Dear reader, we recently discovered a brand new way of investing in the marijuana revolution, but we weren’t sure who to tell about it.
Our best stocks are usually behind a paywall because, well, we can’t afford to give them away for free. That said, rules were meant to be broken…
This stock is simply too exciting to stay private. It could follow the trajectory of other marijuana stocks (one went up 567% and the other gained 313%).
But the window of opportunity is shrinking…
More than 60% of the American public believes in legalizing marijuana, an all-time record according to a CBS News Poll. (Source: “Marijuana legalization support at all-time high,” CBS News, April 20, 2017.)
The trend line speaks for itself.
Oddly enough, politicians are being really proactive about this shift in public opinion. They are actually doing something.
Nine different states have legalized recreational usage, and 21 others authorized marijuana for medical purposes. Did they also have a change of heart?
It is possible. However, it is far more likely that politicians want to use marijuana tax revenues to help erase their budget deficits. They know, for instance, that Colorado earned $200.0 million in marijuana tax revenues last year.
So we can reasonably assume these politicians are in it for the long haul. Republican or Democrat, they love more revenue. And we know the American public is on board. All that remains is for investors to get on board…
A Different Way of Getting at Marijuana Stocks
There are a lot of marijuana stocks that will benefit from rapid legalization, both north and south of the 49th parallel. By that, I mean Canada is lifting its federal ban on marijuana by July 2018, which only increases the scope of marijuana as an industry.
As a result, stocks like Canopy Growth Corp (TSE:WEED), Aphria Inc (TSE:APH), and Aurora Cannabis Inc (TSE:ACB) are poised for immense growth.
But this article is not about any of them…
All three of those companies are engaged in marijuana production or distribution. They are knee-deep in cannabis, fighting tooth and nail for market share. The company I’m thinking of is in a much less crowded space.
To be entirely honest, I hadn’t heard of this company until one of my colleagues put a folder on my desk with the name: Innovative Industrial Properties Inc (NYSE:IIPR).
I couldn’t believe what I was reading. Here was a real estate investment trust (REIT) focused purely on marijuana properties. It basically fronts money for medical marijuana properties, then collects returns over time, with interest.
Let’s imagine you want to launch a marijuana grow-op tomorrow. You don’t have the funds to buy property, so you go to a bank. Except that marijuana is still illegal at the federal level, making it very difficult for bank to give out loans to cannabis-related companies.
That’s where Innovative Industrial Properties comes into the picture.
It buys the property and signs you to a lease agreement. A long lease agreement, often stretching to 15 years. This produces steady cash for IIPR by exploiting a loophole in the law.
You see, IIPR is structured as a REIT, giving it the freedom to skirt a bunch of financial regulations that apply to banks and mortgage lenders.
So IIPR is basically a bank to marijuana companies, but without all the paperwork.
It does this by only serving medical marijuana companies. It doesn’t go near recreational use, which, it turns out, isn’t much of a loss anyways.
About 74% of total marijuana sales in the U.S. took place as medical marijuana. Plus, it is much harder to legislate against, given that people view medical usage with greater sympathy.
But Will It Last?
“But, Gaurav, didn’t you say that legalization was sweeping the nation? When that happens, can’t marijuana dealers go straight to banks instead of to IIPR?”
Not exactly. Legalization is happening at the state level, not the federal.
Even though that is a step in the right direction, it remains unlikely that Attorney General Jeff Sessions will move to decriminalize, much less legitimize, marijuana.
We know that much from his past statements, such as when he said:
“We need grown-ups in charge in Washington to say marijuana is not the kind of thing that ought to be legalized, it ought not to be minimized, that it’s in fact a very real danger.”
(Source: “Trump’s pick for attorney general: ‘Good people don’t smoke marijuana’,” The Washington Post, November 18, 2016.)
Needless to say, Sessions and weed startups are not best friends.
However, I should remind you that 29 states and Washington D.C. have legalized medical marijuana. That’s an estimated 200 million consumers that have no bank to help them fund a marijuana company. Enter, IIPR stock.
The IIPR stock price is trading at a very affordable $17.03. From an earnings angle, it is trending in the right direction as well, with a smaller loss in Q2 than in Q1, making it a desirable find at this price. After all, marijuana is one of the fastest growing industries, so I urge investors to take a closer look at IIPR stock.