NewLake Capital Partners Aktie

Good morning, and welcome to the NewLake Capital Partners Second 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 Second Quarter 2026 Financial Results Conference Call. Joining me on the call today are 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 under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to a variety of risks and uncertainties.

For 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 June 30, 2026.

During the call, we'll 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'd now like to turn the call over to Anthony Coniglio, President and Chief Executive Officer. Please go ahead, Anthony.

Thank you, Valter, and good morning, everyone. The past few months have been among the most constructive for the cannabis industry that we've seen in some time. The rescheduling of medical cannabis to Schedule III, the continued momentum toward broader reform, and the New York Stock Exchange listings of Trulieve and Glass House are all meaningful milestones that reflect the continued normalization of the industry.

While additional reform is still needed before the industry has unfettered access to the U.S. capital markets, we are encouraged by the progress made over the last several months and believe it represents an important step towards a more stable and sustainable operating environment.

As I mentioned on our last call, the impact of medical rescheduling extends beyond the elimination of 280E taxation. DEA registration transforms registered medical cannabis operators into federally legal businesses. All of our tenants operating medical-only facilities, which represents approximately 50% of our portfolio, have indicated that they've submitted applications for DEA registrations.

We view this as another important step toward broader institutional participation and improved access to capital markets, including the potential for listing on major U.S. exchanges. Against this backdrop, NewLake delivered another solid quarter.

Revenue and AFFO were in line with our expectations, and our AFFO payout ratio was 88% for the quarter, supporting our 43% per share dividend and within our guided range of 80% to 90%. Our portfolio continues to demonstrate the resilience that comes from disciplined underwriting, conservative balance sheet management, and our focus on property-level performance.

Turning to our portfolio, we continue to closely monitor developments related to our tenant, The Cannabist. As we discussed last quarter, The Cannabist filed for bankruptcy in Canada earlier this year and has been working through a court-supervised process. We lease 4 properties to The Cannabist, including a dispensary and cultivation facility in Illinois and a dispensary and cultivation facility in Massachusetts.

Recently, Vireo Growth announced the acquisition of certain assets from The Cannabist across 5 markets, including Illinois and Massachusetts. The Cannabist remains current through and including August rent, and we're actively engaged with The Cannabist and other parties to minimize the potential for rent disruption at our properties. We will update stakeholders as we have more definitive information to share. We continue to hold approximately 1 month of security deposit across those properties.

Turning to investment activity, we are excited to have recently closed on a $2.1 million transaction for a 3,200 square foot dispensary in Wilder, Kentucky, which will be leased to C3 Industries. This transaction expands our presence into Kentucky's emerging medical cannabis market and will be accretive to earnings.

More importantly, it reflects a pipeline that has become increasingly active over the past several months. More broadly, we are seeing renewed optimism across the industry regarding opportunities to deploy capital, pursue growth initiatives, and participate in industry consolidation.

As a result, we're actively evaluating new investments. That said, our underwriting standards remain unchanged. We will continue to be disciplined and selective, prioritizing capital preservation and risk-adjusted returns over growth for growth's sake. Our 3 properties available for lease continue to be actively marketed. While retenanting opportunities do take time to develop, the quality and pace of discussions have improved over the past few months.

Looking ahead, we believe there's a growing stack of potential catalysts for the industry. These include medical rescheduling, progress towards broader rescheduling of cannabis, exchange listing opportunities for plant-touching businesses, potential for banking reform, and increasing scrutiny of intoxicating hemp-derived products. While the timing and outcome of these developments remain uncertain, we believe the direction of travel continues to be favorable for the industry.

I'd also like to address a topic where we've received a number of questions about following the New York Stock Exchange listings of Trulieve and Glass House. We're not announcing anything today, but we are actively evaluating whether there is a path for NewLake to uplist to a major exchange.

To remind our investors, NewLake satisfies the listing requirements for both the NYSE and NASDAQ, other than the exchanges' restrictions on cannabis-related businesses. As regulatory developments continue to unfold, we'll continue evaluating potential paths forward so that we are prepared to act if and when the opportunity becomes available. While no decisions have been made, we do believe that the broader exchange access would create additional value for our shareholders over time.

Finally, subsequent to quarter end, we extended the maturity of our revolving credit facility to May 2029 while lowering our borrowing costs and enhancing our financial flexibility. In an environment where capital for the cannabis sector remains scarce and expensive, our ability to extend our credit facility on improved terms while continuing to pursue accretive investment opportunities speaks to the strength of our balance sheet, the quality of our portfolio, and the confidence our lending partners have in our business.

Before turning the call over to Lisa, I'd like to recognize David Weinstein, who stepped down from our Board of Directors at the end of July. David has been part of NewLake since our founding in 2019 and served as Chief Executive Officer through the company's transition to the public markets.

On behalf of our Board, management team, and the company and shareholders, I want to thank David for his years of service and many contributions to the company. We wish him all the best in his future endeavors.

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 second quarter of 2026, total revenue was $12.1 million, compared to $12.9 million in the prior year period. Net income attributable to common stockholders was $5.9 million or $0.29 per diluted share. Funds from operations totaled $9.9 million or $0.47 per diluted share, and adjusted funds from operations totaled $10.3 million or $0.49 per diluted share.

For the first 6 months of 2026, total revenue was $24.4 million, compared to $26.1 million in the prior year period. Net income attributable to stockholders was $11.7 million or $0.56 per diluted share. Funds from operations totaled $19.6 million or $0.93 per diluted share, and adjusted funds from operations totaled $20.4 million or $0.97 per diluted share. The drivers of the year-over-year results were generally consistent for both the 3- and 6-month periods ended June 30, 2026.

Revenue and AFFO were primarily impacted by 3 cultivation facilities available for lease in Pennsylvania, Nevada, and Massachusetts, reducing rental income and increasing property carrying costs. The impact was partially offset by the following: annual contractual rent escalations averaging 2.6% across the portfolio, rental income from the 2 Ohio dispensaries acquired in 2025, and rental income associated with funded improvement allowances.

On June 12, 2026, our Board of Directors declared a second quarter cash dividend of $0.43 per share, or $1.72 per share on an annualized basis. The dividend was paid on July 15, 2026, to stockholders of record as of June 30, 2026. This represents an AFFO payout ratio of approximately 88%, which remains within our target range of 80% to 90%. The earnings power of our portfolio continues to support our dividends.

Turning to the balance sheet. As of June 30, 2026, we had $25.8 million in cash. We continue to maintain a very conservative leverage profile with only $7.6 million outstanding on our $90 million credit facility, a debt-to-total asset ratio of 1.6% and a debt-to-EBITDA ratio of approximately 0.2x.

In August, we amended our $90 million revolving credit facility, reducing our interest rate by 100 basis points from prime plus 1% to prime, and extended the maturity date to May of 2029. We believe this amendment further strengthens our balance sheet by lowering our cost of capital and extending our maturity date.

Also, in August, as Anthony mentioned, we acquired a dispensary property in Kentucky for approximately $0.6 million and committed to fund approximately $1.6 million for improvements. This property was simultaneously leased to an existing tenant.

Overall, our results for the quarter were in line with expectations, and we remain focused on maintaining a strong balance sheet while prudently managing risk across our portfolio. With our liquidity, conservative leverage profile, and no debt maturities until 2029, 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.

[Operator Instructions] And our first question will come from Pablo Zuanic with Zuanic & Associates.

Anthony, can we start by talking about lead times? I'm thinking about Georgia, Virginia, Texas. When, supposedly in the case of Georgia, flower is already legal since, allowed since July 1, right? And I hear companies are running out of flower there very quickly.

Virginia starting July 1 next year, I'm just wondering, because with lead times to get up and running on production of 18 months to 24 months, you would think that those companies would be talking to you already in terms of leasing potential properties? I'm just surprised we're not seeing that yet, especially with Georgia and Virginia. I realize that Texas may take a bit longer.

Yes, I think Kentucky is a good indicator of what we would expect to see in this environment where companies are less enthusiastic about aggressive build-out of capacity, even into some of these newer markets.

We find that the discussion with us is often delayed than say where those discussions were back in the '22, '23 timeframe when there was a more aggressive posture towards expansion.

And so, yes, we do have some conversations going across these states, but I think overall, CapEx and expansion is at a slower pace into the new states than it was in, say, the '21, '22 cohort.

That's a good color. In terms of the vacant properties, the Nevada, Pennsylvania, ex-AYR cultivation and the Revolutionary Clinics cultivation in Massachusetts, can you give an update on that?

Are they more likely to be sold maybe for other use or even rented for other use? Or do you believe that you'll be able to lease them out for cultivation of cannabis?

First off, our guiding principle when it comes to tenanting those facilities is what is the best net present value for our shareholders. And so we have everything on the table. We look at cannabis as an opportunity, non-cannabis.

Because these are cultivation facilities and they're purpose-built as existing cultivation facilities, typically the best use for our shareholders is try to get the premium rent from a cannabis operator versus a non-cannabis operator.

So yes, we pursue all of them. I think the longer it goes that we're not able to identify a credit-worthy cannabis tenant, the increased likelihood is we pivot to either a non-cannabis tenant or a potential sale of the property.

But on that point, would you want to handicap the 3? I mean, it seems that Massachusetts is taking a lot longer than expected. I realize Nevada and Pennsylvania, is more recent. Do you want to give a bit more color there?

No, I don't because it's so variable, Pablo. There's so many different factors that go into it. What I would say to you is that when you look at Pennsylvania, given it's still a medical market and it is a market that will have adult use at some point, it's a more limited license market, there's probably more demand for those types of facilities than you would find, say, in Massachusetts.

And when you look at, say, in Nevada, while activity was slow, we do see hemp as a real big issue in Nevada. And with hemp receding and hemp-derived products competing with the marketplace in Nevada with hemp receding, there has been some recent uptick in interest. And so I don't want to go farther than that in terms of handicapping because nothing's ever done until it's done. That's why we don't announce letters of intent. We only announce signed lease agreements.

And just moving on to cannabis properties, you know now taken over by Vireo Growth. I heard your comment about the conversations ongoing. But I guess let me give you a couple of examples. I hear sometimes when dispensaries change hands, because of restructuring or the owner going on default, the new buyer buys a dispensary but sometimes they don't recognize the receivables. So whoever was holding the receivables, the wholesaler or vendor to a dispensary ends up losing the money. What's the precedent? But I realize the case is very different for rented property, right?

You would think Vireo, if they want to hold on to those dispensaries and the cultivation, they will have to honor the leasing agreements and pay the rent. I mean, maybe I'm stating something that's obvious, but I'm just trying to understand what's the precedent, not so much about Vireo specifically, but it would seem that when these properties change hands, the new owner has to honor the lease agreement, or is that very naive thinking of me?

No, I think that is accurate. First, I want to reiterate that in my prepared remarks, I informed investors that The Cannabist has paid rent on all 4 properties through and including August rent. And that's telling me that there's a deal to be had, and nothing's ever done until it's done. But these properties are obviously, have some value to continue paying the rent. And yes, when someone acquires a license in an operating business, they typically will step into that facility and they will continue paying rent.

From time to time, there may be a negotiation about reducing rent as part of the overall transaction. That's always something that's in the cards in these types of transactions. And then I think what you're referring to is there have been cases where people have purchased the licenses and not necessarily the operating businesses. And when you purchase the license, you can leave certain assets behind -- excuse me, certain liabilities behind through a Canadian bankruptcy process. So they're very complicated and highly negotiated.

Thank you. One last one for me. In the 10-Q, there's something there about the Acreage property that is guaranteed by Canopy USA. Can you give more color in terms of how that works in practice?

Yes, when the transaction with Acreage was executed way back in 2019, 2020, there was a direct Acreage parent guarantee. Given the restructuring that occurred between Canopy and Acreage -- excuse me, started with the closing of the acquisition of Acreage by Canopy and the creation of Canopy USA, Acreage now has a parent, Canopy USA, and Canopy USA not only holds the interest in Acreage, but also holds interest in Wana, Jetty, as well as shares in TerrAscend. And so through dialogue and a transaction earlier this year around Pennsylvania, we were able to negotiate an additional guarantee from Canopy USA. And so we were able to get what we think is additional protection for our shareholders by adding Canopy USA as a guarantee and not only having an Acreage guarantee on the lease.

Right, thank you. Look, and I guess I want to add 1 more Anthony, and apologies if there's someone else on the Q&A queue. Just in terms of a macro, obviously always very interested to hear your perspective. So, we know August 17, right? Then Judge Julius has to go through all the documents he receives, look at the hearing, and write his report. Question mark how long that will take. Then that goes to the DOJ, and then a DEA director has to -- administrator has to write the final rule, right? And, of course, we're all speculating how long that would take. Do you want to give your impressions in terms of how long that process could take?

It is a guess, so I will give you an answer, but it is a guess. My best guess is it's mid- to end of October. And why I get there is when we study the Administrative Procedure Act and how these types of processes work, as you indicated, we need the ALJ recommendation. Well, the post-hearing briefs are due by August 17. The ALJ needs to have time to consider what's submitted and we don't expect those to be submitted until the very end. So it's going to take probably a couple of weeks for the ALJ to complete his report and his recommendation and so call that beginning of September. Then once his recommendation comes out, there is what's called a 30-day exception period where parties who participated in the hearing have the opportunity to file exceptions to what the ALJ recommendation is.

That takes us into early October, and now the DEA has to file the final rule, and they likely can't do that the day after the exception period ends because they will need to consider the exceptions that were submitted towards the end of that period. So I add all of that up, and there's a lot of work to be done, even though the DEA is probably doing work on a final rule now. They do need time to incorporate what comes in during that exception period to incorporate what the ALJ recommendation is. So that's why I think the earliest is probably mid-October. So my guess, mid- to end of October.

And I get a little aggressive in that timing only because I do believe in the political overlay that this action has and that there's probably a desire of the administration to get this completed and get that final rule filed before midterms. And so that's how I conclude. But I do want to remind everybody, once the filing occurs of the final rule, it's a 30-day implementation period, and we'll all buckle up for the resulting litigation that'll commence from there.

[Operator Instructions] We'll go next to Craig Kucera with Lucid Capital Markets.

You guys had a decline in property carrying costs sequentially and understanding that you wouldn't have them if you leased up some vacancy. But if those assets remain vacant, how should we think about that for the remainder of the year?

The reason there was a decline in the second quarter was a result of a reimbursement that we received from a previous tenant that was in -- that had vacated. So it just -- it reduced the property expenses a little bit more than what it should have. I would think that Q1 is a good run rate for what those expenses should be.

Okay, that's helpful. Yes, I believe both Trulieve and Glass House deconsolidated their recreational operations in order to uplist. I'm just curious, given the legalization of medical, are you seeing any of your other tenants moving in that direction to take advantage of the legislation?

Most of our other tenants that are public have a more intertwined business between their medical and their adult use programs. And so what we're seeing is most of the others are taking a wait approach. Well, let me restate that. They're taking steps such as reverse splits in order to meet listing requirements for minimum stock price but they are stopping short of restructuring their business given the nature of their business or how large the adult use component is, with the expectation that we will see rescheduling get completed later this year, and then the entire business could get uplist to the New York or NASDAQ.

Okay, yes, that makes sense, putting off that decision, certainly until back half of the year. And I guess against that backdrop, are you seeing any pickup in transactional activity for medical only? And if so, any movement in cap rates or is it still too early?

I would say there's been no pickup in medical versus adult use. The pickup in activity is really driven by the market opportunities. I don't yet see people making decisions in their business purely to orient towards medical versus adult use. And then in terms of cap rates, cap rates continue to be in the same range that they've been for some time in the marketplace. We've not seen compression in that.

Got it. And outside of Cannabist, which sounds like there's some positive movement there, are there any other tenants that are on watch list negative, or is everybody still performing well? I know your four-wall coverage still looks really good.

We watch all of them. This is the cannabis industry. This is a volatile and emerging industry. So we're watching all of them. The ones that we've identified in the past on these calls would be The Cannabist or an Acreage. And so those were the ones in the portfolio versus, say, a Cresco, which just issued really good results this morning, or Curaleaf, our largest tenant, issued last night, very good performance. And so, when we look at the portfolio, we don't publish a watch list per se, but we're certainly looking at the operators in the portfolio that have historically underperformed their peers, such as Acreage.

And this now concludes our question and answer session. I would like to turn the floor back over to Anthony Coniglio for closing comments.

Thank you, operator, and thank you, everybody, for joining us today. We hope you have a wonderful remaining of the summer, and we look forward to connecting with you all in the coming months.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

Good morning, and welcome to the New Lake Capital Partners First 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 New Lake Capital Partners First 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 under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and actual results may differ materially due to a variety of risks and uncertainties. During the call, we'll 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'd now like to turn the call over to our Chairman, Gordon DuGan.

Thank you, Valter, and good morning, everyone. 2026 is shaping up to be an important year for the cannabis industry. With the recent rescheduling of medical cannabis we've reached a meaningful regulatory milestone and are beginning to see tangible progress after many years of uncertainty.

Moving cannabis to Schedule III is a historic moment and begins to address one of the industry's most significant structural headwinds, namely the burden of 280E taxation. Over time, this change has the potential to improve operator cash flow and credit profiles and it may also for further reforms, including improved access to capital markets and the possibility of retroactive 280E relief.

In addition, pending actions such as a potential synthetic THC ban could further strengthen long-term industry fundamentals. That said, while these developments are constructive, the environment remains challenging for certain operators, as an example, the cannabis recently announced that it had entered bankruptcy proceedings in Canada. Anthony will discuss our specific exposure and positioning in more detail but this situation underscores the financial and operational stress that continues to exist across parts of this sector.

It also highlights why we have consistently approached this market with discipline and caution rather than assuming that regulatory progress alone would quickly translate into improved fundamentals. Against this backdrop, our team continues to focus on actively managing portfolio risk working to reposition assets where appropriate, improve lease terms and protect long-term value.

We remain disciplined in navigating the current environment while positioning the business to benefit from longer regulatory and industry tailwinds as they materialize and hopefully soon. Importantly, the strength of our balance sheet, we are the only REIT I know of that has no debt, the durability of our cash flow generation and the stability of our dividend remain core differentiators for New Lake.

For the first quarter, we generated $0.48 of AFFO and declared a first quarter 2026 dividend of $0.43 per share, which was paid on April 15. Since our IPO in 2021, we have now paid cumulative dividends of $7.29 per share. We have been and continue to be the best positioned company to meet the challenges and opportunities of this industry. With that, I'll turn the call over to Anthony.

Thank you, Gordon, and good morning, everyone. It's an exciting time for the cannabis industry, and we have a lot to cover today. I'll begin with our first quarter results. I'll turn to recent regulatory developments, provide portfolio updates and conclude with an update on our leasing activity.

Our Q1 results were in line with our expectations. All contractual rent was received during the quarter, and our AFFO payout ratio was 90%, providing ample coverage for our $0.43 first quarter dividend. We're proud of these results in the face of continued stress in the cannabis sector. The cannabis industry has faced significant headwinds over the past few years and we believe our portfolio has demonstrated resilience through a challenging operating environment driven by disciplined underwriting and a focus on 4-wall coverage. Turning to the broader policy landscape. We're seeing a meaningful activity at both federal and state levels.

At the federal level, the rescheduling of medical cannabis to Schedule III represents the most significant reform for the industry in over 50 years. The Department of Justice's formal recognition of accepted medical use and the shift away from Schedule I mark a key regulatory milestone signaling continued normalization and further legitimization of the industry.

Rescheduling eliminates the application of 280E for compliant operators, which will improve tenant cash flow, enhance credit profiles and support broader access to capital across the sector. We view this as a positive credit development for all of our tenants. We are also closely monitoring guidance from the Treasury Department and IRS regarding implementation of these changes.

To the extent any relief is applied retroactively for 280E, it could meaningfully improve operator balance sheets by reducing uncertain tax position liabilities that have accumulated over time. Resolution of these liabilities would strengthen overall financial health and importantly, further reduce tenant credit risk across our portfolio. We estimate that today, approximately 50% to 55% of our annualized base rent is derived from medical cannabis activities, which are now considered federally legal activities.

This is meaningful in the context of exchange listing eligibility as the legal status of our tenant activity remains a gating consideration for listing on the New York and NASDAQ. Importantly, we already meet the other applicable listing requirements, and we view the rescheduling of medical cannabis as an important step in the continued normalization of our business and our ability over time to be able to access a major U.S. exchange. Furthermore, we anticipate the broader rescheduling effort and -- excuse me, the broader rescheduling effort for nonmedical cannabis activities to be concluded later this year, which, if successful, could position NewLake well to meet all the exchange listing requirements.

Further supporting the industry's long-term outlook is the federal government's move to prohibit intoxicating hemp-derived THC products with a ban expected to take effect in November 2026. We believe the elimination of these products, which directly compete with our state-regulated tenants will serve as an additional tailwind supporting increased sales across our tenant base to varying degrees depending on the markets in which they operate.

At the state level, we continue to see constructive momentum. In Virginia, adult-use legislation could still become law despite the [indiscernible] approaches between the legislature and the governor and we're monitoring that outcome closely. In Massachusetts, reforms to the cannabis program, including higher ownership caps and expanded operational flexibility should improve the competitiveness of the market and strengthen the operating environment for license holders.

We are also seeing recent commentary out of Indiana and North Carolina regarding potential medical cannabis programs following the rescheduling announcement of medical marijuana. Overall, we expect state level reform to continue, which should support long-term industry fundamentals. That said, regulatory progress does not immediately resolve existing balance sheet and operating challenges. While the aforementioned developments are constructive, the current operating environment remains difficult for certain operators and that reality continues to manifest across the sector.

One such example is the cannabis, which recently announced bankruptcy proceedings in Canada under the CCAA provisions in that country. While this filing was not entirely unexpected given broader sector dynamics, and the forbearance with their creditors we discussed last quarter, it does underscore the ongoing financial strain facing some operators.

Regarding our exposure, New Lake currently leases 4 properties to the cannabis, a dispensary and a cultivation facility in Illinois and a dispensary and cultivation facility in Massachusetts. The cannabis remains current on rent, and we hold approximately 1 month of security deposits across these properties. In conjunction with the bankruptcy filing, the cannabis disclosed that it had entered into multiple agreements to sell assets or businesses across several states, including Illinois and Massachusetts, where our properties are located.

We're actively evaluating how this process may impact the properties we lease to them, and we're proactively developing interest in these assets should the cannabis ultimately default and we seek to recover possession. We will continue to monitor developments and update investors as appropriate. More broadly, risk mitigation remains a central focus across the portfolio. During the quarter, we retenanted our San Diego dispensary with a higher quality operator, added Holistic Industries as an additional guarantor on one of our Pennsylvania cultivation facilities and added Canopy USA to the guarantor structure on our Massachusetts cultivation facility leased to acreage.

Collectively, these actions significantly enhance the credit profile of these assets. With respect to our leasing pipeline, we're actively marketing our available properties and have seen an uptick in activity. Massachusetts reform has driven increased interest and since federal rescheduling announcement in April, dialogue with prospective tenants across the properties has picked up more broadly.

As we stated previously, we do not announce letters of intent and will only provide updates once lease agreements are signed. While retenanting is not instantaneous, we are encouraged by the level of inbound interest and the quality of the operators evaluating our assets.

In closing, as we witness historic reform and federal cannabis laws, New Lake is well positioned to benefit with a conservative balance sheet, a well-supported dividend and a disciplined portfolio strategy focusing on protecting capital today while positioning the company to capitalize on improving industry fundamentals and future investment opportunities over time. With that, I'll turn the call over to Lisa to walk through our financials in detail.

Thank you, Anthony, and good morning. For the first quarter of 2026, total revenue was $12.3 million compared to $13.2 million in the prior year period. Net income attributable to common stockholders was $5.8 million or $0.28 per share. Funds from operations totaled $9.7 million or $0.46 per share.

Adjusted funds from operations totaled $10.1 million or $0.48 per share. The year-over-year decrease in revenue and AFFO was primarily driven by 3 cultivation facilities available for lease in Pennsylvania, Nevada and Massachusetts, which reduced rental income, increased property carrying costs. This impact was partially offset by a full quarter of rental income from 2 dispensaries acquired in 2025, along with annual contractual rent escalators averaging 2.6% across the portfolio.

Total expenses decreased modestly compared to the prior year period driven primarily by lower reimbursable property expenses and lower general and administrative expenses, partially offset by property carrying costs. On March 4, 2026, our Board of Directors declared a first quarter cash dividend of $0.43 per share or $1.72 per share on an annualized basis. The dividend was paid on April 15, 2026, to stockholders of record as of May 31, 2026 and represents an AFFO payout ratio of approximately 90%, which remains within our target range of 80% to 90% and is fully supports the sustainability of our dividend.

As of March 31, 2026, we had $24.8 million of cash and total liquidity of approximately $107.2 million, including availability under our revolving credit facility. We had only $7.6 million outstanding under the facility with $82.4 million of remaining capacity. We continue to maintain a highly conservative balance sheet with debt representing 1.6% of total gross assets and a debt service coverage ratio of approximately 72x and no debt maturities until May of 2027.

Overall, our results for the quarter were in line with expectations. We remain focused on maintaining a strong balance sheet while managing risk across our portfolio. With our liquidity and conservative leverage profile, we believe we are well positioned to pursue growth opportunities as the regulatory environment for cannabis continues to evolve. Operator, please open the line for questions.

[Operator Instructions] And our first question will come from Craig Kucera with Lucid Capital Markets.

I appreciated the color on the Massachusetts leasing interest, but are you also seeing rising interest at your Nevada and Pennsylvania assets that are vacant?

Yes. I would say across the board, we have seen an uptick in interest in properties. I want to caution that just because we see an uptick in interest doesn't mean it will ultimately convert. But certainly, we have seen the dialogue increase.

And Anthony, probably fair to say maybe more in the other 2 than Massachusetts.

More interest, correct? Is that fair? Do you agree with that?

Yes. Yes, I do.

Okay. Great. Just changing gears, does rescheduling change how you're looking at the acquisition environment, particularly in medical use space?

No. No. We are looking -- we continue to look at 4-wall coverage and the opportunity to make sure rent is covered from the cash flow at any particular site to the extent that medical activities become more profitable because of the lack of 280E, yes, that's a long-term positive. But the reality is over the last couple of years, the medical operators were not utilizing cash flow to pay the 280E portion of their taxes. They were accumulating that liability, as I mentioned in the prepared remarks, in their uncertain tax position line item on the balance sheet. And so until we actually see a sustained change in the cash flow profile of a property because of the changes, then we'll consider modifying. But I think our underwriting process has served us well thus far, and we'll continue to keep the same approach.

Okay. Got it. Just given the announcement, which as you mentioned in your commentary is the biggest thing to happen in 50 years to the industry. Are you hearing any increased chatter regarding M&A on the operator side?

For sure. We've heard significant chatter about it. There are meaningful -- particularly with the public, there's meaningful public company expenses for some of the larger operators. And so those platforms have, let's call it, low-hanging fruit available to them in a merger scenario. It is complicated by the state regulations and the potential overlap and the regulatory time line that it would take to shed assets in a combination.

And in fact, over the last 4 years, we have seen some larger transactions faltering get canceled because they weren't able to clear those divestiture requirements. But we are certainly hearing more chatter about it, and we do think that over the next 18 to 24 months, we will see some of these get across the finish line.

Okay. And I just want to circle back to your commentary on listing on an exchange. Does the 50% to 55% medical allow you to effectively qualify? Or is there another gating factor to get there? Do you need to be at 100%? Or how should we think about that?

Yes. Let's first go over, again, why we're not listed on a major exchange. We qualify in all respects from a governance perspective and from listing requirements perspective other than the fact that our tenants are entirely in the cannabis sector. And those illegal activities are the real gating item. And what we were trying to highlight is that with roughly 50% of our revenues now being in a federally legal activity that we're making progress towards eliminating -- it's not really us, the regulatory environment is evolving towards a place where hopefully, at some point in the future, we have revenue activity that's coming from entirely legal channels. There's no way to predict how long that would take. There's no way to predict at what point the exchanges decide enough is enough. There's no way to predict if there's guidance from treasury, but we have received some questions since the rescheduling about what level of activity is now legal, and that's why we provided that information.

I might just add to that, but it is a judgment call. It is not a -- there's no federal law related to what the exchanges can do on this matter. So it's clearly a judgment call there. As you may -- as you well know, there is already at least one REIT listed on the New York Stock Exchange that does exactly what we do. And yet, that entity has continued to maintain its listing. And I've never really gotten a fully cogent answer as to why that's listed and we're not. So it's a judgment call, and we continue to engage with the major exchanges to see when we get to that tipping point. And we just don't know when that is.

Okay. I guess, are you seeing any of your operators that don't have a medical license now pursuing it because it can be so potentially beneficial to them from a tax perspective? And are you encouraging them to do so perhaps?

Well, we're not necessarily encouraging anybody. We don't tell our tenants how to run their business. When we look at our portfolio, almost all of our properties share a license with medical. And that's part of how we're able to get to that 50% to 50% of revenue because while they share medical, you may have a preponderance of particular dispensary that has adult-use sales as well. There's only, I think, 2 dispensaries that are adult-use only. What we are seeing and hearing anecdotally is at the point of sale, the suggestion, this isn't just across our portfolio. This is across the industry, the suggestion for consumers to utilize their medical marijuana card if they have one. And so I think you're seeing the operators themselves look for ways to move their sales more into the medical bucket.

I also have been hearing about regulators across the various states thinking about how they could expand medical access for consumers and have more of their program in the federally legal bucket because when you think about a lot of the states that have legalized, particularly around social equity licensees, many of those licenses were provided more in an adult-use context since they came into the program later. And so there is this concern by state regulators that right now, some of those social equity licensees don't have the benefit of moving to Schedule III. And so they're trying to figure out how they could appropriately comply with the federal regulations, but try to broaden the scope of medical sales in their particular jurisdictions.

So I'd summarize all of that by saying people are very aware of the economic benefit of eliminating 280E and trying to figure out ways to make sure that the economic benefits of that reach greater -- reach more licensees and more transactions.

Our next question will come from Pablo Zuanic with Zuanic & Associates.

Just in terms of arrangements with Canopy Growth or maybe with Canopy U.S.A. Just to be clear, so they set a guarantee on the on the lease in Massachusetts, but what about the one in Pennsylvania? And I'm just trying to understand the mechanics why one state yes and not the other and whether it was with CUSA or with CGC. And then related question to that if I can add -- I'm going to add one more, if I may, Anthony, just on the same topic. In the case of cannabis, to my knowledge, we know who they sold their assets in Ohio to. I know that you're talking about Illinois and you mentioned Massachusetts. Do we know what are the buyers of those assets for cannabis in those 2 states?

So let's -- on your first question, Pablo, let's go back. We had 3 acreage properties about 2 years ago. One of our dispensaries with acreage was sold to an organization called Butter, which in that transaction, we were able to get a guarantee from Green Thumb Industries, GTI. So then we were down to 2 properties. What we disclosed in our Q was that at the Pennsylvania property with acreage they entered into a financing transaction. As part of that transaction, we received a guarantee from holistic industries. And so also part of that transaction, we were able to secure a guarantee on the Massachusetts property from Canopy USA. And you may know that Canopy USA is the top holding company in the U.S. for not just Acreage but Wana, Jetty and also the minority interest in TerrAscend and previously, we only had an acreage guarantee. So before I move to cannabis, did I answer your question there?

Yes. Thank you.

On cannabis, it is not publicly available yet who the potential buyer is for Illinois assets and Massachusetts assets. What cannabis has disclosed is that they have multiple buyers for assets across 6 or 7 states that remain after the Ohio and the Delaware sale that was approved by the bankruptcy court a couple of weeks ago. I'd reiterate that cannabis properties continue to pay rent and are current through today. They've paid May rent and April rent as well. And so we're going to continue to monitor what happens with the properties. And if all of them or a subset of our properties are part of these transactions and what the quality of those buyers are. And in the meantime, we're also not just using hope as a strategy. We're actively working to try to develop interest in these assets should the cannabis not be able to conclude transactions for them.

Just on a separate question, in terms of your private company tenants, most of your book, of course, is with public MSOs, and we have access to their financials. But whatever color you would give in this public forum, in my opinion, would be helpful, especially for larger tenants in terms of C3 codes and Mint, obviously, I can do research on my own on them, but whatever color you can give here would be helpful.

Yes. And of course, I am somewhat limited since they are private companies. What I can tell you about Mint and C3 is in the past, they have made public statements about running businesses that generate free cash flow, running businesses that are profitable. And when I think about those operations, I think they've continued to operate those businesses consistently with prior years. What I would also say, if you looked at C3 is that they have -- and you look at what they've said publicly, they have really focused over the last 18 months on building out their dispensary capacity. And so I would expect that 2026 is a year where you're going to see a lot of improved and increased revenue and cash flow as they bring those dispensaries and retail outlets online. When you think about one of our other private companies, Calypso, which is a cultivation platform in Pennsylvania, an entirely federally legal business today given the rescheduling of medical cannabis because they're a single-state operator. So that certainly bolsters their profile because the entirety of their transactions are medical sales. So we have good insight, not just to the overall financial performance, Pablo, of the companies, but I'd really focus on the property level. You heard me say earlier in the prepared remarks that in our underwriting, we focus on the 4-wall coverage. And I think that is just as important, if not more important than the overall corporate financial profile because the best defense to financial distress is a property that can generate free cash flow for the tenant. And those are typically the properties that persist and have robust demand even if you have to pivot away from the current tenant. And when we look and we disclosed our -- in our investor presentation, we actually disclosed the EBITDAR coverage ratios for our assets. And I think what you'd find is that they've been pretty stable across the portfolio.

That's very helpful. Look, and just going back to the potential for NewLake to uplist. Obviously, if we get a REG reschedule after the hearings, 100% of the business is fairly legal, supposedly, right, see how that plays out. But in the event that REG is not fairly legal and medical is, could there be potential for you to split the 2 companies and have a NewLake, I guess, leasing company that lends to -- that tenancy agreement with medical operators and have leased that company. Would that be a possibility or that would make sense in terms of efficiencies?

Yes. Pablo, I don't want to speculate on what we would do. What we're -- what we may do, I can tell you what we will do, which is once we have that regulatory certainty, we'll, as a Board, get together, look at the future landscape and make a decision about what is the best -- what's in the best interest of our shareholders. And if it's to pursue a transaction like that, perhaps we would. But if it's to keep the business together, perhaps we would as well. And so I don't want to get into the what ifs. Let's see how it gets resolved. I don't think we're going to have to wait very long given the hearings will be starting in late June and are supposed to conclude in July, and then it will take some time for the administrative law judge to deliver their report to the DEA administrator before we get a final rule. So we're not going to have to wait years, I don't think, for the outcome. I think we'll have to wait months, maybe a couple of quarters for the outcome, and then we'll make a determination of the best path forward for shareholders.

But from my point of view, that would not create so much opportunities for your company. A lot of those properties are already leased perhaps. The opportunity is going to come more -- and maybe it would be for the mortgage REIT or BDCs that lend against cash flow, if there's M&A, right? But if a company wants to acquire another one, I'm not sure that creates opportunities on your side, but please correct me if I'm wrong. But by the same token, what are you hearing about expansion plans in Virginia and Texas? It seems to me in the case of Texas, people are a bit of a wait-and-see mode in terms of more clarity on the regulations. And Virginia, of course, let's see what happens between the governor and the legislature, right? But any color there would help.

Yes, Pablo. So thanks for the question. Let's first start by reminding folks where we get growth in AFFO from. It comes from 4 main categories. Number one is our built-in escalators. As Lisa mentioned earlier, 2.6% annual rent escalators across the portfolio. And so AFFO grows from that. Number two would be the funding of any TI. At this point in time, we're at a low cycle with TI remaining with about $375,000 of TI to go out once that money is funded, we start charging rent on it. Third would be the leasing of our available properties that certainly would provide additional AFFO. And then fourth would be new transactions.

And so in the context of your question around consolidation, there's actually billions of dollars of real estate that resides on MSO balance sheet. So it will continue to be there even after a combination. Why it continues to reside there is because the cost of capital relative to the need for capital and the cost of capital objectives for the operators has not yet intersected. And so as our cost of capital comes down over time, with the normalization, hopefully getting on a better exchange, seeing the normalization of cannabis and the better valuation of the assets and cash flows we have. Remember, we have nearly 12 years of duration on our portfolio.

I think what you'll see is you'll see our offerings intersect with the yield targets that the operators are looking for, and it will no longer be economic for them to retain those assets significantly on their balance sheet. So I do still see the future for transactions for people to unburden their balance sheets. In terms of growth, you mentioned Texas. Texas has been a very, very nascent market, and that entire market needs to get built out. And so there will be meaningful investment needs in Texas. Georgia is another state that we're watching. We think Georgia can be a terrific state, and it's been another very nascent program that has had significant expansion in terms of conditions and what we think that market can become. And so there'll be investment needed there. Some minimal investment in Virginia and certainly, there'll be build-out necessary, but not to a great extent. And then there's new states that can come on. And we've heard Indiana and North Carolina talking about now considering medical marijuana programs.

And whenever those programs do come online, they will need capital to build out real estate just like you're seeing in Kentucky with their growing medical program. So I think there's plenty of growth yet to come in the future. It's a matter of how long it takes for those states to turn on. And the last point I want to make in your question was around the operators not being very active. I think what the operators are doing is showing a very prudent approach to capital allocation, particularly in Texas. We're not seeing a rush to build. I think operators are wanting to have durable reforms. They're wanting to manage their balance sheets appropriately before they take on expansion CapEx. They want to make sure that they have strong stability in their current operations. And I think that's a prudent approach.

And this now concludes our 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, and thanks to everyone on the NewLake team. Have a great day.

And ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

Good morning, and welcome to the New Lake Capital Partners Fourth Quarter and Full Year 2025 Earnings Conference Call. Today's call is being recorded. I will now turn the call over to Jack Perkins, Investor Relations.

Thank you, operator, and good morning, everyone. Joining me 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 under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to various risks and uncertainties. We will also reference non-GAAP measures, including FFO and AFFO. Reconciliations to the most direct comparable GAAP measures are included in our earnings release. With that, I'll turn the call over to our Chairman, Gordon DuGan.

Thank you, Jack, and good morning, everyone. We are very pleased with our fourth quarter and full year 2025 performance delivered against the backdrop that remains challenging for the cannabis industry with continued capital scarcity and inconsistent operator execution. .

For the year, we generated $51 million of revenue, $44 million of AFFO and returned $1.72 per share in dividends from our $2.09 per share of AFFO, highlighting the cash flow generation of our business. Since our IPO in 2021, we have paid $6.86 per share in dividends. Our team remains focused on disciplined risk management, retenanting where necessary and sourcing high-quality opportunities.

Our measured pace of origination reflects intentional discipline as we navigate the current environment and position the company for future growth once reforms materialize. On the policy front, the most notable development of the quarter was obviously President Trump's executive order directing the Attorney General to accelerate the process of rescheduling cannabis from Schedule I to Schedule III. This represents an important and constructive federal signal, but one that now requires decisive follow-through from the Department of Justice.

Rescheduling is critical to eliminating the burdensome 280E tax regime and supporting additional reforms that could restore access to capital, both foundational to long-term health of this industry. Like many, we are awaiting DOJ action. Until that occurs, we will continue to operate cautiously based on today's regulatory environment and maintain our disciplined risk-aware approach.

As we look into 2026, NewLake is entering the year with a strong balance sheet. We have more cash than debt. We have no expensive preferred stock and basically the lowest leverage ratio of any REIT that I'm aware of. We expect continued cannabis industry headwinds until reforms are ultimately completed. And I guess that backdrop, we will remain disciplined waiting for the opportunities that will come as the industry progresses.

Thank you for joining us, and I'll now turn the call over to Anthony.

Thank you, Gordon, and good morning, everyone. Fourth quarter results were in line with our expectations, delivering $0.51 per share of AFFO and an 85% AFFO payout ratio. Our full year results exceeded those of 2024, which is especially notable in a market where competitors reported year-over-year declines in both revenue and AFFO. Throughout 2025, our team remained focused on mitigating risk across the portfolio, addressing vacancies and sourcing high-quality investment opportunities. That's work that's continued into 2026. .

During the year, we closed 2 smaller transactions with our existing tenant Cresco Labs, and we partnered with tenants Curaleaf and C3 to optimize property performance and further reduce long-term risk in the portfolio. During our last call, we provided details about the C3 amendment. But as a reminder, that higher-than-expected construction costs reduced the attractiveness of the Hartford project, and we worked collaboratively with our tenant to structure a transaction providing a better risk reward for our shareholders.

Overall, our portfolio remains in solid position. Our top 3 tenants, Curaleaf, Trulieve and Cresco, which together represent more than 50% of our annualized base rent, each reported strong 2025 results, including positive operating cash flow. Curaleaf generated $1.3 billion in net revenue, delivered a 50% adjusted gross margin and produced $90 million of free cash flow.

Trulieve continued to demonstrate industry-leading profitability with 60% gross margins and $230 million of free cash flow. Cresco reported sequential improvements in gross margins to 52%, extended their debt maturities to 2030 and generated over $70 million in operating cash flow during the year. Having said that, the broader cannabis landscape remains challenging without federal reform, and we continue to proactively manage risk while seeking opportunities to strengthen the portfolio.

We're also closely monitoring developments at the cannabis, which remains in forbearance with its creditors following a debt default. In the first quarter of 2026, the cannabis completed the sale of its San Diego operations where we leased a dispensary. The new operator, Walgreens, has taken over the location, and we are pleased to welcome them to our tenant roster. In connection with the transition, we completed a lease amendment under which Walgreens assumed full operational control of the property, and we secured a 5-year lease extension.

This amendment underscores the property's strategic value within the cannabis ecosystem, enhances long-term cash visibility and reflects our disciplined, proactive approach to asset management in the portfolio. The transition also reduces our exposure to the cannabis from 9% to 8% of annualized base rent.

Turning to policy. While Federal momentum is encouraging, we remain appropriately cautious until a final rule rescheduling cannabis is published. Eliminating 280E through a move to Schedule III would meaningfully improve long-term cash flow fundamentals for our tenants and in our view, pave the way for additional reforms such as the SAFER Banking Act and broader state-level expansion.

In addition, shortly after our last earnings call, the President signed a continuing resolution that closed the long-standing hemp loophole from the 2018 Farm Bill. This loophole enabled a nationwide market for intoxicating hemp-derived THC products outside state-regulated systems. We believe this unregulated channel siphoned revenue from the state licensed operators. If fully implemented, as scheduled on November 12 of this year, the ban on hemp-derived THC could help stabilize pricing and support operator revenue growth in the second half of 2026 and into 2027.

The combination of these reforms, rescheduling and the elimination of Hemp-derived THC, once implemented has the potential to meaningfully improve industry fundamentals and by extension, our tenant quality. Importantly, we're not taking these reforms for granted nor are we adjusting underwriting or capital allocation based on anticipated policy outcomes.

With respect to our vacant properties, we continue to advance retenanting efforts, interest remains healthy, and we will update investors as developments become tangible. Our focus remains on thoughtful, risk-adjusted decisions designed to protect long-term shareholder value.

With that, I'll turn it over to Lisa.

Thank you, Anthony. For the full year of 2025, our portfolio generated total revenue of $51.1 million, representing a modest 1.9% increase from $50.1 million for the full year of 2024. The key factors contributing to this revenue growth include rental income from the 2025 acquisition of 2 Ohio dispensaries, a full year of rent generated from a property that we acquired in 2024 for $4 million, a full year of rent generated from funded improvement allowances during 2024 of $15.1 million and annual rent escalators that consistently boost our revenue.

The increase in revenue was partially offset by the impact of vacancies at 2 properties previously leased to Ayr and one property previously leased to Revolutionary Clinics. As a result of this modest revenue growth, we experienced a corresponding increase in our net income and AFFO. Net income attributable to common stockholders for the full year of 2025 totaled $26.3 million compared to $26.1 million for the full year of 2024.

AFFO for the full year of 2025 totaled $43.8 million or $2.09 per share, reflecting a 0.3% year-over-year increase. Moving on to the fourth quarter of 2025. Total revenue was $12.3 million, reflecting a modest decrease of approximately 1.4% year-over-year. This decrease was primarily driven by vacancies previously mentioned. During the fourth quarter of 2025, we applied the remaining Ayr security deposit of approximately $408,000 to partially offset unpaid rent amounts.

The lower rental income and additional property carrying costs drove corresponding declines in our results for the quarter. Net income attributable to common stock for the 3 months ended December 31, 2025, totaled $6 million or $0.29 per share. AFFO for the fourth quarter was $10.6 million or $0.51 per share, representing a 3% decline compared to the same period in 2024.

On December 15, 2025, the company declared a fourth quarter cash dividend of $0.43 per share, which was paid on January 15, 2026. This dividend represents an AFFO payout ratio of 85%. For the full year of 2025, our aggregate dividend totaled $1.72 per share, reflecting an AFFO payout ratio of 82%. Most recently, our Board of Directors declared the first quarter 2026 cash dividend of $0.43 per share. The dividends payable on April 15, 2026, to shareholders of record as of March 31, 2026. As of December 31, 2025, our balance sheet remains strong. with $433 million in gross real estate assets and only $7.6 million in outstanding debt.

Our leverage remains exceptionally low at 1.6% debt to total gross assets and a debt service coverage ratio of approximately 78x. Furthermore, we have no debt maturities until May of 2027. Our liquidity is solid with $106.3 million available, including $23.9 million in cash and $82.4 million in untapped capacity under the revolving credit facility.

With that, I will turn the call over to the operator. Operator, please open the line for questions.

[Operator Instructions] Our first question is from Pablo Zuanic with Zuanic & Associates.

Just following up on the comment on the Ayr security deposit that was applied to rental in the fourth quarter, just very basic math question trying to model. When all else equal, what would be the impact on the Ayr side? Because you still apply some deposits and escrow, I think, to rental income in 4Q, if you can explain that, please, quantify that?

Yes. So the 408,000 represents a little over 1.5 months of rent. So I guess it's approximately, yes, that's .

Just the $408,000.

Yes.

Right. Okay. So that's it. I mean that's all else equal, and I know that a lot of things can change, but at least based on what we know right now, that would be the major change when we tried to model 1Q, right? Or would there be any expense items that have cadence or that are different from 4Q?

Again, just it's a basic modeling question to start.

Yes. No. It would just be the $408,000. We already have the property carrying costs on balance sheet. I mean on the income statement. So those will just continue to roll forward.

Okay. And then, Anthony, in the recent IPR call, they sounded quite, I guess, positive or bullish on their ability to re-tenant facilities. I don't know if you share those comments from my point of view, it's taking a while to retain on the facility in Massachusetts from [ rep ] clinics. And I'm not sure where we are with retenanting the 2 Ayr properties in Pennsylvania and Nevada.

But if you can -- it's a 2-part question. Do you echo the positive sentiment from IPR? And then maybe just more color in terms of when and how you can return to cannabis operators or to people outside the industry?

Yes. Thank you for the question, Pablo. We've been at this now over 7 years. We talked to a lot of operators. We're very cautious about this industry. Given some of the stuff we talked about in the prepared remarks, the fact that this industry lacks access to regular [ way ] capital, the onerous 280E taxation on the industry and how that limits capital flows to the companies. .

And so while we have seen a modest pickup in interest in the vacant properties, we're just going to continue to be very cautious. I would say specifically about Massachusetts, there are some structural changes to the state regulatory approach, such as increasing the cap on dispensaries that any one operator could own that is part of driving some renewed interest in the sector. And so while we're having some activity around our properties, we won't be announcing LOIs. We're only going to announce actual lease activity. And so while I'm cautiously optimistic, we're certainly not going to strike the tone here at New Lake that we think everything is great, and we're going to be able to backfill these properties with no problem. That's not our position.

And I would just add to that, Anthony, that I agree with everything you said. And we are seeing a modest pickup in activity and operator interest in expansion and we do have activity on all 3 sites. But it's tough getting a lease across the line on any of these. So we're as Anthony said, I think we're very appropriately cautious about announcing anything ahead of getting something done.

That's good color. I appreciate it. And then just moving on to cannabis on acreage. And again, I know there's only so much you can share about these companies. I realize you have access to data that is not public, so you cannot comment on that. But in the case of cannabis, you talked about the California properties or [indiscernible] that's been with the new operator. But can you comment on the other cannabis operations, I mean, cultivation, dispensary in [ Lenoir ], cultivation and dispensary in Massachusetts. Are they operational? And I guess, as an analyst, I should know that, but I'm not -- are they operational?

What color can you share if not from the operator or a bit more at the state level. And the same question regarding acreage cultivation in Massachusetts and Pennsylvania. Whatever color you can share, Anthony. I mean, from my point of view, those are 2...

Yes. From what we know all those properties are operational. Is it possible they closed down yesterday. It is -- I'm only limited on what we know we don't run the properties, but it's our belief that they're all currently operational. Obviously, Illinois is a better state to operate in. For those familiar with the industry, then it would be safe for Massachusetts. .

And we take some comfort that acreage is owned by a very large Canadian company, albeit having a ring-fenced structure, but that transaction closed only a little over a year ago, and I think Canopy sees meaningful opportunity long term in owning and maximizing the value from a U.S.-based like acreage.

And so I think you could look at the first quarter dividend announcement and also connected with that if we had something material to tell you, we take transparency with our investors very importantly. And so we would have announced something. But as we stand here, all of our tenants are in compliance with their leases.

Nobody is in a default position when we sit here today.

Maybe just a little extra color on that. I would you picked on exactly the 2 right tenants to focus on. And I'd be more worried about cannabis and acreage, and we'll just have to see how they both play out. But acreage has been prompt and paying rent. And cannabis, I think, similarly up to now, but they have defaulted on their forbearance on their senior debt. So we're watching that very closely.

Right. That's great color again. Just moving on. In terms of the Connecticut property that's held for sale in your balance sheet, I think if I read correctly in the 10-K, if that property is sold above your book value that goes to C3, if it's all below book value, C3 is responsible for that. Can you clarify that? And correct me, if I'm wrong, in my interpretation.

You're correct, but I'd provide an amplification around if it's sold above market value there is a corridor of value. C3 participates so they can recover some of their very significant investment into the property. But beyond that corridor, premiums on the property come to NewLake. And you are also correct, and I would reiterate that the extent that there's even a $0.01 below our basis, we are reimbursed 100%.

Right. But what happens if the property is not sold for a year or 2, I mean, the agreement remains in place, I suppose, right?

Yes. It continue -- they continue to be a tenant and they continue to pay rent while we're seeking a sale of the property.

Okay. Sorry, I didn't realize that. So that property, although it's held for sale at the moment, it is paying rental and it's current.

Yes.

Correct. Yes. .

Just moving on, and apologies if there's someone else on the Q&A line here. In the case of our IPR, in their conference call, they disclosed that they've been served by the SEC. There's a bit -- I don't know what that exact legal terms of investigation. When I hear things like that, I wonder if there's any [indiscernible] for the rest of the industry for other sale leaseback operators. I mean, obviously, we had been served, you would probably issue a press release on that.

But in my opinion, when there's this type of investigations, they are not just company specific, but we can be looking at the industry and practices in the industry. So there could be some minimal readouts for NewLake. But again, please correct me if I'm wrong.

I don't believe so at all. Let me be clear. We are not under investigation. We have not received any SEC increase. We do not have any subpoenas from the SEC. And we take transparency and investor communication extremely seriously. As you could tell from the way we've been doing this for 5 years, we try to be very upfront about issues in the portfolio about the condition of our tenants.

I don't know, Pablo, that there really is a read-through from this if you look at the disclosure, and that's really all that any of us have to go on right now. If you look at the disclosure, it looks like it was an outgrowth of their class action lawsuits that we're pertaining to the transparency of the disclosures of the company need. We don't have any class action lawsuits. We've never been accused of not being transparent in our communications with investors. So I would not think that there is a read through to others or leaseback providers.

Okay. And the very last question, and I know you touched on the policy front, and we know that uncertain, although we are all positive at the federal level and state level. But can you give more color in terms of your conversations with operators? Are people trying to get ahead of [indiscernible] Sylvania and that could lead to discussions that are more positive and constructive right now in terms of future opportunities for NewLake.

And by the same token, like you said, with rescheduling the credit quality of your operators, tenants improves more business. But it's all this news flow translating into more active conversations with operators of their -- or not really yet. Am I putting too much spin on this right now.

It is, but to a small extent. I would say that similar to what we saw in Florida, before the ballot initiative. There were some operators that were building up -- building out in anticipation, a large majority, we're awaiting the actual results. I'd say in Pennsylvania, it's a similar thing. We've heard of a couple who are thinking about and looking forward to some expansion others and many of them are not.

And so it's a mixed bag. I would say that the level of activity for us has increased in terms of looking at new deals, has increased in the first quarter from the fourth quarter. But I don't want to give you the impression that it's up tenfold that it's a massive pipeline. It certainly isn't that, which quite frankly, is a good thing because it tells me that this industry is remaining disciplined about its CapEx obligations because even though we fund for real estate on any of these projects, there's a meaningful amount of equity investment that an operator needs to put into a cultivation facility or a dispensary in terms of equipment, people training and other various expenses to get these facilities up and running.

And so I think people are being generally judicious about not leaning too hard into the what can happen. You're doing a research, having the conversations, but I think being appropriately cautious.

And I would say it is -- I think it is fair to have a more positive outlook on that. We're seeing more operator interest in places like Massachusetts, Virginia, hopefully, is close to some positive momentum in Pennsylvania, you mentioned. So yes, it feels like, for the first time in a while, the operators are modestly better and more optimistic. It's really been -- the industry has been tough.

And it does feel like some green shoots are appearing.

That's very helpful. And again, I would say congratulations to the team for having maintained the throughout in a very tough environment.

Our next question is from Craig Kucera with Lucent Capital.

Sorry, Craig, you had to wait so long. Those are good questions. So that was useful.

Yes, they were. Yes, absolutely. So I've got a few follow-up questions on cannabis. So I guess, you were able to get the California asset retenanted without any real downtime, obviously, were the lease terms? I know you mentioned this a 5-year lease, but as far as the rent, was that more or less in line with what cannabis was paying?

One clarification. It's not a 5-year lease, it's a 5-year lease extension. That was an extension. So we added duration to that lease generating from an NPV perspective, as you know, we created value by getting that lease extension. Cannabis...

What was the [indiscernible] term?

We had about 6 years remaining.

Yes. So we pushed it out to 11 yearsobviously, or roughly.

Yes. .

Yes, go ahead. Sorry, Anthony. .

No, no, go ahead, Gordon. .

Rent was not adjusted.

That's helpful. And of the remaining 4 assets that cannabis has leased, can you give us a split of how much is coming from Massachusetts versus Illinois?

It's about half and half. In Illinois, we have a dispensary and cultivation and we have the same in Massachusetts.

Right. Okay. And do those leases kind of have your standard, call it, 6-month rent deposit affiliated with them?

The deposits vary on those leases. It's not 6 months. It varies sometimes you have a little bit more on cultivation, a little bit less on dispensary. But if those go into default, we have an announcement, we'll talk about the security deposits associated with those.

Okay. That's helpful. And just one more on cannabis. I guess can you give us a sense of the rent coverage of those assets? Are those kind of in line with your -- I think you typically have maybe 3.5 on the cultivation, 9 on the dispensary. Are they in that kind of ballpark range?

We don't disclose specific property level asset-by-asset coverages. The way, I'd answer your question, is by focusing on the state's operating environment. And I think what you would find is that Illinois, given the size of that market, given the more limited license nature of that market, has a better operating profile overall for cannabis operators in the state versus, say, in Massachusetts.

We've spoken many times over the last couple of years about the difficulties in Massachusetts, primarily driven by the lack of ability to become vertical with the cap at 3 on dispensaries, but also the proliferation of cultivation licenses that occurred over the last 4 years. And in fact, the state has taken notice and recently in February, regulatory commission hearing, the CCC was requesting input on a potential moratorium for new cultivation licenses.

And so that's part of what's driving some of this increase in interest in Massachusetts because with the moratorium, it could make the state dynamics better and provide a better floor support for wholesale revenue there and couple that with the increase in the cap on dispensary ownership, where the legislature is approved a bill that would let you go to 6. The house is approved one that lets you go to 4, and they're in reconciliation right now. Those are some of the tailwinds that people are feeling a little bit better about Massachusetts today. But coming back to your question, Illinois is an easier market to operate in than Massachusetts.

Right, right. That's helpful. Changing gears, last quarter, you mentioned that you might look at expanding outside of the cannabis sector. this sort of improving legislative environment momentum, maybe put that on pause? Or are you still valuating maybe an expansion outside of cannabis?

We continue to evaluate all opportunities to deliver growth for shareholders. So yes, during the quarter, we were evaluating non-cannabis opportunities. And when we think there's an opportunity for good risk/reward, we'll present it to our investment committee and ultimately the board for approval.

Yes. If I might just add to that. I think there is some subtle positive momentum that would raise the bar on noncannabis opportunities, given some positive momentum. And almost without exception, we still find the highest [ app rates ] in the net lease sector in the cannabis sector. So it's a tough bar, most of the alternatives that we've looked at, some of them are, we think, attractive, but they're lower return alternatives.

And that's always been sort of the premise of the cannabis sale leaseback, very high returns, higher risk. And I think we've navigated that very well. But it's still -- the bar -- the positive momentum from the regulatory standpoint has probably raised the bar in a subtle way for doing something outside of it.

That makes sense. Just 1 more for me. You mentioned the strength of the public companies that represent, I think, about 50% of your portfolio. And obviously, we can look at that and there's a lot of visibility into their operations. But can you talk about your private tenants? Are you seeing any degradation in [ 4-wall coverage ] or any concerns there?

No, and you point out, we can't discuss their specific profitability, but they are performing as expected, and that's not a negative -- they are performing well. We have some private operators that have profit and cash flow profiles that people in the industry would love to have that financial performance. But we are -- everybody is performing in line with our expectations. .

There are no further questions at this time. I'd like to hand the floor back over to Anthony Coniglio for any closing comments.

Thank you all for joining us today. We appreciate your continued support, and we look forward to updating you in the months ahead. Have a nice weekend.

I have the pleasure of introducing the CEO of NewLake Capital Partners, a sale-leaseback operator, Anthony Coniglio. Anthony, welcome.

Hi, Pablo, how are you?

Doing fine, doing fine. Look, I mean, we're all waiting for that well. We were waiting for January 31, right? But now we're waiting, I guess, for February 15, from February 28 but we'll get to that. The focus of the call for the audience, it's about sale-leaseback about the NewLake Capital Partners business, what the stock can offer in the current macro context. And of course, we're also touch on macro things like rescheduling.

Anthony, a brief introduction about NewLake for those who are not so familiar with the company. And if you can try to benchmark your company in general top-down terms, your performance, growth, book, profitability defaults versus other -- the other sale-leaseback operator in cannabis, IIPR versus noncannabis sale-leaseback operators and then we'll come back to more NewLake specific questions later on. But whatever color you can give there would be good here at the start.

Great. Well, Pablo, thanks for having me. There's a lot there. We'll get to all of that. If I miss some of what you asked, please, I'm sure you'll redirect me. And so for those that aren't familiar with our company, NewLake Capital Partners is a net lease REIT. We are the second largest owner of cannabis real estate in the U.S., and we're a sale-leaseback REIT. And what that means is that we purchase properties from and for cannabis operators. And we enter into long-term leases for them to operate, whether it be a cultivation, processing or dispensary at that particular property.

And to give you a sense, we have a 12-year remaining weighted average lease term. And so you can see that there's a meaningful amount of duration. I'm sure we'll get to that more later. And we also have a yield on our leased portfolio of approximately 13%. And so if you're in the real estate world, you'd be talking cap rates. And so when you think about cap rates, having a cap rate that averages across the lease portfolio of about 13% is above market, and I think that reflects the risk that we take by focusing on the cannabis sector.

Listen, our business model, as you know, Pablo, is very simple. We enter into long-term leases. We collect monthly rent. And as a real estate investment trust or REIT we're required to pay out quarterly distributions to our investors. So we collect rent, we pay out a dividend on a quarterly basis. As we sit here today, we own 34 properties across 12 states with about 15 of those properties structured or built for cultivation capacity and the other 19 of those properties are dispensaries. Our top 3 tenants to give folks a sense for it would be names like Curaleaf, Cresco and Trulieve that represents about half of our annualized base rent.

To give you a little bit more color on the business, founded in 2019. So we've been at it for a while. We've been at it for about 7 years now. I think we're one of the older ones that have been focused on the space. We went public in 2021. And since becoming a public company, to give you some sense, we've grown our dividend about 80% since our IPO in mid-2021. So we had significant growth with the marketplace. I will say that, that growth is somewhat leveled off as we've been a bit more judicious in the deals that we've been looking to do over the last couple of years. As we've seen the sentiment and the environment for cannabis, let's just say soften. I'm sure we'll get into that. I'm sure we will get into that.

Non-cannabis REITs, you asked me to compare ourselves to non-cannabis REITs. If you look at non-cannabis REITs their yield tends to be lower. It's a different risk profile. There are REITs out there that focus, say, on retail-only facilities or industrial facilities or cell towers. These are regular way real estate categories that may have cap rates in the 6% or 7% range or average around 6%, 6.5% to give you a sense. So we're meaningfully above that. And again, we're taking significant risk.

In terms of comparing ourselves to IIPR, as you asked, we do the same thing as they do. Now they've made an additional investment outside of cannabis. We've not done that. We've announced that we always evaluate deals outside of cannabis to look for quality opportunities for our investors, but we've not made any investments outside of cannabis.

But pretty much the same type of model. And you might be getting to this, but some people would say, "Well, geez, Anthony, why are they listed on the New York Stock Exchange and you're only on OTC?" Well, we operate our business to list on New York and NASDAQ, but they won't have us because we focus on cannabis exclusively. IIPR went public before the rules changed and they were grandfathered on to the New York Stock Exchange. They weren't kicked off, so to speak. So that's a little bit of a difference for us.

That's great color. And then just one quick follow-up in terms of the comparison with the non-cannabis sale-leaseback operators. Do you have a sense of where they are in terms of dividend yields or maybe a discount to NAV. Any color there?

Yes, you would look that they generally trade around that net asset value, some a little bit above, some a little bit below and their dividend yields for the net lease REITs would be in the mid-single digits, call it somewhere around a 6% to 7% dividend yield. And I'm sure we'll get an opportunity for me to talk about why our dividend yield is so much higher and how we think about that and how we think investors should think about that.

Yes. No, that's good. That's great. Thank you. That's great color on NewLake. I mean we'll touch on macro themes now and then we'll come back to NewLake later on. But just talking about what I call the finance company sector in general, right? And there, I'm talking for those who are not so familiar, maybe explain the differences between sale-leaseback operators and mortgage REITs and BDCs, in terms of duration, in terms of interest rate exposure, in terms of what you offer, right, versus those.

And then by the same token, when does it make sense for the borrower, in this case, cannabis operators, when does it make sense to be choosing between your services, a mortgage REIT or a BDC? Because it would seem that you're competing for the same pie, but to some extent, perhaps it's a different track, right? So if you can give color there, let's start with that first.

Yes. Listen, I think it's a great question. And it actually creates some confusion in the investor base because people think of these business models as competitors. And that is true to some extent, but by and large, I think of these as separate products that are appropriate for different situations and different transaction objectives. So let me go a little bit deeper there.

If you think about BDCs or business development companies, they're generally more focused on underwriting cash flow and looking more like a private credit investor. They have regulated leverage and they tend to be more hands-on or have a more hands-on approach to monitoring the investments and being involved, not necessarily day-to-day decision-making, but they generally are more involved in an active dialogue with the management teams and they tend to be shorter duration.

For mortgage REITs, those are organizations that focus on transactions with real estate as the underlying collateral. So yes, they're also looking at cash flow profiles of the companies, but they're valuing the underlying collateral of the real estate that the company owns and they're making an advanced based off of that real estate. And then compare that to us as a sale-leaseback REIT, we acquired the property for that full price. We acquired the property and then we lease it back on a long-term basis.

And as I said earlier, we have a 12-year remaining weighted average lease term. We'll enter into 15- to 20-year leases, may be a little bit shorter on the dispensary side. But if you're a BDC or a mortgage REIT, you tend to enter into 3-, 4- or 5-year transactions, so it's shorter duration. So when I get to this concept of their for different scenarios, I think it really depends on what the company's objective is to determine which lever they want to pull. I think if they believe that there's something transformative that will change their cost of capital in the very near term, they may opt for a shorter-duration product like a BDC or a mortgage REIT.

If they don't have real estate, well, then obviously, a mortgage REIT or a sale-leaseback REIT doesn't make sense. They need more of that cash flow lending directly from a BDC. If they're proceeds focused, so if they own a piece of real estate and getting it from a lender for a 2- or 3-year period would only result in a 75% advance rate by selling it through a sale-leaseback REIT, you typically can maximize your proceeds and get in that example, say, 100 cents on the $1. So if you're proceed sensitive, you may indeed want to do that. If you have other maturities coming up, you may decide that you don't have the ability or you don't want to have the bandwidth or the suck on your time 2 to 3 years from now to go out and have to refinance or worry about refinancing, and you might like to put away this part of the capital structure. And so those are the primary differences.

I'd say that it's the fact that we own the underlying property. We have a longer duration, and we tend to give greater proceeds. And in many cases, that works for people. In other cases, it doesn't work. And the last point I'd say on this is look outside of the cannabis sector and look at regular way industries, and you see companies like FedEx, Starbucks, Walgreens, Home Depot, industrial and retail business or I should say, businesses that utilize industrial and retail properties, and they're utilizing sale-leaseback as a component to fund their real estate needs. Some of them are also using potentially real estate borrowing facilities as well as general credit facilities and maybe high yield or high-grade bonds to fund their capital structure. So it really, I think, depends on the situation in each product fits for a company's needs at a particular time.

Again, that's great color. Look, just a couple of quick follow-ups there. One, why is it that sale-leaseback hasn't made inroads in the Canadian market, right? There's a lot of cultivation there. There's been a capacity that needed to be funded. Was it just that there was a lot of capital available? Because as you said, in the U.S., in the non-cannabis sector, sale-leaseback it's also a common way of financing your business, right? Why is it that sale-leaseback hasn't made inroads in Canada? Or is that an opportunity later on for yourselves?

Well, I think the opportunity internationally, and maybe we can get to talking about internationally, the opportunity internationally is there. In fact, we are going to look at a deal that was recently sent to us in Canada. But why I think that it hasn't been a greater opportunity is because the significant growth in the Canadian real estate needs around cannabis coincided with the legalization in Canada of cannabis. And so that meant that the organizations could have direct access to the banks and in the early days, I think some of those banks stepped up. I also think and it's probably a more relevant point is the one you made, which was there was a lot of capital available. And so a lot of these organizations had the excess capital available to be able to put into these into these facilities.

And we've seen, I think, over the last couple of years, we've seen some sales of those properties not necessarily in sale-leaseback structures, but sales of those properties as they've downsized their operations and they've sought to optimize their capital structure.

And one last one, just on the same topic, again, for the borrower, I know it's very difficult to talk apples-to-apples, every case is different. But in terms of cost for the borrower, whether you're looking at a BDC, they're looking at a mortgage REIT or they're looking at a sale-leaseback, what would be the difference in cost? And I know there's a difference in duration but -- and maybe it's not the right way to think about it, right? But is sale-leaseback typically going to be cheaper, but you're just in it for the long term, for a longer period of time. How do you think about that? Or how should the operator think about that?

I think typically, the entry cap rate for a sale-leaseback transaction is less than the coupon that you would pay on a mortgage REIT transaction or a BDC transaction. And there's reasons for that because the -- we actually own the property, right? So if there's a default, we can put the tenant out of the facility, we own the property, we don't have to go through foreclosure. So our risk profile is different. And from the operator perspective, if they believe, again, that their cost of capital would come down significantly, then they would say, "I don't want to lock in a longer duration cap rate of, call it, 12%, I'd rather pay maybe 15% of a coupon for 3 years thinking that my cost of capital will go down significantly."

And in fact, back in '21 and '22, we had this very conversation with folks. In '21, a lot of organizations stepped away from what would have been 11%, 11.5% cap rate transactions only to take mid-teens debt thinking that by '24, they were going to be 300 to 400 basis points cheaper, if not more, on a borrowing basis, but yet that never materialized for the industry, that's not specific to those companies, that never materialized for the industry. And so the borrowing rates in the industry have maintained high.

And so from a cash flow perspective and from a cost of capital perspective, for many of those, it would have been more beneficial to execute sale-leaseback transactions then to enter into the higher rate debt transactions. And again, some people weren't proceed sensitive, so maybe it was better off. So the short answer to your question is we're typically lower, but because it's longer duration, I think some people decide they want to pay the higher for the near term with the expectation that they'll be repriced pretty quickly...

Right. But on that same point, apologies for that. In the current environment that we're seeing interest rates come down, right? We don't know when the next rate cut will come, but the assumptions that interest rates will continue to come down. Does that put pressure in the sale-leaseback business compared to the shorter duration products right now in the current context?

No, I don't think so because you look at the disclosures for some of those others, and there's a meaningful portion of those transactions or fixed rate transactions. Even for the floating rate ones, you get another 25 or even 50 basis points. When your borrowing rate is 12%, 13%, 14%, yes, every little bit helps. But I don't think that -- I don't think that's a meaningful component of the decision tree for people.

Got it. And before we move on, just in terms of the sentiment on the sector in general, in terms of finance companies, not just cannabis, does the current malaise, some people use that term, sentiment wise on private credit, also impact sale-leaseback operators if you can touch on that. And also, how does the current macro volatile macro climate from an economical and geopolitical point of view, impact the sale-leaseback operators? Or is it just a more steady sector that's less impacted by those type of issues?

Yes. I don't think sentiment around private credit really impacts NewLake or even those that operate in the cannabis industry. I mean, there are a few of us left that are focused on this sector and providing capital to the sector. And I think that the availability and pricing of that capital is really focused on the quality of the portfolios and the quality of the business that's being done and not so much on some of that externalized input that you're referring to. I think for others outside of this industry, maybe it has an impact, I don't think it really has a meaningful impact on us.

Right. And just moving on, but similar conversation. In terms of the pitch to investors, right, that can go on by cannabis, mortgage REIT, cannabis BDC or cannabis sale-leaseback operator, what's the pitch to investors in that sense? Sector wise, not so much...

Sector wise, yes, listen, I think it's a different way for people to express a view on cannabis and to play cannabis reform. I think if you focus on a yield-oriented product like a REIT model, whether it's equity REIT, mortgage REIT or like a BDC, I think you're getting current income on a quarterly basis to compensate you while you're waiting for that catalyst to occur. Because these are asset-heavy businesses, I think the volatility, both downside and upside is less than if you were to go into a direct operator. And so while you will get paid for that patient and you'll benefit from reform in my opinion, from these yield-oriented investments that focus on the cannabis sector, you won't get the 5x or 6x or 10x that people are hoping on some of the cannabis operators that will occur over time.

I think you'll get certainly appreciation in share prices as demand for shares go up and you see the way a lot of these platforms are trading relative to their NAV or relative to the dividend yield, which I hope we get an opportunity to talk about. So there's upside to the share prices, but it's not going to be a 2x or 3x. It kind of would be like having your cake and eating it too, getting paid current income, taking chips off the table, so to speak, while also having that upside.

So let's touch on that. You talk about the dividend income. So now comparing NewLake as an investment for retail investors or institutional investors, so they are versus investing directly in plant-touching cannabis stocks. I mean how would you make that comparison? You just made a comparison between BDC, between mortgage REIT, but now let's compare an investment in NewLake versus investing directly in the plant-touching stock.

Yes. Again, I'd say it's more of what I just mentioned, which is I think the stock price is lower volatility than you would have from the plant-touching businesses. I think that when we consider reform, we think about new investors coming into the sector and paying attention to cannabis and even ultimately, capital providers stepping in, I think you'll see that, by and large, the REITs will end up benefiting their cost of capital first before the operators because those that come in are more likely to want to put capital with a diversified portfolio of commercial real estate or a collateralized lending portfolio, say, in the case of a BDC. And so that will allow us to decrease our cost of capital as we look to serve the industry and do new transactions.

And the operators, again, I think, will take a little time. And that's what we saw in '21 and '22. And a lot of the facilities that were announced, I think the REITs and the BDCs tended to lead that before those, by and large, became widely available to the sector itself. It also makes sense if you're a bank risk manager, you're going to feel more comfortable with the diversified portfolio of commercial real estate than you will with a particular company in their operations. And so again, it's that do I get paid current income to wait and potentially benefit from the catalysts or do I go with the higher volatility and potentially have greater upside but not get paid anything while I wait for that.

So -- but on that point, again, I'm talking to investors out there, right? So the dividend yield is in the low teens, right, low mid-teens sometimes. So very attractive in that sense. But there's been some volatility also in the NAV, right, on the discount to NAV. I mean, how would -- what's causing that? Is it just marketing inefficiencies, the lack of liquidity? Where are we at a level? I know we cannot forward guide, but are we at a level where the discount on NAV, it's unlikely to worsen? How would you think about that?

Well, if you look at the balance sheet, the NAV on the face of the balance sheet hasn't been volatile. It's been -- the NAV per share has been fair...

Discount to NAV...

This is more a function of the stock price, right, which is also impacting that dividend yield. And so when we look at the dividend yield, so I don't think that there's a story around the discount to NAV. I think when people look at REITs in general, they look at it more of a yield play, and they're looking at what's the yield I'm getting paid relative to the risk profile. I'm sure people do look at NAV, but I think more for us people are focusing on that yield as opposed to the NAV.

And when we look at our yield, and you look at a high yield like this, particularly when the other non-cannabis REITs are trading in that mid-single digit range on a dividend yield and people see a double-digit dividend yield. Two things come to mind. One is they think there's a leverage problem, and two, they think there is a dividend cut around the corner. So why don't we address both of those? Number one, from a leverage perspective, NewLake has a little over $7 million outstanding on over $400 million balance sheet. In fact, we're in a net cash position because if you take the over $20 million of cash we had on the balance sheet, we have net cash on the balance sheet, right? We just paid down the debt tomorrow.

So very few REITs that are in a net cash position that have such little leverage. So it's not a leverage issue. And we do have available capacity under our $90 million facility to be able to do new transactions and grow the portfolio. So clearly, it's not a leverage. So then it must be a dividend issue. If you look at the most recent quarter that we announced, an 82% payout ratio. And so for those that are not familiar with the real estate investment trust or REITs, the key measure for us is AFFO or available funds from operations. That is our measure of free cash flow.

And as a REIT, we are required under law to distribute 90% of our -- a minimum of 90% of our taxable income. But because we have significant depreciation, that's never really an issue. We target a payout of our free cash flow between 80% and 90%. So at 82% payout ratio in the third quarter. And we did make commentary. I think you even asked a question on our call, we made commentary that with AYR coming back into the portfolio as a vacancy that we were going to see that payout ratio drift over the fourth quarter and into the first quarter to get up closer to 90%. And so still expect it to be within that range between 80% and 90%.

So we could also absorb additional delinquencies, additional issues in the portfolio and still have room before where you start to exceed our cash flow. So having a well-covered dividend, is something that I think when we talk about high dividend yields and worrying about dividend cuts that people have. Now there are some out there that when you look at their payout ratio, which is well in excess of 100%. So that would mean that some of the competitors out there have not enough cash flow to actually pay their dividend, which means they're utilizing capital to meet the dividend obligation. And that's not sustainable. And so in those cases, investors say, well, I expect that dividend will need to get cut because typically REITs should not be paying out more than their free cash flow.

And so I think we get painted a little bit with that as well. And so people then ask, well, if it's not leverage, if it's not dividend, then why are you trading at this high yield and I think it's because we are trading on the OTC. Again, we qualify in all respects to be New York and NASDAQ, but I think the fact that there is limited institutional demand for NewLake stock because of the custody issues, that a lot of people have talked about, because of the custody issues, I think that limits the amount of institutional investor base that is available to recognize that high dividend yield disconnected with the reality of where the balance sheet is and what our payout ratio is.

Look, I mean, the last question in terms of -- on the same topic, and I'm sorry to go back to it, but in terms of talking to investors, right, let's say, I'm an investor, I'm looking at buying NewLake shares, just very focused on the dividend yield, attractive, well covered, like you mentioned, but I think as an investor, I also can be worried about the discount to NAV, right? This is not a fixed income security.

And although your NAV has been stable for the most part, right, the discount has moved, right? So as an investor if I'm coming to the stock, but not fully educated on the story, right? I'm looking at that low mid-teens dividend yield, should I worry the discount to NAV to expand or what could cause that discount or maybe it's pretty safe? There's not much room for it to expand in terms of this come to NAV.

Listen, any investor that's looking at an investment in NewLake or any other company shouldn't worry that at all, right? So absolutely, they should be looking at that. So let's talk about what impacts net asset value per share. So obviously, the share price going up or down, on a constant NAV. The other aspect that will impact that would be if we were to sell a property at a loss, right? And so we book -- we're not marking up the value of our assets, right? Our assets are booked at our acquisition cost and we're depreciating those assets over the standard 38-year depreciation.

And so the things that could impact that NAV would -- on our balance sheet would be -- if we were to take an impairment, if we were to sell a property at a loss, those are the types of things. But I believe when you look at investing in REITs, you should be looking at that yield. I just keep coming back to it. And so the value of our properties, if we're getting a 12% yield, 12.5% or 13% yield off of our rented properties, that's much more valuable than if the same properties were rented out at a 6% yield if we are focusing on carwashes as an example, or we're focusing on strip malls where maybe that yield is less. So obviously, if a property can generate more cash flow over a longer period of time, that property should be worth more.

Okay. Got it. Look, I'm going to shift the conversation now in terms of opportunities for you outside of plant-touching companies in the U.S. I'm going to ask a few and you can touch on them. Would you enter tenancy agreements outside countries? You mentioned them at the beginning, I think you may be looking at them. Can you deal with -- can you also deal with non-plant-touching companies in the cannabis ecosystem? I don't know if sale-leaseback would apply to a company offering picks and shovel services or tech services or others.

Do you see opportunities for NewLake in the hemp industry? Or is that of limits due to unclear regulations? Could you also enter deals with customers outside the U.S., right? You mentioned Canada, what about Europe? If you can touch on all of that, please?

Yes, quick answer and then I'll go into detail is yes to all of it except for hemp, and we'll talk about it. So the first was outside of cannabis. We were asked a question during the third quarter about do we ever look at deals outside of the cannabis sector? And the answer is yes. But I want to be clear, it's not a haphazard "Hey, we'll look at anything." We think that we've built a core competency -- a core competency around complex operating businesses that are highly regulated and often out of favor with mainline funding organizations. And so we're looking to extend that capability to other asset classes. And so that's the screen through which we are evaluating other opportunities. And so we've been doing that for a while, and we always do that.

In terms of non-plant-touching companies in the cannabis ecosystem, for sure. Yes. I mean there's less real estate requirement for the non-plant-touching companies, particularly if you're a software provider, if you're a flow hub or if you're some of the other organizations, very, very light real estate footprint that is typically more office space than it is industrial or retail. But yes, no reason we couldn't provide capital to those organizations.

And then you mentioned overseas, and then we'll finish up with hemp. You mentioned overseas, yes, you and I saw each other in Europe a couple of times last year. We've been paying attention to that market for about 18 months now watching it. We've even looked at a couple of deals, whether it be in Germany or in Portugal, in Canada. We've looked at some as well. The cannabis industry is international, but it continues to evolve. And one of the reasons we haven't yet pulled the trigger internationally is because I think the sands are still shifting when it comes to a regulatory environment.

So even in Germany, where there's a lot of excitement and there's a lot of growth, I still think that you could see a regulatory structure that's different 3 years from now in Germany than it is today. It doesn't mean that they'll roll back adult use, but that does have an impact, depending on the regulatory structure does have an impact on a particular property and its value in the cannabis ecosystem for that jurisdiction.

So yes, we're always looking at international opportunities. And then lastly on hemp. I just think it's way too much volatility for us to spend time looking at hemp right now. There's an existential risk on the horizon. I think it's November 12. Maybe it's extended, maybe it doesn't. How do you underwrite that. And so for us right now, we're going to hold off on focusing on those types of opportunities.

And just on the point on Europe, although Germany continues to grow, what we are seeing is just imports grow, right? And more Canadian producers expanding capacity in the case in Canada or even acquiring capacity. So I wouldn't be surprised to see opportunities for you all in Canada.

So just moving on now to rescheduling. We want to touch on from different points of view. But first, the impact from the cannabis -- the positive cannabis regulatory news flow in your business. Is there more demand for your services, let's say, since December 18 because of the announcements that came out of the White House? And also, while operator cash flow should improve because of the removal of the ADE and the increase in the credit quality of your tenants, there could also be more competition, right, from other credit suppliers. I mean I don't know if this is true or not. But what are you seeing so far in terms of demand for your services? And given the positive news flow and more competition potentially on the credit side?

Yes. So it's still new. Let's remember, this is only 6 or 7 weeks -- well, there I go right, 6 or 7 weeks ago, the announcement happened and then we had holidays in between. I would say there's definitely more chatter. We've seen just the level of dialogue we're having with different participants in cannabis is definitely elevated over the course of January.

Does that result in future deal flow? Yes, it probably does. We look at Schedule 3 really as the catalyst. It's a catalyst for so many things. It's a catalyst for potential credit improvement, it's a catalyst for new investors to come into the sector. It's a catalyst for states to expand medical programs, catalysts for states potentially convert from medical to adult use, new states to adopt a medical cannabis program. And so that will lead to, we think, a series of opportunities over the course of '26 and '27. And so it's an undeniable positive to have had that executive order.

The reason I say chatter and not deal activity is because I still think this is very much a, "Hey, we've got an executive order, but we need to see it filed." I think people certainly expect that there will be lawsuits once the final rule is filed in the Federal register, but people want to see the rule get filed in the Federal Register. So it's not just another politician saying, "Hey, we're going to do this without getting that actual real reform."

Now I think most people believe that it will happen. And as you started this segment off -- we -- you started off with why people were waiting for January 31? Is it February 15. Who knows? None of us know. But I do believe it will happen. I really truly do believe it will happen. And that's when I think that chatter converts into more tangible opportunities.

Right. And on the same topic, right, and this is an assumption, let's say, we get the final rule by December -- by February 28. When does Schedule III become effective for 280E purposes from what you are hearing. There's some debate on that. Does 280E get removed from 1st of January? Does it get removed from the day of the final rule or do we have to wait for it to be enacted after the litigation is clear. What's your opinion in that regard?

That's certainly a question for a tax accounting. But based on the conversations we've had, it would apply for the tax year, that's what I've heard. Now I think that could be a fluid conversation. I think it depends what is filed, if anything, is filed in the Federal Register if there's any guidance that comes out. With that, but that's what I've heard most people talk about, which is when you look at 280E, it says you can't deduct it doesn't say for the day specific. It says you can't deduct for it. And so unless there is a specific date in there related to 280E, I think people will take the liberty and assume it's for the full taxable year and then let the IRS come back and tell them otherwise.

And one more. I know it's again a question for the tax accountant, but in terms of what you're hearing or what do you think any predictions of what happens to the unpaid portion of past 280E tax liabilities on the balance sheet. Most operators, they call them long term and certain tax benefits. Is that a part, a full part on a haircut, restructuring payment plans. How do you see that happening?

Yes. So here, I have an opinion. I don't think it's a free lunch at all. I think the IRS is going to want to get paid for the past taxes. I think that the IRS is not in the business of putting companies out of business. Otherwise, they won't get paid. So my best guess is that we will see deals cut, and there will be payment plans for those past taxes for the IRS to get paid over time.

Now I know there's some court cases where people are challenging the applicability of 280E to the IRS. I'll leave it for those legal folks to argue if there's really something there to win. We hope they do because that would be a huge win for the sector, but our underwriting and our approach is the expectation that the bill will need to get paid. It just will become an installment loan that will get paid over time and probably sized with the expected cash flows of that organization and in some cases, maybe even discounted for the expected cash flows.

And obviously, I mean, if we get to 280E valuations will go up, companies will be able to issue equity or be in a better position to borrow at lower cost. So we'll be in a better position to pay that and enter those agreements, right? So that's the good news there. Look, again, crystal ball question before we go back to NewLake. Okay. Let's say, we get scheduling. It's -- we get the final rule, it's enacted, implemented. Do we get anything else before November, meaning safer or other types of cannabis-related bills? And I know it's a crystal ball question.

Yes. I mean I'm not going to prognosticate. I've been wrong in most of the things. So even if I told you something, I could -- I think I could paint a very credible argument for why something should happen before November. And I can equally paint a credible argument why something is not going to happen until November, notoriously difficult to get legislation done in an election year. And unless this is going to be about Section 10 which is that anti-discriminatory language, anti-operation choke point language, the de-banking language that is unless it becomes about that and wanting to really get that across the finish line is a political win before the midterms. I'm not sure cannabis banking is the type of political win that legislators in Washington, D.C. feel they need to have heading into the midterms.

Right. Before we go back to NewLake on the same topic of our regulatory news flow, if we get rescheduling, I will assume that you, NewLake would be in a better position to talk to NASDAQ and get up listing for your stock. Is that wishful thinking? And I'm not talking about a plant-touching company, although you are indirectly or directly because you own the assets, but you have the argument that IIPR is was as listed, if you get rescheduling, am I exaggerating and saying that you should be in a great position to get NASDAQ listing at least?

Listen, I can't be a cheerleader on that point. I'd love for it to happen. I focus on the facts and they are as follows: they will not list us, New York and NASDAQ, because we currently violate federal law doing what we do. And yes, they've grandfathered IIPR. Schedule III doesn't change that. So unless they have a change in sentiment, unless they have a change in policy, unless they have a change in perspective, which is entirely possible, I don't see it. I think it would need a safe harbor, I mean, antimonate money laundering laws, Bank Secrecy Act, all of those regulatory acts that have significant consequences for the exchanges and the custody agents are significant enough that I think they say the opportunity isn't meaningful enough for us to pivot without having that safe harbor.

Now listen, they could totally change their mind. That's my view, and that's the assumption we're going to make, and we're going to push for -- once we get Schedule III, we're going to push hard for safer banking with the right safe harbor language so that this industry can have regular way access to the U.S. capital markets.

I'm sorry to keep pushing on the same point. And I know you're sharing your opinions, and we very much appreciate that, and I'm not going to ask you to share private conversations with exchanges. But I would assume that you are constantly in touch with the exchanges, right? So when you are giving us these answers, it's not based on an opinion, it's based on the feedback they are giving you pretty much week to week?

Yes. Listen, we're not talking to exchanges on a week-to-week basis. It's kind of silly because there's really not much to talk about. Even with the executive order and it's an executive order, you actually need to see the regulatory reform. But yes, we've talked to the exchanges on a fairly regular basis since we -- since before our IPO because we wanted to get on the exchanges directly through our 2021 IPO. So that dialogue has been there for over 5 years. We have relationships there now and a consistent dialogue. I'd say I've not seen much daylight from conversation to conversation in terms of a change in attitude. Never say never, but we're going to operate as if we need to get safer banking done with the right safe harbor language so that we can have access.

Thank you. Going back to NewLake, a brief recap of third quarter results, but more than that because we all have access to them. Any comments on tenant issues that happened recently or have happened over the last 1 or 2 years, specifically, I'm talking about AYR, I'm talking which you touched on Rev Clinics and Calypso. Any color you want to give there? A brief recap for the [ 3Q ]?

Yes. So what I can speak to is our last reported information, as you know, which was -- we recovered the AYR properties, the 2 AYR properties that they vacated. We've cleaned them up. We've been in active dialogue, trying to retenant the properties, 1 in Pennsylvania and 1 in Nevada.

Sorry, retenant for cannabis purposes?

For cannabis purposes. Correct. That's what we're actively trying to do. We always have the option to go non-cannabis, but we think the best use for these properties is indeed cannabis, and that will be the best value for our shareholders.

On the Rev Clinics front, that property came back to us over the summer. Same thing, cleaned it out, have a broker, and we're actively looking to market to bring in operator or potentially multiple operators to that property. Calypso is really a nonevent. Yes, no issues, like that's not been really a discussion for at least a year or 2. And so that's where we stand on our portfolio.

That's good. And you already explained why the dividend is well covered. So we'll not touch on that. I think in the past, you made a point that NewLake is somewhat different from other, let's call them, lenders or sale-leaseback operators out there in terms of where that you work together with tenants in solving problem situations. So again, I don't want to exaggerate, but is that something that makes you really unique and different?

Well, whenever you say unique and different, I mean its different things to different people. We try -- let's say it this way, we try to service our clients and not just do deals and forget them. We recognize, particularly when you have a longer-dated relationship with somebody like a 15-year lease, your success is really tied to each other. And we underwrite properties looking at the cash flow at the particular property. And so we could see through the regular quarterly reporting, how a particular property is cash flowing. Is the cash flow improving? Is it decreasing? Now we could have proactive conversations, and we have with operators around the property or around the state or around a particular license in order to maximize the overall return for them and for us.

And one example was last year we announced that we had moved a dispensary with Curaleaf. They had a dispensary in Illinois, that when we first did the transaction, it was a medical market. This was a medical dispensary. As that market a few years ago, transitioned to adult use, the community in which that dispensary did exist, did not embrace or allow adult use. So that dispensary was only relegated to medical sales which is an impact, right? They're utilizing a license, they can be getting better return if that was situated elsewhere. We could have been difficult and said, sorry, you got to pay us, that decision is on you.

Instead, we work collaboratively to find a solution where they can have a dispensary in another location and do a deed-for-deed swap so that we can continue to get the return for our investors and they could move out of that facility into a different facility and get a better yield or better return for their investors. We've done that now a handful of times across cultivation and dispensary assets. We think it's important to do to not just optimize the value for our shareholders, but to be a good partner, and we think that if you're building a long-term business, being a good partner is one of those attributes that will have tenants coming back to you for future transactions.

I know you can't really make forward comments here and you haven't reported 4Q results yet, but what can you say about 2026 in general? Can we see more growth in your book than in 2025? Based on your disclosure, all other tenants are current, so there's not much to say, right? But I could argue that based on the news flow cannabis, pharma can or potentially could be problematic. Acreage seems to be -- we don't have data on acreage, because it's private now. But what can you comment in general just about how to think about 2026 for NewLake?

Yes. I can't give any forward-looking comments around what we expect in terms of financial performance for the year. I can tell you -- what I can tell you though is I think the operating landscape in cannabis hasn't changed from where it was in 2025. It continues to be a difficult environment with a lack of access to regular way capital markets. I think the industry got a shot in the arm at the end of last year with that executive order, which could bring some additional new capital to the table if there's follow-through, but people still need to be executing their business model and generating sufficient cash flow at the property level.

What we also saw when we see a lot of people talking about prognosticating about is an increase in M&A activity. And so we know there are certain states where there are opportunities for M&A activity and growth for companies through M&A, people to consolidate states that maybe they already have a dominant position in and our tenants are no different in that regard. And so some of them will participate that, and some of them won't participate in that.

So I think -- as an outlook for 2026, I think we all should expect continued volatility across the cannabis sector and continued distress where there is distress until we get finalization of Schedule III or at least the filing of the Federal Register to solidify some of the new interest in this sector that seems to be circling.

Right. Now let's talk about NewLake's ability to raise funds, assuming that you have growth opportunities in 2026. How high can you take that leverage. Remind us about your existing credit lines, further borrowing potential. Also, can you raise equity or not if you're trading at a discount to NAV, how do you think about that? And then related to that, just remind us of the spread, right, your cost of funds versus your yield to maturity in the book?

Yes. So we have a $90 million credit facility, a little over $7 million outstanding. So we have ample, ample credit capacity to execute new transactions. And as you pointed out, we've been fairly slow and cautious on deploying new capital. The cost of our capital for that credit line because we'd be issuing debt for doing new transactions. We actually have some excess cash, and we could utilize some of our cash. But if we were to draw down on our credit facility, it's priced at prime plus 1. So at today's rates, was at 7.5%, I believe, right now, 7.75%. So that's what that cost of capital would be. And so there would be a nice healthy margin between the new cap rate and the borrowing rate. And that's what we need for our shareholders.

In terms of opportunities, I want to come back to that point, which is -- we're only going to do deals that we think are quality deals. We're not going to do transactions. We're not going to try to put $20 million, $30 million, $40 million, $50 million of new deals out there, if we're going to worry about collecting rent. These -- again, these are long-term leases, and you have to collect the rent on a monthly basis. And so we're only going to do deals that we feel very confident in the operator and very confident in the cash flow profile of the property.

Right. That's good. Thank you. Look, I know we're running out of time here, but I'm going to ask you to comment on some of the states in which you have exposure, right? Obviously, in your disclosure, it's all very clear, how much of the book is in what states do you even indicating what operators. We touch on Pennsylvania, Florida, Illinois, Missouri, Massachusetts, those are your 5 states. Any prognosis you want to give on those states, right? We all read the same news, right? The government in Pennsylvania continues to push for reg legalization. And clearly, it will happen.

Florida, we know what's happening there with the Supreme Court and the Attorney General. But again, your thoughts and brief views on those 5 states. And how to think about NewLake's exposure in those 5 states. Do things get better, the same or worse in 2026. And again, I know we have to be mindful about forward commentary here.

Yes. Yes. So I'll touch on the states, but I did realize I didn't answer part of your previous question on yield, and I want to make sure I communicate to folks you asked about how much we could potentially lever up the REIT because some investors may be thinking, REITs use significant leverage. And if you are a mortgage REIT, and you may be thinking about some of the agency mortgage REITs as an investor that were problems back in the last financial crisis where they use 6x, 7x leverage, that's nothing like what we would do. As an equity REIT and particularly one focused on the cannabis sector, we have no interest in taking leverage up significantly for here.

And so that $90 million credit facility on nearly $450 million balance sheet, it would still be one of the lower levered REITs out there. So it will be very modest. You can even do more leverage on that and feel very, very comfortable. But for the near term, I don't see us going anywhere near or above what we have available to us today.

All right. Let's focus on the states. Boy, Pennsylvania, I think all of us would have expected that Pennsylvania would have moved to a recreational state, particularly given that 5 of the 6 states surrounding it already have adult use and they know that they're losing tax revenue to people that are going to adjacent states. So here we are. We have the budget that's been presented yet again, it's been presented in the budget. I can't tell you. I thought last year it was going to happen. I was wrong. I'm hoping this year is the year it gets across the finish line, I think a move to Schedule III does make that easier. I know it may seem weird to say, well, how does it move to Schedule III, which is medical really get support for adult use. I just think it's a little bit safer. It's a little bit more mainstream for folks to get behind it.

But it's very clear to me now as we sit here today and we saw what happened last year with the budget discussions. This is a political football in Pennsylvania or actually in most states, but in Pennsylvania. And there's going to be a horse trade and the Republicans didn't get what they wanted last year in order to give on the cannabis legalization. And so we'll see if those political wins play out. You have a governor that is running for reelection. He should be more inclined to try to cut a deal for a balanced budget and maybe really push hard. He didn't really push that hard.

My understanding is he wasn't putting a shoulder into cannabis legalization last year. And so the question I think -- the big question is, will the governor really push to get it done? Will he put his shoulder behind it and will he deal to get it done? But the thing about Pennsylvania as it continues to be a very robust medical state and continues to operate and provide good return for folks in that market.

I mean, you answered my follow-up question on PA, which is exactly that, right? It's still a license restricted state, attractive economics. There are some medical markets that become very price competitive. We've seen some pressures in PA, but for the most part, remains very attractive compared to other states. You thought in Florida. I know we are running out of time here...

Florida, here we are again in terms of fight at the State Supreme Court around ballots and with the state attorney general for ballots and our people supporting the ballot initiative over those signatures valid or not. We'll see how that plays out. It's clear that the -- that in Florida, the population wants it. Yes, we couldn't get to 60%, that was with a backdrop of DeSantis running really, really hard at it.

I think if we could take -- if we could get the bill done in Florida, I say, wait, I'm honestly not behind it. But if this bill in Florida can get done that addresses public consumption. I think it takes a real argument off the table that DeSantis and others were pushing in the last referendum. So I think we're going to have to wait and see that one, I think, is a coin to us. If it does get on and you don't have a DeSantis that's as powerful as he was 2 years ago, I think it's got a really good shot of passing.

Illinois, another strong state that for some people is really successful for others. It's been a struggle. I think the growth in dispensaries there has been very good for that state. I think it creates greater access for the consumer. I think it's provided a little bit more stability for some of the operators that we're able to create relationships with the social equity licensees. And so we like the Illinois market, but you need to be careful in it.

Missouri. Missouri has been consolidating, and there's really a handful of large what I would call, leaders in that market, a couple of which we have in our portfolio with the exposure we have there. Missouri is a little bit wonky from a regulator perspective. It's not always -- and I'm not as close to it as some of our tenants and others that are in the industry, but it appears to me to be one in which the regulator has been volatile and inconsistent in the way they've policed and approached the department. And so we're going to watch Missouri to see if there's any changes in that state regulatory construct, but a nice growth in store count and we're aware of people in that state that are doing quite well.

And then lastly, Massachusetts. I mean, Rev Clinics is one that we talked about in Massachusetts, and we've said for the last couple of calls that we thought it would be difficult and would take us some time to backfill that property given the dynamics at play in mass. We've actually been seeing in the data and anecdotally to talking to those in Massachusetts, that it's stabilized in terms of pricing. And in some cases, I've actually heard some people say it's turning into an okay market, not a good, but a better market. As we've absorbed new dispensaries coming online, as we've opened up availability to the consumer, and we've seen some stabilization in pricing over the past year. But what's exciting people in Massachusetts are competing bills out of the State Senate and the state legislature to increase the cap on dispensaries from 3, one proposal as I think 4, the other 1 is 5 or the other one is 6. So there's going to be a reconciliation.

So people are optimistic in Massachusetts that at some point this year, we could see the cap raised, and then maybe there might be some movement also in the ability to affiliate with other dispensaries. And so with that the growth in the cap, you might see some additional consolidation around dispensaries create better economics for operators. And so we're hopeful that we can see some tailwinds in Massachusetts if we can get that cap. I mean honestly, though, the cap 5 or 6 is still, I think the state would be better served increasing the cap beyond that, but that's a positive momentum there.

That's great color on those 5 states, Anthony. I know we're almost out of time. Look I'm going to just read some brief questions from the audience. But just brief answers. Someone is asking, and I think this comes up every now and then. It's only the big risk to have a tenant who accounts for 24% of your revenues, whether you want to diversify your holdings in the future?

Absolutely want to diversify the holdings in the future. The 24% is across multiple properties. We have over 10 properties with them. And we look at each property from a cash flow perspective, how is that property cash flowing? And so -- so yes, you don't really want to -- you don't enjoy having that level of concentration, but where we're going to have that type of concentration is going to be what we think are the long-term winners in the space, like a Cresco, Curaleaf and Trulieve.

Right. Someone asking about whether management own shares in the business. I don't know if you want to touch on that or remind us of the shareholder structure of NewLake?

Yes, it's public. Insiders -- if you look at the Board and management, we own roughly 5% of the company, 6% of the company. If you look at insiders, which are some of our foundational investors, the institutions that were there from the beginning, you have roughly 1/3 of the company is owned by those what are called insiders. You could take a look at our proxy and all of that information is there. I've never sold a share, and in fact, I bought some back in December.

Okay. That's great. Look, one last one. These questions will be political. I'm going to try to phrase it the right way. Someone -- I guess someone is implicitly making the assumption that as long as President Trump remains President, rescheduling will happen this year, 100%. So the only risk to rescheduling according to your question, would be a 25th amendment or impeachment. And I'm not going to ask you to comment on that. But I mean, do you agree with the setup of the question? Pretty much the only risk is the President Trump is not President. The only risk to rescheduling is that. I mean, don't ask anything...

I would first define what does rescheduling mean. And it's an important distinction because does it mean the filing in the Federal Register? Or does it mean the actual final implementation after legislation. So I think if it was the former, if it was the actual filing, it's hard for me to expect that this is going to lead into 2027. It just -- it would be unconscionable -- but then again, we don't know what happens on the horizon.

Look what happened last year, we had a government shutdown. We did have a government shutdown this past weekend, but it was limited. Do we have another government shutdown? Is there a war with Iran? Is Pam Bondi fired? Do you get a new DOJ like there's so many variables that are going to impact the timing. But I would generally agree that we should see the final rule filed in the Federal Register by the end of the year. Yes, I would tend to agree with that.

Take off the table, war with Iran, take off the table, some rate exogenous factor. But I want to come at the point around Trump staying in office. Let's actually say Trump is removed from office. And I said, well, okay, then what let's say, Vance is put in there. Is Vance going to go back on what was done? Well, why was it done in the first place? I think it was done because it was wildly popular. I'm not sure Vance is going to unwind something that Trump did.

Even if he doesn't agree with it, I don't think he'd be garnering new support because he went and did something. He's either going to have that support or he's not. And if a Democrat was put in for some reason, let's say, something happened where it switched parties, I think the Democrats started this under Biden. So regardless of who's in the White House, I think we ultimately get this. I don't see it going backwards. I really don't, particularly given the pervasiveness of the hemp-derived products and how popular some of the hemp-derived low-dose drinks were and how that started to really mean stream THC products.

That's great. That's great color, Anthony, I appreciate you answering that question. Look, closing remarks, if you want to feature your stock again to investors. But again, thank you very much from our side for all the color you provided here on NewLake. Thanks and the industry, of course.

Yes. No. Listen, thank you for the opportunity to chat with you and chat with the folks that tune in here. If people want more information, I'd encourage you go to newlake.com. There's a lot of information on our website. If you want to talk with us, please feel free to connect with us through the website, and we'll try to set up a call. And again, if you're thinking about investing in businesses that focus on the cannabis sector, I think there's a higher volatility, potentially higher return with the plant-touching businesses and there's some great quality companies out there.

I also think if you look at some of the yield-oriented plays that are REITs, I think there's a real opportunity to invest in a business that has quality portfolio with a quality yield that's well covered with an 82% AFFO payout ratio in the third quarter that will also respond positively to the catalysts that are on the horizon. Don't expect a 2x or in our stock to happen overnight, the way you may get with some of the plant touching, but you'll get paid a nice dividend while you wait for those catalysts to occur. And I think those are some of the differences and the benefits of being in a stock like NewLake. And thanks for giving me the opportunity to chat with your folks about it.

That's great. Thank you, Anthony. Everyone, have a good day. Thanks for tuning in.

Bye-bye.

Good day, and welcome to the NewLake Capital Partners Third Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the call over to Valter Pinto from Investor Relations. Please go ahead.

Thank you, operator. Good morning, and welcome, everyone, to the NewLake Capital Partners Third Quarter 2025 Earnings Conference Call. Joining me 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 conference call may be deemed forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially due to a variety of risks and uncertainties.

For a detailed discussion of these risks, please refer to our press release issued yesterday, our Form 10-Q for the quarter ended September 30, 2025, and other filings with the SEC. In addition, we will discuss certain non-GAAP financial measures, including FFO and AFFO. Reconciliations to the most directly comparable GAAP measures are included in our earnings release.

With that, let me turn the call over to our Chairman, Mr. Gordon DuGan.

Thank you, Valter, and good morning, everyone. Our third quarter financial results were in line with our expectations, reflecting the quality of the investments we made several years ago and the disciplined underwriting approach we have taken since the company's inception. Where possible, we are being proactive in managing risk within our portfolio as demonstrated by lease amendments we announced with C3 and similarly by our collaboration with Curaleaf to relocate a dispensary asset last quarter. Being responsive to a changing landscape is critical to managing risk and optimizing long-term shareholder value.

As we've discussed in prior quarters, the cannabis sector remains difficult with limited access to capital, slower market growth and ongoing regulatory uncertainty. Given these dynamics, we remain cautious on new investments in the cannabis sector and are focused on maintaining a strong balance sheet and sustaining our dividend coverage.

At the federal level, we continue to await meaningful reform that would improve the operating environment for these state legal businesses. Unfortunately, the recent government shutdown and related political gridlock have further delayed progress on this front. While the timing remains uncertain, we believe reform will ultimately occur. And when it does, NewLake will be well positioned to benefit. In the meantime, we remain focused on execution, supporting our tenants and delivering long-term value for our shareholders.

With that, I'll turn the call over to Anthony.

Thank you, Gordon, and good morning, everyone. As Gordon mentioned, our third quarter results came in line with expectations. AFFO increased more than 2% versus the third quarter of 2024, and our AFFO payout ratio was 82% within our targeted range of 80% to 90%. We collected all scheduled rent during the quarter, except for the 2 AYR properties where we received cash rent for July and applied security deposit for August and September.

We have since regained control of those AYR properties in Pennsylvania and Nevada, completed the necessary cleanout and preparation work and brought them to market as we begin the re-tenanting process.

Overall, our portfolio remains in a solid position. Tenants representing approximately 50% of our annual base rent reported solid third quarter results this week. Curaleaf expanded adjusted gross margins and generated over $100 million in cash flow year-to-date. Cresco delivered positive cash flow, reduced debt and completed a refinancing, while Trulieve delivered some of the highest gross margins in the industry, nearly 60% and generated over $60 million of free cash flow during the quarter.

Green Thumb also reported another profitable quarter with $23 million of net income and $74 million of operating cash flow. That said, the broader cannabis landscape remains challenging in the absence of federal reforms, and we continue to focus on proactively managing risk and identifying opportunities to strengthen our portfolio. A good example, as Gordon mentioned, is our recent lease amendments with C3. Lisa will provide more detail. But as a reminder, we discussed in prior quarters that higher-than-expected construction costs made the Hartford project much less attractive.

We worked collaboratively with the tenant on a solution that manages our risk while maintaining AFFO for our investors. This follows a similar collaboration last quarter with Curaleaf, where we worked with the tenant to relocate a dispensary asset. Altogether, this marks the fifth time we have partnered with tenants to find creative solutions to address their needs while strengthening our risk profile and enhancing long-term shareholder value.

Turning to regulatory matters. We're encouraged by actions at the state level, but concerned with the continued delays in federal reform. The recent expansion of the Texas Medical marijuana program and this week's election of a new governor in Virginia, which should lead to the long-awaited launch of adult-use are both good examples of continuing opportunities for growth happening at the state level. However, the health of the cannabis industry remains in a prolonged holding pattern awaiting meaningful federal reform. This lack of clarity continues to weigh on an operator sentiment and capital formation. Against that backdrop, we continue to focus on maintaining our disciplined underwriting and conservative balance sheet while remaining cautiously optimistic regarding the broader environment.

Lastly, before I turn it over to Lisa, I want to address a question I've been getting more frequently about whether we plan to diversify into other real estate sectors outside of cannabis. Our view is that it's our fiduciary responsibility to evaluate all avenues for creating long-term value for shareholders and that does include considering opportunities beyond cannabis.

We continually monitor the broader real estate landscape to identify attractive investments, particularly where we can leverage our expertise in underwriting highly regulated special purpose properties. We'll continue to do that work. And if we find a compelling opportunity that aligns with our strategy and risk profile, we'll bring it to the Board for consideration.

With that, I'll hand the call over to Lisa to review our financial performance.

Thank you, Anthony, and good morning, everyone. In the third quarter of 2025, our portfolio generated total revenue of $12.6 million, a 0.3% increase year-over-year, reflecting the solid performance of our portfolio in a challenging environment. Key drivers of the increase include a full quarter of rental income from the 2 Cresco dispensaries acquired earlier this year. While we did not fund any improvements during the third quarter, we received a full quarter of rental income from $1.2 million of improvements funded after September 30, 2024, at our Arizona and Connecticut cultivation facilities.

And annual rent escalators across the portfolio continue to provide consistent revenue growth. These increases were partially offset by the vacancy of our Fitchburg, Massachusetts property following Revolutionary Clinics departure in July of 2025.

As mentioned earlier, during the quarter, we applied $505,000 of security deposits from AYR to cover August and September rent for our Pottsville, Pennsylvania and Sparks, Nevada properties after AYR failed to make rent payments beginning in August. At quarter end, approximately $408,000 of security deposits remained, which we subsequently applied to cover the nonpayment of October and November rents.

For the 3 months ended September 30, 2025, net income attributable to common shareholders was $6.7 million or $0.32 per diluted share compared to $6.4 million or $0.31 per diluted share in the third quarter of 2024. Adjusted funds from operations increased 2.4% year-over-year to $11 million or $0.52 per share, primarily driven by lower general and administrative expenses.

We declared a third quarter 2025 cash dividend of $0.43 per share of common stock or $1.72 on an annualized basis. The dividend was paid on October 15, 2025, to stockholders of record as of September 30, 2025. The dividend remains fully supported by the earnings power of our portfolio with an AFFO payout ratio of 82%, comfortably within our target range of 80% to 90%.

As of September 30, 2025, our balance sheet remains among the strongest in the sector with $432 million in gross real estate assets and a very conservative debt profile of just 1.6% debt to total gross assets with no maturities until May 2027. Our liquidity is strong with $106 million available, including $23.6 million in cash and the remaining capacity under our $90 million revolving credit facility. This provides us with ample flexibility to execute our business strategy and grow earnings by continuing to invest in high-quality assets.

Lastly, I'd like to briefly discuss the recent amendments to our lease agreements with C3 Industries as outlined in our earnings release and Form 10-Q. These changes reflect our collaborative approach to tenant relationships. Under the amended Hartford lease, we agreed to pursue a sale of the property, which includes a make-whole provision to address our respective investments.

C3 will continue paying rent through the sale date and after which a portion of that rent will be reallocated to the Missouri lease. This incremental rent will remain in place until we reinvest with C3 under our right of first refusal agreement.

With that, I will turn the call over to the operator for Q&A.

[Operator Instructions]

Our first question comes from the line of Pablo Zuanic with Zuanic & Associates.

Look, I know in the 10-Q and in the press release, you gave color on the impact on AFFO from AYR, but -- and you use some of the deposits for October and November. But can you try to quantify by the first quarter next year, what would be the full impact from AYR if the properties remain vacant? And also remind us, in the case of Revolutionary Clinics, was there any rental or deposits that were reflected in AFFO in the third quarter? And if not, what -- and if some was reflected, what would be the full quarter impact by the fourth quarter?

Yes. Thank you, Pablo, for the question. I'll address Revolutionary Clinics and then Lisa can talk about AYR. So for Revolutionary Clinics, if you recall, we had them staying in the facility during their receivership period, and they were paying cash rent and security deposit for that was utilized in previous years actually when they started their economic decline. And so that deal with the receiver was to get cash paid through the end of July. And so no, that arrangement has no further security deposits to apply. And then Lisa, why don't you address AYR?

Yes. So with AYR, as we disclosed in our last earnings call, we think the impact for first quarter is going to be a little over $0.035, maybe $0.036.

Right. And similar question, in the case of C3, on a full quarter basis, what will be the impact on rental income?

We structured that transaction so that it would have a de minimis impact on net income. So we don't anticipate seeing any decline in net income or AFFO as a result of that transaction.

To add to that, Pablo, they will continue to pay rent until the building is sold. Once it's sold, the revenue is going to move over to the Missouri facility. So we will see from an AFFO perspective, no adverse impact from that.

Right. I'll ask a couple of more, and apologies if there's people in the queue here. Look, I mean, obviously, if there's any other problems with your other tenants, I know you would disclose that, right? So I'll be careful about addressing questions about other tenants. So for example, PharmaCann is one of your tenants. I know a smaller tenant in your portfolio, but they have defaulted in leases with IIPR, that's public information. And then Cannabis is the company that has a stretched balance sheet. But I mean, obviously, both are current on your leases, right? And I'm sorry to ask the question, but given the public information, I see them as risky tenants. But again, the question is they are current, right?

Yes.

Okay. That's a simple question. And then just moving on, in terms of Virginia potentially going rec, Pennsylvania potentially going rec, Texas Medical, I know that there's potential for those markets to expand. We don't have an exact line of sight on when that will happen. But talk about the lead time in terms of when operators start approaching you negotiations, if that were to impact your book in a favorable way and you earn AFFO in a favorable way, are we talking about in a best case scenario, still 1 year out, 2 years out? How would you frame that?

Yes. I would say if your question is really getting to growth, the growth dynamic can come from existing states as well as ones that are experiencing expansion the way you just described. I would say that, that lead time for a dispensary could be a quarter. The lead time for cultivation should be 6 to 8 months.

From a macro perspective, I would say that the industry is cautious, I think appropriately so, the industry is cautious with respect to large-scale CapEx projects. And so while we see a couple here and there for cultivation, I think for the foreseeable future, most of the opportunities available for sale leaseback in the sector will be dispensaries and smaller cultivation sites.

Right. Okay. Look, Anthony, I want to ask you one more question here, one last one. You, among the various CEOs out there in the industry are one of the most, I would say, high profile in terms of giving opinions about the industry. And I say that, of course, in a very positive way. You're very thoughtful in terms of your remarks about -- you make about the industry.

I'd just like to hear, in your view, your opinion about the so-called promises that have been made by the President in terms of rescheduling the promises that he made through social before the election and the implied promises that were made around medical cannabis, hemp-derived CBD by the reposting of the Commonwealth project video into social back in September. Some of us -- I mean, I myself think that some of those promises, if they are promises, are somewhat in conflict, right, and that may delay and complicate things.

But I'd like to hear your thoughts in terms of where -- the way you think about these promises and how it all plays out. And again, I'm taking the liberty to ask this because I think that you've given very thoughtful views on these topics in the past in other forums.

Well, thank you for the question, your kind comments. Yes, this industry has become sitting on the edge of its seat with every comment, every post, every indication to try to figure out when this reform will occur. And each of these data points are positive and move us in a positive direction. But for me, I'd step back and say that when you look at polling, when you look at sentiment in this country, when you look at the political dynamics of cannabis, I do firmly believe that we will get reform.

So it's really a question of when that occurs. I think the other reality, if I believe firmly that we'll get reform, I also believe firmly that politically, this is not a priority for any party. I think both parties have demonstrated that through the last couple of administrations. So I do believe this administration supports reform. I do think that we will get it. I just think there is no way to know when the political landscape lines up with the legislative landscape and the election calendar to actually get the meaningful reform that the industry should have and needs.

I hope that answers your question. So I guess let me summarize for you, Pablo, by saying long-term optimistic, but I think sometimes as an industry, we sit on the edge of our seat with too many of these individual statements. They all paint a mosaic of reform, but I don't think we can utilize any of this to try to predict the timing. And then one more comment, you mentioned CBD.

I think we also need to recognize that the hemp-derived products have had a significant impact on the industry. And if it means waiting a little bit longer for federal reform, if we can get regulation around the hemp-derived products, which I don't think anybody ever intended to truly legalize under the 2018 Farm Bill, then I'm willing to wait a little bit longer so we could get it right and get this industry on a long-term foundational -- on a foundation built with long-term benefits of reform soundly in place.

[Operator Instructions]

It appears we have no further questions at this time. I'd like to turn the floor back over to Anthony for closing comments.

Great. Well, thank you, everybody, for joining our call today. We appreciate all of your support. And as we approach Thanksgiving, which isn't that far away, we're thankful for you all as investors and supporters of our company. We hope you have a great day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.