In what observers say is a sign that California’s struggling legal cannabis industry is slouching toward a long-predicted “extinction event,” a major Southern California brand in the middle of ambitious expansion plans was recently sued by its landlord after falling behind on millions of dollars in lease payments.
In July, privately held Kings Garden – headquartered in Palm Springs and a holder of cultivation, manufacturing and distribution licenses – defaulted on $2.3 million in rent and related fees owed to Innovative Industrial Properties (IIP), a San Diego-based real estate investment trust (REIT) that’s a major player in cannabis, regulatory filings first cited by a Twitter user reveal.
A subsequent lawsuit filed by IIP – which leases more than 8.5 million square feet of commercial real estate to some of the nation’s biggest cannabis companies – against Kings Garden was settled out of court on Sept. 11 “to the mutual satisfaction of both parties,” according to more recent filings.
Reached via phone on Sept. 21, both Kings Garden CEO Michael King and IIP CEO Paul Smithers declined to comment, citing the confidential nature of the settlement.
“For confidentiality reasons, I’m not permitted to comment further,” King said.
King also declined to say whether the company’s now-interrupted expansion plans would resume.
However, several observers said the situation reflects an overall negative trend in California marijuana that highlights the difficulties Kings Garden and other licensed companies are facing.
‘You Scaled Your Debt’
Many legal-market operators have claimed over the past year to be falling further and further into debt as costs rise, prices plummet and stalled federal and state reform keep taxes high and the illicit market competitive.
Last winter, coalitions of large producers and small craft growers declaring themselves to be on the brink of failure unsuccessfully lobbied California Gov. Gavin Newsom to cut the state’s 15% excise tax and relax licensing fees and other burdens.
Some even threatened to withhold taxes if their demands weren’t met.
The governor eventually agreed to cut the state’s regressive cultivation tax, but he also changed where on the supply chain the state collects excise tax – a move that advocates say merely moves the pain elsewhere down the line at a time of historically low wholesale prices.
Published: October 03, 2022
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