EDGAR 10-K Filing

Company CIK: 1854964
Filing Year: 2023
Filename: 1854964_10-K_2023_0001854964-23-000007.json

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ITEM 1. BUSINESS
Item 1. Business.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
Our Properties
We seek to acquire cultivation facilities and dispensaries that are strategic profit centers for our tenants and are well positioned for the regulatory evolution of the industry. Licensed cultivation facilities and dispensary locations are critical components of the cannabis industry, particularly in limited-license jurisdictions. As of December 31, 2022, we owned 32 properties comprised of 17 dispensaries and 15 cultivation facilities that are 100% leased to state-licensed cannabis operators, with a weighted average remaining lease term of 14.6 years. Based on invested capital, as of December 31, 2022, our portfolio is comprised of approximately 90.4% cultivation facilities and 9.6% dispensaries.
As of December 31, 2022, we have aggregate unfunded commitments to invest $3.1 million for the development and improvement of our existing cultivation facilities in Arizona, Missouri and Pennsylvania. We define these tenant improvement commitments as a commitment pursuant to our lease with the tenant to fund alterations, additions or improvements to the premises. Our leases are generally structured to disburse capital over specified periods of time. The leases also generally contain certain provisions that require tenants to pay rent on the full amount of capital under each lease, whether or not disbursed. As of December 31, 2022, our Arizona cultivation facility is currently paying rent on approximately $1.6 million of unfunded capital.
Existing Portfolio. The table below sets forth our property portfolio as of December 31, 2022 (in thousands, except square feet):
Property Type State Tenant(1)
Rentable Square Feet(2)
Investment in Real Estate(3)
Real Estate Construction in Progress Total Real Estate In-Place Lease Intangible Assets(4)
Total Investment
Cultivation Florida Curaleaf 417,350 $ 75,983 $ - $ 75,983 $ - $ 75,983
Cultivation Pennsylvania Trulieve 144,602 44,270 - 44,270 12,331 56,601
Cultivation Illinois Cresco Labs 222,455 50,732 - 50,732 - 50,732
Cultivation Massachusetts Revolutionary Clinics 145,852 42,860 - 42,860 - 42,860 (5)
Cultivation Pennsylvania Hero Diversified Associates Inc. 99,200 30,000 - 30,000 - 30,000
Cultivation Missouri Organic Remedies 81,808 20,819 - 20,819 - 20,819
Cultivation Massachusetts Columbia Care 38,890 13,826 - 13,826 4,120 17,946
Cultivation Pennsylvania Ayr Wellness 38,400 14,529 - 14,529 - 14,529
Cultivation Illinois Columbia Care 32,802 11,361 - 11,361 3,106 14,467
Cultivation Nevada Ayr Wellness 56,536 13,579 - 13,579 - 13,579
Cultivation Arizona Mint 130,757 2,400 10,541 12,941 - 12,941 (6)
Cultivation Missouri Bloom Medicinals 40,679 11,983 - 11,983 - 11,983
Cultivation Pennsylvania Acreage 30,625 10,161 - 10,161 - 10,161
Cultivation Massachusetts Acreage 38,380 9,791 - 9,791 - 9,791
Dispensary California Columbia Care 2,470 3,774 - 3,774 1,071 4,845
Dispensary Illinois Curaleaf 5,040 3,362 - 3,362 575 3,937
Dispensary Ohio Curaleaf 7,200 3,353 - 3,353 582 3,935
Dispensary Florida Curaleaf 11,181 2,932 - 2,932 441 3,373
Dispensary Massachusetts Columbia Care 4,290 2,320 - 2,320 373 2,693
Dispensary Massachusetts PharmaCann 11,116 2,112 - 2,112 500 2,612
Dispensary Pennsylvania Curaleaf 3,500 2,227 - 2,227 369 2,596
Dispensary North Dakota Curaleaf 4,590 2,174 - 2,174 355 2,529
Dispensary Arkansas Greenlight ‘(7)
7,592 2,157 - 2,157 320 2,477
Dispensary Pennsylvania Curaleaf 1,968 1,918 - 1,918 320 2,238
Dispensary Illinois Curaleaf 6,100 1,734 - 1,734 257 1,991
Cultivation Massachusetts Mint 39,600 380 1,569 1,949 - 1,949
Dispensary Pennsylvania PharmaCann 3,481 1,315 - 1,315 393 1,708
Dispensary Ohio PharmaCann 3,735 1,550 - 1,550 - 1,550
Dispensary Illinois Columbia Care 4,736 1,215 - 1,215 206 1,421
Dispensary Illinois Curaleaf 4,200 1,024 - 1,024 178 1,202
Dispensary Connecticut Acreage 2,872 929 - 929 - 929
Dispensary Illinois Curaleaf 1,851 594 - 594 98 692
Total 1,644 $ 1,644 $ 387,364 $ 12,110 $ 399,474 $ 25,595 $ 425,069
(1) Lease is with a subsidiary of this entity, for which this entity or an affiliate is a guarantor.
(2) Includes estimated rentable square feet at completion of construction.
(3) Includes the purchase price (and in some cases, transaction costs that have been capitalized into the purchase price) and tenant improvement commitments funded and placed in service, if any, as of December 31, 2022. Excludes tenant improvement commitments not funded as of December 31, 2022.
(4) Represents gross In-Place Intangibles at acquisition. Does not include accumulated amortization.
(5) Includes approximately $40.0 million in cash and 88,200 OP units issued in connection with the purchase of the property.
(6) The tenant has been paying rent on unfunded commitments since July 2022 in accordance with the lease agreement. The property is currently in development and we expect to receive final licensing upon occupancy.
(7) GL Partners, Inc. (Greenlight) took over as tenant, however Curaleaf remains the guarantor subject to certain conditions in the lease agreement.
The following table sets forth a summary of the lease expirations for leases in place as of December 31, 2022 for each of the ten full calendar years beginning January 1, 2023. The information set forth in the table assumes that tenants exercise no renewal options (square footage and annualized base rent in thousands).
Year of Lease Expiration Number of
Leases
Expiring Square
Footage of
Expiring % of
Portfolio
Net
Rentable
Square Feet Annualized
Base Rent(1)
% of
Portfolio
Annualized
Base Rent Annualized
Base Rent per
Leased Square
Foot(2)
2023 - - - % $ - - % $ -
2024 - - - % - - % -
2025 - - - % - - % -
2026 - - - % - - % -
2027 - - - % - - % -
2028 - - - % - - % -
2029 3 11 0.7 % 835 1.7 % 72.65
2030 - - - % - - % -
2031 2 15 0.9 % 389 0.8 % 26.65
2032 8 44 2.7 % 1,646 3.4 % 37.75
Thereafter 19 1,574 95.7 % 45,469 94.1 % 28.88
Total/Weighted Average 32 1,644 100.0 % $ 48,339 100.0 % $ 29.41
(1) Annualized base rent is calculated by multiplying (i) rental payments (defined as cash rents without regard to rental abatements) for the month ended December 31, 2022, by (ii) 12.
(2) Annualized base rent per leased square foot is calculated by dividing (i) annualized base rent (without regard to rental abatements) by (ii) net rentable square feet.
Our Tenants
We target companies that have successfully navigated complex state regulation and fulfilled rigorous state-licensing requirements. We believe we have been diligent in partnering with a diverse tenant base of experienced operators in limited licensed jurisdictions that have strong management teams. Our tenants have generally demonstrated access to capital, which is critical to continuing to execute on their respective business plans.
As of December 31, 2022, all of our revenues were derived from 13 tenants. The following table sets forth the tenants in our property portfolio as of December 31, 2022 (dollars in thousands). All of our leases include a parent or other affiliate guarantee.
Tenant(1)
Total Investment(2)
Number of
Leases Percentage of Annualized Rental Income(3)
Curaleaf $ 98,477 10 23.0 %
Cresco Labs 50,732 1 13.1 %
Trulieve 56,601 1 11.2 %
Revolutionary Clinics 42,860 1 10.6 %
Columbia Care 41,373 5 8.3 %
Hero Diversified Associates Inc. 30,000 1 7.9 %
Acreage 20,880 3 6.6 %
Ayr Wellness 28,107 2 5.7 %
Organic Remedies 20,819 1 5.0 %
Mint 14,890 2 4.5 % (4)
Bloom Medicinals 11,983 1 2.5 %
PharmaCann 5,868 3 1.2 %
Greenlight(5)
2,478 1 0.4 %
Total $ 425,068 32 100.0 %
(1) Lease is with a subsidiary of this entity, for which this entity or an affiliate is a guarantor.
(2) Includes the purchase price (and in some cases, transaction costs that have been capitalized into the purchase price), gross In-Place Lease Intangible Assets and tenant improvement commitments funded, if any, as of December 31, 2022. Excludes tenant improvement commitments not funded as of December 31, 2022.
(3) Annualized Rental Income represents the annualized monthly base rent of executed leases as of December 31, 2022.
(4) The tenant has been paying rent on unfunded commitments since July 2022 in accordance with the lease agreement.
(5) GL Partners, Inc. (Greenlight) took over as tenant, however Curaleaf remains the guarantor subject to certain conditions in the lease agreement.
Curaleaf
We own nine dispensaries and one cultivation facility that are leased to subsidiaries of Curaleaf, which is, or an affiliate is, the corporate guarantor. Curaleaf is publicly-traded on the CSE and OTC markets under the symbols CURA and CURLF, respectively. Curaleaf’s filings, including their financial information, are electronically available at www.sec.gov and from the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com, the Canadian equivalent of the SEC electronic document gathering and retrieval system.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
As of December 31, 2022, we were not a party to any proceedings. From time to time, we may in the future be a party to various claims and routine litigation arising in the ordinary course of business.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY
Not Applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market Information
Our common stock is listed on the OTCQX Best Market operated by the OTC Markets Group, Inc., under the symbol "NLCP".
Dividend Information
In accordance with the requirements for maintaining REIT status, we intend to distribute to stockholders aggregate dividends equaling at least 90% of our REIT taxable income (determined without regard to the deduction of dividends paid and by excluding any net capital gain) for each taxable year and will endeavor to distribute at least 100% of our REIT taxable income so as not to be subject to federal income tax. Distributions of economic profits could be classified as return of capital due to differences between book and tax accounting rules. We may make additional returns of capital when the potential risk-adjusted returns from new investments fail to exceed our cost of capital. Subject to the limitations of applicable securities and state corporation laws, we can return capital by making purchases of our own capital stock or through payment of dividends.
Shareholder Information
As of December 31, 2022, there were approximately 274 holders of record of our common stock. This figure does not represent the actual number of beneficial owners of our common stock because shares of our common stock are frequently held in “street name” by securities dealers and others for the benefit of beneficial owners who may vote the shares.
Sales of Unregistered Securities
None.
Use of Proceeds from Sales of Registered Securities
None.
Purchase of Equity Securities by the Issuer
On November 7, 2022, the board of directors of the Company authorized a stock repurchase program of up to $10.0 million of its common stock through December 31, 2023. Purchases made pursuant to the stock repurchase program will be made in the open market, in privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b-18 of the Securities and Exchange Act of 1934, as amended. The authorization of the stock repurchase program does not obligate the Company to acquire any particular amount of common stock. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The stock repurchase program may be suspended or discontinued by us at any time and without prior notice.
As of December 31, 2022, the Company has not repurchased any shares of common stock under the stock repurchase program.
Securities Authorized for Issuance Under Equity Compensation Plan
For information about our equity compensation plans and other related stockholder matters see Item 12 of Part III of this Annual Report on Form 10-K.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. RESERVED.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K.
This discussion, particularly information with respect to our future results of operations or financial condition, business strategy and plans, and objectives of management for future operations, includes forward-looking statements that involve risks and uncertainties as described under the heading "Cautionary Statement Regarding Forward-Looking Statements" in this Annual Report on Form 10-K. You should review the disclosure under the heading "Risk Factors" in this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
NewLake Capital Partners, Inc., (the “Company,” "we," "our," "us,") is an internally managed REIT and a leading provider of real estate capital to state-licensed cannabis operators primarily through sale leaseback transactions, third-party purchases and funding for build-to-suit projects. Our properties are leased to single tenants on a long-term, triple-net basis, which obligates the tenant for the ongoing expenses of the leased property, in addition to its rent obligations.
We were incorporated in Maryland on April 19, 2019. We conduct our business through a traditional umbrella partnership REIT structure, in which properties are owned by an operating partnership, directly or through subsidiaries. We are the sole general partner of our operating partnership and currently own approximately 98% of the OP Units. We have elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our short taxable year ended December 31, 2019 and intend to operate our business so as to continue to qualify as a REIT.
On March 17, 2021, we consummated a merger pursuant to which we combined our company with a separate company, or the Target, that owned a portfolio of cultivation facilities and dispensaries utilized in the cannabis industry, and renamed ourselves “NewLake Capital Partners, Inc.” The Merger was completed through the issuance of 7,699,887 shares of common stock valued at $21.15 per share and warrants to purchase up to 602,392 shares of the Company’s common stock valued at approximately $4.8 million. The Company also incurred approximately $2.1 million in merger-related transaction costs. The consideration issued was based upon the relative value of the two entities, such that the shareholders of the Company and the Target, immediately prior to the Merger, owned 56.79% and 43.21%, respectively, of the outstanding post-merger common stock of the Company. The Company issued warrants to Target shareholders based on the pre-merger options outstanding, using the equivalent proportion described in the previous sentence. Upon completion of the Merger, we owned 24 properties across nine states. In connection with the Merger, we also entered into various arrangements and agreements with certain of our significant stockholders, including director nomination rights.
On August 13, 2021, we completed our initial public offering (“IPO”) of 3,905,950 shares of our common stock, par value $0.01 per share at a public offering price of $26.00 per share for gross proceeds of approximately $102.0 million, before deducting placement agent fees and offering expenses. Net proceeds were approximately $93.5 million. Our common stock trades on the OTCQX® Best Market operated by the OTC Markets Group, Inc., under the symbol “NLCP”.
As of December 31, 2022, we owned a geographically diversified portfolio consisting of 32 properties across 12 states with 13 tenants, comprised of 17 dispensaries and 15 cultivation facilities.
Emerging Growth Company
We have elected to be 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. As 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; and
•We are not required to give our stockholders non-binding advisory votes on executive compensation or golden parachute arrangements.
We have elected to use an extended transition period for complying with new or revised accounting standards.
We may take advantage of the other provisions for up to five years or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company upon the earliest to occur of: (i) the last day of the first fiscal year in which our annual gross revenues exceed $1.2 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the exchange, which would occur if the market value of our 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.
Factors Impacting Our Operating Results
Our results of operations are affected by a number of factors and depend on the rental revenue we receive from the properties that we own, interest income we receive from the loans we originate, the timing of lease expirations, general market conditions, the regulatory environment in the cannabis industry, and the competitive environment for real estate assets that support the cannabis industry.
Rental Revenues
We receive income from rental revenue generated by the real estate properties that we own and we expect to acquire in the future. The amount of rental revenue depends upon a number of factors, including:
•Our ability to enter into new leases at market value rents inclusive of annual rent increases; and
•Rent collection, which primarily relates to each of our current and future tenant’s or guarantor’s financial condition and ability to make rent payments to us on time.
The properties that we own consist of real estate assets that support the cannabis industry. Changes in current favorable state or local laws in the cannabis industry may 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.
Commencing in November 2022, we allowed one of our tenants Hero Diversified Associates Inc., to remit their rent payments weekly. All contractual rent payments were received as of the date of this Annual Report. We expect to continue allowing weekly rental payments for the foreseeable future.
Market Conditions
Recently, financial markets have been volatile, reflecting heightened geopolitical risks and material tightening of financial conditions since the U.S. Federal Reserve began increasing interest rates in the spring of 2022. This volatility in the financial markets has led to continued uncertainty regarding monetary policy and concerns of an economic recession. The current market conditions have reduced the availability of capital for our tenants and the Company.
In 2022, inflation has trended significantly higher than in prior periods, which may be negatively impacting some of our tenants. This inflation has impacted costs for labor and production inputs for regulated cannabis operators, in addition to increasing costs of construction for development and redevelopment projections. Ongoing labor shortages and global supply chain issues, geopolitical issues and the war in Ukraine, also continue to adversely impact costs and timing for
completion of these development and redevelopment projects, which are resulting in cost overruns and delays in commencing operations on certain of our tenants' projects.
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, mortgage REITs, hard money lenders, as well as would-be tenants and cannabis operators themselves, all of whom may compete with us in our efforts to acquire real estate zoned for cannabis cultivation, production or dispensary 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 own and expect to acquire, which would adversely affect our financial results.
Financial Performance and Condition of Our Tenants
As of December 31, 2022, all of our rental revenues were derived from triple-net leases to 13 tenants. Our leases obligate the tenant for all the ongoing expenses of a property, including real estate taxes, insurance, maintenance and utilities, in addition to its rent obligations and include a parent or other affiliate guarantee. Our revenues are, therefore, dependent on our tenants (and related guarantors) ability to meet their respective obligations to us. Our tenants operate in the regulated cannabis industry, which is an evolving and highly regulated space. Further, because the regulated cannabis industry is a relatively new space, some of our existing tenants have limited operating histories and may be more susceptible to payment and other lease defaults. Thus, our operating results will be significantly impacted by the ability of our tenants to achieve and sustain positive financial results.
See Item 1A. “Risk Factors” of this Annual Report on Form 10-K for additional factors that may impact our operating results.
Critical Accounting Estimates
In accordance with generally accepted accounting principles in the United States of America (“GAAP”), our consolidated financial statements require the use of estimates and assumptions that involve the exercise of judgment and use of assumptions. Our most critical accounting policies will involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses. Actual results could differ materially from those estimates and assumptions.
We believe that all of the decisions and assessments upon which our consolidated financial statements have been based were reasonable at the time made and based upon information available to us at that time. Below is a summary of our critical accounting policies that involve a significant level of estimation uncertainty or subjectivity and have had or are reasonably likely to have a material impact on our financial condition or results of operations. This discussion of our critical accounting estimates is intended to supplement the description of our accounting policies in the footnotes to our consolidated financial statements and to provide additional insight into the information used by management when evaluating significant estimates and assumptions. For further discussion of our significant accounting policies, see Note
2 “Basis of Presentation and Summary of Significant Accounting Policies ” to our consolidated financial statements included in this Form 10-K.
Investment in Real Estate Properties
Real estate properties are presented at cost, less accumulated depreciation. Costs directly related to the properties’ acquisition, development, or redevelopment of the properties are capitalized. Any repairs and maintenance cost incurred, if any, on the properties are expensed. Major replacements and betterments, which improve or extend the life of the asset, are capitalized and depreciated over their estimated useful lives.
Reimbursements paid to tenants or incurred by us for property improvements, generally consisting of building additions or significant upgrades to existing facilities, are considered construction in progress until placed in service. Such improvements are considered placed in service when ready and available for its intended use.
Upon acquisition of a property, we allocate the purchase price of the real estate to land, building and improvements (inclusive of tenant improvements and site improvements) and if applicable and determined material intangibles, such as the value of above and below market leases and origination costs associated with the in-place lease. The tangible and
intangible assets acquired and liabilities assumed are initially measured based upon their relative fair values. We estimate the fair value of land by reviewing comparable sales within the same submarket and/or region, the fair value of buildings on an as-if vacant basis and may engage third-party valuation specialists. Acquisition costs for asset acquisitions are capitalized as incurred. All of our real estate investments, including the Merger, to date were recorded as asset acquisitions.
We depreciate the amount allocated to building and improvements on a straight-line basis over their estimated useful lives not to exceed 35 years and the amount allocated to site improvements at our buildings, if any, over the estimated useful lives, not to exceed 15 years. The Company amortizes the amount allocated to intangibles related to in-place leases are amortized over the remaining term of the in-place lease.
Lease Classification
Lease classification for leases under which we are the lessor are evaluated at lease commencement and leases not classified as sales-type leases or direct financing leases are classified as operating leases. Leases qualify as sales-type leases if the contract includes either transfer of ownership clauses, certain purchase options, a lease term representing a major part of the economic life of the asset, or the present value of the lease payments and residual guarantees provided by the lessee exceeds substantially all of the fair value of the asset. Additionally, leasing an asset so specialized that it is not deemed to have any value to us at the end of the lease term may also result in classification as a sales-type lease. Leases qualify as direct financing leases when the present value of the lease payments and residual value guarantees provided by the lessee and unrelated third parties exceeds substantially all of the fair value of the asset and collection of the payments is probable.
Lease classification for those leases under which we are the lessee are evaluated at lease commencement as finance or operating leases. Leases qualify as finance leases if the lease transfers ownership of the asset at the end of the lease term, the lease grants an option to purchase the asset that we are reasonably certain to exercise, the lease term is for a major part of the remaining economic life of the asset, or the present value of the lease payments exceeds substantially all of the fair value of the asset. Leases that do not qualify as finance leases are deemed to be operating leases. At lease commencement we record a lease liability which is measured as the present value of the lease payments and a right of use asset which is measured as the amount of the lease liability and any initial direct costs incurred. We apply a discount rate to determine the present value of the lease payments. If the rate implicit in the lease is not known, we use a discount rate reflective of the our incremental borrowing rate. On the consolidated statements of operations, operating leases are expensed through rent expense while financing leases are expensed through amortization and interest expense.
Revenue Recognition
Rental revenue for our triple-net leases are accounted for as operating leases. Operating leases that have fixed and determinable rent increases are recognized on a straight-line basis over the lease term, unless the collectability of minimum lease payments is not reasonably predictable. Rental increases based upon changes in the consumer price index are recognized only after the changes in the indexes have occurred and are then applied according to the lease agreements. Contractually obligated reimbursements from tenants for recoverable real estate taxes and operating expenses are included in rental revenue in the period when such costs are incurred. Contractually obligated real estate taxes that are paid directly by the tenant to the tax authorities are not reflected in our consolidated financial statements.
Rental revenue for operating leases where the minimum lease payments is not reasonably predictable are recognized on a cash basis. Due to our tenants limited operating history and the uncertain regulatory environment in the United States relating to the cannabis industry, we record rental revenue for our operating leases on a cash basis. Any rental payments received in advance of contractual due dates are recorded as Rent Received in Advance on the accompanying consolidated balance sheets.
Provision for Impairment
We review current activities and changes in the business condition of all of our properties to determine the existence of any triggering events or impairment indicators. We evaluate our real estate assets for impairment on a property-by property basis. If triggering events or impairment indicators are identified, we analyzes the carrying value of our real estate for any impairment. Such impairment indicators include but are not limited to, deterioration in rent rates for a property, decline in projected rental rates, evidence of material physical damage to the property, holding period, and tenant defaults.
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, capital expenditures and property sales
capitalization rates. Our undiscounted cash flow and fair value calculations contain uncertainties because they require management to make assumptions and to apply judgment to estimate future cash flow and property fair values, including determining our estimated holding period and selecting the discount or capitalization rate that reflects the risk inherent in future cash flow.
Stock-Based Compensation
We record our compensation cost for all stock awards at fair value at the grant date and amortized the cost over the service period (generally equal to the vesting period). The compensation cost for stock option grants is determined using option pricing models, intended to estimate the fair value of the awards at the grant date less estimated forfeitures. We used the Black-Scholes option pricing model to estimate the fair value of options awards at the time of their grant. The fair value of restricted stock awards is determined using the closing price of our stock on the date of grant, as reported on the primary stock exchange in which our common stock is traded. The fair value of performance stock awards is determined using a Monte Carlo simulation for our future stock price and the corresponding peer group.
There is significant uncertainty in the estimation of the valuation of our performance stock units as they do not vest until December 31, 2023 and December 31, 2024, and there is additional uncertainty around forfeitures as we cannot determine if or when forfeitures will happen. The valuation of units can vary significantly since units are based upon target amounts that may or may not be met.
2022 Highlights
Investment Activity
Real Estate Acquisitions
As of December 31, 2022, we owned a geographically diversified portfolio consisting of 32 properties across 12 states with 13 tenants, comprised of 17 dispensaries and 15 cultivation facilities with a weighted average remaining lease term of 14.6 years. All of our leases, and the secured loan, include a parent or other affiliate guarantee.
The following table presents the Company's investment activity for the year ended December 31, 2022 (in thousands):
Tenant Market Site Type Closing Date Real Estate Acquisition Costs(1)
Bloom Medicinal Missouri Cultivation April 1, 2022 $ 7,301 ‘(2)
Ayr Wellness, Inc. Pennsylvania Cultivation June 30, 2022 14,529
Ayr Wellness, Inc. Nevada Cultivation June 30, 2022 13,579
Calypso Enterprises Pennsylvania Cultivation August 5, 2022 30,000 ‘(3)
PharmaCann Ohio Dispensary November 3, 2022 1,550
Total $ 66,959
(1) Includes the purchase price (and in some cases, transaction costs that have been capitalized into the purchase price) and tenant improvement commitments funded at closing, if any, as of December 31, 2022. Excludes tenant improvement commitments not funded as of December 31, 2022. Excludes approximately $11.0 thousand of capitalized transaction costs on properties purchased prior to January 1, 2022.
(2) Includes $5.0 million of TI funded at closing of the property.
(3) The Company entered into a $30.0 million mortgage loan on October 29, 2021 which converted to a sale-leaseback on August 5, 2022.
The following table presents the tenant improvements funded during the year ended December 31, 2022 (in thousands):
Tenant Market Site Type Closing Date TI Funded Unfunded Commitments
Curaleaf Florida Cultivation August 4, 2020 $ 20,983 ‘(1)
$ -
Mint Massachusetts Cultivation April 1, 2021 349 -
Mint Arizona Cultivation June 24, 2021 7,415 1,554 ‘(2)
PharmaCann Massachusetts Dispensary March 17, 2021 25 -
Trulieve Pennsylvania Cultivation March 17, 2021 7,046 ‘(3)
-
Organic Remedies Missouri Cultivation December 20, 2021 4,745 282
Bloom Medicinal Missouri Cultivation April 1, 2022 4,682 ‘(4)
Ayr Wellness, Inc. Pennsylvania Cultivation June 30, 2022 - 750
Total $ 45,245 $ 3,120
(1) On June 16, 2022, we funded the expansion of an existing property.
(2) The tenant has been paying rent for the remaining commitment since July 2022 in accordance with the lease agreement.
(3) The tenant had been paying rent for the TI since December 2021 in accordance with the lease agreement. As of May 2022, the TI had been fully funded.
(4) The $0.5 million of unfunded commitments does not include a $16.5 million option but not obligation to acquire an adjacent property from the existing tenant.
Loan Receivable
On June 10, 2022, we funded a $5.0 million unsecured loan to Bloom Medicinals. The loan initially bears interest at a rate of 10.25% and is structured to increase by 2.25% annually. The loan can be prepaid at any time without penalty and matures on June 30, 2026. The loan is cross defaulted with their lease agreement with us. As of December 31, 2022, the aggregate principal amount outstanding on the unsecured loan receivable was $5.0 million.
Financing Activity
Seller Financing
In connection with the purchase and leaseback of a cultivation facility in Chaffee, Missouri on December 20, 2021, we entered into a $3.8 million loan payable to the seller, which is an independent third party from the tenant. The loan bears interest at a rate of 4.0% per annum. Principal on the loan is payable in annual installments of which $1.8 million was paid in January 2022. The remaining principal is payable in annual installments of $1.0 million in each of January 2023 and 2024. The loan's outstanding balance as of December 31, 2022 was $2.0 million and the remaining unamortized discount was $13.5 thousand.
Revolving Credit Facility
On May 6, 2022, we entered into a loan and security agreement (the “Loan and Security Agreement”) with a commercial federally regulated bank, as a lender and as agent for lenders that become party thereto from time to time (the “Agent”). The Loan and Security Agreement matures on May 6, 2027. The Loan and Security Agreement includes the following, among other features: Revolving Facility: The Loan and Security Agreement provides, subject to the Accordion Feature described below, $30.0 million in aggregate commitments for secured revolving loans (“Revolving Credit Facility”), the availability of which is based on a borrowing base consisting of fee simple owned real properties that satisfy eligibility criteria specified in the Loan and Security Agreement and the lease income thereunder which are owned by certain subsidiaries of the Operating Partnership. On July 29, 2022, the Operating Partnership, entered into an amendment to the Revolving Credit Facility, amending the Loan and Security Agreement, dated as of May 6, 2022, to increase the aggregate commitment under the Revolving Credit Facility from $30.0 million to $90.0 million and added two additional lenders. The Loan and Security Agreement also allows us, subject to certain conditions, to request additional revolving incremental loan commitments such that the Revolving Credit Facility may be increased to a total aggregate principal amount of up to $100.0 million. Borrowings under the Revolving Credit Facility may be voluntarily prepaid and re-borrowed, subject to certain fees. The Revolving Credit Facility bears a fixed rate of 5.65% for the first three years and thereafter a variable rate based upon the greater of (a) the Prime Rate quoted in the Wall Street Journal (Western Edition) (“Base Rate”) plus an applicable margin of 1.00% or (b) 4.75%. The facility is subject to certain liquidity and operating covenants and includes customary representations and warranties, affirmative and negative covenants and events of default. As of December 31, 2022, the Company is compliant with the covenants of the agreement.
The outstanding borrowings under the Revolving Credit Facility were $1.0 million as of December 31, 2022. Refer to Note 5 in the Notes to Consolidated Financial Statements in Part IV - Item 15 for further information.
Capital Markets Activity
Stock Repurchase Program
On November 7, 2022, our Board of Directors authorized a stock repurchase program for up to $10.0 million of our common stock through December 31, 2023. Purchases made pursuant to the stock repurchase program will be made in the open market, in privately negotiated transactions, or pursuant to any trading plan that may be adopted in accordance with Rule 10b-18 of the Securities and Exchange Act of 1934, as amended. The authorization of the stock repurchase program does not obligate us to acquire any particular amount of common stock. The timing, manner, price and amount of any repurchases will be determined by us at our discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The stock repurchase program may be suspended or discontinued by us at any time and without prior notice. As of December 31, 2022, we have not repurchased any shares of common stock under the stock repurchase program.
Results of Operations
General
We derive substantially all our revenue from rents received from single tenants of each of our properties under triple-net leases. Our triple-net leases obligate the tenant for all the ongoing expenses of a property, including real estate taxes, insurance, maintenance and utilities, in addition to its rent obligations. Our leases also typically include annual rent escalations (typically within the range of 2-3%) as a set percentage or based on an inflation index, which generally provides us with contractual revenue growth and inflation-protected returns. All of our leases include a parent or other affiliate guarantee.
Comparison of the Year Ended December 31, 2022 and 2021 (dollars in thousands):
For the Year Ended December 31, Increase/Decrease
2022 2021 2022 vs 2021
Revenue:
Rental Income $ 42,365 $ 27,445 $ 14,920
Interest Income from Loans 2,429 613 1,816
Total Revenue 44,794 28,058 16,736
Expenses(1):
Depreciation and Amortization Expense 12,825 8,097 4,728
General and Administrative Expenses:
Compensation Expense 4,576 2,989 1,587
Stock-Based Compensation 1,493 2,020 (527)
Professional Fees 1,575 2,040 (465)
Other General and Administrative Expenses 1,749 1,417 332
Total General and Administrative Expenses 9,393 8,466 927
Total Expenses 22,218 16,563 5,655
Loss on Sale of Real Estate (60) - (60)
Income From Operations 22,516 11,495 11,021
Other Income (Expenses):
Interest Income 113 100 13
Interest Expense (273) (6) (267)
Total Other Income (Expense) (160) 94 (254)
Net Income 22,356 11,589 10,767
Preferred Stock Dividends - (4) 4
Net Income Attributable to Noncontrolling Interests (380) (356) (24)
Net Income Attributable to Common Stockholders $ 21,976 $ 11,229 $ 10,747
(1) Property expenses are included in Other General and Administrative Expenses and are expensed and reimbursed by the tenant, generally in the same period, however it’s possible to have expenses we have not yet been reimbursed for due to timing difference.
Revenues
Rental Income
Rental income for the year ended December 31, 2022 increased by approximately $14.9 million, to approximately $42.4 million, compared to approximately $27.4 million for the year ended December 31, 2021. The increase in rental income was primarily attributable to:
•A full year of rental income, including rent attributable to TI funding, on the four properties we acquired during 2021 which generated approximately $6.0 million of rental income during the year ended December 31, 2022.
•Rental income increases attributable from the funding of tenant improvement commitments at our Florida and Pennsylvania cultivation facilities, which generated approximately $3.3 million of rental income during the year ended December 31, 2022.
•Rental income of approximately $3.8 million from properties we acquired during the year ended December 31, 2022, including the conversion to a mortgage loan that converted to a sale-leaseback in the third quarter of 2022.
•Annual escalations generated an increase of approximately $1.8 million of rental income during the year ended December 31, 2022.
Interest Income from Loans
The increase in interest income from loans of approximately $1.8 million for the year ended December 31, 2022 compared to the year ended December 31, 2021, was attributable to seven months of interest income from the $30.0 million mortgage loan we entered into during the fourth quarter of 2021. On August 5, 2022, the mortgage loan was converted to a twenty-year sale-leaseback in accordance with the loan agreement. We also recognized approximately $0.3 million of interest income in connection with a $5.0 million unsecured loan, funded on June 10, 2022, which was entered into in connection with the purchase of a Missouri cultivation facility.
Expenses
Depreciation and Amortization Expense
Depreciation and amortization expense for the year ended December 31, 2022, increased by approximately $4.7 million to approximately $12.8 million, compared to $8.1 million for the year ended December 31, 2021. The increase in depreciation was attributable to; (i) a full year of depreciation on the Merger properties and two cultivation facilities acquired during 2021; (ii) the acquisition of three cultivation facilities and one dispensary during 2022; (iii) a mortgage loan that converted to a sale-leaseback property on August 5, 2022; (iv) the funding of an expansion at an existing cultivation facility in Florida; (v) accelerated amortization of approximately $0.2 million related to the associated in-place lease of a property sold in March 2022; and (vi) approximately $29.8 million of tenant improvements that were placed into service during the year ended December 31, 2022.
General and Administrative Expense
Total general and administrative expenses for the year ended December 31, 2022 increased by approximately $0.9 million, to $9.4 million, compared to $8.5 million for the year ended December 31, 2021. The increase in general and administrative expense is described below by category.
Compensation Expense
Compensation expense for the year ended December 31, 2022, increased by approximately $1.6 million to $4.6 million, compared to $3.0 million for the year ended December 31, 2021. The increase was primarily due to one-time severance payments from the retirement and the separation of certain executive officers of the Company.
Stock-Based Compensation
Stock-based compensation expense for the year ended December 31, 2022 decreased by approximately $0.5 million from $2.0 million in 2021, compared to $1.5 million in 2022. Prior to the IPO, we granted 127,176 RSUs to officers and certain of our directors primarily in connection with achieving specific targets for certain capital raises. As of the date of the
completion of our IPO, all unvested RSUs vested, resulting in accelerated expense of approximately $0.8 million, increasing the total expense to approximately $2.0 million during the year ended December 31, 2021. The 2022 expense was attributable to the issuance of RSUs and PSUs in conjunction with our IPO on August 13, 2021 and includes approximately $0.2 million of expense related to the accelerated vesting of RSUs from the retirement and separation of certain executive officers and approximately $0.7 million of expense related to RSUs and approximately $0.6 million of expense related to PSUs granted under the 2021 Equity Incentive Plan (the “Plan”).
Professional Fees
Professional fees for the year ended December 31, 2022, decreased by approximately $0.5 million to $1.6 million, compared to $2.0 million for the year ended December 31, 2021. The decrease was mainly attributable to declines of approximately $0.2 million for each legal fees and consulting fees and a decline of approximately $0.4 million related to the elimination of outsourced accounting functions, offset by an increase of approximately $0.3 million in recruiting and potential restructuring.
Other General and Administrative Expenses
For the year ended December 31, 2022, other general and administrative expenses increased by approximately $0.3 million to $1.7 million, compared to $1.4 million for the year ended December 31, 2021. Other general and administrative expenses is comprised of director and officer insurance, dead deal costs, information technology, public and investor relations fees, corporate rent and various other expenses.
Loss on Sale of Real Estate
On March 21, 2022, we sold our PharmaCann Massachusetts property for approximately $0.8 million. We recognized a loss on sale of property of $60,113 during the year ended December 31, 2022.
Other Income (Expense)
Interest income increased during the year ended December 31, 2022, by approximately $13.0 thousand, to $113.0 thousand, compared to $100.0 thousand for the year ended December 31, 2021, primarily due to higher interest rates in money market accounts.
We incurred interest expense for a full year during 2022 on the loan payable entered into during the year ended December 31, 2021 and incurred interest expense in connection with the Revolving Credit Facility entered into during the year ended December 31, 2022. Additionally, the Company incurred non-cash interest expense of approximately $136 thousand related to deferred financing costs in connection with obtaining the Credit Facility and approximately $27 thousand related to favorable financing on the loan payable.
Non-GAAP Financial Information and Other Metrics
Funds from Operations and Adjusted Funds from Operations
Funds from Operations (“FFO”) and Adjusted Funds from Operations (“AFFO”) are non-GAAP financial measures and should not be viewed as alternatives to net income calculated in accordance with GAAP as a measurement of our operating performance. We believe that FFO and AFFO are useful to investors because they are widely accepted industry measures used by analysts and investors to compare the operating performance of REITs.
We calculate FFO in accordance with the current National Association of Real Estate Investment Trusts (“NAREIT”) definition. NAREIT currently defines FFO as follows: net income (loss) (computed in accordance with GAAP) excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by an entity. Other REITs may not define FFO in accordance with the NAREIT definition or may interpret the current NAREIT definition differently than we do and therefore our computation of FFO may not be comparable to such other REITs.
We calculate AFFO by starting with FFO and adding back non-cash and certain non-recurring transactions, including non-cash components of compensation expense. Other REITs may not define AFFO in the same manner as we do and therefore our calculation of AFFO may not be comparable to such other REITs. You should not consider FFO and AFFO to be
alternatives to net income as a reliable measure of our operating performance; nor should you consider FFO and AFFO to be alternatives to cash flows from operating, investing or financing activities (as defined by GAAP) as measures of liquidity.
The table below is a reconciliation of net income attributable to common stockholders to FFO and AFFO for the year ended December 31, 2022 and 2021 (in thousands, except share and per share amounts):
For the Year Ended
December 31,
2022 2021
Net Income Attributable to Common Stockholders $ 21,976 $ 11,229
Net Income Attributable to Noncontrolling Interests 380 356
Net Income 22,356 11,585
Adjustments:
Real Estate Depreciation and Amortization 12,825 8,097
Loss on Sale of Real Estate 60 -
FFO Attributable to Common Stockholders - Diluted(1)
35,241 19,682
Severance 1,752 45
Stock-Based Compensation 1,493 2,020
Non-Cash Interest Expense 163 2
Amortization of Straight-Line Rent Expense 12 -
AFFO Attributable to Common Stockholders - Diluted(1)
$ 38,661 $ 21,749
(1) FFO diluted and AFFO diluted for the year ended December 31, 2022 are calculated and presented on a fully diluted basis and comparative prior period balances for FFO and AFFO were calculated to conform to the 2022 presentation.
Liquidity and Capital Resources
Our cash requirements include our dividends, to our shareholders, distributions to our OP Unit holders, general and administrative expenses, debt service, other expenses related to managing our existing portfolio as well as acquisition and unfunded tenant improvement costs. The sources of liquidity to fund these cash requirements include rental revenue from the leasing of our properties, which is our primary source of cash flow, borrowings under our revolving credit facility and equity and debt issuances either in the public or private markets. Where possible, we also may issue OP Units to acquire properties from existing owners seeking a tax-deferred transaction.
As of December 31, 2022, we had $134.2 million of liquidity comprised of $45.2 million of cash and cash equivalents and $89.0 million available on our $90.0 million revolving credit facility. The ongoing challenges posed by the increase in interest rates and inflation could adversely impact our cash flow from continuing operations but we expect that cash flow from continuing operations over the next twelve months, together with cash on hand, will be adequate to fund our business operations, cash dividends to our shareholders, distributions to our OP Unit holders and debt service. Acquisitions and unfunded tenant improvement costs may require funding from borrowings, equity issuance and or issuance of OP units. We cannot however, be certain that these sources of funds will be available at a time and upon terms acceptable to us in sufficient amounts in the future.
Summary of Cash Flows
The following summary discussion of our cash flows is based on the consolidated statements of cash flows in our Consolidated Financial Statements and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below (in thousands):
For the Year Ended
December 31,
2022 2021
Net Cash Provided by Operating Activities $ 37,008 $ 26,697
Net Cash (Used in) Investing Activities $ (86,453) $ (39,907)
Net Cash (Used in) Provided by Financing Activities $ (32,460) $ 120,690
Ending Cash and Cash Equivalents $ 45,192 $ 127,097
Net Cash Provided by Operating Activities:
Net cash provided by operating activities for the year ended December 31, 2022 and 2021 were approximately $37.0 million and $26.7 million, respectively. Net cash flows provided by operating activities primarily related to contractual rent and security deposits from our properties, partially offset by our general and administrative expenses. Net cash flows provided by operating activities for the year ended December 31, 2022 increased from the year ended December 31, 2021, due to a larger real estate portfolio.
Net Cash Used in Investing Activities:
Net cash used in investing activities for the year ended December 31, 2022 and 2021 were approximately $86.5 million and $39.9 million, respectively. Net cash used in investing activities for the year ended December 31, 2022 related to approximately $45.2 million advanced for tenant improvements, $5.0 million to fund an unsecured loan receivable at a cultivation facility in Missouri and approximately $37.0 million used to purchase cultivation facilities in Missouri, Pennsylvania and Nevada and one dispensary in Ohio, offset by approximately $0.8 million of proceeds received in connection with the sale of our Franklin, Massachusetts property. Net cash used in investing activities for the year ended December 31, 2021 related to approximately $64.4 million of cash acquired in connection with the Merger, offset by approximately $2.1 million of Merger transaction related costs, approximately $15.2 million advanced for tenant improvements, $30.0 million invested in a mortgage loan receivable and approximately $57.0 million related to the purchase of investments in real estate.
Net Cash Used in/Provided by Financing Activities:
Net cash used in financing activities for the year ended December 31, 2022 were approximately $32.5 million and net cash provided by financing activities for the year ended December 31, 2021 were approximately $120.7 million. Net cash used in financing activities for the year ended December 31, 2022, were primarily related to approximately $29.7 million in dividend payments to holders of our common stock as well as distributions to OP Unit holders and dividend equivalents to RSU holders, $1.8 million to pay down our loan payable, approximately $0.8 million of cash paid for taxes in lieu of issuance of common stock and approximately $1.2 million in net deferred financing costs in connection with obtaining our revolving credit facility, offset by $1.0 million drawn on our revolving credit facility. Net cash provided by financing activities for the year ended December 31, 2021, were primarily related to approximately $133.1 million in net proceeds from our issuance of common stock, partially offset by approximately $12.3 million in dividend payments to holders of our preferred stock and holders of our common stock, as well as distributions to OP Unit holders and dividend equivalents to RSU holders and $0.1 million paid to redeem our preferred stock.
Dividends
To maintain our qualification as a REIT, U.S. federal income tax law generally requires that we distribute at least 90% of our REIT taxable income annually, determined without regard to the deduction for dividends paid and excluding net capital gains. We must pay tax at regular corporate rates to the extent that we annually distribute less than 100% of our taxable income. We evaluate each quarter to determine our ability to pay dividends to our stockholders based on our net taxable income if and to the extent authorized by our board of directors. Before we pay any dividend, whether for U.S. federal
income tax purposes or otherwise, we must first meet both our operating requirements and debt service payments. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution.
As a result of this distribution requirement, our operating partnership cannot rely on retained earnings to fund its ongoing operations to the same extent that other companies whose parent companies are not REITs can. During the year ended December 31, 2022, we declared and our board of directors approved, cash dividends on our common stock and restricted stock units and in our capacity as general partner of the Operating Partnership, authorized distributions on our OP Units totaling approximately $1.44 per share. During the year ended December 31, 2021, we declared and our board of directors approved, cash dividends on our common stock and restricted stock units and in our capacity as general partner of the Operating Partnership, authorized distributions on our OP Units totaling approximately $1.02 per share, and cash dividends on our Series A Preferred Stock totaling approximately $4,167. Our Series A Preferred Stock was redeemed in full on April 6, 2021.
Recent Developments
Tenant Improvements
Subsequent to December 31, 2022, we funded approximately $1.4 million of tenant improvements to our cultivation facilities in Massachusetts and Missouri.
Seller Financing
On January 3, 2023, we paid down $1.0 million of our seller financing loan payable. The remaining outstanding balance after the payment is $1.0 million.
Real Estate Acquisitions
In March 2023, we exercised the option with Bloom Medicinal and acquired a parcel of land adjacent to our Missouri property $350.0 thousand. The option includes expansion to the existing cultivation facility and we will provide up to $16.2 million to fund the expansion.
In March 2023, we executed a non-binding Letter of Intent with The Mint Cannabis to provide up to $7.5 million for improvements to the cultivation and processing facility under construction located in Phoenix, Arizona.
Non-Performing Tenant
In the first quarter of 2023, Revolutionary Clinics failed to pay contractual rent for January, February and to date March, under one lease agreement. We are currently in discussion with the tenant to negotiate a resolution, which could include rent deferrals. Revolutionary Clinic has hired financial experts in the industry for interim crisis management and to help restructure their company. We have approximately three months of security deposits, which may be used all or a part towards the outstanding rent.
Contractual Obligations and Commitments
Unfunded Commitments
As of December 31, 2022, we had aggregate unfunded commitments to invest $3.1 million to develop and improve our existing cultivation facilities in Arizona, Missouri, and Pennsylvania. During the year ended December 31, 2022, we were released of our obligation to fund $2.7 million to a Massachusetts cultivation facility. Remaining unfunded commitments also do not include the option to acquire an adjacent parcel of land and fund the construction of a cultivation facility of an existing tenant (subject to normal and customary closing conditions and regulatory approvals) for a cost of up to $16.5 million; however, there is no obligation to us at this time as there is no guarantee the transaction will close.
As of December 31, 2022, we are the lessee under one office lease for a term of four years, subject to annual escalations. The annual rent payments range from approximately $72 thousand in year one to $85 thousand in year four.
Revolving Credit Facility
As of December 31, 2022, the Company had $1.0 million drawn on our Revolving Credit Facility which bears interest at a rate of 5.65% per annum.
Seller Financing
The loans outstanding balance as of December 31, 2022 was $2.0 million and the remaining unamortized discount was $13.5 thousand. Principal on the loan is payable in annual installments of which $1.8 million was paid in January 2022 and $1.0 million was paid in January 2023. The remaining principal of $1.0 million is payable in January 2024.
Adoption of New or Revised Accounting Standards
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
Recent Accounting Pronouncements
Refer to Note 2 - “Basis of Presentation and Summary of Significant Accounting Policies” for recent accounting pronouncements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Interest Rate Risk
We are exposed to changes in interest rates primarily from our revolving credit facility that converts to variable rate debt in May 2025. We may choose to mitigate such interest rate risk through the use of interest rate derivative instruments.
Inflation
The U.S. economy has experienced an increase in inflation rates recently. We enter into leases that generally provide for annual fixed increases in rent at a fixed rate. In some instances, leases provide for annual increases in rent based on the increase in annual CPI. 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.
Seasonality
Our business is not, and we do not expect our business to be, subject to material seasonal fluctuations.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item 8 is incorporated by reference to our Financial Statements beginning on page of this report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES.
Our management, under the supervision and with the participation of our principal executive and financial officer, is responsible for and has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the
information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, including ensuring that such information is accumulated and communicated to our company's management, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and financial officer have concluded that such disclosure controls and procedures were effective as of December 31, 2022 (the end of the period covered by this Annual Report).
Management’s Annual Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as a process designed by, or under the supervision of, the Company's Chief Executive Officer and Chief Financial Officer and effected by the Company's Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;and
•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management of the Company has assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2022. In making its assessment of internal control over financial reporting, management used the criteria described in Internal Control-Integrated Framework (2013framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission, ("COSO"). Based on this evaluation, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2022 based on criteria in Internal Control-Integrated Framework issued by the COSO.
This annual report does not include an attestation report of the company's independent registered public accounting firm due to a temporary exemption transition period established by rules of the Securities and Exchange Commission for emerging growth companies under the Jumpstart Our Business Startups Act of 2012(the "JOBS Act").
Limitations on Controls
Our system of internal control over financial reporting was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION.
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The information required by Item 10 is incorporated herein by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2022.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION.
The information required by Item 11 is incorporated herein by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2022.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Equity Compensation Plan
The following table summarizes information about the Company’s equity compensation plan under which our common stock may be issued as of December 31, 2022.
Plan Category Number of Shares to be Issued upon Exercise of Outstanding Options, Warrants and Rights(1)
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights Number of Shares Remaining Available for Future Issuance under Equity Compensation Plans(2)
Equity compensation plans approved by security holders 172,430 2,081,600
Equity compensation plans not approved by security holders - - -
Total 172,430 - 2,081,600
The remainder of the information required by Item 12 is incorporated by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2022.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by Item 13 is incorporated herein by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2022.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by Item 14 is incorporated herein by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2022.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a)Documents filed as part of this report:
1.Financial Statements. See Index to Financial Statements below.
2.Schedules to Financial Statements. See Index to Financial Statements below.
All financial statement schedules not included have been omitted because they are either inapplicable or the information required is provided in our Financial Statements and Notes thereto.
3.Exhibits. See Exhibit Index below.
EXHIBIT INDEX
Exhibit
Number Description
3.1 Articles of Amendment and Restatement of NewLake Capital Partners, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
3.2 Articles Supplementary of NewLake Capital Partners, Inc. (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on September 19, 2022).
3.3 Amended and Restated Bylaws of NewLake Capital Partners, Inc. (incorporated by reference to Exhibit 3.3 to the Registrant's Quarterly Report on Form 10-Q filed on November 10, 2022).
4.1 Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K filed on March 18, 2022).
10.1 Amended and Restated Agreement of Limited Partnership of NLCP Operating Partnership LP (incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.2† NewLake Capital Partners, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant’s Annual Report on Form 10-K filed on March 18, 2022).
10.3† Employment Agreement between NewLake Capital Partners, Inc. and Anthony Coniglio (incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.4† Employment Agreement between NewLake Capital Partners, Inc. and Lisa Meyer (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed on May 16, 2022).
10.5† Indemnification Agreement between NewLake Capital Partners, Inc. and Lisa Meyer (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed on May 16, 2022).
10.6† Indemnification Agreement between NewLake Capital Partners, Inc. and David Weinstein (incorporated by reference to Exhibit 10.7 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.7† Indemnification Agreement between NewLake Capital Partners, Inc. and Anthony Coniglio (incorporated by reference to Exhibit 10.8 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.8† Indemnification Agreement between NewLake Capital Partners, Inc. and Gordon DuGan (incorporated by reference to Exhibit 10.10 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.09† Indemnification Agreement between NewLake Capital Partners, Inc. and Alan Carr (incorporated by reference to Exhibit 10.11 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.10† Indemnification Agreement between NewLake Capital Partners, Inc. and Joyce Johnson-Miller (incorporated by reference to Exhibit 10.12 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.11† Indemnification Agreement between NewLake Capital Partners, Inc. and Peter Kadens (incorporated by reference to Exhibit 10.13 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.12† Indemnification Agreement between NewLake Capital Partners, Inc. and Peter Martay (incorporated by reference to Exhibit 10.14 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.13† Amended and Restated Investor Rights Agreement (incorporated by reference to Exhibit 10.15 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.14 Amended and Restated Registration Rights Agreement (incorporated by reference to Exhibit 10.16 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.15 Warrant Agreement between NewLake Capital Partners, Inc, and NLCP Holdings, LLC (incorporated by reference to Exhibit 10.17 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.16† Form of Nonqualified Stock Option Grant Agreement (incorporated by reference to Exhibit 10.18 to the Registrant's Registration Statement on Form S-11 filed on June 21, 2021).
10.17† Form of Senior Executive Restricted Stock Unit Agreement under the NewLake Capital Partners, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed December 20, 2021).
10.18† Form of Senior Executive Performance Stock Unit Agreement under the NewLake Capital Partners, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrant's Current Report on Form 8-K filed December 20, 2021).
10.19† Form of Employee Restricted Stock Unit Agreement under the NewLake Capital Partners, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant's Current Report on Form 8-K filed December 20, 2021).
10.20† Form of Employee Performance Stock Unit Agreement under the NewLake Capital Partners, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form 8-K filed December 20, 2021).
10.21† Form of Non-Employee Director Restricted Stock Unit Agreement under the NewLake Capital Partners, Inc. 2021 Equity Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registrant's Current Report on Form 8-K filed December 20, 2021).
10.22 Loan and Security Agreement, dated as of May 6, 2022, among NLCP Operating Partnership LP, as borrower and a commercial federally regulated bank, as a lender and as agent for lenders that become party thereto (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed on August 10, 2022).
10.23 Pledge and Security Agreement, dated May 6, 2022, among certain subsidiary guarantors and a commercial federally regulated bank as agent (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report on Form 10-Q filed on August 10, 2022).
10.24 Continuing and Unconditional Guaranty, dated May 6, 2022, among NewLake Capital Partners, Inc., as parent, guarantors and a commercial federally regulated bank, as agent (incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q filed on August 10, 2022).
10.25 Amendment Number One to Loan and Security Agreement, dated July 29, 2022, between the Operating Partnership and a commercial federally regulated bank, as a lender and as agent for lenders that become party thereto (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q filed on August 10, 2022).
21.1* List of Subsidiaries of the Registrant.
23.1* Consent of BDO USA, LLP.
31.1* Certification of Annual Report by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Annual Report by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2* Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS* Inline XBRL Instance Document.
101.SCH* Inline XBRL Taxonomy Extension Schema Document.
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
_________________________
†Management contracts or compensatory plans required to be filed as Exhibits to this Form 10-K.
*Filed herewith.