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Item 1.01.
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Entry into a Material Definitive Agreement.
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On
March 13, 2019, in connection with the acquisition of the property located at 10767 Mill Dam Road, Buckeye Lake Village, Ohio (the
"Property") from PharmaCann Ohio LLC ("Tenant"), an affiliate of PharmaCann LLC ("PharmaCann"), described
below in Item 2.01, IIP-OH 1 LLC ("Landlord"), a wholly owned subsidiary of IIP Operating Partnership, LP (the "Operating
Partnership"), the operating partnership subsidiary of Innovative Industrial Properties, Inc. (the "Company"), entered
into a triple-net lease (the "Lease") with Tenant for the entire Property. The Lease provides that
Tenant is responsible
for paying all structural repairs, maintenance expenses, insurance and taxes related to the Property. The initial Lease term expires
on May 15, 2034, with two options to extend the term of the Lease for two additional five-year periods. Tenant intends to operate
the Property as a medical-use cannabis cultivation and processing facility upon completion of development.
Also on March
13, 2019, Tenant, Landlord and the Operating Partnership entered into a Development Agreement (the "Development Agreement"),
pursuant to which Tenant is responsible for the development of an approximately 32,000 square foot greenhouse facility and an approximately
26,000 square foot industrial facility on the Property. Pursuant to the Development Agreement, Landlord is obligated to reimburse
Tenant for costs of development of up to $19.3 million (the "Construction Funding"), subject to the satisfaction of certain
conditions contained therein.
The initial annualized
base rent (the "Base Rent") under the Lease is $2,650,000, payable monthly. The Base Rent will be abated until May 15,
2019 and is subject to annual increases of 3.25% during the Lease term.
Tenant is also responsible
for paying the Company a property management fee equal to 1.5% of the then-current Base Rent under the Lease.
Pursuant
to the Lease, Tenant delivered to Landlord an initial security deposit of $23,187.50 in cash at the execution of the Lease. The
security deposit shall increase for each draw of the Construction Funding in an amount equal to three months of the corresponding
increase in Base Rent, and the full security deposit of $662,500 shall be funded no later than the date that is 15 months following
the commencement date of the Lease.
In addition, any
entity affiliated with Tenant and operating in the cannabis industry, including any entity formed during the term of the Lease,
shall enter into a full guaranty with respect to Tenant's obligations under the Lease, subject to adjustment pursuant to the Multi-Party
Agreement described below.
Also pursuant
to the Lease, Tenant has the option, at its discretion during the first four years of the term of the Lease, to sell or otherwise
transfer its interests in the government approvals and licenses required to conduct medical-use cannabis cultivation and processing
at the Property (the "Required Approvals"). If Tenant elects to make such a transfer of the Required Approvals, Landlord,
in its sole discretion, can elect to either a) consent to having the transferee of the Required Approvals replace Tenant and the
guarantors in connection with the Lease; or b) require that Tenant repurchase the Property from Landlord at a price equal to the
greater of a) the appraised value of the Property and b) the quotient of (i) the total Base Rent payable during the calendar year
in which the notice for the transfer of the Required Approvals is delivered, divided by (ii) 9.75%, less any unfunded Construction
Funding at the time of closing of the repurchase of the Property. Upon the receipt of the Required Approvals and Tenant becoming
a majority-owned subsidiary of MedMen ParentCo (as defined below), the Lease provisions described in this paragraph shall automatically
terminate.
Also on March
13, 2019, Landlord, IIP-NY 1 LLC, a wholly owned subsidiary of the Company, IIP-MA 1 LLC, a wholly owned subsidiary of the Company,
PharmaCann, Tenant, PharmaCannis Massachusetts Inc., a subsidiary of PharmaCann, and MedMen Enterprises Inc. ("MedMen")
entered into a Multi-Party Agreement Regarding Leases and Amendment to Leases (the "Multi-Party Agreement"), pursuant
to which, among other things, effective on the date of the closing and consummation of the business combination transaction contemplated
by the Business Combination Agreement dated December 23, 2018 between PharmaCann and MedMen, the surviving parent company ("MedMen
ParentCo") of PharmaCann and MedMen shall execute a guaranty with respect to PharmaCann's and its subsidiaries' obligations
under the Lease, the Lease Agreement dated as of December 19, 2016 by and between IIP-NY 1 LLC and PharmaCann and the Lease Agreement
dated as of May 31, 2018 by and between IIP-MA 1 LLC and PharmaCannis Massachusetts Inc., as amended.
The
foregoing descriptions of the Lease, the Development Agreement and the Multi-Party Agreement do not purport to be complete and
are qualified in their entirety by reference to the complete text of the Lease, the Development Agreement and the Multi-Party Agreement,
which are filed as exhibits to this report and incorporated herein by reference.