The prospects for cannabis enterprises in the United States have, of late, assumed a somewhat clearer aspect, owing to a recent pronouncement from the previous administration regarding a reclassification of marijuana. While the full effects remain some distance off – entangled as they are in the usual bureaucratic delays – it is becoming increasingly apparent that a shift is underway. One must, of course, maintain a degree of circumspection; federal sanction is not yet equivalent to unreserved acceptance.
The principal advantage of this alteration lies in the potential relief from the constraints of Internal Revenue Code 280E. Currently, these businesses are denied the customary deductions afforded to other commercial ventures. A revision would allow them to account for essential expenses – salaries, rent, and the like – and, consequently, to demonstrate a more accurate reflection of their true profitability. A most welcome development, though one must consider whether such gains are already factored into current valuations.
Beyond this legislative prospect, several states are entertaining the expansion of access to cannabis, both for medicinal and recreational purposes. Pennsylvania and Florida, notably, appear poised to join the ranks of those permitting adult use, and others are broadening existing programs. Amidst this fluctuating landscape, those companies already demonstrating a degree of financial stability are, naturally, the most deserving of attention. Green Thumb Industries and NewLake Capital Partners, in particular, present themselves as worthy subjects for a prudent investor’s consideration.
Proven Resilience in an Uncertain Realm
Green Thumb Industries, with its network of 108 RISE Dispensaries across fourteen states, has, for eight consecutive years, managed to exhibit growth in revenue. A commendable feat, particularly given the inherent volatility of this sector. Their third-quarter results reveal a revenue of $291 million, a modest increase of 1.6% year over year. They derive income not only from direct retail sales but also from the provision of packaged goods to other cannabis companies. While retail sales experienced a slight decline, pre-packaged goods witnessed a healthy rise, largely attributable to increased activity in New York and Ohio. Earnings per share reached $0.10, a welcome improvement over the $0.04 recorded in the same period of the preceding year.
Their success lies, in part, in a diverse portfolio of brands, which mitigates reliance upon any single revenue stream. Their margins, however, remain somewhat constrained, a common affliction amongst their peers, though they do appear to be comparatively more robust. Their share price has experienced a modest increase of over 3.5% in the past year, suggesting a degree of investor confidence, though one must question whether such gains are sustainable.
A Dividend-Bearing Investment in Greenhouse and Dispensary Estates
NewLake Capital Partners adopts a rather different approach, functioning as a real estate investment trust (REIT) specializing in the acquisition and leasing of properties to cannabis businesses. Based in New Canaan, Connecticut, they favor triple-net leases, which transfer the majority of property-related costs to the tenant. With an average remaining lease term of 12.3 years, they enjoy a degree of predictable cash flow. Their portfolio comprises 34 properties – 15 cultivation facilities and 19 dispensaries – spread across twelve states.
REITs are, as a general rule, known for their above-average dividend yields, owing to the requirement that they distribute at least 90% of their taxable income to shareholders. NewLake has increased its dividend by a substantial 79% since its initial public offering in 2021. The current quarterly dividend yield stands at an attractive 11.47%. Such a high yield, while tempting, warrants a degree of scrutiny. Fortunately, NewLake’s adjusted funds from operation (AFFO) payout ratio of 82% remains within acceptable limits for a REIT, a more conservative stance than that of its competitor, Innovative Industrial Properties, which reported a ratio of 90% in the third quarter.
One point of concern is the concentration of their tenancy. Approximately 24.1% of their properties are leased to Curaleaf, exposing them to potential difficulties should that company encounter financial hardship.
NewLake reported third-quarter revenue of $12.6 million, a slight increase of 0.3% year over year. They also maintain relatively low levels of debt, affording them opportunities for future expansion. With $8 million in debt and over $24 million in cash reserves, they appear well-positioned to pursue such endeavors. Their AFFO per share rose by 2% year over year to $0.52. AFFO per share, a more accurate measure of profitability for a REIT than earnings per share, provides a clearer picture of their cash flow and ability to sustain dividend payments, accounting for capital expenditures required for property maintenance.
Two Distinct Paths to Engagement with Cannabis Enterprises
Green Thumb Industries represents a more direct investment in the cultivation and sale of cannabis. Should the reclassification of marijuana proceed, they may stand to benefit more substantially than a cannabis-adjacent company such as NewLake. However, it is prudent to remember that such a development is not yet assured.
NewLake, on the other hand, may offer a more immediate return. While their share price has declined by approximately 8% over the past year, when dividends are factored in, the overall decline is less than 1%. Furthermore, they stand to gain should cannabis enterprises experience improved margins, as this would enhance the security of their tenants. Their high dividend yield also allows investors a degree of patience as the industry navigates its current challenges. A most sensible arrangement, one might observe, for those seeking a steady, if not spectacular, return on their investment.
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2026-01-30 16:53