the company executed new leases at four properties representing $69 million of invested capital and completed construction on three fully leased properties totaling 732,000 square feet. We also strategically divested our Los Angeles, California property, which was leased until the closing. With a combined consideration exceeding our carrying value, the property, As you may recall, that property was never fully built out for the cannabis operation. Ben and Catherine will discuss this progress in more detail.

Alan D. Gold: In the first four months of 2024, the company executed new leases at four properties, representing $69 million of invested capital and.

Alan D. Gold: <unk> completed construction on three fully leased properties totaling 732000 square feet.

Alan D. Gold: We also strategically divested our Los Angeles, California property, which was leased until closing.

Alan D. Gold: The combined consideration exceeding our carrying value of the property as you may recall that property was never fully built out for cannabis operations span.

Speaker Change: Banning Katherine will discuss this progress in more detail.

Alan D. Gold: The company notched another solid quarter in Q1, generating $2.21 in AFFO per share and further enhancing the company's liquidity position in the first four months of the year with the upsizing of its revolving credit facility from $30 million to $50 million. While AFFO per share was down modestly quarter to quarter, we note that rents for the new leases we executed in late 2023 and year to date are not expected to commence for some months to come, as new tenants need the time to obtain the requisite approvals to operate and transition into these properties.

Alan D. Gold: The company notched another solid quarter in Q1.

Alan D. Gold: Generating $2 in 'twenty one.

Alan D. Gold: And <unk> <unk> per share and further enhancing the company's liquidity position and the first four months of the year with the upsizing of our revolving credit facility from 30 million to $50 million.

Alan D. Gold: Well <unk> <unk> per share was down modestly quarter to quarter. We note that rents for the new leases, we executed in late 2023 and year to date are not expected to commence for some months to come.

Alan D. Gold: As new tenants need the time to obtain the requisite approvals to operate and transition into these properties and.

Alan D. Gold: In addition to certain previous properties under development where construction needs to be completed. As we have reiterated in the past, we are really pleased with our capital position, especially in light of the macroeconomic environment impacting real estate companies and the cannabis industry as a general matter. Our total available liquidity exceeded $200 million as of the quarter end and fully funds any remaining development commitments we have along with providing ample dry power for additional strategic investment.

Alan D. Gold: In addition to certain pre leased properties under development or construction needs to be completed.

Alan D. Gold: As we have reiterated in the past we are really pleased with our capital position.

Alan D. Gold: And especially in light of the macroeconomic environment impacting real estate companies and the cannabis industry as a general matter.

Alan D. Gold: Our total available liquidity.

Alan D. Gold: <unk> 200 million as of quarter end and fully funds any remaining development commitments, we have along with providing ample dry powder for additional strategic investments.

Alan D. Gold: As Ben will share in more detail, we are evaluating a number of promising new investments in several state markets. Additionally, we have one of the lowest levered balance sheets in the REIT industry at 11% debt to total gross assets, with no variable rate debt, and no debt maturities until May 2026.

Alan D. Gold: As Ben will share in more detail, we are evaluating a number of promising new investments and several state markets. Additionally, we have one of the lowest levered balance sheets in the REIT industry at 11% debt to total gross assets.

Alan D. Gold: No variable rate debt no debt maturities until May 2026.

Alan D. Gold: David will provide more detail as well as our financial results for the quarter and capital position. From a regulatory perspective, all eyes continue to be focused on the potential rescheduling of cannabis from Schedule 1 to Schedule 3 under the Controlled Substances Act. With recent media reports indicating that the DEA is expected to agree with the HHS recommendation on this matter, Paul will discuss our thoughts in more detail on this rescheduling process pending federal legislation and state-level dynamics that we are seeing. I will now turn the call over to Paul to discuss Market Dynamics and Regulatory Developments. Okay, Paul?

Alan D. Gold: David will provide more detail as well as our financial results for the quarter and capital position.

Paul: From a regulatory perspective, all eyes continued to be focused on potential rescheduling of candidates from schedule one to schedule three under the controlled substances Act.

Paul: With the recent media reports, indicating that the DEA is expected to agree with the H H S recommendation on this matter.

Alan D. Gold: Paul will discuss our thoughts in more detail on this rescheduling process pending federal legislation and state level dynamics that we're seeing.

Alan D. Gold: I will now turn the call over to Paul to discuss market dynamics and regulatory developments Paul.

Paul E. Smithers: I would like to start with some general macroeconomic observations, from our perspective, that 2023 was another year of strong growth in terms of overall unit volume for regulated cannabis sales across the United States. However, overall regulated cannabis sales growth from a dollar's perspective was more subdued given the price compression that continued through the year in many states. Although some of that price compression was driven by an oversupply of regulated products in a particular market, we see much of the compression continuing to come from the illicit market.

Paul: Thanks, Alan I would like to start with some general macroeconomic observations from our perspective that are impacting the regulated cannabis industry.

Paul E. Smithers: 2023 was another year of strong growth in terms of overall unit volume for regulated cannabis sales across the United States. However, overall regulated cannabis sales growth from a dollars perspective was more subdued given the price compression that continued through the year in many states.

Paul E. Smithers: Although some of that price compression was driven by oversupply of regulated products in a particular market. We see much of the compression continuing to come from the illicit market in particular holistic grows in California that both compete within the state and have products that are transported across the country.

Paul E. Smithers: In particular, illicit grows in California that both compete within the state and have products that are transported across the country. All that said, the outlook for overall growth of the regulated cannabis industry remains robust. With MJBusiness' most recent factbook published in late April projecting overall U.S. regulated sales to grow from $32 billion in 2024 to $58 billion by 2030, at the same time, we are seeing some relief from those pricing pressures, which gives us more optimism for 2024 and beyond, as operators focus on the strength of their brands, driven in large part by the quality and consistency of their products. We also believe that the push by many of the multi-state operators to become more efficient and cost conscious in this environment should bode well for their future financial results.

Paul E. Smithers: All that said the outlook for overall growth of the regulated cannabis industry remains robust with MJ Biz is most recent back book published in late April projecting overall U S regulated sales to grow from 32 billion in 2000 $24 billion to $58 billion by 2030.

Paul E. Smithers: At the same time, we are seeing some relief on those pricing pressures, which gives us more optimism for 2024 and beyond as operators focus on the strength of their brands driven in large part by the quality and consistency of their products.

Paul E. Smithers: We also believe that the push by many of the multi state operators to become more efficient and cost conscious in this environment should bode well for their future financial results.

Paul E. Smithers: From a state market perspective, we continue to see divergence in performance and dynamics, with new markets experiencing high growth, while some mature markets become increasingly competitive, especially after the aforementioned extended period of price compression and the challenges in competing with illicit markets. For example, as we noted on our last call, 2023 saw strong rollouts for adult use sales in Missouri and Maryland, both of which also benefited from cross-border purchasing by residents in neighboring states with either a medical use only program or no program at all.

Paul E. Smithers: From a state market perspective, we continue to see divergence in performance and dynamics with new markets experiencing high growth, while some mature markets become increasingly competitive, especially after the aforementioned extended period of price compression and the challenges and competing with the illicit market.

Paul E. Smithers: For example, as we noted on our last call 2023 saw strong rollouts for adult use sales in Missouri, and Maryland, both of which also benefited from cross border purchasing by residents in neighboring states with either a medical use only program or no program at all.

Paul E. Smithers: Ohio, which legalized adult use in November, is expected to commence sales this year and earlier than originally anticipated, perhaps in June. While Ohio is expected to be one of the fastest-growing markets in the near future and follows on the heels of very successful adult use introductions in Missouri and Maryland, New York's adult use program, which was introduced more than a year ago in December of 2022, has struggled. With total illicit and legal demand estimated in excess of $5 billion, New York's regulated sales in 2023 came in at well below $1 billion for the year.

Paul E. Smithers: Ohio, which legalized adult use in November is expected to commence sales this year and earlier than originally anticipated, perhaps Jim while Ohio is expected to be one of the fastest growing markets in the near future and follows on the heels of very successful adult use introductions in Missouri in Maryland.

Paul E. Smithers: Europe's adult use program, which was introduced more than a year ago in December of 2022 has struggled.

Paul E. Smithers: With total illicit and legal demand estimated in excess of $5 billion, New York's regulated sales in 2023 came in at well below $1 billion for the year. However.

Paul E. Smithers: However, there have been certain recent developments that make us significantly more optimistic about the prospects for the New York market, including the ramping up of licensing for retail stores, stronger enforcement against illicit operations, and regulatory authorities allowing incumbent medical use operators to begin wholesaling. I would also like to touch on two other states that are in the running for adoption of adult use programs in the near term, Florida and Pennsylvania. In Florida, earlier this month, the Florida Supreme Court cleared the way for a legalization initiative on the November ballot.

Paul E. Smithers: However, there have been certain recent developments that make us significantly more optimistic on the prospects for New York market, including the ramping up of licensing for retail stores stronger enforcement against illicit operations and regulatory authorities, allowing income at medical use operators to begin wholesaling.

Paul E. Smithers: I would also like to touch on two other states that are in the running for adoption of adult use programs in the near term, Florida and Pennsylvania.

Paul E. Smithers: In Florida earlier this month, the Florida Supreme Court cleared the way for a legalization initiative on the November ballot.

Paul E. Smithers: The threshold for approval of the measure is 60%, a relatively high bar, although I would note that Florida's medical marijuana program passed with 72% support. While polling has been both above and below that threshold, we will be closely following the progress there, noting that if passed, Florida legalization is projected to provide the largest incremental revenue and profit opportunity for MSOs compared to any prior state conversion. In Pennsylvania, adult-use cannabis legislation has bipartisan support and is also supported by the Pennsylvania governor, having been noted as a priority in the governor's February 2024 budget address.

Paul E. Smithers: The threshold for approval of the measure was 60% a relatively high bar, although I would note that Florida's medical use program passed with 72% support.

Paul E. Smithers: While pooling has been both above and below that threshold, we will be closely following the progress there, noting that if passed Florida legalization is projected to provide the largest incremental revenue and profit opportunity for msos compared to any prior state conversion.

Paul E. Smithers: In Pennsylvania adult use cannabis legislation has bipartisan support and it was also supported by the Pennsylvania Governor having been noted as a priority and the Governor's February 2024 budgeted address.

Paul E. Smithers: We are hopeful that action will be taken in the coming months, also given the fact that Pennsylvania is largely surrounded by adult-use states at this point, with West Virginia as the exception to federal legislation. From the federal perspective, we are, of course, pleased to hear from recent media reports that the DEA is expected to take up the prior recommendation from HHS to reschedule cannabis from Schedule 1 to Schedule 3. As we noted previously, the most important impact of that reclassification is expected to be the elimination of the 280E tax treatment with an immediate significant boost to operator financials across the board.

Paul E. Smithers: We are hopeful that action will be taken in the coming months also given the fact that Pennsylvania is largely surrounded by adult use states at this point.

Paul E. Smithers: West Virginia is the exception.

Paul E. Smithers: Federal legislation.

Paul E. Smithers: From the federal perspective, we are of course pleased to hear for the recent media reports that the DEA is expected to take up the prior recommendation from HHS to reschedule cannabis from schedule one to schedule III.

Paul E. Smithers: As we noted previously the most important impact of that reclassification is expected to be the elimination of the 280 <unk> tax treatment with an immediate significant boost to operator financials across the board.

Paul E. Smithers: President Biden has made this an important issue for his administration heading into the election, and he was the first president in the United States to address cannabis reform in his state of the union address. So we believe there was significant momentum on this issue. That said, the DEA's proposed rule, when issued, will be followed by a public comment period before it issues a final rule. In that timeline, election timing and any corresponding potential administration change may also come into play.

Paul E. Smithers: President Biden has made this an important issue for US administration heading into the election and he was the first president in the United States to address cannabis reform in his state of the Union address so we believe there is significant momentum on this issue.

Paul E. Smithers: That said the <unk> proposed rule when issued will be followed by a public common period before it issues a final rule and that timeline election timing and any corresponding potential administration change.

Paul E. Smithers: So come into play.

Paul E. Smithers: Legislatively, we also continue to track the proposed safer banking legislation, which could allow, among other things, expanded lending opportunities for financial institutions. Though a version of this bill has passed the House seven times and has been around for the better part of a decade, recent commentary makes us think there is some potential for movement here, including commentary from Senate Majority Leader Chuck Schumer that the Senate is working very hard to enact this bill later this year.

Paul E. Smithers: Legislatively. We also continued to track the proposed safer banking legislation, which could allow among other things expanded lending opportunities for operators.

Paul E. Smithers: So a version of this bill has passed the house seven times and has been around for the better part of a decade recent commentary makes US think there is some potential for movement here, including commentary from Senate majority leader Chuck Schumer that the Senate is working very hard to enact as bill later this year.

Paul E. Smithers: Treasury Secretary Janet Yellen also recently commented in a House committee hearing on the importance of passing reform legislation to address the banking issues presented by the current regulatory structure, which we think also may hold some sway in stressing the importance of resolving these issues. I'd like to now turn the call over to Ben to discuss our portfolio and leasing activity for the start of the year. Thanks, Paul.

Paul E. Smithers: Treasury Secretary Janet Yellen also recently commented in our House Committee hearing on the importance of passing reform legislation to address the banking issues presented by the current regulatory structure, which we think also made wholesome sway and stressing the importance of resolving these issues.

Ben Regin: In my prepared remarks, I plan to highlight our continued leasing progress for our vacant and underdevelopment assets. Year-to-date, we've made substantial progress on this front, executing four new leases covering $69 million of invested capital in California and Michigan. In California, we have executed new leases for our 19th Avenue and McLean Street properties in Palm Springs with Goldflora, an existing tenant of ours and a leading vertically integrated operator in California. And in Michigan, as we noted last quarter, we executed an LOI for our Harvest Park facility prior to the move out of the former tenant, and earlier this quarter, we executed a lease with Lume Cannabis Company, one of the largest operators in the

Paul E. Smithers: I'd like to now turn the call over to Ben to discuss our portfolio and leasing activity start the year.

Ben Regin: <unk>.

Speaker Change: Thanks, Paul.

Ben Regin: For my prepared remarks, I plan to highlight our continued leasing progress for our vacant and underdevelopment assets.

Ben Regin: Year to date, we've made substantial progress on this front executing for new leases covering $69 million of invested capital in California, and Michigan and.

Ben Regin: In California, we have executed new leases for our 19th Avenue in Mclean Street properties in Palm Springs with gold Flora.

Ben Regin: <unk> tenant of ours, and a leading vertically integrated operator in California.

Ben Regin: And in Michigan as we noted last quarter, we executed an LOI for our harvest Park facility prior to the move out of the former tenant and earlier this quarter executed a lease with Luna cannabis company one of the largest operators in the Michigan market.

Ben Regin: We also signed a lease in January for one of our three small retail vacancies in the state. We were very pleased with the demand we saw for these assets, the speed at which we executed new leases, and the relatively minimal amount of incremental capital required for re-tenanting. We believe our ongoing execution on our leasing initiative supports our underlying thesis regarding the high-quality, purpose-built, mission-critical nature of our real estate portfolio.

Ben Regin: We also signed a lease in January for one of our three small retail vacancies in the state.

Ben Regin: We were very pleased with the demand we saw for these assets the speed at which we executed new leases and a relatively minimal amount of incremental capital required for <unk>.

Ben Regin: We believe our ongoing execution on our leasing initiatives supports our underlying thesis regarding the high quality purpose built mission critical nature of our real estate portfolio.

Ben Regin: Moving on to our development portfolio, as noted on previous calls, we continue to explore potential development options for our San Bernardino property, focusing on self-storage, and will continue to provide updates on progress on future calls. For our land site in San Marcos, Texas, we executed an LOI for a short-term lease with one of our existing tenant partners in anticipation of potential new licenses being issued. As you may know, Texas currently has a limited medical marijuana program, with only three licenses issued to date.

Ben Regin: Moving on to our development portfolio as noted on previous calls we continue to explore potential development options for our San Bernardino property, focusing on self storage and we'll continue to provide updates on progress on future calls.

Ben Regin: For a land site in San Marcos, Texas, we executed an LOI for a short term lease with one of our existing tenant partners in anticipation of potential new licenses being issued.

Ben Regin: As you May know, Texas currently has a limited medical use program with only three licenses issued to date, while we remain optimistic that Texas will eventually adopt a more open approach to regulated cannabis activities and issue new licenses in that process. It remains uncertain.

Ben Regin: And while we remain optimistic that Texas will eventually adopt a more open approach to regulated cannabis activities and issue new licenses in that process, that remains uncertain. And at our Pittsburgh, Pennsylvania, asset, we continue to explore leasing options for the property and are closely watching developments as it relates to potential adult use legislation, as Paul alluded to previously. Regarding new investment activity, in the first four months of 2024, we executed three lease amendments to fund additional improvements at properties totaling $22.1 million, including $16 million at Pharmacan in New York, where Pharmacan is focused on expanding production capacity after being awarded an adult use production license late last year.

Ben Regin: And that our Pittsburgh, Pennsylvania asset, we continue to explore leasing options for the property and are closely watching developments as it relates to potential adult use legislation as Paul alluded to previously.

Ben Regin: Regarding new investment activity in the first four months of 2024, we executed three lease amendments to fund additional improvements at properties totaling $22 $1 million, including $16 million of farm Mccann in New York, where pharma candidates focused on expanding production capacity after being awarded an adult use production license late last year.

Ben Regin: In Ohio, we provided an additional $4.5 million improvement allowance to Battle Green to complete construction and expand their production capacity as Ohio gets set to roll out the adult use program later this year. We also provided an additional $1.6 million to Forefront Ventures to round out the development of Forefront's 250,000-square-foot production facility in Illinois.

Ben Regin: In Ohio, we provided an additional $4 $5 million improvement allowance to battle Green to complete construction and expand their production capacity as Ohio get set to rollout. The adult use program later this year.

Ben Regin: We also provided an additional $1 $6 million to forefront ventures to round out development, a forefront of <unk> 250000 square foot production facility in Illinois.

Ben Regin: Battle Green in Ohio and Forefront in Illinois both recently received their temporary certificates of occupancy, as Cat will touch on, with operations expected to commence in the near term. Finally, earlier this week, we closed on the disposition of our property in Los Angeles, which was leased up until the sale. We sold the property for $9.1 million and received a lease termination fee from the tenant of $3.9 million in addition to reimbursement of our closing costs in connection with the sale, with the total consideration exceeding the net carrying value of the property on our books.

Ben Regin: Battle Green in Ohio in forefront in Illinois, both recently received their temporary certificates of occupancy as cat will touch on with operations expected to commence in the near term.

Ben Regin: Finally earlier this week, we closed on the disposition of our property in Los Angeles, which was leased up until the sale.

Ben Regin: We sold the property for $9 $1 million and received a lease termination fee from the tenant of $3 9 million. In addition to reimbursement of our closing costs in connection with the sale.

Ben Regin: With the total consideration exceeding the net carrying value of the property on our books.

Ben Regin: This property was never fully built out for cannabis use, and we expect the sale to free up additional capital to recycle into other opportunities that we believe will provide superior risk-adjusted returns. In addition to our leasing activity, which has been off to a strong start in 2024, we continue to track a strong active pipeline, where we are seeing a notable uptick in activity on the heels of some of the market and industry developments that Paul described.

Ben Regin: This property was never fully built out for cannabis use and we expect the sale to free up additional capital to recycle into other opportunities that we believe will provide superior risk adjusted returns.

Ben Regin: In addition to our leasing activity, which has been off to a strong start in 2024 and continue to track strong active pipeline, where we are seeing a notable uptick in activity on the heels of some of the market and industry developments that Paul described.

Ben Regin: We are seeing demand for our capital across markets, from those with near-term adult use potential, such as Florida and Pennsylvania, to more established markets, such as Maryland and Arizona. We are actively evaluating opportunities in these and other markets and look forward to executing on new investment opportunities on a very selective, discipline-based basis.

Ben Regin: We are seeing demand for our capital across markets from those with near term adult use potential such as Florida, and Pennsylvania to more established markets such as Maryland in Arizona.

Ben Regin: We are actively evaluating opportunities in these and other markets and look forward to executing on new investment opportunities on a very selective disciplined basis.

Catherine Hastings: With that, I'll turn it over to Catherine.

Ben Regin: With that I'll turn it over to Kathryn Kathryn.

Catherine Hastings: Thanks, Ben. As Ben noted, we've made a lot of progress over the last few months on closing out or nearing completion on several of our tenants' major development projects. So far in 2024, we have completed construction on three leased projects totaling $200 million of invested and committed capital. Theriot's 325,000 square foot expansion in New York, Forefront's 250,000 square foot ground-up development in Illinois, and Battle Green's 157,000 square foot ground-up development in Ohio.

Catherine Hastings: Thank you.

Catherine Hastings: David.

Ben Regin: Hey, Mark.

Catherine Hastings: <unk>.

Catherine Hastings: <unk>.

Catherine Hastings: Gotcha.

Catherine Hastings: Yes.

Catherine Hastings: <unk> completed construction.

Catherine Hastings: Project.

Catherine Hastings: Yes.

Catherine Hastings: In any capital.

Catherine Hastings: Area.

Ben Regin: Thanks, Dan.

Catherine Hastings: Sure.

Catherine Hastings: 250000 square foot.

Catherine Hastings: Yes.

Catherine Hastings: And downgraded.

Catherine Hastings: Sure.

Catherine Hastings: We further expect to substantially complete the 23,000-square-foot Perez Road development project in California shortly, which is on pre-lease, and the 104,000-square-foot cultivation components of our Summit Building in Michigan in the summer. As you may recall, the 97,000-square-foot processing section of that building is approved for operations now, and the entire project is leased. In light of the challenges presented over the past few years with real estate development projects nationwide, we are very pleased to get these projects to the finish line and allow our operators to start generating revenues from these state-of-the-art facilities.

Catherine Hastings: We further expect.

Catherine Hastings: The 23000 square foot garage.

Catherine Hastings: Project in California.

Catherine Hastings: As previously.

Catherine Hastings: 104000 square foot cultivation.

Catherine Hastings: Yes.

Catherine Hastings: And Mr.

Catherine Hastings: As you May recall, the 90 sevens.

Catherine Hastings: Right.

Catherine Hastings: Section of that building is a critical operations now.

Catherine Hastings: Our projected needs.

Catherine Hastings: In light of the challenges presented over the past few years with real estate development project.

Catherine Hastings: We are very pleased to get this project.

Catherine Hastings: Screen and allow our operators to start generating revenues in these data.

Catherine Hastings: Remember that under our lease structure, these tenants began paying rent during construction, which we've recorded in our revenues, but this is an important milestone for our tenants to ramp up operations and generate cash flows in the facilities. Regarding our portfolio, as of March 31st, in the Proforma for Development Properties Placed in Service Subsequent to Quarter End, we owned 108 properties across 19 states, comprising 8.9 million rentable square feet, including 647,000 square feet of development or redevelopment.

Catherine Hastings: Remember that under these injection.

Catherine Hastings: It began paying rent during construction, which we recorded in our revenues, but this is an important milestone Greg here to ramp operations and generate cash flow.

Catherine Hastings: Ernie.

Catherine Hastings: Of these 108 properties, 103 properties are included in our operating portfolio, which was 95.2% leased at quarter end, with a weighted average remaining lease term of approximately 14.8 years. Of the five properties under redevelopment, three were pre-leased at quarter end. Our portfolio continues to be well diversified, with no one tenant representing more than 17% of our annualized base rent, and no state representing more than 15% of our annualized base rent. We have relationships with some of the largest and most experienced operators in the industry, with our leased operating portfolio comprised of 90% multi-state operators and 60% leased to public company tenants. The total amount of capital invested and committed across their operating portfolio equates to $277 per square foot, which we believe remains significantly below replacement costs.

Catherine Hastings: Regarding our portfolio as of March 30 <unk>.

Catherine Hastings: Your appointment.

Catherine Hastings: Great.

Catherine Hastings: Subsequent to quarter end we.

Catherine Hastings: 108 property at Kraft.

Catherine Hastings: Okay.

Catherine Hastings: 9 million rentable square feet.

Catherine Hastings: 647000 square feet of development or redevelopment.

Catherine Hastings: Of these 100 volt property for 103 properties are included in our operating portfolio, which was 95.

Catherine Hastings: At quarter end with a weighted average remaining lease term is approximately <unk> <unk>.

Catherine Hastings: Yes.

Catherine Hastings: As the science properties under development.

Catherine Hastings: Three we are pre leased at quarter end.

Catherine Hastings: Our portfolio continues.

Catherine Hastings: And well diversified with no one representing more than 17% of our annualized base rent.

Catherine Hastings: Representing more than 15%.

Catherine Hastings: Yes.

Catherine Hastings: We have relationships with some of the largest in that area.

Catherine Hastings: Operator.

Catherine Hastings: Well, they're leased operating portfolios comprised 90% multistate operator.

Catherine Hastings: <unk> recently public company.

Catherine Hastings: The total amount of capital invested and committed across our operating portfolio equates to $277 per square foot, which we believe remains significantly below replacement costs.

David J. Smith: And with that, I'll turn it over to David.

Speaker Change: Now I'll turn to <unk>.

David J. Smith: David.

David J. Smith: Thank you, Catherine. For the first quarter, we generated total revenues of $75.5 million, a 1% decrease from Q1 of last year. The decrease was primarily driven by properties which were leased for all or part of the three months ended March 31st, 2023, and properties which were not leased or were re-leased but rent had not yet commenced during the three months ended March 31st, 2024, as we noted in our earnings release

David: Thank you Catherine for the first quarter, we generated total revenues of $75 5, Million% to 1% decrease from Q1 of last year.

David J. Smith: The decrease was primarily driven by properties, which are leased for all or part of the three months ended March 31 2023.

David J. Smith: And properties, which were not least where were released but rent had not yet commenced during the three months ended March 31 2024.

David J. Smith: As we noted in our earnings release issued yesterday.

David J. Smith: Total revenues for Q1 also do not include $1.5 million in rent received during the quarter but not recognized in total revenues due to a reclassification of two leases as sales-type leases starting January 1, 2024, as a result of lease term extensions that were executed for both leases. The modest decline in rental revenues was partially offset by activity in prior periods for the acquisition and leasing of new properties. Additional funding and building improvements were provided to tenants at certain properties that resulted in base rent increases and Contractual Rental Escalation.

David J. Smith: Revenues for Q1 also do not include $1 5 million in rent received during the quarter, but not recognized in total revenues due to a reclassification of two leases as sales type leases starting January one 2024 as a result, the lease term extensions that were executed for both leases.

David J. Smith: The modest decline in rental revenues was partially offset by activity prior periods for the acquisition and leasing of new properties.

David J. Smith: Additional funding and building improvements provided to tenants at certain properties that resulted in base rent increases in contractual rental escalations.

David J. Smith: It is also noteworthy that no security deposits were applied for payment or rent during the three months ended March 31st, 2024, while a total of $4.2 million of security deposits were applied for payment of rent for Q1 of 2020. Revenues for the quarter were also down sequentially versus Q4 of last year, primarily related to a Q4 payment of $1.7 million received from a former tenant at one of our properties in Pennsylvania as part of a judgment in our favor for unpaid rent, and a previously disclosed temporary reduction in base rent for Forefront at the Illinois property starting in January 2024, which was under development and had experienced significant delays in construction, primarily relating to bringing power to the property.

David J. Smith: It is also noteworthy that no security deposits were applied for payment of rent during the three months ended March 31 2024.

David J. Smith: While a total of $4 2 million of security deposits were applied for payment of rent for Q1 of 2023.

David J. Smith: Revenues for the quarter were also down sequentially versus Q4 of last year.

David J. Smith: Primarily related to our Q4 payment of $1 7 million received from a former tenant in one of our properties in Pennsylvania as part of a judgment in our favor for unpaid rent.

David J. Smith: Andy previously disclosed temporary reduction in base rent for forefront at the Illinois property starting in January 2024.

David J. Smith: Which is under development and had experienced significant delays in construction.

David J. Smith: Primarily related to bringing power to that property.

David J. Smith: For the three months ended March 31st, 2024, we recorded net income attributable to common stockholders of $39.1 million, or $1.36 per share. Adjusted funds from operations for the first quarter were $63 million, or $2.21 per share, a decrease of 2% compared to the first quarter of 2023, driven primarily by the same factors that drove the 1% decrease in revenues, period to period. AFFO was also down sequentially from Q4, again primarily driven by the $0.06 attributable to the $1.7 million judgment paid to IIP in Q4.

David J. Smith: For the three months ended March 31, 2024, we recorded net income attributable to common stockholders of $39 1 million or $1 36 per share.

David J. Smith: Adjusted funds from operations for the first quarter was $63 million or $2 21 per share a decrease of 2% compared to the first quarter of 2023.

David J. Smith: Driven primarily by the same factors that drove the 1% decrease in revenues period to period.

David J. Smith: <unk> was also down sequentially from Q4, again, primarily driven by the <unk> attributable to the $1 7 million judgment paid to IP in Q4.

David J. Smith: Looking ahead, I would note that while we expect the leasing activity discussed to contribute meaningfully to our long-term rental revenues, the timeline to rent stabilization may differ between the properties as there are state and local approvals needed for these transitions, additional regulatory requirements to be completed at certain assets, and some level of rent abatement is negotiated to allow for a ramping of our new tenants' operations.

David J. Smith: Looking ahead I would note that while we expect the leasing activity been discussed to contribute meaningfully to our long term rental revenues.

David J. Smith: The timeline to rent stabilization may differ between the properties as there are state and local approvals needed for these transitions.

David J. Smith: Additional regulatory requirements to be completed at certain assets.

David J. Smith: And some level of rent abatement as negotiated to allow for a ramping of our new tenants operations.

David J. Smith: That being said, we are very pleased with our substantial activity on the release front, as discussed in detail. On April 15th, we paid a quarterly dividend of $1.82 per share. Common stockholders are record as of March 28th. As Alan noted, our dividend remained covered by our AFFO during the quarter, with a payout ratio of 82%, which is in line with the board's targeted payout ratio of 75-85% of AFFO. Turning to the balance sheet, at quarter end, we had approximately $2.6 billion in total gross assets and $300 million in fixed-rate debt, consisting solely of $300 million in unsecured bonds not maturing until May 2026.

David J. Smith: That being said we are very pleased with our substantial activity on the releasing front has been discussed in detail.

David J. Smith: On April 15th we paid a quarterly dividend of $1 82 per share.

David J. Smith: To common stockholders of record as of March 28th.

David J. Smith: As Alan noted our dividend remain covered by our <unk> during the quarter with a payout ratio of 82%, which is in line with our board's targeted payout ratio of 75% to 85% of a for vote.

David J. Smith: Turning to the balance sheet at quarter end, we had approximately $2 6 billion and total gross assets.

David J. Smith: And $300 million in fixed rate debt, consisting solely of $300 million in unsecured bonds not maturity until may 2026.

David J. Smith: We continue to maintain credit metrics that are among the best in the entire publicly traded REIT industry, with a debt to gross assets ratio of 11% and a debt service coverage ratio in excess of 16 times. On the liquidity front, we ended the first quarter with over $200 million of total liquidity, comprised of our cash, short-term investments, and availability under our revolving credit facility. We closed on this credit facility last October, which at that time was a $30 million, three-year facility. We subsequently upsized the facility to $45 million in February and expect to increase the total capacity to $50 million by the end of this month. Our revolver remains undrawn as of today.

David J. Smith: We continue to maintain credit metrics that are among the best in the entire publicly traded REIT industry with a debt to gross assets ratio of 11%.

David J. Smith: And the debt service coverage ratio in excess of 16 times.

David J. Smith: On the liquidity front, we ended the first quarter with over $200 million of total liquidity.

David J. Smith: Comprised of our cash and short term investments and availability under our revolving credit facility.

David J. Smith: We closed on this credit facility last October.

David J. Smith: At that time was a $30 million three year facility.

David J. Smith: We subsequently upsized the facility to $45 million in February and expect to increase the total capacity to $50 million by the end of this month.

David J. Smith: Our revolver remains undrawn as of today.

David J. Smith: We are also continuing to source new banking relationships to provide additional capital for the company, and with over 800 financial institutions providing services to the cannabis industry, along with recent reports of one of the top 20 largest banks in the U.S. entering the industry, we remain encouraged by our prospects to continue to expand our banking relationships. We are well positioned for growth as we continue to maintain a conservative and low leverage balance sheet, generate positive free cash flow, and have continued to enhance our liquidity position through the closing of this new credit facility in Q4 and upsizing that facility in the first part of 2024.

David J. Smith: We're also continuing to source new banking relationships to provide additional capital for the company.

David J. Smith: And with over 800 financial institutions, providing services to the cannabis industry.

David J. Smith: Along with recent reports that one of the top 20 largest banks in the U S and train the industry.

David J. Smith: We remain encouraged and our prospects to continue to expand our banking relationships.

David J. Smith: We are well positioned for growth as we continue to maintain a conservative and low leverage balance sheet Gen.

David J. Smith: Generate positive free cash flow and have continued to enhance our liquidity position through the closing of this new credit facility in Q4, and upsizing that facility in the first part of 2024.

David J. Smith: Finally, as a result of the investment activity that Ben mentioned, we opportunistically tapped our ATM program by issuing 123,000 shares of common stock for $11.8 million in net proceeds to further bolster our strong liquidity position and invest accretively into the opportunities that Ben discussed in his remarks. With that, I will turn it back to Alan.

David J. Smith: Finally, as a result of the investment activity that Ben mentioned.

David J. Smith: We opportunistically tapped our ATM program by issuing 123000 shares of common stock for $11 8 million in net proceeds to further bolster our strong liquidity position and invest accretively into the opportunities that Ben discussed in his remarks.

David J. Smith: With that I will turn it back to Alan Alan.

Alan: Thanks, David.

Alan D. Gold: I'd like to note the following in closing. We as a company are certainly not immune to the macroeconomic factors that have impacted the broader economy and the regulated cannabis industry, in particular. But I am proud of our team and what our team has accomplished in continuing to execute on our plan to maximize the value of our portfolio for the benefit of our stockholders through our leasing, investment, and disposition activities and to continually evaluate capital options with the goal of maintaining a strong balance sheet and liquidity position. We believe this core focus will serve our stockholders well over the long term.

Alan: I'd like to note the following in closing.

Alan D. Gold: We as a company are certainly not immune to the macroeconomic factors that have impacted the broader economy and the regulated cannabis industry in particular.

Alan D. Gold: But I am proud of our team.

Alan D. Gold: And what our team has accomplished and continuing to execute on our plan to maximize the value of our portfolio for the benefit of our stockholders through our leasing investment and disposition activities and to continually evaluate capital options with the goal of maintaining a strong balance sheet and liquidity position.

Alan D. Gold: We believe this core focus will serve our stockholders well over the long term.

Alan D. Gold: With that, I'd like to open the call up to questions. Operator, could you please open the call up for questions? Thank you. We will now begin the question and answer session.

Speaker Change: With that I'd like to open it up to questions. Operator could you. Please open the call up for questions.

Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star and then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Tom Catherwood with BTIG. Please go ahead.

Speaker Change: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.

William Thomas Catherwood: That any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Operator: At this time, we will pause momentarily to assemble our roster.

Operator: The first question comes from Tom Catherwood with <unk>. Please go ahead.

William Thomas Catherwood: Thank you and good morning everyone. For the U.S. cannabis industry more broadly, and I want to be cautious here and not sound too overly optimistic, but the bulk of operators reported an uptick in both retail sales and wholesale activity with their fourth quarter earnings, and then there was a kind of margin improvement across the board. How are you seeing operators respond to this modestly improved backdrop, and could we see a renewed cycle of capex spending on cultivation and manufacturing given the uptick in wholesale activity?

William Thomas Catherwood: Thank you and good morning, everyone.

William Thomas Catherwood: For the.

William Thomas Catherwood: For the U S cannabis industry more broadly and I don't want to be cautious here and not sound too overly optimistic but the bulk of operators.

William Thomas Catherwood: Reported an uptick in both retail sales and wholesale activity with their fourth quarter earnings and then there was kind of margin improvement across the board. How are you seeing operators respond to this modestly improved backdrop and could we see a renewed.

William Thomas Catherwood: Cycle of Capex spending on cultivation and manufacturing given the uptick in wholesale activity.

Alan D. Gold: Yeah, thank you, Tom. It's a good question, and it really goes to, you know, our Greater belief that while we've been going through some difficult macroeconomic environments, things are looking better, that there are green shoots and opportunities. But I'm going to turn it over to Paul, and perhaps Ben to answer that question more directly.

Speaker Change: Yes, Thank you Tim.

Paul: Good question.

Paul: And it really goes to.

Alan D. Gold: Yeah.

Alan D. Gold: Our.

Paul: Greater greater belief.

Speaker Change: While we've been going through some difficult macroeconomic environments and things are looking better there are green shoots in opportunities, but I'm going to turn it over to.

Alan D. Gold: Paul.

Alan D. Gold: And perhaps Ben to answer that question with yes, Hey, Tom It's Paul So, yes, I agree with al on that.

Paul E. Smithers: Hey, Tom. This is Paul.

Paul: When we talk to our operators we are.

Paul E. Smithers: So, yeah, I agree with Alan that when we talk to our operators, we are feeling a greater sense of optimism, and there are lots of discussions about expansion. And you know, it's not only, you know, pricing stability, but I think, you know, we can't understate the excitement about the rescheduling likelihood and the 280E relief. So, you know, with those things combined, we are seeing a lot more interest and, of course, you know, expansion conversations. I don't know, Ben, if you want to put some more color on that, what we're seeing pipeline wise.

Paul E. Smithers: Really.

Speaker Change: Greater sense of optimism and there are.

Paul E. Smithers: Lots of discussions about expansion.

Ben Regin: And it's not only.

Ben Regin: Pricing stability, but I think we can't understate.

Ben Regin: The excitement about the rescheduling.

Speaker Change: Likely hood.

Ben Regin: The QAD relate so with those things combined.

Ben Regin: We are seeing a lot more interest and of course you know.

Ben Regin: Expansion conversations been.

Ben Regin: If you want to put some more color on that.

Ben Regin: Yeah, sure, and just, hey Tom, on your question about what the operators are doing, I think you can hear the optimism if you're listening to any of the earnings calls this quarter, whether that's Vereo focusing on their improved metrics or GTI yesterday talking about being able to play aggressive offense in the market given what they're seeing out there. I think a lot of these companies are poised to get back into expansion mode, creative acquisitions, more M&A, and that's translating on our side to the uptick in the pipeline that we mentioned in the prepared remarks.

Ben Regin: We're seeing pipeline wise, yes.

Ben Regin: Yeah sure and just Tom on your on your question about.

Ben Regin: What the what the operators are doing I think you can hear the optimism.

Ben Regin: Listening to any of the earnings calls this quarter, whether thats vireo, focusing on their improved metrics or GTI yesterday talking about being able to play aggressive offense.

Ben Regin: Market, given what they're seeing out there.

Ben Regin: Thank God.

Ben Regin: A lot of these companies are poised to get.

Ben Regin: I'll get back into expansion mode accretive.

Ben Regin: Acquisitions, more M&A and Thats translating on our side to maybe uptick in the pipeline that we have.

Ben Regin: Mentioned in the prepared remarks.

William Thomas Catherwood: Got it. Appreciate those thoughts, everyone.

Speaker Change: Got it I appreciate those thoughts everyone, then maybe Ben and David.

William Thomas Catherwood: For the new leases I know, it's hard to predict when tenants will receive full regulatory approval and can take full possession and start paying rent, but at the same time. These are sophisticated operators that you lease to who are up and running in these states already are you able to.

William Thomas Catherwood: And then maybe Ben and David, for the new leases, I know it's hard to predict when tenants will receive full regulatory approval and can take full possession and start paying rent. But at the same time, these are sophisticated operators that you've leased to who are up and running in these states already. Are you able to maybe bucket the leases between those that are more likely to gain regulatory approval and have a tenant take occupancy in 24 versus those that are a 25 event? Or are there some that could even extend beyond that? Any thoughts or suggestions would be helpful.

William Thomas Catherwood: Maybe bucket the leases between those that are more likely to gain regulatory approval and I'd have a tenant taking occupancy in 24 versus those that are 25, then to or are there some that could even extend beyond that any thoughts would be helpful.

Alan D. Gold: Yeah, you know, Tom, this is Alan. I'd like to start with how we agree with you in your analysis that we have some very strong and sophisticated tenants and operators that are operating in a very unique environment, a difficult macroeconomic environment, and an environment where the regulatory agencies are still, believe it or not, working through a lot of their own processes. And with that, I'll turn it over to David and Ben.

William Thomas Catherwood: Yes, Tom This is Alan I would first like to start with.

Speaker Change: We agree with you and in your analysis that we have some very strong.

Alan D. Gold: And sophisticated.

Alan D. Gold: Tenants and operators that are that are operating in a.

Alan D. Gold: Very unique environment a difficult macro.

Alan D. Gold: The economic environment.

Alan D. Gold: The environment, where the regular regulatory agencies are still leave and are now working through a lot of their own processes.

Alan D. Gold: Turn it over to David <unk>.

David J. Smith: Yeah, Tom, just to echo what Alan's saying, I don't think we can really overstate how pleased we've been with the leasing activity. I mean, not just the speed at which we're able to retenant these properties, but the relatively low amount of capital required to retenant these properties. But really, as you noted, it's the strength of the operators and the credit upgrades we feel we got in each of these cases.

David: Hey, Tom.

David: Just to echo what al and saying I don't think we can really.

David J. Smith: Overstate, how pleased we've been with the leasing activity and not just.

David J. Smith: The speed at which we were able to re tenant these properties, but relatively low amount of capital required to re tenant these properties.

David J. Smith: But really as you noted it's the strength of the operators and the credit upgrades, we feel we got it in each of these cases, whether thats gold, Florida and California.

David J. Smith: Whether that's Goldfloor in California or a group like Loom in Michigan, who's the largest operator in the state there. So the regulatory aspects of rent commencement and starting operations are out of our hands and something that we're tracking, but we feel that we've partnered in each case with the group that can execute on that as best they can.

David J. Smith: Or group like loom in Michigan. It was the largest operator in the state there.

David J. Smith: So the regulatory aspects of rent commencement and starting of operations is.

David J. Smith: Out of our hands and something that we're tracking but we feel that we've partnered in each case with.

David J. Smith: The group that can execute on that.

David J. Smith: Again.

William Thomas Catherwood: Got it. Well, we will keep that on the front of our radar as we move through the year. And then maybe last for me, Paul, following up on your comments about, you know, operators being more opportunistic, given the commentary about rescheduling, and also you sounded, I think, somewhat more optimistic about the potential for safer legislation than I've heard you in a while. I know the devil will ultimately be in the details for both of these pieces of legislation.

Speaker Change: Got it well, we will keep that on the front of our radar as we as we move through the year.

William Thomas Catherwood: And then maybe last for me Paul following up on your comments about.

William Thomas Catherwood: Operators being more opportunistic given the commentary about rescheduling.

William Thomas Catherwood: And also you sounded I think somewhat more officer up domestic on the potential for safer legislation that ive heard you in a while.

William Thomas Catherwood: But if we step back and think bigger picture, what risks could IIP's business model face over the near to medium term if we get both rescheduling and more access to financial institutions and services at the same time?

William Thomas Catherwood: I know the Devil ultimately be in the details for both of these pieces of legislation, but if we step back and think bigger picture.

William Thomas Catherwood: What risk.

William Thomas Catherwood: <unk> business model space over the near to medium term, if we get both rescheduling and more access to financial institutions and the services at the same time.

Paul E. Smithers: Yeah, I think, you know.

William Thomas Catherwood: Yes.

Alan: Alan go ahead.

Alan D. Gold: I was going to say, before Paul talks about the risks, I think there are not only risks, but there are certainly opportunities, or every one of those risks really is a double-edged sword in that when there is a rescheduling and or more positive regulatory environment, it also helps with our AgPoSTA capital and our ability to drive returns to our shareholders because, one, we have an extremely strong and well-established portfolio with a very Go ahead, Paul.

Speaker Change: Yes, no I was going to say before Paul talks about the risks.

Paul: I think they're not only are the risk, but there are certainly opportunities.

Paul: Every one of those risks.

Paul: Risks really is a double edged sword in that.

Alan D. Gold: When.

Paul: There is a rescheduling <unk>.

Paul: More positive regulatory environment, and also helps with our cost of capital and our ability.

Paul: To drive.

Paul: Returns to shareholders.

Paul: We have a.

Paul: And extremely strong.

Paul: And Oh.

Paul: Well established portfolio where <unk>.

Paul: I'm very long term weighted average refunds.

Alan D. Gold: Dan.

Paul: Capital that is being deployed at north of a mid teens type.

Paul E. Smithers: Talk about the risks. As far as rescheduling is concerned, Tom, we don't see any significant risk to our operations should rescheduling go forward. The opposite is true because, if we reschedule to three, there is still a federal disconnect between state law and the feds. So it's still... The states operating, the licensed state operators would still be in conflict with federal law because they'd be selling cannabis without a prescription. So we still have that disconnect that, you know, creates the opportunity for us.

Alan D. Gold: Area. Okay go ahead, Paul could you talk about the risk yes, okay. So.

Paul E. Smithers: As far as rescheduling, Tom we don't see any significant risk to our operations should rescheduling go forward.

Paul E. Smithers: The opposite is true because remember we still if we rescheduled to three.

Paul E. Smithers: Still the federal disconnect between state.

Paul E. Smithers: State law and fed so it's still.

Paul E. Smithers: States operating license day operators would still be in conflict with federal law, because they would be selling canvas without a prescription. So we still have that disconnect that creates the opportunity for us. So we don't see a lot of players coming into the market. When you still have that federal prohibition.

Paul E. Smithers: So we don't see a lot of players coming into the market when you still have that federal prohibition. As far as the Safer Banking Act is concerned, there is some optimism because it's getting traction in the Senate. And you've got a committee, and Schumer says he's going to put it on a floor vote. That's the good news. It'll still be a challenge in the House because Speaker has said, you know, he's not a fan. So probably won't get a vote in the House. But why there's reason for optimism is it could be part of a bigger bill. And that's why, you know, there is some renewed energy.

Paul E. Smithers: As far as the safer banking Act.

Paul E. Smithers: There is some optimism because it's getting traction.

Paul E. Smithers: In the Senate and you've got a committee and Schumer said, just kind of put it on a floor vote.

Paul E. Smithers: That's the good news.

Paul E. Smithers: It will still be a challenge in the house.

Paul E. Smithers: Speaker has said he is not a fan so it probably won't get a vote on the house, but.

Paul E. Smithers: Why there is reason for optimism is it could be part of a negotiated.

Paul E. Smithers: Bigger Bill and Thats why there is some some renewed energy but.

Paul E. Smithers: But, you know, in its current form, Safer does not address any capital market access. It's purely, you know, getting the cash out of the banking system. So if Safer passes as is, we don't see it affecting our business. On the contrary, it would be better for our operators to take the cash out. So, you know, to answer your question, we just see very minimal risk, if not at all, should rescheduling occur and or Safety.

Paul E. Smithers: In its current form safer does not address any capital market access it's purely.

Paul E. Smithers: Getting the cash out of the banking system. So if safer passes as is.

Paul E. Smithers: Don't see it affecting our business to the contrary it would be better for operators to take the cash out so.

Speaker Change: Yes to answer your question, we just see very minimal risk if not at all should.

Paul E. Smithers: Rescheduling <unk> safer.

William Thomas Catherwood: I appreciate all those responses. That's it for me. Thanks, everyone.

Paul E. Smithers: Yes.

Speaker Change: Appreciate all the responses that's it for me thanks, everyone. Thanks, Tom.

Scott Thomas Fortune: The next question comes from Scott Fortune with Roth MKM. Please go ahead.

William Thomas Catherwood: The next question comes from Scott Fortune with Roth <unk>. Please go ahead.

Scott Thomas Fortune: Yes, and thank you for the question. I just want to follow up on that and the risk side of things. You guys have mentioned strong and sophisticated operators, and we're now seeing the top MSOs with significant cash levels, and that could be, you know, additional cash flow if we get rescheduling there. So just wanted to get a sense for the tenants with those strong cash levels on the balance sheet and those discussions. I'm not sure if rescheduling, you know progress now, has opened up more discussions with them, but the opportunity for them to really tap into markets for lower costs of capital.

Scott Thomas Fortune: Yes, Tim. Thank you for the question just kind of a follow up on that and the risk side of things.

Scott Thomas Fortune: You guys have mentioned strong and sophisticated operators and we're now seeing the top msos with significant cash levels and that could be.

Scott Thomas Fortune: Additional cash flow forget rescheduling there. So just wanted to get a sense for the tenants with the strong cash level on the balance sheet and those discussions I'm not sure. If we scheduling progress now has opened up more discussions with them, but the opportunity for them to really tap into markets for <unk>.

Scott Thomas Fortune: Your cost of capital obviously.

Scott Thomas Fortune: Obviously, there's a spread here, but just kind of going forward with some of these bigger operators who want to expand the sales lease model regarding the cap rates and working with IIP and what you can offer those top MSOs versus kind of their now lower cost of capital. Just how you kind of look at that risk of lower cap rates and the spread going forward and address that a little bit. That'd be great.

Scott Thomas Fortune: There is a spread here, but just kind of going forward with some of the bigger operators, who want to expand the sales lease model regarding the cap rates and working with.

Scott Thomas Fortune: AIP.

Scott Thomas Fortune: And what you can offer the top msos versus kind of there now lower cost of capital just how you kind of look at that risk was slow.

Speaker Change: Sure cap rates.

Scott Thomas Fortune: And the spread going forward kind of addressed that a little bit that'd be great.

Alan D. Gold: So before I turn it over to Ben to kind of talk about our pipeline and how strong our pipeline is, you know, I would, I would, Scott, ask you to really think through this: just because they have more capital on their balance sheet does not necessarily mean that their cost of capital has gone down. I think I think that their cost of capital remains elevated. I think they're still struggling with accessing the broader capital markets.

Scott Thomas Fortune: Sure.

Scott Thomas Fortune: Before I turn it over to Ben to talk about our pipeline and how strong our pipeline is.

Alan D. Gold: I would I would.

Alan D. Gold: Scott asking that relief through just because they're more capital on their balance sheet does not necessarily mean that the constant counsel has gone down.

Ben Regin: Thank you.

Alan D. Gold: No.

Alan D. Gold: I think that the cost of capital.

Alan D. Gold: Remains elevated.

Alan D. Gold: We're still struggling with accuracy.

Alan D. Gold: The broader capital markets.

Alan D. Gold: Clearly, here in the U.S., maybe not so much, or maybe they have better access up in Canada where you all have access, operations also. But here in the U.S., their access to capital remains limited, which goes to the quality and size of our pipeline, which I'll let Ben discuss.

Ben Regin: Clearly here in.

Alan D. Gold: In the U S, maybe not so much or maybe better.

Alan D. Gold: Better access in Canada.

Alan D. Gold: Where are you on.

Ben Regin: I'll have.

Alan D. Gold: Operations also.

Alan D. Gold: Here in the U S.

Alan D. Gold: And their access to capital remains limited.

Alan D. Gold: Which.

Ben Regin: Well it goes to <unk>.

Alan D. Gold: Colony and signs of alcohol.

Alan D. Gold: On this call.

Ben Regin: Yeah, hey Scott, this is Ben. So, yeah, just to follow up on Alan's comments, you know, we noted the real uptick in activity we're seeing in the pipeline, which has been great to see. It's very active across multiple markets, and these are at the same cap rates that we've been seeing for the last few years. So, we have not seen any, you know, downward pressure on those rates, and I think if, you know, the cost of capital generally is going down, that typically impacts us as well, and we can maintain our same spread, potentially at lower cap rates in that environment. But, you know, as of today, with the increased activity in the pipeline, we've not seen any downward movement in any material way on our cap rates.

Alan D. Gold: Yes, Scott this is Ben so just to follow up on Alan's comments, we noted.

Ben Regin: The real uptick in activity, we're seeing in the pipeline which has been.

Ben Regin: To see the very active across multiple markets and these are at the same cap rates that we've been seeing for the last few years. So we have not seen any downward pressure on those rates and I think if cost of capital generally is going down that typically impacts us as well and we can maintain our same spread.

Ben Regin: Potentially a lower cap rates in that environment, but.

Ben Regin: As of today with the increased activity in the pipeline, we have not seen any any downward movement in any material way on our cap rates.

Ben Regin: Thank you. Real quick, Ben, have you seen a pickup in discussions since kind of the rescheduling news hit a week and a half ago here?

Speaker Change: And then thank you real quick then have you seen a pickup in discussions since kind of the rescheduling news has hit we can have to go here.

Ben Regin: Yeah, I mean, I wouldn't say necessarily just rescheduling, though, that certainly is, I think, improves some sentiment in the industry in general. We're seeing a lot of state-level dynamics driving activity in the pipeline, so that could be potential adult use rollouts in Ohio, Pennsylvania, Florida, and also just the industry overall continues to grow, even in more established markets, so we're seeing activity in states like Arizona, states like California and Michigan, so it's really varied, and I think it's the strength and the health that we're seeing in the industry overall, the recovery and wholesale pricing in many markets, the optimism around rescheduling and potential adult use markets rolling out all contributes to the strength of the pipeline.

Ben Regin: Yes, I mean, I wouldn't say necessarily just rescheduling, though that certainly is I think.

Ben Regin: Improved sentiment in the industry in general we're seeing a lot of state level dynamics driving activity in the pipeline so that could be potential adult use.

Ben Regin: Rollouts in Ohio, Pennsylvania, Florida, and also just the industry overall.

Ben Regin: Continues to grow even in more established markets. So we're seeing activity in states like Arizona States, like California, and Michigan.

Ben Regin: So it's really a varied and I think it's the strength and the health that we're seeing in the industry overall the recovery.

Ben Regin: In wholesale pricing in many markets the optimism around rescheduling and potential adult use markets rolling out all contributes to the strength of the pipeline that we're seeing.

Ben Regin: I appreciate that color. And then one more little quick one for me, just provide a little color on that Los Angeles property. I know it wasn't fully built out, but the disposition there, how that came about with Holistic and what type of buyer kind of bought the property, just a little bit more color on that. And do you guys disclose what the net carry value was of that property?

Speaker Change: I appreciate that color and then one more.

Ben Regin: Quick one for me just provide a little color on that Los Angeles property I know it wasn't fully built out but the disposition there how that came at that with holistic and.

Ben Regin: And what type of buyer.

Ben Regin: Kind of bought the property just a little bit more color on that.

Ben Regin: Do you disclose what the net carrying value was of that property.

Alan D. Gold: Yeah, I mean, I think our supplement has some information, but we're pretty excited about our ability to continue to recycle capital. Ben, why don't you, and Kat, do you guys want to elaborate?

Speaker Change: Yes, I mean, I think our supplement.

Alan D. Gold: <unk> has some information, but we're pretty excited about our ability to continue to recycle capital.

Alan D. Gold: Then lastly banner comp yes.

Alan D. Gold: Great.

Ben Regin: Sure, yeah, I can give you a little more color. You know, as we mentioned, that was not built out for cannabis. And I think it really shows our ability to work positively with our tenant partners on a solution that we felt was a win-win. We're able to take that capital and recycle it into other opportunities that we've been describing in our pipeline that we think will provide superior risk-adjusted returns. So you know, very, very happy, I think, on both sides of that deal with the execution, the ability to recycle that capital into other deals.

Ben Regin: Sure, Yes, I can I can give a little more color as we mentioned that was not built out for canvas and I think it really showed our ability to work positively with our tenant partners on a solution that we felt was a win win.

Ben Regin: We're able to take that capital and recycle that into other opportunities that we've been describing in our pipeline that we think will provide superior risk adjusted returns.

Ben Regin: So very very happy I think on both sides on that deal with the execution and the ability to recycle that capital into other deals.

Scott Thomas Fortune: Thanks. I appreciate it. Thanks for all the color.

Speaker Change: Thanks I appreciate it thanks for all the color.

Speaker Change: Thanks Scott.

Alexander David Goldfarb: The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead. Hey.

Scott Thomas Fortune: The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.

Alexander David Goldfarb: Hey, good morning out there. So, first question is, you know, your comment about a top, you know, 20 bank getting involved in cannabis sort of leads to the, I guess, support for some, for the courts to get involved. What's the update on that? I mean, it seems like the government's in a pretty undefensible position of, on the one hand, continuing to make cannabis federally legal but obviously allowing, you know, larger banks to get involved, and letting the states get involved and participate. So, what is the, what is it? I think, Paul, a while back you mentioned potential court cases. Just want to get an update there.

Alexander David Goldfarb: Hey.

Speaker Change: Good morning out there.

Alexander David Goldfarb: So first question is yes, your comment about a top 20 bank getting involved in cannabis.

Alexander David Goldfarb: <unk> continues to be I guess support for some for the courts to get involved what's an update on there I mean, it seems like the government's in a pretty defensible possession of on one hand, continuing to make cannabis federally legal, but obviously, allowing larger banks to get involved letting the states getting.

Alexander David Goldfarb: <unk> and participate so what is the what is I think Paul a while back you mentioned about potential court cases, just wanted to get an update there.

Paul E. Smithers: Paul, go ahead. Sure.

Speaker Change: I'll go ahead sure.

Paul E. Smithers: There is an ongoing case, as you know, we talked about it last quarter, challenging the federal government's position and basically saying that since the government has failed to actively enforce the prohibition and let states get away with it, as you describe, they've waived their rights. And that's probably going to get a hearing, we think, within the next six to nine months. At the trial level, then we'll probably go right up to the DCA and eventually up to the Supreme Court.

Paul E. Smithers: Yes.

Paul: There is an ongoing case as you know we talked about it last quarter about challenge the challenging the federal government's position in basically.

Paul E. Smithers: Saying that since the government has failed to actively enforce.

Paul E. Smithers: The prohibition and let states get away with it as you described that David waived their rights and that's probably going to get a hearing we think within the next six to nine months at.

Paul E. Smithers: At the trial level, then, we'll probably go right up.

Paul E. Smithers: Two the DCA and eventually up to the Supreme Court. So they've got a very experienced legal team and it's a legitimate case so.

Paul E. Smithers: So they've got a very experienced legal team, and it's a legitimate case. So you know, that's that. But you know, in the meantime... A better solution, of course, would be a legislative solution. So why is rescheduling important? I think it does create that momentum to get to a de-scheduling position maybe in the next two to three years, and that will take at least that long for the court case to get its way through the Supreme Court.

Paul E. Smithers: That's that but.

Paul E. Smithers: In the meantime.

Paul E. Smithers: The better solution of course would be a legislative.

Paul E. Smithers: Solutions. So why is why is rescheduling important I think it does.

Paul E. Smithers: Create that momentum.

Paul E. Smithers: To get to a D scheduling position maybe in the next two to three years and.

Paul E. Smithers: And that will take at least that long for the court case to get its way through.

Paul E. Smithers: The Supreme Court.

Paul E. Smithers: You know, I was going to ask, what district is this out of, are the D.C. courts, or what district is it?

Paul E. Smithers: No I was going to ask what district.

Speaker Change: It is this out of the D C court for what district of event.

Paul E. Smithers: I think it's Maryland, but I have to get back to you on that. Oh, so it's in the fourth? I believe so.

Speaker Change: I think it's Merrill Lynch I have to get back to you on that.

Paul E. Smithers: Fourth I believe so.

Paul E. Smithers: Okay. I'll get back to you on that.

Speaker Change: Back to you on that okay.

Alexander David Goldfarb: Okay, no, I mean, that's a favorable district for this stuff. And then, and then can you talk a little bit? We all see the new states, obviously, live here in New York.

Paul E. Smithers: No I mean, that's a favorable district I would think for this for this stuff.

Alexander David Goldfarb: And then and then can you talk a little bit you know, we all see the new States, obviously live here in New York.

Alan D. Gold: You know, we can see what's going on with the attempted rollout here, but as you look at the market, what is your experience with the conversion of illicit to regulated market? Meaning, you know, people are already using cannabis across the country; a state legalizes it, how many, like, incremental users does your experience show that the states get? And then what's the conversion ratio of people who switch from the illicit to the regulated?

Alexander David Goldfarb: <unk>.

Alexander David Goldfarb: We can see what's going on with the attempted rollout here, but as you look at the market. What is your experience on the conversion of illicit to the regulated market meaning.

Alan D. Gold: People are already using candidates across the country.

Alan D. Gold: Legalize is how many like incremental users.

Alan D. Gold: Does your experience showed that the states get and then whats the conversion ratio of people, who switch from the illicit to the regulated because thats ultimately what the industry needs is for more people in the regulated in the regulated to grow users and I'm just trying to understand what you experienced so far from the operators has shown as far as one conversion.

Alan D. Gold: Because that's ultimately what the industry needs, more people in the regulated and then the regulated to grow users. And I'm just trying to understand what your experience so far with the operators has shown as far as one conversion.

Alan D. Gold: Elisa.

Alan D. Gold: Buying from their guy no longer doing that to buying legally and then two new people, who werent users before but are now coming in.

Paul E. Smithers: Alex, this is Alan, you know, and before we, before Paul perhaps addresses that question directly, you know, I just want to remind everybody that we're a real estate provider. We're not a direct operator.

Alan: Alex This is Alan.

Paul E. Smithers: Herb.

Paul E. Smithers: Perhaps.

Alan: That question directly.

Alan: Just wanted to remind everybody.

Alan: We're real estate provider.

Alan: Not addressed the operator, we didn't know I know I know.

Paul E. Smithers: Okay.

Alan: Some of our commentary from the industry.

Speaker Change: <unk> heard the industry in general.

Alan: Perhaps we're.

Alan: Talking about.

Paul E. Smithers: The growth in total revenue.

Alan: That might have relevance to answer your question, Paul, Yes, well Thats right Adam.

Paul E. Smithers: Go ahead, Paul. Yeah. Well, that's right. I'm not aware of any data that we have that talks about, you know, when you put a legal program in place in the state, how many new users there are because, of course, you'd have to get a baseline of how many illicit users there were to begin with. But we can tell you that history has shown that when a medical program converts to medical and adult use, revenues go up significantly, as much as, you know, three times.

Paul E. Smithers: And the difference between medical and adult use is, you know, one-third medical and two-thirds recreational. So when a state does adopt adult use, it has a significant impact on revenues for the operators. And that's why, you know, that's why so many of the operators gravitate towards adult use states. But as far as, you know, illicit users, we just don't have that data.

Paul E. Smithers: That were of any data.

Paul E. Smithers: That's out there that talks about.

Alexander David Goldfarb: Okay. And just one final one for David.

Paul E. Smithers: When you put a legal program in place in the state.

Alexander David Goldfarb: Any new users there because of course, you would have to get a base of how many illicit users there where to begin with but we can tell you that.

Alexander David Goldfarb: History has shown that when.

Alexander David Goldfarb: A medical program.

Speaker Change: <unk> to our medical and adult use.

Alexander David Goldfarb: Revenues go up significantly as much as three times and.

Alexander David Goldfarb: The difference between medical and adult use is one third medical and two thirds.

Alexander David Goldfarb: Our recreational so when we say it does adopt adult use.

Alexander David Goldfarb: A significant impact on revenues for the operators and Thats why.

Alexander David Goldfarb: That's why so many of the operators gravitate towards adult use states.

Speaker Change: As far as you know.

Alexander David Goldfarb: Licit users, we just don't have that data.

David: To talk to you.

Alexander David Goldfarb: I don't want to leave the accounting guy, the CFO, behind. Sale-type accounting, lease accounting, obviously that's what we all aspire to and train for. Do you see this as coming up with other properties as you restructure leases, or do you view that the two leases that got caught up in this are sort of very unique relative to the other assets in your portfolio?

Speaker Change: Okay, and just a final one for David I don't want to leave.

Alexander David Goldfarb: The accounting Guy the CFO behind sale type accounting lease accounting, obviously, that's what we all aspire to and trained for do you see this as coming up with other other properties as you as you re strike leases or do you view that the two leases that got caught up in this or.

Speaker Change: Very unique relative to the other other assets in your portfolio, Yes sure Alex.

David J. Smith: Yeah, sure, Alex and David. One, I think in your notes, sounds like you've gotten very experienced at this, but you know, I just say, you know, it's two properties out of a hundred and eight, so.

David J. Smith: David.

David J. Smith: One I think.

David J. Smith: Your note it sounds like you are.

Speaker Change: Very experienced in this but I'd just say it's.

David J. Smith: It's two properties out of 108 so.

David J. Smith: It's a very immaterial piece of our portfolio. It can happen, but I think it's... It's not very likely to happen in the future, and if it does, again, on a very limited basis.

Speaker Change: Very very immaterial piece of our portfolio it can happen, but I think it's.

David J. Smith: Not very likely to happen in the future and if it does again on a very limited basis. So I think it's something that.

David J. Smith: and David W. While it's not in our GAAP revenues, as you know, we're including our AFFO, it's cash rent received. It's, as you noted, the IRS considered it a good REIT income, and it's in our taxable income, and that's what we distribute also. Okay, listen. Thank you.

David J. Smith: Given the very strong yields that we have in this sector can can impact that but again, obviously thats a good problem to have that our portfolio generates twice the yields of typical commercial real estate.

David J. Smith: So that that can be one of the one of the items that trips that but look.

David J. Smith: Look at the end of the day.

David J. Smith: While it is not in our GAAP revenues as you know, we're including our <unk> its cash rent received.

David J. Smith: As you noted the IRS considered good REIT income and it's in our taxable income and Thats, how we distribute all of them.

Alexander David Goldfarb: Okay, listen, thank you. Thank you, David.

Speaker Change: Okay listen thank you. Thank you David.

David: Thanks, Alex.

Alexander David Goldfarb: Okay.

Alan D. Gold: This concludes our question and answer session. I would like to turn the conference back over to Alan Gold for any closing remarks.

Alexander David Goldfarb: This concludes our question and answer session I would like to turn the conference back over to Alan Gould for any closing remarks.

Alan D. Gold: Well, thank you. And thank you all for joining us today. Again, I'd like to thank our team for such hard and dedicated work over the last quarter and certainly the last six plus years. Thank you all. With that, the call should end. Thank you.

Alan D. Gold: Well, thank you and thank you all for joining us today again I'd like to thank our team for such hard and dedicated work.

Alan D. Gold: Over the last.

Alan D. Gold: And certainly the last six months.

Alan D. Gold: With that.

Speaker Change: Sure. Thank you.

Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: [music].

Operator: Yes.

Operator: [music].