Sustainable Dividend Yields in Cannabis Real Estate for 2024
Top marijuana stocks Cannabis Real Estate Investment Trusts (REITs) are gaining attention in the investment community. They offer a unique entry point into the burgeoning cannabis industry. Additionally, by focusing on the real estate aspect, they provide investors exposure without direct involvement in cultivation or sales. This week, several top Cannabis REITs are on investors’ watchlists. In general, they’re known for stable dividends and growth potential. Their performance is closely tied to the expanding legal cannabis market in the U.S.
Overall, the U.S. cannabis industry is poised for significant growth. Recent statistics highlight its rapid expansion. By 2025, the industry’s value is expected to reach over $30 billion. This growth is driven by increasing legalization and acceptance. Additionally, investors in Cannabis REITs should use technical analysis to identify trends. Also, proper risk management is crucial. In fact, it helps mitigate the volatility associated with the cannabis sector. Balancing potential rewards with the inherent risks is key to successful investment in Cannabis REITs.
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Top 2024 Dividend Performers in Cannabis Real Estate
- Innovative Industrial Properties, Inc. (NYSE: IIPR)
- AFC Gamma, Inc. (NASDAQ: AFCG)
- Chicago Atlantic Real Estate Finance, Inc. (NASDAQ: REFI)
Innovative Industrial Properties, Inc.
Among cannabis REITs, Innovative Industrial Properties, Inc. (IIP) is unique. It was established in 2016 with a focus on medical cannabis facilities. The business IIP purchases holds, and manages specialty industrial assets. Operators with state licenses and experience have leased these assets. As of 2023, IIP had 111 properties spread throughout 19 states. Most of them reside in California, Michigan, and Pennsylvania. These states have substantial medical cannabis markets. IIP’s multi-domain presence emphasizes its strategic attitude.
Contracts for triple-net leasing are a component of IIP’s business plan. Under these arrangements, the renter bears the majority of the property expenditures. This arrangement provides IIP with a consistent, predictable payment stream. Their financial stability depends on it. The company’s growth is in step with the US cannabis market’s rise. IIP’s portfolio has grown steadily since its establishment. This growth is a reflection of the growing demand for cannabis-related real estate. Through Innovative Industrial Properties, investors can obtain cannabis real estate at a reduced regulatory risk. This is a result of its focus on characteristics for use in medicine.
Third Quarter 2023 Results
In the third quarter of 2023, Innovative Industrial Properties, Inc. (IIP) reported significant financial growth. There was a 10% increase in total revenues from $70.9 million in 2022 to around $77.8 million. The primary forces behind this expansion were the acquisition of new properties and higher rent refunds to tenants. Tenant contributions to insurance premiums and property taxes rose from $2.7 million in 2022 to $6.2 million in 2023. Furthermore, the rental income included $2.2 million in security deposits that were applied for. These were obtained via Holistic, 4Front, and Temescal leasing. In addition, until September 20, 2023, Kings Garden paid the agreed-upon rent of $1.7 million. For assets that IIP reclaimed in late September 2023, this was applicable.
IIP has achieved impressive financial performance in 2023’s first nine months. Common investors accounted for $122.9 million, or $4.32 per share, of the net profits. Funds from Operations (FFO) was $173.2 million ($6.13 per share) while Normalized FFO was $175.5 million ($6.21 per share). Adjusted Funds from Operations (AFFO) of $192.2 million is $6.80 per share. IIP adhered strictly to its dividend policy. A quarterly dividend of $1.80 per common share was paid out on October 13, 2023. This suggested a 79% AFFO payout ratio. The annual dividend for the calendar year that ended on September 30, 2023, increased by 6% to $7.20 per common share.
Recent Update
In October 2023, IIP inked a significant financing agreement. The Operating Partnership, a subsidiary of IIP, was granted a $30 million Revolving Credit Facility. This matures on October 23, 2026. The Subsidiary Guarantors’ qualifying real estate, which is loanable, serves as the foundation for the credit facility. Among the assets used to finance the loan are lease payments, equity holdings, and real estate. In addition, interest rates are subject to change and are influenced by the prime rate and any applicable margin. Also, the agreement contains standard covenants and allows for additional loan obligations in specific situations. This strategic financial move may give IIP greater operational flexibility and liquidity.
IIPR Stock Performance
On February 7th, IIPR stock closed at $89.96, down 5.11% in the last month of trading. In this case, the stock is currently trading in a 52-week price range of $63.36-$105.07, down 10.77% year to date.
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AFC Gamma, Inc.
Leading ancillary cannabis company AFC Gamma, Inc. manages its cash flow and capacity with finesse. The business began in 2020 and is an expert in collateral markets, real estate security markets, and supply and demand theories. Among the financing types that AFCG specializes in are first-lien loans, mortgage loans, construction loans, bridge financings, and other oddball financing options. AFC Gamma has recently focused its marketing efforts on the cannabis sector, which is growing at a rapid pace. Verano Holdings Inc. received a $250 million credit line and a $100 million option from the corporation. Daniel Neville will become the company’s CEO with effect from November 13, 2023, the company announced on October 30. Most recently, Mr. Neville served as the Chief Financial Officer for Ascend Wellness Holdings, Inc. (“AWH”), a leading multi-state, vertically integrated cannabis operator.
Third Quarter 2023 Financial Highlights
During the third quarter of 2023, AFC Gamma recorded net income under generally accepted accounting principles (or “GAAP”) of $8.0 million, or $0.39 per basic weighted average common share, and distributable earnings of $9.9 million, or $0.49 per basic weighted average common share.
Common Stock Dividend
On October 13, 2023, the Company paid a regular cash dividend of $0.48 per common share for the third quarter of 2023. For the third quarter of 2023, AFC Gamma distributed $9.8 million in dividends, or $0.48 per common share, compared to Distributable Earnings of $0.49 per basic weighted average common share for such period.
AFCG Stock Performance
On February 7th, AFCG shares closed at $11.24, a 6.02% decrease from the previous month of trading. In this case, the stock, which has a price range of $9.91 to $16.15, is down 6.57% year to date.
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Chicago Atlantic Real Estate Finance, Inc. (REFI)
Chicago Atlantic Real Estate Finance, Inc., is a noteworthy player in the cannabis industry’s financial sector. They specialize in providing loan solutions and real estate capital. Also, their services support cannabis operators across various stages of their business lifecycle. Chicago Atlantic acts as a bridge between capital needs and growth opportunities within the cannabis market.
The company boasts a significant portfolio, with numerous stores financed in key states. They have a strong presence in states with vibrant cannabis markets. These include Illinois, California, and Michigan, among others. Their strategic focus on these areas demonstrates their commitment to supporting the cannabis industry’s growth.
Third Quarter 2023 Financial Results
A net interest income of roughly $13.7 million is forecast, in line with 2023’s second quarter. The interest income from prepayment fees, the acceleration of original issue discounts, and the impact of the July 2023 25 basis point increase in the prime rate totaled almost $0.7 million. In addition, a rise in weighted average borrowings on the revolving credit facility countered these increases, increasing interest expense by almost $0.5 million.
Total expenses of approximately $3.9 million before provision for current expected credit losses, which is consistent with the second quarter of 2023; primarily attributable to the $0.2 million decrease in net management and incentive fees offset by a $0.3 million increase in stock-based compensation.
As of September 30, 2023, the total reserve for current projected credit losses was $5.1 million, down $0.1 million from the previous month. This represents roughly 1.5% of the portfolio’s $341.8 million principal balance.
A 3.6% sequential rise was shown in the distributable earnings, which came in at about $10.5 million, or $0.57 per weighted average diluted common share.
As of September 30, 2023, book value per common share increased sequentially by 0.7% to $15.17 from $15.06 as of June 30, 2023. In addition, this gain was mostly because distributable earnings for the third quarter of 2023 exceeded the $0.47 normal quarterly dividend.
With $63.0 million still owed on its $100.0 million secured credit facility as of September 30, 2023, the company’s leverage ratio—the ratio of debt to book equity—was over 23%.
2023 Outlook
Chicago Atlantic offered the following outlook for the full year 2023:
The Company expects to maintain a dividend payout ratio (based on Distributable Earnings per weighted average diluted share) of approximately 90% to 100% on a full-year basis.
The regular quarterly common dividend is to be a minimum of $0.47 per weighted average share.
In addition, if its Net Income requires additional dividends over and above the regular quarterly dividend amount to meet its 2023 taxable income distribution requirements, the Company expects to meet that requirement with a special dividend in the fourth quarter of 2023.
REFI Stock Performance
On February 7th, REFI stock closed at $15.54, down 2.48% in the last month of trading. In this case, the stock is currently trading in a 52-week price range of $12.91-$17.65, down 3.96% year to date.
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Top Dividend-Producing Cannabis REITs for 2024
As 2024 approaches, the cannabis industry in the U.S. continues to show promising signs of growth and expansion. In addition, top Cannabis REITs are setting up to capitalize on this upward trajectory. They offer investors a unique opportunity to engage with the cannabis market through real estate. The U.S. cannabis industry’s projected growth to over $30 billion by 2025 underscores the potential for substantial returns. These REITs not only promise steady dividend income but also the prospect of appreciating asset values in a booming market.
Investors looking into Cannabis REITs for 2024 should apply meticulous technical analysis. In general, this approach will aid in identifying trends and making informed decisions. Additionally, proper risk management is very important when trading. Overall, it is crucial to navigate the volatility inherent in the cannabis sector. By balancing the potential high rewards with the risks, investors can strategically position themselves. They can capitalize on the growth of the cannabis industry while safeguarding their investments.
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