Okay, we are ready for our next presentation, so please give a warm welcome to the stage, CEO of NewLake Capital Partners, Anthony Coniglio.
Thank you. Good morning, everybody, and thank you for joining us today. NewLake Capital Partners, we are the second-largest owner of cannabis real estate in the U.S. We are a real estate investment trust. Our business model is pretty simple. We buy properties from and for cannabis operators, and we lease them out on a long-term basis back to those cannabis operators. We collect rent on a monthly basis, and we pay out a quarterly dividend. Let's get into it, and I really prefer getting more to a Q&A and answering questions, so I am going to move through this pretty quickly and leave plenty of time for Q&A. Why would one invest in a real estate REIT focused on cannabis? Well, we provide an above-market yield with long duration on our portfolio. We were one of the early movers into this sector.
Think of it as a picks-and-shovels play on the cannabis sector. Let's do audience participation. How many people in the room have actually invested in or around the cannabis sector? One. How many people have made money investing in or around the cannabis sector? Oh, well, that is unusual. Congratulations, you are one of the few. That means you sold out earlier. It has been a very difficult sector for people to make money in. One of the things that differentiates us, having been in and around this sector for over seven years, is we have a tremendous amount of free cash flow, and we pay a dividend, which is fairly unusual for companies, not only at this conference, but in and around the cannabis sector. Our team has been experienced, not just in cannabis real estate, but really, it is how we organized our company seven years ago.
It is a combination of real estate experience, cannabis experience, capital markets experience, that I think has allowed us to deliver the outsized performance that our portfolio has had relative to competition. We do have a quality portfolio. We have announced that year-to-date, we have collected 100% of rent across the contractual rent across the portfolio. And I would put our portfolio up against any other landlord, lender, or private equity firm that focuses on the sector. Our focus in paying attention to cannabis and deploying capital into the sector is the belief that we are in a long-term growth trend for this industry. I think it is flat-lined here for a couple of years. We will talk about why that is.
I think that those catalysts are going away, and we are going to get back to significant growth in this sector and a significant CapEx cycle, which drives opportunity for us to deploy capital, grow revenue, and grow our dividend over time. Conservative balance sheet, I challenge you to find a REIT that has less debt than we do, and that is because we have no debt. I just want to say that again, for folks that focus on real estate investment trusts, we have zero debt today. We have been funding our acquisitions with equity and with internally-generated revenue. We have had a slower growth environment over the last three years. As the landscape in the cannabis sector has become more difficult, we have been thoughtful about pulling back on investment while navigating that uncertain environment.
We are under-levered, and over time, we will look to utilize our available credit facility to be able to grow the business without diluting shareholders. We are not here because we are raising capital, we are here raising awareness, and with that unlevered balance sheet, we have plenty of opportunity to grow the company. Attractive relative to peers, I think when you look at a company like ours with a 13% dividend yield, people say, "Wow, that is a phenomenal dividend yield, but wait a minute. Usually, a high dividend yield on a REIT means that there is a couple of problems.
It means either you have a terrible portfolio or you have a leverage problem and you are on the precipice of having to cut your dividend." While most net lease REITs have a dividend yield of anywhere from 4.5%-6%, us with a 13% yield does send up a red flag until you look under the hood. When you look at our company, as I said, it is either usually a debt problem or a portfolio problem. With zero debt, it is clearly not a debt problem. Maybe it is the portfolio. 100% rent collected year-to-date and an 88% AFFO payout ratio, it is not a portfolio issue. Then why are we trading here? That has to do with custody. It is a longer conversation I am going to touch on in just a few minutes.
Just keep that in your head, that this is a story about custody and about access to capital, not about a valuation problem. Some quick numbers. Again, we are seven years old, having focused on the cannabis sector exclusively over that time period. We have 35 properties across 13 states with 13 tenants. When you look at our portfolio, typically in a real estate portfolio, you want to see diversification. Any portfolio, you typically want to see diversification. You will see concentration here. I do not want you to think that that is a bad thing, because in the cannabis industry, these days, you want to be concentrated in the best credits. In fact, one of our competitors had a more highly diversified portfolio, but roughly 40% of their portfolio is in default.
You can get diversification, but I think diversification in this instance actually carried much more significant risk. Our top three tenants, Curaleaf, Trulieve, and Cresco, are some of the top three companies in the industry today. We have a long-duration portfolio, nearly 12 years of remaining weighted average lease term. We have duration with above-market yield. I want to point out the 13% weighted average yield on our portfolio. That means that the properties that we have rented are yielding to us 13%. Whereas for industrial properties, maybe a cap rate, maybe that property would yield anywhere from 6%-8%, depending on the market. For a retail asset, anywhere from 4%-7%. We get premiums on our rent because these facilities are on the cultivation side, of which we have 15 cultivation facilities, are purpose-built, specialty-designed properties for indoor agriculture.
When I say cultivation facility, I want you to think of a 50,000-100,000 square foot industrial building that has HVAC, dehumidification processes, significant water capacity in order to have indoor agriculture activities, and significant power to power the numerous lights, hundreds and hundreds of lights that are deployed in these facilities. Our other 20 properties are dispensaries. You could think of those as a 2,000-3,000 square foot pad site that can be retail for any particular industry. I do also want to note the G&A ratio in our business. While yes, we have significant free cash flow and we have significant yield, it's also about making sure we manage expenses. Anybody that looks at our G&A and our company, it's been fairly flat over the last four or five years. We work pretty hard to manage our expenses.
Very quickly, when you look at the business, as I said earlier, we recognize that this industry isn't just about real estate. It's also very much about cannabis. We have people that represent not only the net lease REIT industry, but the cannabis industry, as well as the financial services industry. We've been able to utilize and institutionalize a lot of this experience to develop what we think is one of the best underwriting programs in the industry. I do want to talk a little bit here about, or a lot a bit, about what's happening in the sector that's creating a stacking set of tailwinds for the industry and thus our company. Number one, and most importantly, earlier this year, the federal government rescheduled cannabis from Schedule 1 to Schedule 3, and that carries a lot of benefits.
Just to remind everybody, for those of you not ingrained in the Controlled Substances Act, Schedule 1 would be heroin, and Schedule 3 would be Tylenol with codeine. Cannabis has been Schedule 1 with heroin for decades and decades and decades, over 50 years. It's monumental that the Department of Justice and the DEA rescheduled medical marijuana to Schedule 3. What are the benefits of that? There is this little-known tax code, 280E, which says, it's in the IRS code, it says that if you sell a Schedule 1 or Schedule 2 substance, you cannot deduct on your tax return, you cannot deduct any expenses below cost of goods sold. Therefore, this industry has been paying effective tax rates of 50%-60%, in some cases, 70%. Just think about that.
With the elimination of 280E by moving to Schedule 3 for these medical businesses, they become more profitable. Looking forward, they will have better cash flow and better profitability. Our entire portfolio, 50% of our properties are medical, the other 50% are dual use, adult use and medical. 50% of our portfolio, or all of our tenants, 50% of the properties, had an immediate upgrade with this one federal action. If you notice, I keep emphasizing medical marijuana. There is a continued process that the DEA has to reschedule all of marijuana, and that would be adult use products. That process was reinvigorated. It was started under the Biden administration, stalled a bit. Donald Trump signed an executive order in December last year ordering the Department of Justice to expedite the rescheduling. They did reschedule medical, and they resuscitated the rescheduling process for adult use cannabis.
We think that concludes in the fourth quarter or the first quarter of next year, then extending those benefits, those tax benefits, to all of cannabis. The other thing that has occurred is better access to capital for medical providers. When they rescheduled cannabis, they afforded companies that are in compliance with state law DEA registration numbers. That makes those businesses, those medical marijuana businesses, federally legal. It is as if it is a Starbucks or a Home Depot, and that means better access to capital. In fact, we have had two companies in the industry get up-listed to the New York Stock Exchange since this rescheduling announcement occurred, and we expect the rest of the industry to follow suit, including NewLake as rescheduling for all of cannabis is concluded. Let me move to the center here. Hemp restrictions. Hemp was legalized in the U.S. in 2018.
Hemp was not legalized to provide intoxicating products to U.S. citizens. It was intended to be focused on textiles, hempcrete, fibers, and it was driven by Mitch McConnell to support Kentucky farmers. Well, enterprising people figured out that you could take hemp and you can synthetically create THC from it because hemp and cannabis are the same plant. One has a naturally occurring chemical reaction to create THC, the other does not. So they figured out a way to use this federally legal plant to create intoxicating products, and they have proliferated across the U.S., unregulated, untested, and most importantly, not even age-gated. A 14-year-old could walk into a gas station in North Carolina and buy a THC product, and in my opinion, that is just wrong. This is going away. December 12th. It says here, November 12th, there was an extension for 30 days in the last continuing resolution.
In December, it goes away. This industry has siphoned off sales from the state legal market. If you look at Ohio banned intoxicating hemp products early this year, and operators are seeing a 5%-30% boost in top-line revenue as that consumer behavior shifts from those intoxicating hemp products into the state legal dispensary sector. What is that doing? That is growing top line at the same time that you have better tax rate, and you have better access to capital. So we do have a stacking set of tailwinds. The industry is growing. When people say, "What is the growth rate on cannabis?" I did mention earlier, the cannabis industry somewhat flat-lined over the last couple of years, and we think it was driven entirely by this hemp market that was created in 2018, but really did not come to the fore until 2021, 2022.
As we see hemp recede, we are going to see this industry get back to growth, but it is not about creating new consumers. If you look at the market today in the U.S., estimates are over $100 billion cannabis market in the U.S. But there is only about a third of that in the legal channel, in the state legal channel. This is about converting sales from the illicit channel into the state legal channel, and that is going to be part of fueling growth for this industry. Notably, two large states, such as Georgia and Texas, only until recently had very, very tiny medical marijuana products programs. Both states have expanded those programs, and we expect that they also will be driving growth for this industry over the next few years.
With that growth in the industry, that drives growth opportunity for NewLake because each state has its own structure. Given the federal laws, even at a Schedule 3, interstate commerce is prohibited. So you have to have your entire ecosystem replicated on a state-by-state basis, thus providing opportunity for real estate investment for NewLake. What is also going to fuel growth long term is this demographic shift that is occurring here on the right, where we are seeing more and more consumers utilizing cannabis products to have that relief valve or to seek a mind-altering moment rather than using liquor or beer. This is a trend you hear on earnings calls for the liquor companies and the beer companies, and it is a clear trend that we think is going to continue.
You could also see that a significant portion of the population already has access to cannabis-related products on a state-level basis. We think all of this continues to fuel growth in the years to come. Speaking of growth, where do we get our growth? Four key areas. Annual rent escalators. All of our leases provide for an escalator in rent every year, so we collect rent. Across the portfolio, on average, 2.6% increase in rent. Number two, when we execute a transaction, we will purchase a property or a building, and we will typically provide a commitment to fund improvements to that building. We are at a bit of a low point right now with $1.5 million of commitments, but as that money goes out, additional revenue is charged right away and is booked. Number three, we have three properties available for lease.
We have been carrying those properties and having those expenses in our P&L. As we lease those properties, we not only grow revenue, but we reduce expenses from the carrying costs for heat, electric, maintenance. Number four is new transactions. We did close a new transaction. We acquired a Kentucky dispensary in August. As we were talking about the growth of the industry, more of a CapEx cycle, there will be opportunities for us to utilize our credit facility. Speaking of our credit facility, we recently extended our credit facility out to 2029. Thank you, Lisa, our CFO. Out to 2029, and we lowered our borrowing costs by 100 basis points. Instead of prime plus one, we are at prime today.
If you actually think about my statement earlier about the quality portfolio, our banking partners obviously are speaking in terms of their balance sheet, providing capital access to us at a cheaper rate than we booked it 3 years ago. We talked a little bit about diversification. I'm going to move a little quicker so we can get to Q&A. We focus on limited license jurisdictions. That's where states like a New York or a Connecticut or a Pennsylvania, where it's more difficult to purchase beer or liquor or wine, unlike California, where it's a lot easier to purchase those products. Limited licenses, and you can see here in the center chart, for example, Oregon has well over 1,000 licenses, but Pennsylvania is only 33. Less competition, better margins, better profitability, better risk profile, better durability of our properties.
Then lastly, before I open it up for Q&A, one of the key metrics we track is what is the EBITDA coverage? That's EBITDA plus rent across our properties. To me, this is one of the best indicators of a tenant paying rent. Because if a property isn't cash flowing for a tenant, they're less likely to pay you rent. But if they're cash flowing, they're more likely to continue to pay rent and to keep that facility going.
You could see that the EBITDA across our entire portfolio, that's retail and industrial, is well above what you're seeing in other groups. Four Corners Property Trust at 5 times is an entire retail portfolio. If we put just our retail up there, we'd be north of Four Corners Property Trust. I'm going to put a page up here, but I'd love to open it up for Q&A. See if we have any questions in the room. No one's going to ask if we have samples? It's usually a question, which we don't. Go ahead.
You see the target markets that have tight licensing control. So you think you'd see more growth in Pennsylvania and Texas? What are you thinking about number-wise?
Yes. The question is, what do we see for growth across our portfolio? We don't provide guidance in terms of growth. We're not at that point. Your comment about growth in Pennsylvania is a mature medical market. It does have adult use on the horizon. The state has been unable to create an adult use program yet between the governor and the legislature. But that is a very well-penetrated medical market, roughly about 4% of adults in Pennsylvania purchase cannabis products, and that's a pretty well-penetrated market. Like a Florida is another very robust medical market, approximately 4% of that market purchasing medical products.
Sorry, Kevin, additional. Is Ohio about to pass legal recreation?
Ohio has adult use.
Really?
Yes.
I thought it got kicked off. Never mind.
Nope. Ohio has. Virginia is about to launch. Next year we'll be launching an adult use market. Georgia and Texas, as I said, have expanded their medical marijuana programs. So meaningful growth to come. Other questions? Oh, please.
Operating expenses are the tenants pay?
Yes, we are triple net REITs. Good question. Triple net REIT, so all of the operating expenses are borne by the tenants. Maintenance, snow plow, lawn cutting, sweeping, everything is the responsibility of the tenants, and no CapEx on our part. In some of the properties, we have responsibility for the roof. If something happens with the roof, we'll replace it, but typically, all of the CapEx and the maintenance is on the tenant. Yes.
Now, when you're acquiring these properties, are you acquiring used properties that were used for illegal cannabis grows that at least have some of the infrastructure, or are you buying brand-new properties, and you're upgrading them yourself with your own engineering? Do you have a schedule check to ensure that all of that investment you made in the property stays working and useful? I'll triple that but do you have eyes on there inspecting?
Yes. The question is, what types of properties are we buying? Are we making the investment to retrofit, and how do we monitor the properties? The first thing I would say is we do not take tenancy risk. One of the things we don't do is buy a property, try to get it entitled for cannabis use, and then go find a tenant. When we book a transaction, and we acquire a property, we're always signing a lease at the same time. We're not taking tenancy risk. We don't do the build-out ourselves. We will provide tenant improvement dollars available for somebody to make those improvements. I should also say that the types of transactions we've done span three primary types. Number one, we'll purchase an operating asset, a dispensary or cultivation facility that's up and operating.
It's more of a financing transaction where we acquire it and immediately lease it back, no disruption to operations. Number two, we would buy a vacant property for somebody, and we provide the capital to retrofit it for cultivation or a dispensary. Then number three would be a build to suit where we buy the property, we enter into a lease with the tenant, and we provide them the capital for building a new building, whether that be a retail or cultivation facility. Then in terms of monitoring the asset, our team goes in on a regular basis to look at the assets that are tenanted. For those that are available for lease, where maybe somebody has moved out, we have property managers that have eyes on those buildings on a weekly basis.
One thing I did want to get to, when people look at that 13% dividend yield, and they typically say, again, it's either a problem with your portfolio or a problem with your debt. I think we've disposed of those two. Then people say, "Well, then what is it? Then why do you have such a high yield? What is the market missing?" In the cannabis world, I touched on this earlier, custody. There are restrictions for banks to custody stocks and bonds for marijuana-related businesses, MRBs. If you're not listed on New York or Nasdaq, you cannot get custody from JP Morgan Morgan Stanley, Goldman Sachs, Pershing, Bank of New York, you name it. The only one we've been able to identify that has any sort of institutional following is Interactive Brokers.
Therefore, given we are not on the New York Stock Exchange or the Nasdaq, and the only reason we are not, because we qualify in all respects to be listed, the only reason we are not is because we focus on cannabis. There is a similar company to ours that is traded on New York. They went public before New York changed their rules in 2018, so they were grandfathered on.
We are locked out, and as a result, institutions cannot get custody for our stock. I would argue that a very important constituent in the market is not there every day to arbiter, to participate in this bid-ask, and this price discovery. Therefore, I think people are mostly buying the yield on the stock, not taking the time to understand the unlevered nature of the business and the quality of the dividend, and recognizing that that is something that I think people can invest into. Question?
Yeah, but is not that kind of a double-edged sword because the second it becomes federally legal, and they can relist on the market, you will have more companies like yourself listing, so there will be a glut, and the premium you charge for rents might go down. Are you
Yeah
preparing yourself for that option?
First and foremost, long-duration portfolio with above-market yields doesn't go away, right? That is an asset that I think is going to be valued better on the New York Stock Exchange than it is on the OTC. Number two, there is a laundry list of people who have tried to be in this business and have failed. We have less competitors today than we did seven years ago when we started. It's been an utter wasteland of debt, equity, and landlords into this sector. The moat for our business is the seven years of accumulated knowledge and the billions and billions of dollars of real estate deals, not that we've done, but the ones that we haven't done, and that we've successfully avoided. Yeah, absolutely, there will be other groups that will come in. They'll get excited.
But I think we've built a track record with this industry, and I've run businesses in commoditized industries before, like banking and residential mortgage. Make no mistake, being a true partner with our tenants over the last seven years, I think is going to pay dividends for our company and our shareholders. With that, we are out of time. 3, 2, 1. There's my hook. Thank you, everybody. Appreciate your time.