Innovative industrial real estate (IIPR) is a pioneer, to say the least.
It is the only publicly traded company on the New York Stock Exchange that provides real estate capital to cannabis growers. Especially cannabis growers who are used medicinally, but cannabis growers nonetheless.
The Real Estate Investment Trust (REIT) began paving a path into the medical marijuana industry in December 2016.
Sorry for the pun, but it is entirely correct to say that Innovative Industrial is growing like a weed. On September 16, 2019, I wrote positively about it for the first time. Since then, stocks have risen more than 158% (as of August 31).
And I was late for the game out of caution. Early-in investors have seen phenomenally higher returns.
The REIT was offered at $ 20 per share during its 2016 IPO and was trading for nearly $ 246 at the end of August. We can’t expect this rate of growth to continue indefinitely, but still …
IIPR remains a strong investment option. In fact, it is positioned to remain profitable regardless of where federal marijuana consumption goes.
State vs. Federal Opinions Benefits of IIPR
Marijuana use is becoming increasingly accepted in the United States. To date, 36 states, DC, and four out of five permanently inhabited US territories have legalized cannabis for medical purposes.
IIPR explains on its website:
This wave of state adoption of cannabis programs for medical purposes was fueled by the rapidly evolving, overwhelming acceptance by Americans of cannabis for medical purposes as an alternative form of treatment for patients.
Meanwhile, Tim Malloy, assistant director of the Quinnipiac University survey, puts it this way:
“The baby boomers say no to the drug that helped define an era, while the millennials say it moves it forward. In between there are enough voters to stamp off the legalization of marijuana for recreational and medical purposes. ”
According to a 2019 poll by Quinnipiac University, 93% of voters support doctor-prescribed medical marijuana. So it’s no real surprise that the ArcView Group estimates that US federally regulated cannabis sales will soar from $ 12.4 billion in 2019 to nearly $ 34 billion in 2025.
At the federal level, however, marijuana remains illegal. Because of this, operators from multiple states often have difficulty obtaining credit from traditional sources.
In response to this need, IIPR offers producers sale-leaseback solutions. This gives the farmers cash while attracting profitable long-term renters to the REIT.
As the IIPR notes on its website, it gives growers “the ability to redirect revenue to the core operations of their business so they can focus their resources on reaching as many patients as possible in need of treatment.”
See green in IIPR
This system was beneficial for producers, innovative industrial properties and investors alike. CEO Paul Smithers recently confirmed in a face-to-face interview with him that the business remains extremely robust.
Of course, IIPR continues to benefit when states introduce recreational programs for marijuana use. Smithers stated that once these types of laws are passed, growers typically come to IIPR with requests for expansion capital.
Innovative Industrial Properties is also keeping an eye on emerging medical conditions and is unwilling to partner with smaller companies:
We don’t just focus 100% on the big [multistate operators]. We understand how we started about four and a half years ago. At that time we did this kind of business with the smaller companies. And these companies are now GTI, Curaleaf, PharmaCann.
If these names aren’t familiar to you, let’s just say they are no longer mom-and-pop operations.
IIPR recently expanded its partnership with Harvest Health & Recreation to purchase a facility in Maryland for nearly $ 30 million. “We had a lot of fun closing this,” Smithers told me. But to be honest, I can say that he is delighted with all of his purchases.
“We also have a Florida deal that we signed with Harvest earlier this year for approximately $ 42 million,” he added. And it seems as if there is always a new opportunity.
These expansion opportunities show the production efforts of producers trying to keep up with demand.
Innovative industry has a bright future ahead of it
Innovative Industrial Properties now owns 73 properties in 18 states for a total of approximately 6.6 million square feet. These properties were all leased to state-licensed marijuana growers with an average lease term of 16.7 years.
Annual rent increases and property management fees are also taken into account in every rental agreement. And this enables further growth of the IIPR business model.
In short, IIPR has positioned itself for flexible growth no matter how the federal government works out the details of legalizing marijuana. What it’s doing in a way right now.
The heavily debated SAFE Act by Senate Majority Leader Chuck Schumer outlines a plan to regulate and tax marijuana. This would give small businesses access to government loans.
On the other hand, it has been talked about for months without any real progress.
However, IIPR is not affected. Smithers told me, “Our operators have invested a lot of time and money building their businesses within the state line. Each of these operators has really perfected their business in the States. “
And since the federal government is leaving the federal states alone, the current growth does not seem to be stopping.
As Rich Duprey states in “Could Innovative Industrial Real Estate Help You Retire a Millionaire?”:
Even if marijuana is never legalized at the federal level and is only gradually creeping across the country, Innovative Industrial Properties will still thrive as vertically integrated growers and retailers looking to expand seek access to more capital.
If anything, some fear cannabis REITs could go up in smoke if marijuana is legalized nationwide. However, IIPR has a solid reputation in the community with deeply rooted relationships. Smithers says:
I think you cannot emphasize enough the importance of this first mover building those relationships with the big operators … If you look at our history, we have numerous repeat contracts with these operators. And that is the result of trust and a really good cooperation.
That is why I am still optimistic about the company.
Be careful when evaluating. You don’t want to overdo it. But with its current outlook, I recommend it at $ 220.00 or below.
Just as casino REITs are successful despite traditional funding options, I assume that cannabis REITs would have similar success.
I own shares in IIPR, PW, and AFCG.