Many cannabis stocks have fallen by as much as 50% this year amid slowing sales and, in some cases, soaring financial losses. But there is one big exception. Marijuana real estate firm Innovative Industrial Properties, Inc. (IIPR) is profitable, it pays a dividend, and its stock has risen almost 69% in 2019. This is about three times the gains of the S&P 500 (SPY).
Innovative Industrial Properties stands out in the cannabis industry because of its unique ability to benefit even in times of difficulty, according to a recent story in Barron's as described below. Instead of growing and selling marijuana, the company buys property from cannabis producers and then leases it out under long-term contracts.
Significance for Investors
This service is crucial to cash-hungry marijuana companies that need to expand quickly but have little capital. As a real-estate investment trust (REIT), Innovative Industrial Properties works with licensed medical marijuana companies and other growers to provide property for cultivation, storage and more. The company operates on a "sale-leaseback" model in which it buys property from cannabis firms and then leases it back to those businesses under long-term contracts.
- Innovative Industrial Properties is profitable and pays a dividend.
- Its stock has risen at triple the pace of the market this year.
- The company buys property and then leases it back to cannabis companies.
- Cannabis companies benefit by getting much-needed capital infusions.
This is very lucrative for Innovative Industrial while providing cannabis growers with an infusion of capital until they can build up income. According to BTIG analyst Thomas Catherwood in a report, per Barron's, many marijuana companies "raced to gain market share" early on by spending big on the assumption that they would reach a "critical mass" later on. Now, some of these businesses "still need capital to reach the inflection between platform development and profitability." This is where Innovative Industrial Properties steps in.
Innovative Industrial Properties has been gobbling up property, purchasing about $360 million worth of property assets this year. Real estate also is a safer bet for institutional investors interested in exploring the cannabis industry, with close to 60% of Innovative Industrial Properties' stock held by institutional clients like BlackRock Fund Advisors.
To be sure, Innovative Industrial Properties is not fully insulated from marijuana industry trends even though it has dramatically outperformed this year. The company's shares have fallen about 40% off their 2019 high, reflecting broader concerns about the industry and investor concerns about dilution when it issued more stock this summer. Even with the recent pullback, Innovative Industrial's stock is still up dramatically for the past year and for 2019—a sharp contrast to the carnage experienced by cannabis growers.