Innovative Industrial Properties (IIPR) occupies a niche in the cannabis industry, by performing sale-and-leasebacks as a means of providing finances to cannabis companies. Evidently, it's working for them.
Over the past year, shares of the medical cannabis real estate investment trust (REIT) Innovative Industrial Properties (NYSE:IIPR) have skyrocketed over tenfold its value since December 2016, climbing from USD $18.45 a share to now $194 per share.
IIPR is the only publicly traded marijuana specialty REIT, allowing them to occupy a unique position in the industry.
As marijuana is still illegal at the federal level in the U.S., getting a loan from financial institutions can be an arduous process, if the loan is approved at all. However, Innovative Industrial Properties helps companies get around this financing issue, as they will typically buy a marijuana operator's production facility and lease it back to them, freeing up millions of dollars that the operator can tap for expansion.
For any kind of business, getting a loan from a bank wouldn't be your first choice for a financing option because it's expensive. Now, like in Canada, for example, some companies are paying double-digit interest rates on bank loans like credit facilities that they get from banks and syndicate lenders. In the States, you might have a similar situation just again because of the challenges of the industry generally. Eric Volkman, Investment Banker and Writer for the Motley Fool Live recorded on Dec. 22, 2020.
"The beautiful thing about what Innovative does is, they do sale-leasebacks in which the financing advantages […] are actually buying a facility like a grow room or a production facility, a factory, and then lease it back to the company that formerly held it," continued Eric Volkman.
Innovative Industrial Properties currently has 66 facilities across 16 states, with a total investment of $1.3 billion.
"For the companies, they instantly get this nice little bucket of cash. They don't have to deal with, they don't have to spend money and resources on managing the facility. It can be done relatively quickly, and you don't have to sit there and negotiate with bankers and argue over interest rates, returns, things like that. It's a fairly clean way to do it," added Volkman.
Interestingly, while Innovative Industrial Properties (IIPR) is an ancillary cannabis company, meaning that it isn't 'plant-touching,' the company could actually lose it's unique advantage if cannabis is made federally legal in the U.S.
IIPR has been benefiting from the half-way legal status of cannabis – legal at the state level while illegal at the Federal level – relaxation of Federal prohibition of cannabis would eliminate this advantage and invite more competition from banks. So, Ironically, the prospect of pro-cannabis regulation could actually hurt Innovative Industrial Properties' prospects in some ways.
All in all, IIPR has been a safe choice for cannabis investors, and will likely continue to be until banks become more accepting of financing cannabis operations.
Disclaimer: Past performance is not an indicator of future performance.
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