IIPR - NYSE

Good day. And welcome to the Innovative Industrial Properties Incorporated Third Quarter 2023 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brian Wolfe, General Counsel. Please go ahead.

Thank you for joining the call. Presenting today are Alan Gold, Executive Chairman; Paul Smithers, President and Chief Executive Officer; David Smith, Chief Financial Officer; Catherine Hastings, Chief Operating Officer; and Ben Regin, Chief Investment Officer. Before we begin, I’d like to remind everyone that statements made during today’s conference call may be deemed forward-looking statements within the meaning of the Safe Harbor of the Private Securities Litigation Reform Act of 1995 and actual results may differ materially due to a variety of risks, uncertainties and other factors. Please refer to the documents filed by the company with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, on today’s call, we will discuss certain non-GAAP financial information, such as FFO, normalized FFO and adjusted FFO. You can find this information together with reconciliations to the most directly comparable GAAP financial measure in our earnings release issued yesterday, as well as in our 8-K filed with the SEC. I will now hand the call over to Alan. Alan?

Thank you, Brian, and welcome, everyone. We are pleased to report our financial results for the quarter, which I believe reflect our team’s continued dedication and hard work in the execution of our day-to-day operations. As I have noted in the past calls, we are pleased with our company’s position as the broader macro economy and the regulated cannabis industry continued to experience challenges that have impacted operator fundamentals in a number of respects. We have one of the strongest and most experienced teams of real estate professionals in the cannabis industry, a high quality portfolio and arguably a conservative and flexible balance sheet, with a 12% debt to total gross assets, no variable rate debt, no meaningful debt maturities until May 2026. And as noted in our earnings press release issued yesterday, we have further enhanced our liquidity position by obtaining a revolving credit facility, which David will touch on in his prepared remarks. To recap the quarter, we generated total revenues of $78 million in Q3 and adjusted funds from operations of $65 million. Rent collection for IIP’s operating portfolio was 97% for the quarter. The financial performance continued to drive dividend returns to our investors with $7.20 of dividends declared per share in the past 12 months, an increase of 6% over the prior 12-month period. The Q3 dividend payout ratio was at 79% of AFFO, modestly below the midpoint of our targeted ratio of 75% to 85% of AFFO. This quarter was another quiet one for us in terms of additional acquisitions and investment activity. As we noted for several quarters, we expected a significantly slower pace of investment activity given the ongoing macroeconomic uncertainty and significant adjustments to cost of capital since the Fed began aggressively raising rates last year. We did commit additional funding to complete the development of one of our New York properties, which Ben will discuss. From a regulatory perspective, we are certainly following closely the development stemming from the Department of Health and Human Services recommendation to the DEA that cannabis be rescheduled from Schedule I to Schedule III under the CSA. Of course, there are significant benefits to this, including a potential lifting of the confiscatory 280E federal taxes imposed on regulated cannabis operators and Paul will discuss our thoughts in more detail. While the vast majority of our tenant base continues to perform, we have previously discussed, we have taken back certain properties from Parallel, Green Peak and Kings Garden, and Ben and Paul, will provide updates on those properties. As always, we are here to answer any questions you have to the extent we can. I will now turn the call over to Paul to discuss regulatory and industry dynamics. Paul?

Thanks, Alan. Before discussing overall market developments, I’d like to provide an update on the properties leased or previously leased to Parallel, Green Peak and Kings Garden. As we noted then, and I think, it is worth repeating here, we are, of course, first and foremost focused on maximizing the value of each of our properties and having tenants with strong teams that can manage their businesses successfully through the inevitable ups and downs of this industry. We have engaged local counsel and other advisers in these situations, commenced legal proceedings for damages and possession and are in discussions with applicable regulatory agencies. As we noted in our call last quarter, Green Peak was placed into receivership in March and in mid-March, we regained possession of the Summit building, a cultivation and processing facility under redevelopment. In addition, in May, we regained possession of two small retail locations in Michigan previously leased to Green Peak, for which our total investment is less than $3 million and expect to regain possession of one more retail location at the end of November. The receiver is paying rent on all other remaining properties leased to Green Peak, including the harvest part cultivation and processing facility and the remaining retail locations. The court approved the sale of Green Peak’s assets to a buyer in October with the buyer assuming the harvest peak lease and leases for the remaining three retail locations with no changes to terms. As noted on our prior calls, we also filed actions against Parallel for possession and damages at our Pennsylvania property and our Texas property. We regained possession of the Texas property in March, which is in the early stages of development and the Pennsylvania property just earlier this week. We are actively exploring all options for these properties. As we noted previously, Parallel continues to be current on their obligations for the other two properties we leased to them in Florida. And in late September, as we previously disclosed, we regained possession of the remaining four properties previously occupied by Kings Garden and Ben will discuss our marketing activity on those properties, as well as for the Summit building in Michigan. Market developments, as we have noted for some time now, the regulated cannabis industry continues to experience a set of challenging circumstances. But I would like to note that even during this macroeconomic environment, growth of the overall cannabis industry in the U.S. continues to remain strong, with BDSA projecting cannabis sales of $29.5 billion in 2023, representing approximately a 12% growth from 2022. Additionally, BDSA estimates that approximately 60% of U.S. adults could have access to adult-use cannabis by 2026 with new state programs coming online. Unit pricing for regulated cannabis products has been under pressure in certain states at the wholesale level, reflective of what we believe to be a number of factors, including basic supply-demand dynamics, lack of meaningful enforcement in certain states on illicit non-licensed cannabis sales by state and local law enforcement authorities, taxation and general macroeconomic conditions. That dynamic continued through Q3 as a general matter, though, of course, with some state-specific variations and we have seen an uptick in national spot wholesale pricing since mid-September. Capital availability, another continuing theme from our prior calls is the impact that the tightening of financial conditions has had on capital availability for the cannabis industry. As with other industries, the cost of capital and capital availability have fundamentally changed for cannabis operators over the course of the past year plus. With Viridian Capital Advisors reporting that both U.S. operator capital raising and mergers and acquisitions activity year-to-date were at their lowest levels since before 2018, the funding environment continues to be significantly challenged right now. Federal legislation, on the federal legislation front, there were a few noteworthy developments. In late September, the SAFER Act was passed by the Senate Banking Committee, marking the first time that cannabis banking legislation advanced through this committee. While a symbolic victory, SAFER was also supported by a bipartisan coalition of 22 state attorneys’ general in a letter sent to congressional leaders and with Senate Majority Leader, Chuck Schumer, bowing to bring the act to the floor, quote, as quickly as possible, unquote. There remain numerous obstacles in getting the act to Congress and into law. So we are tempered in our enthusiasm as we have been with prior SAFE Act introductions starting 10 years ago. Of course, the other significant development during the quarter was that in August, the Department of Health and Human Services recommended to the DEA that cannabis be reclassified from a Schedule I drug to a Schedule III drug under the Controlled Substances Act. HHS based this recommendation on an FDA review of cannabis’ classification pursuant to President Biden’s Executive Order in October of 2022. The process for reclassification will require DEA approval and likely complex administrative rule-making proceedings and it remains unclear how long this process will take and the scope of any final decisions on rules. That said, such a reclassification is expected to end the 280E tax treatment, which has imposed an extreme tax burden on regulated operators, which would be a great win for the industry and immediately provide for a significant improvement in many operator financials. We will, of course, be monitoring progress in this area closely in coming months. I’d like to now turn the call over to Ben to discuss our portfolio and leasing activity in the third quarter. Ben?

Thanks, Paul. As we noted earlier, we have regained possession of certain assets from Parallel, Green Peak and Kings Garden, and are continuing to focus on re-leasing efforts on those properties. Regarding our Summit property in Michigan, which we took back earlier this year, we executed an LOI to lease the entire property and are working through lease negotiations and final planning for completion of the redevelopment of that project. With respect to the four properties previously occupied by Kings Garden until late September, we are pleased to announce we executed an LOI for lease for the 19th Avenue and McLane properties earlier this week, just over a month after regaining control of those two assets. We are also in active discussions regarding the other two smaller properties and evaluating alternative uses, including non-cannabis uses given certain zoning changes that have impacted those properties. Those two smaller properties represent less than 1% of our total invested capital. Regarding our San Bernardino property, which we took back from Kings Garden late last year, we continue to explore a potential mixed-use development of that property, which may include a self-storage component pursuant to an LOI executed with a potential joint venture partner. As we previously noted, we expect the process to take many months, but we will continue to report on progress as we can. For our properties in Texas and Pennsylvania where Parallel defaulted, we took back the Texas property in mid-March and continue to explore options for that site. In Pennsylvania, Parallel wound down its operations in late October and we were awarded a judgment for possession and damages at trial in late October. While we have been active on the leasing front, in terms of new investments, it was a relatively quiet quarter. As we have noted for several quarters now, given the significant adjustments to cost of capital across industries, including our own cost of capital and the macroeconomic uncertainties the regulated cannabis industry has been facing, we made a strategic decision to reduce our overall investment activity and continue to be extremely selective and patient in evaluating potential investment opportunities. As Alan noted, in late October, we amended our lease with Goodness Growth in New York, providing additional funding to complete the development of the expanded cultivation and processing facility and adjusting rent accordingly. As Goodness Growth disclosed last quarter, the company is exploring the sale of its New York operations, including the operations at this facility. With that, I will turn it over to Catherine. Catherine?

Thanks, Ben. For this call, I will describe our property portfolio and tenant roster in addition to our rent collection statistics and updates on our development projects. As of September 30th, we owned 108 properties across 19 states and leased to 29 operators, comprising 8.9 million rentable square feet. Of these 108 properties, 103 properties are included in our operating portfolio. Our portfolio continues to be well diversified with no one tenant representing more than 16% of our annualized base rent and no state representing more than 15% of our annualized base rent. We have relationships with some of the largest and most experienced operators in the industry with our leased operating portfolio comprised of 90% multistate operators and 62% leased to public company tenants. The total amount of capital invested and committed across our operating portfolio equates to $274 per square foot, which we believe remains significantly below replacement cost. For the third quarter, we collected approximately 97% of contractually due base rent and property management fees from our operating portfolio. The 3% we did not collect related primarily to our previously disclosed defaulted tenant Parallel at one of our Pennsylvania properties. Our revenue and rent collection for the quarter included the application of approximately $2.2 million in security deposits. As we previously disclosed, we amended our leases with Holistic in exchange for inclusion of cross-default provisions and extension of terms for all the leases and agreed to apply security deposits for rent payments to the Michigan and California properties through September 30th, with pro rata payback of these security deposits starting in January 2024. Holistic began paying rent on these properties in October. Similarly, as disclosed last quarter, we amended our lease with Temescal in Massachusetts, a property that experienced delays in completion of construction, pursuant to which we extended the term of the lease, temporarily reduced base rent for April through January and then increased the base rent for the remainder of the term, with application of security deposits for certain rent payments. Temescal began paying rent in September, which has been fully collected through October. Finally, as we disclosed last quarter, we amended our lease with 4Front at one of our Illinois properties in July, applying a portion of the security deposit to pay one-half of the monthly contractual rent due from the tenant, commencing on October 1, 2023, and continuing through November 30, 2023, with repayment over a 12-month period starting in January. 4Front has paid the 50% of rent due since this amendment. Similar to our third quarter stats, in October we collected approximately 97% of contractually due base rent and property management fees from our operating portfolio with the 3% we did not collect relating to our previously disclosed defaulted tenant Parallel in Pennsylvania. We also continued to fund draws for improvement allowances or construction development to our operators under our leases. As we have previously noted on prior calls, these improvements are critical for the efficient production of quality cannabis products at scale. In Q3 of 2023, we funded $18 million, net of building improvements in construction activities at our properties. And with that, I will turn it over to David. David?

Thank you, Catherine. For the third quarter, we generated total revenues of $78 million, a 10% increase from Q3 of last year. The increase was driven primarily by an increase in tenant reimbursements versus the prior period, as well as activity in prior periods for the acquisition and leasing of new properties, additional funding of building improvements provided to tenants at certain properties that resulted in base rent increases, and contractual rental escalations at certain properties. As Catherine noted, the $78 million of revenue for the third quarter included $2.2 million of security deposits applied for payment of rents or $0.08 per share. For the three months ended September 30, 2023, we recorded net income attributable to common stockholders of $41 million or $1.45 per share. Adjusted funds from operations for the third quarter was $65 million or $2.29 per share, an increase of 7.5% compared to the $2.13 per share of AFFO generated in the third quarter of 2022, driven by increased tenant reimbursements, revenue generated by properties acquired in prior periods, contractual rent escalations and revenue earned on additional CapEx investments at existing properties. AFFO for the third quarter was up $0.03 per share versus the second quarter AFFO of $2.26, with the increase primarily due to contractual rent increases, slightly offset by lower income from the Kings Garden portfolio. Notably, regarding Kings Garden, results in the third quarter included $1.7 million or $0.06 per share of rent from them. And as Paul noted in his remarks, they are no longer a tenant as of the end of September. On October 13, we paid a quarterly dividend of $1.80 per share to common stockholders of record as of September 29th, equivalent to an annualized dividend of $7.20 per common share. As Alan noted, our dividend remained covered by our AFFO during the quarter with a payout ratio of 79%, which is in line with our Board’s targeted payout ratio of 75% to 85% of AFFO. Turning to the balance sheet. At quarter end, we had approximately $2.6 billion in total gross assets and roughly $304 million in debt. Importantly, all of which is at a fixed rate. Our debt consists solely of unsecured debt, with the majority of this or $300 million, not maturing until May 2026. In addition, our credit metrics remain strong and among the best in the entire publicly traded REIT industry with a debt-to-gross assets ratio of less than 12% and a debt service coverage ratio in excess of 16x. While our balance sheet remains in excellent shape, in October, we added additional liquidity with the closing of a $30 million three-year revolving credit facility, which can be expanded subject to obtaining additional bank commitments. Pricing is based on the prime rate plus an applicable margin based on the deposits with our bank. Notably, since our IPO, we have always strived to maintain access to multiple capital markets, as we have previously accessed the common stock, preferred stock, convertible debt and unsecured bond markets. The closing on this revolving credit facility further demonstrates our ability to access capital in the cannabis industry and provides another liquidity option for the company. With that, I will turn it back to Alan. Alan?

Thanks, David. I’d like to note the following in closing. We continue to be steadfast believers in the long-term growth and success of the regulated cannabis industry and our team of dedicated professionals and advisers is singularly focused on navigating our company through this rapidly evolving business environment. We have a solid foundation of properties, a dedicated team and a clear vision for the future. We are optimistic about the legalization trends. We believe our expertise, property portfolio and balance sheet position us well for the future. Now, with that, I’d like to open it up for questions. Operator, could you please open the call up for questions?

[Operator Instructions] The first question comes from Tom Catherwood with BTIG. Please go ahead.

Thank you, and good morning, everybody. Maybe, Paul or Alan, thinking more broadly of the cannabis industry in the U.S., you mentioned modest improvements in wholesale pricing starting in the fall, and obviously, we have seen recent states that have added adult-use programs. With that as a backdrop, how is the business outlook for your tenants trending and are there any markets where you are incrementally more constructive or hesitant at this point?

Thanks, Tom. I think you are asking a really good question, and I wish I had the best crystal ball with the clearest vision. We think the industry continues to perform well. I think it continues to be very widely accepted as we have described the number of states that have -- now have either adult-use or medical cannabis, I think, it’s 40 states now. And growth in sales continues to increase year-over-year with the projection that by 2027 it’s supposed to be over, I think, $43 billion in total sales. So, I mean, I think, the industry, in general, is continuing to move in a positive direction. What we are potentially experiencing is the growth rates have not been or not as robust as they have in the past, but maybe positioning themselves for future higher growth rates than we have experienced this year and expected early next year. So I think that’s the best we can do in analyzing where we think the industry is today.

And I could add, Tom. This is Paul. That -- we look at the rescheduling possibility next year as just a huge positive, obviously, with the 280E implication and I don’t think we can overstate the impact 280E relief would have on operators across the board. So we look at that as a real positive. Also, we still look at state developments, Ohio next week has a boat on REC and all eyes on Ohio next week. So there’s a lot of positive things going on in the industry.

Great. Appreciate those comments. And then maybe for Ben or for Paul, going over to the assets you have had in the market, great to hear the news on the LOIs. Maybe just a broader question on the marketing of assets when you get them back. When you have them out, is the demand mainly coming from MSOs looking to add higher quality cultivation assets or kind of, Paul, as you alluded to, with the potential for the rescheduling, are we seeing new company formation and maybe new capital coming into this industry that we hadn’t seen in the past six months to 12 months? What’s the kind of mix of those tenants out in the market looking at your assets?

Yeah. Let me ask Ben to respond to that. He is with that every day.

Hey, Tom. We are really seeing a mix, which I think was great to see when we took some of these properties back and took them out to market. Our -- the two properties, the two main properties from Kings Garden that we recently got back that we were pleased to announce an LOI for. We saw interest from new companies that we are looking to get into the industry. We saw interest from existing players in the California market. It was really a good mix of existing and new companies that I think really saw the value in those assets if these were fully built out. As we have said in the past, these are mission-critical facilities that take a lot of investment and time to build, and the fact that, we had fully built out ready-to-go facilities really feels very attractive to a lot of different types of companies. And I think we saw that in both the amount of interest and how quickly we were able to put those properties under LOI.

Thanks, Ben. Really helpful. And then maybe for David, great to see the addition of the revolver in the fourth quarter. As far as the process behind adding that, was this a matter of it took a while to find the terms and the rate and the structure that worked for you and so you have pulled the trigger now or are you looking out at opportunities in the market and just the added capital flexibility gets you to where you want to be? Can you provide any kind of color on the thought process behind that?

Yeah. Sure, Tom. The revolver itself, I’d say, more so the latter that you mentioned. It was an opportunity just to bolster liquidity at the company. As you know, we already have an incredibly strong balance sheet. It’s just a chance to add additional liquidity for the company was attractive to us. I will say in terms of the -- what I can say on the bank itself, it’s a very large bank. They have been lending in cannabis for a couple of years now. They have over $60 billion of assets. So I think that also speaks to, one, just interest in the industry and also interest in us as a credit. And pricing is also very, very attractive too with no ongoing use fees. So just again, at the end of the day, it’s just another chance to increase liquidity for us.

Thanks, David. And then just last one quickly for me. Ben, remind us, when a tenant is looking to sell their business, like you mentioned for Goodness Growth in New York, what is IIP’s involvement, do you have a say in assigning the lease to a new operator?

Yeah. Hey, Tom. We would not be involved necessarily in the discussions on a transaction, but yes, of course, we do have a say over anyone that might come in to want to lease our buildings. So we do get involved from a lease assignment perspective in terms of who the new tenant would be, we will underwrite them just like we underwrite any other transaction and make sure that it’s a good fit that we feel for the property.

Got it. Really helpful. Thanks for all the answers everybody.

Thanks, Tom.

The next question comes from Scott Fortune with ROTH Capital. Please go ahead.

Yeah. Good morning. First, a little housekeeping item around kind of litigation expenses there and the movement or potential timing of potentially again in quarter and kind of the litigation side of things. If you can give an update on that, that would be great.

Sure. Hey, Scott. It’s Paul. As we mentioned, we were -- we concluded the litigation in Pennsylvania with a judgment in our favor of $15.5 million. We also got -- recovered the property effective this week. So that litigation is done. Ongoing litigation remains in some areas. But we continue to pursue vigorously our options against the defaulting tenants. So that was a good win in Pennsylvania and we just continue to pursue aggressively all our legal remedies.

Perfect. And Paul, while I have you on the call there, can you expand a little bit more on the recent filed lawsuit by influential law firm and some of your MSO partners, potentially they are seeking kind of the block the federal government from enforcing prohibition against the state and legal cannabis activity. Although likely they take a few years to play out potentially going to the Supreme Court there, but kind of thoughts or protection from the state -- for the states and your business model with MSO tenants and kind of facilities in these vertical operations in these key states. Any kind of thoughts on kind of the justice side of moving cannabis reform progress forward since?

Yeah. Scott, it’s a really interesting lawsuit, and of course, they retained David Weiss, who’s one of the top U.S. Supreme Court litigators in the country. So that gives instant credibility, I think, to get the case before the Supreme Court. The case is filed in Massachusetts. It’s basically challenging the right of the Federal Government to regulate state-operated cannabis businesses, because you go back to the Gonzales case in 2005, it gave the federal government right to regulate interstate commerce. But of course, the way the states are operating now, it’s intrastate commerce. So the challenge is saying that the federal government does not have jurisdiction to regulate businesses that operate solely within the state’s own borders. The second part of the case is also interesting from a legal analysis is it’s a nullification theory and that is basically saying that the Federal Government has allowed the states to violate Federal Government for 12 years, 13 years, 14 years now. So it’s kind of a waiver argument that says the state, the Federal Government is not allowed to continue to have this prohibition when it’s refused to enforce its rights. So you are right, it’s going to be a long-haul, but I do think it will get before the Supreme Court. I think we will probably have rescheduling before it hits the Supreme Court. So we will see, but it’s probably a two-year to three-year process. But it’s nice to see a legitimate case now and now we are looking really at three fronts. We are looking at activity at the judicial level. We are looking certainly activity at the executive level through rescheduling, and of course, SAFE Banking, SAFER Banking is trying to wind its way through Congress. So it’s a three front attack that we think is very healthy for the industry.

I appreciate that color. And if I can slip one more in, probably, to Ben, but can you provide color on your private tenants, as we are seeing similar actions by your private or kind of single-state operators there following the trends by many of the public companies to significantly reduce cost, CapEx and those with debt, we are seeing extending or equitizing that kind of debt maturities out to generate cash flow seems to be positive for the tenants and health in this tough environment. And obviously, they are improving their operations in the current environment without expecting kind of beneficial cash flow from the elimination really. Can you just put a little bit of color on your larger private side of tenant interactions as far as kind of what the public fund is doing?

Yeah. Sure. Hey, Scott. This is Ben. Happy to provide some color there. I’d say we are really seeing similar initiatives taken by the private companies as we are seeing with the public companies and they are all experiencing the same market dynamics as the public groups in terms of capital raising, in terms of operations. We have single-state private companies, we have multistate private companies and I think it’s been very healthy. A lot of the things that you noted for the industry in terms of focusing on efficiencies of operations, addressing any sort of balance sheet challenges that they might have. It’s been great to see that a lot of the publics have been able to extend loan maturities, refinance, restructure some of the debt and really push out some of that debt concerns that some investors might have had for some of the public MSOs. So, again, I think, it’s very healthy overall for the industry. They are taking the same steps. They have been -- we are pleased to continue to report the strong rent collection. They are staying current on rent. They are continuing to occupy and operate out of our facilities and improve their operations and really focus on their financial health, which again, I think, is really a benefit to the industry overall.

Thank you for the detail. I will jump back in the queue.

Thanks, Scott.

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

Hey. Good morning out there. Always interesting whenever an earnings call gets into constitutional law. So thank you for that, Paul. So two questions here. The first is maybe going along the legality part. Dave, you mentioned the bank that you guys got the letter of credit from was over $60 billion. So, certainly, one of the -- I would assume a big bank that would be subject theoretically to federal prohibitions on lending, but clearly not enforced. So we all discussed SAFE Banking, but it almost seems like in practicality, given cannabis has access at the community bank level and it looks like all the way up to the $60 billion level. What benefit would SAFE Banking provide that the industry doesn’t seem to already have, and obviously, banks underwrite the credit. So a bad operator or a credit unworthy potential borrower clearly is not going to get credit. So from a good sponsorship basis, what’s the difference from right now to if we had SAFE Banking?

Well, Alex, this is Paul. So I think the short answer is, it would encourage more banks to get into the space because right now, FinCEN regulations do make it expensive for banks and borrowers and customers to have accounts, because of the extensive reporting requirements, basically the SARs. So if we have SAFE Banking in, that theory would go away, which I think would encourage more banks to get in. But to your point, there still are the credit issues of these operators. So we have been consistent, I think, since we have been talking about this for six years, seven years is even with SAFE Banking or SAFER Banking now, we don’t think that the large money banks, the Wells, the Chases are going to come into the space. But it would be definitely a positive for the operators to have better access and cheaper. And then we always go back to what we were talking about earlier about the whole rescheduling idea, which we think is certainly more of an impactful to the industry than SAFER Banking would be right now because of the potential for 280E relief. So that’s what we are really keeping our eye on. But SAFER Banking would be good. But it’s -- Schumer says he’s going to get it to the floor vote before the end of the year. We will see with all the competition with having to fund the government and is the various war fundings and it’s probably not going to get space this year. So, I think, if SAFER gets some floor time in the Senate, Q1 next year, it can get over the house, where I think we all understand it’s going to have some resistance at the house. So all eyes on rescheduling for next year.

Okay. The second question is, and yeah, I mean, especially given Mike Johnson’s view is hard to imagine the house passes, but who knows. But the second question is, on -- as we look at the industry, one of the key issues that you guys have grappled with, although, you have managed through it is, every quarter there’s like a new tenant that comes up as a credit issue. So you guys are steadily resolving legacy credit issues, but then a new one pops up. So it’s like a conveyor belt, right? And ideally, it doesn’t...

There’s no conveyor belt. Let’s not -- don’t put those words in our mouth or out there. That’s not a fact that’s occurring. But we have dealt with some legacy credit issues. Maybe in your other companies or in your own personal life you have a conveyor belt of problems, but not in ours. So what’s your question again?

Yeah. My question though is for the past few quarters, in fairness, there have been a number of tenant issues that have come up. So, historically, you are right, it hasn’t been a conveyor belt. But recently, we have been having that issue. So my question is, what is the key to getting the operators on a better footing? Is it the 280E tax burden going away? Is that the big solution? Is it better, stay crackdown on the illicit? What I am trying to do is understand what gets the current situation to resolve such that rent collections go back to 100% and you guys can regain a competitive cost of capital to continue to grow the way historically you have?

Yeah. Hey, Alex. This is Paul. So I think as we have said in prior calls and I know you and I have talked about it, it’s a combination of many things. Certainly, crackdown on the illicit market is one, price stabilization across the Board is another, and certainly, better access to capital for the operators, and that would probably mean stability in interest rates. So there’s a lot of macro factors that would come into play, I think, that would certainly improve the credit health of the operators. But again, 280E relief would be the number one and the quickest solution. I have been looking at various legal opinions and I think that if 280E -- if we have a rescheduling during next year, that it would be retroactive to January 1, 2024. So even if we get it sometime before the election, August, September, that would get relief for the whole tax year, most likely for these operators. So that’s something that could be an immediate relief and really move money down to the bottomline.

Okay. Thank you.

The next question comes from Eric Des Lauriers with Craig-Hallum Capital. Please go ahead.

Great. Thank you for taking my questions. First of all, just a bit of a housekeeping question. I was hoping you can help me understand the lease amendment with Goodness Growth a bit more. In the press release, it states that the improvement allowance has increased by $14 million to now about $67 million, but if I look at the property list from previous quarters, the amount of committed capital was already $67 million. So I am just wondering, is this just the difference between committed capital and tenant improvement allowance and that now post lease amendment, the committed capital for this property is now roughly $81 million?

Yeah. Eric, that’s correct. The financial supplement is through September 30th. So we would adjust that with the amendments for this next quarter, but $81 million is the new committed capital.

Got it. Thank you. And I guess just more broadly, can you just kind of talk about how you are viewing the risks associated with New York, obviously, it’s been a slower market to start. Illicit market is pretty entrenched there. Was a bit surprised to see more capital being allocated to that state. So, I guess, could you just kind of give us your updated thoughts on New York?

Yeah. So, obviously, New York has had some struggles, but the size of New York market is compelling and we do believe that it will get through these growing pains. And the big thing we really need to see, of course, is crackdown on the black market, but also open some more stores. And I think we are going to see that starting this quarter or next quarter, but we are going to see an emphasis on getting more retail stores open that can handle the supply. I don’t know, Ben, do you have any other thoughts on that?

Yeah. And I would just add to that, I mean, even with all the historical issues that we might have seen in New York, it is still projected to be a top five market by 2027. So we do think there is a lot of long-term value in the state. Apart from state-specific dynamics and we felt that this was a good investment. This is an underdeveloped property -- under development property that we wanted to make sure was completed on time. We felt that this adds value to the property for the long-term. So we like where this sets this particular asset up for a market that while has seen some challenges has a tremendous amount of growth potential.

That’s helpful. I appreciate that. And then last for me, I am just hoping that you can help me kind of understand a bit more what’s going on with the Skymint assets and potential impacts to your rental revenues and overall portfolio. So a couple of weeks ago Sundial issued a press release announcing that their bid to takeover receivership of those Skymint assets was approved and that a part of that receivership process on economic leases representing more than $12 million of annual fixed obligations were rejected. So I guess just a few questions. What is the impact to your rent collection of this $12 million? Would you look to restructure this lease? How might a restructuring look? And then, I guess, just more broadly speaking, how do you kind of look at the risk of other leases of yours potentially being deemed uneconomical? Thanks.

Hey, Eric. This is Ben. So I just wanted to clarify. They obviously have a lot more leases than just with us. So I think the press release was referring to some things outside of our portfolio. As we have described, we took back the Summit property from Green Peak. That was in May and we are very happy to announce that we signed an LOI for that entire property and are looking forward to getting that tenant in there and operating and paying rent. We did take back two smaller retail assets, and in our prepared remarks, mentioned a third retail asset. Total of those is about 0.3% of our assets across those three retail properties. The remaining leases, the buyer did agree and is assuming those as is and we are not making any changes and there were no changes requested to any of the deal terms on those leases.

Okay. Great. That’s helpful. Thank you.

Thanks, Eric.

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

Thank you, and thank you all for joining here today. And once, again, I can’t thank the team for all their fantastic hard work that they have done over the last quarter and looking forward to a better quarter coming up and to a fantastic 2024. Thank you all.