Business Context and Reporting Period
This Form 8-K was filed by Power REIT on July 18, 2022. The report provides an update regarding the Marengo Township, Michigan greenhouse cultivation facility, a 556,000 square foot high-tech property owned by a wholly owned subsidiary, PW MI CanRE Mareengo. The facility is leased to Marengo Cannabis LLC, a subsidiary of Millennium Sustainable Ventures Corp.
Key Financial Metrics
- Annual Straight-Line Rent: $5,119,943 based on the amended lease.
- Projected Core FFO Impact: Approximately $0.38 per share per quarter and $1.52 per share annually (based on 3,367,261 shares outstanding).
- Current Revenue Recognition: Power REIT is currently not recognizing rental income associated with the Property due to licensing uncertainty.
- Comparison to Prior Period: The projected annual FFO impact represents a significant increase relative to the $0.40 per share reported for Q1 2022.
Material Changes and Operational Updates
On July 8, 2022, the company secured a "CO Letter" from the Marengo Township Supervisor confirming the property is zoned Agricultural and does not require a Certificate of Occupancy. This letter satisfies the requirement previously agreed upon by the Michigan Cannabis Regulatory Agency (CRA). Consequently, the complete licensing application has been submitted to the CRA.
Due to delays in the licensing process, the lease with the tenant was amended to push out rent commencement to Q1 2023. The amendment maintains the same level of straight-line accounting for the company.
Outlook, Risks, and Management Commentary
Management believes the facility will be the largest cannabis cultivation facility in Michigan and one of the largest greenhouses in the United States, positioning the tenant as a low-cost producer. While wholesale prices in Michigan have not compressed as significantly as in California, Colorado, or Oklahoma, management notes that cannabis prices in most markets have recently compressed.
Risks and Contingencies: There is no certainty regarding the ultimate ability to secure licenses from the CRA or the timeline for the process. Until there is more certainty regarding the tenant's ability to pay rent, revenue recognition for the property will remain suspended.
Investor Verification Checklist
- Confirm the status of the licensing application with the Michigan Cannabis Regulatory Agency (CRA).
- Monitor the timeline for the tenant to commence operations and begin rent payments in Q1 2023.
- Verify the impact of the suspended revenue recognition on current quarterly financial statements.
- Assess the stability of wholesale cannabis prices in the Michigan market relative to other states.