Cannabis real estate giant Innovative Industrial Properties (IIP) has accused multistate operator PharmaCann of defaulting on multiple leases, claiming unpaid rent across six U.S. states. The alleged default could escalate tensions in the already challenging cannabis industry.
IIP Claims $4.2 Million in Unpaid Rent
San Diego-based IIP, a prominent real estate investment trust (REIT) focused on cannabis facilities, stated that PharmaCann failed to meet its December rent obligations for six properties. These properties are located in Illinois, Massachusetts, Michigan, New York, Ohio, and Pennsylvania, with the total amount owed pegged at $4.2 million.
To mitigate the situation, IIP applied security deposits held under the lease agreements toward the overdue rent, alongside penalties and interest. This temporary measure highlights the financial strain caused by the defaults. However, IIP made it clear that it is prepared to take further legal action if necessary, including eviction proceedings.
Cross-Default Clause Complicates PharmaCann’s Position
PharmaCann’s default wasn’t limited to the six properties with overdue rent. Despite paying full December rent on five other leases amounting to $90,000, IIP invoked a cross-default clause. This provision stipulates that a default on any single lease triggers defaults across all related agreements. The clause compounded the financial and legal ramifications for PharmaCann, even for leases that were up to date.
Such provisions are common in commercial real estate contracts, ensuring that landlords have leverage in cases where tenants face financial challenges. In this case, IIP appears ready to enforce its contractual rights to the fullest extent.
Negotiations Underway Amid Legal Threats
While tensions are high, both companies have signaled their intention to negotiate a resolution. Jeremy Unruh, PharmaCann’s spokesperson, downplayed the dispute’s impact, expressing optimism about reaching an agreement.
“We do not view this action as a material impediment to resolving outstanding issues with IIP,” Unruh said in an email to MJBizDaily. He reiterated PharmaCann’s dedication to delivering quality products and services to patients and consumers, emphasizing the company’s decade-long commitment to the cannabis industry.
IIP, on the other hand, has not minced words about its readiness to pursue legal avenues if a resolution isn’t reached. The company’s statement underscored its intent to “aggressively enforce” lease obligations.
Significant Revenue at Stake for IIP
The stakes are particularly high for IIP, as PharmaCann’s 11 leases account for a substantial portion of the REIT’s revenue. According to IIP, the leases represent 17% of its total rental income for the third quarter and the first nine months of the year. Losing such a major tenant, or experiencing continued non-payment, could ripple through the REIT’s financial performance.
This case also highlights broader concerns in the cannabis industry, where operators often face financial pressures due to regulatory challenges, market oversaturation, and capital access issues.
Industry Implications
The dispute between IIP and PharmaCann sheds light on the financial complexities of the cannabis industry. While real estate trusts like IIP provide essential infrastructure, their reliance on a few large tenants can expose them to significant risks. Conversely, cannabis operators like PharmaCann must balance operational costs with regulatory compliance and market competition.
The resolution of this case could set a precedent for how landlords and tenants navigate financial disputes in the cannabis sector. For now, both parties appear locked in a high-stakes standoff, with negotiations continuing behind the scenes.