Is Innovative Industrial Properties Stock A Buy?

  • “Cannabis companies selling medicinal and recreational marijuana.”
  • “Stocks to watch in the marijuana field.”
  • “Dispensary data.”
  • “Upcoming weed company IPOs.”

These are all phrases becoming more and more common as the legalization of pot spreads through the United States and Canada. While the cannabis industry rises, leading marijuana game changers continue chipping away at the many legal barriers, such as the federal law still criminalizing the use, sale, and distribution of cannabis.

At present, 19 states, including the District of Columbia, have completely legalized the use of marijuana, and Alabama recently became the 38th state to legalize the drug for medicinal use.

As these new programs continue, cannabis sales are projected to reach $43 billion by 2025, highlighting an incredible trajectory of growth for the marijuana industry overall.

Federal government developments continue, with several senators introducing bills that would remove cannabis from the Controlled Substances Act, expunge criminal records for cannabis use, possession, and distribution, and provide reform of taxation practices in relation to the cannabis industry.

There’s Big Money in the Weed Market

Money continues pouring into the legalized weed industry which, in turn, could potentially steer additional consumer spending towards marijuana. The cannabis industry is evolving into typical consumerism, while alcohol and tobacco companies struggle – but could this be a new avenue for these companies to discover additional business?

Former executives in the beverage industry, for instance, have changed lanes and opted for the marijuana industry in the form of THC-based drinks. Tobacco companies could have the same influence by switching it up and offering THC vaping devices, a huge market chunk, according to Wall Street analysts.

But these types of moves don’t come without obstacles. For the time being, marijuana is still prohibited at the federal level, forcing weed shops to accept cash only – even as many states break away from federal enforcement, legalizing weed’s recreational usage.

Additionally, mixing any form of alcohol with THC is not legal, in reference to the above example. Other obstacles that aren’t as forthright include creating THC-based beverages that taste like common alcoholic beverages.

THC vs CBD – The Industry Weighs In

The federal law banning marijuana use, sale, and distribution is just one ongoing obstacle the industry is up against.

Former President Trump signaled the beginning of the decriminalization at the federal level when he stated the government would not penalize states in which the drug was legalized.

Another obstacle, however, is coming up with dosage requirements – consistently delivering predictable highs isn’t cut and dried.

THC and the Stock Market

If, for the foreseeable future, cannabis remains federally prohibited, you may wonder how companies growing and selling the substance can legally be traded. In short it boils down to legal hopscotch.

The next obvious question is where to invest?

Dividend stocks offer a typically stable, recurring source of income, while growth stocks offer potential long-term gains. The primary difference is that with growth stocks, the investment usually carries much more risk. What if there were stocks that offer the best of both? Dividend income as well as the potential – incredible potential – for growth?

One such stock that falls into this category is Innovative Industrial Properties (IIPR). IIPR is capable of consistently generating dividends while also allowing you to benefit from the projected growth of the cannabis sector.

What Is Innovative Industrial Properties?

Innovative Industrial Properties is a real estate investment trust, or REIT.

IIPR purchases the properties of cannabis companies, such as their grow sites and physical dispensaries, and then leases said properties back to the company.

These purchases offer cannabis companies greater access to needed funding, as it’s not so easy to walk into a bank asking for a loan as a cannabis company under current federal restraints.

IIPR – Growth Vs Dividends

IIPR currently pays its investors quite handsomely. Dividend yield payments are 2.3%, which is much better than the typical S&P 500 average payment of 1.3%.

Innovative Industrial Properties has grown substantially since 2016, as has its dividend payments. REITs must pay at least 90% of earnings back to shareholders. With a REIT like IIPR, you can safely assume that, as long as IIPR’s profits continue increasing, so will your dividend payments.

IIPR’s pays out dividends quarterly. Just two years ago, quarterly dividend payments were just $0.60 per share – today, these payments are $1.40 per share. That’s more than double the quarterly dividend payments from just two years ago. IIPR’s quarterly revenue doubled, coming in at nearly $49 million, and net income skyrocketed by nearly 125%.

Those numbers are good – and they could continue growing into the future. The overall growth of the entire cannabis sector is great news for IIPR. More states allowing recreational and medical use and more marijuana growers looking for grow sites make for a space in which growth could not only be exponential in coming years, but it’s almost guaranteed.

At the most recent quarter’s end, IIPR owned 73 properties in 18 states. Last year, the REIT only held 61 properties across 16 states. Two state cannabis sectors to monitor include New York and New Jersey – at this time, these states account for only 4.2% and 2.9%, respectively, in IIPR’s portfolio.

This year, these two states passed laws allowing the growth, sale, distribution, and use of recreational marijuana. It will come as no surprise if these percentages shoot skyward in the coming months and years.

In the last year alone, per-share stock prices for IIPR soared over 90%, well ahead of the S&P 500, the returns of which average just shy of 30%.

Because not every state has legalized marijuana yet and it is still no legal at the federal level, there’s still time to get in on the proverbial ground floor and profit from the upcoming project exponential growth. IIPR’s growing dividends are both a bonus and incentive – stay patient. 

IIPR Earnings – A Closer Look at Innovative Industrial Properties Stock

According to the most recent shareholder report, adjusted funds from operation were $1.64 per share – better than the anticipated $1.55. Revenue grew by 101% over last year to $48.9 million, also better than the anticipated $45.6 million.

Relative strength has been rising since May, but this could be due to the stock’s highs reached back in February 2021.

By the end of August 2021, IIPR held over 70 properties within 18 states. Some of IIPR’s most recognizable companies include Curaleaf (CURLF) and Green Thumb Industries (GTBIF).

Real estate activities, such as lending, should increase in the immediate term. Operators are looking to expand operations, leverage assets, and ultimately optimize company balance sheets.

These activities will be spurred as lawmakers in the United States push legislation to decriminalize marijuana, offering better access to funding – what this means, exactly, for IIPR isn’t yet clear.

Is Innovative Industrial Properties Stock a Buy?

All investments are personal decisions. At this time, IIPR stock is a clear buy – but focus on what decriminalization would mean for the industry. Offered better terms and access to funding, marijuana companies may choose to renegotiate terms with the IIPR REIT.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.