Nova Net Lease REIT

Headnote

National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions -- Reporting issuer seeking relief from requirement under section 3.2 of NI 52-107 to permit the issuer to file financial statements of its primary tenant, Cloud Cannabis, prepared using US GAAP pursuant to an undertaking.

Applicable Legislative Provisions

National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards, s. 3.2.

IN THE MATTER OF THE SECURITIES LEGISLATION OF ONTARIO (the "Principal Jurisdiction") AND IN THE MATTER OF THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS IN MULTIPLE JURISDICTIONS AND IN THE MATTER OF NOVA NET LEASE REIT (the "Filer")

DECISION

Background

The securities regulatory authority or regulator in the Principal Jurisdiction has received an application from the Filer for a decision under the securities legislation of the Principal Jurisdiction (the "Legislation") that the Filer be exempt (the "Exemption Sought") from filing unaudited quarterly and audited annual financial statements ("Cloud Financial Statements") of a group of companies under common control comprising of Oak Hudson Pharma, LLC, Oak Flint, LLC, East Coastline, LLC, Pinebrook Warren, LLC and Family Brands, LLC, or such other entity that may come to own the aforementioned entities, (collectively "Cloud Cannabis") prepared in accordance with International Financial Reporting Standards ("IFRS"), as required under Sections 2.1(2)(e) and 3.2 of National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards ("NI 52-107"), and, instead, allowing the Cloud Financial Statements to be prepared using United States Generally Accepted Accounting Principles ("US GAAP").

Under National Policy 11-203 Process for Exemptive Relief Applications in Multiple Jurisdictions (for a passport application):

(a) the Ontario Securities Commission (the "Decision Maker") is the principal regulator for this application;

(b) the Filer has provided notice that section 4.7(1) of Multilateral Instrument 11-102 Passport System ("MI 11-202") is intended to be relied upon in British Columbia, Alberta, Manitoba, Saskatchewan, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador, Yukon, Northwest Territories and Nunavut (collectively, the Passport Jurisdictions); and

(c) the decision of the Decision Maker automatically results in an equivalent decision in the Passport Jurisdictions.

Interpretation

Terms defined in National Instrument 14-101 Definitions, MI 11-102 or NI 52-107 have the same meanings if used in this decision, unless otherwise defined herein.

Representations

This decision is based on the following facts represented by the Filer:

1. The Filer was created pursuant to a declaration of trust on July 27, 2021 governed pursuant to Ontario law, which declaration was amended and restated in connection with the closing of the initial public offering of the Filer's units (the "Units") pursuant to a long form prospectus dated December 22, 2021 (the "IPO").

2. The Filer's head office is located at 181 Bay Street, Suite 1030, Toronto, Ontario.

3. The Filer has been formed to acquire specialized industrial and retail properties leased to experienced, top-tier, creditworthy state-licensed operators for their regulated cannabis facilities in the United States. The Filer intends to acquire properties through sale-leaseback transactions and lease such properties on a triple net lease basis for a targeted 10 to 15 year term and strives to negotiate annual rental rate increases in the leases.

4. The Units are listed and posted for trading on the Canadian Securities Exchange under the symbol "NNL.U".

5. The Filer is a reporting issuer under the Legislation and the securities legislation of the Passport Jurisdictions (collectively, the "Passport Jurisdiction Legislation") and is not in default of any requirement under the Legislation or the Passport Jurisdiction Legislation.

6. The Filer is not an "SEC issuer" as defined in NI 52-107.

7. The Filer's authorized unit capital consists of an unlimited amount of units, of which, as of January 26, 2022, there are 6,575,171 units issued and outstanding.

8. No entity comprising Cloud Cannabis is a reporting issuer or equivalent in any of the Passport Jurisdictions or an "SEC issuer" as defined in NI 52-107.

9. The Filer is not a party to any proceeding or any pending proceeding under the Legislation or the Passport Jurisdiction Legislation.

10. On November 24, 2021, the Filer acquired a property located at 521 E Mosel Ave, Kalamazoo, MI, inclusive of the greenhouse systems, and other fixtures, machinery and equipment used in connection with cannabis operation from Cloud Cannabis (the "Initial Licensed Facility") in consideration for causing its indirect subsidiary, Nova Net Lease Operating, LLC (the "Operating Partnership"), to issue to Cloud Cannabis eight million Class B Units of the Operating Partnership.

11. The Initial Licensed Facility has been leased by a subsidiary of the Filer to Pinebrook Warren, LLC (a member of the group that comprises Cloud Cannabis), a master tenant, pursuant to a triple net lease (the "Lease").

12. The Filer does not control or have an equity interest in Cloud Cannabis and does not have the legal ability to require the Cloud Financial Statements to be prepared in accordance with IFRS. Cloud Cannabis is not a promoter of the Filer and has not received any proceeds from the IPO and will not receive any proceeds from any prospectus offerings contemplated by the Filer.

13. In connection with the IPO, the contribution agreement in respect of the Initial Licensed Facility and the Lease were filed by the Filer as material contracts on the System for Electronic Document Analysis and Retrieval in accordance with National Instrument 51-102 Continuous Disclosure Obligations ("NI 51-102").

14. Pursuant to the Lease, Cloud Cannabis is required to provide the lessor (a subsidiary of the Filer) with, among other things, the Cloud Financial Statements under US GAAP, commencing with the annual period ending December 31, 2021.

15. Until the Filer diversifies its portfolio of investment properties, the Filer's financial results and ability to pay dividends will depend, in part, on the financial performance of Cloud Cannabis. The preparation and filing of the Cloud Financial Statements are intended to provide unitholders of the Filer with information relating to Cloud Cannabis's operations, including information with respect to its ability to satisfy its lease payments to the Filer on an ongoing basis.

16. The Filer has provided an undertaking to the applicable Canadian securities regulatory authorities wherein the Filer has agreed to file the Cloud Financial Statements prepared using US GAAP and related management's discussion and analysis ("MD&A"), prepared in accordance with NI 51-102, in each case in accordance with the applicable filing deadlines for the Filer's financial statements and MD&A pursuant to NI 51-102, until such time as payments made to the Filer by Cloud Cannabis no longer contribute over 30% of the Filer's annual revenue.

17. Unitholders of the Filer will not be prejudiced by the preparation of the Cloud Financial Statements under US GAAP. The Filer has represented that based on a comparison of the application of IFRS versus US GAAP, the US GAAP financial statements will not be materially different than financial statements prepared under IFRS.

Decision

The Decision Maker is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The decision of the Decision Maker under the Legislation is that the Exemption Sought is granted.

DATED this 24th day of February, 2022.

"Cameron McInnis"

Chief Accountant

Ontario Securities Commission

OSC File #: 2021/0723