Cannabis property values and cap rates

How is a cannabis property valued?

Income-producing cannabis property is valued the same way as any leased building: net operating income divided by a capitalisation rate. What differs is the size of the rate and how fragile the income is.

Value = annual net rent / cap rate. On a triple-net lease the tenant pays taxes, insurance, and maintenance, so net rent and net operating income are nearly the same number.

Annual net rent	8% cap	10% cap	12% cap	15% cap
$150,000	$1,875,000	$1,500,000	$1,250,000	$1,000,000
$300,000	$3,750,000	$3,000,000	$2,500,000	$2,000,000
$600,000	$7,500,000	$6,000,000	$5,000,000	$4,000,000

Illustrative arithmetic only. The table shows why the rate matters so much: moving from a 10% to a 15% cap rate cuts value by a third with no change in rent.

Appraisers also use two cross-checks. The sales comparison approach looks at what similar buildings sold for, which is hard in cannabis because few sales are public. The cost approach asks what it would cost to rebuild, less depreciation; see cultivation build-out costs for sourced ranges.

What cap rates do cannabis properties trade at?

No index publishes cannabis cap rates, so the best evidence is what public landlords report. None of these companies is a partner of this site; they are cited because they file with the SEC.

• NewLake Capital Partners. The fiscal 2025 10-K shows about $49.7 million of annual rental income from 34 properties, 91.8% of it from cultivation facilities. The second-quarter 2026 release reports $433.2 million of gross real estate assets across 35 properties. Dividing one by the other gives a rough rental yield on cost near 11.5%. The two figures are from different dates, so treat it as an approximation.
• Innovative Industrial Properties. Its second-quarter 2026 supplement reports $283 of invested capital per rentable square foot. That is what the landlord spent, including funded improvements, not what the buildings would sell for.
• Debt as a ceiling. First-lien cannabis real estate loans priced at a 15.8% weighted average yield to maturity at 30 June 2026, per Chicago Atlantic’s investor presentation. An owner who can sell at a cap rate below the loan rate will often prefer the sale-leaseback; one who cannot will borrow instead.

A yield on cost is not the same as a market cap rate today. After the tenant defaults of 2025, a buyer of the same building would likely demand a higher rate than the original landlord accepted. Broker and trade commentary in 2026 quotes wide ranges, but those quotes are not backed by published transaction data, so this page does not repeat them as fact.

Why are cannabis cap rates so high?

Cap rates are a price for risk, and cannabis property carries risks other buildings do not.

1. Thin financing. Most banks will not lend on a plant-touching building, so buyers pay cash or borrow at mid-teens rates. Fewer financed buyers means lower prices. See why SBA and banks are unavailable.
2. Tenant credit. Rent depends on one licensed operator in a price-compressed industry. IIPR’s fiscal 2025 annual report describes a 14% fall in rental revenue as several large tenants defaulted.
3. No bankruptcy court. A failed tenant usually ends up in state receivership, which is slower and less predictable for a landlord. IIPR expects one tenant receivership to run to the end of 2026 or early 2027, according to its August 2026 release.
4. Limited alternative use. NewLake’s 10-K warns that its properties have limited alternative uses and that re-leasing at current rents cannot be assured. Three of its properties became vacant in 2025.
5. Federal law. Real property used to facilitate a federal drug felony is still subject to forfeiture under 21 U.S.C. 881(a)(7). Enforcement against state-licensed operators has been rare, but investors price it.
6. Replacement tenants need licences. A new tenant must be approved at that address, which takes months. The rules are covered in relocating a license.

Licensed-use value vs vacant value

The gap between the two is the central fact of cannabis real estate. Two reported sales by the same public landlord show it.

Property	Outcome	Source
Perth, New York cultivation and processing facility	Sold to the tenant under a purchase option for $88.5 million in 2026; $16.7 million gain; landlord carried $49.0 million of seller financing	IIPR, August 2026
Palm Springs, California property	Agreed sale at $2.0 million in April 2025 after a $3.5 million impairment charge	IIPR, May 2025
Michigan property	Sold for $9.0 million in April 2025; landlord lent the buyer $8.5 million	IIPR, May 2025

A building with a healthy tenant in a limited-licence state sold at a gain. A building in an oversupplied California market sold for a fraction of its carrying value. Note also that in two of the three sales the seller had to finance the buyer, which tells you how scarce outside debt is.

When you look at any cannabis building, ask for two numbers: value as leased, and value if the tenant leaves. For a dispensary in a good retail location, the second number may be close to ordinary retail value, because the box is easy to re-use. For an indoor grow with heavy power and HVAC in a rural industrial park, the second number can be close to warehouse value, well below cost.

How do cap rates show up in a business sale?

When the seller owns both the business and the building, the rent between them decides how total value splits. Every dollar of rent moves a dollar out of business earnings and into property income.

Illustrative. A dispensary earns $800,000 before any rent. The owner also holds the building.

	Rent set at $120,000	Rent set at $200,000
Business earnings after rent	$680,000	$600,000
Business value at 3.5x	$2,380,000	$2,100,000
Building value at 11% cap	$1,090,909	$1,818,182
Combined	$3,470,909	$3,918,182

Higher rent raises the combined figure on paper because an 11% cap rate is the same as a 9.1x multiple, well above the 3.5x applied to the business. But the higher number is only real if the business can carry that rent through a bad year and a property investor believes it. An above-market rent fools nobody: the property buyer will underwrite to market rent, and the business buyer will too. The fuller treatment is in how real estate control affects value and sale-leaseback with cannabis REITs and landlords.

Practical points for each side:

• Sellers. Put a written, market-rate lease in place between your property entity and your operating entity before going to market. It lets buyers bid on the business alone, the building alone, or both. See selling a cannabis business with real estate.
• Buyers. Check rent coverage, meaning business earnings before rent divided by rent. In the example above, coverage is 6.7x at the lower rent and 4.0x at the higher one. Thin coverage means the cap rate should be higher. Whether to own at all is covered in buying the building with the license.
• Both. Decide early whether you need a credentialed appraisal or a broker opinion; the difference is explained in appraisal vs broker opinion of value.

Does rescheduling change cannabis cap rates?

Not much so far. The April 2026 order moved state-licensed medical marijuana to Schedule III, which improves after-tax cash flow for qualifying medical tenants and so improves their ability to pay rent. Adult-use marijuana remains Schedule I, bank lending has not opened up, and the forfeiture statute is unchanged. Cap rates should compress if mainstream lenders and buyers enter the market, but nothing in the 2026 REIT filings cited here shows that happening yet. Price property on current evidence.

This is educational material, not an appraisal and not investment, legal, or tax advice. Property values depend on the specific lease, tenant, and market. If you want a view on how your building and business should be priced together, you can book a confidential intro call.