Innovative Industrial Properties (IIPR)—The Marijuana Stock that Doesn’t Sell Marijuana
On June 5, Tim Lutts, chief analyst of our Cabot Marijuana Investor and Cabot’s CEO and Chief Investment Strategist, wrote about “The Safest Marijuana Stock to Buy Today.” His pick? Innovative Industrial Properties (IIPR), a real estate investment trust (REIT) that has a leg up on other companies in the cannabis industry because it invests in marijuana growers, meaning it’s totally legal in every state in the U.S. Hence, the “safe” moniker.
Here’s what Tim had to say about IIPR:
Innovative Industrial Properties (IIPR) Stock
IIPR is a Real Estate Investment Trust (REIT), which means not only that its business is totally legal in every state in the U.S., but that it has access to traditional funding sources—which it can then pass on to the marijuana growers and producers that are its customers.
In a typical deal, known as a sale-leaseback, a marijuana grower sells its building to IIP, and then leases it back, typically with a long-term triple-net lease, so that the marijuana company gets immediate cash to grow its business, and IIP gets a guaranteed stream of revenue.
And where does IIP gets its money from, to buy these businesses? From big investors (like BlackRock, which owns 16% of the shares, and Vanguard, which owns 8%) and small investors like you. And what you get, because this is a REIT, is a big fat dividend, which currently means a yield of 4.43%—plus the potential for capital appreciation as the company grows.
IIPR is thus a great candidate for a diversified portfolio of marijuana stocks. In fact, there’s no other company like it, as IIPR is the only publicly traded REIT focused on serving the marijuana industry. It’s the safest marijuana stock you can buy.
IIP’s first-quarter results were released last month, and there was a lot to like.
Revenues were $21.1 million, up 210% from the prior year’s first quarter and adjusted funds from operations (AFFO) (which REITs use instead of earnings) were $17.8 million, or $1.12 per diluted share, up 107% from the year before.
As of May 6, IIP owned 55 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, North Dakota, Ohio, Pennsylvania and Virginia, totaling approximately 4.1 million rentable square feet (including approximately 1.3 million rentable square feet under development/redevelopment), which were 99.1% leased (based on square footage) with a weighted-average remaining lease term of approximately 15.9 years.
And the cash level is healthy. At the end of the quarter, IIP had $108.3 million in cash and cash equivalents and $272.9 million in short-term investments, totaling $381.2 million.
Those are excellent results in anyone’s book (I love companies growing at triple-digit rates)—but analysts were expecting just a little more, and thus the stock sold off a bit in response, before bouncing back in the weeks since. Still, trading at 90, it’s way off its peak above 130 last June (when many other cannabis stocks peaked), and markedly below its pre-virus levels around 105. Thus, despite the recent run-up, this is a good entry point in IIPR.