About six years ago, that's highly profitable, generates a significant amount of free cash flow, has raised its dividend 80% since its IPO. And you understand the unique reasons why we think we're undervalued versus our peers, and that'll be my objective today. So let's quickly talk about why investors focus on NewLake. You'll hear us talk about a team that's uniquely positioned to be able to invest in cannabis real estate. Yes, we're a real estate business, but what you'll hear in this presentation is the importance of understanding the cannabis industry in order to assemble a portfolio that can provide outsized return for investors around specifically that cannabis space. Cannabis is a high-growth area. Today, as we sit here, you have roughly half the country has adult-use cannabis legalized at the state level.
There are many, many states that are yet to legalize adult-use cannabis, large states such as Florida, which is on the ballot for next Tuesday's vote, so it's a really meaningful vote in the industry. But you also have a large state like Texas that has a very, very nascent program, and so as we watch these large states convert to medical programs, enhance their medical programs, but also ultimately improve adult use, there's significant growth opportunity. We are one of the early movers in the sector. I know you hear six years old and you say, "Boy, you're a relatively young company," but when you look at this sector and you look at us and our competition, it's really interesting. There are fewer competitors today in our business than there were when we started the company six years ago.
I think that's a testament to our portfolio, our underwriting approach, and our staying power. We've been able to use that early mover advantage to create relationships and assemble that high-quality portfolio. Very strong financial position. As a REIT, you'd expect to look at us and see that we're very levered. Well, as a REIT, we're actually not levered. We have under $8 million of debt on the balance sheet, over $430 million balance sheet. So with nearly $90 million of available capacity to us, we have ample room to continue to grow our portfolio and grow our earnings and position for dividend raises in the future. We'll certainly talk about our undervaluation relative to our peers.
In addition to what is, if you were to step into the stock today, nearly a 9% dividend yield at today's prices, there's meaningful opportunity for us to close that valuation gap, and we'll spend some time talking about that. Quick highlight on some of our numbers. Again, founded in 2019, within our portfolio, 100% of our portfolio is leased. We have an AFFO payout ratio of 82%. For those of you not familiar with real estate investment trusts, AFFO, or Adjusted Funds From Operations, is our measure of free cash flow, and our dividend that we've paid out in the second quarter was 82% of our free cash flow, meaning 18% remains on balance sheet and capital that resides in our balance sheet. 32 properties, 12 states, 13 tenants. We have some of the leading tenants in the industry, names like Curaleaf, Trulieve, and Cresco.
When you think about our business, you say, "Well, why did you focus on the cannabis sector?" Really, these next two stats are why we focused on the cannabis sector. It's the opportunity to invest in a portfolio of real estate with above-market yields. You could see our average yield is close to 12%. That's the rental rate coming off our properties, or sometimes known as the weighted average cap rate. 14-year remaining lease terms. Think about that. We have a high yield with long duration. We think that drives meaningful value for our shareholders. We manage the business very disciplined from an expense perspective. Even though we're still a small REIT on a relative basis, we're managing with only eight employees and trying to keep our G&A expenses fairly low as a publicly managed REIT. Our team, I won't go through.
You could go through everybody's background, but what you'll find is you'll find a mix of financial services experience, real estate experience. But importantly, what I want to point out to you today is within our board, we have some very, very senior real estate people involved in our business, like a Gordon DuGan who has been around commercial real estate for 35 years, was chairman and CEO of Blackbrook Capital, is chairman and CEO of Blackbrook Capital, but importantly, was a former CEO of Gramercy Property Trust. He took that business from a $300 million market cap, sold it to Blackstone for over $7.5 billion back in 2018. And before that, he was CEO of W. P. Carey, arguably the largest equity REIT in the world at the time. And so tremendous track record and background on commercial real estate.
Joyce Johnson on the screen, as well as Peter Kadens. I'd point those two out. They both have extensive experience in cannabis. And this is what I was talking about before. This isn't just a real estate play. It's important to understand cannabis. And we've taken the experience from Mr. Kadens and Ms. Johnson. We've institutionalized that into our underwriting process. And we think that's a key part of why our portfolio has performed better than most of our peers. Let's talk a little bit about the cannabis industry. And I do want to leave some time. I know I'm moving fast. I'll leave some time for questions at the end. So fast-growing industry, you could see that in many states, it's fully legal. But as I pointed out, there are some very large populous states that still have a medical-only program.
For instance, Florida, as I mentioned on Tuesday, is voting. They need 60% at the ballot box to approve adult use that would launch next year, but even Texas, very large state, has a medical program, but there's only roughly 19,000 patients in that program. It's almost nonexistent the way they've set that up, and so I point out Texas, North Carolina, South Carolina, Georgia, Mississippi as states that have meaningful populations that yet to have a meaningful program, and because of the disconnect between federal and state law, each state has to replicate its cannabis ecosystem within the state borders, and so that requires real estate for cultivation as well as dispensaries, and within our portfolio, we own 15 cultivation facilities and 17 dispensaries. By capital, we have about 92% of our capital into a cultivation facility.
Those that aren't familiar with this, a cultivation facility, think of it as a larger industrial building that's been retrofitted or purpose-built for growing cannabis in an indoor environment. A dispensary is a typical retail outlet, and some of you may have seen them in your communities. In terms of cannabis growing, you can see the long-term trend as we turn on a number of these states. We'll continue to see growth in the overall market. What really drives that growth, and is it persistent? These are some fascinating statistics. 90% of the country resides in a medical state. So this process is becoming normalized. In fact, there was a Pew and Gallup polls that have been done over the last decade, and they show consistently increasing acceptance of cannabis in the electorate.
And recently, Pew came out with their latest poll, 70% of Americans believe that cannabis should be legalized. Period. Not for medical, just legalized. Period. And that's pretty significant. There's not a lot of things in this country that we agree on as an electorate, but one of those is cannabis. What's also really interesting, if you look on the right-hand side, you can see that at the younger demographics, we're starting to see a replacement trade. Younger and younger Americans are taking cannabis as a way to replace alcohol consumption. And it makes sense. What we've seen so far is that you don't have the types of medical conditions that you would get from long-term use with alcohol, liver disease, or other health issues.
And so we're seeing this replacement trade happen at that younger cohort, we think, only adds to the growing acceptance of cannabis and the continued growth of the industry nationally. And you're also seeing this happen. I don't have slides on it, but you're seeing this happen outside of the U.S. and in Europe. Let's talk about some important catalysts that are going on right now around the cannabis industry that'll continue to thrust the group forward. When you think about our federal government, where cannabis remains illegal, across all three branches, we have activity to advance reform. Within the executive branch, most importantly, the DEA has proposed to reschedule cannabis from Schedule I to Schedule III.
There is a hearing that the DEA is holding in December as the final component of this rescheduling process, and we would expect that rescheduling move to be finalized sometime by mid-2025. So what does that do? Interestingly, most people may not know this, but there is a Section 280E of the IRS code that says that if you traffic in a Schedule I or Schedule II narcotic, and just think about this for a moment, cannabis is on Schedule I today alongside fentanyl. Actually, fentanyl, I think, is II alongside heroin. And I think most of us can agree that cannabis is nowhere near as harmful as heroin would be. And so moving it to III, many people of the 43,000 comments the DEA received, I'd say 45% roughly supported completely descheduling cannabis. And in total, 92% of the comments supported either descheduling or moving it to III.
But what does it mean for our portfolio? What it means for our portfolio is this Section 280E says if you traffic in a Schedule I or Schedule II narcotic, you can take a cost of goods sold deduction, but you can't deduct any other expenses. So our tenant base has an effective tax rate today of probably close to 50%, depending how they've arranged their business. By moving it to Schedule III, 280E no longer applies. So every tenant in our portfolio receives an immediate upgrade from a credit perspective because the long-term cash flow profile of their businesses improves by a reduction in their overall taxation rate. And so we're really excited to see this rescheduling to Schedule III occur. We also know the executive branch has issued pardons for nonviolent crimes.
And what's happened since we made this deck back in August is both presidential candidates have embraced cannabis reform on their platform. Many of you may have seen recently, about four days ago, Kamala Harris came out with a schedule of her to-do list once she becomes president. Number six on that to-do list, legalize cannabis. Not just medical, fully legalize and deschedule cannabis. President Trump, for his, or former President Trump, for his part, about six to eight weeks ago, he put out a post on Truth Social saying that he supports descheduling to Schedule III, saying he supports the Florida amendment, constitutional amendment for recreational cannabis. He supports something called the States' Rights Act, and he supports the SAFE Banking Bill , cannabis reforms that have been kicking around Washington, D.C., for five to seven years. It's really interesting to think about his support for Amendment 3 in Florida.
He is a Florida resident. So we have a presidential candidate that's going to be able to vote on adult-use cannabis and legalizing cannabis. And he's already said he's going to vote there. So monumental from the industry's perspective to have both candidates supportive of cannabis reform and really sets the stage for future reform. Within the legislative branch, as I've mentioned, there are a number of bills that are kicking around DC, a couple of which have actually passed around research and around providing continued support around appropriation bills. And then another interesting angle here from a reform perspective is what's happening in the legal channel. A number of cases have come up across the country where gun owners have been stripped of their gun rights or they have not been allowed to purchase a firearm because of their past cannabis use.
And so they've sued the federal government, and we have circuit courts, federal circuit courts with conflicting rulings, which is really primed to make it to the Supreme Court. You have some circuit courts saying it's unconstitutional to take away a citizen's Second Amendment rights just because of their marijuana use. And so we think that has a good chance to get to the Supreme Court. And then you also have a case, David Boies, very famous for representing and arguing cases before the Supreme Court. He's been suing the federal government over the past year because he believes that a Supreme Court precedent from 16 years ago, specifically around cannabis legalization, should be overturned based on what's happened over the last 16 years.
To summarize, the Supreme Court said that because the federal government has a policy to eradicate cannabis from the United States, that it could come in and regulate interstate commerce. Since the DOJ isn't doing anything about all the state legal businesses and for a host of other reasons, the lawsuit contends that the federal government has abdicated its desire to eradicate cannabis and therefore that ruling no longer should stand. Interstate commerce should not be regulated regarding cannabis. In fact, Justice Thomas invited this back about three years ago in a dissent where the court decided not to hear a case. He said, "I think the federal government doesn't have a leg to stand on in Raich." Raich is the previous case.
So I don't want to get too much into it, but the point is across all three branches of our federal government, which is creating this state-federal disconnect, we have action on cannabis reform, and each of these are catalysts for the future. Very quickly, our portfolio, I said 12 states, 13 tenants, some of the leading names in the industry. You could see where we are. We'll leave that for Q&A. How do we underwrite our transactions? We focus on three key elements. One is tenant quality. Obviously, in any real estate business, you have to get paid rent, so you want to understand the credit quality of your tenant base. The cannabis market, here is where we focus on limited license jurisdictions. These are states where the state will regulate cannabis similar to the way it's regulated liquor.
In my home state of Connecticut, you can't buy liquor at a supermarket. You have to go to a liquor store. Not surprisingly, Connecticut has issued only a limited number of licenses in the state. When you have limited licenses, you have less competition, better margin, better free cash flow for the tenant, better credit profile. In these states also, you find that the application for the license will often require an address. While the license and the address aren't exactly linked, they're somewhat de facto linked. In many of these states, it's difficult to separate the license from the address.
Since those licenses have intrinsic value, given there's a limited number of them available, you find that the property has a meaningful amount of value in the ecosystem, and that improves the quality of the real estate, improves our ability to backfill some of our properties. Obviously, we're a real estate investment trust, so the real estate is important. When we underwrite our transactions, the most important thing is to make sure we get paid rent for the duration of the lease. Again, these are 15-20-year leases. The best way to know if you're going to get paid rent is if that property can generate profit and free cash flow for the tenant. If it generates profit and free cash flow, they'll pay the rent. If it doesn't, we may have a problem.
You could see where our underwriting of our retail and cultivation properties stacks up versus non-real estate businesses. It's a combination of these three elements that go into assembling the portfolio. Let's get into one of my, well, before we get that, a couple of quick highlights on our company. I'd focus you on the right-hand side. As I said earlier, we've raised our dividend nearly 80% since our IPO. That's because our portfolio has been growing and our AFFO has been growing. You could see that with a nearly unlevered balance sheet, I think there's a pointer here, you could see that our debt, we have $8 million, really $7.6 million on a $445 million balance sheet. It's relatively unlevered REIT. With a $90 million credit facility, we have the opportunity to invest in new transactions to grow our AFFO.
At the outset of this, I talked about being undervalued versus our peers. And I'm sure you hear that from companies all the time. So I want to talk a little bit about it. I want to talk about why we're undervalued. One is we happen to be smaller than our largest peer. So of course, there's going to be some sort of a size discount. We all understand that. But not to this extent. It really has to do with custody for our stock. We run our company to qualify in all respects with being able to list on the NYSE or Nasdaq, but all of our tenants are in a federally illegal business. And so the NYSE and Nasdaq won't list NewLake Capital Partners. If they change their mind tomorrow, since we run the company to qualify, we'd be able to uplist and fill out the forms.
But today, we trade on the OTC. Back in late 2021, about four or five months after our IPO, the prime broker universe revised its policies to say, "If you are an MRB, marijuana-related business, we will not custody your stock unless you are on the New York, Nasdaq, or the Toronto Stock Exchange." And so our largest peer was on the New York Stock Exchange. When the rules changed, New York grandfathered them in and said, "We've decided they can stay, but we're just not going to admit any new candidates." And so by being on the OTC and by not having the custody available at prime brokers, that are traditional prime brokers to the institutional universe, we have a world where there's under-demand, if you will, or lack of liquidity in our stock. And so this real difference, in my opinion, is about that.
Because normally you'd say, "Well, wait a minute. If you're paying a high dividend yield, close to 9% dividend yield, you probably have an issue with leverage." Well, I already told you that we're 0.2 times debt to EBITDA, but even if we took up all $90 million, we'd still be under 2x levered, which is really very conservative from a REIT perspective. Or you'd say, "We have massive problems in the portfolio." I told you earlier we have an 82% payout ratio in the second quarter. It means we can see 18% of our portfolio stop paying rent tomorrow, and we can still cover the dividend. 18% of the portfolio can stop paying rent tomorrow, and we could still cover the dividend. So what does explain that valuation difference? I come back to cannabis. I come to conferences like this.
I meet with investors that might be larger, excuse me, larger family offices or smaller institutions that say, "I get it. I love it. I can't. I can't get it to my prime broker." And so by moving to an exchange, ultimately, will allow us to unlock some of that institutional demand. And so we think with an attractive dividend yield, with a well-covered dividend yield, investors get paid to wait for that catalyst to move. And so you might say, "Anthony, what is that catalyst? What is going to move you to New York, Nasdaq, or TSX?" It could be the SAFE Banking Act passing with the right definition to provide a safe harbor to the exchanges. It could be that STATES Act that Donald Trump tweeted about his support for.
If that happens, it's a decriminalization at the federal level and pushes it and lets the states decide if they want it. That could provide comfort to the exchanges to get us listed, or it could be moving to the Toronto Stock Exchange, and we've announced on previous calls we're evaluating that move. There are two cannabis companies that were able to accomplish that, and so we're looking at that and what that structure looks like, but we know it will happen. It's just a matter of not if. It's just a matter of when for these reforms to happen and us to get to a better exchange with more liquidity and really unlock some of that value, and we think investors get well compensated to wait. I know I moved through that really fast. Why don't we open it up for some Q&A?
Today, it's 5.65% fixed rate until May, and then it steps to floating at prime plus 1%.
Prime plus 1 and then what type of cap rates are you seeing on deals in the market today if you wanted to do another investment?
Higher than our weighted average yield of 11.9%. Part of it is supply-demand, and part of it is when we assembled this portfolio, the overall cost of capital for the industry was lower. So today, you'd find deals anywhere from, call it a 12 cap to a 14 cap.
That $90 million, you decide to tap now, it's got a big gap, right?
Yes. It's very accretive to tap the line and fund new deals. Yes. Are there questions?
I just did a little simple math here. You're at 245 sq ft-ish for valuation. Is that actually the value of those, let's say they weren't cannabis facilities.
Yes.
Would they be worth 245, or would they be worth something much less than 245?
Yes. And I should have repeated the first question. So this question was, "The value of the real estate that's on our books, is that the cannabis value, or is that the non-cannabis value?
Well, I mean, the value would EV divided by the 1.7 million sq ft is 245, right?
Yes. Yes.
So the value of the real estate at 245.
Yes.
But if it wasn't cannabis, would it be worth that, or would it be worth something more?
Similar to what you'd—it would be worth less, similar to what you would find with, say, lab space. So think of the industrial buildings that we own, which is 92% of our capital. These have power, water capability, and security that are over and above any other industrial requirement or industrial use requirement. But we get a premium rent. So the way we look at it is if there's a building that is non-cannabis value, call it $6 million non-cannabis value, but we have a $10 million basis into that building, we're receiving a premium rent. The non-cannabis rent for that area may be a 7% cap rate. If we're getting a 12% cap rate, we're getting a 5% cap rate, 5% premium rent every single month for that property.
Another way to think about it is, how long does it take for us to get the premium rent to, in essence, buy down our basis to a non-cannabis real estate level? We call that our years to break even. We should get more creative. But that's the way we think about it. And that's typically anywhere between five and eight years, depending on the transaction. So if you receive rent for that five to eight years, and remember, we have 15-20-year leases, then you're at just a regular way real estate return. But if you get rent more than that period, then you're getting that premium rent we're talking about.
So if you said five years and it's 5%, that means you're kind of overpaying by 25% if the building was used for something else, but you get that back and you get five years and then after that.
Yeah. And again, it could be five years on a deal. It could be eight years on another deal. It depends on the transaction, but that is the way we think about it. Yep. Yep. You're definitely overinvesting in this. And it's why we like the limited license states, because if you have an issue and you haven't met that threshold - let's say we're six years that we think we need to break even - and if you have an issue in year three or four, well, in a limited license state, you're more likely to be able to backfill it with a cannabis tenant that allows you to continue to get that premium rent. And when you look at the issues in the industry over the last two years, our competitors have had tenants move out. That's why we're 100% leased. Not all of our competitors are 100% leased.
They've had to take back properties and try to re-tenant them, and they're trying to re-tenant them in the cannabis industry. Some have to go outside the cannabis industry. And it's because they're in unlimited license states like a California or like a Colorado. We happen to be in California, but we're in San Diego County with a dispensary, 36 dispensaries for 3.3 million people. So it's a limited license jurisdiction, and that deal's been performing just as we underwrote it five years ago. We have to wrap up. Thank you, everybody, for taking the time. If you have any questions, you can find us at newlake.com on our investor page, or please see me during the conference.