NewLake Capital Partners, Inc. (NLCP) stock intrinsic value fair value estimate & owner earnings analysis

NewLake Capital Partners is a small, internally managed real estate investment trust that owns about 34 cultivation facilities and dispensaries and leases them to state-licensed cannabis operators on long-term, single-tenant, triple-net leases. Tenants pay the rent plus property taxes, insurance, maintenance and utilities; NewLake does not grow or sell cannabis itself. Because cannabis remains federally illegal, operators have little access to bank mortgages, so they sell their buildings and lease them back at high rents. That same fact is the main risk: the tenants are often indebted, sometimes unprofitable, and have limited access to US bankruptcy protection. Rent is concentrated: in the second quarter of 2026 Curaleaf provided about 26% of rent, Cresco Labs 15%, Trulieve 12%, C3 Industries 8% and The Cannabist Company 8%. Pennsylvania, Florida and Illinois together provide about two-thirds. What changed since our last look. Three facts, pulling in different directions. First, The Cannabist Company began a Canadian court restructuring (CCAA) in March 2026, recognized by a US court on May 9, 2026. It has so far kept paying full rent on its four NewLake properties (two in Illinois, two in Massachusetts), and in July 2026 Vireo Growth agreed to buy Cannabist's operations in five states including Illinois and Massachusetts. Whether those leases stay in place is not yet settled. Second, on August 5, 2026 the credit facility was extended from May 2027 to May 2029, removing the only near-term maturity. Third, we now deduct the $9.05M dividend that was declared and owed at June 30, 2026 (paid in July) and a $2.2M Kentucky purchase and improvement commitment made in August, which lowers our net cash figure by about $0.54 per share. The business's cash generation is unchanged in our estimate. Earning power. After stock compensation and working-capital swings, cash earnings were $37.9M in 2023, $40.8M in 2024 and $41.4M in 2025 (about $1.76, $1.95 and $1.97 per diluted share). Adding back the small amount of interest paid gives cash flow before lenders of about $38.2M, $41.1M and $41.9M. We measure from 2023, when the money raised at the 2021 listing had been fully invested; earlier years describe a portfolio still being built. In 2025 two tenants defaulted and left three properties, now vacant in Fitchburg, Massachusetts (Revolutionary Clinics, receivership), and Pottsville, Pennsylvania and Sparks, Nevada (AYR Wellness, about 5.3% of rent). Those three buildings carry about $62M on the books and earn nothing. In the first half of 2026 operating cash flow was $20.8M versus $21.6M a year earlier, with revenue down from $26.1M to $24.4M, an annual pace of about $41M before interest. We therefore start from $41.0M (about $1.95 per share) rather than the 2025 figure, which still included part-year rent from the departed tenants. Cash flow before lenders grew about 2% in 2025; we assume no growth in year one, because the first-half 2026 run rate is already lower. Accounting judgements. We deduct no maintenance capital spending, because the leases make tenants responsible for upkeep and capital repairs; all property spending (acquisitions and improvement allowances that raise rent under signed leases) was growth investment. Rent covered by drawing down tenants' security deposits or rent escrows ($1.4M in 2025, none in the first half of 2026) is excluded from earnings, because it is a one-time recovery, not recurring rent. Net debt: cash of $25.8M at June 30, 2026, less the $7.6M revolver, the $9.05M dividend payable, the $2.2M Kentucky commitment and $5M kept for operations, leaves net cash of about $2M, or about $0.10 per share. The revolver now costs the greater of prime or 6.25%, a little above 6%, but on $7.6M the difference is immaterial. No value is given to re-leasing or selling the three vacant buildings, or to the planned sale of the Hartford, Connecticut property (C3 must cover any shortfall against its $4.8M carrying value). Growth credited. Only the contractual rent increases in almost every lease, typically 2-3% a year, which added about $1.1M of rent in 2025. Against that we charge the company's actual record of tenant defaults, roughly a tenth of rent lost over 2024-2025. New acquisitions (the Kentucky purchase is too small to matter), re-leasing, and any federal rescheduling of cannabis are not credited because none is secured. Leases are long: about 35% of rent expires in 2034 and 57% after 2035. Beyond that, what keeps the buildings earning is that state licenses are tied to specific sites, making moves costly for tenants; but today's cannabis-level rents are well above ordinary industrial rents and may reset lower at renewal. Bear case ($16.06 per share). The Cannabist leases are rejected in the restructuring or not taken on by the buyer, and about $3.7M of rent plus about $0.5M of carrying costs are lost from 2027 for good. Then a second wave of tenant failures on the scale of the 2022-2025 cannabis credit downturn, when falling wholesale prices pushed Revolutionary Clinics into receivership and AYR and Cannabist into default and restructuring, costs another $4.5M of rent over years four to six, while baseline defaults run slightly ahead of the escalators. Cash flow falls from $41M to about $31M by year ten, and as leases end rents fade to 30% of that by year twenty, where the case ends. The business is worth about $336M; with roughly $2M of net cash and nothing meaningful owed, equity is about $338M. Base case ($22.69 per share). Contractual escalators roughly offset defaults at the pace actually experienced, so cash flow holds near $41M a year for ten years. Over years eleven to twenty, as original terms run out, it fades to half that level, reflecting renewals at licensed sites at likely lower rents, then holds at about $20.5M through year thirty and ends. The business is worth about $475M; plus $2M net cash, equity is about $477M. Bull case ($28.07 per share). Cannabist's leases pass to the buyer, and defaults run at half the recent pace, so escalators lift cash flow about 1.2% a year to about $45.6M by year ten. Renewal options at licensed sites hold that level for another ten years, then it fades to 60% by year thirty. The business is worth about $588M; plus $2M net cash, equity is about $590M. The margin-of-safety price. We are fairly sure of the earnings level: the leases are signed, rents have been collected in full in 2026, and three years of cash flow sit in a narrow band. We are less sure of how long it lasts, because the tenants' credit is weak. The worst plausible outcome, beyond what any case models, is a simultaneous failure of two of the three largest tenants (Curaleaf, Cresco, Trulieve, together over half of rent) or a federal enforcement shift that strands the buildings; the specialized grow facilities would then be worth far less than their $364M book value. The company would survive it as a business, because it has almost no debt and no maturity before 2029, but the dividend would be cut sharply. If we are wrong about the Cannabist outcome and the pace of defaults together, the shares are worth roughly the bear case, around $16. During the holding period the business pays $1.72 a year in dividends, about 88% of its cash earnings. At $13.00 the dividend is about 13% a year of the price, and even the bear case's lower cash flow (about $1.75 per share after the Cannabist loss) still covers that payout. Over an assumed three-year holding period, the bear case implies about 19-20% a year from that price and the base case about 31% a year. With the bear case only just short of the target, a debt-free balance sheet and rent fully collected today, $13.00 is the highest price at which the cases imply about 20% a year. The margin-of-safety price is $13.00.