The unpredictability of the market in 2020 due to COVID-19 has hit the pot sector particularly hard. With so much of the momentum behind marijuana stocks coming to a sudden halt, I don’t blame investors for seeking out safer investments at this time, even if pot stocks are still poised for huge returns in the near future.
But one marijuana stock, above all the rest, has proven time and time again just how resilient it is. That stock is Innovative Industrial Properties Inc (NYSE:IIPR). Innovative Industrial Properties stock is up big in 2020 and shows no signs of slowing down.
Marijuana stocks are by their nature volatile, so IIPR stock is a rare security indeed because it has such stability.
That stability comes from its position in the marijuana market: Innovative Industrial Properties is not a pure-play pot company. Instead, it profits from leasing land to pot producers, allowing it to take advantage of the growth in the marijuana sector without falling prey to many of the vulnerabilities inherent in an emergent industry.
You see, while so many pot producers have to worry about scale, production, competition, regulation, and legal frameworks on a country-by-country, state-by state basis, Innovative Industrial Properties Inc is able to circumvent all that with its very simple business model: lease properties to marijuana producers.
Whether your favorite pot stock will be the one that dominates, or the one that falls due to a crowded market and hard competition, is all irrelevant to Innovative Industrial Properties stock. This company is going to profit from the growth of the cannabis sector overall, something that is inevitable.
Think of it like a horse race. Now, you could bet on an individual horse and maybe you’ll get it right and maybe you’ll get it wrong; there are certainly a lot of variables at play.
But then imagine that someone told you, instead of choosing a horse, you could simply bet on whether the race will finish. Well, unless a truly unforeseen and momentous event occurs, the race is almost certainly going to finish, making it a much safer bet. That’s similar to the situation that IIPR stock is in.
We don’t know which horse (in this case, which particular marijuana producer) will finish first (although we have some ideas), but we are all but assured that marijuana is a growth industry with huge prospects down the line.
And that brings us back to what Innovative Industrial Properties stock is selling investors: the chance to profit from general growth among an industry instead of having to bet on a single horse.
Of course, that dominance may not remain forever; other companies could threaten IIPR stock’s position in the market. Furthermore, a slowdown—while unlikely—could take place in the U.S. pot market should COVID-19 take several years to be dealt with.
But that is an unlikely scenario. Far more plausible is that the marijuana industry gets back to rolling right along after a COVID-19 vaccine is introduced, something that is slated for later this year, or possibly in 2021.
In any case, we’re seeing a pause in the marijuana market right now. But that pause hasn’t extended to Innovative Industrial Properties Inc; the company continues to expand even during the pandemic.
Furthermore, the company’s latest quarterly report shows that Innovative Industrial Properties has been having no trouble profiting during what has otherwise been a very difficult time for the majority of pot companies.
On the stock chart, Innovative Industrial Properties stock is up almost 70% year-to-date.
Chart courtesy of StockCharts.com
From its nadir in March, IIPR stock has nearly doubled. Over the past 12 months, the stock has gained 25%.
So the company has not only proven that it can weather storms, but that it can actually thrive in spite of them. That’s a powerful (and rare) trait to have in the pot industry.
Add on the fact that Innovative Industrial Properties stock is connected to the U.S. pot market—exposing it to much higher growth potential relative to most of the other pot companies, due to their being stuck in Canadian and overseas markets—and you have what amounts to a top pot stock in 2020.
Another boon to Innovative Industrial Properties Inc is that it’s a marijuana real estate investment trust (REIT). Being a REIT, the company is mandated to distribute 90% of its profits to shareholders by way of dividends. That healthy quarterly dividend continues to grow.
It’s unusual for a company to both provide a dividend and massive potential for stock growth, but that’s exactly what an investor gets with IIPR stock.
Innovative Industrial Properties Inc Quarterly Report
The financials paint a picture of a company that continues to outperform expectations, even given the most unforeseen and difficult of circumstances.
In its second quarter of 2020, IIPR saw its revenue hit $24.3 million, a 183% increase from the same quarter a year prior. (Source: “Innovative Industrial Properties Reports Second Quarter 2020 Results,” Innovative Industrial Properties Inc, August 5, 2020.)
Net income available to common stockholders hit about $13.0 million for the quarter, or $0.73 per diluted share, and adjusted funds from operations (AFFO) hit about $21.0 million, or $1.19 per diluted share. Net income available to common stockholders and AFFO increased by 322% and 263%, respectively, from the prior year’s first quarter.
The quarterly dividend, one of the most attractive aspects of Innovative Industrial Properties stock, increased to $1.06 from $1.00 in the prior quarter, and is good for a 77% increase from the same period last year.
The company also had $50.2 million in cash and cash equivalents in the quarter, meaning it is well-financed. It also had about $323.3 million in short-term investments. This speaks to the company’s ambition to expand, a good sign when so many other pot companies are looking to cut expenses.
Innovative Industrial Properties also has relatively little debt, another good sign.
Moreover, the quarter represented a period of expansion for Innovative Industrial Properties Inc, with the company acquiring eight properties totaling about 775,000 rentable square feet (including expected rentable square feet upon completion of properties under development), in California, Massachusetts, Michigan, New Jersey, and Pennsylvania.
I won’t lie to you and say that 2020 has been all roses for the marijuana industry. It hasn’t. But I will say that, even among that turmoil, there are more than a few gems to be found.
One such shining example is IIPR stock. Innovative Industrial Properties Inc provides so much opportunity to investors that it’s hard not to proclaim it my top pot stock of 2020. And I don’t see it relinquishing that title anytime soon.