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

Innovative Industrial Properties Inc 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, Innovative Industrial Properties stock has rallied 150.5% year-over-year, is up 150.9% year-to-date, and has soared 380% since bottoming in March. Since the November election, IIPR stock has gain a whopping 61.6%.

In addition to massive gains, IIPR also provides an annual dividend of 2.63%, or $4.96 per share. Innovative Industrial Partners has raised its annual dividend nine times since going public in December 2016.

Massive gains…but by all accounts, IIPR is just getting started.

The legalization of recreational cannabis is gaining traction on the state level. During the November election, Arizona, Montana, and New Jersey legalized recreational adult use. Mississippi voted to legalize medical marijuana. And South Dakota approved measures for both.

Today, 15 states have approved recreational cannabis use, 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 use is legalized on the federal level.

For multi-state operators to service their budding customer base, they’re going to need additional cash. Innovative Industrial Partners has already 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 Partners Inc is the first publicly traded company on the New York Stock Exchange to provide real estate capital to the medical-use cannabis industry.

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

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

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

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

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

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

Strong Q3 Results, with Revenue Advancing 197%

On November 4, Innovative Industrial Properties Inc announced that 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 exited the third quarter with $161.1 million in cash and cash equivalents and $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, Innovative Industrial Properties also 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 also has a history of raising its dividend. Look for Innovative Industrial Properties to do the same in 2021.