Why Innovative Industrial Properties Stock Could Be On the Way Up

Innovative Industrial Properties Inc Rents Out Facilities to Pot Operators

The U.S. is the world’s largest and most attractive market for the producers and sellers of legal marijuana. While we continue to wait for the House-approved Marijuana Opportunity Reinvestment and Expungement Act (MORE Act) to be signed off in the Senate, about 20 U.S. states have pushed ahead with (or are in the process of) legalizing or decriminalizing recreational cannabis.

At stake are billions of dollars of tax revenues.

The passage of the MORE Act is important since it would decriminalize recreational marijuana at the federal level. It would also allow banks to deal with cannabis companies, which is currently prohibited and places pressure on pot companies to find alternative financing and banking solutions.

So, while we wait for the legal marijuana sector to expand in the U.S. (and it will), an intriguing way for investors to play the sector is via Innovative Industrial Properties Inc (NYSE:IIPR). It’s a real estate company that purchases and rents out facilities to regulated medical cannabis companies.

With IIPR stock, investors are playing the growth of the U.S. medical marijuana sector. And if the MORE Act becomes law, this would provide an opportunity for Innovative Industrial Properties Inc to also rent facilities to companies in the recreational cannabis segment.

Estimates for the legal U.S. pot market range, but the consensus estimate is for robust growth. Statista estimates that U.S. marijuana sales will jump above $17.0 billion in 2022. (Source: “Cannabis Market Size Estimates in Select U.S. States by 2022,” Statista, last accessed March 31, 2022.)

Think Long-Term With IIPR Stock

Shares of Innovative Industrial Properties Inc have been on an impressive run-up from $14.50 in December 2016 to a record $288.02 in November 2021. The compound annual growth rate (CAGR) during this period was roughly 80%, which is outstanding and far better than the S&P 500.

Innovative Industrial Properties stock hit a temporary snag during the March 2020 sell-off, declining to about $40.00 from about $125.00 in April 2019. IIPR stock easily recovered, moving above $200.00 per share to its high, prior to a subsequent retrenchment.

Chart courtesy of StockCharts.com

At this point, shares of Innovative Industrial Properties Inc are down by about 28% from their high and searching for support at the long-term trendline around $180.00.

What’s the Next Move for Innovative Industrial Properties Stock?

On Innovative Industrial Properties Inc’s one-year stock chart below, note the death cross pattern surfacing in February, when IIPR stock was trading around $220.00.

After declining to its long-term support at $180.00, Innovative Industrial Properties stock managed to hold despite a breakdown below $170.00 that was immediately followed by a bounce to above the 50-day moving average.

IIPR stock has rallied by about 21%, supported by rising relative strength and a moving average convergence/divergence (MACD) buy signal.

Chart courtesy of StockCharts.com

Next up for shares of Innovative Industrial Properties Inc is the 200-day moving average of $221.53. Above this is resistance at $230.00–$250.00, followed by $260.00.

The downside risk is $180.00 and $170.00. I would view a move lower as a strong opportunity for investors.

Analyst Take

Moving forward, I expect continued volatility in the marijuana sector, which could affect Innovative Industrial Properties Inc.

With Innovative Industrial Properties stock, I suggest looking at $170.00–$180.00 as a support level. A sustained break of the 200-day moving average would be bullish, signaling a move toward the $260.00 level.