Even though we have endured a short burst of negative marijuana news, the cannabis industry is still one of the strongest and upcoming industry around the world. With many individuals investing in marijuana stocks and marijuana bonds, the industry is stronger than ever.
The stock market has always been a roller-coaster ride that can change quite quickly. Just look at the Dow Jones Industrial Average, for example. It went from a high of 11,164.51 to a low of 6,547.57 (March 9, 2009) – a drop of almost 50% – over the course of a little more than a year.
Cannabis stocks have been going up in the post-legalization era, and they’re now worth more than the biggest companies in the world. While many of these stocks have been trading for a few years, they’re still in their infancy compared with other industries. Even more exciting is the fact that the legalization of cannabis around the world is happening faster than most analysts thought it would. Notwithstanding, cannabis stocks are still a long way from mainstream acceptance, and there are still many issues that need to be overcome.
This pot of broth may be special
Today, almost everyone is aware of the potential of cannabis stocks. But investors are also aware of the risks associated with this emerging industry. Sure, there are plenty of fast-growing cannabis companies, but given that much of the market isn’t open yet, it’s hard to say which ones will be the long-term winners. For this reason, Innovative Industrial Properties Inc (NYSE:IIPR) could be worth watching. The shares of Innovative Industrial Properties are not a safe haven in the traditional sense. The Company does not cultivate marijuana or process or produce cannabis derivatives. Instead, it provides real estate capital for the medical cannabis industry. Innovative Industrial Properties Inc. specializes in the acquisition, ownership and management of specialty properties leased to experienced, state licensed operators for their regulated medical cannabis facilities. Sale and leaseback operations represent a particular opportunity for the company. Innovative Industrial Properties acquires vacant land from operators of state-licensed medical cannabis facilities and then leases it back to them on a long-term basis under absolute net leases. For medicinal cannabis operators, the sale and leaseback transaction is a source of capital that they can spend on their core business and on developing their business. For Innovative Industrial Properties Inc. such a transaction provides a steady stream of rental income. A typical sale and leaseback transaction with Innovative Industrial Properties ranges from $5 million to over $30 million, has a lease term of 10 to 20 years, an initial base rent of 10% to 16% of the total investment and annual base rent increases of 3% to 4.5%. (Source: Sale/Leaseback Opportunities, Innovative Industrial Properties Inc, last visited June 7, 2021). If you are familiar with commercial real estate, you know that such terms are advantageous to the buyer, as the transaction not only generates significant rental income upfront, but also allows the buyer to increase payments over time. On the fifth floor. In May, Innovative Industrial Properties’ portfolio included 69 properties in 18 states. (Source: Investor Presentation, Innovative Industrial Properties Inc, last visited June 7, 2021). The properties comprise approximately 6.2 million rentable square feet, of which approximately 2.3 million rentable square feet are under development/redevelopment. They were 100% leased and the weighted average remaining lease term was 16.7 years. In addition, the company provides real estate capital to incumbent operators, including market leaders such as Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF), Trulieve Cannabis Corp (CNSX:TRUL, OTCMKTS:TCNNF) and Green Thumb Industries Inc (CNSX:GTII, OTCMKTS:GTBIF). My point is that while the U.S. cannabis industry is uncertain, Innovative Industrial Properties Inc.’s business model and portfolio allow the company to generate predictable cash flows against all odds. This is facilitated by the fact that the company is structured as a real estate investment trust (REIT), which means that it must distribute at least 90% of its taxable income as dividends to investors. Most investors in marijuana companies are probably not looking for dividends, but who wouldn’t mind getting some extra cash from a solid marijuana stock? In addition, dividends on IIPR shares have increased. A year ago, the REIT’s quarterly dividend was $1.00 per share. Today that amount is $1.32 per share, up 32% at a time when many companies have been affected by the COVID-19 pandemic. (Source: Dividend History, Innovative Industrial Properties Inc, last visited June 7, 2021). Remember that the nature of the REIT’s business, combined with its rising dividend, makes it attractive to long-term investors. I’m sure there are short term speculators trading IIRP stocks. However, in a volatile environment, a strong long-term appeal can work wonders. Take a look at the diagram below. The green line shows the performance of Innovative Industrial Properties shares and the black line shows the performance of the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ, OTCMKTS:HMLSF), an exchange traded fund that tracks the performance of the North American Marijuana Index.
Innovative Industrial Properties Inc (NYSE:IIPR) Share chart
Graph courtesy of StockCharts.com As you can see from the chart above, not only has IIPR stock delivered a much higher total return than the Horizons Marijuana Life Sciences Index ETF over the past two years, but it has also experienced fewer pullbacks when sentiment changed. Again, it’s the fundamental properties of this pot that make it so durable.
First quarter results 2021
If you look at the REIT’s financials, you will see that Innovative Industrial Properties Inc. has a very impressive growth rate, despite the relatively dark side of the cannabis industry. In the first quarter of 2021, the company generated total revenue of $42.9 million, more than double the $21.1 million it earned in the same period in 2020. (Source: Innovative Industrial Properties Reports First Quarter 2021 Results, Innovative Industrial Properties Inc, May 5, 2021). The company posted net income of $25.6 million, up 122% from the previous year. Like other REITs, Innovative Industrial Properties reports adjusted operating income (AFFO). The company’s AFFO for the quarter was $1.47 per diluted share, a significant improvement from $1.12 per diluted share a year ago.
If you look at the financial media, you’ll see a lot of headlines about why stock investors should be concerned right now. Nothing gets more attention than fear, but the reality is that stocks are catching their breath after a huge rally last year. For stocks with strong momentum – including many marijuana stocks – a breakout could result in a pullback from previous gains. That said, as always, I’m optimistic about the future of the cannabis industry in the U.S., but for investors who don’t want the big swings often associated with marijuana stocks, Innovative Industrial Properties stock deserves serious consideration.There are really only two operators left in the industry of marijuana stock trading. Canopy Growth (OTCPK:CGC) and Aphria (OTC:APHQF) are the only two companies that have a market cap of $10 billion or more. Both have made consistent progress in the last 24 months, but have the same problem in that they are still the same companies. They have both been making moves in the same direction, that is to consolidate larger shares into fewer holdings.. Read more about is innovative industrial properties a good stock to buy and let us know what you think.
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