Can Innovative Industrial Properties Inc Repeat its 150% Gain in 2021?

Innovative Industrial Properties Inc

Innovative Industrial Properties Stock up 380% Since March

Few cannabis stocks thrived as much as Innovative Industrial Properties Inc (NYSE:IIPR) in 2020. It’s not the top-performing pot stock of 2020, but it’s pretty close.

As of this writing, IIPR stock has rallied 150.5% year-over-year, 150.9% year-to-date, and 380% since bottoming in March. Since the November election, Innovative Industrial Properties stock has gained a whopping 61.6%.

In addition to massive gains, IIPR stock also provides an annual dividend of 2.6%, or $4.96 per share. Innovative Industrial Properties Inc has raised its annual dividend nine times since going public in December 2016.

Massive gains…but by all accounts, Innovative Industrial Properties stock is just getting started.

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The legalization of recreational cannabis has been gaining traction at the state level. During the November election, Arizona, Montana, and New Jersey voted to legalize recreational marijuana. Meanwhile, Mississippi voted to legalize medical marijuana and South Dakota approved measures for both medical and recreational marijuana.

Today, 15 states have approved recreational cannabis, while 36 states plus Washington, D.C. have approved medical marijuana. And more states will follow suit. It’s only a matter of time until recreational cannabis is legalized at the federal level.

For multi-state operators to service their budding customer base, they’re going to need additional cash. Innovative Industrial Properties Inc has been helping out some of the biggest names in the marijuana industry for a year now. And with the industry still in its infancy, that’s not going to stop anytime soon.

Chart courtesy of StockCharts.com

IIPR Stock Overview

Innovative Industrial Properties is the first publicly traded company on the New York Stock Exchange to provide real estate capital to the medical cannabis industry.

The company purchases land from experienced, licensed medical cannabis operators and leases the land back to them. (Source: “Our Business,” Innovative Industrial Properties Inc, last accessed December 21, 2020.)

Cash-strapped marijuana companies need to turn to a real estate investment trust (REIT) like Innovative Industrial Properties because cannabis, even medical marijuana, is still illegal in the U.S. at the federal level. That makes it difficult for pot companies to get loans from banks and other financial institutions.

Instead, selling their properties to Innovative Industrial Properties provides marijuana growers with capital to develop their own operations. Innovative Industrial Properties, in turn, increases the annual rent by three percent to 4.5%, providing it with an inflation-beating revenue stream.

The REIT targets well-funded medical cannabis companies in the $5.0 to $30.0 million range, signing them up to long-term leases of 10 to 20 years.

Innovative Industrial Properties, which entered 2020 with 47 properties in its portfolio, currently has 66 properties. (Source: “Innovative Industrial Properties Acquires Massachusetts and Washington Properties and Enters Into Long-Term Leases with 4Front,” Innovative Industrial Properties Inc, December 17, 2020.)

They’re located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, Nevada, New Jersey, New York, North Dakota, Ohio, Pennsylvania, Virginia, and Washington.

Some of Innovative Industrial Properties’ top tenants are Cresco Labs Inc (CNSX:CL, OTCMKTS:CRLBF), Trulieve Cannabis Corp (CNSX:TRUL, OTCMKTS:TCNNF), and Green Thumbs Industries Inc (CNSX:GTII, OTCMKTS:GTBIF).

Strong Q3 Results, with Revenue Advancing 197%

On November 4, 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, compared to third-quarter 2019 net income of $6.1 million, or $0.56 per share.

Adjusted funds from operations (a metric used in real estate) came in at $27.9 million, or $1.28 per share, versus third-quarter 2019 adjusted funds from operations of $9.5 million, or $0.86 per share.

Innovative Industrial Properties Inc ended the third quarter with $161.1 million in cash and cash equivalents, plus $451.2 million in short-term investments. The company has virtually no debt, other than $143.7 million in unsecured debt. This represents a fixed cash interest obligation of approximately $5.4 million annually, or approximately $1.3 million quarterly.

From July 1 until November 4, Innovative Industrial Properties acquired five properties, totaling approximately 448,000 rentable square feet, located in Florida, Michigan, and New Jersey.

Over the same time period, the REIT made available additional funding to tenants at seven existing properties for the continued buildout and expansion of facilities in Illinois, Michigan, Ohio, and Pennsylvania. These 12 transactions represented an aggregate investment by Innovative Industrial Properties of approximately $180.3 million.

Analyst Take

Innovative Industrial Properties Inc is one of the most reliable, consistently profitable pot stocks around. It has a strong balance sheet and an aggressive acquisition strategy. And it continues to report strong financial results.

In addition to providing strong capital appreciation, Innovative Industrial Properties has a history of raising its dividend. Look for the company to do the same in 2021.