Founded in December 2016, San Diego-headquartered Innovative Industrial Properties Inc. (IIPR) is the first and only real estate investment trust (REIT) providing capital to the U.S. medical-use cannabis industry.
Although 36 states plus the District of Columbia, Guam, Puerto Rico and U.S. Virgin Islands allow for the local medical use of marijuana, federal law still prohibits cannabis commerce. As a result, many cannabis companies have experienced difficulty in either directly acquiring commercial property or obtaining leases for potential facilities.
IIPR operates in a two-pronged strategy: it either acquires distressed properties and leases them to cannabis companies in states that have locally legalized medical marijuana, or it acquires the facilities directly from the companies and leases it back to them. The latter approach was on display last January when IIPR paid $11.8 million for the 82,000-square foot production facility owned by Green Leaf Medical of Richmond, Virginia.
Green Leaf Medical Philip Goldberg explained the transaction to the trade journal Richmond Biz Sense, stating, “In the cannabis industry, it’s hard to get access to traditional sources of financing and capital. So as we build our business and expand throughout the Mid-Atlantic, the new projects require capital, and this is a creative way to get our hands on it.”
IIPR owns 64 commercial properties in 16 states totaling approximately 5.2 million rentable square feet – this includes roughly 1.9 million square feet that is currently under development or redevelopment. The IIPR property canon is 99.3% leased.
Here is how our proprietary POWR Ratings system evaluates IIPR:
Trade Grade: A
IIPR is a dividend stock that is currently trading at $152.14, closer to its 52-week high of $164.99 and far from its 52-week low is $40.21.
IIPR’s 12-month growth rate in earnings before interest and taxes is 198.09%, which is higher than 93% of U.S. stocks. Its revenue growth over the past 12 months is 206.74%, which is higher than 96.96% of U.S. stocks.
Buy & Hold Grade: A
November’s election found voters in Mississippi and South Dakota approving measures to regulate cannabis for medical use, which could further expand IIPR’s footprint. President-elect Joe Biden campaigned for decriminalization of marijuana possession but stopped short of advocating for its full legalization. With the national political focus on the coronavirus pandemic and the weak economy, revisiting the federal marijuana laws will probably not be a priority during the first six to 12 months of the new administration and new Congress.
As long as the disconnect between federal cannabis law and state actions continue, IIPR will be providing an invaluable service to cannabis industry companies. This was witnessed in the company’s stock performance during the week of the election: it traded at $122.53 on the day before the election, $122.93 on Election Day, $133.58 the day after the election and $155.87 two days past the election.
Peer Grade: A
To date, IIPR is the only REIT focused on the medical-use cannabis industry. Absent of competition, it is literally and figuratively in a class by itself.
Industry Rank: C
IIPR ranks #3 out of 21 in the REIT – Industrial category. The average POWR rating for this category is C, with the industry ranking #60 out of 123 stock categories.
Overall POWR Rating: A
IIPR is rated “Strong Buy” due to its distinctive spanning of the REIT and cannabis industries. While it is uncertain if its attractiveness will continue if federal laws change regarding cannabis commerce, it currently occupies a healthy niche and will continue to possess solid growth prospects if additional states legalize medical-use marijuana.
IIPR is heading into 2021 with strength and vibrancy and no immediate competition to elbow into its corner of the cannabis world. It promises to be a very happy new year for the company.
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IIPR shares were trading at $152.38 per share on Wednesday afternoon, down $1.85 (-1.20%). Year-to-date, IIPR has gained 107.70%, versus a 15.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Phil Hall
Phil is an experienced financial journalist responsible for generating original content on the weekly Fairfield County Business Journal and Westchester County Business Journal, plus their respective daily online news sites, podcasts and video interview series. He is the winner of 2018, 2019 and 2020 Connecticut Press Club Awards and 2019 and 2020 Connecticut Society of Professional Journalists Award for editorial output. More...
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