Innovative Industrial Properties Inc: One of the Only Weed Stocks Up in 2019, Still Bullish

Innovative Industrial Properties Inc Up 103% in 2019

It has been about one year since recreational cannabis became legal in Canada, and investors have been on a roller coaster ride since then. Out of all the pot stocks currently trading in the U.S. and Canada, only a handful are up this year. One of the most reliable, best-performing marijuana stocks is Innovative Industrial Properties Inc (NYSE:IIPR).

Innovative Industrial Properties stock has been one of the best weed stocks in 2019, advancing 177% in the first six months of the year. It has stumbled like the rest of the pot sector, but it’s still up 103% year-to-date. And since the start of 2018, the stock’s value has soared 180%.

While the legal cannabis industry continues to face headwinds, Innovative Industrial Properties remains one of the bright spots. And thanks to the company’s aggressive acquisition strategy, it should continue to be.

IIPR Stock Overview

Innovative Industrial Properties is a real estate investment trust (REIT) that buys properties from—and leases them back to—some of the biggest names in the U.S. medical marijuana industry. Providing capital to growing cannabis firms allows those companies to pour money back into their operations.

Meanwhile, this arrangement provides Innovative Industrial Properties with a steady revenue stream that significantly outpaces inflation.

IIPR searches for deals in the range of about $5.0 to $30.0 million. It then signs lease terms in the range of 10 to 20 years, with annual rents escalating between three percent and 4.5%. (Source: “Sale/Leaseback Opportunities,” Innovative Industrial Properties Inc, last accessed October 7, 2019.)

The company has 31 properties in 12 states, totaling roughly 2.2 million square feet of rentable space. As of September 25, there was a 100% occupancy rate. (Source: “Company Profile,” Innovative Industrial Properties Inc, last accessed October 7, 2019.)

In September, the company expanded a real estate partnership with PharmaCann on a property in Massachusetts, closed on a property portfolio in southern California, entered a long-term lease agreement with Vertical, and expanded a real estate partnership with Ascend Wellness Holdings, LLC on a property in Illinois.

There are a number of medical marijuana companies that are looking for injections of capital, suggesting that IIPR’s aggressive acquisition strategy will continue in 2020.

For income-starved investors, there’s nothing quite like a cannabis REIT, because it legally has to return 90% of its taxable income to investors in the form of dividends.

On September 13, IIPR declared a third-quarter dividend of $0.78 per share, equivalent to an annual dividend of $3.12 per share. This is the fifth time the company has hiked its dividend since going public in December 2016. (Source: “Innovative Industrial Properties Declares Third Quarter 2019 Dividends,” Innovative Industrial Properties Inc, June 14, 2019.)

The dividend of $0.78 represents a 30% increase from the $0.60 distributed in the second quarter of 2019. It also represents a 123% year-over-year increase from the $0.35 in the third quarter of 2018.

(Source: “Innovative Industrial Properties, Inc. (IIPR),” Yahoo! Finance, last accessed October 7, 2019.)

Strong Q2 Earnings & Revenue Growth

In August, Innovative Industrial Properties announced that its rental revenue for the second quarter ended June 30, 2019 increased 155% year-over-year to $8.3 million. (Source: “Innovative Industrial Properties Reports Second Quarter 2019 Results,” Innovative Industrial Properties Inc, August 7, 2019.)

The company reported a net income of $3.1 million ($0.30 per share), a 155% increase from the $1.2 million ($0.17 per share) recorded in the same period last year.

Adjusted funds from operations advanced 176% year-over-year to $5.8 million ($0.59 per share).

Subsequent to the end of the second quarter, IIPR completed a public offering of almost 1.5 million shares of common stock, resulting in gross proceeds of $188.4 million. The company will be using that cash to add to its ever-growing property portfolio.

Analyst Take

Innovative Industrial Properties stock has been one of the best cannabis stocks on Wall Street since the start of 2018. As the first and only REIT focused on the regulated U.S. medical marijuana industry, it has a first-mover advantage over other companies looking to get into the sector.

As mentioned earlier, Innovative Industrial Properties Inc has a real estate portfolio of 31 properties and a 100% occupancy rate. The company also has a huge cash position.

When recreational cannabis becomes legal in the U.S. at the federal level, IIPR will be well-positioned to capitalize on that growing segment.

Sure, the cannabis stock market has been taking a short-term beating, but thanks to Innovative Industrial Properties’ strong, consistent dividend, IIPR shareholders can wait it out while still making money.