Capital with us today, presenting their story. Leading the discussion from the firm will be President and CEO Anthony Coniglio. And before I hand it over, a quick reminder, the Q&A tab is located at the bottom of your screen. Feel free to type in any questions throughout the presentation, and we can save time for Q&A at the end. But with that said, Anthony, take it away.
Great. Thank you, Brandon. We appreciate Sidoti in having us at the conference, and thank you everybody for joining us today. Please note that we have a safe harbor statement here. We ask everybody to respect the safe harbor and read it at your own convenience. Couple of investment highlights. What I intend to do today is talk to you a bit about our story and really open it up for Q&A so we can get to your questions on the NewLake story. What you'll hear me talk about today is an experienced team that's experienced in cannabis, because that's critically important, and you'll hear that throughout the story, real estate, as well as financial services.
You'll hear us talk about cannabis as being a high-growth sector, and in fact, that's really been the driver of our high growth, both in terms of assets and our dividend growth. The fact also that we've gotten to scale, and we were an early mover in this sector, has allowed us to be one of the few remaining standing providers of real estate capital to this sector over the last five years. There have been many that have tried to get into this sector and get to scale, and we're one of only two that we think have been able to accomplish that.
I'll point out an exceptional portfolio that we've assembled, that empirically, when you ask most people involved in the cannabis sector, they'd say empirically, it is the best performing portfolio, whether it be a sale-leaseback portfolio or whether it be a lending portfolio, and we're built upon a solid financial position, almost no debt on our balance sheet, and ample room to continue to grow our business by utilizing our $90 million of available credit facility, with a strong payout ratio. For those of you that know REITs, you'll know that AFFO, or available funds from operations, is our metric as a REIT for free cash flow. Now, when we look at our dividend payout ratio, it is what % of that cash flow are we utilizing to pay our dividend?
And in fact, today we're at 82%. And then we'll close out by talking about how we're undervalued compared to our peers. We've got a page on that. So let's talk quickly about NewLake by the numbers. We're the second-largest owner of cannabis real estate in the country. We were founded in 2019. We've deployed over $440 million of capital. When you think about our portfolio of long-term triple net leases, you'll see that we have a very long duration, with 14 years of remaining weighted average lease term, as well as a high yield relative to what you typically see in real estate, with a weighted average yield of 11.9%.
So you have a lot of duration with above-market yield and a platform that's really under-levered, with only $7.6 million of debt outstanding at the end of the second quarter. You can see that our debt to EBITDA is almost at zero, and it's nearly unheard of in the REIT sector. And we think that's a real value proposition to investors and a real growth opportunity for us and our shareholders. 32 properties, 12 states, 13 tenants. We have some of the leading tenants in the industry, public companies by the name of Curaleaf or Trulieve or Cresco, some of our leading tenants. We also have some of the leading private market operators in the cannabis industry, names such as C3 Industries or Mint cannabis. Excuse me.
We also have in the portfolio, in addition to having that 11.9% dividend, excuse me, 11.9% portfolio yield. Our yield grows because of our built-in annual escalators into our lease provisions, where our revenue is growing at 2.6% a year, according to those contracts. Let's talk briefly about our team. You know, our team, whether it's me or Lisa Meyer, our CFO, or Jarrett Annenberg, who runs acquisitions, a long track record across various industries rooted in real estate, and a lot of public company experience. In addition, when you think about our board of directors, think about a curated group of people that have significant experience in real estate, cannabis, and financial services.
Yes, we're a real estate company, but it became really clear to us at the outset of our business that understanding the cannabis industry was critical to success. A couple of people I would point out from a cannabis perspective, Joyce Johnson, a significant industry experience, Lead Independent Director at one of the leading cannabis MSOs in the space. Pete Kadens, for his part, was one of the co-founders of Green Thumb Industries, or GTI, was CEO there until he retired in 2018 and joined our board. You know, these individuals bring years and years of cannabis experience, understanding the industry, the players, the balance sheets, the financials, as well as the jurisdictions, the building operations, and what's important to success in the cannabis industry. Very briefly, though, I do also want to highlight some of our real estate experience.
Gordon DuGan, our chairman, decades of experience in commercial real estate, having run W. P. Carey, at the time, was the largest net lease REIT in the world. But also having grown Gramercy Property Trust from sub-$1 billion-dollar market cap commercial REIT, and selling it at over $7 billion to Blackstone a handful of years later. And so we think that we've got a well-complemented group of directors that, we've been able to institutionalize their knowledge, not only real estate and cannabis and financial services, institutionalize that knowledge into our underwriting approach. I'd love to touch on the high-growth industry that we focus on, which is cannabis. And so for some of you out there, you might be cannabis consumers, either in the legal market or the illicit market. Some of you may not have had the opportunity to consume cannabis yet.
There is meaningful demand for real estate in the cannabis industry because of the state approach to this industry. It's illegal at the federal level, but individual states have legalized, and so therefore, the operators in those states have to replicate their entire value chain on a state-by-state basis. Even if you're in adjacent states, it's illegal to transport cannabis across state lines. And so if you have a manufacturing cultivation facility in Ohio, you'll need one in Pennsylvania in order to access the Pennsylvania market. Likewise, the licensing in this industry requires you to have a license from that state in order to operate.
We have today roughly 46 states have medical cannabis programs, some of them larger, like Florida, very robust medical programs, some of them less robust, like a Texas or a Georgia, where there are very, very nascent medical programs with few qualifying conditions. But there's significant growth that has not only happened in the industry, but growth that can occur in the industry as some of these smaller medical states, like a Texas or a Georgia, begin to open up their markets, or as a state like North Carolina really implements a true medical program, but then ultimately, as states legalize into the adult-use market.
While you have large populous states, such as California, Colorado, New York, New Jersey, with adult-use programs, you're yet to have one in those large populous states like a Florida, and that's additional growth opportunity in the future for cultivation, manufacturing facilities, as additional dispensaries, these are the retail outlets, as the industry scales into the opportunity set. You know, what's really interesting is, the sentiment towards cannabis that the American people have, and that's part of what is driving this growth. 90% of Americans surveyed, and this has been pretty consistent, it's been 88%-90% for probably five to seven years, 90% of those surveyed by Gallup and Pew believe that medical cannabis should be legalized in the U.S. That cuts across every political ideology.
52% of the population resides in a state that has adult use, and in fact, some of the recent polls show us that over two-thirds of the American public believe that cannabis should be legalized across the country. There are very few things that we agree on in this country, as a people, to the extent that we do around cannabis policy, and we see that starting to translate into consumer habits, where younger cohorts are beginning to replace alcohol consumption with cannabis consumption, particularly as access to products accelerates, and so we think this trend will continue. We think the legalization trend will continue. The total addressable market for the industry will continue to grow, and thus demand for capital and demand specifically for real estate capital to meet that growing consumer demand.
I want to touch here a little bit on the catalysts that are happening at the federal level, because there are many, and there seems to be more catalysts coming out every month. We're currently in the process, on the administrative side of the DEA rescheduling cannabis from a Schedule I drug in the Controlled Substances Act to a Schedule III drug. That rule was published earlier this year in the Federal Register. The comment period is closed, and we're now waiting for a hearing. We expect that rule to be finalized sometime in early 2025. The key benefit for the industry there is, as a Schedule I drug, operators in this industry are limited on the types of deductions they can take for their tax returns, and a move to Schedule III would eliminate what we call the onerous 280E limitations.
And we calculate just for our tenant base, that it would result in a $500 million improvement in cash flow across our tenants. That's across all of our tenants. We've yet to identify a REIT that has that type of significant credit quality improvement across its entire tenant base with one regulatory change. And so that Schedule III process is underway. It's been underway for two years, and we think we're nearing conclusion. Excuse me. We've also seen the executive branch issue numerous pardons at the federal level, encourage states and governors at the state level to issue pardons for cannabis, nonviolent cannabis offenses. At the legislative level, SAFER Banking has passed Congress, seven times now, has passed the Senate Banking Committee, but is yet to be able to get a vote on the floor of the Senate.
And so this legislation, which would facilitate banking for the industry, but also with a modification to some of the language, could allow for uplisting to major exchanges for those in the industry, is a piece of legislation that could have renewed hope, given President Trump's recent endorsement of that legislation. And so as we approach the election cycle in the U.S., we have two candidates, candidate Trump and candidate Harris, that both have embraced cannabis policy and both support further reforms in cannabis. And so we're modestly optimistic that in the near term, we might actually see some movement in Washington on cannabis reform.
Then on the legal side, it's really fascinating to watch, that on the legal side, there are numerous cases winding their way through circuit courts, creating conflict within the federal circuit court system, in particular around gun rights, where some federal circuit courts are saying the ban on gun ownership if you consume cannabis is constitutional, and other courts saying it's unconstitutional. We may find that this topic lands its way at the Supreme Court in you know, the next couple of years to resolve this. And in fact, one of the Supreme Court justices, Justice Thomas, invited this type of action to get to the Supreme Court in a ruling that he made a couple of years ago. So lots of activity at the federal level to continue that march of reform.
And what we like to say at NewLake, it's not a matter of if, it's a matter of when that federal reform actually occurs. Quickly, our portfolio, again, I had told you we are across 12 states with 13 tenants. Curaleaf, Cresco, and Trulieve being our top three tenants and some of the leading companies across the industry. Quick on our underwriting approach, I think every REIT you would look at would say that they focus on the tenant, given the long duration of our leases. We want to make sure they'll be in place to pay rent for 15-20 years, and they also focus on underwriting the real estate. But what we do a little differently, because it's cannabis, is we have to understand how that cannabis tenant can survive in the jurisdiction in which they operate.
Do they have the management team that they can raise the capital that's necessary to continue to fuel the growth of these companies? These companies have voracious appetites for capital. Do these management teams have the ability to manage a highly regulated business during a high-growth period? And so those are some of the elements that we really look for in underwriting the management team, and the tenant quality, and the balance sheet, and the financials. On the real estate side, we really want to understand that real estate's position in the cannabis ecosystem. We want to know that this property will persist, and demand for this property as a cannabis-oriented property can persist throughout the life cycle of our lease and into the future, beyond that.
We also want to make sure that the cash flow profile of this property is one that can withstand the inevitable reduction in margin and reduction in wholesale pricing that will occur as an industry like this continues to scale and sees greater competition as the greater adoption of the product occurs across the public. And so we publish on a quarterly basis, as you can see on this slide, our four-wall coverage, which is EBITDA plus rent across our properties. And you can see, we'd like to ensure that our EBITDA coverage or our four-wall coverage is above industry averages for commercial real estate to ensure that we've got adequate coverage from a credit perspective. And then the third pillar of our underwriting is the cannabis market.
We prefer markets and jurisdictions where there are limited licenses, and you can see by the chart in the middle of the page. Some states, such as Oregon, are profligate with the number of licenses that they put out versus, say, Pennsylvania, much more limited. In these limited jurisdictions, with limited competition, you have better margin, you have better cash flow, and you actually have the licenses typically tied to the property, either through the application process or restrictions on moving the license. Therefore, that creates additional value for the property we own, so it's the combination of all three of these elements that go into creating a portfolio, which we believe is arguably the best in the industry.
We don't just stop at the underwriting, but we also focus on important elements of implementation of our risk management through documentation. And so our deal structures are all triple net lease. That means all of the expenses for operating and maintaining the property are for the account of the tenant. We also make sure that we seek to have security deposits, annual escalators, where the rent escalates every year, and we also will cross-default properties when we have more than one property with a tenant. We often find from our previous histories that in periods of distress, the go-to move for a CFO is to identify properties and business lines that aren't generating free cash flow for them and cut them loose.
And so we remove that opportunity for the CFOs to cherry-pick which properties they want to pay rent at by cross-collateralizing security deposits and cross-defaulting the leases. I'm going to skip over a comparison. You could review. This is on our website. You could review the concentrations by state. I do want to highlight again the growth in our dividend. We've grown our dividend nearly 80% since our IPO in the summer of twenty twenty-one, so that's just three years. And you can see that we have grown our dividend fourth quarter, first quarter, and second quarter, and just recently, we announced our third quarter dividend will be $0.43 a share, again. So, a nice growth rate to our dividend over the history of being public, as well as recent history.
We continue to have ample capacity to grow under our unutilized capacity on our credit line, $90 million credit facility, $7.6 million of remaining weighted average, excuse me, of remaining capacity. And so where will we get the growth? We get the growth at NewLake through three components. Number one, we have growth from our annual escalators. So every year we collect rent, it our revenue increases by on average 2.6%. Number two is our commitments. At the end of the second quarter, we had about $12 million-$13 million in remaining commitments that as we fund those commitments for construction improvements at properties that we own, we will add rent on a monthly basis, and so we'll increase revenue as we put those dollars out.
And then third is new transactions and utilizing that available credit capacity. I do want to point out that our that our AFFO payout ratio at 82% is pretty conservative. We have an AFFO payout ratio guideline between 80%-90% is where we like to target. We were at 79%. We're roughly 82% as at this time. Said differently, 18% of our revenue could disappear, and we'd still be able to cover our dividend from cash flow. So there's ample cushion with our AFFO payout ratio to continue to deliver our dividend to our investors.... I'd like to transition before we open it up for Q&A to this page in our relative undervaluation. And on this previous page, we point out here our dividend yield.
At the time of this, it was about 8.7%, we're I think 8.5% today. And so people often say, "Wait a minute, with a high dividend yield like that, that's a yield trap. And so there must be one of two reasons for you to have a yield that high. It must be either you have got a leverage problem, or you have a portfolio problem, and your portfolio isn't good quality." Well, we already talked about $7.6 million on a $430 million balance sheet, so it's clearly not a leverage problem. And even if we fully levered up our our $90 million credit facility, we'd still be well under two times on a debt-to-EBITDA basis. So it's not a leverage issue. So maybe it's a portfolio issue. Well, we just talked about having 100% of our properties leased.
We talked about that cushion on our AFFO dividend yield, and I have to say, it's not a portfolio issue. So Anthony, what is it? In my opinion, it's really an exchange issue. Because we focus on the cannabis industry, we're not able to get listed on the New York Stock Exchange and Nasdaq. Now, we run our business to qualify in all respects with the listing requirements for the New York Stock Exchange or Nasdaq, but because our focus on cannabis, they won't list us. One of our main peers is listed on the New York Stock Exchange. They listed in 2016, and they've been grandfathered in as the exchanges revised their policy. So they continue to have the opportunity to trade on a more liquid exchange than the OTC that we trade on.
And given their size in that exchange, that really is the valuation discount that we believe we trade at relative to our peer or relative to non-cannabis peers. Because of that lack of custody for the institutional investors, it does somewhat limit the liquidity and demand for our stock. And so as we work over time to increase liquidity, increase demand for our stock, and find a path to an exchange that is more liquid, we think we'll be able to close or narrow that gap of discount to our peers. So thank you very much for listening. I am gonna come back now for Q&A.
Great. Thanks, Anthony. We appreciate the overview. We can now get into Q&A here. I wanted to start off on the competitive environment. I know you mentioned there was a peer that's publicly traded on an exchange. What do you estimate your market share to be? Who are some of the other key players in the industry?
Yeah, aside from the public peer that's up on the screen, we don't see anybody else providing regular way sale leaseback capital to the industry. We do see a couple of mortgage REITs that focus on the industry. They tend to have higher yield requirements, so their borrower base isn't always our tenant base. Sometimes there's a little overlap. But there are few. Because of the difficulty in operating in this sector and the specialized nature of putting capital out to this industry, there are very few organizations that do what we do. In terms of competing directly, I'd say there's ample opportunity for us to grow, and in fact, we've been competing with this public peer back for five years, even before we were public.
And we compete, I think, very effectively, and we've been able to grow this business to $430 million-$435 million of assets. So I think we've been able to prove that we can effectively compete and win business for our shareholders.
Got it, got it. How would you describe the barriers to entry in the industry? I know you mentioned that may be a threat down the road a little bit. What are the barriers to entry like in the business?
Yeah, I mean, capital and credibility are the two elements that I would focus on. You know, what's really interesting, when we first started this business in 2019, we were dialoguing with operators about transactions, and it was very difficult to get people to engage without literally showing our bank statement. Many people in this industry were burned by individuals or organizations saying they thought they could do a deal in the cannabis sector, only to not show up at the closing table. And so the threshold for operators in this industry to have credibility with them is very high.
As an organization that's been around for five years, that has that early mover advantage, that has created deep relationships in this industry, and I think a very good reputation in the industry, I think it's very, very hard to replicate that with somebody that's new, that would come in the industry, and in fact, we've seen people try to be new entrants to the industry over the last three years, only to fade.
When you look at the two, you know, line of operations in the business, being the dispensary side and the cultivation, where do you see a better growth outlook between those two, and what are the margin profiles like between those two?
We like them both, and we think, state by state, jurisdiction by jurisdiction, some of them, some cultivation have better opportunity for growth versus dispensary. I'm not trying to give a non-answer, but in the cannabis industry, when you have different regulatory approaches on a state-by-state basis, it results in potentially different outcomes, looking at the same deal if it was in one state versus the other. We think the retail opportunity is significant, because we think in limited license states, those states that generally regulate liquor through a liquor store, we think those states will continue to require that cannabis be distributed through a dispensary process.
So we think there's real value to those dispensaries, because many of you that live in those states, the liquor store you grew up watching your parents go into is probably in the same location as the liquor store that you now go into in your hometown. And on the cultivation side, there's significant capital, not just our capital that goes into constructing these businesses, but equipment, people, training, processes. Some of these facilities employ hundreds of individuals that have been trained and working at these companies for years, and so it's not easy for these organizations to decide, "I'm gonna up and move to the other side of town," or, "I'll up and move three hours away." And so we think in those limited license states, that we'll continue to see these industrial buildings persist as cannabis cultivation facilities.
Got it. And looking at the tenant credit quality kind of profile, have you seen any recent headwinds or challenges there as it relates to quality at the tenant level?
Yeah, I think, you know, to set the stage, this industry has gone through a period over the last two years of significant reckoning from a financial perspective. And the way we got there is in 2021, there was significant capital flowing into the industry. There were significant levels of debt that were raised, and there was a bit of a land grab and a real growth spurt for the industry. And then you had a situation where custody was pulling back, institutional investor focus on the industry was pulling back. That growth, the overgrowth, excuse me, of capacity really outstripped the growth in the underlying consumer demand, and so you watched prices decline, margins decrease, and you ended up having financial performance that was challenged for many. You know, here I'd say we weren't immune to that.
Last year, we had a tenant that wasn't able to pay rent. They had, in addition to the margin compression in their marketplace, they had significant issues within their cultivation. You know, remember, this is a horticultural business, and so these are living plants, and you often will have issues in a cultivation facility, and that created financial difficulty. We rectified that at the end of last year. New management team, additional capital was brought. Third-party capital was brought into the company, reconstituted the business. We recently announced that, we've moved them to half rent while they work through a liquidity issue here, and we're optimistic that they'll be able to rectify the issue that they're going through today.
But again, I'd point to that coverage ratio that we have, that even if this tenant were to fully default, we have plenty of coverage on our AFFO coverage ratio.
Sure. When you look at the value of, you know, cannabis-related land, I guess you could call the cultivation facilities, how does that value compare to more traditional farmland or any other, you know, relative kind of land value?
Yeah. It's a good question. We have no outdoor cultivation. We do no farmland. All of our cultivation is industrial indoor facilities. Now, if you were to look at, say, our facility in Lowell, Massachusetts, Industrial Park in Lowell, Massachusetts. You would look at our Phoenix property that's currently under construction and just about complete. It's within the loop inside of Phoenix, right near the T, the Taiwan Semiconductor plant. It's a traditional. It's a traditional industrial area with industrial buildings all around it. Same for our Aurora, Illinois, facility. Now, to be sure, if you were to look at our Mount Dora facility in Florida with Curaleaf, that is in a more rural area zoned agriculture, but they have constructed indoor cultivation facilities on that property with sophisticated environmental controls and security features.
Given the limited nature of the licenses in Florida and the dominant position that our tenant, Curaleaf, has in Florida, we feel very comfortable taking that type of risk, and that's how we look at it. If we're gonna go to a more rural area with a property for cultivation, we're gonna make sure that that is a mission-critical facility for a strong tenant.
I wanna spend the last minute or so on your acquisition strategy. How can investors think about NewLake's acquisition strategy, and how you might fund a potential deal?
Yes. So first and foremost, I would say we're focused on quality, not quantity. So when you look at some of our growth rates, we're not doing deals just to do deals and put up some sort of a growth rate. Because in one respect, it's easy to do the deal. Sometimes it's harder to collect the rent over a 15- or 20-year lease, and so we'd rather go slow and focus on quality properties with quality tenants. And so how do we think about doing that? It's about focusing on the industry.
It's about building those relationships, knowing enough about the industry to be able to identify who's high quality in terms of operator capability, and what are the right jurisdictions to be in in order to protect our investors in terms of the quality of the real estate that we are, putting our capital into, and that goes into that whole underwriting process that I talked about, and with our ample credit capacity of over $80 million, we have plenty of capacity to fund these acquisitions with that debt capital, getting more efficient with the equity capital we have, and so for the foreseeable future, I think we'd be funding acquisitions with debt.
Yeah. And would you ever consider, you know, broadening into, you know, maybe outside of dispensaries and cultivation facilities, whether it be into, you know, delivery, fulfillment, or logistics? Is that a possibility for your company?
Absolutely. We have looked over the years at different types of properties within that cannabis vertical. We've not seen any that we could execute on yet, but those certainly would be within our wheelhouse.
Great. Well, Anthony, that's very helpful insight. We appreciate the overview. We'll conclude the presentation there. There may have been questions we did not get to today. If anybody would like to follow up, you can reach out to Sidoti, or you can reach out to NewLake directly. Anthony, thanks again for your time.
Thanks so much for having us, Brandon. People can find us at NewLake.com, ticker symbol NLCP. Thank you so much.
Thanks, everybody. Take care.