NewLake Capital Partners Inc

Note 1 -Organization

NewLake Capital Partners, Inc. (the “Company”), a Maryland corporation, was formed on April 9, 2019, originally as GreenAcreage Real Estate Corp. (“GARE”). The Company is an internally managed Real Estate Investment Trust (“REIT”) focused on providing long-term, single-tenant, triple-net sale-leaseback and build-to-suit transactions for the cannabis industry. The Company conducts its operations through its subsidiary, NLCP Operating Partnership LP, a Delaware limited partnership (the “Operating Partnership” or “OP”). The Company is the sole managing general partner of the Operating Partnership. The Company's common stock trades on the OTCQX® Best Market operated by the OTC Markets Group, Inc., under the symbol “NLCP”.

Note 2 -Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited consolidated financial statements and related notes have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. They do not include all of the information and footnotes required by GAAP for complete financial statements. The consolidated financial statements include the accounts of the Company, the Operating Partnership, as well as wholly owned subsidiaries of the Operating Partnership and variable interest entities (“VIEs”) in which the Company is considered the primary beneficiary. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the operating results for the full year or any future period. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, and filed with the Securities and Exchange Commission (“SEC”) on March 11, 2024. In management's opinion, all adjustments (which include normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows have been made.

Variable Interest Entities

The Company consolidates a VIE in which it is considered the primary beneficiary. The primary beneficiary is the entity that has (i) the power to direct the activities that most significantly impact the entity's economic performance; and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE.

NLCP Operating Partnership LP

The Operating Partnership is a VIE because the holders of limited partnership interests do not have substantive kick-out rights or participating rights. Furthermore, the Company is the primary beneficiary of the Operating Partnership because it has the obligation to absorb losses and the right to receive benefits from the Operating Partnership and the exclusive power to direct the activities of the Operating Partnership. As of March 31, 2024 and December 31, 2023, the assets and liabilities of the Company and the Operating Partnership are substantially the same, as the Company does not have any significant assets other than its investment in the Operating Partnership.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Management will adjust such estimates when facts and circumstances dictate. Such

Note 2 - Basis of Presentation and Summary of Significant Accounting Policies (continued)

estimates include, but are not limited to, useful lives for depreciation of property and corporate assets, the fair value of acquired real estate and in-place lease intangibles acquired, and the valuation of stock-based compensation. Actual results could differ from those estimates.

Reclassification

Certain prior year balances have been reclassified to conform to the Company's current year presentation.

Significant Accounting Policies

There have been no changes to the Company's accounting policies included in Note 2 to the Consolidated Financial Statements of the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

Recently Issued Accounting Pronouncements

Note 3 -Real Estate

As of March 31, 2024, the Company owned 31 properties, located in 12 states. The following table presents the Company's real estate portfolio as of March 31, 2024 (dollars in thousands):

(1) Includes construction in progress in the amount of $32.1 million that had been funded as of March 31, 2024.

(2) A portion of this investment is currently under development or undergoing building improvements. Once the development or improvements are completed and placed-in service, the Company will begin depreciating the applicable part of the property.

(3) GL Partners, Inc. (Greenlight) acquired the tenant and was added as a guarantor, however Curaleaf remains an additional guarantor subject to certain conditions in the lease agreement.

Real Estate Acquisitions

2024 Acquisitions

The Company did not acquire any properties during the three months ended March 31, 2024.

2023 Acquisitions

During the year ended December 31, 2023, the Company exercised its option to acquire an adjacent parcel of land to expand its cultivation facility in Missouri and invested approximately $350 thousand and committed to fund $16.2 million to expand the facility (refer to the Tenant Improvements ("TI") table below for details).

The following table presents the real estate acquisitions for the year ended December 31, 2023 (in thousands):

Tenant Improvements Funded

2024 Tenant Improvements

During the three months ended March 31, 2024, the Company funded approximately $7.9 million of tenant improvements. The following table presents the tenant improvements funded and the remaining unfunded commitments for the three months ended March 31, 2024 (in thousands):

.

2023 Tenant Improvements

During the year ended December 31, 2023, the Company funded approximately $14.4 million of tenant improvements. The following table presents the tenant improvements funded and the remaining unfunded commitments for the year ended December 31, 2023 (in thousands):

(1) Effective June 1, 2023, the lease agreement was amended to include an additional TI commitment of approximately $6.5 million.

Disposal of Real Estate

2024 Dispositions

There wereno sales of real estate during the three months ended March 31, 2024.

2023 Dispositions

On October 27, 2023, the Company closed on the sale of its property in Palmer, Massachusetts, for $2.0 million, which was leased to Mint. The Company's investment in the property was $1.9 million. Upon closing, Mint's lease agreement was terminated and they paid a portion of the closing costs, resulting in a break-even sale of the property. Therefore, the Company did not recognize a gain or loss on sale of the property.

Construction in Progress

2024 Construction in Progress

As of March 31, 2024 and December 31, 2023, construction in progress was $32.1 million and $24.2 million, respectively, and is classified in "Buildings and Improvements" in the accompanying consolidated balance sheets.

(1) These properties were under development as of March 31, 2024. Once the development is completed and placed-in-service, the Company will begin depreciating this asset.

2023 Construction in Progress

(1) The table does not include approximately $1.6 million of tenant improvements that had been funded as of January 1, 2023 for the development of a cultivation facility in Massachusetts. These tenant improvements were never placed in service and the property was sold on October 27, 2023.

(2) These properties were under development as of December 31, 2023. Once the development is completed and placed-in-service, the Company will begin depreciating this asset.

Depreciation and Amortization

For both the three months ended March 31, 2024 and 2023, depreciation expense on the Company's real estate assets was approximately $3.1 million.

Amortization of the Company’s acquired in-place lease intangible assets was approximately $0.5 million for both the three months ended March 31, 2024 and 2023. The acquired in-place lease intangible assets have a weighted average remaining amortization period of approximately 9.96 years.

In-place Leases

The following table presents the future amortization of the Company’s acquired in-place leases as of March 31, 2024 (in thousands):

Impairment

The Company did not identify any situations in its review of tenant activities and changes in the business condition of all of its properties that would require the recognition of an impairment loss. Accordingly, the Company didnot record an impairment loss for the three months ended March 31, 2024 and March 31, 2023, respectively.

Note 4 -Leases

As Lessor

The Company's properties are leased to single tenants on a long-term, triple-net basis, which obligates the tenant to be responsible for the ongoing expenses of a property, in addition to its rent obligations. Under certain circumstances the Company will pay for certain expenses on behalf of the tenant and the tenant is required to reimburse the Company. The presentation in the statements of operations for these expenses are gross where the Company records revenue and a corresponding reimbursable expense. Expenses paid directly by a tenant are not reimbursable and therefore not reflected in the statement of operations. The expense and reimbursable amounts may differ due to timing. The revenues associated with the reimbursable expenses were classified in "Fees and Reimbursables" in the accompanying consolidated statements of operations. For the three months ended March 31, 2024 and 2023, the reimbursable revenues were $299.8 thousand and $83.1 thousand, respectively. Reimbursable expenses are classified as "Property Expenses" in the accompanying consolidated statements of operations.

The Company's tenants operate in the cannabis industry. All of the Company's leases generally contain annual increases in rent (typically between 2% and 3%) over the expiring rental rate at the time of expiration. Certain leases of the Company also contain a Tenant Improvement Allowance (“TIA”). TIA is generally available to be funded between 12 and 18 months. In some leases, the tenant becomes liable to pay rent as if the full TIA has been funded, even if there are still unfunded commitments. TIA also contains annual increases which generally increase at the same rate as base rent, per the lease agreement. Certain of the Company's leases provide the lessee with a right of first refusal or right of first offer in the event the Company markets the leased property for sale. During the fourth quarter of 2023, the Company granted Calypso a purchase option to purchase the leased property and during the quarter ended March 31, 2024, the tenant was out of compliance with certain provisions of the lease

Note 4 - Leases (continued)

and as a result the purchase option was terminated. As of March 31, 2024, the Company hadtwo leases that provided the lessee with a purchase option to purchase the leased property at the end of the initial lease term in December 2029, subject to the satisfaction of certain conditions. The purchase option provision allows the lessee to purchase the leased property for an amount based on the fair market value of the Company's investment. As of March 31, 2024, the Company's gross investment in thesetwo properties was approximately $6.3 million.

Lease Income

The following table presents the future contractual minimum rent under the Company’s operating leases as of March 31, 2024 (in thousands):

Credit Risk and Geographic Concentration

The ability of any of the Company’s tenants to honor the terms of its lease are dependent upon the economic, regulatory, competitive, natural and social factors affecting the community in which that tenant operates. As of March 31, 2024 and December 31, 2023, the Company owned 31 properties leased to 13 tenants across 12 states including Arizona, Arkansas, California, Connecticut, Florida, Illinois, Massachusetts, Missouri, Nevada, North Dakota, Ohio, and Pennsylvania.

The following table presents the tenants in the Company's portfolio that represented the largest percentage of the Company's total rental income and fees, excluding reimbursable revenues, for each of the periods presented:

(1) Calculated based on rental income received during the period. This amount includes fees and excludes revenue reimbursements.

Note 4 - Leases (continued)

The following table presents the states in the Company’s portfolio that represented the largest percentage of the Company’s total rental income and fees, excluding reimbursable revenues, for each of the periods presented:

(1) Calculated based on rental income received during the period. This amount includes fees and excludes revenue reimbursables.

(2) Included in the number of properties and revenue is one Massachusetts property sold in October 2023.

As Lessee

As of March 31, 2024, the Company was the lessee underone office lease for a term offour years, subject to annual escalations. The annual rent payments range from approximately $72.0 thousand in year one to approximately $85.0 thousand in year four. The office lease qualifies under the right-of-use ("ROU") model. Upon entering into the lease in June 2022, the Company recorded a ROU asset of $273 thousand which was classified in “Other Assets” and a lease liability, which is classified in "Other Liabilities" in the accompanying consolidated balance sheets. The ROU balance as of March 31, 2024 and December 31, 2023, were approximately $161.2 thousand and $177.4 thousand, respectively. The ROU asset is amortized over the remaining lease term. The amortization is made up of the principal amortization under the lease liability plus or minus the straight-line adjustment of the operating lease rent.

The following table presents the future contractual rent obligations as lessee as of March 31, 2024 (in thousands):

As of March 31, 2024, the weighted-average discount rate used to calculate the lease liability was 5.65% and the remaining lease term was 2.42 years.

Note 5 –Loan Receivable, net

Loan Receivable

The Company funded a $5.0 million unsecured loan to Bloom Medicinals on June 10, 2022. The loan initially bore interest at a rate of 10.25% and is structured to increase annually in April by the product of 1.0225 times the interest rate in effect immediately prior to the anniversary date. The loan is interest only for the first four years and can be prepaid at any time without penalty. If full principal payment on the loan is not made on June 30, 2026, the loan will begin amortizing principal and interest over the next five years, with a final maturity of June 30, 2031. The loan is cross defaulted with their lease agreement with the Company. As of March 31, 2024 and December 31, 2023, the loan earned interest at a rate of 10.48%, and the aggregate principal amount outstanding on the unsecured loan receivable as of March 31, 2024 and December 31, 2023 was $5.0 million.

CECL Reserve

The Company recorded a provision for current expected credit loss on the $5.0 million unsecured loan (discussed above). Estimating the CECL allowance for credit loss requires significant judgement. The Company used a discounted cash flow analysis to determine the expected credit loss. The following table presents the CECL reserve for the three months ended March 31, 2024:

(1) Included in "Loan Receivable, net" on the consolidated balance sheets.

Note 6 –Financings

Loan Payable

In connection with the purchase and leaseback of a cultivation facility in Chaffee, Missouri on December 20, 2021, the Company entered into a $3.8 million loan payable to the seller, which was an independent third party from the tenant. The loan bore interest at a rate of 4.0% per annum. Principal on the loan was payable in annual installments of which $1.8 million and $1.0 million were paid in January 2022 and January 2023, respectively. On January 3, 2024, the Company made its final annual principal and interest payment of approximately $1.0 million on its loan payable.

On May 6, 2022, the Company's Operating Partnership 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 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.

Note 6 – Financings (continued)

On July 29, 2022, the Operating Partnership, entered into an amendment to the Revolving Credit Facility, amending the Loan and Security Agreement, to increase the aggregate commitment under the Revolving Credit Facility from $30.0 million to $90.0 million and addedtwo additional lenders. The Loan and Security Agreement also allows the Company, 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 1.0% or (b)4.75%.

As of March 31, 2024 and December 31, 2023, the Company had approximately $4.0 million and $1.0 million, respectively, outstanding under the Revolving Credit Facility. As of March 31, 2024, there was $86.0 million in funds available to be drawn, subject to sufficient collateral in the borrowing base.

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 March 31, 2024, the Company was in compliance with the terms of such covenants under the agreement.

Note 7 -Related Party Transactions

Investor Rights Agreement

Pursuant to our Investor Rights Agreement (the "Investor Rights Agreement"), HG Vora Capital Management, LLC (“HG Vora”), West Investment Holdings, LLC, West CRT Heavy, LLC, Gary and Mary West Foundation, Gary and Mary West Health Endowment, Inc., Gary and Mary West 2012 Gift Trust and WFI Co-Investments acting unanimously, collectively referred to as the “West Stockholders" and NL Ventures LLC ("Pangea") hold certain nomination rights with respect to members of our board of directors so long as they individually own in the aggregate certain percentages of the Company’s issued and outstanding common stock for 60 days consecutively.

Note 8 -Noncontrolling Interests

The Company's noncontrolling interests represent limited partnership interests in the Operating Partnership not held by the Company. Noncontrolling interests represented approximately 1.8% ownership interest in the Operating Partnership at March 31, 2024 and December 31, 2023.

Note 9 -Stock Based Compensation

The Company's board of directors adopted our 2021 Equity Incentive Plan (the “Plan”), to provide employees of the Company and its subsidiaries, certain consultants and advisors who perform services for the Company or its subsidiaries, and non-employee members of the board of directors of the Company with the opportunity to receive grants of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, stock units, other stock-based awards, and cash awards to enable the Company to motivate, attract and retain the services of directors, officers and employees considered essential to the long term success of the Company. Under the terms of the Plan, the aggregate number of shares of awards will be no more than 2,275,727 shares. If and to the extent shares of awards granted under the Plan, expire or are canceled, forfeited, exchanged or surrendered without having been exercised, or if any stock awards, stock units or other stock-based awards are forfeited, terminated or otherwise not paid in full, the shares subject to such grants shall again be available for issuance or transfer under the Plan. The Plan has a term often years until August 12, 2031. As of March 31, 2024, there were approximately

1,809,193 shares available for issuance under the Plan, which assumes maximum performance is achieved with respect to Performance Stock Units (“PSUs”) .

Restricted Stock Units

Restricted Stock Units ("RSUs") are granted to certain directors, officers and employees of the Company. Per the terms of the agreements, certain director RSUs that vest cannot be converted until the director separates from the Company. Total outstanding RSUs as of March 31, 2024 and 2023 were 119,239 and 75,419, respectively.

Unvested Restricted Stock Units

The following table sets forth the Company's unvested RSU activity for the three months ended March 31,:

(1) Vested shares do not include 2,846 shares withheld to satisfy tax and other compensation related withholdings associated with the vested RSUs issued under the 2021 Equity Incentive Plan.

Vested Restricted Stock Units

The following table sets forth the Company's vested RSU activity for the three months ended March 31,:

(1) Represents the gross number of RSUs vested, which includes 2,846 shares withheld for taxes and not converted to common stock.

(2) Represents shares withheld to satisfy tax and other compensation related withholdings associated with the vested RSUs issued under the 2021 Equity Incentive Plan.

Each restricted stock unit represents the right to receiveone share of common stock upon vesting. The vested RSUs are also entitled to receive an accumulated dividend payment equal to the dividend paid on each share of common stock during the vesting period. During the three months ended March 31, 2024 and 2023, the Company paid $33.1 thousand and $8.7 thousand respectively, of accumulated dividends that became earned upon vesting of RSUs. Accrued unearned dividends on unvested RSUs as of March 31, 2024 and 2023 were $114,473 and $60,760, respectively.

The amortization of compensation costs for the awards of RSUs are classified in "Compensation Expense" in the accompanying consolidated statements of operations and amounted to approximately $0.2 million and $0.1 million for the three months ended March 31, 2024 and 2023, respectively. The remaining unrecognized compensation cost of approximately $0.8 million for RSU awards is expected to be recognized over a weighted average amortization period of 1.5 years as of March 31, 2024.

Performance Stock Units

PSUs are granted to officers and certain employees of the Company. Total outstanding PSUs as of March 31, 2024 and 2023 were 159,522 and 121,858, respectively.

The following table sets forth the Company's unvested performance stock activity for the three months ended March 31,:

PSUs vest subject to the achievement of relative total shareholder return as measured against a peer group of companies and absolute compounded annual growth in stock price during each performance period. The actual number of shares of common stock issued will range from 0 to 319,044 depending upon performance. The performance periods are January 1, 2022 through December 31, 2024, January 1, 2023 through December 31, 2025 and January 1, 2024 through December 31, 2026 and 47,983,55,017 and 56,522 PSUs are scheduled to vest at the end of each performance period, respectively.

The fair value of PSUs is determined using a Monte Carlo simulation for our future stock price and the corresponding peer group. The grant date fair value is an equally weight value comprised of (i) total shareholder return of the Company and a peer group of companies (“rTSR”); and (ii) the Company’s absolute compound annual growth rate (“CAGR”). To derive the value of rTSR, the Company uses a stochastic stock price simulation model using Geometric Brownian Motion (“GBM”) to model the future stock prices of the Company and the peer group companies. The key inputs to the GBM model include the standard deviation of the movement of the share price, also expressed as stock price volatility. Historical volatility is analyzed for the Company and peer group companies based on publicly traded shares of common stock. The model also assists in deriving a value of the Company’s CAGR which is then subjected to the vesting percentages according to the terms of the PSU agreements. The key inputs to calculate CAGR are the ending stock price, initial stock price and vesting period. The GBM simulates the ending stock price that is used in the CAGR model to determine the grant date fair value.

Using the above methodology, grant date fair values of $24.00, $11.23 and $17.30 were used for PSUs with performance periods ending December 31, 2024, 2025 and 2026, respectively. PSUs are subject to restrictions on transfer and may be subject to a risk of forfeiture if the award recipient ceases to be an employee of the Company prior to vesting of the award.

Each PSU represents the right to receiveone share of common stock upon vesting. Upon vesting, each PSU is also entitled to receive an accumulated dividend payment equal to the dividend paid on each share of common stock during the performance period. If PSUs do not meet the performance hurdles and are cancelled, no dividends are paid on the cancelled units. During the three months ended March 31, 2024 and 2023, no PSUs vested and therefore the Company did not pay any dividends. Unearned dividends on unvested PSUs as of March 31, 2024 and 2023 were $311,084 and $164,496, respectively.

The amortization of compensation costs for the awards of PSUs are included in "Compensation Expense" in the accompanying consolidated statements of operations and amounted to approximately $0.2 million for both the three months ended March 31, 2024 and 2023. The remaining unrecognized compensation cost of approximately $1.5 million for PSU awards is expected to be recognized over a weighted average amortization period of 2.1 years as of March 31, 2024.

Stock Options

Prior to the completion of the initial public offering ("IPO"), the Company issued 791,790 nonqualified stock options (the “Options”) to purchase shares of the Company’s common stock, subject to the terms and conditions of the applicable option grant agreements, with an exercise price per share of common stock equal to $24.00 and in such amounts as set forth in the option grant agreements. The Options vested on August 31, 2020. As of March 31, 2024 and 2023, the Options were fully exercisable and expire on July 15, 2027.

Note 10 -Warrants

Warrants Issued

On March 17, 2021, the Company entered into a warrant agreement which granted the holder the right to purchase 602,392 shares of common stock of the Company at a purchase price of $24.00 per share. Warrants were immediately exercisable and expire on July 15, 2027. As of March 31, 2024 and 2023, the warrants were fully exercisable.

Investment in Warrants

On October 27, 2023, the Company entered into a lease amendment and forbearance agreement for its existing lease agreement with Revolutionary Clinics on its cultivation facility in Massachusetts. Under the forbearance agreement, the Company provided forbearance of delinquent rent and received warrants. The warrants are accounted for under ASC 321. The Company elected to use the measurement alternative to value its investment in warrants, since the fair value was not readily determinable. The investment in warrants is classified in “Other Assets” in the consolidated balance sheets at its initial cost value of $522 thousand. The cost value was determined based upon the implied recapitalized equity value of Revolutionary Clinics.

Note 11 -Stockholders' Equity

Preferred Stock

As of March 31, 2024 and December 31, 2023, the Company had 100,000,000 shares of preferred stock authorized and 0 shares of preferred stock outstanding.

Note 11 - Stockholders' Equity (continued)

Common Stock

As of March 31, 2024 and December 31, 2023, the Company had 400,000,000 shares of common stock authorized and 20,509,883 and 20,503,520 shares, respectively of common stock issued and outstanding. Common stock is issued at a par value of $0.01 per share.

Stock Repurchase Program

On November 7, 2022, the board of directors of the Company authorized a stock repurchase program of its common stock up to $10.0 million 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. On September 15, 2023, the board of directors authorized an amendment to the stock repurchase program for the repurchase of up to an additional $10.0 million of outstanding common stock and extended the stock repurchase program through December 31, 2024. The stock repurchase program may be suspended or discontinued by us at any time and without prior notice.

The Company didnot acquire any shares of common stock pursuant to the stock repurchase plan during the three months ended March 31, 2024. During the three months ended March 31, 2023, pursuant to the stock repurchase plan, the Company acquired 49,307 shares of common stock with an average purchase price, including commissions, of $12.63 totaling approximately $0.6 million. The remaining availability under the stock repurchase program as of March 31, 2024 was approximately $8.2 million.

Dividends

The following tables describe the cash dividends declared on the Company's common stock and vested RSUs and in the Company's capacity as general partner of the operating partnership, authorized distributions on our OP Units declared by the Company during the three months ended March 31, 2024 and 2023:

Note 12 -Earnings Per Share

The following table presents the computation of basic and diluted earnings per share (in thousands, except share and per share data):

During the three months ended March 31, 2024 and 2023, the effect of including OP Units and unvested RSUs were included in the Company's calculation of weighted average shares of common stock outstanding - dilutive. During the three months ended March 31, 2024 and 2023, the effect of 791,790 and 615,838 outstanding stock options and warrants, respectively, were excluded in the Company's calculation of weighted average shares of common stock outstanding – diluted as their inclusion would have been anti-dilutive. During the three months ended March 31, 2024 and 2023, the Company did not include the effect of 159,522 and 121,858 outstanding PSUs, respectively in the calculation of earnings per share. The effect of the outstanding PSUs were not included in the calculation of diluted earnings per share as the market condition for the PSUs have not been met as of March 31, 2024.

Note 13 –Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Accounting guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standards describe three levels of inputs that may be used to measure fair value:

Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 – Includes other inputs that are directly or indirectly observable in the marketplace.

Note 13 – Fair Value Measurements (continued)

Level 3 – Unobservable inputs that are supported by little or no market activities, therefore requiring an entity to develop its own assumptions.

The following table presents the carrying value and estimated fair value of financial instruments at March 31, 2024 and December 31, 2023 (in thousands):

(1) The fair value measurement of the $5.0 million Note Receivable is based on unobservable inputs, and as such, is classified as Level 3. The carrying value as of March 31, 2024 and December 31, 2023 reflects the provision for current expected credit loss of $152.3 thousand and $166.7 thousand , respectively.

(2) The fair value of the Company's Revolving Credit Facility and Loan Payable are based on observable inputs, and as such, are classified as Level 2.

(3) The Company made its final installment payment on our loan payable on January 3, 2024.

As of March 31, 2024 and December 31, 2023, the Company’s investment in warrants was valued based on the initial investment, less impairment. The Company determined the investment was not impaired as of March 31, 2024 and December 31, 2023. Since these securities are not actively traded, the Company will apply valuation adjustments if and when such indicators become available. As such, these securities are carried at cost and are classified as Level 3 of the fair value hierarchy.

As of March 31, 2024 and December 31, 2023, the carrying amounts of financial instruments such as cash and cash equivalents, accounts payable and accrued expenses and other liabilities approximate their fair values due to the generally short-term nature and the market rates of interest of these instruments. As such, these financial instruments are classified as Level 1.

Note 14 -Income Taxes

As a REIT, the Company is not subject to federal income tax to the extent that it makes qualifying distributions to its stockholders, and provided it satisfies on a continuing basis, through actual investment and operating results, the REIT requirements including certain asset, income, distribution, and stock ownership tests. The state and local tax jurisdictions for which the Company is subject to tax-filing obligations recognize the Company’s status as a REIT, and therefore, the Company generally does not pay income tax in such jurisdictions. The Company may, however, be subject to certain minimum state and local tax filing fees as well as certain excise, franchise, or business taxes.

Taxable REIT Subsidiaries

In October 2023, the Company elected to treat a domestic subsidiary as a TRS. The TRS is subject to U.S. federal,

state and local corporate income taxes at the current federal statutory rate of 21%. The Company’s effective tax

rate differs from its combined U.S. federal, state and local corporate statutory tax rate primarily due to income earned at the REIT, which is not subject to tax, due to the deduction for qualifying distributions made by the Company. For the three months ended March 31, 2024, the TRS had limited activity and did not generate taxable income.

Note 15 -Commitments and Contingencies

As of March 31, 2024, the Company had aggregate unfunded commitments to invest approximately $6.5 million to develop and improve our existing cultivation facilities in Arizona, Missouri, and Pennsylvania. Refer to Note 3 for further details on the Company's commitments. Refer to Note 16- “Subsequent Events” for details on commitments the Company entered into after March 31, 2024.

As of March 31, 2024 the Company is the lessee underone office lease. Refer to Note 4 for further information.

The Company owns a portfolio of properties that it leases to entities which cultivate, harvest, process and distribute cannabis. Cannabis is an illegal substance under the Controlled Substances Act. Although the operations of the Company’s tenants are legalized in the states and local jurisdictions in which they operate, the Company and its tenants are subject to certain risks and uncertainties associated with conducting operations subject to conflicting federal, state and local laws in an industry with a complex regulatory environment which is continuously evolving. These risks and uncertainties include the risk that the strict enforcement of federal laws regarding cannabis would likely result in the Company’s inability, and the inability of its tenants, to execute their respective business plans.

Note 16 -Subsequent Events

In May 2024, the Company purchased a cultivation facility in Connecticut for approximately$4.0 million and committed to fund$12.0 million for tenant improvements. The property is leased to an existing tenant.

Tenant Improvements

Subsequent to March 31, 2024, the Company funded approximately $1.9 million of tenant improvements for its cultivation facilities in Arizona and Missouri.