Chicago Atlantic Real Estate Finance (REFI) stands out in the cannabis capital provider and mortgage REIT (mREIT) sector due to its premium valuation, impressive dividend yield, and solid growth track record.
“Five of the six publicly traded cannabis capital providers are listed on the NASDAQ, with NLCP being the exception, however some may not be able to offer adequate compensation at this time due to their liquidity, size and/or relative newness,” senior equity analyst Pablo Zuanic wrote in a recent report.
Performance and Rating Comparison
REFI is trading at 3% above its book value, reflecting strong investor confidence in its growth prospects.
This is in contrast to other cannabis capital providers such as AFC Gamma, Inc. AFCG, which is trading at a 20% discount to book value, and Innovative Industrial Properties Inc. IIPR, which is trading at a 57% premium. REFI's consistent performance and strategic management justify its premium.
Dividend Yield
One of REFI's most attractive features is its 12.2% dividend yield, which is significantly higher than AFCG's 15.8% dividend yield and IIPR's 6.8% dividend yield.
The high dividend yield, combined with a solid dividend coverage ratio of 117% over the past five quarters, highlights REFI's ability to generate stable income for investors.
Additionally, REFI's yield is bolstered by special cash dividends paid in December for each of the past two years, resulting in an annualized dividend yield of 14.1%.
“AFCG, SHFS and SSIC SSIC are trading at nearly 20% discount to book value, while NLCP is currently trading at par,” Zuanic continued. “IIPR is trading at a 57% premium, according to FactSet. In terms of dividend yield, AFCG is the outlier at nearly 16%, followed by REFI at 12.2% (IIPR is over 6%, NCLP is 8.7% at its latest DPS of 43 cents, and SSIC is 8.7%),” Zuanic wrote.
Related article: Marijuana stocks rise 11% as brick-and-mortar investments generate cash flow
Leverage and Risk Management
REFI's leverage ratio increased to 28% in March 2024 from 14% a year ago, indicating its strategic use of debt to fuel growth.
Despite the increased leverage, REFI has maintained a conservative risk profile, with 60% of its loan book falling into the top two risk categories. This disciplined approach to risk management further enhances its attractiveness to investors.
Growth track record
REFI's growth track record is another notable feature, according to Zuanic: Despite overall market volatility, the company's loan book grew by about $50 million year over year, and is on track to reach $376 million by the end of March 2024.
This growth is supported by a diversified portfolio spanning 15 states, including significant exposure in Michigan, Maryland and Florida.
Market Position and Outlook
Looking at the broader picture, mREITs have generally underperformed, with most trading well below book value and offering dividend yields in the mid-to-high teens.
However, REFI's stronger growth track record, higher yield to maturity, and potential better growth opportunities in the cannabis sector explain its relative premium.
For Zuanic, its strategic management and conservative risk approach provide a stable foundation for investor confidence and continued attractive returns.
Top stocks performing over the past 12 months
Additionally, Zuanic provided stock price performance data from FactSet.
Industrial REITs and Lenders to the Cannabis Industry
Innovative Industrial Properties, Inc. (IIPR): 47%, New Lake Capital Partners, Inc. (NLCP): 44%, Silver Spike Investments, Inc. (SSIC): 38%, Industrial Logistics Properties Trust (ILPT): 12%, LXP Industrial Trust (LXP): 8%
Top performers of MSO stock over the past 12 months
Grown Rogue International, Inc. GRUSF: 221% Goodness Growth Holdings, Inc. GDNSF: 185% Truly Leave Cannabis, Inc. TCNNF: 133% Air Wellness, Inc. AYRWF: 118% Glass House Brands, Inc. GLASF: 115%
Top performing Canadian LP stocks over the past 12 months
Nova Cannabis NVACF: 97% High Tide HITI: 72% Canopy Growth CGC: 61% Cresco Labs CRLBF: 46% SNDL SNDL: 37%
Read next: Cannabis Real Estate Fund Manages Over $4.5 Billion: Are Investors Missing Out on High Dividend Stocks?
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Photo: AI-generated imagery.