Innovative Industrial Properties Inc: This Pot Stock Is a Screaming Bargain

Innovative Industrial Properties Inc Still a Top Pot Stock

Cannabis stocks, like many other stocks, have cratered on coronavirus fears. The Dow Jones Industrial Average, S&P 500, and Nasdaq are all in bear-market territory. The ETFMG Alternative Harvest ETF (NYSEARCA:MJ), meanwhile, is down about 70% year-over-year and down about 43% year-to-date.

Despite the sell-off, analysts predict that the stock market will rebound in the second half of 2020. This bodes well for the shares of  exceptionally well-run cannabis companies such as Innovative Industrial Properties Inc (NYSE:IIPR).

Thanks to strong financial results and business strategies, IIPR stock continues to be one of the best cannabis plays out there. Because of the recent sell-off, it’s in an even better trading range.

Chart courtesy of StockCharts.com

Like the broader market, Innovative Industrial Properties stock has taken a beating since the start of March, essentially erasing all of its gains since November 2019.

Unlike with many pot stocks, the sell-off bodes well for IIPR stock long-term. That’s because the company has a strong cash position, an aggressive acquisition strategy, and great long-term growth potential.

In 2019, shares of Innovative Industrial Properties Inc advanced 74%. In 2020, they went up an additional 39% before coronavirus fears swept through Wall Street and every other major financial center around the world.

In fact, just before the sell-off, Innovative Industrial Properties stock was about to flash a major bullish indicator, a golden cross, wherein the 50-day moving average crosses over the 200-day moving average. A golden cross usually predicts a share price moving higher.

In this case, we’ll never know because the momentum was interrupted. What we do know though, is that IIPR stock was an excellent pot stock before the market crashed. And it remains an excellent pot stock.

Innovative Industrial Properties stock is currently trading near a tested support level at $65.00. Because the markets are so jittery, it could still give up additional ground, with the next support level at $60.00.

IIPR stock needs to climb 66% just to get to its pre-coronavirus sell-off level, and it needs to rise 99% to return to its all-time high from July 2019.

Eventually the coronavirus will run its course and Russia and Saudi Arabia will become friends again, ending their oil-price war. Until then, the markets are going to experience more short-term volatility.

And as we have seen throughout history, the markets will rebound, providing long-term gains.

IIPR Stock Overview

Innovative Industrial Properties Inc is the first publicly traded company on the New York Stock Exchange to provide real estate capital to the medical marijuana industry. The San Diego, California-based company purchases land from experienced, licensed medical cannabis operators and leases the land back to them. (Source: “Our Business,” Innovative Industrial Partners Inc, last accessed March 13, 2020.)

Why go to a real estate investment trust (REIT) like IIPR for cash? Marijuana, even medical marijuana, is still illegal in the U.S. at the federal level. As a result, it’s pretty tough for many pot companies to access traditional financing.

Selling their properties provides marijuana growers with much-needed capital to develop their operations. IIPR, in turn, increases its annual rent by three percent to 4.5%, providing it with an inflation-beating revenue stream. (Source: “Sale/Leaseback Opportunities,” Innovative Industrial Properties Inc, last accessed March 13, 2020.)

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

As of March 11, IIPR owned 53 properties with an occupancy rate of 99.1%. Combined, these properties covered approximately 3.8 million rentable square feet. (Source: “Innovative Industrial Properties Acquires Florida Property and Enters Into Long-Term Lease with Parallel, a U.S. Cannabis Company,” Innovative Industrial Partners, Inc, March 11, 2020.)

Innovative Industrial Properties has been on an acquisition tear. In the fourth quarter of 2019 alone, it announced seven acquisitions and long-term leases. The first quarter of 2020 isn’t over yet, but the company has already announced five strategic acquisitions and long-term leases.

Its most recent acquisition announcement came on March 11. Normally this kind of news would help drive a company’s share price higher. Not in this current market environment though.

Dividend Growth

There’s another reason to like Innovative Industrial Properties Inc. Because it’s a REIT, it has to legally distribute at least 90% of its taxable income to investors in the form of a dividend.

In December 2019, the company announced a fourth-quarter dividend of $1.00 per share, a 28% increase from the third-quarter 2019 dividend and a 186% increase from the fourth-quarter 2018 dividend. (Source: “Innovative Industrial Properties Declares Fourth Quarter 2019 Dividends,” Innovative Industrial Properties Inc, December 10, 2019.)

This is the sixth time IIPR has increased its dividend since completing its initial public offering in December 2016.

(Source: “Innovative Industrial Properties, Inc. (IIPR),” Yahoo! Finance, last accessed March 13, 2020.)

Another Strong Quarter

On February 26, Innovative Industrial Properties announced that its revenue for the fourth quarter ended December 31, 2019 increased 269% year-over-year to $17.7 million. (Source: “Innovative Industrial Properties Reports Fourth Quarter and Full-Year 2019 Results,” Innovative Industrial Properties Inc, February 26, 2020.)

The company reported net income of about $9.6 million ($0.78 per diluted share), an increase of about 317% from the same period in the previous year.

Adjusted funds from operations (AFFO) were $14.3 million ($1.18 per diluted share), a 293% increase from the fourth quarter of 2018.

Innovative Industrial Properties Inc ended the 2019 fourth quarter with cash and cash equivalents of $82.2 million.

Back in September, IIPR entered into an equity distribution agreement whereby the company can sell up to $250.0 million in common stock. So far, it has generated net proceeds of $184.8 million.

In January 2020, IIPR completed a public offering of 3.4 million shares of common stock, which resulted in gross proceeds of $250.0 million.

Analyst Take

The stock market has been taking a beating, so it’s important to look beyond the short-term noise and look under Innovative Industrial Properties Inc’s hood.

As the only REIT on the NYSE operating in the legal U.S. cannabis industry, IIPR has a massive head start on any other company looking to get in on the action. It has a rock-solid balance sheet and its aggressive acquisition strategy has been helping fuel strong financial results.

All of which should help drive IIPR stock higher once the market returns to normal.