Okay, we are excited to welcome our next presentation. Let's please give a warm welcome to the CEO of NewLake Capital , Anthony Coniglio.
Thank you very much. Thanks everybody. We're gonna try to bring some energy into the room 'cause we've all been at this for now about a day and a half. I am wide open to questions. I love having more interactive dialogue and not sitting up here and just walking through. I'm gonna move through this pretty quick and get to questions. If you don't have questions for me, I'll call on you. Let me first start with a little audience participation. How many people in the room, show of hands, have ever consumed cannabis? Come on. It's okay. No one's keeping track. Okay. How many people in the room have ever invested in a cannabis investment? Keep your hands up, please. How many of you lost money on your cannabis investment? Keep your hand up. Most people.
Well, that's not our story, and hopefully when you walk out of here today, you'll see the difference. It has been a very difficult period for cannabis investment. What is NewLake Capital Partners? We're a real estate investment trust that's focused exclusively on the cannabis industry. We own 34 properties across 12 states, and we're the second largest owner of cannabis and cannabis real estate in the U.S. We have a virtually unlevered balance sheet, and we're really excited with the recent, with the recent rescheduling of medical cannabis from Schedule I to Schedule III. Let's talk a little bit about NewLake by the numbers. We've accumulated a portfolio of those 34 properties. When I say 34 properties, to provide you some context, we own 15 cultivation facilities and 19 dispensaries. When I say cultivation facilities, this is not outdoor growing of cannabis.
This is sophisticated indoor agriculture, typically in an industrial building that could be many times in the middle of an industrial park. We have 1.7 million square feet across the portfolio. Of the 19 dispensaries, you could think of these generally as single-tenant properties and outlots. Say, we have one property at the King of Prussia Mall. It's an outlot that used to be a former fast food service restaurant. When we say dispensaries, think about those single tenant properties. We have 31 leased properties today. We have three properties available for lease. We had those three vacancies during the first quarter. When you look at our financial results, our financial results have the upside of tenanting those three available properties. We've been at this since 2019.
We're one of the longest running capital providers to the cannabis industry. Our properties today are delivering our investors a 13% top-line yield with very strong expense management. As an internally managed REIT, we're focused on, and as employees of the REIT, not just external managers that wanna take fees, we're employees of the REIT. We're very focused on managing the expense ratio that we have for our investors because we are our investors ourselves. Very quickly on management team, you can read the profile. What I want you to take away from this page is that when we started this business, we recognized this wasn't just a real estate business. That in order to be successful in focusing on real estate capital to the cannabis industry, you really needed to understand the cannabis sector.
It's just as much a cannabis business as it is a real estate business. That I think is really a key component to what's allowed us to deliver better performance in deploying capital to the sector than just about anybody else. That's not only my opinion, that's a fact when you look at the performance of our portfolio versus others in the industry that do what we do or that lend to the industry. I wanna draw a distinction there. When I say do what we do, again, we are a landlord to this industry. Our business model is simple. We acquire properties from and for cannabis industry, cannabis tenants, and we lease them back on a long-term basis. You saw on that previous page, our remaining weighted average lease term is 12 years.
This is a portfolio of above-market yields, again, 13% with long duration. We got there by partnering with people like Dina Rollman, who was one of the founders, one of the early people at Green Thumb Industries. A predecessor to hers on our board, Pete Kadens, was one of the co-founders at Green Thumb Industries. You partner up somebody who founded one of the most successful cannabis companies in the country with someone like a Gordon DuGan, who's been around net lease REITs for 30 years, was CEO at Gramercy Property Trust, CEO at W. P. Carey, and the deep expertise around real estate and net lease REITs. You pull all that together, you've got the expertise to create an infrastructure and an underwriting approach that's delivered that outsized performance. Let's talk about some catalyst.
It's probably the most exciting time to be in cannabis. If you were to listen to any of our earnings calls over the last four years, you'll know, hopefully, you can, you can sense that I am not the eternal optimist around this space. I've been the one that on all of our calls has been calling out caution, has been telling investors to be cautious, has been saying that we're not out of the woods yet. In fact, on our first quarter earnings call a couple of weeks ago, even though I celebrated the rescheduling of cannabis from Schedule I to Schedule II, I'm also sounding a note of caution that it's not the panacea. It's not the silver bullet. There are additional catalysts that we need to get, but it is monumental.
It's the most important catalyst in 50 years around the cannabis sector. Again, that is rescheduling medical cannabis from Schedule I to Schedule III. What does that mean? Why is that so monumental? Well, it's monumental in terms of confidence and tailwinds for the industry, but it's also significant for our portfolio and for our tenant base. Because we have to collect rent every month, again, our business model, collect rent, pay out quarterly dividend, it's quite simple, this is more of a credit story. By eliminating a burden on the P&Ls of all of our tenants, something called Section 280E, I'll explain that, it improves the risk profile of every one of our tenants overnight. I want to dive into that.
The IRS has a provision in the code 280E that says if you manufacture or sell a narcotic on Schedule I or Schedule II, you are limited in the deductions you can take on your tax return. If you're a fentanyl drug dealer, you still have to file a tax return. True statement. You can only deduct cost of goods sold. You can't deduct interest expense or anything below the line. The cannabis companies in the U.S. have been paying effective tax rates of anywhere from 50%-70%. Just think about that. Federal tax rate on corporate tax rate is 21%.
Because of the limitations on deductions and the meaningful amount of debt that these companies have been taking on, their tax bill has been more than double what a normal business in the U.S. has had. The rescheduling to Schedule III makes 280E no longer applicable immediately because the statute says that 280E only applies to Schedule I, Schedule II substances. Once you move to Schedule III, you eliminate that. The future cash flow profile of all of our tenants just got better three weeks ago because of the rescheduling. The Department of Justice, when they rescheduled, asked the Treasury Department and the IRS to consider retroactive relief to the cannabis industry for prior year 280E taxes.
I can't predict if they'll do that, oh my gosh, if they do that, then our tenants that have liability, some tenants have been deferring payment on this Section 280E for the last couple of years, building an uncertain tax position liability on the balance sheet. If you get that relief, it materially improves those balance sheets by eliminating that debt. To the extent that some payments were made, the potential for refunds and cash flow to the balance sheet is another upgrade to our tenant base. It's not the only tailwind that's working in our industry. In addition to medical cannabis, there's non-medical cannabis, and for some, that may seem ridiculous. How do you take a plant and regulate part of it differently than the other part?
It's like looking at a flower and saying, "I'm gonna regulate the smell of this flower, and the very same flower, I'm gonna regulate the aesthetics of it." Doesn't make sense, but it's the approach the Department of Justice has taken to the rescheduling process. The non-medical rescheduling process is launching on June 29th. They've already dictated that it shall, the hearing shall be complete on July 15th. We expect that you'll have rescheduling by the end of this year. The totality of 280E for all of our tenants' revenues goes away. Why else this is important? You know, we're going trading on the OTC. We comply in all respects to trade on New York or Nasdaq, the only reason they won't have us, because our tenants are illegal.
Three weeks ago, the medical revenues associated with our tenant activity have become completely legal, as if it's Starbucks, Dunkin' Donuts, Wawa, or pick your favorite West Coast brand. I'm struggling for one right now. In-N-Out. Completely federally legal. 55% of our revenues are federally legal today. The other 45% with the rescheduling of adult use cannabis would then become federally legal. That would clear the way for us to uplist to New York or Nasdaq, and I'll talk more in a moment about what that unleashes in terms of institutional demand. There's a lot, as you can tell, there's a lot that's happening from the rescheduling process, creating tailwinds. It's not only tailwinds for the credit quality of our business, but tailwinds for future growth in the industry.
The governor of Indiana the other day said that with the rescheduling of cannabis, he thinks it's moving certain GOP state legislators into the yes column for a medical marijuana program. Idaho has a referendum, excuse me, a ballot initiative that they're trying to get medical marijuana on the ballot later this year. Tailwinds for that process. Tailwinds potentially for converting Pennsylvania from medical to adult use. Florida from medical to adult use. Texas reforming their cannabis program. Georgia recently reforming their medical cannabis program. Now that we're on Schedule III, we'll continue to see this growth. One final example is for the last three or four Congresses, Congressman Brian Mast, who lost both of his legs in Iraq, a former, I think he was Marine, he's a congressman. He's been advocating for veterans' access to cannabis.
In the last few Congresses, a bill was approved to allow Veterans Administration doctors to recommend cannabis and prescribe cannabis to veterans. It's been taken out in reconciliation. If you think about it, how do you have a federal employee recommending a federally illegal narcotic? Just doesn't fit. Now with the rescheduling, that provision was reintroduced a couple of weeks ago, has passed out of committee. We think that finally gets finalized, and you have Veterans Administration doctors that now can be prescribing medical cannabis for veterans. There's a strong movement amongst the veterans community to have access to cannabis. Just another set of stacking catalysts for growth in the industry. Let's talk about hemp. How many people in the room, back to participation, have heard about hemp-infused drinks? Right? Hemp-infused drinks.
Has anybody heard the hashtag, gas station weed? Right? All right, so we have one. It's an actual hashtag. In 2018, the federal government legalized hemp. They were thinking they were legalizing hempcrete, fiber, clothing. What they did not think they were legalizing was synthetic THC that could be sold across state lines, unregulated, untested, and un-age-gated. There are 14-year-olds buying unregulated, untested THC products that are marketed to children across the country. You've seen an increase in hospital visits, and we think it is directly a result of hemp-derived synthetic THC. Federal government has now closed that loophole.
There's a ban that's going into place on November 12th that will shut down that activity. Just two weeks ago, the DEA filed a proposed rule to formally schedule synthetic THC as federally illegal as a Schedule I drug. This activity has siphoned off meaningful revenue from the state legal industry, which is our tenant base. We do not serve the hemp base. I'm not here to make a stand one way or another on hemp or synthetics. Well, actually, I will make a stand on synthetics. I don't think they're good for us. I think it's why the federal government is banning it. It has siphoned off sales.
Another tailwind for our tenants and for our industry, depending on the state you're in, is seeing that supply chain and seeing those sales go down in the hemp channel and moving and transitioning over to the state legal cannabis industry will be a tailwind. The first litmus test for this was Ohio. The state put a ban in place for hemp-derived products a couple of months ago, and the most recent month is showing a 30%-35% increase in revenue, an increase in sales across the state. Not all of that is due to the hemp restrictions. Some is due to some regulatory changes, a ramping up of an adult use market. A meaningful portion of that growth is directly related to the clampdown on hemp products, and you're seeing it happen across the country.
That's another tailwind for our industry. What does all that lead to? It leads to normalized access, and here's where we really get to the mover for NewLake, normalized access to capital markets. Many of you here, as you're investing in equities, you're doing it through a broker-dealer. Some of you may have a prime broker. The institutional investment community all utilizes prime brokers. There is a don't buy list that exists for marijuana-related businesses, MRBs. That list has hundreds of companies on it for both bonds and equities, and it says, "Do not custody marijuana-related business stocks and bonds unless they're traded on the New York or Nasdaq Stock Exchange." In essence, outsourcing compliance to New York and Nasdaq. For us and for most of our brethren in the cannabis industry, we're on the OTC.
Some cannabis companies trade up on the CSE in Canada but don't have regular way access. Even though we comply in all respects to trade on New York or Nasdaq, they won't have us because our tenant base is illegal. As I talked about, over time, it becomes legal. Once you open up the institutional investor base for the cannabis industry, you'll see recapitalization of balance sheets. You'll see a healthier risk profile for the cannabis sector. You'll see greater access to capital. For us, up-listing unleashes the opportunity for us to attract institutional demand for our stock. Institutions that see a 12% dividend yield recognize that we have a virtually unlevered balance sheet.
Let me just say, for those not familiar with REITs, when you see a 12% dividend yield, usually one of two things institutional investors say: Number one, you have a debt problem, or number two, you have a terrible portfolio, and both of those will lead to a cut in the dividend. I do wanna examine that quickly. Number one, we don't have a debt problem. We have net cash on the balance sheet, $435 million of assets, $7 million of outstanding debt, $24 million of cash. It's not a debt problem. We have virtually no debt on our balance sheet. Number two, maybe you have a terrible portfolio. Three vacant properties available for lease in the 1st quarter, carrying those fully the cost of those properties. You ended up having a 90% payout ratio.
That means that 90% of our free cash flow was utilized to cover our dividend. Our dividend is well covered. Most of our competitors that are in this business don't have enough cash flow to cover their dividend. Our portfolio has held up a lot better than our competitors, I'd put it up against mortgage REITs, equity REITs, or lenders to the sector. You have a safe dividend with a growing portfolio, we think institutional investors will look at that mix, they'll say that dividend yield is highly attractive, they'll start valuing our company based on the quality of our portfolio. I just wanna go through a couple of more slides very quickly. Cannabis is a growing industry. Think of it this way. We had a lot of hands raised at the beginning.
Most people that raised their hands probably bought their product from an illicit channel at some point in their life, and maybe you're now buying it in the legal channel. The U.S. cannabis industry is over $100 billion, but roughly $70 billion is in the illicit channel. This isn't creating a new product. It isn't creating a new consumer. It's about converting those sales into the state legal channel, and there's many catalysts to do that in terms of new states adopting medical programs, medical states adopting adult use programs, and adult use programs scaling up. What really drives cannabis growth over the next decade is this chart here. This is daily and near-daily reported use of cannabis versus alcohol. You can see this is a younger cohort.
Younger people are turning to cannabis as an alternative to relax and unwind more so than alcohol. We think this trend will continue, and that'll fuel additional growth in the industry. Where do we get growth, speaking of growth? Four areas. One, rent escalators. 2.6% annual rent escalators are built into our leases, so we collect rent, our revenue grows. Number two, on projects where we've committed capital to improve properties that we've purchased for tenants, we charge rent as soon as we deploy that capital. We're at a low point right now with 375. As that money goes out, we charge rent immediately. Number three is our leasing pipeline. We have 240,000 sq ft of available leasing space. As we lease up that property, that'll not only eliminate the carrying costs, but it'll add revenue to the top line for NewLake.
Then fourth is utilizing our $90 million credit facility to fund new transactions. I'm gonna stop there 'cause I'd much rather have time for Q&A. Let me open up the door for Q&A. We have one here.
What do you think the current premium for a cannabis tenant versus a regular market tenant? If there is a premium, which I assume there is, what will happen if it becomes legalized and you get the potential backlog of these?
The question was, what's the premium rent for a cannabis tenant versus non-cannabis, and what happens upon legalization? It depends on the market, but it's anywhere from 300 basis points to 500 basis points, and it depends on the type of property, retail versus industrial. Because the industrial properties for cultivation are developed with power and water and modifications inside that are akin to a lab space, it's a higher premium for us to recover our cost and make our return versus a retail property. Second part of your question, what happens if there's legalization? No adjustment in the price. There's nothing built in that says that the lease rate adjusts down. Where does it go in a You're telling me slow. Am I speaking too fast?
No.
No, I'm just kidding. Going forward, it's going to be a matter of who's willing to provide capital to this industry. I think we'll have a premium rent even on our new transactions. When we look at our pipeline right now, we're persisting with premium rental rates.
Even the medical cannabis companies, like when they go for renewal, they're paying the same high premium?
The question was, even when they go for renewal, will say they pay the high premiums. Renewal, yeah. On renewal, we will be probably repricing, but it's gonna be a function. It's not entirely market driven because if you have a cultivation facility where you've invested millions of dollars of equipment as a tenant and people and training, it's not easy to just up and move that facility somewhere else, buy all new equipment, train another 150 people and get that business to cash flowing. We do have some leverage in those. With the long duration, weighted average remaining lease term of 12 years, those conversations are out into the future. One relevant point was we had one of our dispensaries from a troubled tenant move to a very healthy tenant.
We obtained a five-year extension with no rent concession. I think that's a statement about the quality of that property and the ability of that property to generate cash flow for the tenant. They were willing to do a five-year extension with no increase with no decrease in rent. Question.
I have two questions. One is, are your escalators CPI linked? The second question is, how much churn or turnover do you see? Like are these small, like startup cannabis companies? You know, like the 11-year lease term, how does the credit quality compare?
Yeah, good question. The first one was What was the first?
CPI linked.
CPI linked escalators. We only have one or two leases that are CPI linked. Most of them are fixed increases, which average out to 2.2%, 2.6%. In terms of your second question regarding credit quality of the tenant base, our top three tenants are Cresco, Trulieve, and Curaleaf, three of the top companies in the world. Curaleaf is the largest cannabis company in the world. They have international operations, Canada, Europe, U.S. Trulieve is one of the highest margins in the industry, one of the better balance sheets in the industry. I do have a page. There we go. Cresco is another one of the leading operators in the industry. We don't focus on startups because it's too difficult in this industry to start up. We like to focus on, operators that are experienced, but also in limited license jurisdictions.
There's a competitive advantage to be in limited license jurisdictions. Number one, with fewer licenses, less competition, better margin, better cash flow, better ability to pay rent. Number two, in those jurisdictions, the license is typically attached to the property. You know, for some of you in states where you have licensed liquor stores, that liquor store has been in the same place for decades because that license generally runs through the property. That's protection for our properties. Question.
Any concentration with a particular tenant from a revenue perspective? Just like IIPR had PharmaCann as one of the largest tenants, and then you took a hitting after that. Anything with?
Yes. Question is any concentration. You could see here Curaleaf at 25% is our largest concentration, and Curaleaf, again, being the largest global operator in cannabis.
Yep. 50% of our annualized base rent is Curaleaf, Cresco, and Trulieve. You know, one other comment I'd make is it's not a, for the older people, Ronco something-a-matic, and you name the product, it was set it and forget it. That's not what we do. We do a lot of active portfolio management looking to upgrade tenants. We monitor cash flow profiles at our properties because Good cash flow for the tenant is a great indicator of their ability to pay rent. Where we see weakness, we work with the operator to mitigate that risk, and we've done that a number of times.
Okay.
Question here.
Are these all triple net leases? What percentage of the portfolio is currently leased?
Question, are these triple net lease portfolios? Yes, these are triple net lease, all of our leases are triple net, which means all of the operating costs of the properties are on the tenant. They pay for lawn mowing, snow plowing, maintenance on the building, sweeping floors. All of the building maintenance, property taxes, insurance are all borne by the tenant. In terms of our properties, I had said of the 34 properties we own, three are vacant right now.
Okay. Thank you.
One more. Come on. Let's fill up the last 20 seconds.
How long have they been vacant? What's going on?
One property came back to us August last year. The other two were September of last year. Well, one was July. The other two were September. We have active dialogues going with people on all properties. I can't project when we ultimately re-tenant those properties, but we're actively looking at tenant opportunities. Thank you, everybody. Really appreciate your time.