Q2 2026 NewLake Capital Partners Inc Earnings Call

August 6, 2026

Speaker #1: Good morning, and welcome to the NewLake Capital Partners second quarter 2026 earnings conference call. Today's call is being recorded. I will now turn the call over to Walter Pinto, investor relations.

Operator 2: Good morning, and welcome to the NewLake Capital Partners Q2 2026 earnings conference call. Today's call is being recorded. I will now turn the call over to Valter Pinto, investor relations. Please go ahead.

Operator: Good morning, and welcome to the NewLake Capital Partners Q2 2026 earnings conference call. Today's call is being recorded. I will now turn the call over to Valter Pinto, investor relations. Please go ahead.

Speaker #1: Please go ahead.

Speaker #2: Thank you, operator, and good morning, everyone. Welcome to the NewLake Capital Partners second quarter 2026 financial results conference call. Joining me on the call today are Anthony Caniglio, president and chief executive officer, and Lisa Meyer, chief financial officer.

Valter Pinto: Thank you, operator, and good morning, everyone. Welcome to the NewLake Capital Partners Q2 2026 financial results conference call. Joining me on the call today are Anthony Coniglio, President and Chief Executive Officer, and Lisa Meyer, Chief Financial Officer. Before we begin, please note that certain statements made during today's call may be considered forward-looking under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to a variety of risks and uncertainties. For more detailed discussion of these factors, please refer to the company's filings with the Securities and Exchange Commission, including our Form 10-Q for the quarter ended 30 June 2026. During the call, we'll also reference non-GAAP financial measures, including FFO and AFFO. Reconciliations to the most directly comparable GAAP measures are included in our earnings release.

Speaker #2: Before we begin, please note that certain statements made during today's call may be considered forward-looking under the State of Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Speaker #2: Actual results may differ materially due to a variety of risks and uncertainties. For more detailed discussion of these factors, please refer to the company's filings with its securities and exchange commission, including our Form 10-Q for the quarter-ended June 30, 2026.

Speaker #2: During the call, we'll also reference non-GAAP financial measures, including FFO and AFFO. Reconciliations to the most directly comparable GAAP measures are included in our earnings release.

Speaker #2: With that, I'd now like to turn the call over to Anthony Caniglio, president and chief executive officer. Please go ahead, Anthony.

Valter Pinto: With that, I'd now like to turn the call over to Anthony Coniglio, President and Chief Executive Officer. Please go ahead, Anthony.

Speaker #3: Thank you, Walter, and good morning, everyone. The past few months have been among the most constructive for the cannabis industry that we've seen in some time.

Anthony Coniglio: Thank you, Valter, and good morning, everyone. The past few months have been among the most constructive for the cannabis industry that we've seen in some time. The rescheduling of medical cannabis to Schedule 3, the continued momentum toward broader reform, and the New York Stock Exchange listings of Trulieve and Glass House are all meaningful milestones that reflect the continued normalization of the industry. While additional reform is still needed before the industry has unfettered access to the US capital markets, we are encouraged by the progress made over the last several months and believe it represents an important step towards a more stable and sustainable operating environment. As I mentioned on our last call, the impact of medical rescheduling extends beyond the elimination of 280E taxation. DEA registration transforms registered medical cannabis operators into federally legal businesses.

Speaker #3: The rescheduling of medical cannabis to schedule 3 that continued momentum toward broader reform and the New York Stock Exchange listings of true-leaving glasshouse are all meaningful milestones that reflect the continued normalization of the industry.

Speaker #3: While additional reform is still needed before the industry has unfettered access to the U.S. capital markets, we are encouraged by the progress made over the last several months and believe it represents an important step toward a more stable and sustainable operating environment.

Speaker #3: As I mentioned on our last call, the impact of medical rescheduling extends beyond the elimination of 280(e) taxation. DEA registration transforms registered medical cannabis operators into federally legal businesses.

Speaker #3: All of our tenants operating medical-only facilities which represents approximately 50% of our portfolio have indicated that they've submitted applications for DEA registrations. We view this as another important step toward broader institutional participation and improved access to capital markets, including the potential for listing on major U.S.

Anthony Coniglio: All of our tenants operating medical-only facilities, which represents approximately 50% of our portfolio, have indicated that they've submitted applications for DEA registrations. We view this as another important step toward broader institutional participation and improved access to capital markets, including the potential for listing on major US exchanges. Against this backdrop, NewLake delivered another solid quarter. Revenue and AFFO were in line with our expectations, and our AFFO payout ratio was 88% for the quarter, supporting our 43% per share dividend and within our guided range of 80% to 90%. Our portfolio continues to demonstrate the resilience that comes from disciplined underwriting, conservative balance sheet management, and our focus on property-level performance. Turning to our portfolio, we continue to closely monitor developments related to our tenant, The Cannabist.

Speaker #3: exchanges. Against this backdrop, NewLake delivered another solid quarter, revenue in AFFO were in line with our expectations, and our AFFO payout ratio was 88% for the quarter, supporting our 43% per-share dividend and with our within our guided range of 80 to 90%.

Speaker #3: Our portfolio continues to demonstrate the resilience that comes from disciplined underwriting, conservative balance sheet management, and our focus on property-level performance. Turning to our portfolio, we continue to closely monitor developments related to our tenant the cannabist.

Speaker #3: As we discussed last quarter, the cannabist filed for bankruptcy in Canada earlier this year and has been working through a court-supervised process. We lease 4 properties to the cannabist, including a dispensary and cultivation facility in Illinois and a dispensary and cultivation facility in Massachusetts.

Anthony Coniglio: As we discussed last quarter, The Cannabist filed for bankruptcy in Canada earlier this year and has been working through a court-supervised process. We lease four properties to The Cannabist, including a dispensary and cultivation facility in Illinois and a dispensary and cultivation facility in Massachusetts. Recently, Vireo Growth announced the acquisition of certain assets from The Cannabist across five markets, including Illinois and Massachusetts. The Cannabist remains current through and including August rent. We're actively engaged with The Cannabist and other parties to minimize the potential for rent disruption at our properties. We will update stakeholders as we have more definitive information to share. We continue to hold approximately one month of security deposit across those properties.

Speaker #3: Recently, Vireo Growth announced the acquisition of certain assets from the cannabist across 5 markets, including Illinois and Massachusetts. The cannabist remains current through and including August Rent, and we're actively engaged with the cannabist and other parties to minimize the potential for rent disruption at our properties.

Speaker #3: We will update stakeholders as we have more definitive information to share. We continue to hold approximately 1 month of security deposit across those properties.

Speaker #3: Turning to investment activity, we are excited to have recently closed on a $2.1 million transaction for a 3,200-square-foot dispensary in Wilder, Kentucky, which will be leased to C3 Industries.

Anthony Coniglio: Turning to investment activity, we are excited to have recently closed on a $2.1 million transaction for a 3,200 sq ft dispensary in Wilder, Kentucky, which will be leased to C3 Industries. This transaction expands our presence into Kentucky's emerging medical cannabis market and will be accretive to earnings. More importantly, it reflects a pipeline that has become increasingly active over the past several months. More broadly, we are seeing renewed optimism across the industry regarding opportunities to deploy capital, pursue growth initiatives, and participate in industry consolidation. We're actively evaluating new investments. That said, our underwriting standards remain unchanged. We will continue to be disciplined and selective, prioritizing capital preservation and risk-adjusted returns over growth for growth's sake. Our three properties available for lease continue to be actively marketed.

Speaker #3: This transaction expands our presence into Kentucky's emerging medical cannabis market and will be a creative to earnings. More importantly, it reflects a pipeline that is becoming increasingly active over the past several months.

Speaker #3: More broadly, we are seeing renewed optimism across the industry regarding opportunities to deploy capital pursue growth initiatives and participate in industry consolidation. As a result, we're actively evaluating new investments.

Speaker #3: That said, our underwriting standards remain unchanged. We will continue to be disciplined and selective prioritizing capital preservation and risk-adjusted returns over growth for growth's sake.

Speaker #3: Our 3 properties available for lease continue to be actively marketed. While re-tenanting opportunities do take time to develop, the quality and pace of discussions have improved over the past few months.

Anthony Coniglio: While re-tenanting opportunities do take time to develop, the quality and pace of discussions have improved over the past few months. Looking ahead, we believe there's a growing stack of potential catalysts for the industry. These include medical rescheduling, progress towards broader rescheduling of cannabis, exchange listing opportunities for plant-touching businesses, potential for banking reform, and increasing scrutiny of intoxicating hemp-derived products. While the timing and outcome of these developments remain uncertain, we believe the direction of travel continues to be favorable for the industry. I'd also like to address a topic where we've received a number of questions about following the New York Stock Exchange listings of Trulieve and Glass House. We're not announcing anything today. We are actively evaluating whether there is a path for NewLake to up-list to a major exchange.

Speaker #3: Looking ahead, we believe there's a growing stack of potential catalysts for the industry. These include medical rescheduling, of cannabis, exchange listing opportunities for plant-touching businesses, potential for banking reform, and increasing scrutiny of intoxicating hemp-derived products.

Speaker #3: While the timing and outcome of these developments remain uncertain, we believe the direction of travel continues to be favorable for the industry. I'd also like to address a topic we receive where we've received a number of questions about following the New York Stock Exchange listings of true-leaving glasshouse.

Speaker #3: We're not announcing anything today, but we are actively evaluating whether there is a path for NewLake to uplist to a major exchange. To remind our investors, NewLake satisfies the listing requirements for both the NYSE and NASDAQ, other than the exchanges' restrictions on cannabis-related businesses.

Anthony Coniglio: To remind our investors, NewLake satisfies the listing requirements for both the NYSE and Nasdaq other than the exchanges' restrictions on cannabis-related businesses. As regulatory developments continue to unfold, we'll continue evaluating potential paths forward so that we are prepared to act if and when the opportunity becomes available. While no decisions have been made, we do believe that the broader exchange access would create additional value for our shareholders over time. Finally, subsequent to quarter end, we extended the maturity of our revolving credit facility to May 2029 while lowering our borrowing costs and enhancing our financial flexibility.

Speaker #3: As regulatory developments continue to unfold, we'll continue evaluating potential paths forward so that we are prepared to act if and when the opportunity becomes available.

Speaker #3: While no decisions have been made, we do believe that the broader exchange access would create additional value for our shareholders over time. Finally, subsequent to quarter end, we extended the maturity of our revolving credit facility to May 2029 while lowering our borrowing costs and enhancing our financial flexibility.

Speaker #3: In an environment where capital for the cannabis sector remains scarce and expensive, our ability to extend our credit facility on improved terms while continuing to pursue a creative investment opportunities speaks to the strength of our balance sheet, the quality of our portfolio, and the confidence our lending partners have in our business.

Anthony Coniglio: In an environment where capital for the cannabis sector remains scarce and expensive, our ability to extend our credit facility on improved terms while continuing to pursue accretive investment opportunities speaks to the strength of our balance sheet, the quality of our portfolio, and the confidence our lending partners have in our business. Before turning the call over to Lisa, I'd like to recognize David Weinstein, who stepped down from our board of directors at the end of July. David has been part of NewLake since our founding in 2019 and served as Chief Executive Officer through the company's transition to the public markets. On behalf of our board, management team, and shareholders, I want to thank David for his years of service and many contributions to the company. We wish him all the best in his future endeavors.

Speaker #3: Before turning the call over to Lisa, I'd like to recognize David Weinstein, who stepped down from our board of directors at the end of July.

Speaker #3: David has been part of NewLake since our founding in 2019 and served as Chief Executive Officer through the company's transition to the public markets.

Speaker #3: On behalf of our board, management team, and shareholders, I want to thank David for his years of service and many contributions to the company.

Speaker #3: We wish him all the best in his future endeavors. With that, I'll turn the call over to Lisa, to review our financial results in more detail.

Anthony Coniglio: With that, I'll turn the call over to Lisa to review our financial results in more detail.

Speaker #2: Thank you, Anthony, and good morning. For the second quarter of 2026, total revenue was $12.1 million, compared to $12.9 million in the prior year period.

Lisa Meyer: Thank you, Anthony, and good morning. For Q2 2026, total revenue was $12.1 million, compared to $12.9 million in the prior year period. Net income attributable to common stockholders was $5.9 million or $0.29 per diluted share. Funds from operations totaled $9.9 million or $0.47 per diluted share, and adjusted funds from operations totaled $10.3 million or $0.49 per diluted share. For H1 2026, total revenue was $24.4 million compared to $26.1 million in the prior year period. Net income attributable to stockholders was $11.7 million or $0.56 per diluted share. Funds from operations totaled $19.6 million or $0.93 per diluted share, and adjusted funds from operations totaled $20.4 million or $0.97 per diluted share. The drivers of the year-over-year results were generally consistent for both the three and six-month periods ended 30 June 2026.

Speaker #2: Net income attributable to common stockholders was $5.9 million, or $29 cents per diluted share, funds from operations totaled $9.9 million, or $47 cents per diluted share, and adjusted funds from operations totaled $10.3 million, or $49 cents per diluted share.

Speaker #2: For the first 6 months of 2026, total revenue was $24.4 million, compared to $26.1 million in the prior year period. Net income attributable to stockholders was $11.7 million, or $56 cents per diluted share, funds from operations totaled $19.6 million, or $93 cents per diluted share, and adjusted funds from operations totaled $20.4 million, or $97 cents per diluted share.

Speaker #2: The drivers of the year-over-year results were generally consistent for both the 3 and 6-month periods and June 30, 2026. Revenue and AFFO were primarily impacted by 3 cultivation facilities available for lease, in Pennsylvania, Nevada, and Massachusetts, reducing rental income and increasing property-carrying costs.

Lisa Meyer: Revenue and AFFO were primarily impacted by three cultivation facilities available for lease in Pennsylvania, Nevada, and Massachusetts, reducing rental income and increasing property carrying costs. The impact was partially offset by the following: annual contractual rent escalations averaging 2.6% across the portfolio, rental income from the two Ohio dispensaries acquired in 2025, and rental income associated with funded improvement allowances. On 12 June 2026, our board of directors declared a Q2 cash dividend of $0.43 per share, or $1.72 per share on an annualized basis. The dividend was paid on 15 July 2026, to stockholders of record as of 30 June 2026. This represents an AFFO payout ratio of approximately 88%, which remains within our target range of 80% to 90%. The earnings power of our portfolio continues to support our dividend. Turning to the balance sheet.

Speaker #2: The impact was partially offset by the following: annual contractual rent escalations averaging $2.6% across the portfolio, rental income from the 2 Ohio dispensaries acquired in 2025, and rental income associated with funded improvement allowances.

Speaker #2: On June 12, 2026, our board of directors declared a second quarter cash dividend of $43 cents per share, or $1.72 per share on an annualized basis, the dividend was paid on July 15, 2026, to stockholders of record as of June 30, 2026, this represents an AFFO payout ratio of approximately 88%, which remains within our target range of 80 to 90 percent.

Speaker #2: The earnings power of our portfolio continues to support our dividends. Turning to the balance sheet, as of June 30, 2026, we had $25.8 million in cash, we continue to maintain a very conservative leverage profile, with only 7.6 million dollars outstanding on our $90 million credit facility, a debt-to-total asset ratio of and a debt-to-EBITDA ratio of approximately 0.2 times.

Lisa Meyer: As of 30 June 2026, we had $25.8 million in cash. We continue to maintain a very conservative leverage profile with only $7.6 million outstanding on our $90 million credit facility, a debt to total asset ratio of 1.6%, and a debt to EBITDA ratio of approximately 0.2 times. In August, we amended our $90 million revolving credit facility, reducing our interest rate by 100 basis points from prime plus 1% to prime, and extended the maturity date to May of 2029. We believe this amendment further strengthens our balance sheet by lowering our cost of capital and extending our maturity date. Also in August, as Anthony mentioned, we acquired a dispensary property in Kentucky for approximately $0.6 million and committed to fund approximately $1.6 million for improvements. This property was simultaneously leased to an existing tenant.

Speaker #2: In August, we amended our $90 million revolving credit facility reducing our interest rate by 100 basis points from prime plus 1% to prime. An extended the maturity date to May of 2029.

Speaker #2: We believe this amendment further strengthens our balance sheet by lowering our cost of capital and extending our maturity date. Also, in August, as Anthony mentioned, we acquired a dispensary property in Kentucky for approximately 0.6 million dollars and committed to fund approximately $1.6 million for improvements.

Speaker #2: This property was simultaneously leased to an existing tenant. Overall, the overall our results for the quarter were in line with expectations. And we remain focused on maintaining a strong balance sheet while prudently managing risk across our portfolio.

Lisa Meyer: Overall, our results for the quarter were in line with expectations, and we remain focused on maintaining a strong balance sheet while prudently managing risk across our portfolio. With our liquidity, conservative leverage profile, and no debt maturities until 2029, we believe we are well positioned to pursue attractive opportunities as the regulatory environment for cannabis continues to evolve. Operator, please open up the line for questions.

Speaker #2: With our liquidity, conservative leverage profile, and no debt maturities until 2029, we believe we are well positioned to pursue attractive opportunities as the regulatory environment for cannabis continues to evolve.

Speaker #2: Operator, please open up the line for questions.

Speaker #1: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad.

Operator 2: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question will come from Pablo Zuanic with Zuanic & Associates.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question will come from Pablo Zuanic with Zuanic & Associates.

Speaker #1: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker #1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In our first question, we'll come from Pablo Zuanec with zuanecandassociates.

Speaker #3: Thank you, and good morning, everyone. Anthony, can we can we start by talking about lead times? I'm thinking about Georgia, Virginia, Texas, you know, when when supposedly, in the case of Georgia, flower is already legal since allowed, since July 1, right?

Pablo Zuanic: Thank you, and good morning, everyone. Anthony, can we-

Anthony Coniglio: Good morning

Anthony Coniglio: start by talking about lead times? I'm thinking about Georgia, Virginia, Texas. Supposedly in the case of Georgia, flower is already legal since allowed since 1 July, right? I hear companies are running out of flower there very quickly. Virginia starting 1 July next year. I'm just wondering because your lead times to get up and running on production of 18 months to 24 months, you would think that those companies would be talking to you already in terms of leasing potential properties. I'm just surprised we're not seeing that yet, especially with Georgia and Virginia. I realize that Texas may take a bit longer. Thanks.

Pablo Zuanic: start by talking about lead times? I'm thinking about Georgia, Virginia, Texas. Supposedly in the case of Georgia, flower is already legal since allowed since 1 July, right? I hear companies are running out of flower there very quickly. Virginia starting 1 July next year. I'm just wondering because your lead times to get up and running on production of 18 months to 24 months, you would think that those companies would be talking to you already in terms of leasing potential properties. I'm just surprised we're not seeing that yet, especially with Georgia and Virginia. I realize that Texas may take a bit longer. Thanks.

Speaker #3: And I hear companies are running out of flower there very quickly. Virginia, starting July 1 next year. I'm just wondering, because of the lead times to get up and running on production—of 18 to 24 months—you would think that those companies would be talking to you already, in terms of leasing potential properties.

Speaker #3: I'm just surprised we are not seeing that yet, especially with Georgia and Virginia. I realize that Texas may be may take a bit longer.

Speaker #3: Thanks.

Speaker #4: Yeah, I think Kentucky is a good a good indicator of what we would expect to see. In this environment where companies are less enthusiastic about aggressive build-out of capacity, even into some of these newer markets, we find that the discussion with us is often delayed than, say, where those discussions were back in the '22, '23 time frame when there were there was a more aggressive posture towards expansion.

Anthony Coniglio: Yeah. I think Kentucky is a good indicator of what we would expect to see in this environment where companies are less enthusiastic about aggressive build-out of capacity, even into some of these newer markets. We find that the discussion with us is often delayed than, say, where those discussions were back in the 2022, 2023 timeframe when there was a more aggressive posture towards expansion. Yes, we do have some conversations going across these states, but I think overall, CapEx and expansion is at a slower pace into the new states than it was in, say, the 2021, 2022 cohort.

Speaker #4: And so yes, we do have some conversations going across across these states, but I think overall CapEx and expansion is at a slower pace into the new states than it was in, say, the '21, '22 cohort.

Speaker #3: Okay, thank you. That's a good caller. I'm interested in a vacant property the Nevada and Pennsylvania ex-air cultivation and the revolutionary clinics cultivation in Massachusetts.

Pablo Zuanic: Thank you. That's good color. In terms of the vacant properties, the Nevada and Pennsylvania ex-Ayr Cultivation and the Revolutionary Clinics Cultivation in Massachusetts, can you give an update on that? Are they more likely to be sold maybe for other use or even rented for other use? Do you believe that you'll be able to lease them out for cultivation of cannabis?

Speaker #3: Can you give an update on that? Are they more likely to be sold, maybe for, you know, for other use or or even rented for other use?

Speaker #3: Or do you believe that you'll be able to lease them out for cultivation of cannabis?

Speaker #4: First off, our guiding principle when it comes to tenanting those facilities is, what is the best net present value for our shareholders? And so we have everything on the table.

Anthony Coniglio: First off, our guiding principle when it comes to tenanting those facilities is what is the best net present value for our shareholders. We have everything on the table. We look at cannabis as an opportunity, non-cannabis. Because these are cultivation facilities and they're purpose-built as existing cultivation facilities, typically, the best use for our shareholders is try to get the premium rent from a cannabis operator versus a non-cannabis operator. Yes, we pursue all of them. I think the longer it goes that we're not able to identify a credit-worthy cannabis tenant, the increased likelihood is we pivot to either a non-cannabis tenant or a potential sale of the property.

Speaker #4: We look at cannabis as an opportunity, non-cannabis, because these are cultivation facilities and their purpose built as existing cultivation facilities, typically the best use for our shareholders is try to get the premium rent from a cannabis operator versus a non-cannabis operator.

Speaker #4: So yes, we pursue all of them. I think the longer it goes that we're not able to identify a credit-worthy cannabis tenant, the increased likelihood is we pivot to either a non-cannabis tenant or a potential sale of the property.

Speaker #3: But but on that point, would you want to handicap the three? I mean, it seems that Massachusetts is taking a lot longer than expected.

Pablo Zuanic: On that point, would you want to handicap the three? It seems that Massachusetts is taking a lot longer than expected. I realize Nevada and Pennsylvania is more recent. Do you want to give a bit more color there?

Speaker #3: I realize Nevada and Pennsylvania it's more recent. Do you do you want to give a bit more color there?

Speaker #4: No, I I don't, because it's so variable, Pablo. There's so many different factors that go into it. What I would say to you is that when you look at Pennsylvania, given it's still a medical market and it is a a market that will have adult use at some point, it's a more limited licensed market, there's probably more demand for those types of facilities than you would find, say, in Massachusetts.

Anthony Coniglio: No, I don't because it's so variable, Pablo. There's so many different factors that go into it. What I would say to you is that when you look at Pennsylvania, given it's still a medical market and it is a market that will have adult use at some point, it's a more limited license market. There's probably more demand for those types of facilities than you would find, say, in Massachusetts. When you look at, say, in Nevada, while activity was slow, we do see hemp as a real big issue in Nevada, and with hemp-derived products competing with the marketplace in Nevada, with hemp receding, there has been some recent uptick in interest. I don't want to go farther than that in terms of handicapping, because nothing's ever done until it's done. That's why we don't announce letters of intent. We only announce signed lease agreements.

Speaker #4: And when you look at, say, a Nevada, while activity was slow, we do see hemp as a real big issue in Nevada and with hemp receding and hemp-derived products competing with the with the marketplace in Nevada with hemp receding, there has been some recent uptick in interest.

Speaker #4: And so I don't want to go farther than that in terms of handicapping, because nothing's ever done until it's done. That's why we don't announce letters of intent.

Speaker #4: We only announce signed signed lease agreements.

Speaker #3: Thank you. And just moving on to the cannabis properties, you know, now taken over by Vireo Growth. I hear your comment about the conversations ongoing.

Rachel Smith: Thank you. Just moving on to the cannabis properties, now taking over Vireo Growth. I heard your comment about the conversations ongoing, I guess let me give you a couple of examples. I hear sometimes when dispensaries change hands because of a restructuring or the owner going on default, the new buyer buys the dispensary, but sometimes they don't recognize the receivables. Whoever was holding the receivables, the wholesaler or vendor to a dispensary, ends up losing the money. What's the precedent? I realize the case is very different for rented property, right? You would think Vireo, if they want to hold on to those dispensaries and the cultivation, they will have to honor the leasing agreements and pay the rent. Maybe I'm stating something that's obvious, I'm just trying to understand what's the precedent?

Pablo Zuanic: Thank you. Just moving on to the cannabis properties, now taking over Vireo Growth. I heard your comment about the conversations ongoing, I guess let me give you a couple of examples. I hear sometimes when dispensaries change hands because of a restructuring or the owner going on default, the new buyer buys the dispensary, but sometimes they don't recognize the receivables. Whoever was holding the receivables, the wholesaler or vendor to a dispensary, ends up losing the money. What's the precedent? I realize the case is very different for rented property, right? You would think Vireo, if they want to hold on to those dispensaries and the cultivation, they will have to honor the leasing agreements and pay the rent. Maybe I'm stating something that's obvious, I'm just trying to understand what's the precedent?

Speaker #3: But I guess let me give you a couple of examples. You know, I hear sometimes when dispensaries change hands, because of a restructuring or the owner going on default, the new buyer buys the dispensary, but sometimes they don't recognize a receivables.

Speaker #3: So whoever was holding the receivables, the wholesaler or vendor to a dispensary, ends up losing the money. What's the precedent? But I I realize the case is very different for rented property, right?

Speaker #3: You would think Vireo if they want to hold on to those dispensaries and the cultivation, they will have to honor the leasing agreements and and pay the rent.

Speaker #3: I mean, maybe I'm stating something that's obvious, but I'm just trying to understand what's the precedent? Not so much about Vireo specifically, but it would seem that when these properties change hands, the new owner has to honor the the lease agreement.

Rachel Smith: Not so much about Vireo specifically, it would seem that when these properties change hands, the new owner has to honor the lease agreement. Or is that very naive thinking of me?

Pablo Zuanic: Not so much about Vireo specifically, it would seem that when these properties change hands, the new owner has to honor the lease agreement. Or is that very naive thinking of me?

Speaker #3: Or is that very naive thinking of me?

Speaker #4: No, I I think that is accurate. I think that is accurate. First, I want to reiterate that in my prepared remarks, I I informed investors that the cannabis has paid rent on all four properties through and including August rent.

Anthony Coniglio: No, I think that is accurate. First, I want to reiterate that in my prepared remarks, I informed investors that The Cannabist has paid rent on all four properties through and including August rent. That's telling me that there's a deal to be had, nothing's ever done till it's done, these properties obviously have some value to continue paying the rent. Yes, when someone acquires a license in an operating business, they typically will step into that facility and they will continue paying rent. From time to time, there may be a negotiation about reducing rent as part of the overall transaction. That's always something that's in the cards in these types of transactions. Then I think what you're referring to is there have been cases where people have purchased the licenses and not necessarily the operating businesses.

Speaker #4: And that's telling me that there's a deal to be had and nothing's ever done until it's done, but these properties are obviously have some value to continue paying the acquires a a license and an operating business, they typically will step in to that facility and they will continue paying rent from time to time.

Speaker #4: There may be a negotiation about reducing rent as part of the overall transaction, that's always something that's in the cards in these types of transactions.

Speaker #4: And then I think what you're referring to is there have been cases where people have purchased the licenses and not necessarily the operating businesses.

Speaker #4: And when you purchase the license, you can leave certain assets behind, excuse me, certain liabilities behind through a Canadian bankruptcy process. So they're very complicated and highly negotiated.

Anthony Coniglio: When you purchase the license, you can leave certain liabilities behind through a Canadian bankruptcy process. They're very complicated and highly negotiated.

Speaker #3: Thank you. One last one for me. In the thank you, there's something there about the the acreage property that it's guaranteed by Canopy USA.

Pablo Zuanic: Thank you. One last one from me. In the thank you, there's something there about the Acreage property that is guaranteed by Canopy USA. Can you give more color in terms of how that works in practice?

Speaker #3: Can you give more color in terms of how that works in practice?

Anthony Coniglio: Yes. When the transaction with Acreage was executed way back in 2019, 2020, there was a direct Acreage parent guarantee. Given the restructuring that occurred between Canopy and Acreage. Excuse me, it started with the closing of the acquisition of Acreage by Canopy and the creation of Canopy USA. Acreage now has a parent, Canopy USA, and Canopy USA not only holds the interest in Acreage, but also holds interests in Wana, Jetty, as well as shares in TerrAscend. Through dialogue and a transaction earlier this year around Pennsylvania, we were able to negotiate an additional guarantee from Canopy USA. We were able to get what we think is additional protection for our shareholders by adding Canopy USA as a guarantee and not only having an Acreage guarantee on the lease.

Speaker #4: Yes. When the transaction with with acreage was executed way back in 2019, 2020, there was a direct acreage parent guarantee. Given the restructuring, that occurred between Canopy and acreage excuse me, started with the closing of the acquisition of Canopy acquisition of acreage by Canopy, and the creation of Canopy USA, acreage now has a parent, Canopy USA, and Canopy USA not only holds the interest in acreage, but also holds interests in Juana Jetty as well as shares in Terrasend.

Speaker #4: And so through dialogue and a transaction earlier this year around Pennsylvania, we were able to negotiate an additional guarantee from Canopy USA. And so we were able to to get what we think is additional protection for our shareholders by adding Canopy USA as a guarantee and not only having an acreage guarantee on the lease.

Speaker #3: Right. Thank you. Look, and and I guess I want to add one more, Anthony, an apologies if there's someone else on the Q&A. Q.

Pablo Zuanic: Right. Thank you. Look, I guess I'm going to add one more, Anthony, and apologies if there's someone else on the Q&A queue. Just in terms of the macro, obviously always very interested to hear your perspective. We know August 17th, right? Then Judge Julius has to go through all the documents he receives, look at the hearing, and write his report. Question mark, how long that will take. Then that goes to the DOJ, and then DEA director, administrator has to write the final rule, right? Of course, we're all speculating how long that would take. Do you want to give your impressions in terms of how long that process could take?

Speaker #3: Just in terms of a macro, obviously, always very interested to hear your perspective. So you know, we know August 17th, right? Then Judge Julius has to go through all the documents he receives, look at the hearing, and write his report.

Speaker #3: Question mark how long that will take. Then that goes to a DOJ, and then a DA director has to administrator has to has to write the final rule, right?

Speaker #3: And of course, we're all speculating how long that would take. Do you want to give your impressions in terms of how long that process could take?

Speaker #4: It is a guess. So I I will give you an answer, but it is a guess. My best guess is it's mid to end of October.

Anthony Coniglio: It is a guess, so I will give you an answer, but it is a guess. My best guess is it's mid to end of October. Why I get there is when we study the Administrative Procedure Act and how these types of processes work, as you indicated, we need the ALJ recommendation. Well, the post-hearing briefs are due by August 17th. The ALJ needs to have time to consider what's submitted, and we don't expect those to be submitted until the very end. It's going to take probably a couple of weeks for the ALJ to complete his report and his recommendation, call that beginning of September. Once his recommendation comes out, there is what's called a 30-day exception period where parties who participated in the hearing have the opportunity to file exceptions to what the ALJ recommendation is.

Speaker #4: And why I get there is when we study the administrative procedures act and how these types of processes work, as you indicated, the we need the ALJ recommendation.

Speaker #4: Well, the post-hearing briefs are due by August 17th. The ALJ needs to have time to consider what's submitted, and we don't expect those to be submitted until the very end.

Speaker #4: So it's going to take probably a couple of weeks for the ALJ to complete his report and his recommendation. And so call that beginning of September.

Speaker #4: Then once his recommendation comes out, there is a what's called a 30-day exception period where parties who participated in the in the hearing have the opportunity to file exceptions to what the ALJ recommendation is.

Speaker #4: That takes us into early October. And now the DEA has to file the final rule, and they likely can't do that the day after the exception period ends because they will need to consider the exceptions that were submitted towards the end of that period.

Anthony Coniglio: That takes us into early October. Now the DEA has to file the final rule, and they likely can't do that the day after the exception period ends because they will need to consider the exceptions that were submitted towards the end of that period. I add all of that up, and there's a lot of work to be done, even though the DEA is probably doing work on a final rule now. They do need time to incorporate what comes in during that exception period to incorporate what the ALJ recommendation is. That's why I think the earliest is probably mid-October.

Speaker #4: And so I add all of that up, and there's a lot of work to be done, even though the DEA is probably doing work on a final rule now.

Speaker #4: They do need time to incorporate what comes in during that exception period to incorporate what the ALJ recommendation is. So that's why I think the earliest is probably mid-October.

Speaker #4: And so my guess, mid to end of October. And I I get a little aggressive in that timing only because I do believe in the political overlay that this action has, and that there's probably a desire of the administration to get this completed and get that final rule filed before midterms.

Anthony Coniglio: My guess, mid to end of October, and I get a little aggressive in that timing only because I do believe in the political overlay that this action has, and that there's probably a desire of the administration to get this completed and get that final rule filed before midterms. That's how I conclude. I do want to remind everybody, once the filing occurs of the final rule, it's a 30-day implementation period, and we'll all buckle up for the resulting litigation that'll commence from there.

Speaker #4: And so that's how I conclude: but I do want to remind everybody once the filing occurs of the final rule, it's a 30-day implementation period, and we'll all buckle up for the resulting litigation that all commenced from there.

Speaker #3: That's right. Thank you very much. That's a great caller. Thank you, Anthony.

Pablo Zuanic: That's right. Thank you very much. That's a great quarter. Thank you, Anthony.

Speaker #4: Thank you, Pablo.

Anthony Coniglio: Thank you, Pablo.

Speaker #1: And as a reminder, that is STAR 1. If you would like to ask a question, we'll go next to Craig Cochera with Lucid Capital Markets.

Operator 2: As a reminder, that is star one if you would like to ask a question. We'll go next to Craig Kucera with Lucid Capital Markets.

Operator: As a reminder, that is star one if you would like to ask a question. We'll go next to Craig Kucera with Lucid Capital Markets.

Speaker #5: Yeah. Hey, good morning. You guys had a decline in property-carrying costs sequentially, and you know, understanding that you wouldn't have them if you leased up some vacancy.

Craig Kucera: Yeah. Hey, good morning. You guys had a decline in property carrying costs sequentially. Understanding that you wouldn't have them if you leased up some vacancy, if those assets remain vacant, how should we think about that for the remainder of the year?

Speaker #5: But if if those assets remain vacant, how should we think about that for the remainder of the year?

Lisa Meyer: The reason there was a decline in Q2 was a result of a reimbursement that we received from a previous tenant that had vacated. It reduced the property expenses a little bit more than what it should have. I would think that Q1 is a good run rate for what those expenses should be.

Speaker #6: The reason there was a decline in the second quarter was a result of a reimbursement that we received from a previous tenant that was in that that had vacated.

Speaker #6: So it it just it reduced the property expenses a little bit more than it would what it should have. I I would think that Q1 is a good run rate for what those expenses should be.

Speaker #5: Okay. That's that's helpful. Yeah. I believe both true leave and glasshouse deconsolidated their recreational operations in order to uplift just curious, given the legalization of medical, are you seeing any of your other tenants moving in that direction to take advantage of the legislation?

Craig Kucera: Okay. That's helpful. Yeah, I believe both Trulieve and Glass House deconsolidated their recreational operations in order to uplist. Just curious, given the legalization of medical, are you seeing any of your other tenants moving in that direction to take advantage of the legislation?

Anthony Coniglio: Most of our other tenants that are public have a more intertwined business between their medical and their adult use programs. What we're seeing is, most of the others are taking a wait approach. Well, let me restate that. They're taking steps such as reverse splits in order to meet listing requirements for minimum stock price, they are stopping short of restructuring their business given the nature of their business or how large the adult use component is, with the expectation that we will see rescheduling get completed later this year, the entire business could get uplisted to the New York or Nasdaq.

Speaker #4: Most of our other tenants that are public have a more intertwined business between their medical and their adult-use programs and so what we're seeing is most of the others are taking a weight approach.

Speaker #4: They're well, let me restate that. They're taking steps such as reverse splits in order to meet listing requirements for minimum stock price. But they are stopping short of restructuring their business, given the nature of their business or how large the adult-use component is.

Speaker #4: With the expectation that we will see rescheduling get completed later this year and then the entire business could get uplifted to the New York or NASDAQ.

Speaker #5: Okay. Yeah. That that makes sense, putting putting up that decision certainly until back half of the year. And I guess against that backdrop, are you seeing any pickup in transactional activity for medical only?

Craig Kucera: Okay. Yeah, that makes sense, putting off that decision certainly until back H2 of the year. I guess against that backdrop, are you seeing any pickup in transactional activity for medical-only? If so, any movement in cap rates, or is it still too early?

Speaker #5: And if so, you know, any movement in cap rates? Or is it still too early?

Speaker #4: I I I would say there's no there's been no pickup in medical vs. adult-use. The pickup in activity is really driven by the market opportunities.

Anthony Coniglio: I would say there's been no pickup in medical versus adult use. The pickup in activity is really driven by the market opportunities. I don't yet see people making decisions in their business purely to orient towards medical versus adult use. In terms of cap rates, cap rates continue to be in the same range that they've been for some time in the marketplace. We've not seen compression in that.

Speaker #4: I don't yet see people making decisions in their business purely to orient towards medical vs. vs. adult-use. And then in terms of cap rates, cap rates continue to be in the same range that they've been for for some time in the marketplace.

Speaker #4: We've not seen compression in that.

Speaker #5: Got it. And and outside of cannabis, which sounds like there's some positive movement there, are there any other tenants that are on watchlist negative, or is everybody, you know, still performing well?

Craig Kucera: Got it. Outside of Cannabist, which sounds like there's some positive movement there, are there any other tenants that are on watchlist negative, or is everybody still performing well? I know your four-wall coverage still looks really good.

Speaker #5: I know your four-wall coverage still looks really good.

Speaker #4: We watch all of them. This is the cannabis industry. This is a volatile and emerging industry, so we're watching all of them. The ones that we've identified in the past on these calls would be Cannabist or Acreage.

Anthony Coniglio: We watch all of them. This is the cannabis industry. This is a volatile and emerging industry, so we're watching all of them. The ones that we've identified in the past on these calls would be a Cannabist or an Acreage. Those were the ones in the portfolio versus, say, a Cresco, which just issued really good results this morning, or a Curaleaf, our largest tenant, issued last night, very good performance. When we look at the portfolio, we don't publish a watchlist per se, but we're certainly looking at the operators in the portfolio that have historically underperformed their peers, such as Acreage.

Speaker #4: And so those were the ones in the portfolio. Vs., say, a CRESCO, which just issued really good results this morning, or a Curely, our largest tenant, issued last night, very good performance.

Speaker #4: And so you know, when we look at the portfolio, we don't publish a watchlist per se, but we're certainly looking at the operators in the portfolio that have historically underperformed their peers.

Speaker #4: Such as acreage.

Speaker #5: Okay. Got it. Okay. Thanks. That's it for me.

Craig Kucera: Got it. Okay. Thanks. That's it for me.

Speaker #4: Okay. Thanks, Craig.

Anthony Coniglio: Okay. Thanks, Greg.

Speaker #1: And this now concludes our question and answer session. I would like to turn the floor back over to Anthony Caniglio for closing comments.

Operator 2: This now concludes our question and answer session. I would like to turn the floor back over to Anthony Coniglio for closing comments.

Operator: This now concludes our question and answer session. I would like to turn the floor back over to Anthony Coniglio for closing comments.

Speaker #4: Thank you, operator. And thank you, everybody, for joining us today. We hope you have a wonderful remainder of the summer, and we look forward to connecting with you all in the coming months.

Anthony Coniglio: Thank you, operator. Thank you, everybody, for joining us today. We hope you have a wonderful remaining of the summer, and we look forward to connecting with you all in the coming months.

Operator 2: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.

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