10-K: Zoned Properties Faces MBO, Impairments Amid Cannabis Shifts

Zoned Properties reports a significant net loss and property impairments for 2025, while pursuing a management buyout and navigating evolving cannabis regulations.

Summary

• Zoned Properties, a real estate company focused on the regulated cannabis industry, reported a net loss of $2,854,415 for the year ended December 31, 2025, a significant decline from a net income of $573,958 in 2024.
• The company recorded substantial impairment losses totaling $3,118,716 in 2025, primarily due to a vehicle crash and demolition of its Chicago property ($1,018,716) and a write-down of its Michigan Woodward Property ($2,100,000) due to tenant defaults and sale negotiations.
• A Management Buyout (MBO) Asset Purchase Agreement was entered into on January 15, 2026, to sell substantially all of the company's assets to a buyer owned by current management for a base price of $7,000,000, subject to adjustments.
• The MBO is contingent on stockholder approval (including a majority of minority uninterested shareholders), buyer financing, and regulatory approvals, with an expected closing by the end of 2026.
• Post-MBO, the company expects to pay off debt, liquidate preferred shares, distribute net cash to stockholders via a special dividend, and then complete a reverse merger or other transaction as a public shell company.
• The company's financial statements include a 'going concern' warning due to the net loss, the MBO, and the potential for minimal operations post-sale.
• Total revenues increased by 9.2% to $4,140,458 in 2025, driven by growth in both property investment portfolio (6.8%) and real estate services (16.6%) segments.
• Operating expenses surged by 45.9% to $6,026,000 in 2025, largely due to the impairment losses.
• Cash provided by operations increased by 35.2% to $781,476 in 2025, despite the net loss.
• The cannabis industry is undergoing significant regulatory changes, including the reclassification of cannabis to Schedule III (expected mid-to-late 2026) and new strict THC limits on hemp products (effective November 12, 2026).
• Internal controls over financial reporting were deemed 'not effective' as of December 31, 2025, due to a lack of comprehensive entity-level controls, inadequate system/manual controls, and insufficient segregation of duties.
• Preferred stockholders, Greg Johnston and Alex McLaren, collectively hold majority voting power (45.3% and 45.8% respectively) due to 50 votes per preferred share, giving them control over stockholder matters.
• Executive officers Bryan McLaren and Berekk Blackwell received salary increases and restricted stock grants effective January 28, 2026, while unvested stock options for management and board members were canceled on January 19, 2026.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this filing with a negative sentiment due to the significant net loss, substantial property impairments, and the 'going concern' warning. While revenue growth is positive, the strategic decision to pursue a management buyout and potentially become a shell company, coupled with internal control weaknesses, indicates considerable operational and financial challenges.

Positives

• Total revenues increased by 9.2% to $4,140,458 in 2025, demonstrating growth in both property investment and real estate services segments.
• Cash flow provided by operating activities increased by 35.2% to $781,476 in 2025, indicating operational cash generation despite the net loss.
• The Surprise, AZ property completed construction of a new retail dispensary building and opened for business in September 2025, with the tenant paying monthly base rent of $25,000 starting July 2025.
• Tenants at the Chino Valley and Tempe properties completed over $8,000,000 in capital improvements, satisfying contractual obligations.
• The company successfully collected $389,984 in past due rent and $965,000 for rent concessions from Broken Arrow Herbal Center, Inc. on March 31, 2026.
• Cannabis is in the final stages of reclassification to Schedule III under the Controlled Substances Act, which is expected to ease banking restrictions and eliminate Section 280E for state-legal cannabis businesses.
• The Rohrabacher-Farr Amendment, protecting state-legal medical marijuana programs from federal interference, has been renewed through the 2026 appropriations cycle.

Negatives

• The company reported a net loss of $2,854,415 for the year ended December 31, 2025, a significant reversal from a net income of $573,958 in 2024.
• Substantial impairment losses totaling $3,118,716 were recorded in 2025, including $1,018,716 for the Chicago property (due to building demolition after a vehicle crash) and $2,100,000 for the Michigan Woodward Property (due to tenant default and anticipated sale below carrying value).
• The company's financial statements include a 'going concern' warning, raising substantial doubt about its ability to continue operations for the next twelve months.
• Stockholders' equity decreased significantly from $5,860,514 in 2024 to $3,067,626 in 2025.
• Management concluded that internal control over financial reporting was 'not effective' as of December 31, 2025, citing a lack of comprehensive entity-level controls, inadequate system/manual controls, and insufficient segregation of duties.
• The Kingman property is currently non-operational, and its sublease was not renewed in August 2024.
• The MBO transaction is a related party transaction, involving the sale of assets to a company owned by current management, which presents inherent conflicts of interest.
• The MBO purchase price of $7,000,000 is subject to significant adjustments based on interim real estate transactions, creating uncertainty for stockholders.
• The buyer in the MBO must raise sufficient capital, and there is no guarantee they will be able to do so, posing a risk to the transaction's completion.
• The company's investment in Zoneomics Green, LLC was fully impaired in 2025 due to the inability to identify a required merchant banking component, resulting in a $3,352 equity method loss and a $50,000 impairment loss on equity securities.

Risks

• Substantial doubt exists about the company's ability to continue as a going concern, particularly if property sales do not materialize or if post-MBO operations are minimal.
• The company has limited operating history in the real estate industry, especially concerning legalized cannabis facilities, and may not successfully address new business challenges.
• Failure to raise additional capital through debt or equity financings could prevent the company from executing its business plan and achieving growth.
• Difficulty in identifying and acquiring suitable properties zoned for legalized cannabis businesses, or a surplus of such properties, could negatively affect financial condition.
• Concentration of assets in a limited number of significant tenants in the regulated cannabis industry makes the company vulnerable to downturns in that sector or tenant financial instability.
• Properties may be subject to future impairment charges if market conditions worsen, tenants default, or leases are terminated early.
• The company may be unable to sell the Woodward Property for its carrying value of $2,700,000, with current negotiations at $600,000, potentially leading to further losses if the sale fails and the tenant continues to default.
• Dependence on continued market acceptance of regulated cannabis by consumers means any negative trends could adversely affect tenant operations and their ability to pay rent.
• General real estate risks, including changes in economic conditions, supply/demand, tenant bankruptcies, increased operating costs, and environmental hazards, could impact profitability.
• Banks and financial institutions may be reluctant to provide lending services due to the cannabis industry's federal illegality, limiting access to capital.
• Competition for suitable properties from other investors, including those with greater financial resources, could increase acquisition costs and reduce returns.
• Liability for hazardous substances on properties, even if unknown or pre-existing, could result in costly cleanup, fines, and penalties.
• Inadequate insurance coverage for certain risks (e.g., floods, terrorism, mold, earthquakes) could lead to significant financial losses.
• Non-compliance with the Americans with Disabilities Act (ADA) could require significant expenditures, fines, or damages.
• Inability to effectively manage growth could strain management, administrative resources, infrastructure, and systems.
• Unfavorable global economic, business, or political conditions could adversely affect the company's business, financial condition, or results of operations.
• Holding cash and cash equivalents in deposit accounts exceeding FDIC limits ($250,000) exposes the company to loss if the financial institution fails.
• Difficulty in attracting and retaining top-quality talent could limit the company's ability to compete.
• The MBO transaction is a related party transaction, which may lead to actual or perceived conflicts of interest and potential legal challenges from dissatisfied stockholders.
• The MBO requires approval by a majority of the minority uninterested stockholders, which may be difficult to obtain.
• The final MBO purchase price is subject to significant adjustments based on interim real estate transactions, creating uncertainty for stockholders.
• The buyer in the MBO must raise sufficient capital, and there is no guarantee they will be able to do so, which could terminate the agreement.
• The company retains the right to terminate the MBO APA if it receives a more favorable proposal, creating uncertainty and potential termination fees.
• The buyer has a broad 180-day due diligence right to terminate the MBO APA for any reason, which could cause a significant stock price decline if exercised.
• Failure to complete the MBO could negatively impact the business, incur substantial costs, and lead to a management void.
• If the MBO closes, the company will become a shell company with no remaining operations, potentially limiting the liquidity of its common stock and incurring regulatory burdens.
• The Board may elect to liquidate and dissolve the company post-MBO, with uncertain timing and amount of distributions to stockholders.
• Pursuing a reverse takeover (RTO) or new business activity involves significant risks, including substantial dilution for existing stockholders and the inability to identify a suitable target.
• The loss of the executive leadership team upon closing of the MBO will leave the public shell company without experienced management.
• Marijuana remains illegal under federal law, and while reclassification to Schedule III is in progress, regulatory uncertainty persists, potentially disrupting the business plan.
• The absence of a formal Cole Memo reinstatement and shifting federal enforcement priorities create unpredictability for state-legal cannabis activities.
• New federal Total THC limits on hemp products (0.4 mg per container, effective Nov 12, 2026) may force tenants into more restrictive regulatory regimes or out of business.
• The Rohrabacher-Farr Amendment provides limited, temporary protection only for medical marijuana programs and must be renewed annually.
• Owners of properties near the company's assets may assert nuisance claims or RICO Act claims, which could be costly to defend and disrupt tenant operations.
• Tenants may continue to face difficulty accessing banking services, which could limit their ability to enter into lease arrangements or lead to defaults.
• Many existing and future tenants may have limited operating histories and financial stability, increasing the risk of rent payment defaults.
• Continuing unfavorable market dynamics in the regulated cannabis industry (e.g., taxation, price declines, illicit market competition, limited capital access) could adversely affect tenant ability to pay rent and lead to lease defaults.
• Laws and regulations affecting the cannabis industry are constantly changing, requiring substantial compliance costs or altering the business plan.
• Potential FDA regulation of marijuana could negatively affect the industry, imposing new costs and requirements on tenants.

Future Outlook

The company expects to close the Management Buyout (MBO) by the end of 2026, contingent on stockholder and regulatory approvals, and buyer financing. Following the MBO, the company plans to pay off remaining debt, liquidate preferred shares, and distribute the net available cash to stockholders as a special dividend. Subsequently, it intends to complete a reverse merger or other transaction involving the remaining public shell company. The development of the new retail dispensary building at the Chicago property is expected to be completed, and the tenant to open for business, in late 2027, though permitting delays may continue. The regulatory landscape for cannabis is evolving, with reclassification to Schedule III expected mid-to-late 2026, which could ease banking restrictions and eliminate Section 280E, but new strict THC caps on hemp products will take effect in late 2026.

Management Comments

• Management believes it is in the best interest of shareholders to liquidate 100% of the company's assets and operations and subsequently return net cash available back to shareholders.
• Management believes the challenges of operating as a public company in the regulated cannabis space have created a capital environment that will not allow for the continued expansion of the company and/or the continued operations of its core business.
• Management believes the sale of the Woodward Property is likely to occur, despite the significant difference between carrying value and sale price, and the possibility of the sale failing.
• Management believes that the development of the new retail dispensary building at the Chicago property will still be completed, and the tenant will open for business in late 2027, despite ongoing permitting and development challenges.
• Management believes the reputation of having integrity is an essential tool for marketing and business development.

Industry Context

StockSavvy.ai notes that the ongoing reclassification of cannabis from Schedule I to Schedule III by the U.S. federal government, following a December 2025 executive order, represents a significant shift that could alleviate some of the regulatory burdens and banking challenges faced by the cannabis industry. However, the future of this rescheduling process remains uncertain, especially with a new presidential administration. The introduction of strict new THC limits on hemp products, effective November 12, 2026, will force many hemp-derived products into the more regulated cannabis framework, potentially impacting tenants currently operating in the hemp space. While banking access is improving, businesses still face higher fees and rigorous due diligence requirements, reflecting the continued federal illegality of cannabis despite state-level legalization. The company's strategy to exit the direct cannabis real estate market through an MBO and potential liquidation/reverse merger highlights the persistent capital market challenges and regulatory complexities within the sector, even as broader federal reforms are underway.

Management Changes

Corporate Governance

Related Party Transactions

• The Management Buyout (MBO) Asset Purchase Agreement, entered into on January 15, 2026, involves the sale of substantially all of the company's assets to BPB Partners, LLC, a company owned by Bryan McLaren (Chairman, CEO, CFO), Berekk Blackwell (President, COO), and Patrick Moroney (non-executive management team member).
• Bryan McLaren and Berekk Blackwell received salary increases (to $275,000 and $210,000, respectively) and grants of restricted common stock (250,000 shares for McLaren, 150,000 for Blackwell) effective January 28, 2026, as compensation for services in 2026 and 2027. These issuances are subject to forfeiture based on continued employment, with clawback provisions terminating upon a change of control.
• Independent directors Art Friedman, David G. Honaman, and Cole Stevens also received 200,000 shares each of restricted common stock effective January 28, 2026, under similar terms.
• Patrick Moroney, a non-executive management team member and co-owner of the MBO buyer, received 150,000 shares of restricted common stock effective January 28, 2026, under similar terms.
• Unvested stock options held by Bryan McLaren, Berekk Blackwell, Art Friedman, David G. Honaman, Cole Stevens, and Patrick Moroney were canceled on January 19, 2026, totaling 298,750 shares.
• Greg Johnston and Alex McLaren, as preferred stockholders, collectively hold majority voting power (45.3% and 45.8% respectively) due to their 50 votes per preferred share, giving them significant influence over company matters, including the MBO approval.

Stakeholder Impact

• **Shareholders (Common Stockholders)**: Face substantial uncertainty regarding the company's future. The MBO could lead to a special dividend but also results in the company becoming a shell, potentially limiting liquidity and future growth opportunities. Dilution is a risk if a reverse merger occurs. The significant net loss and impairment charges directly reduce shareholder equity.
• **Preferred Stockholders (Greg Johnston and Alex McLaren)**: Maintain significant control over the company due to their superior voting rights. The MBO includes a plan to liquidate preferred shares, ensuring their preference in asset distribution.
• **Employees/Management**: Key executives (Bryan McLaren, Berekk Blackwell) and other management (Patrick Moroney) are directly involved in the MBO as buyers, indicating a potential shift in their focus to the private entity post-transaction. Salary increases and restricted stock grants provide incentives but also highlight the related-party nature of the MBO. The MBO could lead to a management void in the public shell company.
• **Tenants**: Face operational challenges (e.g., Broken Arrow's rent defaults, Woodward Property's defaults, Chicago property's demolition) and are subject to evolving cannabis regulations (Schedule III reclassification, hemp THC limits). The company's MBO and potential liquidation could impact landlord-tenant relationships and property ownership.
• **Creditors**: The MBO plan includes paying off remaining debt, which would benefit creditors. However, the 'going concern' warning indicates a risk to the company's ability to meet its obligations if the MBO or other asset sales do not proceed as planned.
• **Regulatory Authorities**: The company's internal control weaknesses and the related-party nature of the MBO will likely draw scrutiny. The evolving federal and state cannabis regulations require continuous monitoring and compliance from the company and its tenants.

Next Steps

• Seek stockholder approval for the Management Buyout Asset Purchase Agreement (MBO APA), including a majority of minority uninterested shareholders.
• The buyer in the MBO must obtain financing to fund the $7,000,000 purchase price.
• Complete the closing of the MBO by the end of 2026, or potentially later if the 90-day extension is utilized.
• If the MBO is approved and closed, pay off remaining debt, settle accounts, and liquidate outstanding preferred shares.
• Distribute the net available balance of cash to stockholders as a return of capital through a special dividend post-MBO.
• Subsequently complete a reverse merger or other transaction involving the public company (shell company) after the MBO.
• Continue negotiations to sell the Woodward Property to the New Tenant for approximately $600,000 in cash plus assumption of notes payable.
• Monitor and address ongoing permitting and development challenges for the Chicago property, with expected completion and opening in late 2027.
• Address material weaknesses in internal control over financial reporting, including implementing comprehensive entity-level controls, adequate system/manual controls, and sufficient segregation of duties.
• The tenant for the Chino Valley, Green Valley, and Kingman properties has until April 10, 2026, to exercise the $9.0 million Purchase Option, with closing required by June 30, 2026, if exercised.

Key Dates

Recommendation

The company faces substantial doubt about its ability to continue as a going concern, driven by a significant net loss in 2025 and substantial property impairment charges. The proposed Management Buyout (MBO) will result in the company becoming a public shell with minimal or no operations, and its future path (liquidation or reverse merger) is highly uncertain and carries significant risks, including potential dilution for existing shareholders. While revenue growth is positive, the overall financial health, internal control weaknesses, and the high-risk nature of the MBO and post-MBO strategy suggest a 'sell' recommendation for investors seeking to avoid further capital erosion and significant uncertainty.

Keywords

Cannabis Real Estate, Management Buyout, SEC Filing, 10-K, Property Investment, Regulated Cannabis, Impairment Loss, Going Concern, Schedule III, ZDPY, Real Estate Services, Tenant Default, Corporate Governance