Marijuana stocks vaulted into the limelight in 2018, and their performance in 2019 has generally been extremely strong. As more states have embraced cannabis by legalizing it for medical or recreational purposes, the opportunities for cannabis producers to capitalize on strong and rising demand have grown.
Given the incentive to invest available capital toward future growth, most marijuana stocks don’t pay a dividend. Innovative Industrial Properties (NYSE:IIPR) is different, though, in that its business model essentially requires that it pay a healthy dividend to cannabis investors. By investing in real estate that’s best suited for cannabis-growing operations and the related needs of producers, Innovative Industrial has been able to join the small number of profitable marijuana-industry companies. Recently, the marijuana-focused real estate investment trust gave its latest presentation in which it made its case for why it’s so optimistic about its future.
A strong executive team
Perhaps the most valuable asset that Innovative Industrial Properties has is its leadership team. Executive chair Alan Gold has extensive experience in the real estate industry, and as co-founder of the privately held BioMed Realty Trust, Gold worked to find suitable laboratory and office properties for life sciences companies. CEO Paul Smithers has 35 years of legal and regulatory experience, while CFO Catherine Hastings has an appropriate mix of accounting and real estate background.
Much of the rest of Innovative Industrial’s leadership team came from BioMed Realty as well, including its general counsel, controller, and director of investments and finance. That gives the team a unified vision and base of experience to share, and extending that knowledge into the cannabis space is a natural move given the current industry environment.
A solid strategy
Innovative Industrial has a sharp focus in its strategic vision. The REIT wants approved licensees for medical cannabis as its tenants and partners, and with 33 states and the District of Columbia having approved programs for medical cannabis, Innovative Industrial’s addressable market is large.
Acquiring promising industrial buildings takes effort, especially given that Innovative Industrial hopes to find facilities that have enclosed greenhouse space. Yet the REIT doesn’t expect to find properties that are move-in ready. Instead, it understands that acquisition investment will typically include things like upgrades to HVAC systems, electrical infrastructure, plumbing, lighting, and security systems. By choosing properties that can provide initial yields on invested capital in the mid-teens on a percentage basis and will see rent escalate gradually over time. With a current yield on invested capital of 14.7%, Innovative Industrial is squarely in line with that target, and it sees itself building a foundation for long-term prosperity…
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