With YTD gains of over 50%, Innovative Industrial Properties (NYSE: IIPR) should definitely be on the minds of every cannabis stock investor. But is it too late to invest in IIPR? IIPR is a Maryland corporation focused on the acquisition, management, and ownership of properties to be leased to regulated medical-use cannabis facilities. IIPR is what is known as a REIT, or a real estate investment trust.
At Cannin, we tend to favor cannabis ancillary stocks such as Innovative Industrial Properties (IIPR) and Hydrofarm Holdings (HYFM). These stocks tend to have stronger fundamentals than the MSOs and it shows. In fact, both IIPR and HYFM are up 10x since we first recommended them as strong buys over back in 2019. But is it too late to invest in IIPR?
What is IIPR?
IIPR is a Maryland REIT corporation (with HQ in San Diego) focused on the acquisition, ownership and management of industrial properties which it leases to licensed cannabis operators for their medical-use facilities. As a REIT, it must distribute at least 90% of its taxable income to its shareholders. It does this in the form of quarterly dividends.
IIPR purchases industrial real estate for medical cannabis operators and through a sale-leaseback offer, generates cash.
When we dive deep into the fundamentals IIPR, we see strong operations and financials with massive expansion opportunities. In fact, IIPR is growing fast. Currently at 55 properties in 19 states. In total, it now owns and leases 40 properties to medical cannabis operators totaling over 5 million sf and 100% is leased with an average 15-year lease. It has invested over $400 million in properties and committed an additional millions to develop them. Its average current yield on invested capital is 4.3% on the 40 properties. It is essentially a finance company, with only 13 employees, most of them senior and well paid. It does not handle the cannabis plant at all.
Additionally, we do like IIPR’s strong financials:
Revenue (ttm): $163 million
EBITDA: $13.95 million
Shares Outstanding (diluted): 23.93 mil
EPS (diluted): 4.03
Typical Deal Size for IIPR
-Deal size – $5 to $30+ million
-Lease term – 10 to 20 years
-Initial base rent – 10% to 16% on total investment
-Annual base rent escalations – 3% to 4.5%
-Security deposit and corporate guaranty based on credit underwriting
-Transaction timeline – closing 30 to 60 days from signed purchase
Featured Company: Cure Pharmaceutical Holding Corp
Taking all of this into account, IIPR seems like a promising cannabis stock but is it too late to invest in IIPR?
IIPR Technical Analysis
Bottom Line: Is it Too Late to Invest in IIPR?
IIPR has a very impressive business model. They are essentially landlords to medical cannabis companies. These cannabis companies need cash to grow, so they sell their real estate to IIPR and lease it back. This allows them to deploy the money previously sunk into real estate, into operations.
This business model works very well for IIPR. They can write lease terms that guarantee them adequate and rising profit each year. This is great for cash flow. Since they are a finance company, they need few employees, and they can pay them well.
Investors are enamored with IIPR, sending the stock price above $250. This high stock price allows them to raise a lot of cash selling few shares, which minimizes share dilution—unusually good for cannabis investors. Many cannabis firms are deeply diluting their stock with equity raises.
IIPR is growing fast. They have 55 properties in 19 states with many of them being the largest cannabis companies in the USA. Typical deals are from $5 to $30 million with lease terms of 10-20 years and annual base rent escalations of 10 to 16%.
Is IIPR a Strong Buy?
One of the many attractive points for this business, as mentioned, is that IIPR revenue has grown consistently and predictably. So investors have flocked to the stock. They have just increased dividends by 6% to $1.06 per share (2.36% dividend yield) and raised another $100 million to continue purchasing additional properties.
With all this in mind, we think IIPR is a good investment offering investors stable dividends and growth in the coming years. Even if cannabis prices tank and their clients hit hard times, IIPR can sell their real estate. This decreases their risk considerably.
Given the financial position of the company, we give the stock a Strong rating now. We think it provides great dividends to it’s shareholders and has a great chance to continue to grow.
There are plenty of other great hemp and cannabis stocks with high growth potential. Check out our Featured Companies Reports page to read about some of our favorites.
Is it Too Late to Invest in IIPR?
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