Rough for Cannabis REITs
You’re reading this week’s edition of the New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015. The newsletter includes unique insight to help our readers stay ahead of the curve as well as links to the week’s most important news. We no longer send these by email as we did in the past, but we post this and all of the newsletters on our website here.
Friends,
In late March, this newsletter warned readers that the pain in cannabis REITs could continue, and it has. Since then, the Global Cannabis Stock Index, now at 5.20, has dropped 3.0%, while all of the REITs have declined. One is down slightly less, and two are down more than 13%.
Since we warned warned about the REITs on 1/1 after one plunged in December and then recovered somewhat, they have all dropped. Year-to-date, the 4 REITs are all down, with one down more than the 24.9% drop in the GCSI, two down a bit less and one down a lot less:
The overall REIT universe is very large. Two ETFs that I follow that represent it are down a lot less than these cannabis REITs, with the iShares US Real Estate ETF (IYR) down 0.9%, and the Real Estate Sector Sector SPDR (XLRE), which includes the 31 S&P 500 REITs, down just 0.4% in price. XLRE, which is an index fund and has over $7 billion in assets, represents only about 2% of the S&P 500 and includes none of the four cannabis REITs. IYR, which is less than half the size of XLRE, has more holdings and is also passively trying to beat its index, which is the Dow Jones Real Estate Capped Index, and it holds over 60 names, none of which are the cannabis REITs, all of which have market caps below $1.5 billion. In fact, three are at $320 million or smaller.
So, the problem for the cannabis REITs is not a REIT problem. The problem that they are facing is heavily indebted tenants that are not growing their profit substantially. They all trade at or below tangible book value, which seems cheap, but their tangible book values are at risk. The big one, Innovative Industrial Properties (IIPR), has had some very publicized challenges recently. In Q1, its tangible book value fell slightly sequentially and from a year earlier. The smallest of these in market cap, Advanced Flower Capital (AFCG), has seen its tangible book value per share plunge.
Readers probably understand the challenging business for these REITs. All one has to do is look at the largest cannabis ETF, AdvisorShares Pure US Cannabis ETF (MSOS), which is down a stunning 38.6% in 2025 so far, a much bigger decline than the overall cannabis market or all of these cannabis REITs. When REiTs have a problem with a tenant, they seize the property and find a better tenant, but this does not exactly work in the federally illegal cannabis industry.
In my model portfolio at 420 Investor, I hold no REITs currently despite their representing 17.7% of the Global Cannabis Stock Index. I follow two, IIPR and Chicago Atlantic (REFI), but the other two do not interest me at this time and are not part of my 20-stock watchlist. AFCG has been a mess, and I am not sure how new CEO Daniel Neville will do. So far, his tenure over the past 18 months has been challenging. NewLake Capital (NLCP), which has a very strong balance sheet, trades over-the-counter and not on a major exchange. Its trading volume has declined, and it was removed from the NCV Ancillary Index on Friday. When we rebalance the Global Cannabis Stock Index in three weeks for month-end, it is likely to be removed as well.
Cannabis REITs have the advantage of potentially appealing to more investors due to their trading on higher exchanges (except for NLCP!) and the fact that many investors appreciate REITs and the dividends they pay, but they are at risk of falling further due to tenant or borrower challenges. Their dividends are at risk too. Unless 280E goes away, investors should remain cautious on cannabis REITs for now.
Sincerely,
Alan
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is what we published this past week:
Exclusives
Cannabis Sales Decline in May
Cannabis Stock Rally Stalls In May
Illinois April Cannabis Sales Were Lower
Financial Reports
Cresco Labs Q1 Revenue Falls 6% Sequentially
Mergers and Acquisitions
Village Farms Sells Its Produce Business
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