Item 8.01. Other Events -
Update Regarding Marengo Township, Michigan Greenhouse Cultivation Facility
As previously disclosed, on September 8, 2021, Power REIT, through a wholly
owned subsidiary (collectively "PW Marengo"), acquired a 522,530 square foot
greenhouse cultivation facility in Marengo Township, Michigan for $18.5 million.
Power REIT believes that once operational, this would be the largest cannabis
cultivation facility in Michigan and one of the largest greenhouse cannabis
cultivation facilities in the United States.
Prior to the acquisition, Power REIT received assurances from Marengo Township
that the facility was approved for cannabis cultivation including providing a
zoning map showing the property zoned Agricultural with a Marijuana Overlay.
After closing, Marengo Township required several additional approval processes
which were all completed and Marengo Township issued cannabis licenses for the
property. Unfortunately, these processes caused unexpected delays in proceeding
to secure licensing from the Michigan Cannabis Regulatory Agency ("CRA"). One
requirement of the CRA process is a Certificate of Occupancy ("CO") for the
facility where such documentation is required by the municipality, or
"alternative documentation" also known as a "CO equivalent," when a CO is not
applicable.
The Marengo Township Ordinance establishes that properties that are zoned
Agricultural and have structures that are used for agricultural purposes are
exempt from requiring building permits and as a result, a Certificate of
Occupancy. The Michigan Building Code also provides a separate classification
for agricultural properties as exempt from requiring a Certificate of Occupancy.
This greenhouse property was built in 2015 and operated until 2019 and never
applied for a building permit and never sought or obtained a CO. Based on this,
PW Marengo sought an affirmation from Marengo Township that the greenhouse
property is exempt from requiring a CO in the form of a two-sentence letter that
that CRA had pre-approved. Unfortunately, Marengo Township resisted providing
the requested letter.
In an effort to secure a path forward, PW Marengo provided Marengo Township with
a letter from a licensed engineer in the state of Michigan supporting the
position that the greenhouse is exempt from requiring a Certificate of
Occupancy. In addition, the engineer explained an alternative dispute resolution
process whereby securing an opinion from a Building Official from an adjacent
township can be used. PW Marengo ultimately submitted opinions from three
Building Officials representing a total of 12 adjacent townships stating that
the greenhouse property was exempt from requiring a Certificate of Occupancy.
After agreeing that this dispute resolution mechanism was common, Marengo
Township continued to refuse to provide the documentation required by CRA.
Based on the inability to make progress securing what was needed for CRA from
Marengo Township, as previously disclosed, on April 1, 2022, PW Marengo
commenced a litigation against Marengo Township in the United States District
Court for the Western District of Michigan - Case No. 1:22-cv-00321 (the
"Federal Action"). The Complaint is an action for equitable, declaratory and
injunctive relief arising out of Township's false promises, constitutional
violations by the Township's deprivation of Plaintiffs' civil rights through its
refusal and failure to comply with its own ordinances and state law as well as a
common dispute resolution mechanism.
In an effort to pursue an additional path forward, on June 10, 2022, PW Marengo
filed an application to the Marengo Township Zoning Board of Appeals ("ZBA") to
secure an affirmation that, because the greenhouse property is zoned
Agricultural, it is exempt from requirements of seeking building permits and a
Certificate of Occupancy. We believe, this would provide the necessary
documentation to the CRA so that the licensing could proceed. To date, the
Township has refused to schedule such a meeting and on June 24, 2022, two
representatives of the Township separately indicated that they were rejecting
the application to the ZBA because the property is zoned Agricultural and
therefore there is nothing to appeal. Unfortunately, when pressed, the
representatives were unwilling to put this in writing which we believe would
have been sufficient to resolve the requirements of the CRA.
On June 30, 2022, PW Marengo, filed a Verified Complaint in Calhoun County
Michigan, (the "Calhoun Complaint") with a Case Number of 22-1760-AW. The
Complaint is an action to compel the Township to allow PW Marengo to appear
before the ZBA.
The foregoing descriptions of the litigation does not purport to be complete and
are qualified in its entirety by reference to the Complaint along with its
exhibits, a copy of which is attached hereto as Exhibit 10.1 and is incorporated
into this Current Report on Form 8-K by reference.
Lease Amendment
Due to the licensing delays and the inability of the tenant to generate revenue
as anticipated, PW Marengo has agreed to enter into an amendment of its lease
with its tenant to push out the start date of cash rent to January 1, 2023, a
copy of which is attached hereto as Exhibit 10.1. The lease amendment was
constructed to maintain the same overall economics of the lease to PW Marengo
other than a change in the timing of the initial cash flow. The lease amendment
will have no impact on near-term revenue recognition from this lease since,
effective Q4 2021, income from this lease is being treated on a cash basis.
The information in this item 8.01, and Exhibits 99.1 - 99.2 to this Current
Report on Form 8-K, shall not be deemed "filed" for the purposes of or otherwise
subject to the liabilities under Section 18 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), nor shall it be deemed incorporated by
reference in any filing of the Company under the Securities Act of 1933 or the
Exchange Act, except as expressly set forth by the specific reference in such a
filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
Exhibit Description of Exhibit
10.1 PW MI CanRe Marengo LLC Lease Amendment
99.1 PW Marengo Application to Marengo Township Zoning Board of Appeals
99.2 Complaint - PW MI CanRe Marengo LLC v. Marengo Township and Christine
Hamilton (State)
104 Cover Page Interactive Data File (embedded within the Inline XBRL
document)
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