Anthony Coniglio  0:00  

We have seen time and again over the last three years and a few years before I even got into the business. There are many, many stories where a real estate owner would lease to a cannabis company. They’d submit the tenant information to their lender and the lender would say, you have 30 days to get rid of this tenant or your debt is being called because you’re in violation. And so it really is a no fly zone from the major banks. Now, there are some small banks that may lend against these assets, regional banks, this since they’re smaller state chartered banks, they tend to have some legal lending limits so you can get large transactions funded there. There we’re starting to see some of the mid size banks maybe nip around the edges. But by and large, there just isn’t the type of real estate capital available to the sector because of that federally legal classification.

Announcer  0:51  

Welcome to CRE PN Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you’re an investor, broker, lender, property manager, attorney or accountant we are here to learn from the experts.

J Darrin Gross  1:10  

Welcome to Commercial Real Estate Pro Networks, CRE PN Radio. Thanks for joining us. My name is J. Darrin Gross. This is a podcast focused on commercial real estate investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals who provide their experience and insight to help you grow your real estate portfolio. 

Today my guest is Anthony Coniglio. Anthony is the president and chief investment officer of New Lake Capital Partners. New Lake is the leading provider of real estate capital to state licensed cannabis operators through sale leaseback transactions, and third party purchases, as well as funding for builders to projects. New Lake owns a geographically diversified portfolio consisting of 27 properties across 10 states with a tenants. And in just a minute, we’re going to speak with Anthony about the cannabis business and the opportunities to invest in real estate for with cannabis tenants. 

But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple of ways you can or a couple of ways you can you can help us you can like share and subscribe. And as always, we would love to hear from you leave a comment. Also, if you’d like to see how handsome Our guests are, normally, you can check out our YouTube channel and see us there and the YouTube channel is Commercial Real Estate Pro Network. While you’re there, we would love for you to subscribe. Unfortunately, today, you may see a picture of Anthony depending on how the Edit goes or have a little bit of technical challenges. But nonetheless, we have Anthony on the line and I’m really looking forward to talking with him. So as to any further ado, I’d like to welcome Anthony. Welcome to CRE PN Radio.

Anthony Coniglio  3:11  

Thank you Darrin, I’m excited to be here. I apologize that we can’t get the video going today but I think we’re gonna have a fun conversation.

J Darrin Gross  3:18  

No, I’m I am certain of that. Before we get going if you could take just a minute and share with the listeners a little bit about your background.

Anthony Coniglio  3:27  

Sure my background I’ve been I’ve been in business for over 30 years I started my career Pricewaterhouse auditing banks and asset managers and real estate firms. I had a number of stops at CIBC and JP Morgan in in and around investment banking for a big part of my career. I started a residential mortgage company in in 2011, after I left JP Morgan, and we took that business and scaled it up nationally and we sold it to a portfolio company, Blackstone, then I found myself in 2018, trying to figure out what do I want to be when I grow up? Having you know, 20 years of experience Schwab at that time, excuse me, close to 30 years of experience. And a friend of mine who’s been a very successful entrepreneur said who runs a REIT, he runs a multifamily. And inside that multifamily REIT, they have a small it’s actually fairly sizable now lending business bridge lending business they had been seeing significant demand from cannabis companies in the 2017, early 18 period. And when he heard that I had sold the business I was running, he said, My gosh, we’ve got an opportunity to start up a new REIT that’s focused exclusively on the cannabis sector. And that started this whole dialogue around cannabis real estate investing.

J Darrin Gross  4:50  

Awesome. So being a financial guy, I’m assuming the the numbers and the way the numbers work and all that’s probably secondhand to you as far as the ability to see something And then recognize the the opportunity there.

Anthony Coniglio  5:04  

Yes, yes. As a banker at JPMorgan, I ran specialty finance, investment banking, we had a number of FinTech companies that will fall under our purview. And so, especially coming out of the financial crisis and seeing some of the dynamics that play with the mortgage business, when we look at cannabis, real estate and Alex specifically at the opportunity, there were some real value catalysts that were very apparent to us back in that late 2018 conversation.

J Darrin Gross  5:31  

Yeah. So New Lake, are you guys a REIT? Is that how you’re set up?

Anthony Coniglio  5:37  

Yes, we are an equity REIT. 

J Darrin Gross  5:40  

Okay.  And for the listeners, if you could define that and, and tell us what that is.

Anthony Coniglio  5:47  

Right, we are an equity REIT, where we purchase properties that are used exclusively in the cannabis sector.  We acquire retail and industrial properties, we execute transactions with fully built and operational facilities, as well as facilities that are under construction, and even some build to suits we have a couple of transactions where we’ve executed where they’ve been ground up construction that we’ve been able to fund. 

Today we own 27 properties across 10 states with eight tenants. We have some of the leading cannabis companies in the cannabis industry as our tenants some of the best credits in the industry names like Curaleaf and Cresco. And truly just to name a few. And we’re very proud of our track record. We’ve been at this for almost three years, and we have not had a deferral or an abatement. In no issues knock wood in our portfolio since inception. We’re very proud of that track record because investing in the cannabis sector is difficult. This industry has a lot of ups and downs. And it has had a lot of companies that have fallen under financial distress.

J Darrin Gross  6:57  

Definitely the the cannabis definitely has some interesting challenges just based on the the legal climate. And I’m curious Yeah, so you guys, you you own the property and then you lease to the the cannabis business? What’s what drives it? Is it is it the you have a client as a tenant that needs space, or do you find the space and then look for the tenant and offer that up here, your current list of, of tenants,

Anthony Coniglio  7:27  

We don’t actually work to entirely to buy properties and entitle them the properties at this point in the cycle, that tenants secure the properties. And typically in the limited licensed jurisdictions that we focus on these are jurisdictions where the license and the property are attached in in either explicit or implicit forms. Think about a state where you would not be able to purchase liquor at a supermarket. And so I’m sitting in Connecticut today, whether it’s you know, many states in the northeast, you have to purchase wine or beer or liquor cheese, wine or liquor at a liquor store. So in those limited license states, there’s attachment. And what that means is that the operator needs to identify in most cases where their business will be located when they go in and they apply for the for the license itself. So it’s part of that licensing effort. And so they’ve secured the location, they get it in title, they get it licensed by the state, and then they’ll look for a partner like us to come in and provide that acquisition capital or the tenant improvement dollars to improve the properties. We just to give you a little bit more flavor for our transactions, these are long term triple net lease transactions, they tend to be 15 to 20 years on the industrial properties call them 12 to 15 years on the retail properties and it’s all triple net where the tenant continues to maintain the responsibility for the property no no disruption is your listeners by no no disruption to their operations. So it’s a really attractive way for cannabis companies to raise capital in a non diluted manner.

J Darrin Gross  9:04  

Right. And it makes sense you know, like you mentioned just the licensing and the zoning and you know, are where a cannabis business is licensed that mean established first and then you as the essentially the financing equity stakeholder and then the tenant is the the operator and the tenant triple net lease at that. I love the way that all fits together because I know just in Oregon, where I’m located you know, we’ve got lots and lots of cannabis businesses. And I know it’s just it’s been a challenge based on you know, the getting the space located and licensed. And then even with that, then you go with the the lenders, you know, not every lender is wanting cannabis on their on their books. I’m kind of curious if you can could speak a little bit to that. As far as just the the the opportunities for cannabis businesses are they is, is getting a loan at a regular Thrift is at a an opportunity, are they more looking for something like what you have available?

Anthony Coniglio  10:17  

Traditional sources of capital for real estate are not available to the industry. And it’s what makes this investment so attractive. For us. It’s playing this disconnect between federal and state law, right? It’s illegal at the federal level, but yet it’s legal in 35 to 37 states from additional perspective and well over 10 states from the recreation coast. It’s about 15 states from a recreational perspective. And so what does that really mean in practice, if you look at most loan documents, there is there is an innocuous clause that says that you will not lease any properties you own to a tenant that is in violation of law. And we all execute transaction. And you see that companies say yeah, of course. But actually, if you have debt in your, in your real estate business, you can’t take a tenant that’s in cannabis without being in violation of that have that clause. And we have seen time and again, over the last three years, and a few years before I even got into the business. There are many, many stories where a real estate owner would lease to a cannabis company, they’d submit the tenant information to their lender, and the lender would say, you have 30 days to get rid of this tenant or your debt is being called because you’re in violation. And so really is a no fly zone from the major banks. Now there are some small banks that may lend against these assets, regional banks, this since they’re smaller state chartered banks, they tend to have some legal lending limits. So you can’t get large transactions funded there. There, we’re starting to see some of the mid size banks maybe nip around the edges. But by and large, there just isn’t the type of real estate capital available to the sector because of that federally legal classification?

J Darrin Gross  12:07  

Excuse me? No, I would say even I know like insurance, we face kind of the same thing that’s, you know, different carriers are willing to, you know, look, I don’t say look the other way, but they recognize a state law, and they’ll put an exclusion on the policy with respect to any kind of a cannabis related claim. But by and large, the more of your name brand carriers to flat out now, and they don’t have anything to do with it. So your second tier, I don’t wanna say secondary is just, it’s just a different, it’s the excess and surplus lines carrier, which is more designed to carry the risk that the standard carriers are not. So it is interesting to go ahead.

Anthony Coniglio  12:50  

It’s also a hard asset class for traditional banks, even many traditional real estate lenders to understand to get comfortable with. And it’s because it’s so highly specialized in the rules and the regulations are different state to state, county to county and County town and the setbacks may be set up different, the rules and the compliance regulations may be set up different. And really the best correlate correlate it give would be data centers from the late 90s, early 2000s, or even lab space. Back in the early day. These were sub sectors of commercial real estate that require investment This is particularly on the industrial or cultivation side of our business, they require investment that is different than you would see in any other commercial real estate transaction transaction. These facilities need water power and security well above what you would have for a traditional alternative use industrial use for one of these properties. And so understanding the demand for that type of asset once it’s built your ability to backfill the tenant should you have any issues, the risk you’re taking and the over investment you’re getting relative making relative to alternative use requires you to have a deep understanding of the industry to really understand that risk profile that you were just referring to.

J Darrin Gross  14:14  

Let me ask you, so is a REIT. Are you guys raising capital for like a down payment? Are you raising capital for the entire purpose?

Anthony Coniglio  14:24  

We raise capital for the entire purchase and we have now we have as a company raised over $400 million in the last two and a half to three years. We recently completed our IPO in August New Lakes ticker symbol is an NLCP. We merged in March with a like kind REIT like sized REIT like minded REIT. We put our two businesses together in order to have the scale to take the company public, and we raised $100 million in August. And so as I said earlier, we own 27 properties record was 10 states with a different tenants? We are the second largest in the country in terms of cannabis read owners that season cannabis property ownership.

J Darrin Gross  15:12  

So that that just by nature, you have eliminated any of the lender kind of risk, as far as you know, anybody else that was trying to buy and have have, you know, cannabis tenants and in the as a tenant there? Which it’s that’s great. I mean, I think that makes complete sense it it’s a you know, great opportunity. So without any lenders involved in and you get the tenant as the the operator the the occupant they’re in charge of paying you your rent, taxes, insurance, maintenance, is it basically just a factor of a return based on acquisition price? Rent? I mean, what kind of returns are you able to? What kind of returns are you seeing with your, your REIT?

Anthony Coniglio  16:12  

Yeah, essentially, yes, we are unlevered. Today, when we did our IPO, we disclosed that our top line yield, or gross yield is 12.4%, we do get annual escalators on our leases, we have a weighted average remaining lease term of over 14 years. And annually, our or leases escalated two and a half percent across the portfolio. And so not too bad when your top line is over 12.4% growing two and a half percent a year with an average life of over 14 years. So we think there’s tremendous value there. And again, similar to what we’ve seen in in other sub sectors of commercial real estate, like the data centers and lab space, these cap rates tend to be higher. And but then as the industries become more understood, they the pricing comes down, we are an internally managed REIT not external, so internally managed, so our shareholders will benefit with scale, we get a lot of operational leverage out of our expense. Base today, as we add properties, because this is triple net, we don’t have to have some corresponding growth in headcount to manage the properties. So we think we can continue to scale the company acquire properties, add yield to the top line with very minimal increase in in the expense number. And ultimately, we will be able to get leverage and to be clear leverage for us and for a couple of our professionally managed piers is available from an institutional perspective, and there’s even a banker to that we’re talking to that would be able to lend to us on a portfolio basis. So there is some leverage available to us. And we’ll do that at some point in time in our future, to further enhance the yield and to optimize the balance sheet. But the opportunity for us to be able to do that is really let me say that differently. That opportunity to lever a portfolio of commercial real estate is really only for those well professionally managed groups. By and large, can you find somebody here in there that’s been able to get a local bank to provide leverage on a property that they decided to keep and please, to somebody in the cannabis sector, for sure you could find those one offs. But on a portfolio basis, you know, there’s very few of us that have been in the business now for a few years and can garner the confidence to attract institutional investors or, or some of those banks. So we’ll put leverage on at some point in the future.

J Darrin Gross  18:44  

Sounds great, especially like you said, as you you’re, you know, larger more professionally, or just the portfolio size of exhale, lender, institutional lender being very attracted to that. As far as in again, a REIT just to clarify for listeners, in that your your public investors are able to invest in an exit like a stock is that is that right? Or is it yes,

Anthony Coniglio  19:09  

We are real estate investment trusts we are required under statute to distribute most of our earnings and so we’re more of a dividend yield play and listed listed on the OTC we have stock sales and purchases happening every single day so it’s not a private rate. This is a publicly traded company just the way you would buy or sell Pro Logic you can buy and sell newly Capital Partners ticker nltp.

J Darrin Gross  19:41  

And then, you know, one of the attractions for a lot of real estate investors to real estate is you know, you have some additional opportunities to offset your expenses you know, with depreciation and an interest write off. Is that is that blended in to your return at the, at the retail level or would, I’m assuming investor wouldn’t necessarily see that directly, it’d be more of an indirect part of the returns.

Anthony Coniglio  20:11  

That’s correct, the investor does not get the depreciation that they’re going to take on their balance sheet is that flows really through the through the structure of the REIT, and then through the dividends and what we’re able to pay out and not be taxed at the corporate level, right. As long as we’re meeting our requirements. All of our distributions are tax free at our level, I would have to tell your listeners that they need to check with their their own tax accountants, there are some advantages to receiving read income depending on one’s personal tax situation. And you could be eligible for 20% tax on our dividend but that is an investor by investor analysis that still needs to talk to their own preparer about.

J Darrin Gross  20:57  

Gotcha. Gotcha. And as far as the qualifications to be an investor, is there any requirement to be acredited? Or is it just like since over the counter, you can?

Anthony Coniglio  21:08  

Yeah, again, as a public company, just like Prologis you can buy three shares if you’d like it’s there’s no minimum. It’s not like a private transaction where you need a minimum of 200 or $250,000. You need a brokerage account, you need a brokerage account that will transact in in cannabis.

J Darrin Gross  21:27  

Gotcha. And then, as far as the different types of tenants, you’ve mentioned, you have eight tenants 10 different states. It is everything from growing to the retail and everywhere in between or

Anthony Coniglio  21:43  

Yes, within our portfolio we have, we have 11 cultivation facilities, and 17. dispensaries, dispensaries are retail locations, that actually adds up to 28. Because we also have a loan, the way the loan was structured on that cultivation facility is to convert into Kelly spec. So we don’t technically own the building. And that’s why I say 27 properties. And so yes, we do have cultivation, they tend to be indoor facilities, we don’t have farms, we don’t do land deals, we don’t do outdoor, large outdoor farms, we will do true what’s called what’s called industrial grow, or indoor grow. And then we will do greenhouses, but these aren’t greenhouses that you would see at your local nursery. These are high tech greenhouses, that will control humidity control temperature, they’ll control lighting. So with the with light deprivation screens that can automatically open and close as the cultivator thinks the plants need to adjust either the lighting or humidity, or automated irrigation systems. So they’re pretty high tech greenhouses. And then on the dispensary side, these are retail locations. And depending on where your listeners are sitting, many of them have probably driven past them in the last week or true week or two, these are traditional retail locations. And we have 17 of those properties. We like the mix of having retail and industrial within our portfolio, we know that our tenants like that we can serve all of their real estate needs across the retail and industrial needs.

J Darrin Gross  23:21  

Now, I would think that, you know, having that relationship and being able to go from top to bottom or whatever your next venture is, a lot of these I believe do migrate from one aspect to another based on the opportunity. As far as the the underwriting of the the tenants, or the borrower’s or the I guess it’s more of a tenant for you. Is there any, like, level of scrutiny that you? Yeah, I mean, how do you discern this? Because a lot of it’s a fairly new business, I mean, are some larger operators, which it sounds like maybe that’s where you focus, but I’m just kind of curious based on like, here in Oregon, there’s just been a based on the state laws and the inability to move product across state lines, there was a somewhat of a I don’t say glut but I know there was a lot of products are thrown and I think maybe a lot of that’s been absorbed in the pandemic based on on, you know, people’s

Anthony Coniglio  24:26  

absorbed a lot of it made its way to other States illegally. They call it crop Tober in the industry, and it’s been a real issue coming out of Oregon. You know, and I’ll get to your risk question and how we underwrite. But if your commentary about Oregon brings us back to this limited licensed state focus that we have we actually call it a jurisdiction because it’s not always states. A state like Oregon has been prolific in the way it hands out licenses. And that has indeed created a glut of production for cannabis and for dispensing and in his his upended the economics of the business, which means that you had all of this product, you didn’t have enough demand to meet the product. So prices decreased rapidly, so good for the consumer. But people couldn’t make money at those depressed prices, write their fixed costs, the average cost to, to, to generate a pound of marijuana may have been, say, $1,200, and it was selling at 100. And so people were underwater, what were they doing, they were taking across the state lines, they were traveling out to Michigan, a lot of marijuana ended up in Michigan, and in other states. And so there’s a lot of illegal activity. And it was very difficult for people to to be able to make money. And that has played itself out again, in other states. If you look at Oklahoma, today, Oklahoma, is now the new poster child for this dynamic. Whereas if you look at a state like New York, New York has only 10 licensees. So it’s a very controlled environment. And they’ve been able to really maintain more discipline in the market. Now some would say, consumers are harmed because the price of cannabis here and or in New York is you know, anywhere from three to $4,000 a pound. And so boy is so much more expensive for them. But I’d argue that there’s probably less illegal activity, with with product going out the back door, and so there’s probably some equilibrium between the two. To the point about risk management though, the reason I go into that is those are dynamics that are critical to making these long term investment decisions. And when I first started talking with my friend back in 2018, about the business, once I saw the investment opportunity, I quickly realized and said to them, we don’t have the expertise to truly understand this business, we need to understand it. And so we partner with and have on our board a gentleman by the name of Pete Caden’s Pete was one of the founders of a cannabis company called greenthumb industries, or GTI, was one of the co founders was the CEO of the company for five years, took it public, and then retired after he took it public. And so his knowledge of the sector was invaluable to us when we were first getting started. And what we’ve done is we’ve taken that knowledge, and we’ve institutionalized it across our entire team, not only our investment team, but our entire team and our board. And we’ve used that knowledge to really get smart on how can we make the right investment decisions. And then let me tie that into what our underwriting processes, we look at four things primarily, number one, we look at the diversification that any investment will provide us we like geographic diversification, like tenant diversification, we like use type diversification, retail versus industrial. We also look as you would expect at the company, right, we understand all the traditional metrics you would look at from a balance sheet perspective. But importantly, in this industry, we spend a lot of time evaluating the company’s ability to raise capital. And the reason is because we understand that this industry companies in this industry has a voracious appetite for capital. And it’s important to know that the management team has the ability to continually raise capital and stay ahead of its growth aspirations, or it can adequately balance its growth with its its capital availability. And quite frankly, if you look at a lot of the missteps in the cannabis industry, it’s been because they’ve run out of runway that that they didn’t have a good business plan they just ran out of runway didn’t have the ability to raise capital. The third thing we look at is the property. Of course, it’s a real estate business, we understand the property, its alternative use value. But very importantly, we understand its value in the cannabis ecosystem. So let’s take your your state you’re in Oregon, what will somebody pay for a cultivation facility in Oregon, where there’s probably over 1000 cultivation locations in Oregon, there’s nothing special or a retail location where there’s over 1000, that there’s nothing special with any one of those. But now let’s go to a state like Pennsylvania, where when we did our first transaction, only 26 licensees, when that limited license state where the license itself is selling for could be 25 could be 50 million just for the license.

You could see how that intrinsic value creates a lot of value for us as a property. So we would understand that in Pennsylvania. If that tenant experiences difficulty number one, they’re likely to monetize the pure licensed value, and we’ll find a better credit stepping in or number two, if they don’t, there’s now a licensed location that somebody else can step into. So we know that remarketing of that property would be much more easier versus another location. So I don’t want to go too far into that simply to say understanding the property is critically important in this industry. And its its pace and ecosystem. And then the last place cases that jurisdiction evaluate the last element. I said there’s four. The fourth one is the jurisdiction. So understanding what is the licensing regime? Like, will there be a slew of licenses coming out? You could look at Massachusetts and say, well, Massachusetts, there’s no limit on licenses, the state can issue as many as they want. Yes, however, it operates as a unlimited licensed state, because each jurisdiction has that that where the location excuse me where the property is, has to have what’s called an HCA host community agreement. So that particular limitation makes the state almost behave like a, like a limited licensed state. So that’s a bit of how we focus on underwriting. It’s about the diversification the transaction gives us. It’s about the quality of the company, importantly, their ability to continue to raise capital fuel their business. It’s about the property and its situation, cannabis ecosystem, not just the overall commercial real estate ecosystem, and then importantly, understanding the dynamics of that jurisdiction. There’s a lot that goes into it in a lot of specialized cannabis knowledge to try to be successful.

J Darrin Gross  31:02  

Yeah, no, I appreciate you going into that. And, you know, the supply demand thing, the the, you know, licenses, if everybody has one, they’re not worth anything. But when you have a few, it makes complete sense. And there’s got to be some sort of balance in there. But yeah, it was a sad thing to see, you know, the all the excitement in the cannabis in the, in the early stages, and then it just, you know, there was they they over licensed and, you know, some of the people clearly didn’t make it here in Oregon based on just the oversupply. But well, why don’t you talk a little bit then about the the legal climate. So obviously, Oregon has both medicinal and recreational. You said they’re like 35, states that that have medicinal and, and 10 to 15, with the recreational Do you see anything coming? Or is there anything that you are anticipating that would change at a federal level? As far as the laws? And if so, how does that play into your your investment strategy? Or does it?

Anthony Coniglio  32:12  

No, it absolutely does. And to set the stage for this conversation. Let’s talk first about the the polling on cannabis. And there’s a Pew Research poll is a number of other polls that have been done in the last few years for medical cannabis. It, it consistently polls well above 80%. And I’ve seen polls in the 90% approval for medical cannabis. So even as small even though the lowest poll I’ve seen was well north of 80%. So I think as a country, the country is generally comfortable with medical cannabis on the recreational side. Most of those polls are now consistently polling above 60% 62% 66%. There are not many things in this country at this moment in time that the electorate agrees on greater than 50%. And so I think it’s important to understand that societally, the backdrop for legalization is there, right? There is no anti movement that has enough support, that will keep it from happening. The people want it. I honestly believe it is inevitable, it will ultimately happen. But then that fact, or those facts meet the reality of Washington, DC. And so it’s not just about popular support in Washington, DC to get something done. It’s political will. And there are a lot of politics at play in this particular topic. There is to be sure there actually is meaningful bipartisan support in Congress, as demonstrated in voting on the floor. And in fact, Congress has passed what’s called the safe banking Bill numerous times on a bipartisan basis incentive to the Senate. It’s not been taken up in the Senate, either in this Senate, or in the previous Senate. In fact, the safe banking Bill was worked into the recent National Defense Authorization Act, and was stripped out last week in the Senate. Congress was trying to get it done through the must pass national bill. There have been other legalization bills that have come to the fore, whether it be states act or more act. Notably, there was a bill that was proposed in Congress by a Republican a couple of weeks ago, just prior to Thanksgiving. And so I do believe there’s bipartisan support for legalization. But where it becomes difficult is there is a wing of Congress that believes that any legalization of cannabis should come with it a significant amount of social justice reform. And that’s where I think the legislation starts to become a little too much for the conservatives. Some of these social justice agenda items I think just make it a little bit more difficult, you know, safe banking, I think most people if it had a floor vote if it got a vote in the Senate, I think it would probably pass on a standalone basis. Senators, just a little bit of the politics here, senators, Schumer, Booker and Wyden all are about to propose comprehensive cannabis reform. They put out a draft this past summer and asked for comments. They didn’t propose it as a formal bill. And so what the three of them have said is that they don’t want incremental reform, before they get the totality of a wholesome reform package. And so that’s why shape isn’t going anywhere right now. And then the question will be, can that proposal get enough Republican votes to support it, given its social justice components? You know, so without going into those, those pieces, that’s a bit of the dynamics at play? It will happen? It’s just a question of when but I do think we have the opportunity to get a banking Bill safe banking done, before we get comprehensive federal reform done, and could be as soon as next year.

J Darrin Gross  36:05  

Do you see any of those changes, then changing your situation? As far as a strategy, do you feel like having been kind of a, you know, getting in the front line and creating a place that you’ll always have an opportunity in this space?

Anthony Coniglio  36:22  

We’re actually very excited for federal legalization, the state banking, federal legalization. Think of this from a safe banking perspective. First and foremost, it will allow our tenants to accept credit cards. It’s a no, it’s mostly a cash business today. And so I’ve seen estimates, most of them center around 10%, I’ve seen estimates that revenues will go up as much as 20%. Once credit cards can be accepted, just think about that, right, you have an additional 10 to 20% of revenue, most of its dropping to the bottom line. From a credit perspective, all of our tenants become much better credits. From a banking perspective, people fail within the banks will get in again, this is a highly specialized area of real estate investment. And what we end up doing is we end up providing a meaningful amount of 10 improvement dollars to the to the tenants to complete the build out of the industrial or the retail location. So yes, for sure banks will step in. But they will step in by lending 60 80% LTV on a non cannabis value, and it really will limit the amount of proceeds available to people. And in some instances, that will work but it’s not going to happen right away built into the safe banking bill is a six month rulemaking period for federal banking regulators to write the rules. And so just think about this having been in banking for most of my career. A multi jurisdictional federal regulatory meeting takes months to schedule, let alone agree on what it will be. And you’re now writing rules for banks that may operate in every state or in multiple states, and some of the state they operate in and it’s legal. In some states, it’s not legal. And so from a compliance perspective, it is a very complex set of rules. And in fact, hemp, which is the sister of marijuana, hemp was legalized in 2018. Under the Farm Bill, we’re still getting some of the rules earlier this year, there were rules coming out about banking around hemp. And so it just demonstrates this point that banks won’t move in till the rules are set, and it will take a while for the rules to be set. And then I can do to do a follow up and then I can talk about federal legalization because there’s some other dynamics at play for us there.

J Darrin Gross  38:35  

Yeah, please do the federal legalization. Please, please do

Anthony Coniglio  38:41  

on the federal side. Once there is federal legalization, it will usher in a period of massive growth and massive investment. And so a group like us that has a first mover advantage that has the relationship we have a database of well over 100 Even though we only have eight in our in our portfolio right now, we have relationships having been there as a consistent source of dialogue and capital for the last two plus almost three years. We’re building up those relationships and we will be there to provide the capital the industry will need. As soon as that legalization is looking like it will come because it’s not going to happen overnight. We’re going to see it occur we’re going to see the bill work its way through we’re going to sense the momentum we’re going to have the sense of confidence in the industry, we’ll be investing ahead of that we’ll be able to provide that for them and then upon legalization, we’ll be able to continue to provide them capital using our first mover advantage and industry knowledge and relationships. So we think that’s a massive growth opportunity for our business.

J Darrin Gross  39:46  

Sounds sounds like it is and again you know, being the expert in the field and being the one of the first and very recognized specialist and even like you said some of the lending criteria that the the lenders would wouldn’t necessarily lend on, on the the business, but just on the real estate thing would would totally make it a different fit for the tenants and answer that. That’s, that’s great.

Anthony Coniglio  40:14  

Let me give you a rest, if I may. Sure, sure. So the risk there is some of your folks who are listening might know a little bit about the business and say, Wait a minute, right now, since you can’t transport a state across state lines, you have cultivation facilities in all these different states. Anthony, you’re in a cultivation facility in Pennsylvania and in Massachusetts. And once legalization happens, and interstate commerce is allowed, or you’re gonna have cultivation facilities that are going to be completely useless, and Massachusetts, and, and Pennsylvania, and all the cultivation will happen in California and Nevada. And it’ll be transported around. We look at that all the time. We like to know a that there’s strong alternative uses for the properties we’ll get into in case we get it wrong. But importantly, we think the properties that we own, are have durability, even in a world where you have federal legalization, we also get we also get Karen Karen T’s in our transaction. So if if a company decides they want to shut down their facility and move it elsewhere, they have to continue to pay us rent. But back to my point, I think most importantly, back to my point about ushering in a period of massive growth. A company given a sizable investment in a cultivation facility, which could be 10 2050 $70 million dollars. They’re not likely to just walk away from that infrastructure and their people. So I think most of the new capacity would then be brought online under federal legalization in another locale. But I think just like we’re seeing in, in other consumable product sectors, having some connectivity to the community, and local production is an important component of the overall infrastructure. So we like the durability of our assets, even after federal legalization and interstate commerce.

J Darrin Gross  41:57  

No, absolutely. Literally, if there’s anything in the COVID. You know, the pandemics, tatis with the supply chain, bottlenecks, you know, they can occur. And I would think that just the mindset of any anybody that’s in manufacturing or production, recognizing they have, you know, there’s something Tim Ferriss and like, if you have, you have to you have one? So I’ve heard, you know, if you’d be one, you have none, so there’s some sort of like a, you know, a, having more options and better, wider distribution, and definitely a better, better way to go. Anthony, if we could, I’d like to shift gears here for a second, we’ve been talking quite a bit about risk, but there’s a there’s a question I like to ask all my guests. And it’s based on the fact that by day, I’m an insurance broker and and work with my clients to assess risk and determine what to do with the risk. And there’s there’s three strategies we typically consider, we first look to see if there’s a way to avoid the risk. And when that’s not an option, we’ll see if there’s a way to minimize the risk. And then if we cannot avoid or minimize the risk, and we look to see if we can transfer the risk. And I like to ask my guests, if they can take a look at their own situation. Could be your clients, investors, you know, the tenants, jurists or the laws, however, may be but if you can take a look at your situation, and identify what you consider to be the biggest risk. And again, for clarification, while I am an insurance broker, I’m not necessarily looking for an insurance related answer. And so if you’re willing, I’d like to ask you, Anthony Coniglio, what is the BIGGEST RISK?

Anthony Coniglio  43:43  

Yeah, the risk I worry about most right now is and I worry about everything. And my team, they were they were here, you know, our team would laugh right now just they’d be nodding their head saying is he worries about everything. What I worry about most right now is the federal legalization. Impact on our tenants. I keep telling people in the industry, be careful what you wish for. You all want federal legalization, but it will not come in the form of okay, it’s legal, keep doing what you’re doing. It will come with massive regulation. And so I look at for our tenants, how will they be able to manage through that massive regulation? Are they doing what they need to do to get through the FDA? Right? Because these are consumable products? Are they doing what they need to do to to avoid issues around branding and how they’re communicating with people and some of the restrictions about how you will communicate around this product? And so I spend a lot of time trying to make sure that we really understand not just a federal legalization will happen. But how does it happen? What will the regulatory impact be on the industry and our tenants and our prospective tenants really having the capability to navigate what’s likely to come out of them at them, because I think many people in the industry underestimate the amount of regulatory burden that will be hoisted upon this industry upon legalization. And so, you know, it’s interesting, you said, avoid minimize and transfer. I’m not sure how we do any of those with that particular with that particular risk. But that’s where I spent a lot of time worrying about. And maybe that’s why I work because I can’t avoid, minimize or transfer.

J Darrin Gross  45:35  

Alright, but I think that even in that case, you know, trying to think ahead, and to even to have the mindset of this, you know, the changes are going to come, I think, like you, you alluded to that, a lot of times we think, Oh, if only this, then everything would be great, but not recognizing the wave of have different set of circumstances that come with that, whether it’d be more competition, more more red tape, you know, whatever that may be, that you hadn’t anticipate, because you thought everything was gonna work, just the way it was only now it’s gonna be better. And I think that, you know, one of the driving forces in the American economy is disruption and change. And it’s always amused me because I think that from a consumer standpoint, most of us want something we can count on, we know that this will be this, and that will be that. And we can count on that. But the real opportunity for for the dynamic marketplace is the up in the down in recognizing the opportunity in the down and recognizing the opportunity to get out of the up. And, you know, and, and that’s really what keeps it a very dynamic marketplace. Although it’s a tough thing to to, you know, accept when you’re when it’s you that are, you know, in the firing line, but are in the line of fire, but, but it’s but it is something that you have to I think just you have to appreciate that that is one of the things that makes a vibrant marketplace in the United States and continues to do that. And then worldwide as well. But but it is sights

Anthony Coniglio  47:11  

Totally agree. Totally agree is that same as saying the only cons the only constant is change, right? And so we have to expect and we have to plan for it and we have to manage our businesses. Knowing that change will happen. We won’t always be able to anticipate where that change will come.

J Darrin Gross  47:29  

No, well said. Anthony, where can the listeners go if they would like to learn more or connect with you?

Anthony Coniglio  47:36  

Our website is Newlake.com www dot new lake, n e w l a k e dot com. On that website, you’ll see some information about us. Importantly, there’s an investor page as a public company, we have an investor page. Feel free folks can feel free to peruse around that look at a recent investor presentation. As well as going to all of our SEC filings.

J Darrin Gross  48:02  

Awesome. Anthony, I can’t say thanks enough for taking the time to talk. I’ve enjoyed our talk. I’ve learned a lot and I look forward to doing it again soon.

Anthony Coniglio  48:13  

Darrin, it was a lot of fun. I really appreciate you having me. And yes, we’d love to do it again soon.

J Darrin Gross  48:19  

All right. For our listeners, if you like this episode, don’t forget to like, share and subscribe. Remember, the more you know, the more you grow? That’s all we’ve got this week. Until next time, thanks for listening to Commercial Real Estate Pro Networks. CRE PN Radio.

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