(Note: Cannabis REIT Freehold Properties, Inc. withdrew its IPO in an SEC filing dated Dec. 12, 2022. The S-11/A was filed in October 2021.)

Freehold Properties, Inc. is an internally managed real estate investment trust focused on financing specialized industrial cultivation/processing and retail/dispensary cannabis properties, with contingent purchase options that are exercisable only upon the legalization of cannabis under U. S. federal law or certain other events. We have elected to be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes commencing with our short taxable year ended December 31, 2019.

As of the date of this prospectus, our portfolio is comprised of six consolidated properties securing mortgage loans made by us to FFS and one note receivable. See “— Our Portfolio.”

Our goal is to become the real estate capital financier of choice for high-quality established state-licensed cannabis operators, primarily through the origination of long-term mortgage loans secured by specialized industrial cultivation/processing and retail/dispensary properties. We believe mortgage loans secured by such properties that are operated by high-quality operators have the potential to provide higher returns as compared to mortgage loans secured by traditional net-leased retail and industrial real estate assets. We believe there are a variety of factors that could drive these higher returns, including our ability to identify management teams with the relevant experience and operational expertise to execute sustainable business models, our rigorous asset-level underwriting, and a current regulatory backdrop that limits traditional debt and equity capital availability for cannabis operators. In addition, we expect most mortgage loans we originate to include a contingent purchase option for a price equal to (i) the original agreed-upon valuation upon which the mortgage loan was advanced, plus (ii) a pro rata portion of the aggregate real estate valuation increase, if any, since the origination of the loan, based upon the loan-to-value ratio established at the time of loan origination. The purchase options will be exercisable only upon the legalization of cannabis under U.S. federal law or certain other events. We believe these contingent purchase options for the properties securing our mortgage loans will allow us to recognize the majority of any appreciation of the market value of the properties, subject to the legalization of cannabis under U.S. federal law or certain other events. However, there can be no assurances that cannabis will ever be legalized under U.S. federal law or that our purchase options otherwise will become exercisable.
The cannabis industry is nascent and still in a phase of rapid growth. It is an industry that is both real estate dependent and capital-intensive. We believe this creates opportunities for us to provide flexible financing solutions to cannabis operators as they seek the capital required to grow their businesses. We believe there is both a near-term opportunity to take advantage of a dislocation in pricing in the cannabis real estate finance market and a long-term opportunity to establish the Company as a market leader in a specialized sector with significant growth potential. We intend to capitalize on what we expect will be a need for significantly higher levels of investment in cannabis properties resulting from the continuing trend of states legalizing or changing laws related to adult- and medical-use cannabis in their respective states.

Specialized industrial cultivation/processing cannabis properties are required to be operated by businesses that have completed rigorous state-licensing processes. The number of licenses granted in a particular state is typically restricted, which creates a barrier to entry for competing properties that tends to favor well-capitalized, experienced and sophisticated operators. We intend to target the origination of mortgage loans secured by cannabis properties that generally are improved with state-of-the-art infrastructure and equipment to facilitate optimal growing conditions, including enhanced HVAC systems for climate and humidity control, high-capacity fertigation systems, specialized lighting systems and sophisticated building management, cultivation monitoring and security systems. These facilities result in improved yields from optimized and automated environmental conditions such as lighting, temperature and watering with no need for pesticides or herbicides.

For retail/dispensary cannabis properties, we intend to focus on the origination of mortgage loans secured by properties that have already been qualified and licensed for retail cannabis sales, which we believe gives strategic defensibility to the operators’ business and the real estate securing our loans. Finding locations for retail/dispensary cannabis properties can be difficult because they not only need to be in highly desirable locations but also need to satisfy local zoning requirements and overcome any local objections. Each city and state has its own requirements and specifications for an entitlement process, but generally these conditional-use permitting processes are complex. For example, in contrast to the initial markets that legalized cannabis (Colorado, Washington, Oregon), the new markets are typically more oligopolistic with cities implementing strict ordinances that require dispensaries to be located a certain distance away from certain properties, such as schools, parks and churches. Cities also seek to avoid “clustering” of retail stores and cannabis dispensaries and, therefore, require a minimum distance between them, resulting in less competition for a retail location once it is established. Local regulations also vary widely, are subject to exceptions and grandfathering, and can be enormously complex to navigate.