NewLake Capital Partners (NLCP) Sidoti September Small-Cap Virtual Conference summary

Investment highlights and business overview

• Operates as the second-largest owner of cannabis real estate in the U.S., with 32 properties across 12 states and 13 tenants, including leading public and private operators.

• Portfolio features long-term triple net leases with a 14-year weighted average lease term and an 11.9% yield, supported by annual escalators averaging 2.6%.

• Maintains a conservative financial profile with only $7.6 million in debt and a strong AFFO payout ratio of 82%, providing ample cushion for dividend coverage.

• Dividend has grown nearly 80% since IPO in 2021, with recent quarterly increases and a current yield around 8.5%.

• Attributes valuation discount to lack of NYSE/Nasdaq listing due to cannabis focus, despite meeting all other listing requirements.

Industry trends and growth drivers

• Cannabis is a high-growth sector, driven by expanding legalization and strong consumer demand, with 46 states having medical programs and 52% of the population in adult-use states.

• Federal catalysts include potential DEA rescheduling to Schedule III, which could improve tenant cash flow by $500 million, and ongoing legislative efforts like SAFER Banking.

• Public sentiment strongly favors legalization, with 90% supporting medical cannabis and over two-thirds supporting full legalization.

• Growth opportunities remain as large states like Florida consider adult-use legalization and smaller medical markets expand.

• Demand for real estate is driven by state-by-state regulatory structures requiring localized operations and facilities.

Portfolio management and underwriting approach

• Focuses on tenant quality, management capability, and real estate's strategic position within the cannabis ecosystem.

• Prefers limited-license states, which offer better margins, cash flow, and property value due to license restrictions tied to properties.

• Implements risk management through triple net leases, security deposits, annual escalators, and cross-default provisions.

• Maintains high four-wall coverage ratios to ensure credit quality and resilience against tenant defaults.

• Growth is driven by annual rent escalators, funding of existing commitments, and new transactions using available credit capacity.