Power REIT: Pot Stock Shuns September Slide & Climbs 19%

Power REIT Stock Up 158% Year-Over-Year; Just Stretching Its Legs

There’s more to pot stocks than growing, processing, and selling marijuana.

In fact, ancillary pot stocks have been some of the best-performing stocks in the cannabis sector. We’ve covered many of them in Profit Confidential, including GrowGeneration Corp (NASDAQ:GRWG), Innovative Industrial Properties Inc (NYSE:IIPR), AFC Gamma Inc (NASDAQ:AFCG), Agrify Corp (NASDAQ:AGFY), and Hydrofarm Holdings Group Inc (NASDAQ:HYFM).

Another excellent ancillary pot stock to add to the list is Power REIT (NYSE:PW).

The company is a real estate investment trust (REIT) that focuses on sustainable, non-traditional real estate. That includes greenhouses, solar power, and transportation facilities. Marijuana stock investors have often overlooked PW stock because cannabis wasn’t the company’s initial focus—but it is now.

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Power REIT garnered a lot of attention in early September, when the company said it closed on its previously announced acquisition of a greenhouse cultivation facility n Marengo Township, MI. The state of Michigan is the second-largest cannabis market in the country. (Source: “Power REIT Acquires 556,146 Square Foot Cannabis Greenhouse Cultivation and Processing Facility for $18.4 Million in Highly Accretive Transaction,” GlobeNewswire, September 9, 2021.)

The property, which comprises approximately 556,000 square feet, is in the “Marijuana Overlay District” of Marengo County, which allows for unlimited cannabis cultivation licenses. The 61-acre property has plans in place to add 330,236 square feet, and it has additional land available for further expansion.

The acquisition helped juice Power REIT stock to record territory. As of this writing, PW stock is up by:

  • 16.5% over the last month
  • 25% over the last three months
  • 88% year-to-date
  • 158% year-over-year
  • 618% since bottoming in March 2020

By all accounts, this overlooked landlord to the pot industry is just getting started.

Chart courtesy of StockCharts.com

PW Stock Overview

Power REIT focuses on sustainable real estate with attractive risk-adjusted returns. The specialized REIT is diversified into three industries: Controlled Environment Agriculture (CEA), Solar Farm Land, and Transportation. (Source: “Investor Presentation – September 2021,” Power REIT, last accessed October 4, 2021.)

The company is most interested in expanding its real estate portfolio of CEA greenhouse properties for food and cannabis cultivation.

Power REIT’s wholly owned subsidiary, Pittsburgh & West Virginia Railroad, owns railroad real estate that’s leased to Norfolk Southern Corporation for 99 years, with unlimited renewal options thereafter.

The railroad consists of 112 miles of railroad track and associated real estate. The line extends from western Pennsylvania through West Virginia to eastern Ohio.

The REIT also owns seven properties covering approximately 600 acres of land that’s leased to utility-scale solar energy projects.

Power REIT’s solar land investments provide highly predictable cash flow. Its tenants have invested more than 20 times the cost of the land to build solar projects. In addition, the projects have long-term power purchase agreements with investment-grade municipalities and/or regulated utilities.

On an annual basis, the solar farms produce approximately 50.0 million kWh of carbon-free electricity, which is enough to power approximately 4,600 homes.

Then there are Power REIT’s rapidly growing CEA cannabis properties, which currently stand at 21. They’re located in Colorado, Michigan, California, and Maine. The REIT leases the properties to tenants that are licensed for the production of medical cannabis.

Since embarking on a CEA acquisition spree in July 2019, the company’s core funds from operations (FFO) soared from $0.13 per share in the second quarter of 2019 to $0.51 in the second quarter of 2021, for a pro forma run rate of $0.90.

Power REIT’s management projects that $60.0 million of its recent transactions will return approximately $60.0 million over the next three years.

That can be used to invest in additional assets and expand its portfolio. The company could also add more than $11.6 million to its FFO, assuming 100% reinvestment and a 15% FFO yield on investments.

Strong Q2 Results

For the second quarter ended June 30, Power REIT announced that its revenue jumped by 133% year-over-year to $2.3 million. (Source: “Acquisitions Drive Significant Year-Over-Year Growth,” GlobeNewswire, August 9, 2021.)

Its net income advanced 236% year-over-year to $1.4 million, or $0.41 per share. The company’s core FFO climbed by an impressive 202% year-over-year to $1.7 million, or $0.51 per share.

Power REIT ended the second quarter with cash and cash equivalents of $28.8 million, compared to $5.6 million as of December 31, 2020.

During the quarter, Power REIT grew its CEA portfolio by eight properties, or approximately 317,000 square feet, through accretive acquisitions. That should generate annual rent of approximately $4.6 million, representing more than a 17% yield on invested capital.

The REIT also completed a rights offering that generated approximately $37.0 million, which fueled its accretive acquisition strategy. It still has $20.0 million of capital to deploy.

Moreover, the company filed a shelf registration statement that will provide the trust with better access to capital.

Analyst Take

Power REIT’s updated business plan, which includes acquiring a large number of CEA facilities for the cannabis industry, continues to drive substantial growth.

The company’s core FFO for the six months ended June 30 advanced 102% year-over-year. This demonstrates the company’s dynamic growth and the attractive yields it can achieve with its strategic CEA investments.

And it’s just getting started.

While 92% of the U.S. population has legal access to cannabis, it’s still illegal at the federal level. Furthermore, the growth of the industry continues to be impacted by state and local regulations. That points to significant growth opportunities for Power REIT stock over the coming years.