Innovative Industrial execs offer warning for cannabis tenants in wake of PharmaCann deal | How to buy Skittles Moonrock online

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Executives at Innovative Industrial Properties Inc. (NYSE: IIPR) sent a blunt message to the company’s cannabis tenants during its fourth-quarter earnings call: Try to skip rent payments, face immediate consequences.

Speaking publicly for the first time since announcing a settlement with PharmaCann in January, IIP leaders made it clear they won’t hesitate to take swift legal action against defaulting tenants.

“If they do default, we will meet them with the same swiftness that we did with PharmaCann, with immediately filing default notices on all those properties, proceeding to eviction,” IIP President and CEO Paul Smithers said during the Thursday morning earnings call.

The settlement with PharmaCann, which became effective in late January, required the cannabis operator to restart rent payments on nine of its 11 leased properties in Colorado, Illinois, New York, Ohio and Pennsylvania. As part of the deal, PharmaCann’s monthly rent dropped from $2.8 million to $2.6 million for these properties, and IIP will find new tenants for facilities in Michigan and Massachusetts.

While the reduced rent made public headlines, Smithers said there was more to the deal.

“PharmaCann has committed to some substantial policy changes and financial commitments by their investors, of course, the note that we take and other commitments such as not taking any more debt,” Smithers said. “We’re not open for business just to cut rents. If there is a rent reduction, there will be something on the back end.”

The company applied a total of $5.7 million of security deposits to cover missed rent from five tenants in the fourth quarter; $4.3 million of that tied to PharmaCann.

When asked if other tenants might try to negotiate similar deals, Executive Chairman Alan Gold was firm.

“We expect our tenants to live to their agreements, and that’s what we should be focused on,” Gold said.

The cannabis-focused real estate firm also invested more than $70 million across five properties in 2024 and signed leases for approximately 530,000 square feet. It maintains a strong financial position with $235 million in available cash and one of the lowest debt levels among REITs at just 11% of total assets.

Still, a new shareholder lawsuit filed last month alleges that the company misled investors about tenant problems. The class action filed in Maryland federal court claims IIP downplayed issues with PharmaCann while continuing to paint a rosy picture of its business prospects.

The company acknowledged the other usual headwinds, particularly from illicit markets undermining legal players, but signaled cautious optimism about potential federal reform under the new administration. Smithers noted that despite the new tough-on-weed Drug Enforcement Administration chief, “President Trump has shown public support for cannabis reform.”