This past year has been tremendous.

For anyone watching shares of Innovative Industrial Properties, it has had one of its best years. Over the past 12 months, the stock went from $32 to $139 per share booking one of the best returns in the cannabis sector, although this companies core business is real estate. The company currently has 21 properties in 11 states across the united states with over 1.5 million square feet of rentable space. Currently, all of their properties are 100% leased out with an average lease length of about 15 years. These are some pretty impressive numbers but after the recent pullback from $139 to around $100 where does the company go from here? Investors love profits and this company has done a fantastic job at solidifying a stable income stream but I believe hype got the best of this company and once again, this stock might have further room to fall as investors question sky-high valuations and what’s next for the company.

Where does the money come from?

Ahead of IIPR’s quarterly results the stock has taken a beating of almost 40% but is this speculation around their results, a simple pullback due to being overbought or is there some specific news that has investors worried? The company recently announced that they would be raising money by issuing more shares, 1.3 million to be exact. The company plans to raise 126 million for the purchase of more real estate but at whose expense? Current shareholders are feeling the pain of dilution and that is part of the reason the stock has pulled back so drastically. When a company issues shares, they try and strategically time it when the price is high to obtain the most capital and minimize dilution. Usually, when this happens the market digests this news as the company feeling that itself is overvalued. I personally don’t think that what IIPR did was wrong, but I do feel bad for people purchasing at 52-week highs. Companies that want to expand need to make tough decisions that are sometimes better off for growth vs short term shareholder value.

What next for IIPR?

After this recent announcement, many investors are curious what’s next for IIPR. The company is set to report earnings on August 7th and we expect that to have a great quarter when it comes to the numbers but is this going to be enough to please investors? What I feel will be much more important is what the company plans to do with the additional capital that they are raising. If the company can instill confidence in investors during their conference call than the pullback could present us with a buying opportunity. Although I am very impressed with IIPR and what they have accomplished over the last few years I am very cautious when it comes to valuations and if the market gets turbulent in the months to come, investors will take a closer look at their portfolios. If this were to happen chances are IIPR would be one stock sitting on extreme gains and might be a candidate for further profit-taking, at least for the short term. I would exercise caution if you are considering shares of IIPR with an incremental buying approach.

IIPR shares were trading at $101.35 per share on Thursday afternoon, down $4.32 (-4.09%). Year-to-date, IIPR has gained 125.53%, versus a 19.10% rise in the benchmark S&P 500 index during the same period.

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About the Author: Aaron Missere

Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...

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