To Sedoti's June Small Cap Conference. My name is Brendan McCarthy. I'm an analyst here at Sedoti, and I'm pleased to welcome NewLake Capital Partners. The ticker is NLCP. Joining us from the company will be President and CEO, Anthony Coniglio. Before I hand it over, a quick reminder: the Q&A tab is located right at the bottom of the screen there. Feel free to type in questions throughout the presentation, and we can save time for Q&A at the end. With that said, I'll pass it over to Anthony.
Thank you, Brendan, and thank you, everybody, for joining us today. Again, my name is Anthony Coniglio. I'm Founder and CEO of NewLake Capital Partners. NewLake Capital Partners is a real estate investment trust focused exclusively on the cannabis sector. As we sit here today, we are the second largest owner of cannabis real estate in the U.S. We own 34 properties across 12 states with 13 tenants. Our tenants are some of the leading operators in the industry, names like Curaleaf, Trulieve, Cresco, and GTI. Our business model is quite simple. We buy real estate from and for cannabis businesses, and we rent them out, or we rent or lease them back on a 15- 20-year basis. We sit back, and we collect rent on a monthly basis and pay out a quarterly dividend to our shareholders.
We are internally managed, which is another important element for REITs in the sector. What I want to quickly talk through to you today, and I get more out of the Q&A, I think you do as well. I am going to move pretty quick through our presentation. I want to talk to you a little bit about our team and how we constructed it, talk to you about how we've been focused on growth and how we think about growth relative to risk, which is really important in the cannabis sector today. We'll talk also about the portfolio and our financial position, and we could talk about how we stack up to peers.
By the numbers, we've been around for six years, which may not seem long when you talk to companies around for 20 years or 30 years, but actually, it's in dog years in the cannabis industry. We're one of the leading providers of real estate capital to the industry. We've deployed nearly $0.5 billion. Our portfolio of leases is long duration, as you can see here, over 13 years of remaining weighted average lease term with a top-line yield of over 12%. We have higher or above-market yielding properties with long duration creating real value for our shareholders. We've grown our dividend nearly 80% since our IPO in 2021. I do want to point out here the leverage. Unusual for REITs is that we have such little leverage. Most of our or all of our transactions, most of them have been funded through equity to date.
We've not raised equity since our IPO. We've deployed our IPO equity and then utilized a little bit of debt. As we sit here today, only $7 million of debt outstanding on $440 million of assets, so nearly unlevered. We've yet to find a publicly traded REIT that's as lightly levered as our business. With a $90 million credit facility, $83 million available to us, we have ample capacity to provide additional growth and AFFO to our investors. For those of you out there that are familiar with real estate investment trusts, you know that AFFO is our key metric. That is our measure of free cash flow. When you look at our payout ratio, an 84% payout ratio, it's well within our targeted range between 80% and 90%, and also provides ample cushion for any issues that may come in the portfolio.
Let's talk about our team. You could certainly read the bios, but I'm going to pause on our directors. When we started the business over six years ago, what we recognized is that this is not only a real estate business; this is very much a cannabis business. In order to be successful over the long term, it was really important for us to have cannabis knowledge. At a very early stage, we partnered with Pete Kadens, one of the co-founders of Green Thumb Industries, arguably the best-run business in the cannabis industry, to help inform us on the cannabis industry as we started thinking about underwriting. Pete just recently left our board after serving five or six terms, and we've replaced him with Dena Rowland, who was another one of those co-founders at GTI.
We also have Joyce Johnson, who's an independent director at Ayr Strategies, another leading cannabis company in the sector. So we've taken that rich cannabis experience to inform our underwriting approach. But we also have stalwarts in real estate, names like Gordon DuGan, our Chairman. Gordon was CEO at W. P. Carey, one of the largest equity REITs in the world, as well as taking Gramercy Property Trust as CEO and selling it to Blackstone, growing it from $300 million and selling it to Blackstone for nearly $8 billion a handful of years ago. So Gordon has decades and decades of equity REIT experience. And then we have other directors that have a combination of financial services, real estate, and restructuring experience. And why that's important is because when you're focused on an industry that is growing fast, is highly regulated, it's bound to have issues.
Understanding what could happen in a restructuring really helped inform our transactions. It is why I think we have one of the best-performing, if not the best-performing, portfolio, whether it is equity REITs or debt REITs out there. We think we have a tremendously strong team that has strong capabilities. Let us talk about the industry. Let us talk about the cannabis industry and the growth in the cannabis industry. People estimate that the cannabis industry is about $100 billion. It is a pretty massive industry, but only about $30 billion of that is in the state legal market. The growth of this industry comes from new states that are approving medical cannabis programs, like Kentucky, which recently started handing out licenses in the fourth quarter of last year and is now building out an entire infrastructure.
Or in North Carolina, as an example, where the governor just the other day formed a task force to evaluate implementing a medical marijuana program in the future. You have states that are converting from a medical program to adult use, such as Ohio, which last year started its first recreational sales, and we're watching that market grow. That's a large part of what fueled the long-term secular growth trends in the cannabis sector. What is also driving growth of cannabis in the state legal market is a really fundamental change that's occurring within the younger cohorts. We're seeing large segments of the younger population convert from alcohol and spirits consumption into cannabis consumption as a safer way to achieve recreational feelings that you may get from alcohol, spirits, or cannabis. It's not just younger cohorts. It's really across our population that you see acceptance of cannabis.
You can see by some of the stats on this page, with over 90% of the U.S. population residing in a medical market today, it's not surprising that nearly 90% of Americans believe that cannabis should be legal for medical purposes. You have over 2/3 of Americans believing that marijuana should be accessible to adults for recreational use. Let's just think about that for a moment. What do we Americans actually agree on to the tune of 2/3 or even 90%? It's high time that our, I guess, pun intended, not intended, it's high time for our federal legislators to get caught up with the sentiment in the U.S. We think that will only continue to fuel the long-term growth of the industry.
We also know that with recent tariff talks, recent economic discussions, that there is the risk, albeit today probably a little bit less, for a recession. We do want to highlight that we believe cannabis is a recession-resistant industry, and we would point you to the spirits or alcohol or beer industries to look at how we think a product category like cannabis will perform. We see in those other industries that sales tend to be flat or actually grow, while maybe you actually have a move down in terms of price point for the consumer. We see no reason for cannabis to be any different. In fact, we saw some of these very characteristics at the beginning of COVID before these businesses were all deemed critical industries and were allowed to stay open during the COVID periods.
Let's talk a little bit about catalysts, because maybe you've heard that the DEA has proposed rescheduling. I'd like to think about catalysts for cannabis across all three branches of our government. I'd first say that last year was the first time in our history that you had two presidential candidates having cannabis reform on their platforms. For his part, President Trump said in September that he supported the rescheduling of cannabis from Schedule I to Schedule III as currently proposed by the DEA. He said he was also going to vote yes on a referendum in Florida where he was a Florida resident voting for adult access to cannabis for recreational use. He said he also supported the STATES Act and the SAFE Act, two pieces of legislation that have been introduced in past Congresses and would be meaningful reforms for the sector.
Now, it's early into this administration, and it's absolutely a show-me story. When the president says he's behind something, particularly this president, hopefully he'll see through and do what he says and actually get some meaningful reform for Americans. I remember my slide a couple of slides ago showed that 90% of Americans believe we should have access, or 88% believe we should have access to medical cannabis. Within the legislative component of our government, we've seen the STATES Act reintroduced. We haven't seen SAFE reintroduced yet. With all the talk on Capitol Hill about de-banking, SAFE is that legislative vehicle that focuses on de-banking. In fact, Section 10, which focuses on de-banking, is the longest section of that bill.
We are optimistic that at some point we have to get some relief for the 450,000 employees in the cannabis industry nationwide, many of which have been de-banked because of their involvement in the industry. We have not seen any policy statements out of this administration. As a president that tries to get what he says he wants, hopefully he follows through. We also like to point out what is happening at the legal level. There have been a number of cases at the Federal Circuit Courts creating conflicting decisions with respect to marijuana and gun rights. We think those cases are ripe to get to the Supreme Court because, in fact, that is where you resolve disagreements between federal circuit courts.
Additionally, there's a case that's referred to in the industry as the Boies case, where David Boies, who's notable for his representation of Microsoft as well as for gay rights in front of the Supreme Court, many other cases, has taken on a case in Massachusetts that is working its way through and actually just received a decision in the Federal Circuit Court that he's now expected to appeal to the Supreme Court and to try to get the Supreme Court to override their decision from 16 years ago because the basis of their decision, which was that the federal government's focus was to eradicate cannabis use in the U.S., in this case is all about pointing out the actions of the federal government, where it really is no longer the policy of the federal government to eradicate, but rather the federal government has allowed this complex web of state legal businesses to coexist within the framework of the Controlled Substances Act.
Without going into the merits of the case, there are a few paths within the legal, excuse me, the legal realm to get us to some potential reform. I quickly want to keep an eye on, I want to have a few more minutes before we get to Q&A. We have a portfolio across 12 states. You can see that we have a national presence, and the top three tenants in our portfolio are Curaleaf, Cresco, and Trulieve, again, some of the top operators in the industry. When you look at the performance of our portfolio versus peers, I think what you'll find is what analysts have found, and that is that we have the best portfolio in the industry. We do have one issue in the portfolio. We talk about it, and we've been talking about it for a couple of years.
We think we'll finally get that property back, one out of our 34 properties. It will come back to us, and we'll look to re-tenant that building. We've been touring potential tenants over the last few months. We do think it'll take us some time to reposition. Why has our portfolio held up better than most other companies in the industry? It's our focus on limited license jurisdictions. These are states like Pennsylvania that are regulating cannabis similar to the way they regulate alcohol with very, very strong control. There's a limited number of licenses. What does that do for our tenant? It improves the cash flow profile for our tenant, which improves the credit because they have fewer competitors. That improves the credit quality, but it also creates intrinsic value for the businesses that we have operating in our properties.
That intrinsic value is the license value. In some states, it can trade for $5 million. In some states, that paper license can trade for tens of millions of dollars. The tenant is not likely to just give up on their business. The tenant is more likely to try to sell that business. With it, obviously, goes the lease, and the new owner of that business steps into the lease. It provides better protection. The other key part of our underwriting that we think has served us very well is our focus on cash flow coverage at the property level. That is EBITDA. Think about EBITDA + rent. If a tenant is generating meaningful cash flow for themselves at the property, they are obviously more likely to continue paying rent and have that property as being a mission-critical property.
We do publish, and you can see on the right side of this page, we do publish the metrics in our portfolio and across our portfolio for both the retail and industrial properties. I should mention, of the 34 properties, 15 are cultivation facilities. When I say that, think industrial building. Think 100,000 sq ft industrial building that's been modified for indoor cultivation, a very sophisticated agricultural business indoors. Retail, think of the 19 retail locations, primarily think single-pad sites that are outlots typically to other retail centers. We publish what we have combined for wall coverage. Let's talk a little bit about our dividend. We've been growing our dividend. We've grown it nearly 80% since our IPO in 2021. We are listed on the OTC.
We run our business to comply in all respects with New York and NASDAQ listing requirements. We are on the OTC because New York and NASDAQ will not list us because we are in the marijuana business or we are an MRB, a marijuana-related business. We know that is an issue for us. We continue to work on ways to get listed on New York and NASDAQ and unlock some of the additional custody and liquidity opportunities for being a New York or a NASDAQ-listed company. I want to emphasize, we run our business to comply in all respects with their listing requirements. When they will have us, it will be easy for us to get an uplisting. I do want to talk about us relative to peers as we get ready to turn it over for Q&A.
We do favor comparably to some of the peers that you can invest in, whether they're some of the externally managed mortgage REITs or whether it's one of the other equity REITs that are publicly traded. I will tell you that when you look at us from a debt-to-equity perspective, again, one of the lightest levered REITs that are out there in the industry. When you look at us as a dividend yield, a number of investors have asked me the question, "My gosh, when you see a high dividend yield, it means one of two things. It means you're over-levered, or it means you have a portfolio that's in distress." Hopefully you remember I said $7 million of debt outstanding on over $440 million of assets. It is not a leverage problem. In fact, we're under-levered.
We need to seek more transactions, quality transactions to get better capital efficiency. Maybe it's the portfolio. Again, hopefully you remembered one property out of 34. Analysts say that we have the best portfolio in the industry, whether it's equity or mortgage REITs. It's not a portfolio issue. What is it? Why are we trading at such a high level? I think investors look around us, and it's a little hard to believe the quality of our portfolio relative to those public and private REITs that are having more distress. I also think that it's because we're on OTC versus New York or NASDAQ, but therein lies the opportunity.
You have the opportunity to invest in a very attractive yield with strong cash flow coverage, again, an 84% payout ratio, which means 16% of our revenue can go away, and we can still have sufficient cash to cover the dividend while we wait for some of those federal reforms to kick in and really drive growth for the industry and broader acceptance of cannabis as a category. You could see what we've done over the past three years relative to some of our REIT peers as well as our cannabis REIT peers in terms of the cash flow per share that we've generated and that coverage in AFFO, again, right in that target range of 80%-90%. With that, I would love to turn it over to Q&A and see what's on your mind.
Great, Anthony. Thank you so much for the overview there.
We have a handful of questions from our attendees, but why don't we start off with the competitive environment? I would just love to hear what you're doing differently, what differentiates your business model from peers, and maybe what market share percentage you believe your company has.
Yeah, thank you for the question. It is very few companies can say they have less competition six years after they've started their business, but we can say that. There have been many companies that have been providing real estate capital that have gone out of business or no longer are deploying capital into the sector because of difficulties with their portfolio or inability to access capital. We do indeed have fewer competitors today. Now, we've been competing effectively with a more competitive landscape, and I think we're very well positioned for the next growth phase of this industry.
For instance, when we go to Kentucky and we were there recently for a conference, we were the only capital provider that was there at that conference because there are a few competitors out there today. I'd also tell you that we think we've not only been nurturing relationships over the last six years, but I think the way we've approached the industry has allowed us to differentiate ourselves as a real partner to the industry. As we can see from deals we've done this year, which were with Cresco, one of our existing tenants, I think that's the best testament to our capability is to do repeat business with our tenants. When you look across our portfolio, you'll see many of our tenants we have multiple properties with.
Got it. That makes sense. You mentioned your firm is focused on these limited license jurisdictions.
What's the opportunity there? How many more states do you think you can get a footprint in?
Yeah, I would say that most of, so let's go again. An unlimited license jurisdiction would be a Colorado, a Michigan, parts of California. We have a property in California, but it's in San Diego where San Diego County is limited license. And where those problems are, excuse me, let me rephrase this. Where those problems are are those unlimited license states, but those tended to be the early adopters. When you see the newer states approving programs, primarily they're doing it with a limited approach. For instance, Kentucky is using a fairly limited approach.
I would expect that North Carolina, when they look at evaluating states and those that have done it very successfully, like in Illinois or like Pennsylvania, these are states that have taken a very limited approach, have made sure there's plenty of patient access for the medical program at a reasonable price, but avoid the illicit grow operations and the illicit dispensary opportunities, than you would see, say, in an Oklahoma market where they took an unlimited license approach a handful of years ago. That is where when you look at the DEA's recent report, they see a tremendous amount of distress and illicit operations in that state and diversion of what started as legal product to illicit product. I think you'll see as states continue to expand their programs, they'll do it more in that limited license construct.
That's interesting.
Looking at your property portfolio, 34 properties across 12 states, how has growth been there over the past handful of years? Do you target a specific number of property acquisitions per year? Maybe you could just kind of talk about that acquisition process.
Yes, yes. Thank you. We get growth from three areas. Number one, we have escalators in our leases that average 2.6%. Every year we collect rent, and our revenue goes up, and AFFO goes up by 2.6%. Number two is we have tenant improvement dollars. These are commitments that we make when we acquire a building to provide tenant improvements, to fund tenant improvements for that particular tenant. We have a little over $11 million of tenant improvements as of the end of the first quarter.
As those projects are funded, we charge rent, and that'll grow our revenue and our AFFO. The third component is new transactions. That would be where we closed on a transaction in the first quarter for a dispensary in Ohio. We closed on a transaction that we already announced in the second quarter for a dispensary in Ohio. As we deploy capital into those new deals, we'll grow revenue, or we'll grow AFFO. Now, with respect to your question about do we have a targeted number of deals, there's a saying I've been using for years. We're going to grow, not for growth's sake, but we're only going to grow for quality growth.
If I look at last year, we only did one deal for $16 million last year because that was the only deal that came across our desk that we felt had the right mix, as I talked about earlier, of EBITDA coverage, quality real estate, quality team. We have done these two deals so far this year. We have a very active pipeline. We are evaluating deals every week, but we are only going to do the deals that we are comfortable with. To just emphasize this point, when we announced our full year 2024 earnings back in March, we announced that we had 8% AFFO growth during 2024.
We had an investor ask, "How did you post 8% AFFO growth in the midst of an extremely difficult period for cannabis?" When everybody else was showing AFFO contraction, my comment was, "It wasn't what we did in 2024. It's what we did in 2020, 2021, and 2022. It was the quality deals that we did to make sure that the rent was able to persist during that difficult period." That informs us today to make sure we're not reaching for growth, but we're entering into long-duration investments that'll drive long-term value for our shareholders, not just to get a bump for a year or two, be able to show some big growth numbers.
It's fantastic. When you talk about past acquisitions, I think you mentioned most of those deals were funded with equity. How has that been received by the market?
Then looking forward, do you expect a kind of similar mix between debt and equity, or how can we kind of think about the use of debt?
Yeah, for the foreseeable future, our focus is to utilize the remainder of the $83 million credit facility that we have. We're also generating some free cash flow from our business because with an AFFO payout ratio of 84%, the other 16% is staying on the balance sheet in terms of cash and the ability to deploy that. If you look at us from a capital efficiency perspective, we need to utilize a little bit more debt, in my opinion, in order to provide leverage to our investors and get more capital efficiency for our common shareholders. Now, that's not to say we're going to go and we're going to over-lever this business.
We have a quality portfolio with above-market yields and long duration. There is no need to take on excessive debt. Sitting here at less than 0.2 debt to EBITDA, we have plenty of runway to be able to get more capital efficiency. If we were to take up all $90 million of our credit facility, we'd still be under two times debt to EBITDA. Very, very comfortable from a debt perspective.
Got it. Maybe we could talk about tenant health a little bit. I guess, what are some of the key characteristics that ultimately impact tenant health? From a broad perspective across the portfolio, how has tenant health been? I think you mentioned there was one concern in the portfolio, but maybe just talk about tenant health a little bit.
Yes, sure. Because that's critically important.
It's all about, if we're going to pay the dividend, it's about collecting the rent. Yes, we'll talk about the one issue in the portfolio. It was a company that had two successive crop failures. It was one of the largest wholesale distributors in the state of Massachusetts. Utilized all of their available liquidity to try to replant and regrow, meet the capital needs of the business. So completely depleted cash. They had defaulted on us in early 2023. We were able to work through and work with them on a deal where they brought in fresh capital, fresh management. Unfortunately, they weren't able to outrun some of the legacy liabilities and continued headwinds in the Massachusetts marketplace. In this past December, they went into receivership. We'll be getting that property back. We've been showing it to cannabis operators, and we're going to look to reposition that asset.
In terms of our portfolio, I'll go back to the page that talks about our tenant concentration. You look at our top three tenants on this page, Curaleaf, Cresco, Trulieve. C3 is a private operator, but they've said publicly that they're profitable and they generate free cash flow. So you'll have over 50% of our portfolio is in super high-quality companies in the business. Now, there are a couple of names in here that are having more difficulty, but when I look at our specific properties with them, or I look at our EBITDA on those properties, again, I go back to what I said. If properties are generating cash flow for a business, they're likely to continue to keep operating and pay rent.
For companies where we have multiple properties, we have entered, or not entered into, as part of our leases, we cross-collateralize security deposits and we cross-default leases, taking away an important tool for CFOs to cherry-pick what they want to pay and what they do not want to pay. That is a really strong tool to make sure that the complement of all the leases that we may have for a company that is struggling would not default on us. If we look at a name, a lot of people ask me about cannabis in the portfolio. They had a significant amount of debt coming due this year. They were able to renegotiate that debt, and they just announced they closed on a transaction that pushed out maturity of their secured debt for another couple of years, which has given them runway.
They have a great complement of states, states like Virginia and New York, that are terrific states to be able to optimize their business and start generating some cash flow. They have created more runway, and it has made me feel pretty good, especially after that announcement that happened two weeks ago.
Great. That is very helpful. I wanted to get a question in about the regulatory environment. I know it is such a dynamic, constructive part of the outlook, but I guess as you think about near-term and maybe longer-term catalysts, what can investors take away here about potential regulatory catalysts looking out on the horizon?
Yeah.
The first thing I say when we get asked about the catalysts is, "I don't want anybody investing in NewLake expecting a catalyst will happen on a certain timeline because we can't tell you when these catalysts will occur." I do fundamentally believe, though, that we will get reform. I go back to those numbers, those Pew polls and those Gallup polls that show that 90% of Americans want access to medical cannabis, and 2/3 want access to adult use. Even though adult use referendum failed in Florida, it was really because the governor railed so hard against it and spent so much money in the run-up to the election against it, but it still got 57% of the vote. It just didn't accomplish the 60% threshold.
Those types of numbers tell me the American people want it, and we'll get reform someday, whether it's through the courts, through legislation, or at the ballot box. I just can't tell you when. Now, what is that reform going to look like, and what does that mean for a stock? There is one piece of reform that's an immediate credit upgrade for the entirety of our portfolio, and that's rescheduling from Schedule I to Schedule III. All of our tenants right now operating under Schedule I drugs with Schedule I drugs are subject to additional tax. I shouldn't say additional tax. Subject to something called 280E. It's a section that says if you traffic in Schedule I or Schedule II drugs, you cannot take certain deductions. They effectively have a tax rate, a federal tax rate of over 50%.
That is really, really difficult to run a business that way. Rescheduled to Schedule III, and then they are taxed as a regular corporation. If you think about the free cash flow profile of these businesses over the remaining term of their lives, just go over the next 10-15 years, that is a meaningful upgrade for us. Again, we are optimistic that it will happen. We just cannot tell you when it will. Will we get reform like the STATES Act that pushes this to the states? I mean, listen, we have got over half the country living in an adult use market today. These things have to happen. I could see Congress doing what they did with other reforms like abortion, where they pushed it to the states and said, "Let the states decide." Under this administration, that is not too much of a reach.
Again, with that comes meaningful benefits for our customer base. It allows states to expand their programs and allows there to be additional growth and probably sets the stage for us to get uplisting. It will ultimately be up to New York or NASDAQ if that type of legislation would allow it, but I believe it would. There are these catalysts out there that could create significant demand because when you look at the yield on our stock relative to the risk with that payout ratio and the low leverage, there are a lot of institutional investors that would love to invest in us, I believe, that do not have access to custody for our stock, and therefore that demand is not there.
I think the real opportunity to tie this together, I think the opportunity is for investors to step in with a very attractive yield, with a quality portfolio that has meaningful coverage with only an 84% payout ratio while they wait for federal reform. I think you get paid very well to wait for federal reform, and then you could see a stock that's trading at an implied cap rate of probably 13% today, where REITs generally trade with implied cap rates in the mid-single digits. I mean, if you get to just a 10% implied cap rate, that would suggest a stock price into the 20s. I'm not making a forward-looking statement there. I'm not promising you that'll happen. I think that's the type of thing that I think about when I consider what reform can do for us. It's very interesting.
Anthony, we really appreciate the overview. We'll conclude the presentation there. Thank you, everybody, for joining us.
Thank you, Brendan. Appreciate the opportunity, and thank you, everyone, for tuning in.
Thanks, everybody. Have a great day.