Giraudon v. Innovative Industrial Properties, Inc. — Entry #65: RESPONSE in Opposition re 60 MOTION to Dismiss for Failure to State a Claim filed by City of Birmingham Retirement and Relief System.(Bott, Corey) (Entered…

Case 1:25-cv-00182-GLR   Document 65   Filed 10/21/25    Page 1 of 36


                    UNITED STATES DISTRICT COURT
                       DISTRICT OF MARYLAND


                                     No. 1:25-cv-00182-GLR

IN RE INNOVATIVE INDUSTRIAL          DEMAND FOR JURY TRIAL
PROPERTIES, INC. SECURITIES
LITIGATION


            LEAD PLAINTIFF’S OPPOSITION TO DEFENDANTS’
            MOTION TO DISMISS THE AMENDED COMPLAINT


         Case 1:25-cv-00182-GLR                        Document 65               Filed 10/21/25             Page 2 of 36


                                                  TABLE OF CONTENTS

INTRODUCTION..........................................................................................................................1

STATEMENT OF FACTS ............................................................................................................3

          A.         IIPR’s Business and Tenants ...................................................................................3

          B.         IIPR’s Repeated Assurances of Tenant Oversight ...................................................4

          C.         Assurances of Oversight Hid the Defaulting Tenants’ Financial Problems ............6

          D.         Defendants Also Touted New Investments in the Defaulting Tenants ....................9

          E.         The Truth About the Defaulting Tenants Was Revealed Gradually ......................10

LEGAL STANDARD ..................................................................................................................12

ARGUMENT ................................................................................................................................13

I.        The Complaint Plausibly Alleges Securities Fraud Claims ...............................................13

          A.         The Complaint Plausibly Alleges Two Categories of Misstatements ...................13

          B.         Defendants’ Misstatements Are Actionable. .........................................................21

          C.         The Complaint Plausibly Alleges Scienter ............................................................23

II.       The Complaint Is Neither Prolix nor Improperly Pled ......................................................28

III.      The Complaint Adequately Alleges a Control Person Claim ............................................30

CONCLUSION ............................................................................................................................30


                                                                     i


         Case 1:25-cv-00182-GLR                       Document 65               Filed 10/21/25              Page 3 of 36


                                               TABLE OF AUTHORITIES


Cases                                                                                                                         Page(s)

In re Am. Int’l Grp., Inc. 2008 Sec. Litig.,
    741 F. Supp. 2d 511 (S.D.N.Y. 2010)......................................................................................22

Basic Inc. v. Levinson,
   485 U.S. 224 (1988) .................................................................................................................13

Black v. Martek Biosciences Corp.,
   2006 WL 8435572 (D. Md. June 14, 2006) .............................................................................30

Cambridge Ret. Sys. v. Jeld-Wen Holding, Inc.,
  496 F. Supp. 3d 952 (E.D. Va. 2020) ....................................................................24, 28, 29, 30

City of Southfield Fire & Police Ret. Sys. v. Hayward Holdings, Inc.,
    2025 WL 1577315 (D.N.J. June 4, 2025) ................................................................................27

City of Sterling Heights Police & Fire Ret. Sys. v. Abbey Nat., PLC,
    423 F. Supp. 2d 348 (S.D.N.Y. 2006)................................................................................17, 19

In re Comput. Sciences Corp. Sec. Litig.,
    890 F. Supp. 2d 650 (E.D. Va. 2012) ......................................................................................26

In re Constellation Energy Grp., Inc. Sec. Litig.,
    738 F. Supp. 2d 614 (D. Md. 2010) .........................................................................................21

In re Countrywide Fin. Corp. Deriv. Litig.,
    554 F. Supp. 2d 1044 (C.D. Cal. 2008) ...................................................................................15

De Vito v. Liquid Holdings Grp., Inc.,
   2018 WL 6891832 (D.N.J. Dec. 31, 2018) ..............................................................................27

In re Emergent BioSolutions Inc. Sec. Litig.,
    2023 WL 5671608 (D. Md. Sept. 1, 2023) ............................................................17, 19, 24, 26

In re Genworth Fin. Inc. Sec. Litig.,
    103 F. Supp. 3d 759 (E.D. Va. 2015) .............................................................................. passim

Inst. Inv. Grp. v. Avaya Inc.,
    564 F.3d 242 (3d Cir. 2009).....................................................................................................27

In re Intuitive Surgical Sec. Litig.,
    65 F. Supp. 3d 821 (N.D. Cal. 2014) .......................................................................................29

In re James River Gr. Holdings, Ltd. Sec. Litig.,
    2023 WL 5538218 (E.D. Va. Aug. 28, 2023) ..............................................................16, 25, 26


                                                                    ii


         Case 1:25-cv-00182-GLR                        Document 65               Filed 10/21/25             Page 4 of 36


KBC Asset Mgmt. NV v. 3D Sys. Corp.,
  2016 WL 3981236 (D.S.C. July 25, 2016) ........................................................................25, 27

Keeney v. Larkin,
   306 F. Supp. 2d 522 (D. Md. 2003) .........................................................................................18

Klein v. Altria Grp, Inc.,
   525 F. Supp. 3d 638 (E.D. Va. 2021) ......................................................................................24

Kusnier v. Virgin Galactic Holdings, Inc.,
   639 F. Supp. 3d 350 (E.D.N.Y. 2022) .....................................................................................19

In re Lab. Corp. of Am. Holdings Sec. Litig.,
    2006 WL 1367428 (M.D.N.C. May 18, 2006) ........................................................................22

Loc. 731 I.B. of T. Excavators & Pavers Pension Tr. Fund v. Swanson,
   2011 WL 2444675 (D. Del. June 14, 2011) .............................................................................26

In re Lucent Tech., Inc. Sec. Litig.,
    217 F. Supp. 2d 529 (D.N.J. 2002) ..........................................................................................23

Macquarie Infrastructure Corp. v. Moab Partners, L.P.,
  601 U.S. 257 (2024) .....................................................................................................14, 18, 21

Makor Issues & Rights, Ltd. v. Tellabs Inc.,
  513 F.3d 702 (7th Cir. 2008) ...................................................................................................28

Malone v. Microdyne Corp.,
   26 F.3d 471 (4th Cir. 1994) .....................................................................................................21

Matrixx Initiatives, Inc. v. Siracusano,
   563 U.S. 27 (2011) ...................................................................................................................20

In re MicroStrategy, Inc. Sec. Litig.,
    115 F. Supp. 2d 620 (E.D. Va. 2000) ......................................................................................12

In re Parmalat Sec. Litig.,
    375 F. Supp. 2d 278 (S.D.N.Y. 2005)......................................................................................29

Phillips v. LCI Intern., Inc.,
   190 F.3d 609 (4th Cir. 1999) ...................................................................................................20

Roofers Local No. 149 Pension Fund v. Amgen Inc.,
   751 F. Supp. 3d 330 (S.D.N.Y. 2024)......................................................................................19

Schulman v. Axis Surplus Ins. Co.,
   90 F.4th 236 (4th Cir. 2024) ....................................................................................................13

Singer v. Reali,
   883 F.3d 425 (4th Cir. 2018) .................................................................................12, 13, 21, 23
                                                                    iii


         Case 1:25-cv-00182-GLR                        Document 65                Filed 10/21/25             Page 5 of 36


Sinnathurai v. Novavax, Inc.,
   645 F. Supp. 3d 495 (D. Md. 2022) ...................................................................................13, 27

Tchatchou v. India Globalization Cap. Inc.,
   2021 WL 307415 (D. Md. Jan. 29, 2021) ................................................................................18

Tellabs, Inc. v. Makor Issues & Rts., Ltd.,
    551 U.S. 308 (2007) .................................................................................................................12

In re Toronto-Dominion Bank Sec. Litig.,
    2018 WL 6381882 (D.N.J. Dec. 6, 2018) ................................................................................28

In re Under Armour Sec. Litig.,
    540 F. Supp. 3d 513 (D. Md. 2021) .........................................................................................13

Virginia Bankshares, Inc. v. Sandberg,
   501 U.S. 1083 (1991) ...............................................................................................................23

In re Virtu Fin., Inc. Sec. Litig.,
    770 F. Supp. 3d 482 (E.D.N.Y. 2025) .....................................................................................17

In re Wells Fargo & Co. Sec. Litig.,
    2021 WL 4482102 (S.D.N.Y. Sept. 30, 2021).........................................................................21

In re Wilmington Tr. Sec. Litig.,
    29 F. Supp. 3d 432 (D. Del. 2014) ...........................................................................................15

Yates v. Mun. Mortg. & Equity, LLC,
   744 F.3d 874 (4th Cir. 2014) ...................................................................................................27

Zak v. Chelsea Therapeutics Int’l, Ltd.,
   780 F.3d 597 (4th Cir. 2015) ...................................................................................................23

Statute

15 U.S.C. § 78u–4(b) .....................................................................................................................13


                                                                    iv


        Case 1:25-cv-00182-GLR               Document 65          Filed 10/21/25         Page 6 of 36


        Lead Plaintiff City of Birmingham Retirement and Relief System (“Plaintiff”), respectfully

submits this Opposition to (i) the Motion to Dismiss filed by Innovative Industrial Properties, Inc.

(“IIPR” or the “Company”), Alan Gold, Paul Smithers, David Smith, Ben Regin, and Catherine

Hastings (the “Individual Defendants” and, with IIPR, “Defendants”) (Dkt. No. 60) (“Motion”);

and (ii) Defendants’ Memorandum in Support of the Motion (Dkt. No. 60-1) (the “Brief” or “Br.”).

                                             INTRODUCTION

        IIPR makes money by lending to growers and sellers of cannabis. IIPR’s loans come in

the form of sale-leaseback transactions and direct investments, which are paid back by the cannabis

operators at a premium through monthly rent payments. All agree that making your money from

tenants engaged in a federally illegal business carried some risk that the tenants might default and

IIPR (and its investors) would lose money. This securities class action centers on what Defendants

told investors they were doing to mitigate this risk.

        Defendants repeatedly assured investors throughout the Class Period1 that IIPR’s tenants

were not that risky (had a “much lower” “risk profile”) and that the Company was undertaking the

“underwriting” and “monitoring” steps necessary to oversee tenants’ finances and protect IIPR’s

investments. Defendants explained that this oversight included, at least, a review of tenant “credit

quality,” “payment history data,” a “detailed review of financial statements,” a tenant’s “history

of successful capital raising,” “quarterly reviews and information requests” relating to a tenant’s

financial operations, and a review of a tenant’s “cash balance on hand today.” And Defendants

explicitly assured investors (when asked) “we have said that we are monitoring all of our tenants,

and we are monitoring all of our tenants,” i.e., IIPR was overseeing its tenants, knew what was

going on with their finances, and there was nothing to worry about.


1
         The “Class Period” starts on February 26, 2024, and runs through March 28, 2025. ¶1. Citations to “¶__”
are to paragraphs in Plaintiff’s operative complaint (Dkt. No. 50 (the “Complaint”)).


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       Case 1:25-cv-00182-GLR            Document 65        Filed 10/21/25       Page 7 of 36


       But unbeknownst to investors, throughout the Class Period, four of IIPR’s largest tenants

(who collectively generated about a quarter of the Company’s revenues) were on the verge of

financial collapse. These ticking timebombs exploded in a cascade of defaults between November

2024 and March 2025. Defendants’ primary argument that they were blindsided by the collapse

of these tenants is not credible. The Complaint alleges that throughout the Class Period there were

numerous red flags that IIPR’s oversight process would have detected (if Defendants were

monitoring tenants at all). Specifically, that the four tenants in question were behind on payments

to vendors, were not paying all their taxes, did not have money to fund their day-to-day operations,

and were having difficulty financing these expenses.

       From these facts—Defendants’ assurances of tenant oversight and the glaring red flags

about IIPR’s tenants—it is easy to see the fraud. Defendants either (i) were not doing the oversight

they told investors they were and so had no knowledge of the red flags, in which case they were

not actually “monitoring all of [IIPR’s] tenants” and their assurances to the contrary were

materially false; or (ii) they knew about the red flags but failed to disclose this adverse information

to investors, in which case their statements were materially misleading by assuring investors there

were no red flags when this was not the case. Likewise, this disconnect between what Defendants

said about tenant oversight and the reality of the teetering finances of four of IIPR’s largest tenants,

makes clear that it was materially misleading for Defendants to tout new investments in tenants

they knew or recklessly disregarded were on the verge of financial collapse. These misstatements

misled investors into believing that the new investments were a good thing for IIPR when, in

reality, the Company was very likely throwing good money after bad.

       The Motion largely ignores these facts and the allegations in the Complaint and instead

tries to muddy the waters with baseless claims of “prolixity,” “editorial manipulation,” or that


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       Case 1:25-cv-00182-GLR           Document 65        Filed 10/21/25      Page 8 of 36


fraudulent intent cannot be inferred solely from the fact that Defendants were in charge of a 23-

person operation. As shown below, these arguments are meritless. The Complaint alleges a

plausible claim for securities fraud and the Motion should be denied.

                                   STATEMENT OF FACTS

       A.      IIPR’s Business and Tenants

       IIPR is a real estate investment trust focused on properties for lease to state-licensed

cannabis operators for cannabis cultivation and retail. ¶21. IIPR lends money to cannabis

operators through (a) sale-leaseback transactions in which IIPR would buy a property from a

cannabis operator and then lease that property back to the operator, and (b) directly investing

money to pay for upgrades to the leased properties so that tenants could expand their business.

¶¶22, 56. In turn, tenants (the cannabis operators) pay IIPR rent every month. Id. Because

cannabis remains federally illegal, and cannabis operators cannot access traditional lines of credit

from banks to fund their operations, IIPR was able to charge tenants much higher rents than they

would pay to borrow money from more traditional lenders. ¶57.

       IIPR derived essentially all its revenues from rent payments made by businesses engaged

in federally illegal activities, so investors understood that there was some risk associated with the

Company acting as an unlicensed bank for cannabis operators. See ¶¶56-60. The Company also

noted that the cannabis industry—in addition to being federally illegal—was facing industry-wide

headwinds, from (i) “compress[d] operating margins,” (ii) “inflation” impacting “costs of labor

and production,” and (iii) “labor shortages[,] and global supply chain issues.” ¶59. So investors

understood there was some risk tenants would default on their rent payments to IIPR.

       The risk of tenants defaulting on their rent payments was especially concentrated and acute

because IIPR had only about 30 tenants across its 109 properties, and rent from just ten tenants

comprised 73% of IIPR’s rental revenues, as of December 31, 2025. ¶¶25-26. And the risk had


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      Case 1:25-cv-00182-GLR           Document 65        Filed 10/21/25     Page 9 of 36


materialized twice right before the start of the Class Period. See ¶¶45-55. First, in July 2022,

Kings Garden—which at the time was 8% of IIPR’s total rental revenues—defaulted on its rental

obligations. ¶46. Second, beginning in November 2022 and continuing into 2023, IIPR’s then

second-largest tenant, Parallel, defaulted on its rental obligations. ¶49, see also ¶¶50-54. At the

time of this default, rent from Parallel was about 10% of IIPR’s total rental revenue. ¶49. Both

Kings Garden and Parallel were evicted and never resumed paying rent and news of these defaults

caused dramatic declines in IIPR’s stock price. ¶¶47-48; 53-54.

       B.      IIPR’s Repeated Assurances of Tenant Oversight

       Because of the risks associated with IIPR’s business, the measures that IIPR took to

identify, monitor, and mitigate those risks were highly material to investors in assessing IIPR’s

financial condition, its risk exposure, and the sustainability of its revenue stream.         ¶60.

Throughout the Class Period, Defendants assured investors that the Company had a robust due

diligence process and continuously monitored tenants’ financials for red flags. These assurances

were important because the Company was engaged in a risky business—lending money to

cannabis operators—and so placed special emphasis and importance on the steps taken to mitigate

those risks. These assurances are the first category of misstatements in the Complaint. ¶¶86-174.

       For example, IIPR’s February 2024 10-K told investors that the Company “evaluate[s] the

credit quality of our tenants and any guarantors on an ongoing basis,” “monitor[s] the payment

history data for all of our tenants,” and “monitor[s] our tenants by periodically conducting site

visits and meeting with the tenants to discuss their operations.” ¶89. Defendants also stated that

IIPR “rel[ied] on our management to perform due diligence investigations” on tenants and

guarantors and their “properties, operations, and prospects” where there is “little or no publicly

available operating and financial information.” ¶91.

       IIPR’s investor presentations throughout the Class Period also highlighted the Company’s


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“ongoing monitoring” and “due diligence” processes. ¶¶95, 100. Such activities purportedly

included, among other things, “quarterly reviews and requests for information pertaining to

financial and ongoing operations of all properties,” along with “meetings with tenants to talk

through operations and financials.” ¶95. Indeed, IIPR’s leases with at least two tenants that

ultimately defaulted required the tenant to provide IIPR with detailed information about the

tenant’s financial condition on a regular basis. The lease agreement with PharmaCann Inc.

(“PharmaCann”), for example, required the disclosure of financial budgets, forecasts, and investor

materials, audited year-end consolidated financial statements, and unaudited quarterly financial

statements before IIPR was required to make its periodic SEC disclosures to investors. ¶¶32, 75-

76. The lease that IIPR executed with the other tenant contains substantially similar tenant-

disclosure obligations. ¶36.

       Investment analysts covering IIPR also asked Defendants about their due diligence on, and

monitoring of, tenants’ finances throughout the Class Period. Defendants responded to such

questions by assuring investors that they were monitoring the tenants and so would know of, and

presumably head off, any percolating problems. For example, on November 7 , 2024, when asked

by an investment analyst about whether “tenants that faced operating challenges” would “just stop

paying out of the blue,” Defendant Gold assured investors that “we continue to work with all of

our tenants on understanding their businesses and making sure that we are [sic] know what they

are doing and how things are going” and “we are aware of what’s going on with our tenants.”

¶¶118-19. Similarly, when pressed by analysts about the Company’s monitoring of tenant finances

on a February 20, 2025 call with investors, Defendant Gold said (i) “we are working very closely

with” the tenants; (ii) “we have said that we are monitoring all of our tenants, and we are

monitoring all of our tenants”; and (iii) “we’re watching all of our tenants. We are doing deep


                                                5


      Case 1:25-cv-00182-GLR           Document 65       Filed 10/21/25      Page 11 of 36


dives into every single one of our tenants, including the strongest ones.” ¶¶161, 164, 172.

Defendant Regin echoed these sentiments on the February 20 investor call, claiming that IIPR was

“working very closely with” tenants. ¶161. The Complaint alleges additional assurances were

made to investors on other conference calls. ¶¶114, 135, 157, 168.

       Defendants also assured investors that the tenants in their current portfolio were on solid

financial footing. For example, on an August 6, 2024, earnings call, Defendant Regin said, “I feel

very good about our current tenant roster of 30 tenants,” “we really feel that we have some of the

best operators in the industry in our portfolio,” and “we feel very good about the state of the

pipeline and the portfolio overall,” ¶¶106, 110, and Defendant Smithers made similar statements.

See, e.g., ¶114 (“we’re very pleased with the quality and strength of our tenants.”).

       Defendants also told investors that they applied “rigorous” underwriting standards to

evaluate additional investments and changes to existing leases, and that the process was “highly

selective.” ¶106. In a March 4, 2024 presentation, IIPR explained that its “Detailed Financial

Underwriting” process included an “[e]valuation of financial projections” and a “[d]etailed review

of financial statements, strategic initiatives, and growth plans.” ¶95. In response to a question

about how IIPR was assessing new tenant investments and making “additional investment

commitments” with its existing tenant roster, Defendant Regin stated that IIPR looked for tenants

with “strong financials” and “a track record of performance in the same rigorous underwriting

criteria that we’ve used historically for our existing tenants.” ¶¶109-110; see also ¶¶102, 106.

       C.      Assurances of Oversight Hid the Defaulting Tenants’ Financial Problems

       Throughout the Class Period, four of IIPR’s top tenants—PharmaCann, 4Front Ventures

Corp. (“4Front”), Gold Flora, LLC (“Gold Flora”), and Tilt Holdings Inc. (“Tilt”) (collectively,

the “Defaulting Tenants”)—had mounting financial problems that would ultimately lead to a

cascade of defaults that wiped out about 25% of IIPR’s revenues. By the end of the Class Period,


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      Case 1:25-cv-00182-GLR           Document 65       Filed 10/21/25      Page 12 of 36


IIPR had 20 leases with the Defaulting Tenants and had also separately invested about $620 million

in these properties. ¶26. Rental revenue from the Defaulting Tenants accounted for between 23%

and 28% of IIPR’s total revenue throughout the Class Period.2 The Complaint details an extensive

set of facts about each Defaulting Tenant’s dire financial distress that both (i) existed during the

Class Period, and (ii) would have been known to, or recklessly disregarded by, Defendants if they

had, in fact, been engaged in monitoring and due diligence in the way Defendants said they were.

¶¶66-74. These facts (summarized below) come from SEC disclosures, public sources, and court

filings and show that the Defaulting Tenants were near financial collapse:

       Unpaid Taxes. Starting even before the Class Period, PharmaCann and 4Front—the two

largest Defaulting Tenants—were not paying their taxes as required by law. ¶67. By the end of

the Class Period, PharmaCann had nearly half a million in unpaid taxes, while 4Front owed a

staggering $15,000,000. Id.

       Unpaid Bills. At the same time PharmaCann and 4Front were not paying taxes, they were

also unable to pay their bills, resulting in several lawsuits throughout the Class Period. ¶68. Gold

Flora was experiencing the same problems. Id. As was revealed after the Class Period, Gold Flora

and 4Front owed tens of millions of dollars in unpaid bills. Id.

       Going Concern Warnings. 4Front, Gold Flora, and Tilt were warning their own investors

from as early as 2023 that those tenants’ auditors had substantial concerns about these companies

being able to continue as going concerns. ¶69. Consistent with these “going concern” warnings,

starting in 2022, these same tenants reported tens of millions of dollars in net losses and negative

working capital (a measure of funds available to cover day-to-day expense, like paying rent). ¶70.

       Inability to Raise Capital. Worse still, in the face of mounting expenses and limited cash


2
       ¶¶65, 97, 104, 121, 158, 249.


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flows, the Defaulting Tenants could not borrow money at reasonable rates to bridge the gap. As a

result, Gold Flora, 4Front, and Tilt were only able to cover their mounting expenses through loans

at astronomical interest rates of up to 40%, which only made things worse. ¶73.

       In sum, the Complaint pleads a litany of contemporaneous, adverse facts about the

Defaulting Tenants’ finances which are unambiguous red flags that these tenants were on the brink

of financial collapse. Indeed, 4Front and Gold Flora are both now in receivership and Tilt has shut

down its cannabis operations.

       The Complaint also alleges facts showing the Defendants knew or recklessly disregarded

these red flags. First, the financial problems with the Defaulting Tenants were precisely the kinds

of things that Defendants’ “Ongoing Monitoring,” and “Quarterly reviews and request for

information pertaining to financial and ongoing operations,” and “Meetings with tenants to talk

through operations and financials” were meant to identify. ¶75. In an internally managed

company, with 23 or fewer employees, and where management was responsible for due diligence,

it is not credible that Defendants did not know what was going on with IIPR’s tenants. ¶¶91-92,

253. Indeed, on conference calls with investors, Defendants repeatedly emphasized their rigorous

monitoring process and assured investors that they were keeping a close eye on all of their tenants,

stating variously that tenants’ ability to pay lenders was “an issue that we are following and

watching [] very closely,” that IIPR was “working very closely with” its tenants, that they were

“watching each of our tenants and working with them very closely,” “watching all of our tenants,

“monitoring all of our tenants,” and “doing deep dives into every single one of our tenants,

including the strongest ones and the single state operators.” ¶¶157, 161, 164, 172.

       Second, the Complaint alleges (based upon internal IIPR documents that were disclosed

publicly in post-Class Period litigation) that IIPR’s rental agreements required tenants to provide


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detailed financial disclosures, including “budgets, forecast and investor materials” to the Company

“within a reasonable time period before [IIPR] is required to make any filings with the SEC.” ¶75

(quoting PharmaCann lease agreement); see also ¶36 (detailing terms of disclosure obligations in

4Front lease agreement). These provisions of the lease agreements ensured that Defendants would

be able to fully inform themselves of the Defaulting Tenants’ finances and operations before

making any disclosures about those tenants to IIPR’s investors. ¶¶32, 76.

       Third, PharmaCann, 4Front, and Gold Flora should have gone through IIPR’s heightened

pre-loan due diligence and underwriting process either just before or during the Class Period,

because these tenants all entered into new leases with IIPR. ¶¶102, 106. Indeed, PharmaCann’s

February 24, 2024, lease amendment with IIPR included a cross-default provision stating that a

default under any lease would trigger a default under all of PharmaCann’s leases with IIPR. ¶33.

This amendment demonstrates that as of February 24, 2024, Defendants viewed PharmaCann as a

highly risky enterprise, such that IIPR needed additional protections on its leases.

       D.      Defendants Also Touted New Investments in the Defaulting Tenants

       Between February and March of 2024, Defendants invested additional money into certain

of the Defaulting Tenants’ properties, amended and extended certain lease terms, and signed two

new leases. Defendants announced these changes and framed them as positive developments. This

is the second category of misstatements challenged in the Complaint. See ¶¶175-223.

       Starting on February 26, 2024, IIPR announced that it had amended one of its lease

agreements with PharmaCann to invest $16 million to help pay construction costs at a New York

facility, which extended the lease term (increasing how much money it could generate for IIPR).

¶177. Later that day, Defendant Regin told investors “there’s a tremendous amount of value in

that asset in particular”—the New York facility—and “I think it sets PharmaCann up very well to

take advantage of the wholesale opportunities that we’re going to see.” ¶187. IIPR touted this


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new investment in financial disclosures throughout the Class Period. See ¶¶187, 193, 209, 217.

       IIPR also announced on February 26, 2024, that it had amended leases with 4Front,

extending the duration of four leases but deferring some payments to IIPR in light of construction

delays at an Illinois facility. ¶180. Then, in May 2024, IIPR announced it had provided 4Front

with an additional $1.6 million to “round out development of 4Front’s 250K square-foot

production facility in Illinois” (and amended the lease agreement again). ¶¶196, 205.             In

November 2024, IIPR announced that 4Front had been unable to pay its rent for the last two

months, but Defendant Regin assured investors that the additional investment was sound, stating

that “we look at each of these situations individually, and we’re looking to maximize value of our

portfolio, and we feel very positive about the future resolution for these issues.” ¶131. IIPR touted

these changes in financial disclosures throughout the Class Period. See ¶¶190, 196, 205, 211, 219.

       IIPR also entered into two new leases with Gold Flora in March and May of 2024 and

touted these new investments to investors. For example, Defendant Regin said, “I don’t think we

can really overstate how pleased we’ve been with the leasing activity, not just the speed . . . but

really, as you noted, the strength of the operators and the credit upgrades we feel we got in each

of these cases, whether that’s Gold Flora in California or [another group].” ¶202. The Gold Flora

leases were also touted in financial disclosures. See ¶¶196, 213, 221.

       E.      The Truth About the Defaulting Tenants Was Revealed Gradually

       On November 6, 2024, IIPR issued a press release announcing that 4Front and Tilt (along

with a third tenant) had stopped paying rent two months earlier, requiring IIPR to apply security

deposits towards rent owed on six properties. ¶¶81, 225. Defendants hastened to tell investors

that the underlying financial problems with these tenants had been resolved. On a November 7,

2024 earnings call, in direct response to investor questions about 4Front and Tilt’s ability to

continue to pay rent, Defendants Gold and Smithers assured investors that the situation with 4Front


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and Tilt was “unusual” and “unforeseen,” and that IIPR had “been able to work through that issue

with” 4Front and had “come to a very amicable and positive resolution for our shareholders and

ourselves, in addition to themselves.” ¶¶110, 119. Defendant Smithers told investors that IIPR

did not declare default against 4Front or Tilt because IIPR only took “aggressive actions” where

they “don’t see a reasonable path for [the tenant] to restart paying rent,” indicating that that was

not the case here. ¶123. In response to another analyst, Defendant Gold downplayed the risk of

future default, stating that while “every real estate sector has . . . tenants that over expand and need

to retrench,” “[t]he difference is we’ve been paid a very high adjusted rate of return for what we

believe is a very—a much lower risk—risk profile.” ¶128.

        With IIPR’s November 6, 2024, announcement of the 4Front and Tilt defaults investors

began to understand that at least some of IIPR’s tenants were not financially viable and IIPR’s

common stock dropped over 16% to close at $110.70 per share on November 7, 2024, down from

a closing price of $132.34 per share at the close of the prior trading day. ¶227.

        Then, on December 20, 2024, IIPR reported that PharmaCann had not paid rent on all its

leases for December and that IIPR had applied security deposits to the leases to cover payment

that was owed. ¶231. The default triggered the cross-default provision in PharmaCann’s leases.

Id. On December 20, 2024, following IIPR’s announcement of PharmaCann’s default, IIPR’s

common stock dropped 22.74% to close at $73.66 per share, down from $95.34 per share the day

before. ¶234. Defendants again moved quickly to assure investors that any problems with

PharmaCann were resolved, announcing a purported “Resolution to Default by PharmaCann” on

January 30, 2025, and claiming to have “reached an agreement” to ensure PharmaCann would

restart paying rent. ¶239.

        But after the close of trading on March 14, 2025, IIPR announced that PharmaCann had


                                                  11


      Case 1:25-cv-00182-GLR            Document 65        Filed 10/21/25       Page 17 of 36


again defaulted and that IIPR was moving to evict PharmaCann. ¶242. In response to this news,

IIPR’s common stock dropped 7.77% to close at $64.21 per share on the next trading day, March

17. ¶243. Despite Defendants’ assurance to investors in December 2024 of a “comprehensive

resolution” with PharmaCann to resume rental payments, IIPR’s March announcement revealed

that IIPR had applied security deposits to cover PharmaCann’s December and January rent and

PharmaCann had only paid one month’s rent before defaulting again. ¶239.

       Two weeks later, on March 28, 2025, IIPR announced that it was declaring 4Front, Tilt,

and Gold Flora in default for not paying rent. ¶246. IIPR further disclosed that it was looking to

replace “a substantial portion of its tenant base with more financially viable long-term tenants to

better position the Company for sustainable growth and improved financial performance.” ¶247.

On this news, IIPR’s common stock price fell $9.66 per share, or 15.15%. ¶248.

       In sum, as the truth trickled out to investors, IIPR’s common stock dropped from $132.34

per share the day before the first 4Front and Tilt defaults were announced to close at $54.09 per

share when Defendants finally admitted that “a substantial portion of [IIPR’s] tenants” were not

“financially viable long-term.” As a result, investors lost millions.

                                       LEGAL STANDARD

       On a motion to dismiss, the Court must “consider the complaint in its entirety,” “accept all

factual allegations in the complaint as true,” and draw all reasonable inferences in Plaintiff’s favor.

Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 322 (2007); see also Singer v. Reali, 883

F.3d 425, 437 (4th Cir. 2018). And such a motion should be granted “only where it appears beyond

a reasonable doubt that recovery would be impossible under any set of facts which could be

proven.” In re MicroStrategy, Inc. Sec. Litig., 115 F. Supp. 2d 620, 627 (E.D. Va. 2000). Claims

of securities fraud are subject to Federal Rule of Civil Procedure 9(b) and the Private Securities


                                                  12


       Case 1:25-cv-00182-GLR                 Document 65           Filed 10/21/25          Page 18 of 36


Litigation Reform Act of 1995 (“PSLRA”). Rule 9(b) requires that “the circumstances constituting

fraud” be stated “with particularity.” Fed. R. Civ. P. 9(b). The PSLRA requires a complaint to

(i) “specify each statement alleged to have been misleading” and the “reasons why the statement

is misleading,” and (ii) “state with particularity facts giving rise to a strong inference that the

defendant acted with” scienter. 15 U.S.C. § 78u–4(b)(1)(B) & (b)(2)(A). While these rules require

more than bare assertions of fraud, “the elucidation of every detail of the alleged fraud” is not

required. In re Under Armour Sec. Litig., 540 F. Supp. 3d 513, 519 (D. Md. 2021).

                                                  ARGUMENT

I.       THE COMPLAINT PLAUSIBLY ALLEGES SECURITIES FRAUD CLAIMS

         A securities fraud claim under Section 10(b) of the Securities Exchange Act of 1934 has

six elements: “(1) that the defendant made a false or misleading statement or omission of material

fact; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase of

a sale or security; (4) reliance on the misrepresentation or omission; (5) economic loss; and (6) loss

causation.” Sinnathurai v. Novavax, Inc., 645 F. Supp. 3d 495, 513 (D. Md. 2022). Defendants

only challenge the first two elements, falsity and scienter. See Br. at 12-28.3

         A.       The Complaint Plausibly Alleges Two Categories of Misstatements

         To plead falsity, a complaint must “alleg[e] that the defendant acted deceptively, i.e., that

the defendant engaged in deceptive acts such as misstatements” of material fact.4 Singer, 883 F.3d

at 439. But a plaintiff is not required to “prove absolute, incontrovertible falsity.” In re Genworth


3
         In passing, Defendants assert the Complaint “fails to establish reliance” (element four) or that the
misstatements “proximately caused Plaintiff’s purported damages” (element six). Br at 12. There is no authority or
argument to support these claims and the Court should disregard them. Schulman v. Axis Surplus Ins. Co., 90 F.4th
236, 245 n.5 (4th Cir. 2024) (“A party waives an argument by failing to . . . to develop its argument—even if its brief
takes a passing shot at the issue.”) Defendants are also wrong. The Complaint pleads the “presumption of reliance”
applicable to securities cases. ¶¶261-65; see also Basic Inc. v. Levinson, 485 U.S. 224, 247 (1988) (“presumption of
reliance” applies to securities class actions). There are also 28 paragraphs explaining how revelations of the truth
concealed by the misstatements caused Plaintiff’s losses. ¶¶224-51.
4
         Defendants’ Motion does not argue (nor could it) that the misstatements were immaterial.


                                                         13


      Case 1:25-cv-00182-GLR              Document 65          Filed 10/21/25        Page 19 of 36


Fin. Inc. Sec. Litig., 103 F. Supp. 3d 759, 771 (E.D. Va. 2015). Rather, on a motion to dismiss, a

plaintiff need only allege “sufficient facts to support a reasonable belief in the allegation that a

defendant’s statement[s]” were misstatements. Id. at 771.

       There are two types of misstatements at issue here—“false statements or lies,” and

misleading statements or “half-truths” that “omit[] a material fact necessary to make the statements

made not misleading.” See, e.g., Macquarie Infrastructure Corp. v. Moab Partners, L.P., 601 U.S.

257, 263 (2024). The two categories of misstatements in the Complaint are both the kinds of

“deceptive acts” that courts routinely find violate Section 10(b).

       First, the Complaint challenges Defendants’ repeated assurances to investors of “rigorous”

due diligence on, and “ongoing monitoring” of, tenants. See ¶¶86-174. Defendants told investors

that they tracked the “credit quality” and financial health of “all of [its] tenants” “on an ongoing

basis” to “ensure that meet [IIPR’s] strategic and financial criteria.”5 For example, IIPR’s

quarterly investor presentation told investors the Company conducted “detailed” reviews and

“ongoing monitoring,” including “[q]uarterly reviews and request for information pertaining to

ongoing operations and all properties” and “[m]eetings with tenants to talk through operations and

financials.” ¶¶95, 100. Similarly, the Company’s SEC filings stated that IIPR “rel[ied] on

management to perform due diligence investigations of our potential tenants, related guarantors

and their properties, operations, and prospects” and that IIPR was “evaluat[ing] the credit quality

of our tenants and any guarantors on an ongoing basis.” ¶¶90-91. And investment analysts

routinely asked about the financial health of IIPR’s tenants on conference calls and Defendants

always claimed to be monitoring the tenants.6 For example, when asked about the “risk for

[IIPR’s] tenant base over the course of the next year,” Defendants Gold and Regin stated that they


5
       ¶¶87, 89, 114, 119, 168, 172.
6
       ¶¶102-03, 106, 109-110, 113-14, 118-19, 123, 127-28, 131, 134-35, 156-57, 160-61, 164, 167-68, 171-72.


                                                     14


       Case 1:25-cv-00182-GLR                 Document 65            Filed 10/21/25          Page 20 of 36


were “monitoring all of [its] tenants” “very closely,” “following and watching [their tenants’ debt

maturity with outside lenders] very closely,” “watching each of our tenants and working with them

very closely.” ¶¶157, 161, 164, 168. Similarly, when asked if IIPR “had any reassessments of

credit of tenants that before you would have ranked highly and now, . . . they’re current, and they’re

fine, but we may want to reduce exposure going forward?” Defendant Gold responded that “we’re

watching all of our tenants. We are doing deep dives into every single one of our tenants, including

the strongest ones and the single state operators,” ¶¶171-72; see also ¶¶87, 89, 91, 95. Regin and

Gold also told investors that “we feel very good about our current tenant roster of our 30 tenants”

and characterized their tenants as having a “much lower risk—risk profile.” ¶¶110, 128.

         These statements are alleged to be (i) “false” to the extent that IIPR “did not have a rigorous

tenant-oversight process”; or, in the alternative, (ii) “materially misleading” half-truths to the

extent that “such a process did exist but Defendants failed to disclose to investors what they knew

about the Defaulting Tenants” and their dire financial positions, which misled investors as to the

risk of investing in IIPR. E.g., ¶¶87, 88. As shown herein, it is reasonable to infer that Defendants’

oversight misstatements were either false or misleading half-truths because the numerous red flags

about the Defaulting Tenants (¶¶67-76) are precisely what Defendants said their “robust due

diligence” and “ongoing monitoring” was designed to detect.

         Courts routinely hold that allegations like these are sufficient to plead falsity. For example,

in Genworth, 103 F. Supp. 3d at 773, the court found that assurances of a “broad, intensive review”

of a business line were misleading for omitting that defendants did not conduct such a review.7

7
         See also In re Wilmington Tr. Sec. Litig., 29 F. Supp. 3d 432, 447-48 (D. Del. 2014) (statements about (i)
“rigorous” underwriting and “regular[] review of all past due loans” to “mitigate credit risk”; and (ii) that “portfolio
has held up well” when it was “experiencing significant deterioration” misleading because they “misrepresent[ed] the
financial health” of the company); In re Countrywide Fin. Corp. Deriv. Litig., 554 F. Supp. 2d 1044, 1072 (C.D. Cal.
2008) (statements that defendant had “stringent underwriting standards for riskier loans,” “actively managed credit
risk,” and “only retained high credit quality mortgages” false and misleading for failure to disclose magnitude of risk
of default for loans not up to underwriting standards).


                                                          15


       Case 1:25-cv-00182-GLR                  Document 65            Filed 10/21/25         Page 21 of 36


Similarly, in In re James River Gr. Holdings, Ltd. Sec. Litig., the court found an insurance

company’s assurance that “it monitored reserves, estimated losses for each individual claim, and

based those estimate in part on historical information” was misleading where the plaintiff alleged

“[d]efendants received information regarding the reserve process . . . including audit reports

indicating the systemic under-reserving” of claims. 2023 WL 5538218, at *11 (E.D. Va. Aug. 28,

2023). So too here. Like in Genworth and James River, Defendants told their investors that they

were monitoring whether IIPR’s tenants could pay rent and misrepresented that risk by either not

engaging in any monitoring or affirmatively misrepresenting the red flags at the Defaulting

Tenants by failing to disclose them.8 This was fraud.

         Second, the Complaint challenges Defendants’ touting of new investments in the

Defaulting Tenants.         ¶¶175-223.        For example, Defendant Regin told investors “there’s a

tremendous amount of value in” PharmaCann’s property, ¶187; that an additional investment in

4Front was sound, ¶131; and described the new leases with Gold Flora as a “credit upgrade”

because of the “strength of the operator[].” ¶202. Defendants also heralded additional investments

of $16 million into PharmaCann and $1.6 million into 4Front and two new leases with Gold Flora.9

The Complaint alleges that this category of misstatements was misleading (but not false) as they

“misled investors into believing that additional investments in the [Defaulting Tenants] were

beneficial to IIPR because it would generate additional rental revenues” when, in reality, the

Defaulting Tenants were on the verge of financial collapse and would not be able to pay rent,

which meant that IIPR was simply throwing good money after bad. E.g., ¶¶179, 197, 203.


8
          These red flags are not remotely like Handal v. Innovative Industrial Properties, Inc., where the Third Circuit
addressed allegations that Defendants’ oversight process missed that IIPR “was defrauded of millions of dollars by
one of its tenants.” 2025 WL 2922871, at *1 (3d Cir. Oct. 15, 2025). Here, there is no suggestion that the Defaulting
Tenants concealed their finances or defrauded IIPR. Indeed, that Defendants’ “due diligence” and “monitoring” failed
to detect this pre-Class Period fraud demonstrates they were on notice that those processes were deficient.
9
          ¶¶177, 180, 184, 187, 190, 194, 196, 198, 202, 205, 209, 211, 213, 217, 219, 221.


                                                          16


       Case 1:25-cv-00182-GLR                 Document 65           Filed 10/21/25          Page 22 of 36


         Courts also routinely hold that these kinds of allegations are sufficient to plead a misleading

statement under Section 10(b). See In re Emergent BioSolutions Inc. Sec. Litig., 2023 WL

5671608, at *15 (D. Md. Sept. 1, 2023) (statements touting upgrades to facility misleading for

failing to disclose “persistent, serious issues” that reasonable investor would have found material);

City of Sterling Heights Police & Fire Ret. Sys. v. Abbey Nat., PLC, 423 F. Supp. 2d 348, 359

(S.D.N.Y. 2006) (statements that “[w]e’ve done a very thorough review . . . of our entire . . .

portfolio” and “we’re very happy with the present situation” false and misleading where value of

two assets in defendants’ portfolio had dropped significantly and Defendants remained silent about

the extent of their exposure to these losses). Defendants were obligated to reveal the truth of the

Defaulting Tenants’ finances, which they knew or recklessly disregarded: that PharmaCann,

4Front, and Gold Flora were in serious financial distress and had already stopped paying their

other bills.10 These omissions were particularly significant in the context of Defendants’ repeated

statements throughout the Class Period that new investments were subject to “rigorous” due

diligence. E.g., ¶¶87, 95. See In re Virtu Fin., Inc. Sec. Litig., 770 F. Supp. 3d 482, 504 (E.D.N.Y.

2025) (statements “made repeatedly in an effort to reassure the investing public” material).

         In the face of overwhelming evidence of falsity, Defendants fall back on a grab bag of

erroneous arguments. See Br. at 13-20. First, Defendants argue there are no “facts suggesting that

IIPR did not do due diligence” because the Complaint “cites neither confidential witness, nor

internal documents, nor any contemporaneous facts.” Br. at 13-14. Defendants are wrong. To

start, pleading securities fraud requires neither confidential witnesses nor internal documents. See

10
         For example, between February 26 and November 7, 2024, Defendants repeatedly touted IIPR’s extension
of 4Front’s lease and an additional $1.6 million investment. See ¶¶180, 190, 196, 205, 211, 219. During this same
period, 4Front reported negative working capital, faced collection efforts from three vendors, and was issued liens for
not paying taxes. See ¶¶67-70. The same scenario was playing out with PharmaCann and Gold Flora. Compare
¶¶177, 184, 187, 193, 209, 217 (touting $16 million investment in PharmaCann and lease extension) with ¶67 (tax
liens on PharmaCann); also compare ¶¶198, 202, 213, 221 (touting new Gold Flora leases) with ¶¶68-70, 73 (Gold
Flora’s negative working capital, difficulties getting loans to cover debt, and unpaid bills of over $6 million).


                                                         17


      Case 1:25-cv-00182-GLR           Document 65       Filed 10/21/25      Page 23 of 36


Tchatchou v. India Globalization Cap. Inc., 2021 WL 307415, at *8 (D. Md. Jan. 29, 2021) (falsity

well-pled without confidential witnesses); Keeney v. Larkin, 306 F. Supp. 2d 522, 528 (D. Md.

2003) (no requirement to plead “detailed evidentiary matter” in defendants’ exclusive possession).

       More importantly, the Complaint does allege contemporaneous facts—including from

IIPR’s leases with PharmaCann and 4Front (¶¶32, 36, 75)—which show that if IIPR had been

doing due diligence and monitoring as it claimed, it would have uncovered scores of red flags at

the Defaulting Tenants. A review of the tenants’ “payment history data” and “credit quality” alone

would have shown that PharmaCann and 4Front each owed nearly $500,000 and $15 million in

unpaid taxes and that Gold Flora and 4Front owed millions of dollars to vendors for unpaid

invoices even before the start of the Class Period. ¶89. Likewise, a “[d]etailed review of financial

statements” and “quarterly reviews and requests for information pertaining to” the tenant’s

financial operations would have revealed SEC disclosures filed by Tilt, 4Front, and Gold Flora

reporting tens of millions of dollars in net losses each year, as well as the going concern warnings

from their auditors. ¶95. A review of “cash balance on hand today” would have shown that at

least Tilt, 4Front, and Gold Flora had very little cash on hand, because they had been reporting

negative working capital each year since 2022. Id. And because the Defaulting Tenants were

unable to secure loans at reasonable rates, they did not have a “[h]istory of successful capital

raising,” either. Id. And the Complaint alleges—based upon internal Company documents—that

IIPR’s leases required tenants to disclose this information to Defendants. ¶¶36, 75-76.

       Second, Defendants assert (without supporting authority) that the Complaint “does not

challenge as factually inaccurate” any of the alleged misstatements. Br. at 15. But it is black-

letter law that “literal accuracy is not enough,” as Defendants “must as well desist from misleading

investors by saying one thing and holding back another.” Macquarie, 601 U.S. at 263 (quoting


                                                18


       Case 1:25-cv-00182-GLR                 Document 65           Filed 10/21/25         Page 24 of 36


Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, 575 U.S. 175, 192 (2015)).

And in all events, the Complaint does allege both that the first category of misstatements was

“false” (or alternatively, misleading) and “that Defendants withheld actual knowledge” (Br. at 16)

of the Defaulting Tenants’ red flags (e.g., ¶¶150, 162).11

         Third, Defendants claim (again, without supporting authority) that IIPR’s risk warnings

meant investors could not have been “misled . . . into thinking that it was impossible that IIPR’s

tenants would default.” Br. at 15. This is a red herring. All agree that investors understood

cannabis operators were risky—but that is exactly why Defendants’ “robust due diligence” and

“ongoing monitoring” was so important to investors because those were the steps Defendants said

they were taking to mitigate that risk. Defendants’ repeated assurances of tenant oversight and

touting new investments in the Defaulting Tenants misled investors into believing that investing

in IIPR was less risky than it actually was by concealing the financial problems with the Defaulting

Tenants that would ultimately wipe out 25% of IIPR’s revenues. See, e.g., In re Emergent, 2023

WL 5671608, at *20; Abbey Nat., 423 F. Supp. 2d at 359.12

         Fourth, Defendants wrongly accuse Plaintiff of “distort[ing] Defendants’ words.” Br. at

16-20. Plaintiff has distorted nothing. The Complaint sets out the challenged statements verbatim

and then explains why those statements were materially false or misleading. That is what the

PSLRA requires. Kusnier v. Virgin Galactic Holdings, Inc., 639 F. Supp. 3d 350, 368 (E.D.N.Y.

2022) (plaintiff must “identif[y] specific statements” and provide a “a list of reasons why those


11
          Defendants’ argument that a “serious investor” who understood IIPR’s “accounting methodology” would
have understood the “inherently risky business profile” of IIPR’s tenants, Br at 15-16, also misses the point. Even if
investors knew and understood that IIPR was engaged in a “risky business,” it does not excuse Defendants from
misrepresenting the steps taken to mitigate those risks, and Defendants cite no authority holding otherwise.
12
          See also Roofers Local No. 149 Pension Fund v. Amgen Inc., 751 F. Supp. 3d 330, 348 (S.D.N.Y. 2024)
(failure to disclose “magnitude of the Company’s potential liability to the IRS” misleading because it “did not reveal
the information necessary . . . to make a proper assessment of the alleged risks.”).


                                                         19


       Case 1:25-cv-00182-GLR                 Document 65           Filed 10/21/25         Page 25 of 36


statements are allegedly misleading.”). Defendants’ argument is also belied by their own Exhibit

17 (Dkt. No. 60-21), which purports to identify where “Plaintiff inaccurately quotes statements.”

Br. at 16. But the accurate “text of [each] statement” that Defendants claim was “distorted” is

“copied directly from the Consolidated Class Action Complaint,” and Defendants have identified

nothing that Plaintiff actually misquoted. Dkt. No. 60-21 at 3 n.1.13

         As for Defendants’ argument that the Complaint pleads “no facts” or is grounded on

“editorial manipulation,” the Court need only look at the examples in Defendants’ Brief to see this

is wrong. Defendants claim that it is an unsupported “leap of logic” to conclude that Defendants

were monitoring all of IIPR’s tenants. Br. at 17. But no leap is required. Defendant Gold, for

example, told investors “we have said that we are monitoring all of our tenants, and we are

monitoring all of our tenants.” ¶168. Similarly, Defendants wrongly claim that “nothing ties . . .

together” Gold’s statement “that IIPR had received a ‘high adjusted rate of return for . . . a much

lower risk [] profile” and the idea that IIPR was performing due diligence and monitoring. Br. at

17. But how could Gold “determine what that ‘risk profile’ actually was as compared to the

potential ‘rate of return’” without the Company doing the due diligence and monitoring necessary

to determine that risk? ¶129. And this statement was materially false to the extent that Defendants

had not done the oversight needed to assess the risks, or materially misleading for not disclosing

what Gold knew about the Defaulting Tenants that would increase IIPR’s “risk profile.” Id.

         Finally, Defendants claim they “had no obligation to disclose any actual knowledge [they]

might have had about tenants’ finances.” Br. at 20. Not so. Defendants had a duty to disclose all

facts “necessary in order to make the statements made, in light of the circumstances under which

they were made, not misleading.” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 37 (2011).


13
       Since Plaintiff’s allegations of falsity are also not contradicted by any of Defendant’s documents, Plaintiff’s
Complaint is nothing like Phillips v. LCI Intern., Inc., 190 F.3d 609, 615-16 (4th Cir. 1999). See Br. at 17.


                                                         20


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Thus, “[e]ven when there is no existing independent duty to disclose information, once a

[defendant] speaks on an issue or topic, there is a duty to tell the whole truth.” Singer, 883 F. 3d

at 440; see also Macquarie, 601 U.S. at 264 (Rule 10b-5 “requires disclosure of information

necessary to ensure that statements already made are clear and complete”). Once Defendants chose

to speak about their due diligence, ongoing monitoring, and new investments in the Defaulting

Tenants, those subjects trigged “a duty to tell the whole truth” about the red flags at the Defaulting

Tenants. And Defendants cannot hide behind one self-serving quote from Defendant Smithers

claiming that “confidentiality agreements” prohibited such disclosure. Br. at 20. This is wrong as

a matter of law and, in all events, a factual dispute that cannot be resolved on a motion to dismiss

where the purported “confidentiality agreements” are not before the Court. In re Wells Fargo &

Co. Sec. Litig., 2021 WL 4482102, at *13 (S.D.N.Y. Sept. 30, 2021) (statement still misleading

when failed to disclose confidential information that a reasonable investor would “certainly

consider” material because “even if the [information] itself was confidential, upon choosing to

speak, one must speak truthfully about material issues.”).

       B.      Defendants’ Misstatements Are Actionable

       Defendants assert that certain misstatements were non-actionable as either protected

“forward-looking statements” or puffery. Br. at 20-21. None of the statements identified by

Defendants are protected by the PSLRA’s Safe Harbor, as it applies “to forward-looking

statements only, and not to material omissions or misstatements of historical fact.” In re

Constellation Energy Grp., Inc. Sec. Litig., 738 F. Supp. 2d 614, 625 (D. Md. 2010); see also

Malone v. Microdyne Corp., 26 F.3d 471, 479-80 (4th Cir. 1994) (“Misstatements or omissions

regarding actual past or present facts are far more likely to be actionable than statements regarding

projections of future performance.”). So this argument fails out of the gate.

       Defendants pluck one sentence—“We feel very confident in the Illinois Market”—out of


                                                 21


      Case 1:25-cv-00182-GLR           Document 65        Filed 10/21/25      Page 27 of 36


a two-paragraph misstatement (¶131) and argue Plaintiff is alleging that “IIPR’s view[s] on how

certain states would perform” are “fictionally portray[ed] . . . as guarantees.” Br. at 21. But this

contorts the Complaint. Paragraph 131 focuses on Regin’s statements about (i) prior 4Front

investments (“we did make an investment in the Illinois facility” and “have four individual leases

with [4Front]”); (ii) his understanding of 4Front’s finances (“significant delays in construction,

which understandably had an impact”); (iii) Illinois being “one of the top 5 markets in the U.S.”;

(iv) the Company “look[ing] at each” tenants’ “situations individually”; and (v) assurances that

IIPR was then “looking to maximize value of our portfolio” and was then “very positive about the

future resolution” of 4Front issues. ¶131. Each of these are statements of present or historical

facts. The attack on paragraph 150 (Br. at 21) is even farther afield because Defendants are quoting

Plaintiff’s explanation of a misstatement, not anything they actually said about future performance.

       But even if some of the misstatements were forward-looking (and they are not), they were

not accompanied by meaningful cautionary language. See In re Lab. Corp. of Am. Holdings Sec.

Litig., 2006 WL 1367428, at *5 (M.D.N.C. May 18, 2006) (no safe harbor protection without

cautionary language that “convey[s] substantive information about factors that realistically could

cause results to differ materially from those projected in the forward-looking statement.”). The

boilerplate language cited by Defendants—that “actual results may differ materially due to a

variety of risks, uncertainties and other factors” (Br. at 21)—does not address the specific risk at

issue, namely, the Defaulting Tenants’ teetering finances, and so is inadequate. In re Am. Int’l

Grp., Inc. 2008 Sec. Litig., 741 F. Supp. 2d 511, 531 (S.D.N.Y. 2010) (cautionary language

“inadequate to shield defendants from liability for failing to disclose known specific risks.”).

       Likewise, none of the three misstatements identified by Defendants are inactionable

“corporate optimism” or puffery.       Br. at 22 (citing ¶¶110, 187, 202).       Here, the alleged


                                                 22


      Case 1:25-cv-00182-GLR           Document 65         Filed 10/21/25      Page 28 of 36


misstatements are “reasonably understood to rest on a factual basis.” Virginia Bankshares, Inc. v.

Sandberg, 501 U.S. 1083, 1093 (1991). Each statement was made about a specific set of tenants,

and each statement characterized the strength of IIPR’s investment. See, e.g., In re Lucent Tech.,

Inc. Sec. Litig., 217 F. Supp. 2d 529, 559 (D.N.J. 2002) (“strong customer acceptance” not puffery

because “reasonable investor likely would consider material any information relating to customer

acceptance of key products”). Defendant Regin was specifically referring to IIPR’s “current tenant

roster of our 30 tenants” when he made the statement that “we really feel that we have some of the

best operators in the industry.” ¶110. Likewise, Regin’s statement, “we very much like the

position that our tenant partners are in the state,” was in direct response to a question about IIPR’s

“incremental investments over the last few months in New York.” ¶187. And Regin’s statement

about “the strength of the operators” was in reference to two specific tenants, Gold Flora and

Luma, in the context of touting new leases with these tenants as “credit upgrades.” ¶202. The

health of IIPR’s tenants was a key question for investors, so these statements are not so “obviously

unimportant to a reasonable investor that reasonable minds could not differ on the question of their

importance” as to be inactionable puffery. Singer, 883 F.3d at 440.

       C.      The Complaint Plausibly Alleges Scienter

       To plead scienter, a plaintiff must allege a strong inference “that the defendant acted with

a ‘mental state embracing intent to deceive, manipulate, or defraud.” Zak v. Chelsea Therapeutics

Int’l, Ltd., 780 F.3d 597, 606 (4th Cir. 2015). “Allegations of reckless conduct can satisfy the

level of scienter necessary to survive a motion to dismiss.” Id. Recklessness is conduct that is “so

highly unreasonable and such an extreme departure from the standard of ordinary care as to present

a danger of misleading the plaintiff to the extent that the danger was either known to the defendant

or so obvious that the defendant must have been aware of it.” Singer, 883 F.3d at 443. An

inference of scienter “need not be irrefutable” “or even the ‘most plausible of competing


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inferences,’” and “‘smoking-gun’” evidence is not required. Klein v. Altria Grp, Inc., 525 F. Supp.

3d 638, 665 (E.D. Va. 2021) (quoting Tellabs, 551 U.S. at 324). Scienter allegations should be

accepted as true and viewed holistically, not scrutinized “in isolation” to determine if “a reasonable

person [would] deem the inference of scienter at least as strong as the opposing inference.”

Cambridge Ret. Sys. v. Jeld-Wen Holding, Inc., 496 F. Supp. 3d 952, 968 (E.D. Va. 2020).

         Here, the strong inference of scienter is a straightforward syllogism: (1) Defendants

repeatedly told investors that they were engaged in oversight of IIPR’s tenants through due

diligence and ongoing monitoring; (2) there were myriad red flags with the finances at four of

IIPR’s largest tenants, which showed that these tenants were at high risk of default; (3) IIPR’s

“robust due diligence” and “ongoing monitoring,” as the process was explained by Defendants,

should have detected these red flags; therefore, it is plausible to infer either (a) IIPR was not doing

the oversight it represented to investors, and Defendants’ statements like “we have said that we

are monitoring all of our tenants, and we are monitoring all of our tenants” (¶165) were

intentionally meant to deceive; or (b) the oversight did happen and Defendants either chose not to

share the known red flags with investors or disregarded those red flags. In either situation, (a) or

(b), the Complaint pleads a strong inference of scienter.14 In re Emergent BioSolutions Inc. Sec.

Litig., 2023 WL 5671608, at *22 (D. Md. Sept. 1, 2023) (“The presence of ‘red flags,’ coupled

with the ‘breadth and gravity’ of a company’s problems” provides “substantial weight to an

inference” of scienter and “[t]he more significant the error the stronger the inference it supports.”).

         The facts underlying this syllogism are as follows: IIPR stated that it “rel[ied] on our


14
         Defendants are wrong that the Complaint “does not outright state” that Defendants “recklessly did not
conduct any due diligence” or that the “due diligence was . . . recklessly flawed.” Br. at 26. See, e.g., ¶99 (alleging
scienter because Defendants “either knew or recklessly disregarded” that statements touting “due diligence” and
“monitoring” were false or misleading). And Defendants’ competing inference that this was all business as usual and
some tenants “paid rent for many years” and “some defaulted” (Br. at 29), is certainly not more compelling.


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management team to perform due diligence investigations of our potential tenants . . . and their

properties, operations, and prospects.” ¶91. Each of the Individual Defendants was a part of

IIPR’s management during the Class Period. ¶¶14-19, 98. Defendants Gold, Smithers, Regin, and

Hastings also made specific statements about IIPR’s oversight of tenants and/or specific

investments in the Defaulting Tenants.15 Given what IIPR told investors “management[’s]” role

was in tenant oversight, and the specific statements of the individuals about their involvement in

this process, it is clear the Individual Defendants were personally involved in the oversight process.

This oversight, according to Defendants, included, among other things, “Ongoing monitoring,” of

tenants’ “cash balance on hand today,” “[e]valuation of financial projections,” “[d]etailed review

of financial statements, strategic initiatives, and growth plans,” “[q]uarterly reviews and requests

for information pertaining to financials and ongoing operations,” and “[m]eetings with tenants to

talk through operations and financials.” E.g., ¶95. Thus, if this process happened, then the

Individual Defendants would have learned that the Defaulting Tenants were in serious financial

distress, including that they were behind on taxes, could not pay vendors, did not have cash to fund

their day-to-day operations, and could not effectively borrow money to cover expenses.16 These

allegations comfortably support an inference of scienter. See James River, 2023 WL 5538218, at

*19 (10-K filings stating that “senior management” conducted reviews “at least quarterly” of

reserves supported scienter of executive defendants); KBC Asset Mgmt. NV v. 3D Sys. Corp., 2016

WL 3981236, at *9 (D.S.C. July 25, 2016) (allegation that defendants were part of acquisition

team supported that they “necessarily had access to confidential information regarding the state of

the acquisition strategy” “[b]y nature of these positions”).


15
        See, e.g., ¶¶106, 114, 119, 135, 161, 164, 168, 172, 190, 202, 205.
16
        So Defendants are incorrect that the Complaint’s scienter allegations rest solely on “general facts about the
Individual Defendants’ employment and/or roles at the Company.” See Br. at 23.


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         The best response Defendants muster is claiming there can be no inference of scienter

because Plaintiff does not “allege that Defendants withheld actual knowledge that IIPR’s tenants

would default.” Br. at 25. “But to adequately allege scienter, the Plaintiffs do not need to allege

that [Defendants] could have predicted that this particular incident would occur in the future. They

need only allege that the Defendants were severely reckless in omitting material facts that could

mislead investors” about the event’s likelihood. In re Emergent, 2023 WL 5671608, at *24.17

         The Complaint’s strong inference of scienter is further supported by additional facts. First,

the content of the misstatements supports the inference of scienter. That Defendants claimed to

be knowledgeable about how IIPR was “watching each of our tenants and working with them very

closely,” and doing “deep dives into every single one of our tenants” (¶¶164, 172), supports that

they “possessed knowledge of the true state of affairs” and knew that their representations were

false or misleading. See Genworth, 103 F. Supp. 3d at 785 (assertions of “intimate involvement”

in a business line supported inference that defendants “possessed knowledge of the true state of

affairs” of that business); In re Comput. Sciences Corp. Sec. Litig., 890 F. Supp. 2d 650, 669 (E.D.

Va. 2012) (statements that contract was one that defendant “watch[ed] most closely” supported

scienter); James River, 2023 WL 5538218, at *19 (statements that defendants were doing a “deep

dive” and “watching [reserves] very carefully and very closely” supported scienter); Loc. 731 I.B.

of T. Excavators & Pavers Pension Tr. Fund v. Swanson, 2011 WL 2444675, at *12 (D. Del. June

14, 2011) (statements that defendants “closely monitor[ed]” advertiser usage supported scienter).

Second, the context in which many of the misstatements were made—repeatedly, and in response


17
          Nor does Plaintiff “stack inference upon inference” to plead scienter. Def. Br. at 25. Unlike in San Antonio
Fire & Police Pension Fund v. Syneos Health Inc., scienter here is based on far more than “the mere fact that
Defendants conducted due diligence.” 75 F.4th 232, 243 (4th Cir. 2023). The Complaint pleads numerous additional
factors that, viewed holistically, support a strong inference that Defendants knew, or were reckless in not knowing,
that the Defaulting Tenants were at high risk of default, particularly since, unlike in Syneos, they had the specific
tenant financial information that would have alerted them of the risk. See James River, 2023 WL 553828, at *19.


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to specific questions about oversight of tenants—supports the inference of scienter.18 See Inst.

Inv. Grp. v. Avaya Inc., 564 F.3d 242, 269 (3d Cir. 2009) (scienter found where defendant

“explicitly denied the existence of [] discounting in response to repeated questions about pricing

by analysts”); City of Southfield Fire & Police Ret. Sys. v. Hayward Holdings, Inc., 2025 WL

1577315, at *16 (D.N.J. June 4, 2025) (misstatements in responses to “direct and repeated

questions” supported scienter); KBC, 2016 WL 3981236, at *9 (false and misleading responses to

repeated questions from analysts asking about key business operations bolstered scienter).

         Third, the inference of scienter is further buttressed because the alleged misstatements dealt

with the “core operations” of IIPR’s business. Yates v. Mun. Mortg. & Equity, LLC, 744 F.3d 874,

890 (4th Cir. 2014) (misleading statements that relate to a company’s “core business” or core

operations “are relevant to the court’s holistic analysis of scienter.”); Novavax, 645 F. Supp. 3d at

527. IIPR’s revenues depended on the ability of a small number of tenants to consistently pay

rent, so the state of those tenants’ finances was critical to IIPR’s bottom line. Thus, the alleged

misstatements—about the thoroughness of IIPR’s oversight of tenants’ finance—go to the heart of

IIPR’s core operations, and further support an inference that the Individual Defendants knew or

recklessly disregard the risks posed by the Defaulting Tenants. See Genworth, 103 F. Supp. 3d at

784; Novavax, 645 F. Supp. 3d at 527-28 (vaccine that was “critical to [the company’s] success”

made it more plausible that Defendants “were aware of the facts underlying” the alleged

concerning vaccine); KBC, 2016 WL 3981236, at *9.19

         Finally, the Complaint also offers a motive for why at least three of the Individual


18
          ¶¶113-14, 118-19, 127, 131, 135, 160-61, 164.
19
          Additionally, IIPR’s small size—only 22 to 23 full-time employees (¶253)—makes it more likely that the
Individual Defendants were aware of any problems. See De Vito v. Liquid Holdings Grp., Inc., 2018 WL 6891832, at
*36 (D.N.J. Dec. 31, 2018) (from “closeness of the connection to [Defendant's] core operations and the relative [small]
size of the company” it is inferable that management was “making themselves aware of” customer problems).


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Defendants would mislead investors, which further supports an inference of scienter. The “desire

for personal financial gain” provides a motive to engage in fraud and weighs in favor of scienter

(but is not a required showing). Jeld-Wen Holding, Inc., 496 F. Supp. 3d at 966. Defendants Gold,

Smithers, and Hastings were granted Performance Share Unit (“PSU”) awards before the start of

the Class Period that would vest during the Class Period. ¶¶256-58. If Defendants were successful

in keeping IIPR’s stock price up, they stood to receive large cash payments from back dividends

on the PSU’s they had already been granted, in addition to more shares in IIPR. Id.; see In re

Toronto-Dominion Bank Sec. Litig., 2018 WL 6381882, at *15 (D.N.J. Dec. 6, 2018) (timing of

vesting of defendants’ PSUs supported scienter even though “PSUs were not technically exercised

or sold”). As an added motive, Gold, Smithers, and Hastings did not receive these bonuses in the

year before the Class Period started because the defaults at Kings Garden and Parallel, among

other things, caused IIPR’s stock price to decline. ¶259. Defendants’ rejoinder—that this cannot

be a motive because nobody “received any stock award” (Br. at 25)—misses the mark. “The fact

that a gamble . . . fails is not inconsistent with” scienter. Makor Issues & Rights, Ltd. v. Tellabs

Inc., 513 F.3d 702, 710 (7th Cir. 2008) (“It is like embezzling in the hope that winning at the track

will enable the embezzled funds to be replaced before they are discovered to be missing”).

II.    THE COMPLAINT IS NEITHER PROLIX NOR IMPROPERLY PLED

       Defendants attack the length and writing style of the Complaint on the grounds of

“prolixity” and “group pleading.” Br. at 9-12. This argument rests on a misreading of the

Complaint and applicable law. In fact, the Court can disregard Defendants’ “prolixity” argument

entirely because Plaintiff received leave to “file a complaint that shall not exceed 107 pages” “for

good cause shown,” and with Defendants’ consent. Dkt. No. 53.

       Defendants seek to end run the Court’s prior order by asserting that the Complaint is

nonetheless too repetitive and lacks citations and exhibits. Br. at 10-12. But Defendants cite no


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       Case 1:25-cv-00182-GLR               Document 65          Filed 10/21/25        Page 34 of 36


authority to support these arguments, presumably because dismissal under Rule 8 “is usually

reserved for those cases in which the complaint is so confused, ambiguous, vague, or otherwise

unintelligible that its true substance, if any, is well disguised.” In re Parmalat Sec. Litig., 375 F.

Supp. 2d 278, 311 (S.D.N.Y. 2005) (declining to dismiss 368-page page securities fraud complaint

because it did not “overwhelm the defendants’ ability to understand or to mount a defense”). That

is not the case here. The Complaint identifies each misstatement, highlights the exact portion

challenged, explains why those statements were false and misleading, states the precise facts

giving rise to an inference of scienter—all as required by the PSLRA—and in doing so “fulfill[s]

the purpose of Rule 8 by putting Defendants on notice of the true substance of the claims against

them.” In re Intuitive Surgical Sec. Litig., 65 F. Supp. 3d 821, 831 (N.D. Cal. 2014).20

        And Defendants’ Motion belies any claim that more citations or exhibits are required by

attaching over 700 pages of exhibits. (Dkt. No. 60). Exhibits 1-18 are copies of the SEC filings,

transcripts, and other statements at issue in this case, which shows Defendants are on notice.

        Defendants’ “group pleading” argument (Br. at 11-12) is even more tenuous.                          The

Complaint does not “attribute certain statements to Individual Defendants who did not make

them.” See Br. at 11. The Complaint’s allegations attribute each misstatement to a specific

Defendant or Defendants. See, e.g., ¶¶103, 123, 128 (attributing alleged misstatements to Regin,

Smithers, and Gold, respectively); ¶91 (attributing alleged misstatements in IIPR’s 10-K to

Smithers and Hastings who certified the filing). Each Defendant is liable under for the specific

misstatements attributed to them, and each Defendant is liable as a control person because they

had the power to “control public statements about IIPR.” ¶280. No more is required. Jeld-Wen,


20
         The cases Defendants cite are inapposite as the complaints were not subject to the PSLRA. See Br. at 12
(citing Kitchings v. Integral Consulting Servs., Inc., 2021 WL 3418838 (D. Md. Aug. 5, 2021); Plumhoff v. Central
Mort. Co., 286 F. Supp. 3d 699 (D. Md. 2017); Jianqing Wu v. TrustPoint Int’l, 2015 WL 13091378 (D. Md. Oct. 5,
2015); Arnold v. CitiMortgage, Inc., 578 F. Supp. 2d 801 (D. Md. 2008)).


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       Case 1:25-cv-00182-GLR                Document 65           Filed 10/21/25         Page 35 of 36


496 F. Supp. 3d at 967 (no group pleading where plaintiffs “specifically identified false or

misleading statements made by the defendants.”).

III.     THE COMPLAINT ADEQUATELY ALLEGES A CONTROL PERSON CLAIM

         “Control person liability” under § 20(a) requires only allegations of (i) a primary violation

under § 10(b); and (ii) “control by the defendant over the primary violator.” Jeld-Wen, 496 F.

Supp. 3d at 971. A heightened pleading standard does not apply. Id. at 972. “[D]etermining

whether an individual is a control person presents a complex factual question,” and “is not

ordinarily subject to resolution on a motion to dismiss.” Black v. Martek Biosciences Corp., 2006

WL 8435572, at *7 (D. Md. June 14, 2006). Here, Plaintiff alleges (i) a primary violation, (ii) that

all the Individual Defendants were part of IIPR’s “senior management team,” (iii) had the power

and ability to “control public statements about IIPR,” (iv) made numerous public statements on

behalf of the Company, and (iv) made misleading statements, including in SEC filings. See, e.g.,

¶¶93, 98, 105, 108, 116, 151, 182, 200, 215, 280. These allegations plead Defendants’ liability

under § 20(a). See, e.g., Martek, 2006 WL 84345572, at *7 (that defendants signed actionable

SEC filings, controlled contents of public documents, and made public statements sufficient to

plead control).

                                                CONCLUSION

                  For the foregoing reasons, Defendants’ Motion should be denied.21


21
        If the Court grants the Motion, Plaintiff requests leave to amend. See Sciolino v. City of Newport News, Va.,
480 F.3d 642, 651 (4th Cir. 2007) (“Leave to amend shall be freely given when justice so requires.”).


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     Case 1:25-cv-00182-GLR   Document 65       Filed 10/21/25    Page 36 of 36


DATED: October 21, 2025       Respectfully submitted,
                              ABATO, RUBENSTEIN AND ABATO, P.A.

                              /s/ Corey Smith Bott
                              Corey Smith Bott (Bar No. 25673)
                              Shauna Barnaska (Bar No. 16755)
                              809 Gleneagles Court, Suite 21286
                              Telephone: (410) 321-0990
                              Fax: (410) 321-1419
                              [email protected]
                              [email protected]

                              Local Counsel for Lead Plaintiff City of Birmingham
                              Retirement and Relief System

                              SCOTT+SCOTT ATTORNEYS AT LAW LLP
                              Jacob L. Lieberman (admitted pro hac vice)
                              Jessica M. Casey (Bar No. 31720)
                              156 S. Main Street
                              P.O. Box 192
                              Colchester, CT 06415
                              Telephone: (860) 537-5537
                              Fax: (860) 537-4432
                              [email protected]
                              [email protected]

                              Susan Hu (admitted pro hac vice)
                              Lana V. Levin (admitted pro hac vice)
                              The Helmsley Building
                              230 Park Avenue, 24th Floor
                              New York, NY 10169
                              Telephone: (212) 223-6444
                              Fax: (212) 223-6334
                              [email protected]
                              [email protected]


                              Counsel for Lead Plaintiff City of Birmingham Retirement
                              and Relief System


                                       31