NewLake Capital Partners (OTCQX:NLCP) has emerged as a compelling player in the cannabis REIT sector, boasting an 8.6% dividend yield - above Innovative Industrial Properties Inc (NYSE:IIPR)'s 7.01% but below AFC Gamma (NASDAQ:AFCG)'s 15.45%.

In a recent analysis on Seeking Alpha, Jussi Askola, CFA, examined NLCP's strengths and prospects. Askola, president of Leonberg Capital, highlighted NLCP's unique financial health and growth trajectory, making it a standout in the current market.

Robust Financial Health And Growth Prospects

NLCP's portfolio primarily consists of net lease cannabis cultivation facilities, secured with 14-year leases and annual rent escalations nearing 3%. One of the most striking aspects of NewLake Capital Partners is its debt-free status. "The REIT has 0 debt! This is truly unique," Askola points out, emphasizing the company's solid financial foundation. Additionally, NLCP has a substantial credit facility with a 5.65% interest rate locked in until 2027, positioning it for expansion and significant positive spreads.

The dividend payout ratio stands at a "reasonable" 82%, the author argues, allowing the company to reinvest in acquiring more properties or potentially repurchasing shares. This financial prudence ensures NLCP's growth is sustainable, even as it returns substantial value to shareholders.

Market Dynamics And Listing Challenges

Despite these strong fundamentals, NLCP's high yield can be attributed to several external factors. Askola notes that REITs are currently out of favor in the broader market, and the cannabis sector faces significant headwinds. Moreover, NLCP's listing on the OTC market, due to stringent cannabis regulations, has hindered its ability to achieve a better valuation. In contrast, its peer Innovative Industrial Properties (IIPR) benefits from a higher valuation multiple, having secured a better listing before regulatory changes.

Future Outlook

From a purely fundamental perspective, NewLake Capital Partners is performing well, with promising growth prospects. Askola explains this optimism: "The company is doing well, it enjoys strong growth prospects, and the dividend is safe and likely to grow further."

NewLake Capital Partners is positioned as a robust investment opportunity in the cannabis REIT space, offering high yields supported by strong financial health and growth potential. While market dynamics and listing challenges affect its valuation, the company's fundamentals suggest a promising future for investors seeking reliable income and growth in the evolving cannabis industry.

This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

Disclosure: this article should not be interpreted as investment advise. Consult a professional before making investment decisions.

Cover image made with AI