Marijuana Real Estate
With excitement bubbling over the growth potential in the marijuana stock market, investors are keen on which pot stocks are the best to ride that wave of hype into comfortable returns. But as the industry grows, so too will the options presented to investors who are bullish on weed.
For instance, what’s good for Tesla Inc (NASDAQ:TSLA) will also be good for lithium mining companies. They are linked industries, after all. The same applies to a new scaffold industry that is developing around the marijuana stock market: marijuana real estate.
Marijuana real estate caters to the need that many of these pot companies have, which is to find enough land to produce copious amounts of weed in order to satisfy customer demand.
Imagine that the U.S. legalizes recreational marijuana in the entire country tomorrow. That would instantly create literally millions of potential customers for a product that needs to be cultivated and grown. As with any other crop, marijuana needs space, and, as the consumer base grows with each state that legalizes the drug, the demand for that space grows with it.
One of the most important developments from this, then, is marijuana real estate.
One of the reasons that marijuana real estate is in such an interesting position is that pot, as we all know, is in a precarious legal situation itself.
The federal government, spearheaded by U.S. Attorney General Jeff Sessions, has consistently laid out its vision for marijuana: harsher crackdowns and more federal involvement in drug enforcement.
Whereas the Barack Obama administration took a laissez-faire attitude towards states that pass legislation regulating recreational pot, the Donald Trump White House has made it clear that it intends to be more hands-on with pot…and not in a good way.
Therefore, would-be pot companies and growers are in a bind. With legal pressure potentially mounting in the near future, as well as their current products effectively invalidated by the ability of the federal government to supersede state law, why would any bank lend them money to purchase land? It’s simply too risky of an investment when the company could be growing a legal product one day, only to have it confiscated the next if the federal government has its way.
This capital void has led to the marijuana real estate market that I mentioned earlier.
The first-ever cannabis real estate investment trust went public in October 2016, and has been testing the waters in the marijuana stock market.
Chart courtesy of StockCharts.com
The company, Innovative Industrial Properties Inc (NYSE:IIPR), focuses on buying properties of specialized industrial medical cannabis facilities. The idea being that the purchase will imbue cannabis producers with much-needed capital while the REIT can in turn offer lease-back deals so they don’t lose the land.
This sort of plan can circumvent legal issues, as companies will simply be evicted instead of being left holding a ton of land with no opportunity to grow their product.
On the flipside, IIPR stock benefits from the leasing agreements, as well as accumulated real estate values. Another added bonus is that, unlike marijuana companies who are subject to the law and could be banned at a moment’s notice should the federal government adopt a hyper-aggressive stance, the REITs can simply resell or re-lease the property to another company should the worst-case scenario take place.
What we’re left with is a potentially safer way to play the marijuana stock market without having to worry about what officials in a particularly erratic White House are considering doing next.
Marijuana REIT, IIPR Stock, and the Marijuana Stock Market
So, has IIPR stock been a roaring success? Not exactly.
The company came in at just about the worst time in the marijuana stock market, getting hit by the downturn as many proclaimed the pot bubble had burst. The stock is down about nine percent since it went public, which is hardly a great return on investment, especially considering the strength of the stock market in so many other areas.
What we’re looking at here instead is a proof-of-concept test. If IIPR can bounce back, and if you believe that the marijuana market will rise again, then it stands to reason that IIPR stock will follow. In that case, we’re looking at a pioneer in a novel industry with a novel business model.
Which is to say, being overly unique doesn’t always pan out, but—in this case—marijuana real estate could be one of the best ways to play the marijuana stock market. The potential is certainly there.
The company is headed by a veteran of the industry, Alan D. Gold, who has been in real estate for over 30 years. He co-founded two NYSE-listed REITs and has experience in the biomedical industry as well, which made him an attractive choice.
Also, word out of Colorado is that the warehouse business is booming as a knock-on effect of the legalization of pot. Vacancies are down and rents are up. This would appear to indicate that IIPR stock has the right idea, if not the right timing. While the industry as a whole has been battered recently as a result of the marijuana bubble fear, that may make IIPR a solid investment at a low price, with potential returns coinciding with a resurgent pot market. (Source: “How pot is firing up this real estate,” CNBC, October 25, 2016.)
After all, good news is on the way for cannabis. With Canada set to legalize the drug in 2018, more U.S. states considering marijuana laws, and rumors that Jeff Sessions may be on the outs with President Trump, there are plenty of reasons to still be excited about this green industry.