Cannabis continues to be legalized across the United States one state at a time, and it’s going to keep happening. Several states will see cannabis regulations authorizing either medical or recreational usage of marijuana again this election cycle.

Fully 65% of Americans favor full legalization, and every indicator suggests that this will trend upward as more young people reach voting age. The federal government’s hesitancy to push forward with current legislation is mainly due to us being in a midterm election year – the 35% of folks against legalization represent too big a voting bloc to risk angering.

But make no mistake – this trend is unstoppable. Right now, 37 states and the District of Columbia have legalized medicinal cannabis. Beyond that, 18 states and D.C. allow adults to indulge recreationally. The tax revenues alone is going to keep this moving. Colorado, just to name one example, banked $423 million in tax revenue from marijuana sales last year.

What this means is that anyone who does business with the cannabis industry will have significant first-mover advantages over those who enter the market only after the federal government has acted. And there’s an incredible opportunity opening up in one of my favorite asset classes – real estate investment trusts (REITs).

The pick I have for you today puts a whopping 10% cash back in your pocket – and there’s the potential for even more explosive dividend growth. These shares are a must-have for any high-yield alternative income portfolio…

This Lender Is Getting a Jump Start on the Cannabis Market

It can be hard to keep track of everything that’s stalled out in Congress, but one significant hold-up is the SAFE Banking Act. This law would protect banks who provide services to cannabis businesses from certain kinds of federal regulations or penalties.

See, right now, cannabis companies face a lot of challenges finding the kinds of lending and funding options that other businesses enjoy, especially if they’re dealing with national bank chains. Being unable to open a checking account, much less discuss commercial real estate or business expansion loans with banks, is a real problem for this fledgling industry. Many are forced to deal in cash, which comes with a whole raft of problems and expenses.

But, where there’s a will, there’s a way, and AFC Gamma Inc. (NASDAQ: AFCG) has stepped up help fulfill this need – and capitalize on the opportunity. AFC Gamma is a mortgage REIT that lends to established cannabis industry companies operating in states with legalized medicinal or recreational adult use.

Its management team has extensive experience in both lending and real estate markets, having directly structured over $10 billion in loan transactions and taken four companies public.

They also understand how explosive the growth potential of the cannabis industry is going to be, projected by analysts to reach from $38.4 billion to $45.9 billion by 2025. So, while the federal machine creaks on at a snail’s pace, reform languishes, and its finance industry peers stay on the sidelines, AFC Gamma will be raking in more and more revenue.

Early entry into lending can have its risks, so AFC Gamma is very rigorous in the underwriting process. And when I say “rigorous,” I mean it: Of the 409 potential deals they looked at last year, only 18 made it to funding or commitment, with 75 under further review.

It is also well paid for the loans it does make, carrying interest rates of 12% and higher in most cases. In addition, the loans are secured by substantial assets such as real estate, as well as cashflows produced by the business.

Everything else is just icing on the cake: AFC Gamma is already in 14 states and I expect it to keep expanding across the country as more states jump on the cannabis tax revenue gravy train. Insiders own 25% of the company, so they’ve got plenty of motivation to keep revenue and dividends growing for a very long time.

Right now, AFCG stock is yielding over 10%, and the dividend has been growing rapidly from the initial $.38 a share to the current $.50 level. Yields on the loan portfolio will almost certainly fall once Uncle Sam gives cannabis the OK, but that will be offset by the tidal wave of new potential customers allowed to enter the market.

Simply put, the cannabis industry is going to generate massive amounts of cash, and AFCG is in the front of the line. Get in now and start collecting your share.

— Tim Melvin

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Source: Money Morning