A cannabis real estate sale leaseback prices off two things: the cash flow a single property throws off for its tenant, and how hard it is to get a license in that state. The building itself is almost beside the point. NewLake Capital Partners publishes an average portfolio yield of roughly 13% across 35 properties, and that number exists because the landlord is absorbing tenant credit risk, federal illegality at the property, and a higher cost of capital than any conventional industrial or retail owner faces.
Anthony Coniglio, NewLake’s CEO, has been underwriting these deals since 2019 and is candid about where the model has broken — three properties taken back in Massachusetts, Pennsylvania and Nevada after price compression arrived faster than modeled. That is more useful than a success story.
What follows is the structure of these deals, the two property types that make up nearly all of the volume, how the yield gets set, the underwriting test that matters, the red flags that kill a deal on the first call, and where new supply is coming from.
Key takeaways
- Cannabis net lease deals average around a 13% cap rate; the premium covers federal illegality at the property, the landlord’s own elevated cost of capital, and reserves for re-tenanting.
- The core underwriting test is four-wall coverage — what cash flow this specific building generates for this specific operator — not corporate guarantees or comparable building sales.
- Limited-license states create intrinsic value in the license itself. Pennsylvania has 24 licensees; California has over 1,000. A capped-license operator monetizes the license instead of handing back keys.
- Two disqualifiers show up fast: an operator who opens with "we grow the best pot out there," and projections with no unit pricing, no expected sale prices, and no price compression modeled in.
- Operators often stall on purpose. At a 14–15% cost of debt they may still prefer to borrow for two or three years rather than lock a 12-cap lease for 20 years if they expect an 8-cap later.
From the Real Estate Pros Show
This article draws on an interview with Anthony Coniglio of NewLake Capital Partners on the Real Estate Pros Show, hosted by Scott Bursey.
What a Cannabis Sale-Leaseback Actually Is
A triple net lease puts everything on the tenant: repairs, minor capex, property taxes, insurance, maintenance, landscaping, snow removal. These are single-tenant properties. Coniglio’s framing is that it is less a real estate relationship than a financing one — the same product Walgreens, Starbucks and Home Depot use to fund their real estate capital needs. Cannabis operators use it for the same reason: equity raised from investors should be generating EBITDA, not sitting inside a hard asset.
NewLake acquires in three ways, and the distinctions matter if you are being offered a deal:
- Traditional sale-leaseback. Buy a currently operating cultivation or dispensary facility and immediately lease it back to the operator for 15 to 20 years. No operational disruption; it is essentially a financial transaction.
- Acquisition plus tenant improvement dollars. Buy an existing building on behalf of a tenant and fund the retrofit for cultivation or retail use.
- Build-to-suit. Acquire land and provide TI dollars for the tenant to construct.
What they explicitly will not do is take tenancy risk. They are not developers. They do not buy, entitle, build, and then hang a sign hoping to find an operator. Every acquisition closes with a signed long-term lease and rent starting immediately.
That constraint is worth borrowing. In a sector where operator failures have been common, the deals that survived were the ones where the lease existed before the money went out the door.
The Two Property Types and What They Look Like
This is not farmland. Coniglio was emphatic on that point, and it is the most common misconception investors bring to the sector.
Across NewLake’s 35 properties, 15 are indoor cultivation facilities — 50,000 to 100,000 square foot industrial buildings modified with power, HVAC and irrigation systems for indoor agriculture. Think of them as heavily retrofitted industrial, with the capital sunk into infrastructure that is expensive to replicate and hard to repurpose.
The other 20 are dispensaries: roughly 2,000 to 3,000 square foot single-tenant pad sites functioning as retail distribution hubs. Physically, they resemble any other freestanding retail pad. The difference is entirely in who occupies them and under what license.
Lease terms track the property type. New retail leases run about 12 years. Industrial runs 15 to 20 years, reflecting the retrofit capital and the difficulty of moving a cultivation operation. Across the whole portfolio the weighted average remaining term is about 11.5 years.
Escalators are standard. Coniglio’s illustrative verbal term was a 13 cap with 2.5% annual escalators over 15 years — useful as a reference point for what a first-pass proposal sounds like.
One practical implication of long duration with a small team: NewLake runs the entire portfolio with six employees. Under a true triple net structure, as long as rent arrives there is very little landlord work. The headcount pressure is in acquisitions and, as leases age, renewals.
We focused on that four-wall coverage. We also focused on limited license states. In the states where you have a more restrictive approach, that creates intrinsic value for the license — less of an opportunity to see the operator go out of business or throw you the proverbial keys. They’d seek to monetize that license.
— Anthony Coniglio, CEO, NewLake Capital Partners
Why the Cap Rate Is 13% and What Sets It
NewLake publishes an average yield on tenanted properties of around 13%. That is far above what industrial or retail commands, and Coniglio names three reasons.
Elevated risk at the property. This is not a regular-way industrial tenant. State-by-state regulation is wildly inconsistent — some states force vertical integration, some separate wholesale from retail — and for non-medical cannabis, the activity at the property remains federally illegal.
The landlord’s own cost of capital. NewLake trades on the OTC despite complying with NYSE and NASDAQ listing standards, because those exchanges won’t take a cannabis-focused issuer. Institutional buyers can’t get custody for the stock. The credit facility was recently extended and repriced at prime flat, which is still elevated relative to non-cannabis real estate sectors.
Reserve for re-tenanting. The yield has to absorb periods when a property goes dark and rent stops.
Then comes the constraint that keeps the number from running away: price it too high and you create financial strain on the tenant, which only hurts the landlord. “It’s really more art than science in pricing it,” Coniglio says.
There is a second reason yields don’t compress on demand. Sophisticated operators know their cost of capital may fall with regulatory reform. Faced with a 12-cap sale-leaseback locked for 15 or 20 years, many would rather pay 14–15% on debt for two or three years as a bridge, betting on an 8-cap or 7-cap execution later. If a seller keeps stalling, that arithmetic — not indecision — is usually why.
How the Tenant Credit Gets Underwritten
The core test is four-wall coverage: what cash flow does this specific property generate for this specific tenant. The logic is blunt — if the operation is making money, it is likely to pay rent. Corporate-level optimism does not substitute.
Layered onto that is price compression modeling. Cannabis is a growing market for what ultimately becomes a commodity, so unit prices fall. NewLake priced compression into its underwriting from the start. Coniglio’s admission is that in some states it came faster and deeper than expected, producing distressed tenants and three properties taken back — one each in Massachusetts, Pennsylvania and Nevada. A 15-to-20-year lease term has real forecasting limits, and he says so.
The second filter is the one that has protected the portfolio most: limited-license states. His analogy is liquor. In California you can buy alcohol in a supermarket; in Pennsylvania you go to a state-run package store. States have taken similarly permissive or restrictive approaches to cannabis, and in restrictive states the license itself carries intrinsic value.
The license-count contrast is stark. California has over 1,000 licensees. Pennsylvania has 24. Massachusetts caps operators at six dispensaries each — meaning an operator already at six cannot simply add a seventh.
Why that matters to a landlord: cultivation licenses are typically attached to a property and are not easily separated from the operations there. A struggling operator in a capped state has a strong incentive to sell or transfer the license rather than throw the landlord the proverbial keys. Scarcity, not the building, is the downside protection.
Deal Red Flags and the Diligence Sequence
Two things end conversations. The first is the pitch that opens with “we grow the best pot out there” — a line Coniglio heard constantly through 2020–2022 and treats as an outright deal killer, because it signals product pride in place of financial literacy.
The second is projections without detail behind the model. NewLake asks every operator what the facility can do and to show the work: unit prices, expected sale prices, and whether price compression is projected at all. If the model can’t absorb compression, rent collection becomes a problem later.
Startups with no operational history are a third filter. NewLake won’t take execution or startup risk; underwriting requires evidence of an organization’s ability to operate, not a strategy to try.
The process itself is disciplined and fast:
- Initial conversation, opportunity logged and tracked.
- Information request list sent; operator returns financials and projections.
- First-pass underwrite and a verbal indication of terms — for example, a 13 cap with 2.5% escalators over 15 years.
- Dialogue, refined proposal, term sheet or LOI negotiated and signed.
- Diligence: environmental reports, site visit, underwriting the property projections and the company.
- Lease drafted and negotiated, signed, funded, closed, tenant set up for monthly billing.
Internally, the read on whether an opportunity is real comes within 24 to 72 hours of receiving information. Coniglio’s most expensive lesson applies here: time kills deals. Cadence matters, because when transactions slow, people get distracted and conditions change.
Where the Deal Flow Is Going Next
New supply comes from states that are adopting or expanding programs. Coniglio names three worth watching. Kentucky has a newer medical program, where NewLake closed a dispensary transaction recently. Georgia significantly expanded its medical program, which will require additional retail distribution and cultivation capacity. Texas — a state of more than 30 million people — had a very small medical program and recently expanded it substantially, which should drive both manufacturing square footage and retail footprints.
None of that depends on Congress. States have been legalizing for decades, starting with California’s medical program in the late 1980s or early 1990s. Today more than half the country lives in an adult-use state, and 80% to 90% live in a state with either adult-use or medical cannabis.
Federal action is still a catalyst, though. The DEA’s rescheduling of medical cannabis from Schedule 1 to Schedule 3 removed punitive tax provisions that apply only to Schedule 1 and 2 substances, improving the forward cash flow profile of every tenant at once. Full rescheduling would extend that benefit across the industry — but Coniglio flags a nuance investors miss: rescheduling without DEA registrations gives operators the tax benefit without federal legality, which keeps capital markets access closed. Separately, an expected ban on intoxicating hemp products should push volume out of smoke shops and convenience stores and back into regulated channels.
His forward view is consolidation, modeled on beer after Prohibition — many brands early, concentration over time. The advice for anyone underwriting into that: focus on property-level cash flow.
Frequently asked questions
What cap rate do cannabis sale-leaseback deals trade at?
NewLake publishes an average yield of roughly 13% across its tenanted properties, which is well above conventional industrial or retail. The premium covers three things: elevated tenant and regulatory risk, including the fact that non-medical cannabis activity at the property remains federally illegal; the landlord’s own higher cost of capital, since the company trades OTC and borrows at prime flat; and a reserve for re-tenanting when a property goes dark.
Pricing has a ceiling as well as a floor. Rent set too high creates financial strain on the tenant, which the landlord ultimately absorbs. Coniglio calls the exercise “more art than science.”
Why do limited-license states make a cannabis property safer to own?
Because scarcity puts intrinsic value into the license, and cultivation licenses are typically attached to the property and hard to separate from operations there. Pennsylvania has 24 licensees; California has over 1,000. Massachusetts caps each operator at six dispensaries.
The practical effect on default: a struggling operator holding a scarce license has a strong incentive to sell or transfer it rather than walk away from the building. In a permissive state, the license is worth much less and the walk-away is cheap.
What makes a cannabis operator uncreditworthy as a tenant?
Thin or undocumented projections are the main disqualifier. NewLake asks for the detail behind the model — unit prices, expected sale prices, and whether price compression is projected at all. An operator whose plan cannot absorb falling product prices will eventually struggle to pay rent.
Two other patterns kill deals: leading the conversation with product quality rather than financial performance, and being a startup with no operational history. NewLake underwrites demonstrated ability to operate, not a strategy to execute.
Do cannabis real estate opportunities depend on federal legalization?
No. States have been legalizing independently for decades, beginning with California’s medical program around the late 1980s. More than half the country now lives in an adult-use state, and 80% to 90% live in a state with adult-use or medical cannabis. New deal flow is coming from expansion states like Kentucky, Georgia and Texas.
Federal action still matters to pricing. The DEA’s move of medical cannabis to Schedule 3 removed punitive tax provisions, and full rescheduling with DEA registrations would improve capital markets access and, over time, compress yields.
What happens to the property if the cannabis tenant defaults?
The landlord takes the property back and looks to re-tenant it, which is exactly what happened to NewLake with three properties in Massachusetts, Pennsylvania and Nevada after price compression outpaced their models. Rent stops during that window, which is part of why the yield needs to be elevated in the first place.
This is also why restructuring capability belongs on the team before the first deal closes. NewLake built that skill set at the outset and incorporated the possibility of failure into its lease structures, on the assumption that some tenants in this sector would not make it.
The bottom line
If someone brings you a cannabis property, underwrite the four walls first — what this building earns for this operator, with price compression modeled explicitly — and then check the state’s license count before you get anywhere near a cap rate discussion. Those two answers tell you whether the rest of the diligence is worth running.
