The dismissal performance of pot stocks in 2019 has been well documented. Slumping sales and soaring debt have nearly crippled the companies that rushed into the market and spent large amounts of capital in order to gain as large a market share as possible. This has left many firms cash-strapped, and with the future of the market still shrouded in uncertainty, some even risk going under.
The Green Organic Dutchman (TSX:TGOD) (OTCQX:TGODF) is the perfect example of an issue that's facing cannabis firms across the country. TGOD stock has crashed over 80% since March, and investors have recently become alarmed at the current cash position of a company that once conducted what was, at the time, the largest IPO in the industry. In an effort to raise cash, TGOD put its flagship, and still unfinished, Ancaster facility on the market for nearly $95 million CAD. The listing failed to attract any buyers.
Enter Innovative Industrial Properties Inc (NYSE:IIPR)
Innovative is a cannabis real estate investment trust (REIT) founded in 2016, which is the first of its kind to list on the New York Stock Exchange. The company's entire business model is incredibly simple and hugely effective. Essentially, it purchases property from cannabis firms and then leases them back out on long-term contracts, making it one big landlord for the cannabis industry.
IIPR stock is a hugely attractive opportunity for investors because it ticks all the boxes. It's profitable, pays a dividend, and the stock is up over 70% in 2019 alone. Even better for investors, it doesn't really have any competitors in what it does, meaning the company can go from strength to strength, basically unchallenged.
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Strong Results
IIPR stock soared this week off the back of really promising Q3 results. Shares were up over 13% on Thursday after the company posted revenue of $11.2 million USD and adjusted EPS of $0.55. Net revenue from rentals soared a huge 201% from the same period last year after the company inked deals with some of the biggest names in the industry. The key takeaway from the earnings report was simply Business is Booming.
The company's US holdings are pretty impressive, too, and could be further boosted following the passage of the SAFE Banking Act and possibly even further federal legislation on pot, depending on next year's presidential election. With pot still illegal federally in the US, many companies have struggled to find landlords willing to rent space and ended up owning property instead, which Cresco Labs' (CSE:CL) (OTCQX:CRLBF) President, Joe Caltabiano, says is not the most efficient use of capital. Cresco recently entered into a leaseback agreement with IIPR for two Illinois properties worth $32 million.
Innovative currently owns 41 properties across 13 states in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Nevada, Ohio, and Pennsylvania, totaling approximately 2.8 million rentable square feet, which were 100% leased with a weighted-average remaining lease term of approximately 15 years.
What Next?
Naturally, IIPR isn't completely safe from industry headwinds despite dramatically outperforming the market, but it does have the benefit of thriving where the rest of the market struggles. Despite gaining nearly 80% since the start of the year, IIPR stock has fallen about 40% from its July peak of $136.49. This is reflective of broader concerns in the industry, as well as a summer stock dilution. But, with leases in place for the next 15 years, it's hard to see Innovative struggling at any point barring a massive property crash.
However, for pot stock investors, profitability is key, something that has proven elusive for almost all cannabis firms. Innovative is making money now, something that's incredibly hard to ignore. IIPR stock is trading at just under $80 this week, and with the sale-leaseback model becoming increasingly popular among cash-strapped pot producers, the company could be set for further gains in the very near future as those firms look to raise capital to take advantage of the legalization 2.0 market.
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