Innovative Industrial Properties Inc: Top Pot Stock Keeps Climbing

This Marijuana Stock Is Very Special

Massive rallies are often followed by sharp pullbacks. And that’s something many pot stock investors learned the hard way. Earlier this year, the pot sector enjoyed an incredible bull run—partially fueled by the meme stock frenzy and enthusiasm from “Redditors.”

To give you an idea, Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ, OTCMKTS:HMLSF)—an exchange-traded fund (ETF) that tracks the performance of the North American Marijuana Index—more than doubled in price from the beginning of this year to February 10. And that was the performance of the entire sector; some individual names went up even more.

Then, sentiment changed and many pot stocks came back to Earth. The pot sector ETF is now back to around where it was at the beginning of this year.

The neat thing is, there’s one pot stock whose momentum was so strong that it continued to surge even as many other players gave up half of their gains: Innovative Industrial Properties Inc (NYSE:IIPR).

Longtime readers of Profit Confidential should be quite familiar with this company. I first wrote about IIPR stock in December 2019, arguing that it could be “the Best Pot Stock for Risk-Averse Investors.” Back then, Innovative Industrial Properties stock was trading in the $70.00 range. Now, it’s $243.80 apiece.

As mentioned earlier, IIPR stock stands out because of the continuation of its upward momentum. Take a look at the chart below. Innovative Industrial Properties stock did cool off after the meme stock frenzy ended in February, but after some consolidation, it was able to hop on another solid uptrend.

Innovative Industrial Properties Inc (NYSE:IIPR) Stock Chart

Chart courtesy of StockCharts.com

There’s a reason IIPR stock was able to perform so differently—in a good way—than other pot stocks. It has a different business model than other pot companies.

You see, Innovative Industrial Properties Inc doesn’t grow any pot. It doesn’t have any processing or manufacturing operations. It has no retail business, either.

Instead, the company focuses on the acquisition, ownership, and management of specialized industrial properties leased to experienced, state-licensed, regulated medical cannabis operators.

According to the company’s latest investor presentation, Innovative Industrial Properties’ portfolio consisted of 73 properties totaling 6.8 million rentable square feet. Those properties are diversified across 18 states. (Source: “Investor Presentation,” Innovative Industrial Properties Inc, August 18, 2021.)

Simply put, the company is the landlord of cannabis operators.

Innovative Industrial Properties has some of the biggest cannabis companies as its tenants, including Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF), Trulieve Cannabis Corp (CNSX:TRUL, OCTMKTS:TCNNF), and Green Thumb Industries Inc (CNSX:GTII, OCTMKTS:GTBIF).

And like most publicly traded landlords, Innovative Industrial Properties is structured as a real estate investment trust (REIT), which means it’s also an income instrument. The company has a quarterly dividend rate of $1.40 per share, which translates to an annual yield of around 2.3%.

Innovative Industrial Properties stock was paying quarterly dividends of $0.15 per share four years ago, which means, during this period, its payout has grown by a whopping 833%. (Source: “Dividend History,” Innovative Industrial Properties Inc, last accessed September 14, 2021.)

Now, the fact that IIPR stock gave shareholders cash returns through increasing dividends could be one of the reasons it maintained strong investor appeal even during the pot sector’s pullback. But there’s another reason investors like Innovative Industrial Properties stock: the sheer growth in the company’s business.

Consider this: in 2020, Innovative Industrial Properties generated $116.9 million of total revenue, representing a 162% increase from 2019. Its adjusted funds from operations, a critical performance metric for REITs, was $5.00 per share, up by 53% from the prior year. (Source: “Innovative Industrial Properties Reports Fourth Quarter and Full-Year 2020 Results,” Innovative Industrial Properties Inc, February 24, 2021.)

During the year, the company closed more than $620.0 million in new acquisition deals and additional investments at existing properties.

Given how badly the economy was impacted by the COVID-19 pandemic last year, Innovative Industrial Properties’ performance in 2020 was extremely impressive.

And that growth momentum has continued in 2021.

According to its latest earnings report, the company generated $48.9 million in total revenue in the second quarter of 2021, which more than doubled the $24.3 million in the year-ago period. (Source: “Innovative Industrial Properties Reports Second Quarter 2021 Results,” Innovative Industrial Properties Inc, August 4, 2021.)

Meanwhile, its adjusted funds from operations came in at $1.64 per share, up by 38% year-over-year.

As of August 4, the company’s portfolio was 100% leased, with a weighted average remaining lease term of approximately 16.7 years.

Analyst Take

Compared to cannabis producers, Innovative Industrial Properties Inc’s business model may not seem that exciting. But it is more predictable. By leasing properties to established cannabis operators under long-term lease agreements, the company can earn a reliable stream of rental income.

Besides, Innovative Industrial Properties’ financials have been growing at an impressive pace—even by cannabis industry standards. In today’s volatile market, IIPR stock represents a unique opportunity for pot investors.