Brian Wolfe: Paul, go ahead.
Paul Smithers: Sure. Hi, Alex. There is an ongoing case, as you know — we talked about it last quarter — about challenging the federal government’s position and basically saying that since the government has failed to actively enforce the prohibition and let states get away with it, as you described, that they’ve waived their rights. And that’s probably going to get a hearing, we think, within the next six to nine months at the trial level. Then we’ll probably go right up to the DCA and eventually up to the Supreme Court. So they’ve got a very experienced legal team, and it’s a legitimate case. So that’s that. But in the meantime, the better solution, of course, would be a legislative solution. So why is rescheduling important? I think it does create that momentum to get to a descheduling position maybe in the next two to three years. And that will take at least that long for the court case to get its way through the Supreme Court.
Alexander Goldfarb: Yeah. No, I was going to ask. What district — is this out of the DC courts? Or what district has this been?
Paul Smithers: I think it’s Maryland, though I have to get back to you on that.
Alexander Goldfarb: So it’s in the fourth.
Paul Smithers: I believe so. I’ll get back to you on that.
Alexander Goldfarb: Okay. No, I mean that’s a favorable district, I would think, for this stuff. And then can you talk a little bit — we all see the new states. We obviously live here in New York. We can see what’s going on with the attempted rollout here. But as you look at the market, what is your experience on the conversion of illicit to the regulated market? Meaning, people are already using cannabis across the country. A state legalized this. How many like incremental users have — does your experience show that the states get? And then what’s the conversion ratio of people who switch from the illicit to the regulated? Because that’s ultimately what the industry needs is for more people in the regulated and then the regulated to grow users.
And I’m just trying to understand what your experience so far from the operators has shown as far as, one, conversion of illicit, buying from their guy, no longer doing that, to buying legally; and then, two, new people who weren’t users before but are now coming in.
Alan Gold: Alex, this is Alan. Before Paul perhaps addresses that question directly, I just want to remind everybody that we’re a real estate provider. We’re not a direct operator. And so our commentary really comes from the industry in general. And perhaps talking about the growth in total revenue, things like that, might have relevance to answer your question. Go ahead, Paul.
Paul Smithers: Well, it’s right. I mean, I’m not aware of any data that’s out there that talks about when you put a legal program in place in the state, how many new users are there? Because, of course, you’d have to get a base of how many illicit users that were to begin with. But we can tell you that history shown that when a medical program converts to a medical and adult use, revenues go up significantly, as much as three times. And the difference between medical and adult use is one-third medical and two-thirds recreational. So when a state does adopt adult use, it’s a significant impact on revenues for the operators. And that’s why so many of the operators gravitate towards adult use states. But as far as the illicit users, we just don’t have that data to talk to.
Alexander Goldfarb: Okay. And just a final one for David. I don’t want to leave the accounting guy, the CFO, behind. Sale type accounting, lease accounting, obviously, that’s what we all aspire to and train for. Do you see this as coming up with other properties as you restrike leases? Or do you view that this — the two leases that got caught up in this are very unique relative to the other assets in your portfolio?
David Smith: Yeah. Sure, Alex. This is David. I think in your note, it sounds like you’ve gotten very experienced in this. But I’d just say it’s two properties out of 108. So it’s a very, very immaterial piece of our portfolio. It can happen, but I think it’s not very likely to happen in the future. If it does, again on a very limited basis. So I think it’s something that, given the very strong yields that we have in this sector, can impact that. But again, obviously, that’s a good problem to have that our portfolio generates twice the yields of typical commercial real estate. So that can be one of the items that that trips that. But yeah, look, at the end of the day, while it’s not in our GAAP revenues, as you know, we’re including our FFO. It’s cash rent received. It’s — as you noted, the IRS considered it a good reading covenants. It’s in our taxable income, and that’s what we distribute off of.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Alan Gold for any closing remarks.
Brian Wolfe: Well, thank you, and thank you all for joining us today. Again, I’d like to thank our team for such hard and dedicated work over the last quarter and certainly, the last six-plus years. Thank you all. With that, the call should end. Thank you.
Operator: The conference has now concluded. Thanks you for attending today’s presentation. You may now disconnect.
