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Real estate remains one of the biggest challenges for cannabis operators. Locations in legal markets are often highly restricted, and many landlords don’t wish to rent to marijuana businesses. But finding the right location is possible – and real estate investment trusts (REITs) have stepped in to help overcome that hurdle.
Three REITs dominate the cannabis industry, according to data from Cannabiz Media. Based on deal value, one company comes out far ahead: Innovative Industrial Properties (NYSE: IIPR), which clocks in at $2.2 billion in deal values.
NewLake Capital Partners (OTC: NLCP) follows, with $400 million in booked deals. In a distant third is AFC Gamma (NASDAQ: AFCG) with $100 million in deal value.
IIP also leads in the number of deals, coming in with 65. NewLake Partners keeps its second place standing with 25 deals, while Power REIT jumps ahead of AFC Gamma with 15 deals versus AFC Gamma’s five.
Cannabiz Media showed that zero deals happened in the fourth quarter of 2023 and the first quarter of 2024. NewLake Capital Partners broke that drought in the second quarter of 2024 with a deal valued at $16 million. In August, AFC Gamma announced it had closed a new senior secured credit facility for a private company.
Innovative Industrial Properties
IIP boasts 30 clients across 19 states and is the first – and only – REIT publicly traded on the New York Stock Exchange that provides real estate capital to cannabis companies. The company’s top three states are:
Michigan, 14 properties
Massachusetts, 10
Pennsylvania, 10
Its largest tenant is PharmaCann, which leases 697,000 square feet for $48 million in annualized base rent (ABR). Ascend Wellness contracts for 624,000 square feet at $30 million in ABR, while Green Thumb Industries provides $21 million in ABR on 664,000 square feet.
Despite the positive statistics, IIP told investors in its last earnings announcement that its clients weren’t immune to the pressures in the industry, such as a strong illicit market, increased labor costs and the decline of cannabis prices. Drilling down into the rental income, this past quarter IIP was able to report an increase in rental revenues but also noted that it lost rent on a property that it had to take back.
This year the REIT amended leases with 4Front Ventures due to construction delays in Illinois and also reduced the base rent for the company. Amendments were also granted to PharmaCann and Battle Green Holdings. Meanwhile, it executed new long-term leases with Gold Flora and Lume Cannabis.
IIP reported that its compound annual growth rate for its adjusted funds from operations (AFFO) per diluted share was 54% between 2017 and 2023, and the average AFFO payout ratio was 85%.
NewLake Capital Partners
According to its latest investor presentation, NewLake Capital Partners has 32 properties in 12 states and is 100% leased. Its top three states are, in order, Pennsylvania, Florida and Illinois.
Its top three clients are Curaleaf (23.8%), which has 462,000 square feet leased; Cresco Labs (13.6%), with one lease for 222,455 square feet; and Trulieve (11.6%) with one lease covering 144,602 square feet. The Cannbist, another NewLake client, has five leases but only lays claim to 83,188 square feet.
Rental income for the six months ending June 30 increased by approximately $2 million to $24.4 million, compared to $22.3 million for the same period in 2023.
While the company previously reported some problem clients, those seem to be flushed out of the system. So far in 2024, clients look to be in more stable condition.
AFC Gamma
AFC Gamma, which is also known as Advanced Flower Capital, operates in 15 states with 12 loans out to clients. The company is highly selective with regard to its client base and said it has rejected 795 deals, but did not reveal why.
The company does not disclose its customer base, instead referring to them with generic descriptions such as Private Company A. In addition, AFC Gamma does not provide AFFO data.
In August, AFC Gamma closed a new senior secured credit facility for a Georgia-based operator it calls Private Company Q. AFC told investors it has committed $11 million, with $4.3 million funded at closing, in a senior secured credit facility to the company, which holds a Class 2 cannabis license.
AFC also said that it has committed an additional $5.5 million under the expansion of medical operator BeLeaf’s facility and holds the entire $26.1 million expanded credit facility. In the same announcement, AFC said it had committed an additional $1.8 million under the expansion of Sunburn’s credit facility and holds the entire $36.5 million expanded credit facility.
“}]] Innovative Industrial Properties leads the group by far, but that hasn’t stopped the competition from growing. Read More
