In this edition of "Rising High," The Fly conducted an exclusive interview with Anthony Coniglio, president and chief investment officer of NewLake Capital Partners (NLCP), a provider of real estate capital to state-licensed cannabis operators. Here are some highlights:
CANNABIS REAL ESTATE: NewLake, founded in 2019, is a triple-net lease REIT that acquires industrial and retail properties through sale-leaseback transactions, third-party purchases and build-to-suit projects. The company’s tenants include some of the leading operators in the U.S. state-licensed cannabis industry and NewLake serves as a trusted partner for their real estate needs. “We’re trying to fill the need in the industry for real estate capital which is really driven by the disconnect between state and federal law as it pertains to cannabis,” Coniglio said. NewLake saw the opportunity in being an early mover in the cannabis real estate space and stepped in to fill that need, he said. “We think that the industry will continue to see significant growth over the next five to ten years and we’ve assembled a team that has the knowledge necessary to provide expertise and capital to the operators.”
COMPETITIVE EDGE: When asked about the company’s key differentiators, the CIO pointed to the company’s ability to provide non-dilutive capital alternatives to operators in the industry. “In the environment we’re in right now, where equity valuations are significantly depressed, a non-dilutive capital option or significant investment such as a company’s real estate footprint is very attractive for the operators,” Coniglio said. He added NewLake also sets itself apart by offering capital across real estate type or category such as cultivation, processing and retail facilities. “Not everybody does that,” the CIO said. “We like the diversification that we get by investing across the supply chain and our tenants like that we are able to fund all of their real estate capital needs.” Additionally, as one of the few public cannabis REITs, NewLake has access to capital to continue to serve the industry, he said. “I’d also say that providing capital to this industry isn’t without risk and in our portfolio, we have had no rent deferrals, abatements or defaults since inception,” Coniglio said.
DISCIPLINED UNDERWRITING: NewLake focuses on four primary attributes when looking at investment and underwriting opportunities, Coniglio said, with the first being diversification. “That would be the diversification that a particular transaction provides us from a state, from a property type or a tenant perspective,” he said, adding focus number two is underwriting the quality of the company. “We underwrite the balance sheet, the quality of the management team, their ability to raise additional capital and their ability to manage a high growth business in a highly-regulated industry.” NewLake also reviews the underwriting analysis of the property itself as the third component of the process, the CIO said. “Where is the property situated, what is its value in the cannabis ecosystem and what is the value beyond the cannabis value of that property,” he said. The fourth component of the underwriting process is licensing, Coniglio said. “This is where the license and the property are typically connected to each other. In limited license jurisdictions, we believe that it provides greater value for our investors and it allows us to provide full cannabis value for the properties that we purchase.”
MISSOURI ACQUISITION: In December, NewLake announced it had closed on its purchase of a 70,000-square-foot industrial property in Chaffee, Missouri and entered into a long-term, triple-net lease with Organic Remedies. NewLake’s total investment in the property will be $21.1M, which includes $16M at closing and a commitment to fund $5.1M of tenant improvement allowances to complete renovations of the building. Organic Remedies operates the property as a cultivation and processing facility. “We’re very excited to be in the Missouri market,” the CIO said. “We have been observing the marketplace and its evolution over the last couple of years. We thought this was a terrific way to enter into this burgeoning market.” Missouri’s medical program has been growing nicely, he noted, providing a terrific opportunity for the operators in the state. “We’re also really excited about the opportunity for Missouri to legalize adult use cannabis,” Coniglio said. “We think that will only further fuel a significant growth cycle in the state. We think that we can be a really good partner to operators by providing the real estate capital that they need to meet the consumer demand today in the medical industry but also in the future as adult-use passes and that market evolves.”
EXPANSION PLANS: NewLake currently has 29 properties across 11 states including Pennsylvania, Massachusetts and Illinois and Coniglio said the company is looking across the country at every state with legalized cannabis for opportunities. “We will focus our underwriting on all markets but we really do like the attractive dynamics of the limited license jurisdictions such as Pennsylvania, Massachusetts, Illinois and also some of the key attributes of Missouri,” he said. “We like these jurisdictions because they create value for the properties that we own and they provide a better operating environment for the companies that are in those particular states.” Anything that enhances the operating environment for a tenant is good for NewLake with respect to the credit quality of all its tenants, the CIO said. “We think these markets have a better supply/demand dynamic and provide greater stability and a stronger path for growth,” he said.
HIGH-GROWTH FOCUS: NewLake expects to continue to grow adjusted funds from operations and dividends amid the company’s focus on the high-growth cannabis industry which has meaningful demand for real estate capital. “We continue to see significant demand for the services and capital that we provide,” the CIO said. “Similar to the way that the overall cannabis industry is growing rapidly, we too have experienced significant growth. We expect our growth to continue into the future as this industry continues its rapid growth trajectory.”
LEGALIZATION: When asked about the impact the Biden-Harris Administration may have on the U.S. cannabis space, Coniglio said he believes federal legalization of cannabis is inevitable, but the political path to legalization is a long, winding road. “It would be extremely difficult to predict the timing of any such federal legalization,” he said. “I do hope that our representatives in Washington can set aside partisan differences to make incremental progress on cannabis reform starting with the Safe Banking Act and hopefully moving quickly to a debate, discussion and approval of broader federal legalization.”
CORONAVIRUS: Coronavirus has impacted many companies in the cannabis industry globally and the CIO said he expects the industry to struggle to find adequate staffing in the near-term amid management of day-to-day operations. “Long-term, COVID has demonstrated to communities where cannabis is legal that the industry is a responsible partner in the community and is providing vital medicine, ensuring its designation as an essential business,” he said. “I think the long-term impact is that COVID has elevated the profile of the industry and normalized its acceptance through that designation and will only serve to continue to accelerate the acceptance of cannabis across the United States.”
CHALLENGES: When asked about the largest hurdles facing the cannabis space, Coniglio cited the industry’s lack of access to capital. “There is a distinct difference between some of the large public players that have strong access to capital and the rest of the industry that still has very limited access to capital,” he said. “I think if we can get congressional change to allow greater access to capital for the industry, it would allow it to continue to expand on its rapid pace over the next couple of years.” From a cannabis real estate perspective, the CIO said the largest challenge is the same issue. “Fewer scale organizations have the ability to raise capital,” he said. “We certainly have raised a lot of capital in our lifetime and continue to raise capital but others struggle to raise capital to provide capital for real estate. Until there’s regulatory change, you’ll see some of the traditional providers continue to stay out of the market.” Coniglio added looking at New York and Connecticut recently provided municipalities the option to opt out of having cannabis facilities creating a challenge from a zoning perspective. “Many communities did indeed opt out because they are waiting for the rules to be finalized,” he said.
OPPORTUNITIES: As the cannabis industry develops and matures, the CIO said he sees an opportunity to be part of one of the most "exciting" industries to evolve in decades. “Specifically for cannabis operators to establish a brand, a presence and a business that can be appreciated by consumers and highly-valued by investors,” he said. “There are few industries that provide the opportunity that we see today.” Looking at the cannabis real estate space, Coniglio said he sees opportunities from NewLake’s position as an early mover in the sector. “We plan to capitalize on our early mover advantage to be one of the largest owners of cannabis real estate in the nation,” he said. “We will leverage that position to be one of just a handful of companies that have scale and dominate the cannabis real estate sector.”
OTHER CANNABIS/PSYCHEDELIC STOCKS: Other publicly-traded companies in the space include Acreage (ACRHF), Akerna (KERN), Aleafia (ALEAF), Atai Life Sciences (ATAI), Awakn Life Sciences (AWKNF), Audacious (AUSAF), Aurora Cannabis (ACB), AYR Wellness (AYRWF), BC Craft (CRFTF), Body and Mind (BMMJ), CanaFarma (CNFHF), Canopy Growth (CGC), RIV Capital (CNPOF), Clever Leaves (CLVR), Columbia Care (CCHWF), Compass Pathways (CMPS), CordovaCann (LVRLF), Cresco Labs (CRLBF), Cronos Group (CRON), CV Sciences (CVSI), Curaleaf (CURLF), CURE Pharmaceutical (CURR), Delic Holdings (DELCF), Delta 9 (DLTNF), Emerald Health (EMHTF), Fire & Flower (FFLWF), Flora Growth (FLGC), FluroTech (FLURF), Gage Growth (GAEGF), General Cannabis (CANN), Goodness Growth (GDNSF), Greenlane (GNLN), Green Thumb (GTBIF), GrowGeneration (GRWG), Harborside (HBORF), Hemp (HEMP), HEXO (HEXO), High Tide (HITI), IM Cannabis (IMCC), India Globalization Capital (IGC), Indiva (NDVAF), Inner Spirit (INSHF), Innovative Industrial Properties (IIPR), InterCure (INCR), Ketamine One (KONEF), Khiron Life Sciences (KHRNF), Lowell Farms (LOWLF), Lotus Ventures (LTTSF), MediPharm Labs (MEDIF), MedMen Enterprises (MMNFF), MJardin Group (MJARF), Neptune Wellness (NEPT), Thermic Science (ENDO), Organigram (OGI), Planet 13 (PLNHF), Relmada Therapeutics (RLMD), RYAH Group (RYAHF), Skye Bioscience (SKYE), SLANG Worldwide (SLGWF), Sproutly (SRUTF), Stem Holdings (STMH), Small Pharma (DMTTF), Sundial Growers (SNDL), Sunniva (SNNVF), TerrAscend (TRSSF), Tetra Bio-Pharma (TBPMF), Tilray (TLRY), Trulieve (TCNNF), Valens (VLNCF), Village Farms (VFF), Wesana Health (WSNAF), Entourage Health (ETRGF), Zynerba (ZYNE) and 4Front Ventures (FFNTF).
NewLake Capital Partners
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Aurora Cannabis
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CV Sciences
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CannTrust
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Trulieve Cannabis
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