S-11/A 1 v453610_s11a.htm S-11/A

As filed with the Securities and Exchange Commission on November 25, 2016

Registration No. 333-214148

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



 

Amendment No. 4 to
FORM S-11



 

FOR REGISTRATION
UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES



 

INNOVATIVE INDUSTRIAL PROPERTIES, INC.

(Exact Name of Registrant as Specified in its Governing Instruments)



 

17190 Bernardo Center Drive
San Diego, California 92128
(858) 997-3332

(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)



 

Paul E. Smithers
President and Chief Executive Officer
INNOVATIVE INDUSTRIAL PROPERTIES, INC.
17190 Bernardo Center Drive
San Diego, California 92128
(858) 997-3332

(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)



 

With copies to:

 
Martin Traber, Esq.
Carolyn Long, Esq.
Curt Creely, Esq.
FOLEY & LARDNER LLP
100 North Tampa Street,
Suite 2700
Tampa, Florida 33602
Tel: (813) 229-2300
Fax: (813) 221-4210
  Kerry E. Johnson, Esq.
DLA PIPER LLP (US)
1251 Avenue of the Americas
27th Floor
New York, New York 10020
Tel: (212) 335-4500
Fax: (212) 335-4501


 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

     
Large accelerated filer o   Accelerated filer o   Non-accelerated filer x
(Do not check if a smaller
reporting company)
  Smaller reporting company o

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 


 
 

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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale thereof is not permitted.

SUBJECT TO COMPLETION, DATED NOVEMBER 25, 2016

PROSPECTUS

5,000,000 Shares

[GRAPHIC MISSING]

Class A Common Stock

Innovative Industrial Properties, Inc. is a newly-formed, self-advised Maryland corporation focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities.

This is our initial public offering. We are selling 5,000,000 shares of our Class A common stock.

We expect the initial public offering price of our Class A common stock to be $20.00 per share. Prior to this offering, no public market exists for our shares. We have been approved to list our shares of Class A common stock on the New York Stock Exchange, or the NYSE, subject to official notice of issuance, under the symbol “IIPR.”

We have been organized and we intend to elect, and to operate our business so as to qualify and to be taxed as a real estate investment trust for U.S. federal income tax purposes, or REIT, commencing with our taxable year ending December 31, 2016 or, if later, the first year in which we have material real estate assets and operations. Shares of our Class A common stock will be subject to restrictions on ownership and transfer that are intended, among other purposes, to assist us in qualifying and maintaining our qualification as a REIT, including, subject to certain exceptions, a 9.8% ownership limit. See the section entitled “Description of Securities — Restrictions on Ownership and Transfer.”

We are an “emerging growth company” under federal securities laws and will be subject to reduced public company reporting requirements. Investing in our Class A common stock involves a high degree of risk. You should purchase our Class A common stock only if you can afford a complete loss of your investment. See the section entitled “Risk Factors” beginning on page 15 of this prospectus for a discussion of the risks you should consider before buying shares of our Class A common stock. Some of these risks include:

We were recently formed, have no operating history and may not be able to operate our business successfully or generate sufficient cash flow to make or sustain distributions to our stockholders.
We do not currently own any properties. We have identified only one property to acquire and have not entered into binding contracts or commitments to acquire any other specific properties or committed a substantial portion of the net proceeds of this offering to any other specific investment in medical-use cannabis facilities. Investors will not be able to evaluate the economic merits of investments we make with a substantial portion of the net proceeds of this offering before purchasing our Class A common stock.
We may be unable to invest the proceeds of this offering on acceptable terms, or at all.
Medical-use cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding medical-use cannabis would likely result in our inability and the inability of our tenants to execute our respective business plans.
New laws that are adverse to the business of our tenants may be enacted, and current favorable state or local laws relating to cultivation and production of medical-use cannabis may be modified or eliminated in the future.
We are dependent on our key personnel for our success. The departure of any of our executive officers or key personnel could have a material adverse effect on our business.
Our growth depends on external sources of capital, which may not be available on favorable terms or at all.
Our real estate investments will consist of primarily industrial properties suitable for cultivation and production of medical-use cannabis, which may be difficult to sell or re-lease upon tenant defaults or early lease terminations, either of which would adversely affect returns to stockholders.
Investors participating in this offering will incur immediate and substantial dilution.
Our failure to qualify or remain qualified as a REIT would subject us to U.S. federal income tax and applicable state and local taxes, which would reduce the amount of cash available for distribution to our stockholders and may have significant adverse consequences on the market price of our Class A common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.



 

   
  Per Share   Total
Public offering price   $         $       
Underwriting discount(1)   $     $  
Proceeds, before expenses, to us   $     $  

(1) Includes a structuring fee equal to 0.50% of the gross proceeds of this offering. The terms of our arrangements with the underwriters are described under the section entitled “Underwriting.”

The underwriters may also purchase up to an additional 750,000 shares of our Class A common stock from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus solely to cover over-allotments, if any.

The underwriters expect to deliver the Class A common stock on or about         , 2016.



 

 
Ladenburg Thalmann
    Compass Point  

The date of this prospectus is             , 2016.


 
 

TABLE OF CONTENTS

TABLE OF CONTENTS

 
  Page
PROSPECTUS SUMMARY     1  
THE OFFERING     13  
RISK FACTORS     15  
FORWARD-LOOKING STATEMENTS     41  
USE OF PROCEEDS     43  
DISTRIBUTION POLICY     44  
CAPITALIZATION     45  
DILUTION     46  
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION     47  
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS     49  
BUSINESS     54  
OUR MANAGEMENT     72  
PRINCIPAL STOCKHOLDERS     90  
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS     91  
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES     94  
DESCRIPTION OF SECURITIES     96  
CERTAIN PROVISIONS OF MARYLAND LAW AND OUR CHARTER AND BYLAWS     102  
SHARES ELIGIBLE FOR FUTURE SALE     107  
OUR OPERATING PARTNERSHIP AND THE OPERATING PARTNERSHIP AGREEMENT     109  
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS     111  
ERISA CONSIDERATIONS     133  
UNDERWRITING     137  
LEGAL MATTERS     142  
EXPERTS     142  
WHERE YOU CAN FIND ADDITIONAL INFORMATION     142  
INDEX TO FINANCIAL STATEMENTS     F-1  

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You should rely only on the information contained in this prospectus, any free writing prospectus prepared by us or information to which we have referred you. We have not, and the underwriters have not, authorized any dealer, salesperson or other person to provide you with different or additional information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell shares of our Class A common stock in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus and any free writing prospectus prepared by us is accurate only as of their respective dates or on the date or dates which are specified in these documents. Our business, financial condition, liquidity, results of operations and prospects may have changed since those dates.



 

Market and Industry Data and Forecasts

In this prospectus, we use market data and industry forecasts and projections derived from cited third-party sources, which data and forecasts are publicly available for free. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information are not guaranteed. The forecasts and projections are based on industry surveys and the preparers’ experience in the industry and there can be no assurance that any of the forecasts or projections will be achieved. None of such data and forecasts was prepared specifically for us. No third-party source that has prepared such information has reviewed or passed upon our use of the information in this prospectus, and no third-party source is quoted or summarized in this prospectus as an expert. All statements contained in this prospectus in connection with or related to such data and forecasts are attributed to us, and not to any such third-party source or any other person. We believe that the surveys and market research others have performed are reliable, but neither we nor the underwriters have independently investigated or verified this information. Because the cannabis industry is relatively new, such market and industry data may be subject to significant change in a relatively short time period. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward-looking statements contained in this prospectus.

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PROSPECTUS SUMMARY

This is only a summary and does not contain all of the information that you should consider before investing in shares of our Class A common stock. You should read the entire prospectus, including the section entitled “Risk Factors” and our financial statements and related notes appearing elsewhere in this prospectus, before deciding to invest in shares of our Class A common stock. Except as otherwise indicated, references to “common stock” refer to our Class A common stock.

Unless the context otherwise requires or indicates, references in this prospectus to “we,” “us,” “our,” and “our company” refer to Innovative Industrial Properties, Inc., a Maryland corporation, together with its subsidiaries, including IIP Operating Partnership, LP, a Delaware limited partnership, or our Operating Partnership, of which we are the sole general partner and through which we will conduct our business.

Unless otherwise indicated, the information contained in this prospectus assumes that (1) the underwriters’ over-allotment option is not exercised and (2) 508,065 shares of Class B common stock issued to our founders, including certain executive officers and directors, will be redeemed by us for $0.001 per share and cancelled immediately before the closing of this offering.

Our Company

We are a newly-formed, self-advised Maryland corporation focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities. Initially, we intend to acquire our properties through sale-leaseback transactions and third-party purchases. We expect to lease our properties on a triple-net lease basis, where the tenant is responsible for all aspects of and costs related to the property and its operation during the lease term, including structural repairs, maintenance, taxes and insurance. We intend to elect and to operate our business so as to qualify to be taxed as a REIT for U.S. federal income tax purposes.

Our executive chairman, Alan D. Gold, is a 30-year veteran of the real estate industry, including co-founding two NYSE-listed REITs: BioMed Realty Trust, Inc. (formerly NYSE: BMR), or BioMed Realty, a REIT focused on acquiring, developing, owning, leasing and managing laboratory and office space for the life science industry; and Alexandria Real Estate Equities, Inc. (NYSE: ARE), or Alexandria Real Estate, an urban office REIT focused on collaborative science and technology campuses. Our senior management team has significant experience in all aspects of the real estate industry, including acquisitions, dispositions, construction, development, management, finance and capital markets. We believe the industry experience and relationships of our senior management team will provide us with a competitive advantage in sourcing and negotiating acquisition opportunities for our target properties, including through sale-leaseback transactions.

We do not currently own any properties. We plan to finance our growth through the application of the net proceeds of this offering, and, when necessary, through additional equity and debt offerings. We currently anticipate that the average size of our investments will range from $5 million to $30 million and will involve between 25,000 and 150,000 square feet of space.

We are actively seeking and evaluating medical-use cannabis facilities to purchase with the net proceeds of this offering. We have entered into a definitive purchase agreement for the acquisition of one 127,000-square foot industrial property, or our Initial Property, located in New York for a purchase price of approximately $30 million in a sale-leaseback transaction. See the section entitled “— Our Initial Property” below. In addition, our senior management team has identified and is in various stages of reviewing in excess of $88 million of additional potential properties for acquisition, which amount is estimated based on the sellers’ asking prices for the properties, preliminary discussions with sellers or our internal assessment of the values of such properties after taking into account the current and expected annualized lease revenue, operating history, age and condition of the property and other relevant factors. We have entered into two non-binding letters of intent with respect to five properties, comprising approximately $80 million of these potential acquisitions. The acquisition of our Initial Property is subject to ongoing diligence and the satisfaction of closing conditions and the acquisition of any property under a non-binding letter of intent requires the negotiation and execution of a definitive purchase agreement and is subject to diligence and the satisfaction of closing conditions. There can be no assurance that we will consummate the acquisition of any of the properties in our current acquisition pipeline on the terms anticipated, or at all.

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Market Opportunity

The Industrial Real Estate Sub-Market

The industrial real estate sub-market recently has performed well with vacancies in several markets at historical lows. According to Colliers International, or Colliers, the U.S. industrial property vacancy rate declined for the 22nd consecutive quarter in the first quarter of 2016, declining 10 basis points to 6.3% and down 70 basis points from the first quarter of 2015. Almost 64 million square feet of industrial real estate was absorbed in the first quarter of 2016, an increase of 9.6% year over year, which resulted in increased rental rates for the 18th consecutive quarter, according to Colliers.

We believe this supply/demand dynamic creates significant opportunity for owners of industrial facilities, particularly those focused on niche categories, as options are limited for tenants requiring specialized buildings. We intend to capitalize on this opportunity by purchasing specialized industrial properties that are mission critical to the medical-use cannabis industry.

The Regulated Medical-Use Cannabis Industry

The regulated medical-use cannabis industry is a rapidly growing industry that we believe presents a unique real estate investment opportunity under current market conditions. In the United States, the development and growth of the industry has generally been driven by state law and regulation, and accordingly, the market varies on a state-by-state basis. State laws that legalize and regulate medical-use cannabis allow patients to consume cannabis for medicinal reasons with a doctor’s recommendation subject to various requirements and limitations. States have authorized numerous medical conditions as qualifying conditions for treatment with medical-use cannabis, including but not limited to treatment for cancer, glaucoma, HIV/AIDs, wasting syndrome, pain, nausea, seizures, muscle spasms, multiple sclerosis, post-traumatic stress disorder (PTSD), migraines, arthritis, Parkinson’s disease, Alzheimer’s, lupus, residual limb pain, spinal cord injuries, inflammatory bowel disease and terminal illness. As of November 15, 2016, 29 states, plus the District of Columbia, have passed laws allowing their citizens to use medical cannabis.

We believe that the following conditions create an attractive opportunity to invest in industrial real estate assets that support the regulated medical-use cannabis industry:

Significant industry growth in recent years and expected continued growth:  According to ArcView Market Research, or ArcView, nationwide sales of legal cannabis grew to $5.4 billion in 2015, up from $4.6 billion in 2014, of which approximately 92% consisted of medical-use sales. Demand is expected to remain strong in 2016, with legal markets projected to grow to $6.7 billion, according to ArcView, a 24% increase over 2015, as new state medical-use markets, including Nevada, Illinois, Massachusetts and New York, continue to expand. According to ArcView, by 2020, legal market sales are expected to grow to approximately $21.8 billion, of which estimated medical-use sales are expected to be approximately $10.2 billion.
A shift in public opinion and increasing momentum toward the legalization of cannabis, especially as it relates to medical-use cannabis:  We believe that the growth of the regulated cannabis industry has been fueled by changing public attitudes in the United States. A 2015 poll by Harris found 81% of Americans support the legalization of cannabis for medical use. Driven in part by this shift in public opinion, three additional states, including Florida, Arkansas and North Dakota, voted to legalize medical-use cannabis in November 2016. Expansion of the market opportunity to these states could be significant.
The federal government’s current policy toward certain cannabis-related activities that are legal under state law:  Cannabis is classified as a Schedule I controlled substance by the Drug Enforcement Agency, or DEA, and the U.S. Department of Justice with no medical use, and therefore it is illegal to grow, possess and consume cannabis under federal law. Although the Controlled Substances Act of 1910, or CSA, basic prohibitions remain in force, the U.S. Department of Justice, under the Obama administration, has issued memoranda characterizing enforcement of federal cannabis prohibitions under the CSA as an inefficient use of federal investigative and prosecutorial resources when state regulatory and enforcement efforts are effective with respect to enumerated federal enforcement priorities under the CSA. In such instances, the U.S. Department of

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Justice instructs federal prosecutors that enforcement of state law by state and local law enforcement should remain the primary means of addressing cannabis-related activity, including cultivation and distribution of cannabis. Congress has also enacted an omnibus spending bill including a provision prohibiting the U.S. Department of Justice (which includes the DEA) from using funds appropriated by that bill to prevent states from implementing their medical-use cannabis laws. This provision, however, is effective only until December 9, 2016 and must be renewed by Congress in subsequent years. In order to extend the prohibition, it must be specifically included in the fiscal year 2017 Commerce, Justice, and Science (CJS) Appropriations bill – the germane bill. Currently, only the Senate version of the CJS Appropriations bill includes the prohibition and the House version does not. In addition, members of the U.S. Congress have introduced various pieces of proposed legislation that would declassify cannabis as a Schedule I controlled substance or otherwise remove cannabis from all schedules of controlled substances. Although there is no assurance that any of these proposals will be approved, that the funds prohibition will be renewed or that the U.S. Department of Justice’s enforcement position will not change, we believe that the number and frequency of these proposals, when coupled with changing public attitudes and the prospect of legalization in additional states, indicate that the size and risk profile of the market in which our prospective tenants operate will likely improve.
Limited access to capital by industry participants in light of risk perceived by financial institutions of violating federal laws and regulatory guidelines for offering banking services to cannabis-related businesses:  To date, the status of medical-use cannabis under federal law has significantly limited the ability of state-licensed industry participants to fully access the U.S. banking system and traditional financing sources. While we anticipate that future changes in federal and state laws may ultimately open up financing options that have not been available to date in this industry, we believe that such changes will take time, thereby creating an opportunity over the next few years to provide our sale-leaseback solutions to state-licensed industry participants that lack access to traditional financing sources.

We plan to take advantage of this market opportunity by purchasing the medical-use cannabis facilities of state-licensed growers with a focus on properties that we believe also have potential for long-term appreciation in value. We believe that our sale-leaseback solutions offer an attractive alternative to licensed cultivators who lack access to traditional financing alternatives. We intend to acquire medical-use cannabis facilities in states that permit medical-use cannabis cultivation, including New York, Illinois, Washington, Oregon, Nevada, California, Arizona, Massachusetts and Maryland. We expect that acquisition opportunities will continue to expand as additional states legalize medical-use cannabis and license new cultivators.

Notwithstanding the foregoing market opportunity and trends, and despite legalization at the state level, we continue to believe that the current state of federal law creates significant uncertainty and potential risks associated with investing in medical-use cannabis facilities. For a more complete description of these risks, see the sections entitled “Risk Factors — Risks Related to Regulation” and “Business — Government Regulation.”

Our Competitive Strengths

We believe that we have the following competitive strengths:

The Experience of Our Executive Chairman and Our Senior Management Team.  Mr. Gold and our senior management team have substantial experience in all aspects of the real estate industry, including acquisitions, dispositions, construction, development, management, finance and capital markets. In particular, in August 2004, Mr. Gold and Gary A. Kreitzer, a member of our board of directors, founded BioMed Realty, an internally-managed REIT focused on acquiring, developing, owning, leasing and managing laboratory and office space for the life science industry, an industry they believed to be underserved by commercial property investors and lenders and poised for significant growth. According to public filings with the Securities and Exchange Commission, or the SEC, during their tenure at BioMed Realty, Messrs. Gold and Kreitzer oversaw the growth of the company’s portfolio of life science and laboratory real estate from 30 buildings with approximately 2.4 million rentable square feet at the time of the initial public offering in 2004 to 196 buildings with approximately 18.9 million rentable square feet as of January 2016.

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Focus on Recurring and Dependable Revenue.  Our business strategy will focus on acquiring real estate assets from, and entering into long-term, triple-net leasing arrangements with, licensed medical-use cannabis cultivators, which we believe will support a recurring and dependable revenue base from our properties.
Focus on Underserved Industry with Less Competition.  Our focus on specialized industrial real estate assets leased to tenants in the regulated medical-use cannabis industry may result in significantly less competition from existing REITs and institutional buyers due to the unique nature of the real estate and its tenants. Moreover, we believe the banking industry’s general reluctance to finance owners of these facilities coupled with the owners’ need for capital to fund the growth of their operations will result in significant opportunities for us to acquire specialized industrial properties that provide stable and increasing rental revenue along with the potential for long-term appreciation in value.
Positive Medical-Use Cannabis Industry Trends.  Based on the growth projections for the medical-use cannabis industry, we expect to see significant spending by state-licensed medical-use cannabis cultivators on their existing and new medical-use cannabis facilities.

Our Business Objectives and Growth Strategies

Our principal business objective is to maximize stockholder returns through a combination of (1) distributions to our stockholders, (2) sustainable long-term growth in cash flows from increased rents, which we hope to pass on to stockholders in the form of increased distributions, and (3) potential long-term appreciation in the value of our properties from capital gains upon future sale. Our primary strategy to achieve our business objective is to acquire and own a portfolio of medical-use cannabis facilities leased to tenants holding the requisite state licenses to operate in the regulated medical-use cannabis industry. This strategy includes the following components:

Owning Medical-Use Cannabis Cultivation Properties and Related Real Estate Assets for Income.  We primarily intend to acquire medical-use cannabis facilities from licensed growers who will continue their cultivation operations after our acquisition of the property. We expect to hold acquired properties for investment and to generate stable and increasing rental income from leasing these properties to licensed growers.
Owning Medical-Use Cannabis Cultivation Properties and Related Real Estate Assets for Appreciation.  We primarily intend to lease our acquired properties under long-term triple-net leases. However, from time to time, we may elect to sell one or more properties if we believe it to be in the best interests of our stockholders. Potential purchasers may include others in the regulated medical-use cannabis industry desiring access to properties having the requisite zoning and regulatory approvals for cultivation and production of medical-use cannabis or financial purchasers seeking to acquire property for investment purposes. Accordingly, we will seek to acquire properties that we believe also have potential for long-term appreciation in value.
Expanding Our Operations as Additional States Permit Medical-Use Cannabis Cultivation and Production.  We intend to acquire properties in states that permit cannabis cultivation for medical use, including New York, Illinois, Washington, Oregon, Nevada, California, Arizona, Massachusetts and Maryland. We expect that our acquisition opportunities will continue to expand as additional states legalize medical-use cannabis and license new cultivators.

Our Target Markets

We anticipate that our initial target markets will be New York, Illinois, Washington, Oregon, Nevada, California, Arizona, Massachusetts and Maryland. We currently have a definitive agreement to purchase one medical-use cannabis cultivation facility in New York and non-binding letters of intent to purchase one medical-use cannabis cultivation facility in Illinois and four medical-use cannabis cultivation facilities in California.

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The following is a list of states that have legalized cannabis for medical use in some form as of November 15, 2016:

   
Year(1)   Jurisdiction(1)   Population as of
July 1, 2015
(in millions)(2)
1996     California       39.1  
1998     Washington       7.2  
1998     Oregon       4.0  
1999     Alaska       0.7  
1999     Maine       1.3  
2000     Hawaii       1.4  
2000     Colorado       5.5  
2000     Nevada       2.9  
2004     Vermont       0.6  
2004     Montana       1.0  
2006     Rhode Island       1.1  
2007     New Mexico       2.1  
2008     Michigan       9.9  
2010     District of Columbia       0.7  
2010     New Jersey       9.0  
2010     Arizona       6.8  
2011     Delaware       0.9  
2012     Massachusetts       6.8  
2012     Connecticut       3.6  
2013     Illinois       12.9  
2013     New Hampshire       1.3  
2014     Maryland       6.0  
2014     Minnesota       5.5  
2014     New York       19.8  
2016     Louisiana       4.7  
2016     Pennsylvania       12.8  
2016     Ohio       11.6  
2016     Florida       20.3  
2016     Arkansas       3.0  
2016     North Dakota       0.8  
Total     30       203.3  

(1) Source: ArcView
(2) Source: U.S. Census Bureau

It is expected that new states that entered the marketplace in 2016, may drive industry growth in 2018 and 2019, when cannabis businesses in such states could begin to generate revenues. Experience shows that it generally takes one to two years for a state to establish regulations and for cannabis businesses to begin to generate revenue from operations. ArcView’s projected increase in legal cannabis sales by 2020 is, in part, attributable to this delay between legalization and revenue generation. In addition, continued development of the regulated medical-use cannabis industry depends upon continued legislative authorization of medical-use cannabis at the state level. Progress in the regulated medical-use cannabis industry, while encouraging, is not assured and any number of factors could slow or halt progress in this area.

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Our Target Properties

We intend to acquire specialized industrial real estate assets operated by state-licensed medical-use cannabis growers through sale-leaseback transactions and third-party purchases. In sale-leaseback transactions, concurrently upon closing of the acquisition, we will lease the properties back to the state-licensed growers under long-term, triple-net lease agreements. We intend to target properties owned by growers that have been among the top candidates in the rigorous state licensing process and have been granted one or more licenses to operate multiple facilities. Based on our review of potential acquisitions in connection with this offering, indoor cultivation facilities generally appear to have similar shells as standard light industrial buildings. However, based on our initial diligence, the medical-use cultivation process typically requires a finely tuned environment to achieve consistent high quality and specificity in cannabinoid levels and to maximize yields, which translates into certain capital improvements in the building’s infrastructure. These improvements can include enhanced HVAC systems for climate and humidity control, high capacity plumbing systems, specialized lighting systems, and sophisticated building management, cultivation monitoring and security systems. Through this sale-leaseback strategy, we will serve as a source of capital to these licensed medical-use cannabis growers, which will allow them to redeploy their sale proceeds back into their core operations to grow their business and achieve higher returns.

Our Initial Property

We have entered into a definitive purchase agreement for the acquisition of our Initial Property, a 127,000-square foot industrial property located in Montgomery, New York for a purchase price of approximately $30 million. We expect to acquire our Initial Property with the net proceeds of this offering. While the acquisition of our Initial Property is subject to ongoing diligence and the satisfaction of closing conditions, at this time, we have determined that the acquisition of our Initial Property is “probable.” There can be no assurance, however, that we will consummate the acquisition of our Initial Property on the terms anticipated, or at all.

Property Description.  Our Initial Property consists of approximately 37 acres of usable land, which includes three buildings comprising approximately 127,000 square feet. Our Initial Property is also expected to support the future development of additional medical-use cannabis cultivation facilities totaling approximately 204,000 additional square feet. The current property owner and future tenant is licensed by the state of New York to operate a medical-use cannabis cultivation and processing facility, and has operated such facility at the property since June 2016, when construction of the facility was substantially completed.

Acquisition Terms.  On August 22, 2016, we entered into a definitive purchase agreement to acquire our Initial Property from PharmaCann LLC in a sale-leaseback transaction for an aggregate purchase price of $30 million. The purchase price for our Initial Property was determined by negotiation with the seller after taking into consideration the expected annualized lease revenue, expected lease, operating history, age and condition of the property, and other relevant factors. We paid a $375,000 deposit upon execution of the purchase agreement that is refundable in the event we do not close our initial public offering within a specified timeframe. The $375,000 deposit was paid on our behalf by IGP Advisers (as defined below) and is to be repaid with the proceeds of this offering. The definitive agreement provides for a due diligence period during which we have the right to access and inspect the property and may terminate the agreement if we determine that the property does not meet our criteria. Following the diligence period, we have agreed to purchase the property “as is,” subject to all faults and conditions thereon, which increases the risk that we may have to remedy defects or costs without recourse to the prior owner. The closing of the purchase is subject to the completion of this offering and customary closing conditions. The purchase agreement provides that closing is to occur within 30 days after the expiration of the due diligence period and the agreement is terminable at the option of either party thereafter. We intend to purchase our Initial Property as soon as reasonably practicable after satisfaction of all closing conditions, including the closing of this offering.

Lease Terms.  Upon the closing of the acquisition, we will lease 100% of our Initial Property to the seller of the property, PharmaCann LLC, to operate a medical-use cannabis cultivation and processing facility in compliance with applicable state and local law and in compliance with the terms of the tenant’s license from the state of New York. PharmaCann LLC is a start-up business that commenced retail operations in late 2015. PharmaCann LLC secured one of only five licenses granted to date in New York for the cultivation and

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dispensing of medical-use cannabis. As of the date of this prospectus, PharmaCann LLC operates two cultivation and processing facilities and four registered medical-use cannabis dispensaries in Illinois, and one cultivation and processing facility and four registered medical-use cannabis dispensaries in New York. The lease for our Initial Property is a triple-net lease, with the tenant responsible for paying all structural repairs, maintenance expenses, insurance and taxes related to the property. The base rent is approximately $319,580 per month, which shall be increased annually at a rate based on the higher of (i) 4% or (ii) 75% of the consumer price index, or CPI. We also receive a property management fee under the lease equal to 1.5% of the then-current base rent throughout the term, and supplemental base rent for the first five years of the term at a rate of $105,477 per month. Together, the annualized initial base rent, property management fee and supplemental base rent equate to approximately 17.2% of the purchase price of our Initial Property. The lease term is 15 years, with two options to extend the term of the lease for two additional five-year periods. As a start-up business, PharmaCann LLC has not been profitable. During 2016, we expect that PharmaCann LLC will continue to incur losses as its expenses increase in connection with the expansion of PharmaCann LLC’s operations. As a result, at least initially, we expect that PharmaCann LLC will make rent payments to us from proceeds from the sale of the property or cash on hand, and not from funds from operations.

Our Financing Strategy

We intend to meet our long-term liquidity needs through cash flow from operations and the issuance of equity and debt securities, including common stock, preferred stock and long-term notes. Where possible, we also may issue limited partnership interests in our Operating Partnership to acquire properties from existing owners seeking a tax-deferred transaction. We expect to issue equity and debt securities at times when we believe that our stock price is at a level that allows for the reinvestment of offering proceeds in accretive property acquisitions. We may also issue common stock to permanently finance properties that were previously financed by debt securities. However, we cannot assure you that we will have access to the capital markets at times and on terms that are acceptable to us. Our investment guidelines initially provide that our aggregate borrowings (secured and unsecured) will not exceed 50% of the cost of our tangible assets at the time of any new borrowing, subject to our board of directors’ discretion.

Risk Management

We estimate that we will purchase approximately five to 10 properties with the net proceeds of this offering and will attempt to diversify the investment size and location of our portfolio of properties in order to manage our portfolio-level risk. Over the long term, we intend that no single property will exceed 25% of our total assets and that no single tenant will exceed 30% of our total assets. However, we do not expect to achieve these long-term targets with the net proceeds of this offering.

We expect that single tenants will occupy our properties pursuant to triple-net lease arrangements in general and, therefore, the success of our investments will be materially dependent on the financial stability of these tenants. We intend to target tenants that have been among the top candidates in the state licensing process and have been granted one or more licenses to operate multiple facilities. We expect, however, that most of our tenants will be start-up businesses that have little or no revenue and, at least initially, will make rent payments to us from the sale proceeds of a sale-leaseback transaction with us or cash on hand. We expect to evaluate the credit quality of our tenants and any guarantors on an ongoing basis by reviewing, where available, the publicly filed financial reports, press releases and other publicly available industry information regarding our tenants and any guarantors. In addition, we will monitor the payment history data for all of our tenants and, in some instances, we intend to monitor our tenants by periodically conducting site visits and meeting with the tenants to discuss their operations. In many instances, we will generally not be entitled to financial results or other credit-related data from our tenants. See the section entitled “Risk Factors — Risks Related to Our Business.”

Summary Risk Factors

An investment in shares of our Class A common stock involves a high degree of risk. You should consider carefully the risks discussed below and under the section entitled “Risk Factors” beginning on page 15 of this prospectus before purchasing our Class A common stock. If any of the factors enumerated below or in the section entitled “Risk Factors” occurs, our business, financial condition, liquidity, results of operations

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and prospects could be materially and adversely affected. In that case, the trading price of our Class A common stock could decline, and you may lose some or all of your investment. Some of the more significant risks relating to this offering and an investment in our shares of Class A common stock include:

We were recently formed, have no operating history, and may not be able to operate our business successfully or generate sufficient cash flow to make or sustain distributions to our stockholders.
We do not currently own any properties. We have identified only one property to acquire and have not entered into binding contracts or commitments to acquire any other specific properties or committed a substantial portion of the net proceeds of this offering to any other specific investment in medical-use cannabis facilities. Investors will not be able to evaluate the economic merits of investments we make with a substantial portion of the net proceeds of this offering before purchasing our Class A common stock.
We may be unable to invest the proceeds of this offering on acceptable terms, or at all, and may suffer from delays in locating suitable investment properties.
Medical-use cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding medical-use cannabis would likely result in our inability and the inability of our tenants to execute our respective business plans.
New laws that are adverse to the business of our tenants may be enacted, and current favorable state or local laws relating to cultivation and production of medical-use cannabis may be modified or eliminated in the future.
We are dependent on our key personnel for our success. The departure of any of our executive officers or key personnel could have a material adverse effect on our business.
Our growth depends on external sources of capital, which may not be available on favorable terms or at all. In addition, banks and other financial institutions may be reluctant to enter into lending transactions with us, particularly secured lending, because we intend to acquire properties used in the cultivation and production of medical-use cannabis. If this source of funding is unavailable to us, our growth may be limited and our levered return on the properties we purchase may be lower.
We expect that most of our tenants, including the proposed tenant for our Initial Property, will be start-up businesses and may be unable to pay rent with funds from operations or at all, which could adversely affect our cash available to make distributions to our stockholders or otherwise impair the value of your investment.
Compliance with environmental laws could materially increase our operating expenses.
There may only be a limited number of medical-use cannabis facilities operated by suitable tenants available for us to acquire, which could adversely affect the return on your investment.
Our real estate portfolio will be concentrated in a limited number of properties, which subjects us to an increased risk of significant loss if any property declines in value or if we are unable to lease a property.
Because our real estate investments will consist of primarily industrial properties suitable for cultivation and production of medical-use cannabis, our properties may be difficult to sell or re-lease upon tenant defaults or early lease terminations, and our rental revenues will be significantly influenced by demand for these facilities.
Maintenance of our exemption from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act, and our REIT qualification impose significant limits on our operations.
Our board of directors may change our investment objectives and strategies without stockholder consent.

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Our failure to qualify or remain qualified as a REIT would subject us to U.S. federal income tax and applicable state and local taxes, which would reduce the amount of cash available for distribution to our stockholders and may have significant adverse consequences on the market price of our Class A common stock. We have not requested and do not intend to request a ruling from the Internal Revenue Service, or the Service, that we qualify as a REIT, and the statements in this prospectus are not binding on the Service or any court.
A material weakness has been identified in our internal control over financial reporting. If we fail to implement and maintain effective internal control over financial reporting, our ability to accurately and timely report our financial results could be impaired, investors could lose confidence in our reported financial information, the trading price of our shares of common stock could decline and our access to the capital markets or other financing sources could become limited.
We and our tenants may have difficulty accessing the service of banks.
If we are deemed to be subject to Section 280E of the Internal Revenue Code of 1986, as amended, or the Code, because of the business activities of our tenants, the resulting disallowance of tax deductions could cause us to incur U.S. federal income tax and jeopardize our REIT status.
Investors participating in this offering will incur immediate and substantial dilution.
We set the initial public offering price of our shares of Class A common stock arbitrarily and such price may not accurately reflect the value of our assets or our expected operating income.
There is no public market for our Class A common stock and a market may never develop which could cause our Class A common stock to trade at a discount and make it difficult for holders of our Class A common stock to sell their shares.
We may be unable to pay or maintain cash dividends and may borrow money, sell assets or use offering proceeds to make distributions to our stockholders, if we are unable to make distributions from cash flows from operations.

Our Operating Structure

We were formed as a Maryland corporation on June 15, 2016. We intend to conduct business in an umbrella partnership real estate investment trust, or UPREIT, structure through our Operating Partnership. We are the sole general partner of our Operating Partnership and, upon completion of this offering, we will own, directly or through a subsidiary, 100% of the limited partnership interests in our Operating Partnership. Our board of directors will oversee our business and affairs.

Our Operating Partnership was formed as a Delaware limited partnership on June 20, 2016 and will commence operations upon the completion of this offering. Following the completion of this offering, substantially all of our assets will be held by, and our operations will be conducted through, our Operating Partnership. We will contribute the net proceeds from this offering to our Operating Partnership in exchange for limited partnership interests. Our interest in our Operating Partnership will generally entitle us to share in cash distributions from, and in the profits and losses of, our Operating Partnership in proportion to our percentage ownership, which is currently 100%. As the sole general partner of our Operating Partnership, we generally will have the exclusive power under the partnership agreement to manage and conduct our Operating Partnership’s business and affairs. In the future, we may issue limited partnership interests in our Operating Partnership from time to time in connection with property acquisitions, as compensation or otherwise.

IGP Advisers LLC, or IGP Advisers, a company that is owned by Mr. Gold and Paul E. Smithers, our president, chief executive officer and a director nominee, and Gregory J. Fahey, our chief accounting officer and treasurer, is funding certain of our organization, offering and other costs. In addition, IGP Advisers funded an earnest money deposit pursuant to the purchase agreement for our Initial Property. IGP Advisers will seek reimbursement from us for these expenses upon completion of this offering and the acquisition of our Initial Property.

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The chart below reflects our corporate structure after giving effect to this offering and the issuance of shares of our Class A common stock as described in this prospectus, including (i) 150,000 shares of Class A common stock that our executive chairman may purchase in this offering at the public offering price and (ii) grants of an aggregate of 27,500 shares of Class A common stock to two of our executive officers under our 2016 Omnibus Incentive Plan, or the Incentive Plan, that are expected to be approved at the first meeting of the compensation committee of our board of directors after completion of this offering.

[GRAPHIC MISSING]

Restrictions on Ownership and Transfer of our Securities

In order for us to qualify as a REIT under the Code, the relevant sections of our charter provide that, after completion of this offering and subject to certain exceptions, no person or entity may own, or be deemed to own, by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of our outstanding shares of stock or more than 9.8% (in value or number of shares, whichever is more restrictive) of our outstanding common stock or any class or series of our outstanding preferred stock. Our board of directors may, upon receipt of certain representations, undertakings and agreements and in its sole discretion, exempt (prospectively or retroactively) any person from the 9.8% ownership limits and establish a different limit, or excepted holder limit, for a particular person if the person’s ownership in excess of the ownership limits will not then or in the future result in us failing the “closely held” test under Section 856(h) of the Code (without regard to whether the person’s interest is held during the last half of a taxable year) or otherwise cause us to fail to qualify as a REIT. Our charter further prohibits any person from beneficially or constructively owning, applying certain attribution rules of the Code, shares of our stock that would result in us failing the “closely held” test under Section 856(h) of the Code (without regard to whether the stockholder’s interest is held during the last half of a taxable year) or otherwise cause us to fail to qualify as a REIT, and any person from transferring shares of our stock if such transfer would result in shares of our stock to be beneficially owned by fewer than 100 persons (determined without reference to any rules of attribution).

If any transfer of shares of our stock would result in shares of our stock to be beneficially owned by fewer than 100 persons, such transfer will be void from the time of such purported transfer and the intended transferee will acquire no rights in such shares. In addition, if any purported transfer of shares of our stock or any other event would otherwise result in any person violating the ownership limits or such other limit established by our board of directors or, our company to be “closely held” under Section 856(h) of the Code (without regard to whether the stockholder’s interest is held during the last half of a taxable year) or otherwise failing to qualify as a REIT, then that number of shares (rounded up to the nearest whole share) that would

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cause us to violate such restrictions will automatically be transferred to, and held by, a charitable trust for the exclusive benefit of one or more charitable organizations selected by us, and the intended transferee will acquire no rights in such shares.

Federal Income Tax Status

We intend to elect and qualify to be taxed as a REIT commencing with our tax year ending December 31, 2016 or, if later, the first year in which we have material real estate assets and operations. In addition, we may hold certain of our assets through taxable REIT subsidiaries, or TRSs, which are subject to corporate-level income tax at regular rates. Our qualification as a REIT depends on our ability to meet, on a continuing basis, through actual investment and operating results, various complex requirements under the Code, relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the concentration of ownership of our shares of stock. We believe that we have been organized in conformity with the requirements for qualification and taxation as a REIT under the Code, and that our proposed method of operation will enable us to meet the requirements for qualification and taxation as a REIT.

So long as we qualify as a REIT, we generally will not be subject to U.S. federal income tax on our REIT taxable income we distribute currently to our stockholders. Under the Code, REITs are subject to numerous organizational and operational requirements, including a requirement that they distribute each year at least 90% of their REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain. If we fail to qualify for taxation as a REIT in any taxable year, and the statutory relief provisions of the Code do not apply, we will be subject to U.S. federal income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we lost our REIT qualification. Distributions to stockholders in any year in which we are not a REIT would not be deductible by us, nor would they be required to be made. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income or property and to U.S. federal income and excise taxes on our undistributed income.

Distribution Policy

U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain (which does not equal net income as calculated in accordance with U.S. generally accepted accounting principles, or GAAP), and that it pay U.S. federal income tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. We are a newly formed company that has not commenced operations and, as a result, we have not paid distributions as of the date of this prospectus. To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax, we intend to make quarterly distributions of all or substantially all of our taxable income to holders of our common stock out of assets legally available therefor. However, we cannot assure you that distributions will be made or sustained. Any distributions we make will be at the discretion of our board of directors and will depend upon a number of factors, including our actual results of operations, economic conditions, maintenance of REIT qualification and the applicable provisions of the Maryland General Corporation Law, or the MGCL, and such other factors as our board may determine in its sole discretion.

Lock-up Agreements

We and each of our executive officers and directors have agreed with the underwriters not to offer, sell or otherwise dispose of any common stock or any securities convertible into or exercisable or exchangeable for or repayable with common stock (including limited partnership interests in our Operating Partnership) or any rights to acquire common stock for a period of 180 days after the date of this prospectus, without first obtaining the written consent of Ladenburg Thalmann & Co. Inc., the representative of the underwriters.

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Implications of Being an “Emerging Growth Company”

We qualify as an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. An “emerging growth company” may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. While we are an “emerging growth company,” among other things:

we are exempt from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002, or the Sarbanes Oxley Act;
we are permitted to provide less extensive disclosure about our executive compensation arrangements;
we are not required to give to our stockholders non-binding advisory votes on executive compensation or golden parachute arrangements; and
we are permitted to use an extended transition period for complying with new or revised accounting standards.

We have elected to use an extended transition period for complying with new or revised accounting standards, and this election is irrevocable. We have not made a decision whether to take advantage of other exemptions. If we do take advantage of additional exemptions, some investors may find our Class A common stock less attractive, which may result in a less active trading market for our Class A common stock and a more volatile stock price.

We could remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

Corporate Information

Our principal executive offices are located at 17190 Bernardo Center Drive, San Diego, CA 92128. Our telephone number is (858) 997-3332. Our website is www.innovativeindustrialproperties.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this prospectus or any other report or document we file with or furnish to the SEC.

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THE OFFERING

Class A common stock offered
by us
   
    5,000,000 shares.(1)
Class A common stock to be outstanding after the offering    
    5,000,000 shares.(1)(2)
Use of proceeds    
    We estimate that we will receive net proceeds from this offering of approximately $91.5 million (or approximately $105.4 million if the underwriters’ over-allotment option is exercised in full), after deducting underwriting discounts and commissions, and estimated expenses of the offering, assuming a public offering price of $20.00 per share. We intend to use the net proceeds of this offering as follows: (i) approximately $30 million to acquire our Initial Property, (ii) approximately $50,000 to reimburse IGP Advisers for certain organizational costs, and (iii) approximately $500,000 to pay a consulting fee to IGP Advisers, which amount will increase by $3,300 for each day that the closing of this offering occurs after November 15, 2016. We intend to invest the remaining net proceeds in specialized industrial real estate assets that support the regulated medical-use cannabis industry that are consistent with our investment strategy. Until appropriate assets can be identified, we may invest the net proceeds of the offering in interest-bearing short-term investments that are consistent with our intention to qualify as a REIT. Any interest-bearing short-term investment we make likely will provide a lower net return than we will seek to achieve from our target assets. See the section entitled “Use of Proceeds.”
Dividend policy    
    We intend to make quarterly distributions of all or substantially all of our taxable income to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain (which does not equal net income as calculated in accordance with GAAP), and that it pay U.S. federal income tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income.
NYSE symbol    
    “IIPR.”
Ownership and transfer
restrictions
   
    In order for us to qualify as a REIT under the Code, our charter provides that no person or entity may own or be deemed to own more than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of our outstanding shares of stock or more than 9.8% (in value or number of shares, whichever is more restrictive) of our outstanding common stock or any class or series of our outstanding preferred stock. See the section entitled “Description of Securities —  Restrictions on Ownership and Transfer.”

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(1) Excludes (i) up to 750,000 shares of our Class A common stock that may be issued by us upon exercise of the underwriters’ over-allotment option and (ii) 27,500 shares of Class A common stock that are expected to be issued to two of our executive officers under the Incentive Plan, upon approval at the first meeting of the compensation committee of the board of directors after completion of this offering.
(2) Excludes 1,000,000 shares of common stock reserved for future issuance under the Incentive Plan.

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RISK FACTORS

An investment in shares of our Class A common stock involves a high degree of risk. Before making an investment decision, you should carefully consider the following risk factors, together with the other information contained in this prospectus. If any of the risks discussed in this prospectus were to occur, our business, prospects, financial condition, liquidity, and results of operations and our ability to make distributions to our stockholders and achieve our goals could be materially and adversely affected, the value of our Class A common stock could decline significantly and you could lose all or a part of your investment. Some statements in this prospectus, including statements in the following risk factors constitute forward-looking statements. Please refer to the section entitled “Forward-Looking Statements.”

Risks Related to Our Business

We were recently formed, have no operating history, and may not be able to operate our business successfully or generate sufficient cash flow to make or sustain distributions to our stockholders.

We were formed on June 15, 2016 and have no operating history. We have nominal assets and will commence operations only upon completion of this offering. We are subject to many of the business risks and uncertainties associated with any new business enterprise. We cannot assure you that we will be able to operate our business successfully or profitably, find suitable investments or implement our operating policies as described in this prospectus. Our ability to provide attractive risk-adjusted returns to our stockholders over the long term is dependent on our ability both to generate sufficient cash flow to pay an attractive dividend and to achieve capital appreciation, and we cannot assure you we will do either. There can be no assurance that we will be able to generate sufficient revenue from operations to pay our operating expenses and make distributions to stockholders. The results of our operations and the implementation of our business plan depend on several factors, including the availability of opportunities for investment, the availability of adequate equity and debt financing, the federal and state regulatory environment relating to the medical-use cannabis industry, conditions in the financial markets and economic conditions.

We have identified only one property to acquire and have not entered into binding contracts or commitments to acquire any other specific properties or committed a substantial portion of the net proceeds from this offering to any other specific property, other than our Initial Property and, therefore, investors will not be able to evaluate the economic merits of investments we make with a substantial portion of the net proceeds of this offering before purchasing our Class A common stock.

We currently do not own any properties. We have entered into a definitive purchase agreement to acquire our Initial Property within 30 days after the expiration of the due diligence period and have entered into two non-binding letters of intent with respect to five properties, but have not yet committed a substantial portion of the net proceeds of this offering to any other specific medical-use cannabis facilities. Furthermore, our senior management team will have broad discretion in selecting our properties and the tenants of those properties. Accordingly, you will not have the opportunity to evaluate the terms of transactions, the creditworthiness of our tenants or other economic or financial data concerning our acquisition of properties before purchasing shares of our Class A common stock, and you have to rely entirely on the ability of our senior management team to select suitable and successful investment opportunities. These factors increase the speculative nature of an investment in our Class A common stock.

We may be unable to invest the net proceeds of this offering on acceptable terms, or at all, and may suffer from delays in locating suitable investment properties, which could adversely affect the return on your investment.

Our ability to achieve our investment objectives and to make distributions to our stockholders depends upon our senior management team’s ability to identify suitable properties for acquisition and then negotiating and consummating the acquisition and triple-net leasing arrangement. The current market for properties that meet our investment objectives may be limited. We intend to conduct due diligence with respect to each investment and suitable investment opportunities may not be immediately available. Until appropriate investment properties can be identified and acquired, we may invest the net proceeds of this offering in interest-bearing short-term investments, including money market accounts and/or funds that are consistent with

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our intention to qualify as a REIT. These investments are expected to provide a lower net return than we seek to achieve from investments in our target assets. Any significant delay in investing the net proceeds of this offering would have a material adverse effect of our ability to generate cash flow and make distributions to our stockholders.

Additionally, as a public company, we will be subject to the ongoing reporting requirements under the Exchange Act. Pursuant to the Exchange Act, we may be required to file with the SEC financial statements of properties we acquire or financial statements of our tenants who have entered into triple-net leasing arrangements with us for a significant portion of our properties. To the extent any required financial statements are not available or cannot be obtained, we will not be able to acquire the property. As a result, we may be unable to acquire certain properties that otherwise would be a suitable investment. We could suffer delays in our acquisition of suitable properties due to these reporting requirements.

We expect that most of our tenants, including the proposed tenant for our Initial Property, will be start-up businesses and may be unable to pay rent with funds from operations or at all, which could adversely affect our cash available to make distributions to our stockholders or otherwise impair the value of your investment.

We expect that single tenants will occupy our properties and, therefore the success of our investments will be materially dependent on the financial stability of these tenants. We expect that our future tenants will be independent medical-use cannabis cultivation operators about which there is generally little or no publicly available operating and financial information. As a result, we will rely on our management team to perform due diligence investigations of their tenants and their properties, operations and prospects. We may not learn all of the material information we need to know regarding these businesses through our investigations. As a result it is possible that we could enter into a sale-leaseback arrangement with tenants or otherwise lease properties to tenants that ultimately are unable to pay rent to us, which could adversely impact our cash available for distributions.

We expect that most of our tenants, including the proposed tenant for our Initial Property, will be start-up businesses that have little or no revenue when they enter triple-net leasing arrangements with us and therefore, may be unable to pay rent with funds from operations. For example, PharmaCann LLC, the proposed tenant for our Initial Property, is not profitable and has experienced losses since inception. As a result, we expect that our tenants (including PharmaCann LLC) will make initial rent payments to us from proceeds from the sale of the property, in the case of sale-leaseback transactions, or other cash on hand. In addition, in general, as start-up businesses, we expect our tenants will be more vulnerable to adverse conditions resulting from federal and state regulations affecting their businesses or industries and will have limited access to traditional forms of financing.

Some of our tenants may have also been recently restructured using leverage acquired in a leveraged transaction or may otherwise be subject to significant debt obligations. Tenants that are subject to significant debt obligations may be unable to make their rent payments if there are adverse changes in their business plans or prospects, the regulatory environment in which they operate or in general economic conditions. Tenants that have experienced leveraged restructurings or acquisitions will generally have substantially greater debt and substantially lower net worth than they have prior to the leveraged transaction. In addition, the payment of rent and debt service may reduce the working capital available to leverage entities and prevent them from devoting the resources necessary to move from the start-up phase of their business into actual operations and profitability. Furthermore, we may be unable to monitor and evaluate tenant credit quality on an on-going basis.

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

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Competition for the acquisition of properties suitable for the cultivation and production of medical-use cannabis may impede our ability to make acquisitions or increase the cost of these acquisitions, which could adversely affect our operating results and financial condition.

We will compete for the acquisition of properties suitable for the cultivation and production of medical-use cannabis with other entities engaged in agricultural and real estate investment activities, including corporate agriculture companies, cultivators and producers of medical-use cannabis, real estate companies and private real estate investors. These competitors may prevent us from acquiring desirable properties or may cause an increase in the price we must pay for properties. Our competitors may have greater resources than we do and may be willing to pay more for certain assets or may be willing to accept more risk than we believe can be prudently managed. In particular, larger companies may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Our competitors may also adopt transaction structures similar to ours, which would decrease our competitive advantage in offering flexible transaction terms. In addition, due to a number of factors, including but not limited to potential greater clarity of the laws and regulations governing medical-use cannabis by state and federal governments, the number of entities and the amount of funds competing for suitable investment properties may increase, resulting in increased demand and increased prices paid for these properties. If we pay higher prices for properties, our profitability may decrease, and you may experience a lower return on your investment. Increased competition for properties may also preclude us from acquiring those properties that would generate attractive returns to us.

There may only be a limited number of medical-use cannabis facilities operated by suitable tenants available for us to acquire, which could adversely affect the return on your investment.

We intend to use the net proceeds of this offering to purchase from licensed growers their medical-use cannabis facilities, which we then intend to lease to them under triple-net lease agreements. We also intend to target properties owned by growers that have been among the top candidates in the rigorous state licensing process and have been granted one or more licenses to operate multiple facilities. In light of the current regulatory landscape regarding medical-use cannabis, including but not limited to, the rigorous state licensing processes, limits on the number of licenses granted in certain states and in counties within such states, zoning regulations related to medical-use cannabis facilities, the inability of potential tenants to open bank accounts necessary to pay rent and other expenses and the ever-changing federal and state regulatory landscape, we may have only a limited number of medical-use cannabis facilities available to purchase that are operated by licensees that we believe would be suitable tenants. Our inability to locate suitable investment properties and tenants would have a material adverse effect on our ability to generate cash flow and make distributions to our stockholders.

Our growth will depend upon future acquisitions of real estate assets, and we may be unable to consummate acquisitions on advantageous terms.

Our growth strategy is focused on the acquisition of specialized industrial real estate assets on favorable terms as opportunities arise. Our ability to acquire these real estate assets on favorable terms is subject to the following risks:

competition from other potential acquirers may significantly increase the purchase price of a desired property;
we may not successfully purchase and lease our properties to meet our expectations;
we may be unable to obtain the necessary equity or debt financing to consummate an acquisition on satisfactory terms or at all;
agreements for the acquisition of properties are typically subject to closing conditions, including satisfactory completion of due diligence investigations, and we may spend significant time and money on potential acquisitions that we do not consummate; and
we may acquire properties without any recourse, or with only limited recourse, for liabilities, whether known or unknown, against the former owners of the properties.

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Our real estate portfolio will be concentrated in a limited number of properties, which subjects us to an increased risk of significant loss if any property declines in value or if we are unable to lease a property.

Based on the anticipated net proceeds to be received from this offering, the expected investment size and our senior management team’s experience in the marketplace, we estimate that we will purchase approximately five to 10 properties with the net proceeds of this offering. However, currently a substantial portion of the net proceeds of this offering is not committed to specific properties. To the extent we are able to leverage our investment acquisitions with borrowed funds, we will acquire additional properties with the net proceeds of borrowings, subject to our debt policy. One consequence of a limited number of investments is that the aggregate returns we realize may be substantially adversely affected by the unfavorable performance of a small number of leases or a significant decline in the value of any single property. Lack of diversification will increase the potential that a single underperforming investment could have a material adverse effect on our cash flows and the price we could realize from the sale of our properties. Because we expect that the properties we initially acquire will be geographically concentrated in New York, Illinois, Maryland, California, Arizona, Washington, Nevada, Massachusetts and Oregon, we will be subject to any adverse change in the political or regulatory climate in those states or specific counties where our properties are located, which could adversely affect our properties and our ability to lease properties.

We may acquire a property or properties, including our Initial Property, “as-is,” which increases the risk of an investment that requires us to remedy defects or costs without recourse to the prior owner.

We may acquire real estate properties, including our Initial Property, “as is” with only limited representations and warranties from the property seller regarding matters affecting the condition, use and ownership of the property. There may also be environmental conditions associated with properties we acquire of which we are unaware despite our diligence efforts. In particular, medical-use cannabis facilities may present environmental concerns of which we are not currently aware. If environmental contamination exists on properties we acquire or develops after acquisition, we could become subject to liability for the contamination. As a result, if defects in the property (including any building on the property) or other matters adversely affecting the property are discovered, including but not limited to environmental matters, we may not be able to pursue a claim for any or all damages against the property seller. Such a situation could harm our business, financial condition, liquidity and results of operations.

We expect that the properties that we initially acquire will be geographically concentrated in New York, Illinois, Maryland, California, Arizona, Washington, Nevada, Massachusetts and Oregon, and we will be subject to social, political and economic risks of doing business in these states and any other state in which we may own property.

We expect that the properties that we initially acquire will be geographically concentrated in New York, Illinois, Maryland, California, Arizona, Washington, Nevada, Massachusetts and Oregon. Circumstances and developments related to operations in these markets that could negatively affect our business, financial condition, liquidity and results of operations include, but are not limited to, the following factors:

the responsibility of complying with multiple and likely conflicting state and federal laws, including with respect to cultivation and distribution of medical-use cannabis, licensing, banking and insurance;
difficulties and costs of staffing and managing operations;
unexpected changes in regulatory requirements and other laws;
potentially adverse tax consequences;
the impact of regional or state specific business cycles and economic instability; and
access to capital may be more restricted, or unavailable on favorable terms or at all in certain locations.

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If our properties’ access to adequate water and power supplies is interrupted, it could harm our ability to lease the properties for medical-use cannabis cultivation and production, thereby adversely affecting our ability to generate returns on our properties.

In order to lease the properties that we intend to acquire with the proceeds of this offering, these properties will require access to sufficient water and power to make them suitable for the cultivation and production of medical-use cannabis. Although we expect to acquire properties with sufficient access to water, should the need arise for additional wells from which to obtain water, we would be required to obtain permits prior to drilling such wells. Permits for drilling water wells are required by state and county regulations, and such permits may be difficult to obtain due to the limited supply of water in areas where we expect to acquire properties. Similarly, our properties may be subject to governmental regulations relating to the quality and disposition of rainwater runoff or other water to be used for irrigation. In such case, we could incur costs necessary in order to retain this water. If we are unable to obtain or maintain sufficient water supply for our properties, our ability to lease them for the cultivation and production of medical-use cannabis would be seriously impaired, which would have a material adverse impact on the value of our assets and our results of operations.

Historically, states that have legalized medical-use cannabis cultivation have typically required that such cultivation take place indoors. Indoor cultivation of medical-use cannabis requires significant power for growing lights and ventilation and air conditioning to remove the hot air generated by the growing lights. While outdoor and greenhouse cultivation is gaining acceptance in many states with favorable climates for such growth, we expect that a significant number of our properties will continue to utilize indoor cultivation methods. Any extended interruption of the power supply to our properties, particularly those using indoor cultivation methods, would likely harm our tenants’ crops, which could result in their inability to make lease payments to us for our properties. Any lease payment defaults by a tenant could adversely affect our cash flows and cause us to reduce the amount of distributions to stockholders.

Some of our tenants could be susceptible to bankruptcy, which would affect our ability to generate rents from them and therefore negatively affect our results of operations.

In addition to the risk of tenants being unable to make regular rent payments, certain of our tenants who may depend on debt could be especially susceptible to bankruptcy in the event that their cash flows are insufficient to satisfy their debt. Any bankruptcy of one of our tenants would result in a loss of lease payments to us, as well as an increase in our costs to carry the property.

Additionally, under bankruptcy law, a tenant who is the subject of bankruptcy proceedings has the option of continuing (“assuming”) or giving up (“rejecting”) any unexpired lease of non-residential real property. If a bankrupt tenant decides to give up (reject) a lease with us, any claim we might have for breach of the lease, excluding a claim against (1) collateral securing the lease, or (2) a guarantor guaranteeing lease obligations, would be treated as a general unsecured claim in the tenant’s bankruptcy case. The laws governing bankruptcy cases would impact the treatment of our general unsecured claim. Our claim would likely be capped at the amount the tenant owed us for unpaid rent prior to the bankruptcy unrelated to the termination, plus the greater of one year of lease payments or 15% of lease payments payable under the remaining term of the lease, but in no case more than three years of lease payments. In addition to the cap on our damages for breach of the lease, even if our claim is timely submitted to the bankruptcy court, there is no guaranty that the tenant’s bankruptcy estate would have funds to satisfy the claims of general unsecured creditors. Finally, a bankruptcy court could re-characterize a net lease transaction as a disguised secured lending transaction. If that were to occur, we would not be treated as the owner of the property, but might have additional rights as a secured creditor. This would mean our claim in bankruptcy court could be limited to the amount we paid for the property, which could adversely impact our financial condition.

Because our real estate investments will consist of primarily industrial properties suitable for cultivation and production of medical-use cannabis, our rental revenues will be significantly influenced by demand for these facilities generally, and a decrease in such demand would likely have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio.

Because our portfolio of properties will consist of industrial properties used in the regulated medical-use cannabis industry, we will be subject to risks inherent in investments in a single industry. A decrease in the

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demand for medical-use cannabis cultivation facilities would have a greater adverse effect on our rental revenues than if we owned a more diversified real estate portfolio. Demand for medical-use cannabis cultivation facilities has been and could be adversely affected by changes in current favorable state or local laws relating to cultivation and production of medical-use cannabis or any change in the federal government’s current enforcement posture with respect to state-licensed cultivation of medical-use cannabis, among others. To the extent that any of these conditions occur, they are likely to affect demand and market rents for medical-use cannabis cultivation facilities, which could cause a decrease in our rental revenue. Any such decrease could impair our ability to make distributions to you. We do not expect to invest in other real estate or businesses to hedge against the risk that industry trends might decrease the profitability of our medical-use cannabis cultivation facilities.

Our real estate investments will consist of primarily industrial properties suitable for cultivation and production of medical-use cannabis, which may be difficult to sell or re-lease upon tenant defaults or early lease terminations, either of which would adversely affect returns to stockholders.

While our business objectives consist of principally acquiring and deriving rental income from industrial properties used in the regulated medical-use cannabis industry, we expect that at times we will deem it appropriate or desirable to sell or otherwise dispose of certain properties we own. These types of properties are relatively illiquid compared to other types of real estate and financial assets. This illiquidity could limit our ability to quickly dispose of properties in response to changes in regulatory, economic or other conditions. Therefore, our ability at any time to sell assets may be restricted and this lack of liquidity may limit our ability to make changes to our portfolio promptly, which could materially and adversely affect our financial performance. We cannot predict the various market conditions affecting the properties that we expect to acquire that will exist in the future. Due to the uncertainty of regulatory and market conditions which may affect the future disposition of the real estate assets we expect to acquire, we cannot assure you that we will be able to sell these assets at a profit in the future. Accordingly, the extent to which we will realize potential appreciation on the real estate investments we expect to acquire will depend upon regulatory and other market conditions. In addition, in order to qualify as a REIT and maintain our REIT status, we may not be able to sell properties when we would otherwise choose to do so, due to market conditions or changes in our strategic plan.

Furthermore, we may be required to make expenditures to correct defects or to make improvements before a property can be sold and we cannot assure you that we will have funds available to correct such defects or to make such improvements. With these kinds of properties, if the current lease is terminated or not renewed, we may be required to make expenditures and rent concessions in order to lease the property to another tenant. In addition, in the event we are forced to sell or re-lease the property, we may have difficulty finding qualified purchasers who are willing to buy the property or tenants who are willing to lease the property. These and other limitations may affect our ability to sell or re-lease properties, which may adversely affect returns to our stockholders.

Liability for uninsured losses could adversely affect our financial condition.

While the terms of our leases with our tenants generally will require that they carry property and casualty insurance, losses from disaster-type occurrences, such as earthquakes, floods and weather-related disasters, may be either uninsurable or not insurable on economically viable terms. Should an uninsured loss occur, we could lose our capital investment or anticipated profits and cash flows from one or more properties.

Potential liability for environmental matters could adversely affect our financial condition.

We intend to purchase real estate and will be subject to the risk of liabilities under federal, state and local environmental laws. Some of these laws could subject us to:

responsibility and liability for the cost of removal or remediation of hazardous substances released on our properties, generally without regard to our knowledge of or responsibility for the presence of the contaminants;
liability for the costs of removal or remediation of hazardous substances at disposal facilities for persons who arrange for the disposal or treatment of these substances; and

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potential liability for claims by third parties for damages resulting from environmental contaminants.

We will generally include provisions in our leases making tenants responsible for all environmental liabilities and for compliance with environmental regulations, and we will seek to require tenants to reimburse us for damages or costs for which we have been found liable. However, these provisions will not eliminate our statutory liability or preclude third-party claims against us. Even if we were to have a legal claim against a tenant to enable us to recover any amounts we are required to pay, there are no assurances that we would be able to collect any money from the tenant. Our costs of investigation, remediation or removal of hazardous substances may be substantial. In addition, the presence of hazardous substances on one of our properties, or the failure to properly remediate a contaminated property, could adversely affect our ability to sell or lease the property or to borrow using the property as collateral. Additionally, we could become subject to new, stricter environmental regulations, which could diminish the utility of our properties and have a material adverse impact on our results of operations.

Contingent or unknown liabilities could materially and adversely affect our business, financial condition, liquidity and results of operations.

We may in the future acquire properties, subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a claim were asserted against us based on ownership of any of these properties, we may have to pay substantial amounts to defend or settle the claim. If the magnitude of such unknown liabilities is high, individually or in the aggregate, our business, financial condition, liquidity and results of operations would be materially and adversely affected.

The assets we will acquire may be subject to impairment charges.

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

We may own properties subject to ground leases that expose us to the loss of such properties upon breach or termination of the ground leases.

A ground lease agreement permits a tenant to develop and/or operate a land parcel (property) during the lease period, after which the land parcel and all improvements revert back to the property owner. Under a ground lease, property improvements are owned by the property owner unless an exception is created and all relevant taxes incurred during the lease period are paid for by the tenant. Ground leases typically have a long duration generally ranging from 50 to 99 years with additional extension options. As a lessee under a ground lease, we are exposed to the possibility of losing the property upon termination, or an earlier breach by us, of the ground lease, which may have a material adverse effect on our business, financial condition and results of operations, our ability to make distributions to our stockholders and the trading price of our Class A common stock.

Due to our involvement in the regulated medical-use cannabis industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk and financial liabilities.

Insurance that is otherwise readily available, such as workers’ compensation, general liability, and directors’ and officers’ insurance, is more difficult for us to find and more expensive, because we lease our properties to companies in the regulated medical-use cannabis industry. There are no guarantees that we will be able to find such insurances in the future, or that the cost will be affordable to us. If we are forced to go without such insurances, it may prevent us from entering into certain business sectors, may inhibit our growth, and may expose us to additional risk and financial liabilities.

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We cannot predict every event and circumstance that may affect our business, and therefore, the risks and uncertainties discussed herein may not be the only ones you should consider.

We are not aware of any other publicly-traded REIT that focuses on the acquisition, ownership and management of medical-use cannabis facilities. Therefore, as we commence the operation of our business, we may encounter risks of which we are not aware at this time, which could have a material adverse impact on our business.

Risks Related to Financing Our Business

Our growth depends on external sources of capital, which may not be available on favorable terms or at all. In addition, banks and other financial institutions may be reluctant to enter into lending transactions with us, particularly secured lending, because we intend to acquire properties used in the cultivation and production of medical-use cannabis. If this source of funding is unavailable to us, our growth may be limited and our levered return on the properties we purchase may be lower.

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

Our access to capital will depend upon a number of factors over which we have little or no control, including general market conditions and the market’s perception of our current and potential future earnings. If general economic instability or downturn leads to an inability to borrow at attractive rates or at all, our ability to obtain capital to finance the purchase of real estate assets could be negatively impacted. In addition, banks and other financial institutions may be reluctant to enter into lending transactions with us, particularly secured lending, because we intend to acquire properties used in the cultivation and production of medical-use cannabis. If this source of funding is unavailable to us, our growth may be limited and our levered return on the properties we purchase may be lower.

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

Any future indebtedness reduces cash available for distribution and may expose us to the risk of default under debt obligations that we may incur in the future.

Payments of principal and interest on borrowings that we may incur in the future may leave us with insufficient cash resources to operate the properties that we expect to acquire or to pay the distributions currently contemplated or necessary to satisfy the requirements for REIT qualification. Our level of debt and the limitations imposed on us by these debt agreements could have significant material and adverse consequences, including the following:

our cash flow may be insufficient to meet our required principal and interest payments;
we may be unable to borrow additional funds as needed or on favorable terms, or at all;
we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;

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to the extent we borrow debt that bears interest at variable rates, increases in interest rates could materially increase our interest expense;
we may be forced to dispose of one or more of the properties that we expect to acquire, possibly on disadvantageous terms;
we may default on our obligations or violate restrictive covenants, in which case the lenders may accelerate these debt obligations; and
our default under any loan with cross default provisions could result in a default on other indebtedness.

If any one of these events were to occur, our financial condition, results of operations, cash flow, and our ability to make distributions to our stockholders could be materially and adversely affected.

Risks Related to Regulation

New laws that are adverse to the business of our tenants may be enacted, and current favorable state or local laws relating to cultivation and production of medical-use cannabis may be modified or eliminated in the future.

We are targeting for acquisition, properties that are owned by state-licensed cultivators and producers of medical-use cannabis. Relevant state or local laws may be amended or repealed, or new laws may be enacted in the future to eliminate existing laws permitting cultivation and production of medical-use cannabis. If our tenants involved in the cultivation and production of medical-use cannabis were forced to close their operations, we would need to replace those tenants with tenants who are not engaged in the cannabis industry, who may pay lower rents. Moreover, any changes in state or local laws that reduce or eliminate the ability to cultivate and produce medical-use cannabis would likely result in a high vacancy rate for the kinds of properties that we seek to acquire, which would depress our lease rates and property values. In addition, we would realize an economic loss on any and all improvements made to properties that were specific to the medical-use cannabis industry.

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

Continued development of the medical-use cannabis industry depends upon continued legislative authorization of cannabis at the state level. The status quo of, or progress in, the regulated medical-use cannabis industry, while encouraging, is not assured and any number of factors could slow or halt further progress in this area. While there may be ample public support for legislative action permitting the manufacture and use of cannabis, numerous factors impact the legislative process. For example, in 2015, voters in Ohio rejected a ballot initiative that would have legalized medical and adult-use cannabis, but would have allowed commercial cultivation only at ten specifically designated parcels owned by certain private investors. Further legalization attempts at the state level that create bad public policy could slow or stop further development of the medical-use cannabis industry. In addition, several states, including Colorado, Washington and Oregon, have imposed significant taxes on the growth, processing and/or retail sales of cannabis, which may have the impact of dampening growth of the cannabis industry and making it difficult for cannabis businesses, including our tenants, to operate profitably in those states. Any one of these factors could slow or halt additional legislative authorization of medical-use cannabis, which could harm our business prospects.

Medical-use cannabis remains illegal under federal law, and therefore, strict enforcement of federal laws regarding medical-use cannabis would likely result in our inability and the inability of our tenants to execute our respective business plans.

Cannabis is a Schedule I controlled substance under the CSA. Even in those jurisdictions in which the manufacture and use of medical cannabis has been legalized at the state level, the possession, use and cultivation all remain violations of federal law that are punishable by imprisonment and substantial fines. Moreover, individuals and entities may violate federal law if they intentionally aid and abet another in violating these federal controlled substance laws, or conspire with another to violate them. The United States Supreme Court has ruled in United States v. Oakland Cannabis Buyers’ Coop. and Gonzales v. Raich that it is

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the federal government that has the right to regulate and criminalize cannabis, even for medical purposes. Therefore, were the federal government to strictly enforce federal law regarding cannabis, doing so would likely result in our inability to execute our business plan.

The U.S. Department of Justice, under the Obama administration, issued memoranda, including the so-called “Cole Memo” on August 29, 2013, characterizing enforcement of federal cannabis prohibitions under the CSA to prosecute those complying with state regulatory systems allowing the use, manufacture and distribution of medical cannabis as an inefficient use of federal investigative and prosecutorial resources when state regulatory and enforcement efforts are effective with respect to enumerated federal enforcement priorities under the CSA. In the “Cole Memo,” the U.S. Department of Justice provided guidance to all federal prosecutors indicating that federal enforcement of the CSA against cannabis-related conduct should be focused on eight priorities, which are to prevent: (1) distribution of cannabis to minors; (2) revenue from sale of cannabis to criminal enterprises, gangs and cartels; (3) transfer of cannabis from states where it is legal to states where it is illegal; (4) cannabis activity from being a pretext for trafficking of other illegal drugs or illegal activity; (5) violence or use of firearms in cannabis cultivation and distribution; (6) drugged driving and adverse public health consequences from cannabis use; (7) growth of cannabis on federal lands; and (8) cannabis possession or use on federal property.

In addition, Congress enacted an omnibus spending bill for fiscal year 2016 including a provision prohibiting the U.S. Department of Justice (which includes the DEA) from using funds appropriated by that bill to prevent states from implementing their medical-use cannabis laws. This provision, however, is effective only until December 9, 2016 and must be renewed by Congress in subsequent years. In order to extend the prohibition, it must be specifically included in the fiscal year 2017 Commerce, Justice, and Science (CJS) Appropriations bill — the germane bill. Currently, only the Senate version of the fiscal 2017 CJS Appropriations bill includes the prohibition and the House version does not. In USA vs. McIntosh, the United States Court of Appeals for the Ninth Circuit held that this provision prohibits the U.S. Department of Justice from spending funds from relevant appropriations acts to prosecute individuals who engage in conduct permitted by state medical-use cannabis laws and who strictly comply with such laws. However, the Ninth Circuit’s opinion, which only applies to the states of Alaska, Arizona, California, Hawaii, and Idaho, also held that persons who do not strictly comply with all state laws and regulations regarding the distribution, possession and cultivation of medical-use cannabis have engaged in conduct that is unauthorized, and in such instances the U.S. Department of Justice may prosecute those individuals.

Additionally, financial transactions involving proceeds generated by cannabis-related conduct can form the basis for prosecution under the federal money laundering statutes, unlicensed money transmitter statutes and the Bank Secrecy Act. However, supplemental guidance from the U.S. Department of Justice directs federal prosecutors to consider the federal enforcement priorities enumerated in the “Cole Memo” when determining whether to charge institutions or individuals with any of the financial crimes described above based upon cannabis-related activity.

Federal prosecutors have significant discretion and no assurance can be given that the federal prosecutor in each judicial district where we purchase a property will agree that the activities of our tenant on the property located in such prosecutor’s district do not involve those enumerated in the Cole Memo. There is also no guarantee that the current administration or future administrations will not revise the federal enforcement priorities enumerated in the Cole Memo or otherwise choose to strictly enforce the federal laws governing cannabis production or distribution. At this time, it is unknown whether the Trump administration will change the federal government’s current enforcement posture with respect to state-licensed medical-use cannabis. Any such change in the federal government’s current enforcement posture with respect to state-licensed cultivation of medical-use cannabis would result in our inability to execute our business plan and we would likely suffer significant losses with respect to our investment in medical-use cannabis facilities in the United States. Furthermore, if our tenants were to continue the cultivation and production of medical-use cannabis on properties that we own following any such change in the federal government’s enforcement position, we could be subject to criminal prosecution, which could lead to imprisonment and/or the imposition of penalties, fines, or forfeiture.

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FDA regulation of medical-use cannabis and the possible registration of facilities where medical-use cannabis is grown could negatively affect the medical-use cannabis industry, which would directly affect our financial condition.

Should the federal government legalize cannabis for medical-use, it is possible that the U.S. Food and Drug Administration, or the FDA, would seek to regulate it under the Food, Drug and Cosmetics Act of 1938. Additionally, the FDA may issue rules and regulations including certified good manufacturing practices, or cGMPs, related to the growth, cultivation, harvesting and processing of medical cannabis. Clinical trials may be needed to verify efficacy and safety. It is also possible that the FDA would require that facilities where medical-use cannabis is grown register with the FDA and comply with certain federally prescribed regulations. In the event that some or all of these regulations are imposed, we do not know what the impact would be on the medical-use cannabis industry, including what costs, requirements and possible prohibitions may be enforced. If we or our tenants are unable to comply with the regulations or registration as prescribed by the FDA, we and or our tenants may be unable to continue to operate their and our business in its current form or at all.

We and our tenants may have difficulty accessing the service of banks, which may make it difficult to contract for real estate needs.

Financial transactions involving proceeds generated by cannabis-related conduct can form the basis for prosecution under the federal money laundering statutes, unlicensed money transmitter statute and the Bank Secrecy Act. Recent guidance issued by the Financial Crimes Enforcement Network, or FinCen, a division of the U.S. Department of the Treasury, clarifies how financial institutions can provide services to cannabis-related businesses consistent with their obligations under the Bank Secrecy Act. Furthermore, supplemental guidance from the U.S. Department of Justice directs federal prosecutors to consider the federal enforcement priorities enumerated in the “Cole Memo” when determining whether to charge institutions or individuals with any of the financial crimes described above based upon cannabis-related activity. Nevertheless, banks remain hesitant to offer banking services to cannabis-related businesses. Consequently, those businesses involved in the regulated medical-use cannabis industry continue to encounter difficulty establishing banking relationships. Our inability to maintain our current bank accounts would make it difficult for us to operate our business, increase our operating costs, and pose additional operational, logistical and security challenges and could result in our inability to implement our business plan.

The terms of our leases will require that our tenants make rental payments via check or wire transfer. The inability of our potential tenants to open accounts and continue using the services of banks may make it difficult for them to enter into triple-net lease arrangements with us or may result in their default under our lease agreements, either of which could materially harm our business.

Laws and regulations affecting the regulated cannabis industry are constantly changing, which could materially adversely affect our proposed operations, and we cannot predict the impact that future regulations may have on us.

Local, state and federal cannabis laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. It is also possible that regulations may be enacted in the future that will be directly applicable to our proposed business. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.

Applicable state laws may prevent us from maximizing our potential income.

Depending on the laws of each particular state, we may not be able to fully realize our potential to generate profit. Colorado and Washington have residency requirements for those directly involved in the medical-use cannabis industry, which may impede our ability to contract with cannabis businesses in those states. Furthermore, cities and counties are being given broad discretion to ban certain cannabis activities. Even if these activities are legal under state law, specific cities and counties may ban them.

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Assets leased to cannabis businesses may be forfeited to the federal government.

Any assets used in conjunction with the violation of federal law are potentially subject to federal forfeiture, even in states where cannabis is legal. If the federal government decides to initiate forfeiture proceedings against cannabis businesses, such as the medical-use cannabis facilities that we intend to acquire, our investment in those properties may be lost.

The properties that we expect to acquire will be subject to extensive regulations, which may result in significant costs and materially and adversely affect our business, financial condition, liquidity and results of operations.

The properties that we expect to acquire will be subject to various local laws and regulatory requirements. Local property regulations may restrict the use of properties we acquire and may require us to obtain approval from local authorities with respect to the properties that we expect to acquire, including prior to acquiring a property or when developing or undertaking renovations. Among other things, these restrictions may relate to cultivation of medical-use cannabis, the use of water and the discharge of waste water, fire and safety, seismic conditions, asbestos-cleanup or hazardous material abatement requirements. We cannot assure you that existing regulatory policies will not materially and adversely affect us or the timing or cost of any future acquisitions, developments or renovations, or that additional regulations will not be adopted that would increase such delays or result in additional costs. Our failure to obtain such regulatory approvals could have a material adverse effect on our business, financial condition, liquidity and results of operations.

Compliance with environmental laws could materially increase our operating expenses.

There may be environmental conditions associated with properties we acquire of which we are unaware. If environmental contamination exists on properties we acquire, we could become subject to liability for the contamination. The presence of hazardous substances on a property may materially and adversely affect our ability to sell the property and we may incur substantial remediation costs. In addition, although we may require in our leases that tenants operate in compliance with all applicable laws and indemnify us against any environmental liabilities arising from a tenant’s activities on the property, we could nonetheless be subject to liability by virtue of our ownership interest and we cannot be sure that our tenants would satisfy their indemnification obligations to us. Such environmental liability exposure associated with properties we acquire could harm our business, financial condition, liquidity and results of operations.

Risks Related to Our Organization and Structure

We are dependent on our key personnel for our success.

We will depend upon the efforts, experience, diligence, skill and network of business contacts of our senior management team; therefore, our success will depend on their continued service. The departure of any of our executive officers or key personnel could have a material adverse effect on our business. If any of our key personnel were to cease their employment, our operating results could suffer. Further, we do not intend to maintain key person life insurance that would provide us with proceeds in the event of death or disability of any of our key personnel.

We believe our future success depends upon our senior management team’s ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and we cannot assure you that we will be successful in attracting and retaining such skilled personnel. If we lose or are unable to obtain the services of key personnel, our ability to implement our investment strategies could be delayed or hindered, and the value of your investment may decline.

Furthermore, we may retain independent contractors to provide various services for us, including administrative services, transfer agent services and professional services. Such contractors have no fiduciary duty to us and may not perform as expected or desired.

Our senior management team will manage our portfolio subject to very broad investment guidelines and generally will not seek board approval for each investment decision.

Our senior management team has broad discretion over the use of proceeds from this offering, and you will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning

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our investments that are not described in this prospectus or other periodic filings with the SEC. Furthermore, currently a substantial portion of the net proceeds of this offering is not committed to specific properties. We will rely on the senior management team’s ability to execute acquisitions and dispositions of medical-use cannabis facilities, subject to the oversight and approval of our board of directors. Our senior management team has not previously invested in medical-use cannabis facilities. Our senior management team will be authorized to execute acquisitions and dispositions of real estate investments in accordance with very broad investment guidelines. Our board of directors will periodically review our investment guidelines and our portfolio but will not, and will not be required to, review all of our proposed investments. Our senior management team will have great latitude within the broad parameters of our investment guidelines in determining the assets that are proper investments for us, which could result in investment returns that are substantially below expectations or that result in losses, which would materially and adversely affect our business operations and results. Accordingly, you should not purchase shares of our Class A common stock unless you are willing to entrust all aspects of our day-to-day management to our senior management team.

Certain provisions of Maryland law could inhibit changes in control.

Under the MGCL, “business combinations” (including a merger, consolidation, statutory share exchange or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and an “interested stockholder” or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. An interested stockholder is defined as: (a) any person who beneficially owns 10% or more of the voting power of the then-outstanding voting stock of the corporation; or (b) an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding stock of the corporation.

A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. A Maryland corporation’s board of directors may provide that its approval is subject to compliance with any terms and conditions determined by the board of directors prior to the time that the interested stockholder becomes an interested stockholder.

Thereafter, any such business combination must generally be recommended by the board of directors of such corporation and approved by the affirmative vote of at least:

80% of the votes entitled to be cast by holders of outstanding voting stock of the corporation; and
two-thirds of the votes entitled to be cast by holders of voting stock of the corporation, other than shares held by the interested stockholder with whom (or with whose affiliate) the business combination is to be effected, or held by an affiliate or associate of the interested stockholder unless, among other conditions, the corporation’s common stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares.

A Maryland corporation’s board of directors may provide that its approval is subject to compliance with any terms and conditions determined by it. These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by a Maryland corporation’s board of directors prior to the time that the interested stockholder becomes an interested stockholder.

The “control share” provisions of the MGCL provide that, subject to certain exceptions, a holder of “control shares” of a Maryland corporation (defined as shares which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), entitle the stockholder to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares”) has no voting rights with respect to such shares except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding votes entitled to be cast by the acquirer of control shares, our officers and our personnel who are also our directors. Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person

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of shares of our stock. Our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of shares of our stock. There can be no assurance that such provision will not be amended or eliminated at any time in the future by our board of directors.

The “unsolicited takeover” provisions of Title 3, Subtitle 8 of the MGCL, or Subtitle 8, permit our board of directors, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, some of which (for example, a classified board) we do not yet have. Our charter provides that, at such time as we are able to make a Subtitle 8 election (which we expect to be upon the completion of this offering), vacancies on our board may be filled only by the remaining directors and for the remainder of the full term of the directorship in which the vacancy occurred. Through provisions in our charter and bylaws unrelated to Subtitle 8, we already (i) require the affirmative vote of stockholders entitled to cast not less than two-thirds of all of the votes entitled to be cast generally in the election of directors for the removal of any director from the board, only with cause, (ii) vest in the board of directors the exclusive power to fix the number of directorships and (iii) require, unless called by our chairman of the board, our chief executive officer or our board of directors, the written request of stockholders entitled to cast not less than a majority of all votes entitled to be cast at such a meeting to call a special meeting of our stockholders.

These provisions may have the effect of inhibiting a third party from making an acquisition proposal for us or of delaying, deferring or preventing a change in control of us under the circumstances that otherwise could provide the holders of shares of Class A common stock with the opportunity to realize a premium over the then current market price. See the sections entitled “Certain Provisions of Maryland Law and Our Charter and Bylaws — Business Combinations,” “— Control Share Acquisitions” and “— Subtitle 8.”

Our board of directors may change our investment objectives and strategies without stockholder consent.

Our board of directors determines our major policies, including with regard to financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Under our charter and the MGCL, our stockholders generally have a right to vote only on the following matters:

the election or removal of directors;
the amendment of our charter, except that our board of directors may amend our charter without stockholder approval to:
change our name;
change the name or other designation or the par value of any class or series of stock and the aggregate par value of our stock;
increase or decrease the aggregate number of shares of stock that we have the authority to issue;
increase or decrease the number of our shares of any class or series of stock that we have the authority to issue; and
effect certain reverse stock splits;
our liquidation and dissolution; and
our being a party to a merger, consolidation, sale or other disposition of all or substantially all of our assets or statutory share exchange.

All other matters are subject to the discretion of our board of directors.

Our authorized but unissued shares of common and preferred stock may prevent a change in our control.

Our charter permits our board of directors to authorize us to issue additional shares of our authorized but unissued common or preferred stock. In addition, our board of directors may, without stockholder approval, amend our charter to increase the aggregate number of our shares of stock or the number of shares of stock of any class or series that we have the authority to issue and classify or reclassify any unissued shares of

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common or preferred stock and set the terms of the classified or reclassified shares. As a result, our board of directors may establish a class or series of shares of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for shares of our Class A common stock or otherwise be in the best interest of our stockholders.

Because of our holding company structure, we depend on our Operating Partnership and its subsidiaries for cash flow and we will be structurally subordinated in right of payment to the obligations of such operating subsidiary and its subsidiaries.

We are a holding company with no business operations of our own. Our only significant asset is and will be the general and limited partnership interests in our Operating Partnership. We conduct, and intend to conduct, all of our business operations through our Operating Partnership. Accordingly, our only source of cash to pay our obligations is distributions from our Operating Partnership and its subsidiaries of their net earnings and cash flows. We cannot assure you that our Operating Partnership or its subsidiaries will be able to, or be permitted to, make distributions to us that will enable us to make distributions to our stockholders from cash flows from operations. Each of our Operating Partnership’s subsidiaries is or will be a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from such entities. In addition, because we are a holding company, your claims as stockholders will be structurally subordinated to all existing and future liabilities and obligations of our Operating Partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our Operating Partnership and its subsidiaries will be able to satisfy your claims as stockholders only after all of our and our Operating Partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.

Our Operating Partnership may issue additional limited partnership interests to third parties without the consent of our stockholders, which would reduce our ownership percentage in our Operating Partnership and would have a dilutive effect on the amount of distributions made to us by our Operating Partnership and, therefore, the amount of distributions we can make to our stockholders.

We are the sole general partner of our Operating Partnership and, upon consummation of this offering, will own, directly or through a subsidiary, 100% of the outstanding partnership interests in our Operating Partnership. We may, in connection with our acquisition of properties or otherwise, cause our Operating Partnership to issue additional limited partnership interests to third parties. Such issuances would reduce our ownership percentage in our Operating Partnership and affect the amount of distributions made to us by our Operating Partnership and, therefore, the amount of distributions we can make to our stockholders. Because you will not directly own any interest in our Operating Partnership, you will not have any voting rights with respect to any such issuances or other partnership level activities of our Operating Partnership.

If we issue limited partnership interests in our Operating Partnership in exchange for property, the value placed on such partnership interests may not accurately reflect their market value, which may dilute your interest in us.

If we issue limited partnership interests in our Operating Partnership in exchange for property, the per unit value attributable to such interests will be determined based on negotiations with the property seller and, therefore, may not reflect the fair market value of such limited partnership interests if a public market for such limited partnership interests existed. If the value of such limited partnership interests is greater than the value of the related property, your interest in us may be diluted.

Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interests.

We have entered into indemnification agreements with each of our executive directors and officers, that provide for idemnification to the maximum extent permitted by Maryland law. Maryland law permits us to include in our charter a provision eliminating the liability of our directors and officers and our stockholders for money damages except for liability resulting from:

actual receipt of an improper benefit or profit in money, property or services; or

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active and deliberate dishonesty that was established by a final judgment and was material to the cause of action.

Our charter authorizes us to obligate ourselves and our bylaws obligate us, to the fullest extent permitted by Maryland law in effect from time to time, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to:

any present or former director or officer who is made or threatened to be made a party to or witness in the proceeding by reason of his or her service in that capacity; or
any individual who, while a director or officer of our company and at our request, serves or has served as a director, officer, partner, manager, member or trustee of another corporation, REIT, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to or witness in the proceeding by reason of his or her service in that capacity.

See the section entitled “Certain Provisions of Maryland Law and Our Charter and Bylaws — Indemnification and Limitation of Directors’ and Officers’ Liability.”

Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our management.

Our charter provides that, subject to the rights of holders of any series of preferred stock, a director may be removed only with cause upon the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast generally in the election of directors. Vacancies may be filled only by a majority of the remaining directors in office, even if less than a quorum. These requirements make it more difficult to change our management by removing and replacing directors and may prevent a change in control of our company that is in the best interests of our stockholders.

Ownership limitations may restrict change in control or business combination opportunities in which our stockholders might receive a premium for their shares.

In order for us to qualify as a REIT under the Code, shares of our stock must be owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of our stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made). In order for us to qualify as a REIT under the Code, the relevant sections of our charter provide that, after completion of this offering and subject to certain exceptions, no person or entity may own, or be deemed to own, by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of our outstanding shares of stock or more than 9.8% (in value or number of shares, whichever is more restrictive) of our outstanding common stock or any class or series of our outstanding preferred stock. These ownership limits and other restrictions could have the effect of discouraging a takeover or other transaction in which holders of our Class A common stock might receive a premium for their shares over the then prevailing market price or which holders might believe to be otherwise in their best interests.

A material weakness has been identified in our internal control over financial reporting. If we fail to implement and maintain effective internal control over financial reporting, our ability to accurately and timely report our financial results could be impaired, investors could lose confidence in our reported financial information, the trading price of our shares of common stock could decline and our access to the capital markets or other financing sources could become limited.

In preparing and reviewing our consolidated financial statements as of September 30, 2016 and for the period from June 15, 2016 (date of incorporation) through September 30, 2016, and in connection with our restatement of our previously issued audited balance sheet as of September 30, 2016, we and our independent

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registered public accounting firm identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. The material weakness identified related to our failure to obtain an independent valuation in connection with our accounting for our restricted stock grants of Class B common stock to founders, and lack of recognition of the related stock compensation during the period. As a result, a restatement was required for our consolidated financial statements as of September 30, 2016 and for the period then ended.

In addition, neither we nor our independent registered public accounting firm has performed an evaluation of our internal control over financial reporting during any period in accordance with the provisions of the Sarbanes-Oxley Act. In light of the material weakness that was identified as a result of the limited procedures performed, we believe that it is possible that, had we and our independent registered public accounting firm performed an evaluation of our internal control over financial reporting in accordance with the provisions of the Sarbanes-Oxley Act, additional material weaknesses or significant control deficiencies may have been identified.

If we fail to remediate the material weakness or to meet the demands that will be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to accurately report our financial results, or report them within the timeframes required by law or stock exchange regulations. Failure to comply with Section 404 of the Sarbanes-Oxley Act could also potentially subject us to sanctions or investigations by the SEC or other regulatory authorities. We cannot assure you that we will be able to remediate the material weakness in a timely manner, or at all, or that in the future, additional material weaknesses will not exist or otherwise be discovered. If we fail to implement and maintain effective internal control over financial reporting, our ability to accurately and timely report our financial results could be impaired, which could result in late filings of our annual and quarterly reports under the Exchange Act, restatements of our consolidated financial statements or suspension or delisting of our common stock from the NYSE, investors could lose confidence in our reported financial information, the trading price of our shares of common stock could decline and our access to the capital markets or other financing sources could become limited.

We will be subject to financial reporting and other requirements for which our accounting and other management systems and resources may not be adequately prepared.

Following this offering, we will be subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404 of the Sarbanes-Oxley Act. Section 404 requires annual management assessments of the effectiveness of our internal controls over financial reporting and, after we are no longer an “emerging growth company,” our independent registered public accounting firm to express an opinion on the effectiveness of our internal controls over financial reporting. To the extent applicable, these reporting and other obligations will place significant demands on our management, administrative, operational, and accounting resources and will cause us to incur significant expenses. We will need to create systems; implement financial and management controls, reporting systems and procedures; and hire additional accounting and finance staff. If we are unable to accomplish these objectives in a timely and effective manner, our ability to comply with the financial reporting requirements and other rules that apply to public reporting companies could be impaired. Any failure to maintain effective internal controls could have a material adverse effect on our business, operating results and stock price.

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Pursuant to the recently enacted JOBS Act, we are eligible to take advantage of certain specified reduced disclosure and other requirements that are otherwise generally applicable to public companies for so long as we are an “emerging growth company.”

We qualify as an “emerging growth company,” as defined in the JOBS Act. An “emerging growth company” may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. While we are an “emerging growth company,” among other things:

we are exempt from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act;
we are permitted to provide less extensive disclosure about our executive compensation arrangements;
we are not required to give to our stockholders non-binding advisory votes on executive compensation or golden parachute arrangements; and
we are permitted to use an extended transition period for complying with new or revised accounting standards.

We have elected to use an extended transition period for complying with new or revised accounting standards, and this election is irrevocable. We have not made a decision whether to take advantage of other exemptions. If we do take advantage of additional exemptions, some investors may find our Class A common stock less attractive, which may result in a less active trading market for our Class A common stock and a more volatile stock price.

We plan to operate our business so that we are not required to register as an investment company under the Investment Company Act.

We intend to engage primarily in the business of investing in real estate and we do not intend to register as an investment company under the Investment Company Act. If our primary business were to change in a manner that would require us register as an investment company under the Investment Company Act, we would have to comply with substantial regulation under the Investment Company Act which could restrict the manner in which we operate and finance our business and could materially and adversely affect our business operations and results.

Risks Related to Our Class A Common Stock

We set the initial public offering price of our shares of Class A common stock arbitrarily and such price may not accurately reflect the value of our assets or our expected operating income.

We established the initial offering price of our shares of Class A common stock on an arbitrary basis. This price bears no relationship to our book or asset values or to any other established criteria for valuing shares. Because the initial offering price is not based upon any valuation (independent or otherwise), the trading price of our shares of Class A common stock following the completion of this offering could be lower or higher than the initial public offering price.

There is no public market for our Class A common stock and a market may never develop which could cause our Class A common stock to trade at a discount and make it difficult for holders of our Class A common stock to sell their shares.

Shares of our Class A common stock are newly-issued securities for which there is no established trading market. We have been approved to list our Class A common stock on the NYSE, subject to official notice of issuance. However, there can be no assurance that an active trading market for our Class A common stock will develop, or if one develops, be maintained. Accordingly, no assurance can be given as to the ability of our stockholders to sell their Class A common stock or the price that our stockholders may obtain for their Class A common stock.

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Some of the factors that could negatively affect the market price of our Class A common stock include:

our actual or projected operating results, financial condition, cash flows and liquidity or changes in business strategy or prospects;
our ability to acquire our target assets on preferable terms or at all;
equity issuances by us, or share resales by our stockholders, or the perception that such issuances or resales may occur;
actual or anticipated accounting problems;
publication of research reports about us or the real estate industry;
changes in market valuations of similar companies;
adverse market reaction to any increased indebtedness we may incur in the future;
interest rate changes;
additions to or departures of our senior management team;
speculation in the press or investment community;
our failure to meet, or the lowering of, our earnings estimates or those of any securities analysts;
changes in governmental policies, regulations or laws;
failure to qualify, or maintain our qualification, as a REIT;
refusal of securities clearing firms to accept deposits of our securities;
price and volume fluctuations in the stock market generally; and
market and economic conditions generally, including the current state of the credit and capital markets and the market and economic conditions.

Market factors unrelated to our performance could also negatively impact the market price of our Class A common stock. One of the factors that investors may consider in deciding whether to buy or sell our Class A common stock is our distribution rate as a percentage of our stock price relative to market interest rates. If market interest rates increase, prospective investors may demand a higher distribution rate or seek alternative investments paying higher dividends or interest. As a result, interest rate fluctuations and conditions in capital markets can affect the market value of our Class A common stock.

Common stock and preferred stock eligible for future sale may have material and adverse effects on our share price.

Subject to applicable law, our board of directors, without stockholder approval, may authorize us to issue additional authorized and unissued shares of common stock and preferred stock on the terms and for the consideration it deems appropriate. In addition, upon completion of this offering, our executive officers and directors will own approximately 3.5% of our total outstanding shares of Class A common stock, including (i) 150,000 shares of Class A common stock that our executive chairman may purchase in this offering at the public offering price and (ii) grants of an aggregate of 27,500 shares of Class A common stock to two of our executive officers under the Incentive Plan that are expected to be approved at the first meeting of the compensation committee of our board of directors after completion of this offering.

Upon completion of this offering and following grants of shares of our Class A common stock expected to be made to two of our executive officers, there will be 972,500 shares of Class A common stock available for future issuance and sale under the Incentive Plan. In connection with stock splits, dividends, recapitalizations and certain other events, our board will make equitable adjustments that it deems appropriate in the aggregate number of shares of our Class A common stock that may be issued under the Incentive Plan and the terms of outstanding awards. The sale of awards under the Incentive Plan will dilute the ownership interests of our existing stockholders and may depress the trading price of our Class A common stock.

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We cannot predict the effect, if any, of future sales of our common stock or the availability of shares for future sales, on the market price of our Class A common stock. Sales of substantial amounts of common stock or the perception that such sales could occur may materially and adversely affect the prevailing market price for our common stock.

We cannot assure you of our ability to make distributions in the future. We may be unable to pay or maintain cash dividends, and may borrow money, sell assets or use offering proceeds to make distributions to our stockholders, if we are unable to make distributions from cash flows from operations.

U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain (which does not equal net income as calculated in accordance with GAAP), and that it pay U.S. federal income tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. We intend to make quarterly distributions of all or substantially all of our taxable income so as to satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax. However, we cannot assure you that distributions will be made or sustained. Any distributions we make will be at the direction of our board of directors and will depend upon a number of factors, including our actual results of operations, economic conditions and other factors that could differ materially from our current expectations. In addition, we may borrow money, sell assets or use offering proceeds to make distributions to our stockholders, if we are unable to make distributions from cash flows from operations. See the section entitled “Distribution Policy.”

Our charter permits us to pay distributions from any source and, as a result, the amount of distributions paid at any time may not reflect the performance of our properties or as cash flow from operations.

Our organizational documents permit us to make distributions from any source. To the extent that our cash available for distribution is insufficient to cover our distributions, we expect to use the proceeds from this offering, the proceeds from the issuance of securities in the future, the proceeds from borrowings or other sources to pay distributions. It is possible that in our initial years of operation, any distributions declared will be paid from our offering proceeds, which would constitute a return of capital to our stockholders. If we fund distributions from borrowings, sales of properties or the net proceeds from this offering, we will have fewer funds available for the acquisition of additional properties resulting in potentially fewer investments, less diversification of our portfolio and a reduced overall return to our stockholders. In addition, the value of our shares of Class A common stock may be diluted because funds that would otherwise be available to make investments would be diverted to fund distributions.

The market price of our Class A common stock could be materially and adversely affected by our level of cash distributions.

The market value of the equity securities of a REIT is based primarily upon the market’s perception of our growth potential and its current and potential future cash distributions, whether from operations, sales or re-financings, and is secondarily based upon the real estate market value of the underlying assets. For that reason, our Class A common stock may trade at prices that are higher or lower than our net asset value per share. To the extent we retain operating cash flow for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our Class A common stock. Our failure to meet the market’s expectations with regard to future earnings and cash distributions likely would materially and adversely affect the market price of our Class A common stock.

Future offerings of debt or preferred equity securities, which may rank senior to our Class A common stock, may materially and adversely affect the market price of our Class A common stock.

If we decide to issue debt securities in the future, which would rank senior to our Class A common stock, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any preferred equity securities or convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our Class A common stock and may result in dilution to owners of our Class A common stock. We and, indirectly, our

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stockholders will bear the cost of issuing and servicing such securities. Because our decision to issue debt or preferred equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, holders of our Class A common stock will bear the risk of our future offerings reducing the market price of our Class A common stock and diluting the value of their stock holdings in us.

Investors participating in this offering will incur immediate and substantial dilution.

If you purchase shares of Class A common stock in this offering, you will incur immediate and substantial dilution in the amount of $1.92 per share, because the assumed initial public offering price of $20.00 is substantially higher than the pro forma net tangible book value per share of our outstanding common stock after the consummation of this offering. For additional information, see the section entitled “Dilution.”

Your percentage of ownership may become diluted if we issue new shares of stock or other securities, and issuances of preferred stock or other securities by us may subordinate the rights of the holders of our Class A common stock.

Our board of directors is authorized, without your approval, to cause us to issue additional shares of our common stock or to raise capital through the issuance of preferred stock (including equity or debt securities convertible into preferred stock), options, warrants and other rights, on terms and for consideration as our board of directors in its sole discretion may determine. Any such issuance could result in dilution of the equity of our stockholders.

Our charter also authorizes our board of directors, without stockholder approval, to designate and issue one or more classes or series of preferred stock (including equity or debt securities convertible into preferred stock) and to set or change the voting, conversion or other rights, preferences, restrictions, limitations as to dividends or other distributions and qualifications or terms or conditions of redemption of each class of shares so issued. If any preferred stock is publicly offered, the terms and conditions of such preferred stock (including any equity or debt securities convertible into preferred stock) will be set forth in a registration statement registering the issuance of such preferred stock or equity or debt securities convertible into preferred stock. Because our board of directors has the power to establish the preferences and rights of each class or series of preferred stock, it may afford the holders of any series or class of preferred stock preferences, powers, and rights senior to the rights of holders of common stock or other preferred stock. If we ever create and issue additional preferred stock or equity or debt securities convertible into preferred stock with a distribution preference over common stock or preferred stock, payment of any distribution preferences of new outstanding preferred stock would reduce the amount of funds available for the payment of distributions on the common stock and junior preferred stock. Further, holders of preferred stock are normally entitled to receive a preference payment if we liquidate, dissolve, or wind up before any payment is made to the common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of additional preferred stock may delay, prevent, render more difficult or tend to discourage a merger, tender offer, or proxy contest, the assumption of control by a holder of a large block of our securities, or the removal of incumbent management.

Risks Related to Our Taxation as a REIT

Our failure to qualify or remain qualified as a REIT would subject us to U.S. federal income tax and applicable state and local taxes, which would reduce the amount of cash available for distribution to our stockholders and have significant adverse consequences on the market price of our Class A common stock.

We have been organized and we intend to operate in a manner that will enable us to qualify as a REIT for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2016 or, if later, the first year in which we have material real estate assets and operations. We have not requested and do not intend to request a ruling from the Service that we qualify as a REIT, and the statements in this prospectus are not binding on the Service or any court. Qualification as a REIT involves the application of highly technical and complex Code provisions and regulations promulgated by the U.S. Treasury Department, or the Treasury Regulations, thereunder for which there are limited judicial and administrative interpretations. Accordingly, we cannot provide assurance that we will qualify or remain qualified as a REIT.

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To qualify as a REIT, we must meet, on an ongoing basis, various tests regarding the nature and diversification of our assets and our income, the ownership of our outstanding stock, and the amount of our distributions to stockholders. Our ability to satisfy these asset tests depends upon the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income and quarterly asset requirements also depends upon our ability to manage successfully the composition of our income and assets on an ongoing basis. Moreover, new legislation, court decisions or administrative guidance, in each case possibly with retroactive effect, may make it more difficult or impossible for us to qualify as a REIT. Thus, while we intend to operate in a manner to qualify as a REIT, in view of the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations, and the possibility of future changes in our circumstances, we cannot provide assurance that we will so qualify for any particular year. These considerations also might restrict the types of income we can realize, or assets that we can acquire in the future.

If we fail to qualify as a REIT in any taxable year, and we do not qualify for certain statutory relief provisions, we would be required to pay U.S. federal income tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. We will not be able to deduct distributions to our stockholders in any year in which we fail to qualify, nor will we be required to make distributions to our stockholders. In such a case, we might need to borrow money, sell assets, or reduce or even cease making distributions in order to pay our taxes. Our payment of income tax would reduce significantly the amount of cash available for distribution to our stockholders. If we fail to qualify as a REIT, all distributions to stockholders, to the extent of current and accumulated earnings and profits, will be taxable to the stockholders as dividend income (which may be subject to tax at preferential rates) and corporate distributes may be eligible for the dividends received deduction if they satisfy the relevant provisions of the Code. Furthermore, if we fail to qualify as a REIT, we no longer would be required to distribute substantially all of our net taxable income to our stockholders. In addition, unless we were eligible for certain statutory relief provisions, we could not re-elect to qualify as a REIT until the fifth calendar year following the year in which we failed to qualify. We might not be entitled to the statutory relief described in this paragraph in all circumstances.

The REIT distribution requirements could adversely affect our ability to execute our business plan, require us to borrow funds during unfavorable market conditions or subject us to tax, which would reduce the cash available for distribution to our stockholders.

To qualify as a REIT, we must distribute to our stockholders, on an annual basis, at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain. In addition, we will be subject to U.S. federal income tax at regular corporate rates to the extent that we distribute less than 100% of our net taxable income (including net capital gain) and will be subject to a 4% nondeductible excise tax on the amount by which our distributions in any calendar year are less than a minimum amount specified under U.S. federal income tax laws. We intend to distribute our net income to our stockholders in a manner intended to satisfy the REIT 90% distribution requirement and to avoid U.S. federal income tax and the 4% nondeductible excise tax. However, we can provide no assurances that we will have sufficient cash or other liquid assets to meet these requirements. Difficulties in meeting the distribution requirements might arise due to competing demands for available funds or timing differences between tax reporting and cash receipts. In addition, if the Service were to disallow certain of our deductions, such as employee salaries, depreciation or interest expense, by alleging that we, through our rental agreements with our state-licensed medical cannabis tenants, are primarily or vicariously liable for “trafficking” a Schedule 1 substance (cannabis) under Section 280E of the Code or otherwise, we would be unable to meet the distribution requirements and would fail to qualify as a REIT. Likewise, if any governmental entity were to impose fines on us for our business involvement in state-licensed medical-use cannabis, such fines would not be deductible and the inability to deduct such fines could also cause us to be unable to satisfy the distribution requirement.

We may also generate less cash flow than taxable income in a particular year. In such event, we may be required to use cash reserves, incur debt or liquidate assets at rates or times that we regard as unfavorable or, to the extent possible, make a taxable distribution of our stock in order to satisfy the REIT 90% distribution requirement and to avoid U.S. federal income tax and the 4% nondeductible excise tax in that year. Under

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certain circumstances, we may be able to rectify a failure to meet the distribution requirement for a year by paying “deficiency dividends” to stockholders in a later year, which may be included in our deduction for dividends paid for the earlier year. Thus, we may be able to avoid being taxed on amounts distributed as deficiency dividends; however, we will be required to pay penalties and interest based upon the amount of any deduction taken for deficiency dividends. If we do not have sufficient cash to distribute, we may incur U.S. federal income tax, U.S. federal excise tax and/or our REIT status may be jeopardized.

If we are deemed to be subject to Section 280E of the Code because of the business activities of our tenants, the resulting disallowance of tax deductions could cause us to incur U.S. federal income tax and jeopardize our REIT status.

Section 280E of the Code provides that, with respect to any taxpayer, no deduction or credit is allowed for expenses incurred during a taxable year “in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of Schedule I and II of the CSA) which is prohibited by federal law or the law of any State in which such trade or business is conducted.” Because cannabis is a Schedule I controlled substance under the CSA, Section 280E by its terms applies to the purchase and sale of medical-use cannabis products. Although we will not be engaged in the purchase, sale, growth, cultivation, harvesting, or processing of medical-use cannabis products, we will lease our properties to tenants who will engage in such activities, and therefore our tenants will likely be subject to Section 280E. If the Service were to take the position that, through our rental agreements with our state-licensed medical-use cannabis tenants, we are primarily or vicariously liable under federal law for “trafficking” a Schedule 1 substance (cannabis) under section 280E of the Code or for any other violations of the CSA, the Service may seek to apply the provisions of Section 280E to our company and disallow certain tax deductions, including for employee salaries, depreciation or interest expense. If such tax deductions are disallowed, we would be unable to meet the distribution requirements applicable to REITs under the Code, which could cause us to incur U.S. federal income tax and fail to qualify as a REIT. Because we will not be engaged in the purchase and/or sale of a controlled substance, we do not believe that we will be subject to the disallowance provisions of Section 280E, and neither we nor our tax advisors are aware of any tax court cases or guidance from the Service in which a taxpayer not engaged in the purchase or sale of a controlled substance was disallowed deductions under Section 280E. However, there is no assurance that the Service will not take such a position either currently or in the future.

Complying with REIT requirements may cause us to forego otherwise attractive business opportunities or liquidate otherwise attractive investments.

To qualify as a REIT, we must ensure that we meet the REIT gross income tests annually. In addition, we must ensure that, at the end of each calendar quarter, at least 75% of the value of our total assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans, certain kinds of mortgage-backed securities and certain securities issued by other REITs. The remainder of our investment in securities (other than government securities, securities of corporations that are treated as TRSs, and qualified REIT real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, no more than 25% (20% for taxable years beginning after December 31, 2017) of the value of our total securities can be represented by securities of one or more TRSs, and, the aggregate value of debt instruments issued by public REITs held by us that are not otherwise secured by real property may not exceed 25% of the value of our total assets. See the section entitled “Material U.S. Federal Income Tax Considerations — Asset Tests.” If we fail to comply with these asset requirements at the end of any calendar quarter, we generally must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences.

To meet these tests, we may be required to take or forgo taking actions that we would otherwise consider advantageous. For instance, in order to satisfy the gross income or asset tests applicable to REITs under the Code, we may be required to forego investments that we otherwise would make. Furthermore, we may be required to liquidate from our portfolio otherwise attractive investments. In addition, we may be required to

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make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders. Thus, compliance with the REIT requirements may hinder our investment performance.

The tax on prohibited transactions could limit our ability to engage in certain transactions or subject us to a 100% penalty tax.

We will be subject to a 100% tax on any income from a prohibited transaction. “Prohibited transactions” generally include sales or other dispositions of property (other than property treated as foreclosure property under the Code) that is held as inventory or primarily for sale to customers in the ordinary course of a trade or business by a REIT, either directly or indirectly through certain pass-through subsidiaries. Although we do not intend to hold a significant amount of assets as inventory or primarily for sale to customers in the ordinary course of our business, the characterization of an asset sale as a prohibited transaction depends on the particular facts and circumstances. The Code provides a safe harbor that, if met, allows a REIT to avoid being treated as engaged in a prohibited transaction. It is likely that we may sell certain properties that have not met all of the requirements of such safe harbor if we believe the transaction would not be a prohibited transaction based on a facts and circumstances analysis. If the Service were to successfully argue that such a sale was in fact a prohibited transaction, we would be subject to a 100% penalty tax with respect to such sale.

If we were considered to actually or constructively pay a “preferential dividend” to certain of our stockholders, our status as a REIT could be adversely affected.

In order to qualify as a REIT, we must annually distribute to our stockholders at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. In order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be “preferential dividends.” A dividend is not a preferential dividend if the distribution is pro rata among all outstanding shares of stock within a particular class, and in accordance with the preferences among different classes of stock as set forth in our organizational documents. Currently, there is uncertainty as to the Service’s position regarding whether certain arrangements that REITs have with their stockholders could give rise to the inadvertent payment of a preferential dividend (e.g., the pricing methodology for stock purchased under a distribution reinvestment program inadvertently causing a greater than 5% discount on the price of such stock purchased). There is no de minimis exception with respect to preferential dividends; therefore, if the Service were to take the position that we inadvertently paid a preferential dividend, we may be deemed to have failed the 90% distribution test, and our status as a REIT could be terminated for the year in which such determination is made if we were unable to cure such failure. While we believe that our operations will be structured in such a manner that we will not be treated as inadvertently paying preferential dividends, we can provide no assurance to this effect.

The “preferential dividend” prohibition described above does not apply to a “publicly offered REIT,” which generally is a REIT that is required to make regular filings with the SEC under the Exchange Act. While we intend to qualify as a “publicly offered REIT” and therefore expect that the preferential dividend prohibition will not apply to us, we cannot provide you with assurance that we will so qualify and, accordingly, we may be subject to the prohibition.

The ability of our board of directors to revoke our REIT election without stockholder approval may cause adverse consequences to our stockholders.

Our charter provides that the board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if the board of directors determines that it is no longer in our best interest to attempt to, or continue to, qualify as a REIT. If we cease to qualify as a REIT, we would become subject to U.S. federal income tax on our net taxable income and we generally would no longer be required to distribute any of our net taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders.

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Dividends payable by REITs do not qualify for the reduced tax rates on dividend income from regular corporations, which could adversely affect the value of our Class A common stock.

The maximum U.S. federal income tax rate for certain qualified dividends payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends (other than capital gain dividends) payable by REITs, however, generally are not eligible for the reduced rates and therefore may be subject to a 39.6% maximum U.S. federal income tax rate on ordinary income when paid to such stockholders. Although the reduced U.S. federal income tax rate applicable to dividend income from regular corporate dividends does not adversely affect the taxation of REITs or dividends paid by REITs, the more favorable rates applicable to regular corporate dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of our Class A common stock.

Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.

The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets, if properly identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a TRS generally will not provide any tax benefit, except for being carried forward against future taxable income of such TRS.

Non-U.S. stockholders will generally be subject to withholding tax with respect to our ordinary dividends.

Non-U.S. stockholders (as defined in “Material U.S. Federal Income Tax Considerations”) generally will be subject to U.S. federal withholding tax on ordinary dividends received from us at a 30% rate, subject to reduction under an applicable treaty or a statutory exemption under the Code.

Legislative or regulatory tax changes related to REITs could materially and adversely affect our business.

At any time, the U.S. federal income tax laws or Treasury Regulations governing REITs or the administrative interpretations of those laws or regulations may be changed, possibly with retroactive effect. We cannot predict if or when any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective or whether any such law, regulation or interpretation may take effect retroactively. We and our stockholders could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation. You also should note that our counsel’s tax opinion is based upon existing law, applicable as of the date of its opinion, all of which will be subject to change, either prospectively or retroactively.

Your investment has various tax risks.

Although provisions of the Code generally relevant to an investment in shares of our Class A common stock are described in “Material U.S. Federal Income Tax Considerations,” you should consult your tax advisor concerning the effects of U.S. federal, state, local and foreign tax laws to you with regard to an investment in our Class A common stock.

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Retirement Plan Risks

If the fiduciary of an employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended, or ERISA (such as a profit sharing, Section 401(k) or pension plan), or an owner of a retirement arrangement subject to Section 4975 of the Code (such as an Individual Retirement Account, or IRA) fails to meet the fiduciary and other standards under ERISA or the Code as a result of an investment in our shares of Class A common stock, the fiduciary could be subject to penalties and other sanctions.

There are special considerations that apply to employee benefit plans subject to ERISA (such as profit sharing, Section 401(k) or pension plans) and other retirement plans or accounts subject to Section 4975 of the Code (such as an IRA) that are investing in our shares of Class A common stock. Fiduciaries and IRA owners investing the assets of such a plan or account in our Class A common stock should satisfy themselves that:

the investment is consistent with their fiduciary and other obligations under applicable law, including ERISA and the Code;
the investment is made in accordance with the documents and instruments governing the plan, trust or IRA, including the plan’s or account’s investment policy;
the investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the Code;
the investment will not impair the liquidity needs of the plan or IRA;
the investment will not produce an unacceptable amount of “unrelated business taxable income” for the plan or IRA;
our stockholders will be able to comply with the requirements under ERISA and the Code to value the assets of the plan or IRA annually; and
the investment will not constitute a non-exempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.

Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA, the Code or other applicable statutory or common law may result in the imposition of civil and criminal penalties and could subject the fiduciary to claims for damages or for equitable remedies, including liability for investment losses. In addition, if an investment in our shares constitutes a non-exempt prohibited transaction under ERISA or the Code, the fiduciary or IRA owner who authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested. In addition, the investment transaction must be undone. In the case of a non-exempt prohibited transaction involving an IRA owner, the IRA may be disqualified as a tax-exempt account and all of the assets of the IRA may be deemed distributed and subjected to tax. ERISA plan fiduciaries and IRA owners should consult with their legal, tax, financial and other advisors before making an investment in our Class A common stock. The sale of shares of our Class A common stock to a plan is in no respect a representation by us or any other person associated with the offering of our common stock that such an investment meets all relevant legal requirements with respect to investments by plans generally or any particular plan, or that such an investment is appropriate for plans generally or any particular plan.

For a further discussion of the issues and risks associated with an investment in our Class A common stock by employee benefit plans, IRAs and other benefit plan investors, see the section entitled “ERISA Considerations.”

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FORWARD-LOOKING STATEMENTS

We make forward-looking statements in this prospectus that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “could,” “may” or similar expressions, we intend to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking:

use of proceeds of this offering;
our business and investment strategy;
our projected operating results;
actions and initiatives of the U.S. or state governments and changes to government policies and the execution and impact of these actions, initiatives and policies;
the state of the U.S. economy generally or in specific geographic areas;
economic trends and economic recoveries;
shifts in public opinion regarding medical-use cannabis;
the estimated growth in the medical-use cannabis market;
the demand for medical-use cannabis facilities;
the expected medical-use or adult-use cannabis legalization in certain states;
our ability to access capital;
financing rates for our target assets;
our expected leverage;
changes in the values of our assets;
our expected portfolio of assets;
our expected investments;
interest rate mismatches between our target assets and our borrowings used to fund such investments;
changes in interest rates and the market value of our target assets;
rates of default on leases for our target assets;
the degree to which any interest rate or other hedging strategies may or may not protect us from interest rate volatility;
impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters;
our ability to qualify as a REIT and, once qualified, maintain our qualification as a REIT for U.S. federal income tax purposes;
our ability to maintain our exemption from registration under the Investment Company Act;
availability of suitable investment opportunities in the medical-use cannabis industry;
availability of qualified personnel;
our understanding of our competition; and
market trends in our industry, interest rates, real estate values, the securities markets or the general economy.

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The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. You should not place undue reliance on these forward-looking statements. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described in this prospectus under the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.” If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Market data and industry forecasts and projections used in this prospectus have been obtained from independent industry sources. Forecasts, projections and other forward-looking information obtained from such sources are subject to similar qualifications and uncertainties as other forward-looking statements in this prospectus.

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USE OF PROCEEDS

We estimate that we will receive net proceeds from this offering of approximately $91.5 million (or approximately $105.4 million if the underwriters’ over-allotment option is exercised in full), after deducting underwriting discounts and commissions, and estimated expenses of the offering (including, but not limited to, $720,000 in estimated offering costs reimbursable to IGP Advisers), assuming a public offering price of $20.00 per share. IGP Advisers is funding certain of our expenses in connection with our organization, this offering, the acquisition of our Initial Property and other costs. We will reimburse IGP Advisers for those expenses incurred by it with the net proceeds of this offering. See the section entitled “Certain Relationships and Related Transactions — Reimbursement of IGP Advisers.”

We will contribute the net proceeds of this offering to our Operating Partnership. Our Operating Partnership intends to use the net proceeds of this offering as follows:

approximately $30 million, or 33% of the estimated net proceeds of $91.5 million, to acquire our Initial Property, including acquisition costs of $50,000 (of which $20,000 will be paid by us as a reimbursement to IGP Advisers) and the reimbursement to IGP Advisers for an earnest money deposit of $375,000;
approximately $50,000 to reimburse IGP Advisers for certain organizational costs; and
approximately $500,000 to pay a consulting fee to IGP Advisers, which amount will increase by $3,300 for each day that the closing of this offering occurs after November 15, 2016 (if the closing of this offering occurs on December 6, 2016, we will pay IGP Advisers an additional $69,000).

We intend to invest the remaining net proceeds in specialized industrial real estate assets that support the regulated medical-use cannabis industry that are consistent with our investment strategy. Our general goal is to invest the remaining net proceeds within six to 12 months following completion of this offering, which will depend on the amount of time necessary to evaluate a target property’s suitability based on our acquisition criteria. However, we cannot predict if or when we will identify and acquire properties that meet our acquisition criteria so as to permit us to invest the net proceeds of this offering.

Until appropriate assets can be identified, we may invest the net proceeds of the offering in interest-bearing short-term investments that are consistent with our intention to qualify as a REIT. Any interest-bearing short-term investment we make likely will provide a lower net return than we will seek to achieve from our target assets.

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DISTRIBUTION POLICY

We intend to elect and qualify to be treated as a REIT for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2016 or, if later, the first year in which we have material real estate assets and operations. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain (which does not equal net income as calculated in accordance with GAAP), and that it pay U.S. federal income tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income.

We are a newly formed company that has not commenced operations and, as a result, we have not paid distributions as of the date of this prospectus. To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income tax, we intend to make quarterly distributions of all or substantially all of our taxable income to holders of our common stock out of assets legally available therefor. However, we cannot assure you that distributions will be made or sustained. Any distributions we make will be at the direction of our board of directors and will depend upon a number of factors, including our actual results of operations, economic conditions, maintenance of REIT qualification and the applicable provisions of the MGCL and such other factors as our board may determine in its sole discretion.

Our organizational documents permit us to make distributions from any source. If our cash available for distribution is insufficient to cover our distributions, we expect to use the proceeds from this offering, the proceeds from the issuance of securities in the future, the proceeds from borrowings or other sources to pay distributions. During our initial years of operation, we expect that a portion of our distributions declared may be paid from offering proceeds, which would constitute a return of capital to our stockholders.

We anticipate that our distributions generally will be taxable as ordinary income to our stockholders, although a portion of the distributions may be designated by us as qualified dividend income or capital gain or may constitute a return of capital. We will furnish annually to each of our stockholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain. For more information, see the section entitled “Material U.S. Federal Income Tax Considerations — Taxation of U.S. Holders — Taxation of Taxable U.S. Holders on Distributions on Shares.”

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CAPITALIZATION

The following table sets forth (i) our actual capitalization as of September 30, 2016, and (ii) our pro forma capitalization, as adjusted to give effect to the sale of the 5,000,000 shares of our Class A common stock in this offering, at an assumed initial public offering price of $20.00 per share, after deducting underwriting discounts and commissions and estimated organization, offering and other expenses payable by us.

You should read this table together with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto included elsewhere in this prospectus.

   
  September 30, 2016
     Actual   As Adjusted(1)(2)
Stockholders’ equity:
                 
Class A common stock, par value $0.001 per share; 49,000,000 shares authorized and no shares issued and outstanding on an actual basis, and 5,000,000 shares issued and outstanding, as adjusted   $     $ 5,000  
Class B common stock, par value $0.001 per share; 1,000,000 shares authorized and 508,065 shares issued and outstanding on an actual basis, and no shares issued and outstanding as adjusted     508        
Preferred Stock, par value $0.001 per share; 50,000,000 shares authorized and no shares issued and outstanding            
Additional paid-in capital     200,000       95,145,000  
Accumulated deficit     (200,000 )      (4,250,000 ) 
Total stockholders’ equity   $ 508     $ 90,900,000  

(1) Excludes (i) up to 750,000 shares of our Class A common stock that may be issued by us upon exercise of the underwriters’ over-allotment option and (ii) an aggregate of 27,500 shares of Class A common stock that are expected to be issued to two executive officers under the Incentive Plan upon approval at the first meeting of the compensation committee of our board of directors after completion of this offering.
(2) The 508,065 shares of Class B common stock issued to our founders, including certain executive officers and directors, will be redeemed by us for $0.001 per share and cancelled immediately before the closing of this offering. See the sections entitled “Certain Relationships and Related Transactions” and “Description of Securities.” The as adjusted amounts do not include 1,000,000 shares of Class A common stock reserved for future issuance under the Incentive Plan.

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DILUTION

Investors participating in this offering will incur immediate and substantial dilution. If you invest in shares of our Class A common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of our Class A common stock and the pro forma net tangible book value per share of our Class A common stock upon completion of this offering, taking into account the issuance of shares of Class A common stock under the Incentive Plan at the first meeting of our compensation committee of our board of directors after completion of this offering.

After giving effect to our sale of 5,000,000 shares of our Class A common stock in this offering, at an assumed initial public offering price of $20.00 per share and after deducting the estimated underwriting discounts and commission and estimated organizational, offering and other expenses payable by us, our pro forma net tangible book value as of September 30, 2016 would have been approximately $90.9 million, or $18.08 per share of our Class A common stock. This represents an immediate decrease in pro forma net tangible book value of $1.92 per share to new investors purchasing shares in this offering. See the section entitled “Risk Factors — Risks Related to Our Class A Common Stock — Investors in this offering will incur immediate and substantial dilution.”

The following table illustrates this dilution:

 
Assumed initial public offering price per share   $ 20.00  
Pro forma net tangible book value per share after the offering, before the issuance of shares under the Incentive Plan(1)   $ 18.18  
Decrease in pro forma net tangible book value per share to existing stockholders attributable to the issuance of shares under the Incentive Plan(2)   $ (0.10 ) 
Pro forma net tangible book value per share after this offering(3)   $ 18.08  
Dilution per share to new investors(4)   $ 1.92  

(1) After deducting underwriting discounts, commissions and organizational, offering and other costs.
(2) Includes the issuance of an aggregate of 27,500 shares of Class A common stock that are expected to be issued to two of our executive officers under the Incentive Plan upon approval at the first meeting our of compensation committee of our board of directors after completion of this offering.
(3) Based on pro forma net tangible book value attributable to common stockholders of approximately $90.9 million divided by the sum of (i) 5,000,000 shares of our common shares to be issued in this offering, and (ii) 27,500 shares expected to be issued under the Incentive Plan.
(4) Dilution is determined by subtracting pro forma net tangible book value per share of our Class A common stock after giving effect to this offering from the initial public offering price paid by a new investor for a shares of Class A common stock.

The information discussed above is illustrative only and will change based on the actual initial public offering price and other terms of this offering determined at pricing. The number of shares of our Class A common stock to be outstanding after this offering for purposes of this dilution calculation is based on a total of 5,027,500 shares of our Class A common stock, consisting of 5,000,000 shares of Class A common stock sold in this offering and 27,500 shares of Class A common stock expected to be issued under the Incentive Plan at the first meeting of our compensation committee of our board of directors after completion of this offering, and excludes 972,500 additional shares of our Class A common stock reserved for future issuance under the Incentive Plan. There will be further dilution to new investors with respect to the shares issued pursuant to stock awards issued under the Incentive Plan.

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SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The following table sets forth selected historical and pro forma financial information that has been derived from our historical audited consolidated financial statements as of September 30, 2016 and for the period from June 15, 2016 (date of incorporation) through September 30, 2016. Except for the historical information as of September 30, 2016 and for the period from June 15, 2016 (date of incorporation) through September 30, 2016, the information provided below is unaudited.

The unaudited pro forma consolidated balance sheet as of September 30, 2016 gives effect to the completion of the initial public offering (including recording $3.5 million of unamortized stock-based compensation expense related to the redemption of the Class B common stock to additional paid-in capital and accumulated deficit), the acquisition of our Initial Property and the entry into the related lease agreement, and the payment of a consulting fee and reimbursement of other costs to IGP Advisers from the net proceeds of the initial public offering, as if the closing of the offering and the acquisition of our Initial Property occurred on September 30, 2016. The unaudited pro forma consolidated statements of operations for the year ended December 31, 2015 and the nine months ended September 30, 2016 give effect to the completion of the initial public offering, the acquisition of our Initial Property and the entry into the related lease agreement, as if the completion of the offering and the acquisition of our Initial Property had occurred on January 1, 2015. The unaudited pro forma consolidated statement of operations for the nine months ended September 30, 2016 includes a reduction of $200,000 of general and administrative expense to eliminate the non-recurring stock-based compensation expense associated with all shares of the Class B common stock being redeemed immediately before the closing of this offering for par value.

The unaudited pro forma financial information incorporates certain assumptions that are included in the Notes to the Unaudited Pro Forma Consolidated Financial Statements included elsewhere in this prospectus. The unaudited pro forma financial information is presented for informational purposes only, and is not necessarily indicative of future results of operations or financial condition and should not be viewed as indicative of future results of operations or financial condition. The unaudited pro forma financial information does not purport to represent what our actual financial position or results of operations would have been as of or for the periods indicated had the transactions been completed as of the date indicated.

You should read the following selected historical and pro forma financial information together with “Management’s Discussion and Analyses of Financial Condition and Results of Operations” and our historical consolidated financial statements, including the related notes, included elsewhere in this prospectus. As of the date of this prospectus, we have not commenced any operations because we are in our organizational state. We will not commence any significant operations until we have completed this offering.

       
  For the Year Ended
December 31, 2015
  For the Nine Months Ended
September 30, 2016
     Historical   Pro Forma   Historical   Pro Forma
Statement of operations data:
                                   
Revenues:
                                   
Rental income   $     $ 5,628,169     $     $ 4,221,127  
Total revenues           5,628,169             4,221,127  
Expenses:
                                   
Depreciation and amortization           641,429             481,072  
General and administrative(1)                 200,000        
Total expenses           641,429       200,000       481,072  
Net income (loss)   $     $ 4,986,740     $ (200,000 )    $ 3,740,055  
Net income (loss) per share   $     $ 2.89     $ (0.39 )    $ 2.16  
Weighted average shares outstanding(2)              1,728,495       508,065       1,728,495  

(1) The unaudited pro forma consolidated statements of operations do not include any general and administrative expenses expected to be incurred to operate as a public company as such expenses are not yet known or factually supportable. We expect annual costs for items such as legal, accounting,

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insurance, public company reporting, stockholder relations, public relations, travel, office rent, compensation and stock-based compensation, director fees and other general and administrative expenses associated with operating a public company to be between $4.5 million and $5.5 million (excluding any non-cash stock-based compensation expense relating to any performance based equity awards that may be approved by the compensation committee of our board of directors in the future). This estimate is based on management’s previous experience in managing public REITs and is not reflected in the pro forma consolidated statements of operations.
(2) Represents shares of Class A common stock whose proceeds are being reflected in pro forma adjustments in the statement of operations, such as proceeds used for acquisitions and offering costs. The pro forma weighted average shares outstanding assumes (i) the issuance of 1,728,495 shares of Class A common stock at $20.00 per share, which provides sufficient cash (net of underwriting discounts and commissions) to purchase our Initial Property and pay offering and other costs and (ii) the redemption of 508,065 shares of Class B common stock at par value of $0.001 per share for an aggregate of $508. The 3,271,505 additional shares of Class A common stock issued in the initial public offering (assuming that the underwriters’ over-allotment option to purchase additional shares of Class A common stock is not exercised and that no restricted shares are awarded) and related transactions are excluded for purposes of the calculations of the pro forma net income per share.

   
  As of September 30, 2016
     Historical   Pro Forma
Balance sheet data:
                 
Assets:
                 
Cash and cash equivalents   $ 508     $ 62,962,474  
Property escrow deposit     375,000        
Buildings           22,450,000  
Land           7,600,000  
Total real estate investments           30,050,000  
Total assets   $ 375,508     $ 93,012,474  
Liabilities:
                 
Security deposit   $     $ 2,112,474  
Due to IGP Advisers, a related party     375,000        
Total liabilities     375,000       2,112,474  
Stockholders’ Equity:
                 
Class A common stock           5,000  
Class B common stock     508        
Additional paid-in-capital     200,000       95,145,000  
Accumulated deficit     (200,000 )      (4,250,000 ) 
Total stockholders’ equity     508       90,900,000  
Total liabilities and stockholders’ equity   $ 375,508     $ 93,012,474  

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Business Overview

We are a newly-formed, self-advised Maryland corporation focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities. Initially, we intend to acquire our properties through sale-leaseback transactions and third-party purchases. We expect to lease our properties on a triple-net lease basis, where the tenant is responsible for all aspects of and costs related to the property and its operation during the lease term, including structural repairs, maintenance, taxes and insurance. We intend to elect and to operate our business so as to qualify to be taxed as a REIT fo U.S. Federal income tax purposes.

Our executive chairman, Alan D. Gold, is a 30-year veteran of the real estate industry, including co-founding two NYSE-listed REITs: BioMed Realty, a REIT focused on acquiring, developing, owning, leasing and managing laboratory and office space for the life science industry; and Alexandria Real Estate, an urban office REIT focused on collaborative science and technology campuses. Our senior management team has significant experience in all aspects of the real estate industry, including acquisitions, dispositions, construction, development, management, finance and capital markets. We believe the industry experience and relationships of our senior management team will provide us with a competitive advantage in sourcing and negotiating acquisition opportunities for our target properties, including through sale-leaseback transactions.

We do not currently own any properties. We plan to finance our growth through the application of the net proceeds of this offering, and, when necessary, through additional equity and debt offerings. We currently anticipate that the average size of our investments will range from $5 million to $30 million and will involve between 25,000 and 150,000 square feet of space.

Our principal business objective is to maximize stockholder returns through a combination of (1) distributions to our stockholders, (2) sustainable long-term growth in cash flows from increased rents, which we hope to pass on to stockholders in the form of increased distributions, and (3) potential long-term appreciation in the value of our properties from capital gains upon future sale. Our primary strategy to achieve our business objective is to acquire and own a portfolio of medical-use cannabis facilities leased to tenants holding the requisite state licenses to operate in the regulated medical-use cannabis industry.

We intend to elect and to operate our business so as to qualify to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2016 or, if later, the first year in which we have material real estate assets and operations. So long as we qualify as a REIT, we generally will not be subject to U.S. federal income tax on our taxable income to the extent that we annually distribute all of our taxable income on a timely basis to stockholders. We will conduct all of our operations through our Operating Partnership.

Factors Impacting Our Operating Results

We expect that our results of operations will be affected by a number of factors and will primarily depend on the rental revenue we receive from the properties that we expect to acquire, the timing of lease expirations, general market conditions, the regulatory environment in the medical-use cannabis industry, and the competitive environment for real estate assets that support the regulated medical-use cannabis industry.

Rental Revenues

We expect to receive income primarily from rental revenue generated by the properties that we expect to acquire. The amount of rental revenue will depend upon a number of factors, including:

our ability to enter into leases with increasing or market value rents for the properties that we expect to acquire; and
rent collection, which primarily relates to each of our future tenant’s financial condition and ability to make rent payments to us on time.

The properties that we expect to acquire will consist of real estate assets that support the regulated medical-use cannabis industry. Changes in current favorable state or local laws in the cannabis industry may

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impair our ability to renew or re-lease properties and the ability of our tenants to fulfill their lease obligations and could materially and adversely affect our ability to maintain or increase rental rates for our properties.

Conditions in Our Markets

Positive or negative changes in regulatory, economic or other conditions, drought, and natural disasters in the markets where we acquire properties may affect our overall financial performance.

Competitive Environment

We face competition from a diverse mix of market participants, including but not limited to, other companies with similar business models, independent investors, hedge funds and other real estate investors, hard money lenders, as well as would be clients, cannabis operators themselves, all of whom may compete with us in our efforts to acquire real estate zoned for cannabis cultivation and production operations. Competition from others may diminish our opportunities to acquire a desired property on favorable terms or at all. In addition, this competition may put pressure on us to reduce the rental rates below those that we expect to charge for the properties that we acquire, which would adversely affect our financial results.

Operating Expenses

Our operating expenses will include general and administrative expenses, including personnel costs, legal, accounting, and other expenses related to corporate governance, public reporting and compliance with the various provisions of U.S. securities laws. We will structure our leases so that the tenant is responsible for taxes, maintenance, insurance, and structural repairs with respect to the premises throughout the lease term. Increases or decreases in such operating expenses will impact our overall financial performance.

Our Qualification as a REIT

We have been organized and we intend to elect, and to operate our business so as to qualify, to be taxed as a REIT, for U.S. federal income tax purposes, commencing with our taxable year ending December 31, 2016 or, if later, the first year in which we have material real estate assets and operations. Shares of our Class A common stock are subject to restrictions on ownership and transfer that are intended, among other purposes, to assist us in qualifying and maintaining our qualification as a REIT. In order for us to qualify as a REIT under the Code, the relevant sections of our charter provide that, after completion of this offering and subject to certain exceptions, no person or entity may own, or be deemed to own, by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (in value or number of shares, whichever is more restrictive) of the aggregate of our outstanding shares of stock or more than 9.8% (in value or number of shares, whichever is more restrictive) of our outstanding common stock or any class or series of our outstanding preferred stock.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with GAAP, and are the basis for our discussion and analysis of financial condition and results of operations. In the future, when preparing our consolidated financial statements, we will be required to make a number of estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. We will strive to make these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We will continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions.

Acquisition of Rental Property, Depreciation and Impairment

In order to prepare our consolidated financial statements according to the rules and guidelines set forth by GAAP, many subjective judgments must be made with regard to critical accounting policies. One of these judgments is our estimate for useful lives in determining depreciation expense for our properties. Depreciation on a majority of our buildings and improvements will be computed using the straight-line method over an estimated useful life of 30 to 40 years for buildings and 4 to 20 years for improvements, which we believe are appropriate estimates of useful life. If we use a shorter or longer estimated useful life, it could have a material impact on our results of operations.

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Management must make significant assumptions in determining the fair value of assets acquired and liabilities assumed. Upon acquisition of property, we allocate the purchase price of the properties in accordance with guidance issued by the Financial Accounting Standards Board, or FASB, under FASB Accounting Standard Codification 805, Business Combinations, based upon the fair value of the assets acquired and liabilities assumed, which generally consists of land, buildings, site improvements, and furniture and fixtures. We allocate the purchase price to the fair value of the tangible assets of an acquired property by valuing the property as if it were vacant. If the acquisition does not meet the definition of a business, we record the acquisition as an asset acquisition. For asset acquisitions, the purchase price allocation is based upon the relative fair values of all assets acquired and liabilities assumed. For transactions that are business combinations, acquisition costs are expensed as incurred and restructuring costs that do not meet the definition of a liability at the acquisition date are expensed in periods subsequent to the acquisition date. For transactions that are an asset acquisition, acquisition costs are capitalized as incurred.

Another significant judgment must be made as to if, and when, impairment losses should be taken on our properties when events or a change in circumstances indicate that the carrying amount of the asset may not be recoverable. A provision is made for impairment if estimated future operating cash flows (undiscounted and without interest charges) plus estimated disposition proceeds (undiscounted) are less than the current book value of the property. Key inputs that we utilize in this analysis include projected rental rates, estimated holding periods, historical sales and releases, capital expenditures, and property sales capitalization rates. If a property is held for sale, it is carried at the lower of carrying cost or estimated fair value, less estimated cost to sell. The carrying value of our real estate is anticipated to be the largest component of our consolidated balance sheet. Our strategy of primarily holding properties, long-term, directly decreases the likelihood of their carrying values not being recoverable, thus requiring the recognition of an impairment. However, if our strategy, or one or more of the above assumptions were to change in the future, an impairment may need to be recognized. If events should occur that require us to reduce the carrying value of our real estate by recording provisions for impairment, they could have a material impact on our results of operations.

Revenue Recognition and Accounts Receivable

We anticipate that all leases will be triple-net leases and will be accounted for as operating leases. Under this method, leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term. Any rental revenue contingent upon a tenant’s sales is recognized only after the tenant exceeds its sales breakpoint. Rental increases based upon changes in the CPI are recognized only after the changes in the indexes have occurred and are then applied according to the lease agreements. In certain cases, our leases may contain reimbursement obligations. Contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses will be included in tenant reimbursements in the period when such costs are incurred.

We will recognize an allowance for doubtful accounts relating to accounts receivable for amounts deemed uncollectible. We consider tenant specific issues, such as financial stability and ability to pay, when determining collectability of accounts receivable and appropriate allowances to record.

Stock-Based Compensation

Stock-based compensation for equity awards is based on the grant date fair value of the equity instrument and is recognized over the requisite service period.

Gain on Sales of Properties

When real estate is sold, the related net book value of the applicable assets is removed and a gain from the sale is recognized in our consolidated statements of operations. We will record a gain from the sale of real estate provided that various criteria relating to the terms of the sale have been met.

Income Taxes

We have been organized and we intend to elect, and to operate our business so as to qualify, to be taxed as a REIT, for U.S. federal income tax purposes, commencing with our taxable year ending December 31, 2016 or, if later, the first year in which we have material real estate assets and operations. Under the REIT operating structure, we are permitted to deduct dividends paid to our stockholders in determining our taxable

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income for U.S. federal income tax purposes. As long as our dividends equal or exceed our taxable net income, we generally will not be required to pay U.S. federal income tax on such income.

Adoption of New or Revised Accounting Standards

As an “emerging growth company” under the JOBS Act, we can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. An “emerging growth company” may opt out of the extended transition period for complying with new or revised accounting standards. A decision to opt out, however, is irrevocable. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we can adopt the standard for the private company. This may make comparison of our financial statements with a public company that either is not an “emerging growth company” or is an “emerging growth company” that has opted out of using the extended transition period difficult or impossible as different or revised accounting standards may be used.

Results of Operations

As of the date of this prospectus, we have not commenced any operations because we are in our organizational state. We will not commence any significant operations until we have completed this offering. The factors that we anticipate impacting our results of operations in the future are discussed above under the section entitled “— Factors Impacting Our Future Operating Results.”

We recognized stock-based compensation expense of $200,000 for the period from June 15, 2016 (date of incorporation) through September 30, 2016, related to the issuance of Class B common stock to our founders. We estimated the fair value of these shares at the June 15, 2016 grant date and at subsequent modification dates using a Monte Carlo simulation model. The fair value calculation is primarily based on management’s estimates of the probability of its initial public offering and the estimated proceeds of such offering. We expect to recognize the remaining stock-based compensation expense related to the issuance of our Class B common stock of approximately $3.5 million when all of the outstanding Class B common stock is redeemed, at par value of $0.001 per share, immediately before the closing of this offering.

In addition, at the first meeting of the compensation committee of our board of directors after completion of this offering, we expect to award an aggregate of 27,500 restricted shares of Class A common stock to two of our executive officers under the Incentive Plan. We expect to recognize stock compensation expense equal to the fair value of these restricted shares (estimated to be $550,000 based on the price per share of our Class A common stock in this offering) over a service period of six months.

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements. We expect to use significant cash to acquire our target properties, pay dividends to our stockholders, fund our operations, and meet other general business needs.

We expect to meet our short-term liquidity requirements generally through the net proceeds of this offering and cash flows from operations. We intend to meet our long-term liquidity needs, such as property acquisitions, through the net proceeds of this offering, cash flows from operations and the issuance of equity and debt securities, including common stock, preferred stock and long-term notes. Generally, we do not expect to incur debt, pursuant to a revolving credit facility or otherwise, other than possibly assuming debt in connection with an acquisition. Our investment guidelines initially provide that our aggregate borrowings (secured and unsecured) will not exceed 50% of the cost of our tangible assets at the time of any new borrowing, subject to our board of directors’ discretion.

We intend to invest in our target properties only as suitable opportunities arise. In the near-term, we intend to fund acquisitions with the net proceeds of this offering. Longer term, we intend to finance our investments with the net proceeds from additional issuances of equity and debt securities, including common stock, preferred stock and long-term notes. Where possible, we also may issue limited partnership interests in our Operating Partnership to acquire properties from existing owners seeking a tax-deferred transaction. We

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expect to issue equity and debt securities at times when we believe that our stock price is at a level that allows for the investment of offering proceeds in accretive property acquisitions. We may also issue common stock to permanently finance properties that were previously financed by debt securities. The success of our acquisition strategy may depend, in part, on our ability to access additional capital through issuances of equity securities. There can be no assurance that we will have access to the capital markets at times and on terms that are acceptable to us or make any investments in any properties that meet our investment criteria.

We will pay, or reimburse IGP Advisers and its affiliates, for expenses incurred in connection with our organization and this offering.

Impact of Real Estate and Credit Markets

In the commercial real estate market, property prices generally continue to fluctuate. Likewise, during certain periods, the U.S. credit markets have experienced significant price volatility, dislocations, and liquidity disruptions, which may impact our access to and cost of capital. We continually monitor the commercial real estate and U.S. credit markets carefully and, if required, will make decisions to adjust our business strategy accordingly.

Off Balance Sheet Arrangements

We have no unconsolidated investments or any other off-balance sheet arrangements.

Interest Rate Risk

We have not issued any debt and have no debt outstanding, so we are not exposed to interest rate changes. At this time, we have no plans at this time to issue debt instruments. It is possible that a property we acquire in the future would be subject to a mortgage, which we may assume.

Impact of Inflation

We intend to enter into leases that generally provide for limited increases in rent as a result of increases in the CPI (typically subject to ceilings) or fixed increases. We expect these lease provisions to result in rent increases over time. During times when inflation is greater than increases in rent, as provided for in the leases, rent increases may not keep up with the rate of inflation.

Quantitative and Qualitative Disclosures about Market Risk

We have not issued any debt and have no debt outstanding, so we are not exposed to interest rate changes. If we were to issue debt or enter into a credit facility in the future, we would be exposed to interest rate changes. At this time, we have no plans at this time to issue debt instruments, other than possibly assuming debt in connection with an acquisition.

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BUSINESS

Our Company

We are a newly-formed, self-advised Maryland corporation focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities. Initially, we intend to acquire our properties through sale-leaseback transactions and third-party purchases. We expect to lease our properties on a triple-net lease basis, where the tenant is responsible for all aspects of and costs related to the property and its operation during the lease term, including structural repairs, maintenance, taxes and insurance. We intend to elect and to operate our business so as to qualify to be taxed as a REIT for U.S. federal income tax purposes.

Our executive chairman, Alan D. Gold, is a 30-year veteran of the real estate industry, including co-founding two NYSE-listed REITs: BioMed Realty, a REIT focused on acquiring, developing, owning, leasing and managing laboratory and office space for the life science industry; and Alexandria Real Estate, an urban office REIT focused on collaborative science and technology campuses. Our senior management team has significant experience in all aspects of the real estate industry, including acquisitions, dispositions, construction, development, management, finance and capital markets. We believe the industry experience and relationships of our senior management team will provide us with a competitive advantage in sourcing and negotiating acquisition opportunities for our target properties, including through sale-leaseback transactions.

We do not currently own any properties. We plan to finance our growth through the application of the net proceeds of this offering, and, when necessary, through additional equity and debt offerings. We currently anticipate that the average size of our investments will range from $5 million to $30 million and will involve between 25,000 and 150,000 square feet of space.

We are actively seeking and evaluating medical-use cannabis facilities to purchase with the net proceeds of this offering. We have entered into a definitive purchase agreement for the acquisition of our Initial Property, a 127,000-square foot industrial property located in New York for a purchase price of approximately $30 million in a sale-leaseback transaction. See the section entitled “— Our Initial Property” below. In addition, our senior management team has identified and is in various stages of reviewing in excess of $88 million of additional potential properties for acquisition, which amount is estimated based on the sellers’ asking prices for the properties, preliminary discussions with sellers or our internal assessment of the values of such properties after taking into account the current and expected annualized lease revenue, operating history, age and condition of the property and other relevant factors. We have entered into two non-binding letters of intent with respect to five properties, comprising approximately $80 million of these potential acquisitions. The acquisition of our Initial Property is subject to ongoing diligence and the satisfaction of closing conditions, and the acquisition of any property under a non-binding letter of intent requires the negotiation and execution of a definitive purchase agreement and is subject to diligence and the satisfaction of closing conditions. There can be no assurance that we will consummate the acquisition of any of the properties in our current acquisition pipeline on the terms anticipated, or at all.

Market Opportunity

The Industrial Real Estate Sub-Market

The industrial real estate sub-market recently has performed well with vacancies in several markets at historical lows. According to Colliers, the U.S. industrial property vacancy rate declined for the 22nd consecutive quarter in the first quarter of 2016, declining 10 basis points to 6.3% and down 70 basis points from the first quarter of 2015. Almost 64 million square feet of industrial real estate was absorbed in the first quarter of 2016, an increase of 9.6% year over year, which resulted in increased rental rates for the 18th consecutive quarter, according to Colliers.

We believe this supply/demand dynamic creates significant opportunity for owners of industrial facilities, particularly those focused on niche categories, as options are limited for tenants requiring specialized buildings. We intend to capitalize on this opportunity by purchasing specialized industrial properties that are mission critical to the medical-use cannabis industry.

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The Regulated Medical-Use Cannabis Industry

We believe that a convergence of changing public attitudes and increased legalization momentum in various states toward regulated medical-use cannabis creates an attractive opportunity to invest in the industrial real estate sector with a focus on regulated medical-use cannabis facilities. We also believe that the increased sophistication of the regulated medical-use cannabis industry and the development of strong business, operational and compliance practices have made the sector more attractive for investment. Increasingly, stated-licensed, medical-use cannabis cultivation and processing facilities are becoming sophisticated business enterprises that use state-of-the-art technologies and well-honed business and operational processes to maximize product yield and revenues. Additionally, growers and dispensers have developed a growing portfolio of products into which they are able to incorporate legal medical-use cannabis in a safe and appealing manner, including a variety of edibles, drinks and topicals.

In the United States, the development and growth of the regulated medical-use cannabis industry has generally been driven by state law and regulation, and accordingly, the market varies on a state-by-state basis. State laws that legalize and regulate medical-use cannabis allow patients to consume cannabis for medicinal reasons with a doctor’s recommendation subject to various requirements and limitations. States have authorized numerous medical conditions as qualifying conditions for treatment with medical-use cannabis, including but not limited to treatment for cancer, glaucoma, HIV/AIDs, wasting syndrome, pain, nausea, seizures, muscle spasms, multiple sclerosis, post-traumatic stress disorder (PTSD), migraines, arthritis, Parkinson’s disease, Alzheimer’s, lupus, residual limb pain, spinal cord injuries, inflammatory bowel disease and terminal illness. As of November 15, 2016, 29 states, plus the District of Columbia, have passed laws allowing their citizens to use medical cannabis.

We believe that the following conditions, which are described in more detail below, create an attractive opportunity to invest in industrial real estate assets that support the regulated medical-use cannabis industry:

significant industry growth in recent years and expected continued growth;
a shift in public opinion and increasing momentum toward the legalization of cannabis, especially as it relates to medical-use cannabis;
the federal government’s current policy toward certain cannabis-related activities that are legal under state law; and
limited access to capital by industry participants in light of risk perceived by financial institutions of violating federal laws and regulatory guidelines for offering banking services to cannabis-related businesses.

Industry Growth and Trends

According to ArcView, nationwide sales of legal cannabis grew to $5.4 billion in 2015, up from $4.6 billion in 2014, of which approximately 92% consisted of medical-use sales. Demand is expected to remain strong in 2016 with legal markets projected to grow to $6.7 billion, according to ArcView, a 24% increase over 2015, as new state medical-use markets, including Nevada, Illinois, Massachusetts and New York, continue to expand. According to ArcView, by 2020, legal market sales are expected to grow to approximately $21.8 billion, of which estimated medical-use sales are expected to be approximately $10.2 billion.

According to ProCon.org, as of March 1, 2016, an estimated 1.2 million people use or were registered to use legalized medical cannabis. As the industry continues to evolve, new ways to consume cannabis are being developed in order for patients to have the treatment needed for their condition in a safe and appealing manner. In addition to smoking and vaporizing of dried leaves, cannabis can be incorporated into a variety of edibles, including cookies, crackers, nut mixes, lollipops, chews, teas, juices, smoothies and sodas, and incorporated into spray products or transdermal patches as well as topicals that have no psychoactive effects, such as salves, ointments, lotions and sprays.

As with any nascent but growing industry, operational and business practices evolve and become more sophisticated over time. We believe that the quality and experience of industry participants and the

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development of sound business, operational and compliance practices have reached a turning point that makes the regulated medical-use cannabis industry attractive for investment at this time.

Shifting Public Attitudes and State Law and Legislative Activity

We believe that the growth of the regulated cannabis industry has been fueled by changing public attitudes in the United States. A 2015 poll by Harris found 81% of Americans support the legalization of cannabis for medical use. Driven in part by this shift in public opinion, three additional states, Florida, Arkansas and North Dakota, voted to legalize medical-use cannabis in November 2016. Anticipated expansion of the market opportunity to these states could be significant.

As of November 15, 2016, 29 states, plus the District of Columbia, have passed laws allowing their citizens to use medical cannabis. The first state to permit the use of cannabis for medicinal purposes was California in 1996, upon adoption of the Compassionate Care Act. The law allowed doctors to recommend cannabis for serious medical conditions and patients were permitted to use, possess and grow cannabis themselves. Several other states adopted medical-use laws in 1998 and 1999, and the remaining medical-use states adopted their laws on various dates through 2016.

In 2016, a number of state legislative or ballot measures passed that are expected to increase the size of the regulated cannabis industry. Some of the more significant measures are summarized below.

California:  California legalized adult-use cannabis in November 2016. The ballot initiative created a regulated framework for legalizing, selling and taxing cannabis sales similar to alcohol. As California is home to almost 40 million people and the state accounts for the largest medical-use cannabis industry in the country, it is estimated that the state could generate billions of dollars in increased cannabis sales.
Connecticut:  Connecticut originally enacted its medical-use cannabis program in 2012. Connecticut expanded its medical-use cannabis program twice in 2016, including expanding the list of permitted medical conditions for treatment and allowing minors to qualify for medical-use cannabis if they have been diagnosed with certain medical conditions.
Florida:  Florida legalized medical-use cannabis in November 2016. Florida is the second-largest potential market in terms of population for medical-use cannabis behind California.
Maine:  Maine legalized adult-use cannabis in November 2016. Maine was one of the first states to legalize medical-use cannabis in 1999.
Massachusetts:  Massachusetts first approved medical-use cannabis in 2012. Massachusetts legalized adult-use cannabis in November 2016.
Michigan:  In September 2016, Michigan’s state legislature approved cannabis regulations for medical use that cover the entire state, which was signed into law by Michigan’s governor.
Nevada:  Nevada legalized adult-use cannabis in November 2016. Nevada currently permits out-of-state medical-use cannabis cardholders to purchase cannabis while visiting Nevada. In addition, numerous public officials support the cannabis industry in general, viewing it as a source of growth for tourism and the state’s economy.

Source: Batter Up:  The Next States to Legalize, Marijuana Business Magazine, January 2016; Marijuana Policy Project.

Following the approval of medical or adult-use cannabis, state programs must be developed and businesses must be licensed before commencing cannabis sales. Some states have developed the necessary procedures and licensing requirements quickly, while other states have taken years to develop their programs for production and sales of cannabis. According to Marijuana Business Daily, the average amount of time that elapsed between the legalization of medical cannabis sales and the opening of the first dispensaries in six states that recently commenced sales was 27 months. Also, according to Marijuana Business Daily, there are signs of industry maturation, and states are increasingly demonstrating an ability to efficiently and quickly establish regulatory frameworks following legalization. This is particularly true when adult-use cannabis is legalized in states where regulated medical-use cannabis systems are already in place. For example, according

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to Marijuana Business Daily, the average amount of time that elapsed between voters approving adult-use cannabis production and sales to the opening of the first stores in Colorado, Washington and Oregon was 15 months.

Even where regulatory frameworks for cannabis production and sales are in place, states tend to revise these rules over time. These revisions often impact sales, making it difficult to predict the potential of new markets. States may restrict the number of cannabis businesses permitted, limit the medical conditions that are eligible for cannabis treatment or require registration of doctors and/or patients, each of which can limit growth of the cannabis industry in those states. Alternatively, states may relax their initial regulations relating to cannabis production and sales, which would likely accelerate growth of the cannabis industry in such states.

The Federal Legal Landscape

Cannabis is classified as a Schedule I controlled substance by the DEA and the U.S. Department of Justice with no medical use, and therefore it is illegal to grow, possess and consume cannabis under federal law. The CSA bans cannabis-related businesses; the possession, cultivation, and production of cannabis-infused products; and the distribution of cannabis and products derived from it. Moreover, on two separate occasions the U.S. Supreme Court ruled that the CSA trumps state law. That means that the federal government has the option of enforcing U.S. drug laws, creating a climate of legal uncertainty regarding the production and sale of medical-use cannabis. Although the CSA’s basic prohibition remains in force, the U.S. Department of Justice, under the Obama administration, has issued memoranda characterizing enforcement of federal cannabis prohibitions under the CSA as an inefficient use of federal investigative and prosecutorial resources when state regulatory and enforcement efforts are effective with respect to enumerated federal enforcement priorities under the CSA. In such instances, the U.S. Department of Justice instructs federal prosecutors that enforcement of state law by state and local law enforcement should remain the primary means of addressing cannabis-related activity, including cultivation and distribution of cannabis. Congress has also enacted an omnibus spending bill including a provision prohibiting the U.S. Department of Justice (which includes the DEA) from using funds appropriated by that bill to prevent states from implementing their medical-use cannabis laws. This provision, however, is effective only until December 9, 2016 and must be renewed by Congress in subsequent years. In order to extend the prohibition, it must be specifically included in the fiscal year 2017 Commerce, Justice, and Science (CJS) Appropriations bill – the germane bill. Currently, only the Senate version of the CJS Appropriations bill includes the prohibition and the House version does not. See the section entitled “Business — Government Regulation.”

Cannabis reform has gained the support of a bipartisan coalition of members of Congress, some of whom have introduced legislation on various reform-related topics. Certain proposed legislation introduced into the 114th Congress is summarized below. If passed, this legislation would address certain conflicts existing between state and federal law. In addition, although there is no assurance that any of these proposals will be approved, that the funds prohibition will be renewed or that the U.S. Department of Justice’s enforcement position will not change, we believe that the number and frequency of these proposals, when coupled with changing public attitudes and the prospect of legalization in additional states, indicate that the size and risk profile of the market in which our prospective tenants operate will likely improve.

H.R. 1940 — The Respect State Marijuana Laws Act.  H.R. 1940 codifies in federal law the current position of the U.S. Department of Justice refraining from prosecuting participants in state-authorized cannabis programs under the CSA. The law amends the CSA by excepting from federal law persons that operate in compliance with state cannabis laws. The bill also addresses the lack of access to banking services by the state-authorized cannabis industry as well as public safety issues created by contradictory state and federal laws.
H.R. 1538 and S. 683 — The Compassionate Access, Research Expansion and Respect States Act of 2015, or CARERS Act.  The CARERS Act amends the CSA to allow states to set medical cannabis laws, moves cannabis to Schedule II of the CSA, alters federal banking laws to allow banks to provide services to legal cannabis businesses, removes barriers to medical research, and allows federal Veterans Affairs physicians to discuss medical cannabis with patients.
H.R. 1013 — The Regulate Marijuana Like Alcohol Act.  The bill removes cannabis from all CSA schedules of controlled substances and subjects cannabis to provisions that apply to spirits and

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liquors. H.R. 1013 provides to the FDA the same authority for cannabis as the FDA exercises with regard to alcohol. Cannabis enforcement functions are also moved from the DEA to the Bureau of Alcohol, Tobacco, Firearms and Explosives.
H.R. 1014 — The Marijuana Tax Revenue Act of 2015.  The bill levies an excise tax on “marijuana enterprises,” which include persons who engage in commercial activities with respect to the production, sale, or transfer of cannabis, by amending the Code.
H.R. 262 — The States Medical Marijuana Property Rights Protection Act.  The bill denies federal officials from using civil forfeiture laws against owners of properties that have been leased to cannabis dispensaries and other operations that are in compliance with state medical-use cannabis laws.
H.R. 1855 and S. 987 — The Small Business Access to Banking Act.  The bill amends the Code to permit trades or businesses that sell cannabis in compliance with state laws to receive tax credits and deduct business expenses.
S. 1726 and H.R. 2076 — The Marijuana Business Access to Banking Act.  The bill enables financial institutions to provide banking services to cannabis-related businesses that operate legally under state laws. The bill resolves banking-related conflicts between state and federal law while addressing the issue of reporting suspicious activity by financial institutions with respect to cannabis-related businesses.

Access to Capital

To date, the status of medical-use cannabis under federal law has significantly limited the ability of state-licensed industry participants to fully access the U.S. banking system and traditional financing sources. These limitations, when combined with the high costs of maintaining licensed and stringently regulated medical-use cannabis facilities (including meeting extensive zoning requirements), substantially increase the cost of production. While we anticipate that future changes in federal and state laws may ultimately open up financing options that have not been available to date in this industry, we believe that such changes will take time, thereby creating an opportunity over the next few years to provide our sale-leaseback solutions to state-licensed industry participants that lack access to traditional financing sources.

Market Opportunity and Associated Risks

We plan to take advantage of this market opportunity by purchasing the medical-use cannabis facilities of state-licensed growers with a focus on properties that we believe also have potential for long-term appreciation in value. We believe that our sale-leaseback solutions offer an attractive alternative to licensed cultivators who lack access to traditional financing alternatives. We intend to acquire medical-use cannabis facilities in states that permit medical-use cannabis cultivation, including New York, Illinois, Washington, Oregon, Nevada, California, Arizona, Massachusetts and Maryland. We expect that acquisition opportunities will continue to expand as additional states legalize medical-use cannabis and license new cultivators.

Notwithstanding the foregoing market opportunity and trends, and despite legalization at the state level, we continue to believe that the current state of federal law creates significant uncertainty and potential risks associated with investing in medical-use cannabis facilities. For a more complete description of these risks, see the sections entitled “Risk Factors — Risks Related to Regulation” and “Business — Governmental Regulation.”

Our Competitive Strengths

We believe that we have the following competitive strengths:

The Experience of Our Executive Chairman and Our Senior Management Team.  Mr. Gold and our senior management team have substantial experience in all aspects of the real estate industry, including acquisitions, dispositions, construction, development, management, finance and capital markets. In particular, in August 2004, Messrs. Gold and Kreitzer founded BioMed Realty, an internally-managed REIT focused on acquiring, developing, owning, leasing and managing laboratory and office space for the life science industry, an industry they believed to be underserved

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by commercial property investors and lenders and poised for significant growth. According to public filings with the SEC, during their tenure at BioMed Realty, Messrs. Gold and Kreitzer oversaw the growth of the company’s portfolio of life science and laboratory real estate from 30 buildings with approximately 2.4 million rentable square feet at the time of the initial public offering in 2004 to 196 buildings with approximately 18.9 million rentable square feet as of January 2016. Although Messrs. Gold and Kreitzer, along with the other members of our senior management team, have a demonstrated track record for evaluating and investing in real estate, they have also experienced significant challenges at times, particularly during the economic downturn from 2008 through 2010, which saw rising capitalization rates and a corresponding decline in the net asset value of BioMed Realty. As a result, certain investors, depending on the timing of their investments and holding periods, may not have earned positive returns on their investments in the company. In early 2016, an affiliate of The Blackstone Group L.P. purchased BioMed Realty in a transaction valued at approximately $8 billion (including indebtedness that was paid or assumed at the closing).
Focus on Recurring and Dependable Revenue.  Our business strategy will focus on acquiring real estate assets from and entering into long-term, triple-net leasing arrangements with licensed medical-use cannabis cultivators, which we believe will support a recurring and dependable revenue base from our properties.
Focus on Underserved Industry with Less Competition.  Our focus on specialized industrial real estate assets leased to tenants in the regulated medical-use cannabis industry may result in significantly less competition from existing REITs and institutional buyers due to the unique nature of the real estate and its tenants. Moreover, we believe the banking industry’s general reluctance to finance owners of these facilities coupled with the owners’ need for capital to fund the growth of their operations will result in significant opportunities for us to acquire specialized industrial properties that provide stable and increasing rental revenue along with the potential for long-term appreciation in value.
Positive Medical-Use Cannabis Industry Trends.  Based on the growth projections for the medical-use cannabis industry, we expect to see significant spending by state-licensed medical-use cannabis cultivators on their existing and new medical-use cannabis facilities.

Our Business Objectives and Growth Strategies

Our principal business objective is to maximize stockholder returns through a combination of (1) distributions to our stockholders, (2) sustainable long-term growth in cash flows from increased rents, which we hope to pass on to stockholders in the form of increased distributions, and (3) potential long-term appreciation in the value of our properties from capital gains upon future sale. Our primary strategy to achieve our business objective is to acquire and own a portfolio of medical-use cannabis facilities leased to tenants holding the requisite state licenses to operate in the regulated medical-use cannabis industry. This strategy includes the following components:

Owning Medical-Use Cannabis Cultivation Properties and Related Real Estate Assets for Income.  We primarily intend to acquire medical-use cannabis facilities from licensed growers who will continue their cultivation operations after our acquisition of the property. We expect to hold acquired properties for investment and to generate stable and increasing rental income from leasing these properties to licensed growers.
Owning Medical-Use Cannabis Cultivation Properties and Related Real Estate Assets for Appreciation.  We primarily intend to lease our acquired properties under long-term triple-net leases. However, from time to time, we may elect to sell one or more properties if we believe it to be in the best interests of our stockholders. Potential purchasers may include others in the regulated medical-use cannabis industry desiring access to properties having the requisite zoning and regulatory approvals for cultivation and production of medical-use cannabis or financial purchasers seeking to acquire property for investment purposes. Accordingly, we will seek to acquire properties that we believe also have potential for long-term appreciation in value.

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Expanding Our Operations As Additional States Permit Medical-Use Cannabis Cultivation and Production.  We intend to acquire properties in states that permit cannabis cultivation for medical use, including New York, Illinois, Washington, Oregon, Nevada, California, Arizona, Massachusetts and Maryland. We expect that our acquisition opportunities will continue to expand as additional states legalize medical-use cannabis and license new cultivators.

Our Target Markets

We anticipate that our initial target markets will be New York, Illinois, Washington, Oregon, Nevada, California, Arizona, Massachusetts and Maryland. We currently have a definitive agreement to purchase one medical-use cannabis cultivation facility in New York and non-binding letters of intent to purchase one medical-use cannabis cultivation facility in Illinois and four medical-use cannabis cultivation facilities in California.

The following is a list of the states that have legalized cannabis for medical use in some form as of November 15, 2016:

   
Year(1)   Jurisdiction(1)   Population as of
July 1, 2015
(in millions)(2)
1996     California       39.1  
1998     Washington       7.2  
1998     Oregon       4.0  
1999     Alaska       0.7  
1999     Maine       1.3  
2000     Hawaii       1.4  
2000     Colorado       5.5  
2000     Nevada       2.9  
2004     Vermont       0.6  
2004     Montana       1.0  
2006     Rhode Island       1.1  
2007     New Mexico       2.1  
2008     Michigan       9.9  
2010     District of Columbia       0.7  
2010     New Jersey       9.0  
2010     Arizona       6.8  
2011     Delaware       0.9  
2012     Massachusetts       6.8  
2012     Connecticut       3.6  
2013     Illinois       12.9  
2013     New Hampshire       1.3  
2014     Maryland       6.0  
2014     Minnesota       5.5  
2014     New York       19.8  
2016     Louisiana       4.7  
2016     Pennsylvania       12.8  
2016     Ohio       11.6  
2016     Florida       20.3  
2016     Arkansas       3.0  
2016     North Dakota       0.3  
Total     30       203.3  

(1) Source: ArcView
(2) Source: U.S. Census Bureau

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Although the above states have all approved the medical use of cannabis, the applicable state and local laws and regulations vary widely. For example, most states’ laws allow commercial production and sales through dispensaries and set forth rigorous licensing requirements; in other states the licensing rules are unclear. In some states, dispensaries are mandated to operate on a not-for-profit basis. Some states permit home cultivation activities. The states also differ on the form in which cannabis can be sold. For example, some states do not permit cannabis-infused products such as concentrates, edibles and topicals.

According to ArcView, the following is a description of the regulated medical-use cannabis market opportunity in the states we currently intend to target:

Arizona:  Arizona legalized medical-use cannabis in 2010 and its first legal dispensary opened in December 2012. By 2015, Arizona had approximately 100 licensed medical-use cannabis dispensaries and approximately 87,000 registered patients able to purchase cannabis. The market for medical-use cannabis sales in Arizona was $215.3 million in 2015 and is projected to be $269.4 million in 2016. Growth levels are projected to remain in double digits through 2020. Voters in Arizona rejected a ballot initiative to legalize adult-use cannabis in 2016.
California:  California passed legislation legalizing medical-use cannabis in 1996. California represents approximately 62% of the national medical-use cannabis market with estimated sales of $2.7 billion in 2015. California’s medical-use cannabis market operated for nearly 20 years with limited government regulation. In 2015, however, California took steps to establish more stringent regulations for medical-use cannabis businesses. In California, voters approved a ballot initiative in November 2016, which is modeled on the successful initiatives in Washington and Colorado. This initiative created a regulated framework for legalizing, selling and taxing adult and medical-use cannabis sales similar to alcohol. With the passage of this initiative, sales in the California adult-use cannabis market are projected to be $1.4 billion in the first full year of operations and $6.6 billion after five years of operations.
Illinois:  Illinois legalized medical-use cannabis in 2013, and in 2015, the medical-use cannabis market was $1.7 million. The medical-use cannabis market in Illinois is projected to be $15.6 million in 2016. Illinois has taken steps over time to broaden access to its medical-use cannabis program, including amending its laws to expand treatable conditions.
Maryland:  Maryland adopted a comprehensive medical-use cannabis program in 2014 that addressed patient registration, licensing and commercial distribution. The medical-use cannabis market is not yet operational in Maryland, but is expected to be operational in 2017. Geographically, Maryland is in a strategic position that could bolster its growth, as it borders the District of Columbia where it is legal to possess and consume cannabis, but not to sell it. As a result, the market environment in Maryland is believed to be favorable for a newly legalized medical-use cannabis state and the medical-use cannabis market in Maryland is expected to grow at a compound annual rate of 81%, from $9.7 million in 2017, to $57.4 million by 2020.
Massachusetts:  Massachusetts first approved medical-use cannabis in 2012. However, only four medical-use cannabis dispensaries were open in Massachusetts by the end of 2015. In 2015, the medical-use cannabis market in Massachusetts was $7.9 million and is projected to grow to $78.7 million in 2016 as the state’s regulatory framework matures. By 2017, Massachusetts is projected to have the sixth largest medical-use cannabis market in the country. Massachusetts legalized adult-use cannabis in November 2016.
Nevada:  The first legal, medical-use cannabis sale took place in Nevada at a licensed dispensary in August 2015. In 2015, the medical-use cannabis market in Nevada was $25.8 million, and is projected to be $75 million in 2016. The state legalized adult-use cannabis in November 2016. The adult-use cannabis market in Nevada is expected to quickly surpass the medical-use market, and by 2020 adult-use sales are expected to account for more than 62% of the state’s total legal cannabis market. With the legalization of adult-use cannabis in Nevada, it could become the largest cannabis market in the United States due to Nevada’s sizable tourism industry.

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New York:  New York permitted medical-use cannabis sales for the first time in 2016 and has acted quickly to implement its regulatory framework. In 2016, medical-use cannabis sales in New York are projected to be $33.3 million. Annual medical-use cannabis sales in New York are projected to increase to $248.9 million by 2020. The size of the medical-use cannabis market in New York is modest compared to other states of similar size due to bans on smoking cannabis. The medical-use cannabis market in New York is expected to remain conservative until there are legislative changes that permit smoking or other cannabis product delivery formats are more widely accepted.
Oregon:  In October of 2015, Oregon became the third state to legalize cannabis for both medical and adult use. Oregon’s total legal cannabis market (medical and adult use) is expected to reach annual sales of $1.3 billion by 2020. Approximately 75% of such sales are expected to be derived from the adult-use market.
Washington:  In 2012, Washington legalized adult-use cannabis, and opened its first dispensary in 2014. The adult-use cannabis market in 2015 was $615.6 million and is projected to be $1.1 billion in 2016. Washington is projected to have $2.6 billion in annual sales in the adult-use cannabis market by 2020.

It is expected that new states that entered the marketplace in 2016, may drive industry growth in 2018 and 2019, when cannabis businesses in such states could begin to generate revenues. Experience shows that it generally takes one to two years for a state to establish regulations and for cannabis businesses to begin to generate revenue from operations. ArcView’s projected increase in legal cannabis sales by 2020 is, in part, attributable to this delay between legalization and revenue generation. In addition, continued development of the regulated medical-use cannabis industry depends upon continued legislative authorization of medical-use cannabis at the state level. Progress in the regulated medical-use cannabis industry, while encouraging, is not assured and any number of factors could slow or halt progress in this area.

Our Target Properties

We intend to acquire specialized industrial real estate assets operated by state-licensed medical-use cannabis growers through sale-leaseback transactions and third-party purchases. In sale-leaseback transactions, concurrently upon closing of the acquisition, we will lease the properties back to the state-licensed growers under long-term, triple-net lease agreements. We intend to target properties owned by growers that have been among the top candidates in the rigorous state licensing process and have been granted one or more licenses to operate multiple facilities. Based on our review of potential acquisitions in connection with this offering, indoor cultivation facilities generally appear to have similar shells as standard light industrial buildings. However, based on our initial diligence, the medical-use cultivation process typically requires a finely tuned environment to achieve consistent high quality and specificity in cannabinoid levels and to maximize yields, which translates into certain capital improvements in the building’s infrastructure. These improvements can include enhanced HVAC systems for climate and humidity control, high capacity plumbing systems, specialized lighting systems, and sophisticated building management, cultivation monitoring and security systems. Through this sale-leaseback strategy, we will serve as a source of capital to these licensed medical-use cannabis growers, which will allow them to redeploy their sale proceeds back into their core operations to grow their business and achieve higher returns.

We are actively seeking and evaluating medical-use cannabis facilities to purchase with the net proceeds of this offering. We have entered into a definitive purchase agreement for the acquisition of our Initial Property, a 127,000-square foot industrial property located in New York for a purchase price of approximately $30.0 million in a sale-leaseback transaction. See the section entitled “— Our Initial Property” below. In addition, our senior management team has identified and is in various stages of reviewing in excess of $88 million of additional potential properties for acquisition, which amount is estimated based on the sellers’ asking prices for the properties, preliminary discussions with the sellers or our internal assessment of the values of such properties after taking into account the current and expected annualized lease revenue, operating history, age and condition of the property and other relevant factors. We have entered into two non-binding letters of intent with respect to five properties, comprising approximately $80 million of these potential acquisitions. There can be no assurance that we will consummate the acquisition of any of the properties in our current acquisition pipeline on the terms anticipated, or at all.

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Our letters of intent provide that the purchase and sale of the property will only occur pursuant to a definitive and binding purchase and sale agreement between the parties, if any. Neither we nor the potential seller has any obligation to negotiate further or pursue a transaction. The letters of intent set forth only general terms, the majority of which are subject to further negotiation and revision. The purchase prices remain subject to our completion of due diligence, which we have not yet commenced. Based on the foregoing, there can be no assurance that we and the sellers will enter into a definitive binding agreement on the terms set forth in the letter of intent, or at all. Any definitive purchase and sale agreement would need to address numerous conditions to closing, including obtaining third-party consents and approvals that are beyond our control and due diligence, including receipt of satisfactory engineering, environmental, survey and title reports. Accordingly, we have concluded that the acquisition of the properties subject to non-binding letters of intent are not currently “probable.”

Our Initial Property

We have entered into a definitive purchase agreement for the acquisition of our Initial Property, a 127,000-square foot industrial property located in Montgomery, New York for a purchase price of approximately $30 million. We expect to acquire our Initial Property with the net proceeds of this offering. While the acquisition of our Initial Property remains subject to ongoing diligence and the satisfaction of closing conditions, at this time, we have determined that the acquisition of our Initial Property is “probable.” There can be no assurance, however, that we will consummate the acquisition of our Initial Property on the terms anticipated, or at all.

Property Description.  Our Initial Property consists of approximately 37 acres of usable land, which includes three buildings comprising approximately 127,000 square feet. Our Initial Property is also expected to support the future development of additional medical-use cannabis cultivation facilities totaling approximately 204,000 additional square feet. The current property owner and future tenant is licensed by the state of New York to operate a medical-use cannabis cultivation and processing facility, and has operated such facility at the property since June 2016, when construction of the facility was substantially completed.

Acquisition Terms.  On August 22, 2016, we entered into a definitive purchase agreement to acquire our Initial Property from PharmaCann LLC in a sale-leaseback transaction for an aggregate purchase price of $30 million. The purchase price for our Initial Property was determined by negotiation with the seller after taking into consideration the expected annualized lease revenue, expected lease, operating history, age and condition of the property, and other relevant factors. We paid a $375,000 deposit upon execution of the purchase agreement that is refundable in the event we do not close our initial public offering within a specified timeframe. The $375,000 deposit was paid on our behalf by IGP Advisers and is to be repaid with the proceeds of this offering. The definitive agreement provides for a due diligence period during which we have the right to access and inspect the property and may terminate the agreement if we determine that the property does not meet our criteria. Following the diligence period, we have agreed to purchase the property “as is,” subject to all faults and conditions thereon, which increases the risk that we may have to remedy defects or costs without recourse to the prior owner. The closing of the purchase is subject to the completion of this offering and customary closing conditions. The purchase agreement provides that closing is to occur within 30 days after the expiration of the due diligence period and the agreement is terminable at the option of either party thereafter. We intend to purchase our Initial Property as soon as reasonably practicable after satisfaction of all closing conditions, including the closing of this offering.

Lease Terms.  Upon the closing of the acquisition, we will lease 100% of our Initial Property to the seller of the property, PharmaCann LLC, to operate a medical-use cannabis cultivation and processing facility in compliance with applicable state and local law and in compliance with the terms of the tenant’s license from the state of New York. PharmaCann LLC is a start-up business that commenced retail operations in late 2015. PharmaCann LLC secured one of only five licenses granted to date in New York for the cultivation and dispensing of medical-use cannabis. As of the date of this prospectus, PharmaCann LLC operates two cultivation and processing facilities and four registered medical-use cannabis dispensaries in Illinois, and one cultivation and processing facility and four registered medical-use cannabis dispensaries in New York. The lease for our Initial Property is a triple-net lease, with the tenant responsible for paying all structural repairs, maintenance expenses, insurance and taxes related to the property. The base rent is approximately $319,580 per month, which shall be increased annually at a rate based on the higher of (i) 4% or (ii) 75% of the CPI.

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We also receive a property management fee under the lease equal to 1.5% of the then-current base rent throughout the term, and supplemental base rent for the first five years of the term at a rate of $105,477 per month. Together, the annualized initial base rent, property management fee and supplemental base rent equate to approximately 17.2% of the purchase price of our Initial Property. The lease term is 15 years, with two options to extend the term of the lease for two additional five-year periods. As a start-up business, PharmaCann LLC has not been profitable. During 2016, we expect that PharmaCann LLC will continue to incur losses as its expenses increase in connection with the expansion of PharmaCann LLC’s operations. As a result, at least initially, we expect that PharmaCann LLC will make rent payments to us from proceeds from the sale of the property or cash on hand, and not funds from operations.

Our Financing Strategy

We intend to meet our long-term liquidity needs through cash flow from operations and the issuance of equity and debt securities, including common stock, preferred stock and long-term notes. Where possible, we also may issue limited partnership interests in our Operating Partnership to acquire properties from existing owners seeking a tax-deferred transaction. We expect to issue equity and debt securities at times when we believe that our stock price is at a level that allows for the reinvestment of offering proceeds in accretive property acquisitions. We may also issue common stock to permanently finance properties that were previously financed by debt securities. However, we cannot assure you that we will have access to the capital markets at times and on terms that are acceptable to us. Our investment guidelines initially provide that our aggregate borrowings (secured and unsecured) will not exceed 50% of the cost of our tangible assets at the time of any new borrowing, subject to our board of directors’ discretion.

Our Leases

The following is a general description of the type of lease we typically expect to enter into with our tenants. The terms and conditions of any actual lease may vary from those described below. If we determine that the terms of a lease at a property, in the context of the entire investment, are favorable to us, we may enter into leases with terms that are substantially different from the terms described below.

We intend to acquire industrial medical-use cannabis facilities and lease them to tenants who are the state-licensed operators of such facilities. While we target the acquisition of medical-use cannabis facilities, our leases do not prohibit cannabis cultivation for adult-use that is permissible under the state and local laws where our facilities are located. Consequently, certain of our tenants may subsequently cultivate adult-use cannabis in our medical-use cannabis facilities, if permitted by such state and local laws. Our leases with tenants will be triple-net lease arrangements, where we as the landlord have limited exposure to expense escalations. While the structure of our leases may vary depending on the type and location of the property, we generally seek to structure our leases so that the tenant is responsible for taxes, maintenance, insurance, and structural repairs with respect to the premises throughout the lease term. We expect that our lease structure will offer predictability and stability of our expenses, which we believe will help us to achieve stable and consistent cash distributions to our stockholders.

We expect to enter into lease agreements for a term of 15 years with two consecutive five-year renewal options. We expect that the leases will commence concurrent with the closing of our purchase of the property. We may acquire properties and enter into lease agreements with shorter lease terms if the property benefits from an attractive location, if the property is difficult to replace or if the property has other significant and favorable real estate attributes. We also may enter into leases with longer lease terms if we believe the potential investment yield is particularly attractive.

Under most commercial leases, tenants are obligated to pay a predetermined annual base rent on a monthly basis. We expect that our leases will contain annual rent adjustments at the rate based on the higher of (i) 4% or (ii) 75% of the CPI. The terms of our leases will require that our tenants make rental payments via check or wire transfer. A tenant may experience difficulty curing a default of the manner of payment requirement under our lease due to continued reluctance of banks to accept clients who operate in the medical-use cannabis industry. See the section entitled “Risk Factors — We and our tenants may have difficulty accessing the service of banks, which may make it difficult to contract for real estate needs.”

Generally, our leases will require each tenant to procure, at its expense, commercial general liability insurance. The tenant typically will pay for property insurance covering the structures for the full replacement

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value and naming the owner as the additional insured on the policy. In addition, we generally expect to obtain loss-of-rent (business interruption) insurance for a period of approximately 36 months in case of property damage, fire, or other instances which render the property uninhabitable. Tenants will be required to provide proof of insurance by furnishing a certificate of insurance to us upon request.

We do not typically expect to permit leases to be assigned or subleased without our prior written consent. If we do consent to an assignment or sublease, generally we expect the terms of such consent to provide that the original tenant will remain fully liable under the lease unless we release that original tenant from its obligations.

Certain properties that we acquire may be subject to ground leases. A ground lease agreement permits a tenant to develop and/or operate a land parcel (property) during the lease period, after which the land parcel and all improvements revert back to the property owner. Under a ground lease, property improvements are owned by the property owner unless an exception is created and all relevant taxes incurred during the lease period are paid for by the tenant. Ground leases typically have a long duration generally ranging from 50 to 99 years with additional extension options.

Risk Management

We estimate that we will purchase approximately five to 10 properties with the net proceeds of this offering and will attempt to diversify the investment size and location of our portfolio of properties in order to manage our portfolio-level risk. Over the long term, we intend that no single property will exceed 25% of our total assets and that no single tenant will exceed 30% of our total assets. However, until a sufficient number of properties are acquired, we anticipate that we will have single properties and single tenants in excess of these long-term targets.

We expect that single tenants will occupy our properties pursuant to triple-net lease arrangements in general and, therefore, the success of our investments will be materially dependent on the financial stability of these tenants. We intend to target tenants that have been among the top candidates in the state licensing process and have been granted one or more licenses to operate multiple facilities. We expect, however, that most of our tenants will be start-up businesses that have little or no revenue and, at least initially, will make rent payments to us from the sale proceeds of a sale-leaseback transaction with us or cash on hand. We expect to evaluate the credit quality of our tenants and any guarantors on an ongoing basis by reviewing, where available, the publicly filed financial reports, press releases and other publicly available industry information regarding our tenants and any guarantors. In addition, we will monitor the payment history data for all of our tenants and, in some instances, we intend to monitor our tenants by periodically conducting site visits and meeting with the tenants to discuss their operations. In many instances, we will generally not be entitled to financial results or other credit-related data from our tenants. See the section entitled “Risk Factors — Risks Related to Our Business.”

Investment Guidelines

Our board of directors will adopt the following investment guidelines:

No investment will be made that would cause us to fail to qualify as a REIT.
No investment will be made that would cause us to be regulated as an investment company under the Investment Company Act.
The proceeds of this offering, any future offering by us or our Operating Partnership, and cash from operations and capital transactions may be invested in interest-bearing, short-term, investment-grade investments, subject to the requirements for maintaining our status as a REIT.
No investment in any single property will exceed 25% of our total assets.
No more than 30% of our total assets will be invested in properties having the same tenant.
Our aggregate borrowings (secured and unsecured) will not exceed 50% of the cost of its tangible assets at the time of any new borrowing.

The restrictions on investments in any single property or in properties having the same tenant described above are long-term targets, which we do not expect to achieve with the net proceeds of this offering. Subject

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to oversight by our board of directors, our senior management team will oversee our investment portfolio and compliance with our investment guidelines and policies. These investment guidelines may be changed or waived by our board of directors without the approval of our stockholders. We will disclose any material changes to our investment guidelines in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the Form 10-Q or Form 10-K for the period in which the change was made, or in a Current Report on Form 8-K, if required by the rules of the SEC or the board of directors believes it advisable, in their sole discretion. Furthermore, it is expected that our board of directors will delegate authority to a management investment committee, generally comprised of our executive officers, for certain investments, subject to specified parameters, which may include, among other things, dollar limits on investments on an individual basis and in the aggregate for any calendar year; that any investment not be with a “related party” as defined in applicable securities laws or our related party transaction policy; and that the investments be limited to stabilized medical-use cannabis facilities. Our board would retain approval authority over any investments that do not fall within the authority of the management investment committee, and would periodically evaluate this delegation of authority and make any changes that the board deems appropriate in its discretion.

Our Operating Structure

We were formed as a Maryland corporation on June 15, 2016. We intend to conduct business in an UPREIT structure through our Operating Partnership. We are the sole general partner of our Operating Partnership and, upon completion of this offering, we will own, directly or through a subsidiary, 100% of the limited partnership interests in our Operating Partnership. Our board of directors will oversee our business and affairs.

Our Operating Partnership was formed as a Delaware limited partnership on June 20, 2016 and will commence operations upon the completion of this offering. Following the completion of this offering, substantially all of our assets will be held by, and our operations will be conducted through, our Operating Partnership. We will contribute the net proceeds from this offering to our Operating Partnership in exchange for limited partnership interests. Our interest in our Operating Partnership will generally entitle us to share in cash distributions from, and in the profits and losses of, our Operating Partnership in proportion to our percentage ownership, which is currently 100%. As the sole general partner of our Operating Partnership, we generally will have the exclusive power under the partnership agreement to manage and conduct our Operating Partnership’s business and affairs, subject to certain limited approval and voting rights of the limited partners, which are described in the section entitled “Our Operating Partnership and the Operating Partnership Agreement.” In the future, we may issue limited partnership interests in our Operating Partnership from time to time in connection with property acquisitions, as compensation or otherwise.

IGP Advisers, a company that is owned by Messrs. Gold, Smithers and Fahey, is funding certain of our organization, offering and other costs. In addition, IGP Advisers funded an earnest money deposit pursuant to the purchase agreement for our Initial Property. IGP Advisers will seek reimbursement from us for these expenses upon completion of this offering and the acquisition of our Initial Property.

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The chart below reflects our corporate structure after giving effect to this offering and the issuance of shares of our Class A common stock as described in this prospectus, including (i) 150,000 shares of Class A common stock that our executive chairman may purchase in this offering at the public offering price and (ii) grants of an aggregate of 27,500 shares of Class A common stock to two of our executive officers under the Incentive Plan that are expected to be approved at the first meeting of the compensation committee of our board of directors after completion of this offering.

[GRAPHIC MISSING]

Competition

The current market for properties that meet our investment objectives may be limited. In additon, we believe finding properties that are appropriate for the specific use of allowing medical-use cannabis growers may be limited as more competitors enter the market. We face significant competition from a diverse mix of market participants, including but not limited to, other companies with similar business models, independent investors, hedge funds and other real estate investors, hard money lenders, and cannabis operators themselves, all of whom may compete with us in our efforts to acquire real estate zoned for medical-use cannabis facilities. Several competitors have recently entered the marketplace, including Kalyx Development, Inc., AmeriCann, Inc., Zoned Properties, Cannabis-RX, Inc., The CannaBusiness Group, Inc., MJ Holdings, Inc., MJ Real Estate Investors, Home Treasure Finders, Inc., Advanced Cannabis Solutions, Inc. and Grow Condos, Inc. In some instances, we will be competing to acquire real estate with persons who have no interest in the cannabis industry, but have identified value in a piece of real estate that we may be interested in acquiring.

These competitors may prevent us from acquiring desirable properties or may cause an increase in the price we must pay for properties. Our competitors may have greater resources than we do and may be willing to pay more for certain assets or may be willing to accept more risk than we believe can be prudently managed. In particular, larger companies may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Our competitors may also adopt transaction structures similar to ours, which would decrease our competitive advantage in offering flexible transaction terms. In addition, due to a number of factors, including but not limited to potential greater clarity of the laws and regulations governing medical-use cannabis by state and federal governments, the number of entities and the amount of funds competing for suitable investment properties may increase, resulting in increased demand and increased prices paid for these properties. If we pay higher prices for properties, our profitability may decrease, and you may experience a lower return on your investment. Increased competition for properties may also preclude us from acquiring those properties that would generate attractive returns to us.

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Governmental Regulation

Agricultural Regulation

The properties that we intend to acquire will be used primarily for cultivation and production of medical-use cannabis and will be subject to the laws, ordinances and regulations of state, local and federal governments, including laws, ordinances and regulations involving land use and usage, water rights, treatment methods, disturbance, the environment, and eminent domain.

Each governmental jurisdiction has its own distinct laws, ordinances and regulations governing the use of agricultural lands. Many such laws, ordinances and regulations seek to regulate water usage and water runoff because water can be in limited supply, as is the case in certain locations including Illinois and New York, where we anticipate our initial properties will be located. In addition, runoff from rain or from irrigation is governed by laws, ordinances and regulations from state, local and federal governments. Additionally, if any of the water used on or running off from our properties flows to any rivers, streams, ponds, the ocean or other waters, there may be specific laws, ordinances and regulations governing the amount of pollutants, including sediments, nutrients and pesticides, that such water may contain.

We expect that the properties in our portfolio will, at the time of acquisition, have sources of water, including wells and/or surface water, that will provide sufficient amounts of water necessary for the current growing operations at each location. However, should the need arise for additional water from wells and/or surface water sources, we may be required to obtain additional permits or approvals or to make other required notices prior to developing or using such water sources. Permits for drilling water wells or withdrawing surface water may be required by federal, state and local governmental entities pursuant to laws, ordinances, regulations or other requirements, and such permits may be difficult to obtain due to drought, the limited supply of available water within the districts of the states in which our properties are located or other reasons.

In addition to the regulation of water usage and water runoff, state, local and federal governments also seek to regulate the type, quantity and method of use of chemicals and materials for growing crops, including fertilizers, pesticides and nutrient rich materials. Such regulations could include restricting or preventing the use of such chemicals and materials near residential housing or near water sources. Further, some regulations have strictly forbidden or significantly limited the use of certain chemicals and materials. Licenses, permits and approvals must be obtained from governmental authorities requiring such licenses, permits and approvals before chemicals and materials can be used at grow facilities. Reports on the usage of such chemicals and materials must be submitted pursuant to applicable laws, ordinances, and regulations and the terms of the specific licenses, permits and approvals. Failure to comply with laws, ordinances and regulations, to obtain required licenses, permits and approvals or to comply with the terms of such licenses, permits and approvals could result in fines, penalties and/or imprisonment.

The use of land for agricultural purposes in certain jurisdictions is also subject to regulations governing the protection of endangered species. When agricultural lands border, or are in close proximity to, national parks, protected natural habitats or wetlands, the agricultural operations on such properties must comply with laws, ordinances and regulations related to the use of chemicals and materials and avoid disturbance of habitats, wetlands or other protected areas.

Because the properties we own will be used for growing cannabis, there may be other additional land use and zoning regulations at the state or local level that affect our properties that may not apply to other types of agricultural uses. For example, both New York and Illinois require stringent security systems in place at grow facilities, and also require stringent procedures for disposal of waste materials.

As an owner of agricultural lands, we may be liable or responsible for the actions or inactions of our tenants with respect to these laws, regulations and ordinances.

Environmental Matters

Our properties and the operations thereon are subject to federal, state and local environmental laws, ordinances and regulations, including laws relating to water, air, solid wastes and hazardous substances. Our properties and the operations thereon are also subject to federal, state and local laws, ordinances, regulations and requirements related to the federal Occupational Safety and Health Act, as well as comparable state

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statutes relating to the health and safety of our employees and others working on our properties. Although we believe that we and our tenants are in material compliance with these requirements, there can be no assurance that we will not incur significant costs, civil and criminal penalties and liabilities, including those relating to claims for damages to persons, property or the environment resulting from operations at our properties. See the section entitled “Risk Factors — Risks Related to Our Business — Potential liability for environmental matters could adversely affect our financial condition.”

Real Estate Industry Regulation

Generally, the ownership and operation of real properties is subject to various laws, ordinances and regulations, including regulations relating to zoning, land use, water rights, wastewater, storm water runoff and lien sale rights and procedures. These laws, ordinances or regulations, such as the Comprehensive Environmental Response and Compensation Liability Act and its state analogs, or any changes to any such laws, ordinances or regulations, could result in or increase the potential liability for environmental conditions or circumstances existing, or created by tenants or others, on our properties. Laws related to upkeep, safety and taxation requirements may result in significant unanticipated expenditures, loss of our properties or other impairments to operations, any of which would adversely affect our cash flows from operating activities.

Our property management activities, to the extent we are required to engage in them due to lease defaults by tenants or vacancies on certain properties, will likely be subject to state real estate brokerage laws and regulations as determined by the particular real estate commission for each state.

State Laws Applicable to the Medical-Use Cannabis Industry

In most states that have legalized cannabis in some form, the growing and/or dispensing of cannabis generally requires that the operator obtain one or more licenses in accordance with applicable state requirements. In addition, many states regulate various aspects of the growing and/or dispensing of medical-use cannabis. For example, New York limits the types of strains that can be grown, prices are set by the State Program Commissioner, a registered pharmacist is required to be on the premises of all dispensaries during hours of operation, and both flower and edibles are prohibited. Local governments in some cases also impose rules and regulations on the manner of operating cannabis businesses. As a result, applicable state and local laws and regulations vary widely. As a result of licensing requirements, if our tenants default under their leases, we may not be able to find new tenants that have the requisite license to engage in the cultivation of medical cannabis on the properties.

Federal Laws Applicable to the Medical-Use Cannabis Industry

Cannabis is a Schedule I controlled substance under the CSA. Even in those jurisdictions in which the manufacture and use of medical cannabis has been legalized at the state level, the possession, use, cultivation, and transfer of cannabis remains a violation of federal law. Federal law criminalizing the use of cannabis preempts state laws that legalize its use for medicinal or adult-retail purposes, and therefore strict enforcement of federal law regarding cannabis would likely result in our inability to execute our business plan.

The U.S. Department of Justice, under the Obama administration, has issued memoranda, including the so-called “Cole Memo” on August 29, 2013, characterizing enforcement of federal cannabis prohibitions under the CSA to prosecute those complying with state regulatory systems allowing the use, manufacture and distribution of medical cannabis as an inefficient use of federal investigative and prosecutorial resources when state regulatory and enforcement efforts are effective with respect to enumerated federal enforcement priorities under the CSA. In the “Cole Memo,” the U.S. Department of Justice provided guidance to all federal prosecutors indicating that federal enforcement of the CSA against cannabis-related conduct should be focused on eight priorities, which are to prevent: (1) distribution of cannabis to minors; (2) revenue from sale of cannabis to criminal enterprises, gangs and cartels; (3) transfer of cannabis from states where it is legal to states where it is illegal; (4) cannabis activity from being a pretext for trafficking of other illegal drugs or illegal activity; (5) violence or use of firearms in cannabis cultivation and distribution; (6) drugged driving and adverse public health consequences from cannabis use; (7) growth of cannabis on federal lands; and (8) cannabis possession or use on federal property.

In addition, as it did for the fiscal year 2015, Congress enacted an omnibus spending bill for fiscal year 2016 including a provision prohibiting the U.S. Department of Justice (which includes the DEA) from using

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funds appropriated by that bill to prevent states from implementing their medical-use cannabis laws. This provision, however, is effective only until December 9, 2016 and must be renewed by Congress in subsequent years. In order to extend the prohibition, it must be specifically included in the fiscal year 2017 Commerce, Justice, and Science (CJS) Appropriations bill – the germane bill. Currently, only the Senate version of the CJS Appropriations bill includes the prohibition and the House version does not. In USA vs. McIntosh, the United States Circuit Court of Appeals for the Ninth Circuit held that this provision prohibits the U.S. Department of Justice from spending funds from relevant appropriations acts to prosecute individuals who engage in conduct permitted by state medical-use cannabis laws and who strictly comply with such laws. However, the Ninth Circuit’s opinion, which only applies in the states of Alaska, Arizona, California, Hawaii and Idaho, also held that persons who do not strictly comply with all state laws and regulations regarding the distribution, possession and cultivation of medical-use cannabis have engaged in conduct that is unauthorized, and in such instances the U.S. Department of Justice may prosecute those individuals.

We do not intend to acquire properties from or lease properties to companies whose activities involve or support those enumerated in the Cole Memo, but federal prosecutors have significant discretion in their interpretation of these priorities. Therefore, no assurance can be given that the federal prosecutor in each judicial district where we purchase a property will agree that the activities of our tenant on the property located in such prosecutor’s district do not involve those enumerated in the Cole Memo. There is also no guarantee that the current administration or future administrations will not revise the federal enforcement priorities enumerated in the Cole Memo or otherwise choose to strictly enforce the federal laws governing cannabis production or distribution. Any such change in the federal government’s current enforcement posture with respect to state-licensed cultivation of medical-use cannabis would result in our inability to execute our business plan and we would likely suffer significant losses with respect to our investment in medical-use cannabis facilities in the United States.

Laws Applicable to Banking for Medical-Use Cannabis Industry

All banks are subject to federal law, whether the bank is a national bank or state-chartered bank. At a minimum, all banks maintain federal deposit insurance which requires adherence to federal law. Violation of federal law could subject a bank to loss of its charter. Financial transactions involving proceeds generated by cannabis-related conduct can form the basis for prosecution under the federal money laundering statutes, unlicensed money transmitter statutes and the Bank Secrecy Act. For example, under the Bank Secrecy Act, banks must report to the federal government any suspected illegal activity, which would include any transaction associated with a cannabis-related business. These reports must be filed even though the business is operating in compliance with applicable state and local laws. Therefore, financial institutions that conduct transactions with money generated by cannabis-related conduct could face criminal liability under the Bank Secrecy Act for, among other things, failing to identify or report financial transactions that involve the proceeds of cannabis-related violations of the CSA.

FinCen issued guidance in February 2014 which clarifies how financial institutions can provide services to cannabis-related businesses consistent with their obligations under the Bank Secrecy Act. Concurrently, with the FinCen guidance, the U.S. Department of Justice issued supplemental guidance directing federal prosecutors to consider the federal enforcement priorities enumerated in the Cole Memo with respect to federal money laundering, unlicensed money transmitter and Bank Secrecy Act offenses based on cannabis-related violations of the CSA. The FinCen guidance sets forth extensive requirements for financial institutions to meet if they want to offer bank accounts to cannabis-related businesses, including close monitoring of businesses to determine that they meet all of the requirements established by the U.S. Department of Justice, including those enumerated in the Cole Memo. This is a level of scrutiny that is far beyond what is expected of any normal banking relationship.

As a result, many banks are hesitant to offer any banking services to cannabis-related businesses, including opening bank accounts. While we currently have a bank account, our inability to maintain that account or the lack of access to bank accounts or other banking services in the future, would make it difficult for us to operate our business, increase our operating costs, and pose additional operational, logistical and security challenges. Similarly, if our proposed tenants are unable to access banking services, they will not be able to enter into triple-net leasing arrangements with us, as our leases will require rent payments to be made by check or wire transfer.

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Employees

Upon completion of this offering, we, through our Operating Partnership, will initially have five employees.

Legal Proceedings

We are not a party to any legal proceedings.

Implications of Being an “Emerging Growth Company”

We qualify as an “emerging growth company,” as defined in the JOBS Act. An “emerging growth company” may take advantage of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. While we are an “emerging growth company,” among other things:

we are exempt from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act;
we are permitted to provide less extensive disclosure about our executive compensation arrangements;
we are not required to give to our stockholders non-binding advisory votes on executive compensation or golden parachute arrangements; and
we are permitted to use an extended transition period for complying with new or revised accounting standards.

We have elected to use an extended transition period for complying with new or revised accounting standards, and this election is irrevocable. We have not made a decision whether to take advantage of other exemptions. If we do take advantage of additional exemptions, some investors may find our Class A common stock less attractive, which may result in a less active trading market for our Class A Common Stock and a more volatile stock price.

We could remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our Class A common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

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OUR MANAGEMENT

Our Executive Officers, Directors and Director Nominees

The following table sets forth certain information about our executive officers, directors and director nominees.

   
Name   Age   Position(s) with Our Company
Alan D. Gold   56   Executive Chairman
Paul E. Smithers   59   President, Chief Executive Officer and Director Nominee
Robert M. Sistek   40   Chief Financial Officer and Executive Vice President, Investments
Gregory J. Fahey   56   Chief Accounting Officer and Treasurer
Brian J. Wolfe   40   Vice President, General Counsel and Secretary
Gary A. Kreitzer   61   Director
Gary M. Malino   58   Director Nominee
Scott Shoemaker   50   Director Nominee
David Stecher   55   Director Nominee

Alan D. Gold has served as executive chairman of our board of directors since our formation. Mr. Gold served as chairman, chief executive officer, and president of BioMed Realty (formerly NYSE: BMR), a REIT specializing in acquiring, leasing, developing and managing laboratory and office space for the life science industry, from its inception in 2004 through the sale of the company to affiliates of Blackstone Real Estate Partners VIII L.P. in January 2016. Mr. Gold also served as chairman, president and chief executive officer of BioMed Realty’s privately-held predecessor, Bernardo Property Advisors, Inc., from August 1998 until August 2004. In addition, Mr. Gold was a co-founder and served as president and a director of Alexandria Real Estate (NYSE: ARE), a NYSE-listed urban office REIT, from its predecessor’s inception in 1994 until August 1998. Mr. Gold served as managing partner of GoldStone Real Estate Finance and Investments, a partnership engaged in the real estate and mortgage business, from 1989 to 1994. He also served as assistant vice president of commercial real estate for Northland Financial Company, a full service commercial property mortgage banker, from 1989 to 1990 and as real estate investment officer of commercial real estate for John Burnham Company, a regional full service real estate company, from 1985 to 1989. From December 2013 to June 2016, Mr. Gold served on the board of directors and as a member of the nominating and compensation committees of CatchMark Timber Trust, Inc. (NYSE: CTT), a publicly traded REIT focused on timberland ownership. From August 2011 to March 2013, Mr. Gold also served on the board of directors and as a member of the audit committee of American Assets Trust, Inc. (NYSE: AAT), a publicly traded REIT focused on acquiring, developing and managing retail, office, multifamily and mixed-use properties. Mr. Gold currently serves as a member of the board of trustees for the Salk Institute for Biological Studies, a research organization dedicated to fundamental research in biology and its relation to health, and as a member of the board of directors of the Campanile Foundation, a philanthropic foundation that supports San Diego State University. Mr. Gold received his Bachelor of Science Degree in Business Administration and his Master of Business Administration from San Diego State University. We believe that Mr. Gold’s 30 years of experience in the real estate industry, expertise in NYSE-listed REITs, and extensive management experience make him qualified to serve as executive chairman of our board of directors.

Paul E. Smithers has served as our president and chief executive officer since our formation and is a director nominee. From August 2013 to July 2015, Paul Smithers served as co-founder and chief legal officer of Iso Nano International, LLC, a designer and manufacturer of advanced materials for use in the aerospace, consumer goods, electronics and safety industries. Prior to his time at Iso Nano, Mr. Smithers was the managing partner of Smithers & Player, Attorneys at Law from September 1989 to July 2013. Mr. Smithers is a member of the California Bar. We believe that Mr. Smithers’ management expertise and over 30 years of legal and regulatory experience are valuable to our board of directors.

Robert M. Sistek serves as our chief financial officer and executive vice president, investments. Prior to joining us, Mr. Sistek held the positions of senior vice president, investments from March 2015 through October 2016 and vice president, finance from May 2011 to March 2015 with BioMed Realty (formerly NYSE: BMR), a REIT specializing in acquiring, leasing, developing and managing laboratory and office space for the life science industry. Prior to BioMed Realty, Mr. Sistek was senior vice president of capital markets

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for CoreSite Realty Corporation (NYSE: COR), a publicly-traded REIT specializing in institutional quality data centers. Previously, he was a senior associate with The Carlyle Group, a predecessor company of CoreSite, from 2007 to 2010, vice president of finance and capital markets at DCT Industrial Trust (NYSE: DCT) from 2006 to 2007, and held senior positions with GMAC Commercial Mortgage and ProLogis, Inc. (NYSE: PLD) from 2001 to 2005. Mr. Sistek received his Master of Business Administration from the Kellogg School of Management at Northwestern University and his Bachelor of Science in Accounting, summa cum laude, from the University of Northern Colorado. He is a Certified Public Accountant (inactive) and a member of the American Institute of Certified Public Accountants.

Gregory J. Fahey serves as our chief accounting officer and treasurer. Mr. Fahey has over 28 years of experience in the real estate industry. Prior to joining us, Mr. Fahey served as the senior vice president, controller of Realty Income Corporation (NYSE: O), a NYSE-listed REIT, from January 2013 to June 2014. He joined Realty Income Corporation in 1986, serving in various positions until April 1998, when he began serving as the vice president, controller (a position he held until January 2013). As the controller, Mr. Fahey was the chief accounting officer of Realty Income Corporation and was responsible for the accounting and reporting functions of the company, including its SEC filings. He also worked on the each of the securities offerings of Realty Income Corporation. From June 2014 until joining us, Mr. Fahey was retired. Mr. Fahey is accredited as a certified management accountant.

Brian J. Wolfe serves as our vice president, general counsel and secretary. Until March 2016, Mr. Wolfe served as vice president, corporate legal and assistant secretary of BioMed Realty (formerly NYSE: BMR), a REIT specializing in acquiring, leasing, developing and managing laboratory and office space for the life science industry, having joined BioMed Realty in 2007. Prior to that, Mr. Wolfe was an attorney with Latham & Watkins LLP, where he represented public and private companies in a broad range of industries with a focus on corporate finance, mergers and acquisitions, securities law compliance and corporate governance. Mr. Wolfe received his Juris Doctor Degree with honors from the University of Virginia School of Law and his A.B. in Economics with honors from Harvard College. Mr. Wolfe is a member of the California State Bar and San Diego County Bar Association.

Gary A. Kreitzer has served as a member of our board of directors since our formation. Mr. Kreitzer is a co-founder of BioMed Realty (formerly NYSE: BMR), a REIT specializing in acquiring, leasing, developing and managing laboratory and office space for the life science industry, and served as its general counsel from the company’s formation in 2004 until August 2012. Mr. Kreitzer currently serves as BioMed Realty’s executive vice president, a position he has held since its formation in 2004. Mr. Kreitzer also served in the same roles with Bernardo Property Advisors from December 1998 to August 2004. Mr. Kreitzer was a co-founder and served as senior vice president and in-house counsel of Alexandria Real Estate (NYSE: ARE), a NYSE-listed urban office REIT, from its predecessor’s inception in 1994 until December 1998. From 1990 to 1994, Mr. Kreitzer was in-house counsel and vice president for Seawest Energy Corporation, an alternative energy facilities development company. Mr. Kreitzer also served The Christiana Companies, Inc., a publicly traded investment and real estate development company, in a number of roles from 1982 to 1989, including as in-house counsel, secretary and vice president. Mr. Kreitzer is a member of the California Bar. We believe that Mr. Kreitzer’s 30 years of experience in the real estate industry, expertise in NYSE-listed REITs, and legal expertise are valuable to our board of directors.

Gary M. Malino is one of our director nominees. Mr. Malino has been a member of the board of directors and the audit committee of PriceSmart, Inc. (NASDAQ: PSMT), a publicly traded company that operates membership warehouse clubs in Central America, South America and the Caribbean, since May of 2016. He is a retired senior executive of Realty Income Corporation (NYSE: O), a NYSE-listed REIT. Mr. Malino joined Realty Income Corporation in 1985 and was the chief financial officer of the company from 1994 until 2001, when he was promoted to president, chief operating officer, a position that he held until his retirement in December 2014. Prior to joining Realty Income, he was a certified public accountant for a Los Angeles based accounting firm and assistant controller with McMillin Development Company, a real estate development company. We believe that Mr. Malino’s extensive experience as an executive of a publicly traded company, his audit background as a certified public accountant, his knowledge of SEC filing requirements and his extensive experience with finance and compensation matters are valuable to our board of directors.

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Scott Shoemaker, MD is one of our director nominees. Mr. Shoemaker is a practicing orthopedic surgeon specializing in pediatrics and trauma for Kaiser Permanente, an integrated managed care consortium, since 1999. He is also an inventor, assists in the development of medical devices and is on a patent for a spine deformity system developed by NuVasive, Inc. for which he receives royalties. Mr. Shoemaker is also a founder of BOSS Logic, LLC, a company designed to generate ideas for the intellectual property and biotechnology sectors. BOSS Logic, LLC holds multiple patents relating to how mobile devices share and distribute contact information. He is part owner and developer of Aztek Paddles, a carbon fiber company. In this role, he assisted in designing paddles, writing patents and testing paddles. We believe that Mr. Shoemaker’s management experience and medical expertise are valuable to our board of directors.

David Stecher is one of our director nominees. Mr. Stecher has led the executive benefits practice at both NFP Retirement and its sister company, Retirement Plan Advisory Group, since December of 2009. NFP Retirement and Retirement Plan Advisory Group are companies that specialize in corporate retirement plans. Previously, Mr. Stecher served, from April 2004 to September 2009, as executive vice president for Retirement Capital Group, a company that provides employee compensation and benefits advisory services; from January 1984 to September 1986, as tax and auditing accountant for KPMG Peat Marwick; and from June 1997 to April 2004, as executive vice president and head of West Coast operations for AXA Advisors’ executive benefits group, a group that designs and implements corporate executive benefits and provides individual planning for asset accumulation and preservation. Mr. Stecher holds a wide range of certifications, including, CPA, CFP, CLU, and ChFC, as well as his Series 6, 7, 63, 65 and 24 licenses. We believe that Mr. Stecher’s expertise in employee compensation and benefits as well as his accounting background and experience are valuable to our board of directors.

Additional Background of Our Executive Chairman

As noted above, Mr. Gold served as the chairman, chief executive officer and president of BioMed Realty from its inception and initial public offering in 2004 until its sale in January 2016. Investors who held BioMed Realty common stock from its initial public offering in 2004 until its sale in 2016 received a 163.6% total return on their investment, assuming the reinvestment of dividends into common stock. From and including BioMed Realty’s initial public offering in August 2004 through its sale in January 2016, BioMed Realty raised an aggregate of approximately $3.5 billion in gross proceeds from equity offerings through the issuance of approximately 182.5 million shares of common stock. BioMed Realty benefited from a generally healthy economy and favorable operating environment for life science real estate from 2004 to 2007. However, in the severe economic downturn from 2008 through 2010, BioMed Realty’s stock price experienced a significant correction. After 2010, the overall economy recovered gradually, and BioMed Realty’s stock price recovered gradually over time as well.

Set forth below is the annual return on investment of investors in BioMed Realty during Mr. Gold's tenure at the company. Except as otherwise indicated, annual return on investment of BioMed Realty for the years presented are calculated based on the increase or decrease in the closing price of BioMed Realty’s common stock on the NYSE on December 31 of the applicable year compared to December 31 of the prior year and takes into account the reinvestment of dividends paid in the applicable year into shares of common stock. The table below also provides a comparison of the stock performance of BioMed Realty against the MSCI US REIT Index and the S&P 500 during the same periods.

According to MSCI Inc., the MSCI US REIT Index represents approximately 85% of the publicly-traded U.S. REIT market with each REIT in the index having a market capitalization of at least $100 million, and is comprised of equity REIT securities that belong to the MSCI US Investable Market 2500 Index. The MSCI US REIT Index includes only REIT securities that are of reasonable size in terms of full and free float-adjusted market capitalization to ensure that the performance of the equity REIT universe can be captured and replicated in actual institutional and retail portfolios of different sizes. The REITs that are included in the MSCI US REIT Index reflect a broad spectrum of real estate sectors, including REITs that operate in the office, retail, hotel, multifamily, industrial, healthcare and storage sectors in one or more regions of the United States or across the entire United States. We believe that the MSCI US REIT Index is an industry benchmark used by investors for purposes of comparing stock performance and stockholder returns. However, comparison of BioMed Realty’s stock performance to the performance of the MSCI US REIT Index may be limited due to the differences between BioMed Realty and the other companies represented in the

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MSCI US REIT Index, including with respect to size, asset type, geographic concentration and investment strategy. The information regarding total return to stockholders achieved by BioMed Realty is not a guarantee or prediction of the returns that we may achieve in the future, and we can offer no assurance that we will be able to replicate these returns.

                           
Total Return(1)   2004(2)   2005   2006   2007   2008   2009   2010   2011   2012   2013   2014   2015   2016(3)   Total
Return(4)
BioMed Realty     40.9 %      15.3 %      22.1 %      (15.2 %)      (46.2 %)      46.6 %      22.3 %      1.1 %      11.8 %      (1.9 %)      26.5 %      15.3 %      0.5 %      163.6 % 
MSCI US REIT     22.8 %      12.1 %      35.9 %      (16.8 %)      (38.0 %)      28.6 %      28.5 %      8.7 %      17.8 %      2.5 %      30.4 %      2.5 %      (4.6 %)      162.7 % 
S&P 500     13.4 %      4.9 %      15.8 %      5.5 %      (37.0 %)      26.5 %      15.1 %      2.1 %      16.0 %      32.4 %      13.7 %      1.4 %      (7.8 %)      117.7 % 

(1) BioMed Realty data obtained from SNL Financial data provider. MSCI US REIT Index data obtained from the MSCI Inc. website. S&P 500 data obtained from the Standard & Poor’s website.
(2) For the period beginning on August 6, 2004 (BioMed Realty initial public offering date) through December 31, 2004.
(3) For the period beginning on January 1, 2016 through January 27, 2016 (the date of sale of BioMed Realty). Ending stock price is equal to cash consideration of $23.8239 per share paid to BioMed Realty common stockholders at the closing of the sale of BioMed Realty.
(4) For the period beginning on August 6, 2004 (BioMed Realty’s initial public offering date) through January 27, 2016, the date of sale of BioMed Realty.

The table below sets forth BioMed Realty's net income, assets, liabilities, stock price and dividends per share from the company’s initial public offering in 2004 to January 2016. This information was obtained from BioMed Realty’s public filings with the SEC. We have not independently verified the accuracy of such data.

                         
                         
Financial Metric   2004(1)   2005   2006   2007   2008   2009   2010   2011   2012   2013   2014(2)   2015(3)   2016(3)(4)
Total Revenues   $ 29     $ 139     $ 219     $ 266     $ 302     $ 361     $ 386     $ 440     $ 518     $ 637     $ 675       N/A       N/A  
Net Income     5       17       35       56       48       42       22       26       (3 )      38       194       N/A       N/A  
Assets     582       1,337       2,693       3,057       3,227       3,283       3,960       4,429       4,834       5,973       6,171       N/A       N/A  
Liabilities     138       586       1,459       1,653       1,598       1,459       1,647       1,816       2,350       2,986       3,101       N/A       N/A  
High Stock Price   $ 22.95     $ 26.06     $ 32.41     $ 31.20     $ 29.50     $ 16.59     $ 19.50     $ 21.03     $ 20.30     $ 23.13     $ 22.62     $ 25.11     $ 23.82  
Low Stock Price   $ 15.75     $ 19.39     $ 23.75     $ 20.89     $ 5.88     $ 6.02     $ 13.36     $ 14.94     $ 17.52     $ 17.90     $ 17.98     $ 17.94     $ 23.56  
End of Year Stock Price   $ 22.21     $ 24.40     $ 28.60     $ 23.17     $ 11.72     $ 15.78     $ 18.65     $ 18.08     $ 19.33     $ 18.12     $ 21.54     $ 23.69     $ 23.81  
Dividends Declared Per Share   $ 0.42     $ 1.08     $ 1.16     $ 1.24     $ 1.34     $ 0.70     $ 0.63     $ 0.80     $ 0.88     $ 0.96     $ 1.01     $ 0.78        
Dividends Paid Per Share(5)   $ 0.283673     $ 1.010305     $ 1.075722     $ 1.220000     $ 1.315000     $ 0.890000     $ 0.600000     $ 0.770000     $ 0.845000     $ 0.940000     $ 1.300000     $ 1.040000     $  

Note: dollars in millions, except per share data.

(1) From August 6, 2004 (initial public offering) through December 31, 2014.
(2) Excludes a special dividend of $0.30 per share paid in December 2014 relating to BioMed Realty’s disposition of a Maryland property on December 9, 2014 described below.
(3) Data not presented is not available, or N/A.
(4) From January 1, 2016 through January 27, 2016, the date of sale of BioMed Realty. Data not presented is not available, or N/A.
(5) Represents dividends paid which were allocable to the applicable year for tax purposes. In addition, set forth below is the tax treatment of the annual dividends paid per share of common stock of BioMed Realty. This information was obtained from BioMed Realty’s press releases. We have not independently verified such data.

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Tax Treatment   2004   2005   2006   2007   2008   2009   2010   2011   2012   2013   2014   2015   2016
Taxable Ordinary Dividend   $ 0.283673     $ 1.010305     $ 1.064520     $ 0.982341       1.083176     $ 0.449560     $ 0.387974     $ 0.440921     $ 0.626330     $ 0.940000     $ 0.502580     $ 0.019032     $  
Return of Capital                 0.011202       0.220871       0.231824       0.440440       0.212026       0.329079