AUSTIN, TX – NewLake Capital Partners (OTCQX: NLCP) presents a high-risk, high-reward investment opportunity for those looking to diversify their portfolio. The company boasts a 100% occupancy rate, a solid weighted average lease term of 14.1 years, and healthy liquidity supported by cash reserves and an undrawn credit facility. Operating within the unique property sector of properties leased to US-licensed cannabis operators, NLCP offers attractive growth prospects and a favorable supply-to-demand relationship.
Despite its promising aspects, NLCP falls on the risky side due to the specifics of the cannabis sector, regulatory dependence, and high tenant concentration. However, the company has the potential for double-digit total returns through high dividend yield, multiple appreciation, further investment activity, and contractual rent escalations.
Founded in 2019 and having its IPO in 2021, NLCP currently holds 31 properties across 12 states, totaling 1.6 million square feet. Although the company has faced challenges, including negative returns since its IPO, recent tenant issues, and industry difficulties, NLCP has shown improvement as it resolves these issues amidst supportive regulatory changes in the cannabis sector.
The scope of cannabis legalization in the US continues to expand, with significant progress expected in both medical-use and adult-use markets. Consumer demand for cannabis is on the rise, leading to accelerated sales and further industry growth. Regulatory changes, such as the DEA’s proposed rule to reschedule cannabis and potential tax reforms, are expected to positively impact the industry and real estate providers like NLCP.
Comparing business metrics to its competitor, Innovative Industrial Properties, NLCP demonstrates positive metrics, including a 100% occupancy rate, solid weighted average lease term, and attractive rent escalators. While tenant concentration remains a concern, NLCP’s strong financial position, low debt outstanding, and consistent growth in adjusted funds from operations (AFFO) indicate its potential for future success.
Overall, NLCP presents an intriguing investment opportunity for those willing to take on the associated risks. With a unique property sector, strong business metrics, and promising growth catalysts, the company offers potential for high returns through dividends, appreciation, and further investments. Investors should carefully consider the risks and rewards before adding NLCP to their portfolio.
