Good morning, and welcome to the NewLake Capital Partners Third Quarter 2026 Earnings Conference Call. Today's call is being recorded. I will now turn the call over to Valter Pinto, Investor Relations. Please go ahead.
Thank you, operator, and good morning, everyone. Welcome to the NewLake Capital Partners Third Quarter 2026 Financial Results Conference Call. Joining me on the call today are Gordon DuGan, Chairman, Anthony Coniglio, President and Chief Executive Officer, and Lisa Meyer, Chief Financial Officer. Before we begin, please note that certain statements made during today's call may be considered forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including our guidance for full-year 2026 AFFO. Actual results may differ materially due to a variety of risks and uncertainties. For a more detailed discussion of these factors, please refer to the company's filings with the Securities and Exchange Commission, including our Form 10-Q for the quarter ended September 30th, 2026. During the call, we will also reference non-GAAP financial measures, including FFO and AFFO.
Reconciliations to the most directly comparable GAAP measures are included in our earnings release. With that, I would now like to turn the call over to our chairman, Gordon DuGan.
Thank you, Valter, and good morning. NewLake continues to deliver solid financial performance for our shareholders. Third quarter revenue and AFFO were in line with expectations as we continue to successfully close new transactions and make meaningful progress on risk mitigation of our portfolio. year-to-date, we have collected 99.7% of contractual rent, and our dividend remains well covered at an 88% AFFO payout ratio. We are pleased with these results, particularly given the continued volatility and distress in parts of the cannabis industry. Where tenants have faced difficulties, our team has worked hard to find solutions that limit rent disruption and protect cash flow for our shareholders. Those efforts have helped NewLake deliver stable performance, though work remains in a limited portion of our portfolio. So far in 2026, we have re-tenanted or signed new leases at properties previously leased to The Cannabist Company, PharmaCann, and Acreage.
In most cases, a new operator assumed the existing lease with no interruption in rent payments. Those outcomes reflect the quality of our real estate and our team's commitment to working through tenant challenges. On the regulatory front, the industry is at an inflection point. Earlier this year, state-licensed medical cannabis moved to Schedule III, a historic first step. We expect the DEA to complete its rulemaking to move all cannabis to Schedule III, and the federal closure of the hemp loophole is scheduled to take effect in December. Together, these changes set the stage for a much healthier regulatory environment for the industry, with relief from the Section 280E tax burden, improved operator cash flow, and a more level playing field for licensed operators against unregulated intoxicating hemp products. A stronger tenant base supports the durability of our rent and creates new opportunities for NewLake to deploy capital.
Looking ahead, NewLake is very well positioned. During the quarter, we repaid the outstanding balance of our credit facility, and today, NewLake is one of the only, if not the only, publicly traded REIT with a debt-free balance sheet. With an available credit facility to fund near-term investment opportunities in our pipeline and an 88% AFFO payout ratio, we have the financial flexibility to grow while continuing to support our dividend. With that, I'll turn the call over to Anthony.
Thank you, Gordon, and good morning, everyone. We delivered a steady third quarter with revenue and AFFO consistent with the second quarter. As Gordon mentioned, we repaid our credit facility during the quarter and now have an unlevered balance sheet. We also extended the facility's maturity to 2029 and reduced its pricing by 100 basis points, which preserves low-cost capacity to fund our pipeline. At the same time, we continue to make progress at properties leased to tenants in court-supervised restructurings or facing financial distress while adding new properties to our portfolio under long-term leases.
Let me start with The Cannabist. As we've discussed, The Cannabist has been working through a court-supervised process in Canada. We lease four properties to The Cannabist, a dispensary and cultivation facility in Illinois, and a dispensary and cultivation facility in Massachusetts. In Aurora, Illinois, The Cannabist's operations are being acquired by a new operator.
We have entered into a lease agreement with the acquirer and a lease termination agreement with The Cannabist, both of which take effect when the acquisition closes, which is subject to customary regulatory approval. Pending closing, The Cannabist's security deposit for this property was applied to September rent. At our other three Cannabist properties, we continue to receive full contractual rent, which has been paid through November, and we hold approximately one month of security deposits across these properties. In July, Vireo Growth Inc. announced an agreement to acquire certain assets of The Cannabist in five markets, including Illinois and Massachusetts. We are actively engaged with The Cannabist and other parties to minimize the potential for rent disruption at our properties, and we will provide updates as we have more definitive information to share.
Turning to PharmaCann, since our last call, Cresco Labs completed its acquisition of PharmaCann's Pennsylvania dispensaries, including the operations at our property, and the lease is now guaranteed by Cresco. At our other two PharmaCann dispensaries, we are working with the company as it pursues a potential transition of the operations to a new operator, and all rent remains current. Next, I will turn to our investment activity. We have closed three dispensary acquisitions since the beginning of the third quarter, all leased to our existing tenant, C3 Industries, under long-term leases. During the third quarter, we closed an acquisition in Kentucky, which we discussed on our last call. Subsequent to quarter end, we closed acquisitions in Michigan and Kentucky. The Michigan property is our first investment in the state, and for years, you have heard us express hesitancy about unlimited license states like Michigan.
Well, we have watched that market closely, and it has matured. Much of the price compression has already played out, and the operating environment is more stable today, which gives us a better basis to underwrite transactions there. This property also benefits from a region that has limited licenses and is operated by C3, a tenant we know well and whose performance in Michigan we have observed for years. Our three properties available-for-lease continue to be actively marketed, and as always, we will announce new leases once agreements are signed. Turning to the regulatory environment, the broader rescheduling process remains ongoing. The administrative law judge stay has expired as of today. On November 2nd, the DEA began issuing its first federal registrations to more than 900 state-licensed medical Cannabist dispensaries across seven states, marking a significant step in the implementation of the federal government's Schedule III framework.
While it is hard to predict the exact timing of full plant rescheduling, the recent briefings and proceedings reinforce my confidence that Cannabist will indeed be moved to Schedule III. On hemp, the federal redefinition of hemp is scheduled to take full effect on December 11th, eliminating intoxicating hemp products that have competed with state-legal Cannabist products. Congress extended that date from November 12th in the last continuing resolution, and we have seen little appetite among legislators to extend it again. Similar to what we are observing in Ohio, where a state ban took effect earlier this year, we expect the restriction to support sales growth across our tenant base. Tuesday's historic election results could have a meaningful impact on the Cannabist industry.
As we all saw, Massachusetts voters rejected Question 8, which would have repealed adult-use sales in the state, and we are encouraged that this first attempt to reverse cannabis legalization has failed. Pennsylvania's state senate will be controlled by Democrats for the first time in 32 years, and it sets up the real opportunity for adult-use reform in the Commonwealth during 2027. We are also encouraged to see reform-minded candidates win in Texas, Wisconsin, and in Iowa. Nationally, Democrats are squarely in the driver's seat in Congress for the next two years, with control of both the House and the Senate. For the Cannabist industry, that could create an opportunity to move legislation forward, but we have all been here before. Cannabis banking reform has had bipartisan support for years, yet under majorities of both parties, Congress has been unable to get it done.
The House passed the SAFE Banking Act seven times, and the Senate Banking Committee approved it in 2023, but it's never received a vote on the Senate floor. What may be different this time is the makeup of the incoming Senate. Key committee gavels are expected to move to members who have supported cannabis reform, and the new Senate should include more senators who support reform than the outgoing class. We will await any sort of commentary out of this group to have any sort of expectation for legislation to pass. Finally, I'd like to address uplisting, as it's a topic that comes up regularly on our quarterly calls and with my meetings with investors. Following Trulieve's restructuring into a medical-only company and its New York Stock Exchange listing in June, we evaluated options for uplisting the approximately 50% of our portfolio that is leased to medical-only operations.
Given the cost and the time required to execute such a structure and our expectation that full rescheduling will happen, we concluded it was not worth pursuing at this time. We view rescheduling as a strong potential catalyst for uplisting, and NewLake continues to satisfy the New York Stock Exchange and NASDAQ listing requirements, other than the exchanges' restrictions on cannabis-related businesses, and we intend to be well-positioned to move forward when the regulatory environment permits. With that, I'll turn the call over to Lisa to review our financial results in more detail.
Thank you, Anthony, and good morning. For the third quarter of 2026, total revenue was $12 million compared to $12.6 million in the prior year period. Net income attributable to common stockholders totaled $4.2 million, or $0.20 per diluted share. Funds from operations totaled $10 million, or $0.47 per diluted share, and adjusted funds from operations totaled $10.3 million, or $0.49 per diluted share. For the nine months ended September 30, 2026, total revenue was $36.4 million compared to $38.7 million in the prior year period. Net income attributable to common stockholders totaled $15.8 million, or $0.70 per diluted share. Funds from operations, or FFO, totaled $29.6 million, or $1.41 per diluted share. Adjusted funds from operations, or AFFO, totaled $30.7 million, or $1.46 per diluted share.
The drivers of the year-over-year results were generally consistent for both the three and nine-month period ended September 30, 2026. Revenue and AFFO were primarily impacted by three cultivation facilities available-for-lease in Pennsylvania, Nevada, and Massachusetts, which reduced rental income and increased property carrying costs. The impact was partially offset by annual contractual rent escalators across the portfolio of approximately 2.6%, rental income from the two Ohio dispensaries acquired in 2025, including rent associated with funded improvement allowances, and rental income from the Kentucky dispensary acquired in August of 2026. As Anthony discussed, during the quarter, we entered into a lease termination agreement with The Cannabist at our Aurora property.
In connection with the termination agreement, we recognized approximately $100,000 of rental income from The Cannabist security deposit in September, and $1.9 million of accelerated amortization of an in-place lease intangible associated with The Cannabist lease at Aurora, reducing net income for the period. While net income was reduced by approximately $1.9 million, the accelerated amortization is a non-cash charge and is excluded from both FFO and AFFO. On September 14th, 2026, our board of directors declared a quarter cash dividend of $0.43 per share, or $1.72 per share on an annualized basis. The dividend was paid on October 15th, 2026, to stockholders of record as of September 30th, 2026. This represents an AFFO payout ratio of 88%, which remains within our target range of 80%-90%.
It is important to note that the earnings power of our portfolio continues to fully support our dividend. Turning to the balance sheet. At September 30th, 2026, gross real estate assets totaled $433.8 million, and we had $17.9 million in cash and cash equivalents. During the quarter, we repaid $7.6 million outstanding on our revolving credit facility and ended the period with no outstanding debt. In August, we amended our $90 million revolving credit facility, which reduced our interest rate by 100 basis points and extended the maturity date to May of 2029. The facility remains available to fund future investments. Between our third quarter dispensary acquisition and the two properties acquired subsequent to quarter end, we had approximately $3.3 million in unfunded commitment for property improvements. As these funds are deployed, they will earn incremental contractual rent, representing embedded organic revenue growth.
Additionally, in November, our board of directors authorized an extension of our stock repurchase program through December 31st, 2028, with approximately $8.2 million currently remaining available under this program. Overall, our results for the quarter were in line with expectations. With no debt, a strong cash position, and available credit capacity, we believe we are well-positioned to pursue attractive opportunities as the regulatory environment for cannabis continues to evolve. Operator, please open up the line for questions.
Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from Pablo Zuanic from Zuanic & Associates. Please proceed with your question.
Thank you, and good morning, everyone. I appreciate the color you gave on The Cannabist and PharmaCann properties. Can you give an update on Acreage and remind us of the structure of the guarantee there from Canopy USA? Thanks.
Yes. So, good morning, Pablo. With Acreage, we started a couple of years ago with three properties that we leased to Acreage. One of those was acquired by a business that is now guaranteed by GTI. That was a dispensary in Connecticut. Earlier this year, there was a transaction with Acreage's Pennsylvania cultivation facility. That transaction is now guaranteed by Holistic Industries. And we have one property left in Sterling, Massachusetts, that is a cultivation facility that is directly leased to Acreage. We have a parent guarantee from the Acreage parent, as well as a guarantee from Canopy USA. Canopy USA being the holding company that holds Canopy Growth's U.S. operations, including their common stock investment in TerrAscend, as well as Wana, Jetty, and then all of Acreage.
In terms of Acreage, what we know about Canopy USA is that Canopy USA, per the Canopy Growth disclosures from earlier this year, was in default of its credit agreement and was seeking a stay of that until January of 2027. It continues to pay rent, it continues to be current, and we know that the company is looking at strategic alternatives, and we are obviously looking at what they intend to do with our facility and what our options are if they decide that that is a facility they want to either monetize or move away from.
Thank you. In terms of the vacant properties, I think they are all cultivation, right? The two from Ayr, Nevada and Pennsylvania, and Rev Clinics in Massachusetts. Again, if you can provide an update on that. I think the one in Massachusetts, is that being marketed for The Cannabist Company or for other uses? And the same question for the ones from Ayr. I mean, you would think that in the case of Pennsylvania, there may be more interest in that property now from a cannabis perspective. Any color would help. Thanks.
Yes. I would say that since the rescheduling announcement in April, we have seen an uptick in activity across all the properties. With Massachusetts, there was, I would call it a bit of a pause on the part of some of the folks that were looking at that property recently because of the repeal vote that was on the ballot. Now that that was resoundingly rejected by voters on Tuesday, we are going to continue to show that, and I think we will only see continued interest for parts of that property.
I should say, though, Pablo, we do not exclusively show properties only for cultivation. We are always showing properties to cannabist companies as well as industrial companies. You are absolutely right that in Pennsylvania, with the flip of the State House there and the flip of the Senate, that you will absolutely see interest, and we have seen continued interest in that property in Pennsylvania.
In Nevada, strong interest in that property from non-cannabis companies, as well as a couple of cannabist companies as well. All said, we are seeing decent flow of interest to all three of those properties. We have said in the past that we will only announce signed leases for available-for-lease properties. We do not want to go announcing term sheets because term sheets come and go, but leases are durable. When we have a signed lease, we certainly will update our shareholders.
Thank you. Just a couple of more questions, maybe one for Lisa. I mean, in terms of modeling for Q, obviously you talked about the properties, the new properties of Ayr and so far in fourth quarter, but is there anything, in terms of moving parts, anything we should keep in mind on the negative side, especially higher costs in the fourth quarter? Any color you can give there? Thanks.
I think the costs will pretty be constant quarter- over- quarter. I do think you are going to see a modest decline in income related to the Aurora lease. So, there will definitely be a modest decline in income there.
No, that is good. Anthony, I mean, of course, totally agree with all the good news at the state level, right? You mentioned Wisconsin, and there are other states there, and let us see what happens in Texas and, of course, Pennsylvania. More in the near term, can you talk about any states where you are seeing more action, more inbound calls, people looking at expansion, whether it is Ohio on the cultivation side or maybe Virginia or Minnesota? Anything you could, if you can give more color, not so much on stores, but cultivation inbound calls in the near- term. Thank you.
We are not getting many calls for brand new builds on cultivation. I think this industry, Pablo, continues to be hesitant to take on significant CapEx projects. I think if we were to see that, it would be in a Texas or in a Georgia, and we are just not seeing that yet in our pipeline. We are seeing people that have existing cultivation facilities looking to monetize those to generate growth capital, non-dilutive growth capital, and that is happening across cultivation as well as the retail properties.
The very last one-
I guess Pablo, though, I am sorry, Pablo.
-Go on.
I realize I did not answer your specific question. No, there is no specific state that I would say is driving an outsized portion of our portfolio. We have, in the last quarter, seen opportunities that span the country in, I do not want to say every state where cannabis is legal, but probably across at least half of them. Some of the very mature states. You saw us execute a transaction in Michigan, which is a very mature state, and execute a transaction in Kentucky, which is a very new state. There is not a theme that is emerging in our pipeline yet about a concentration of opportunities in any one particular state.
Right. The very last question, I know we've talked about this in the past, but given the favorable regulatory tailwinds and potential for more capital to be available for the industry, maybe on the private side or even from banks, I think at the Blank Rome conference recently, some banks made some positive comments. Is that a new source of competition for you? Are people thinking about sale-leaseback in a different way, or it's just par for the course and normal? Thank you.
No. I mean, Pablo, few companies have less competition nearly eight years after they started, but we're one of them. It's hard for us to find someone that's executed a new sale-leaseback in this industry, for The Cannabist industry over the last couple of years, outside of local landlords, but nobody in a national scale really that we see competing for sale-leasebacks. With respect to banks, I think that banks will first provide capital to a professionally managed diversified portfolio of commercial real estate, a portfolio such as NewLake's, before they go into direct lending to cannabis operators. So, as this industry gains more access to capital markets, I think that inures to our benefit.
In fact, if you look back when we announced our $90 million credit facility over three years ago, we were one of the first ones to have that type of large-scale facility in this industry. Again, I think it's because we are professionally managing this portfolio of commercial real estate that has diversification and professional underwriting of tenants that, in my opinion, a group that knows this industry as better as anybody that underwrites the industry. I think banks will be slower to not only come into the sector as normalization occurs, but to enter into direct lending to the industry.
Pablo, I would just add that our cost of capital as a REIT that doesn't really employ a lot of leverage is much higher than it would be if we were a regular way REIT with a regular market listing, the ability to issue securities off an ATM to regular way institutional investors and have access to debt markets the way companies listed on the New York Stock Exchange and NASDAQ do. We've been very conservative with our capital structure, which means we have a high cost of capital. We expect that normalization will significantly decrease our cost of capital and allow us to be more competitive and grow our portfolio and compete with other capital sources for this industry.
Yeah. Thank you. That is good color. Thank you.
We have reached the end of the question- and- answer session. I would like to turn the floor back over to Anthony Coniglio for closing comments.
Thank you, everybody, for joining us today. We hope you have a great end of the year, and we look forward to talking to you again in the first quarter. Thank you.
Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. You may disconnect your lines, and have a wonderful day.