Of all the cannabis stocks out there (and the number keeps growing), one of the most consistent providers of capital gains and passive income is Innovative Industrial Properties Inc (NYSE:IIPR). In fact, IIPR stock is probably one of the top three pot stocks in existence right now.
Innovative Industrial Properties stock is up approximately 100% year-over-year, 377% since bottoming in March 2020, and 65% since the November election. For yield hogs, IIPR stock also provides an annual dividend of $6.57 per share, with a yield of 2.6%.
While Joe Biden’s election win in November has certainly helped juice the broader marijuana stock market, Innovative Industrial Properties stock comes by its gains honestly. The company continues to report strong financial results and announce strategic acquisitions.
IIPR stock has made serious gains over the last year—and even over the last two months—but, by all accounts, it’s just getting started.
Chart courtesy of StockCharts.com
IIPR Stock Overview
Innovative Industrial Properties stock is great for investors who want to take advantage of the marijuana industry but who aren’t all that keen on actually investing in marijuana growers or sellers.
Because marijuana is still illegal in the U.S. at the federal level, it’s difficult for cannabis companies, even medical cannabis companies, to find capital. That’s where IIPR comes in.
Innovative Industrial Properties Inc is the first (and only) publicly traded company on the New York Stock Exchange to provide real estate capital to the medical marijuana industry.
The real estate investment trust (REIT) purchases properties from experienced, licensed medical cannabis operators and leases those properties back to them. That provides the marijuana growers with capital to develop their own operations. (Source: “Our Business,” Innovative Industrial Properties Inc, last accessed February 1, 2021.)
And as all good landlords do, Innovative Industrial Partners increases the annual rents by three percent to 4.5%, providing the REIT with an inflation-trumping revenue stream.
The company targets well-funded medical cannabis companies in the $5.0 to $30.0 million range and signs them up for long-term leases of 10 to 20 years.
At the start of 2020, the REIT’s portfolio consisted of 47 properties. Today, that number stands at 67, located in almost 20 U.S. states.
Three of Innovative Industrial Partners Inc’s top tenants are Cresco Labs Inc (CNSX:CL, OTCMKTS:CRLBF), Trulieve Cannabis Corp (CNSX:TRUL, OTCMKTS:TCNNF), and Green Thumb Industries Inc (CNSX:GTII, OTCMKTS:GTBIF).
Property Acquisition & Long-Term Lease in Florida
On January 25, Innovative Industrial Properties announced that it had closed on the acquisition of a property in Alachua, FL that comprises about 295,000 square feet of industrial space. The purchase price for the property was $23.8 million. (Source: “Innovative Industrial Properties Acquires Property in Florida and Enters Into Long-Term Lease with Harvest,” Innovative Industrial Properties Inc, January 25, 2021.)
The company also entered a long-term triple-net lease at the property with a subsidiary of Harvest Health & Recreation Inc (CNSX:HARV, OTCMKTS:HRVSF).
Harvest Health & Recreation is expected to complete additional improvements to the property, for which Innovative Industrial Properties has agreed to provide reimbursement of up to approximately $10.8 million. IIPR’s total investment in the property is projected to be approximately $34.6 million.
Real Estate Partnership with Holistic Industries Inc.
On January 8, Innovative Industrial Properties announced that it had signed a long-term lease with Holistic Industries Inc. for its property in Los Angeles, CA. (Source: “Innovative Industrial Properties Expands Real Estate Partnership with Holistic Industries in California,” Innovative Industrial Properties Inc, January 8, 2021.)
Holistic Industries had entered a definitive agreement to acquire the retail, distribution, cultivation, and manufacturing licenses for cannabis operations from the tenant at Innovative Industrial Properties’ Los Angeles property, which was in receivership.
Holistic Industries closed on this transaction and executed a long-term, triple-net lease with Innovative Industrial Properties Inc for the entire property.
In connection with the planned redevelopment of the property, Innovative Industrial Properties has agreed to provide reimbursement to Holistic Industries of up to $11.0 million. Assuming full reimbursement for the redevelopment of the property, Innovative Industrial Properties’ total investment in the property will be $24.0 million.
In addition to the California property, Innovative Industrial Properties Inc owns and leases regulated cannabis cultivation and processing facilities to Holistic Industries in Maryland, Massachusetts, Michigan, and Pennsylvania.
Assuming full reimbursement of tenant improvements under the leases, Innovative Industrial Properties’ total investment in properties leased to Holistic Industries is expected to be $108.4 million.
Q3 Revenue Up 197% Year-Over-Year; Earnings Up 209%
In early November 2020, Innovative Industrial Properties announced that its revenue for the third quarter increased 197% year-over-year to $34.3 million. (Source: “Innovative Industrial Properties Reports Third Quarter 2020 Results,” Innovative Industrial Properties Inc, November 4, 2020.)
The company reported third-quarter net income of $18.9 million, or $0.86 per share, a 209% increase over the third-quarter 2019 net income of $6.1 million, or $0.56 per share.
Its adjusted funds from operations (a metric used in real estate) came in at $27.9 million, or $1.28 per share, up 193% from the third-quarter 2019 adjusted funds from operations of $9.5 million, or $0.86 per share.
At the end of the third quarter, Innovative Industrial Properties had cash and cash equivalents of $161.1 million and short-term investments of $451.2 million. The company has virtually no debt, other than $143.7 million of unsecured debt, which represents a fixed cash interest obligation of approximately $5.4 million annually.
What’s not the like about Innovative Industrial Properties Inc?
It’s the only REIT that invests in the medical cannabis industry, it has a massive cash position, and it has an aggressive acquisition strategy. That helps the company report strong financial results and allows IIPR stock to provide strong capital appreciation and a juicy dividend.