Why Innovative Industrial Properties Stock Could Rise More Than 70%

IIPR Stock

Growth of U.S. Legal Pot Market Could Boost IIPR Stock

Since Canada legalized recreational marijuana in October 2018, there have been high hopes that the U.S. would follow. Although some individual U.S. states have legalized recreational cannabis, the U.S. has yet to give consent at the federal level.

In the recent midterm elections, Maryland and Missouri voted to legalize recreational marijuana, bringing the number of U.S. states to do so to 21, along with D.C., Guam, and the Northern Mariana Islands.

At the federal level, the House has approved the Marijuana Opportunity Reinvestment and Expungement Act (MORE Act), but the bill has faced hurdles in the Senate. And now with the change in control of the House, the MORE Act will face more difficulties.

Legalizing recreational marijuana nationwide would be a massive boon for pot companies. Also at stake are billions of dollars of tax revenues. This has helped push state legislatures toward allowing recreational marijuana.

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Moreover, President Joe Biden recently announced he would pardon people who’ve been convicted federally of simple possession of marijuana. While there’s no indication that federal decriminalization of recreational pot is coming anytime soon, this was positive news.

Estimates for the growth of the legal U.S. cannabis market range, but the consensus prediction is that it will be robust. Statista estimated that U.S. cannabis sales would jump to more than $18.0 billion by 2022. (Source: “Cannabis Market Size Estimates in Select U.S. States by 2022,” Statista, last accessed December 12, 2022.)

While we wait for the legal marijuana sector to expand, an intriguing alternative way to play the sector is via shares of Innovative Industrial Properties Inc (NYSE:IIPR.). It’s a real estate company that leases properties to regulated medical cannabis facilities in the U.S.

It makes sense to consider Innovative Industrial Properties stock. With IIPR stock, an investor is playing the growth of the U.S. medical marijuana sector. Better yet, the federal legalization of recreational marijuana in the U.S. would provide even bigger opportunities to Innovative Industrial Properties Inc.

My Technical View for Innovative Industrial Properties Stock

IIPR stock had an impressive run-up from $14.50 in December 2016 to a record $288.02 in November 2021. The compound annual growth rate (CAGR) during this period was roughly 80%, which is outstanding (and far better than the CAGR of the S&P 500).

Since then, Innovative Industrial Properties stock broke below trendline support, tested key support around $84.27, held, and then rallied.

At this point, shares of Innovative Industrial Properties Inc are down by 58% from their record high and are searching for buying support.

Chart courtesy of StockCharts.com

On the one-year chart below, note the death cross pattern that surfaced in February, when IIPR stock was trading around $220.00.

Innovative Industrial Properties stock mounted a weak rally in March and failed to hold. The selling subsequently picked up before forming a base at a key support level.

Shares of Innovative Industrial Properties Inc have rallied and are looking to recover to the 200-day moving average of $124.20. Success in that could see IIPR stock move toward key resistance levels at $125.64, $152.47, and $206.33.

Chart courtesy of StockCharts.com

Analyst Take

I’m encouraged by the positive developments in the marijuana sector, and I consider the current price weakness of pot stocks as an opportunity.

Innovative Industrial Properties Inc looks well positioned to benefit from the growth of the U.S. legal marijuana sector.

The downside risk with Innovative Industrial Properties stock is $84.27. I would view a move lower as a strong opportunity.