The REIT Way to Play Cannabis

07/22/2020 5:00 am EST


Tom Hutchinson

Editor, Cabot Dividend Investor

Innovative Industrial Properties (IIPR) is a REIT specializing in the acquisition and ownership of properties that grow legal marijuana for medical use in the United States; it currently operates 58 properties in 15 states under long term leases, notes Tom Hutchinson, editor of Cabot Dividend Investor.

The growth in marijuana is undeniable. Global marijuana use has grown by 60% over the last decade and more than tenfold in the U.S. in the last 25 years.

In fact, the U.S. is the marijuana capital of the world and currently accounts for anywhere from one-third to one-half of global consumption, depending on estimates.

But the industry has been born from a new trend toward legalization. It became legal throughout Canada in 2018. And the drug is now legal for medical use in 33 U.S. states and recreational use in 11 states.

There is speculation about legalization nationwide at some point. Regardless of whether that happens or not, the trend toward more legalization is clear and undeniable.

Indeed, increased legalization just got a whole lot more likely as states struggle with massive budget shortfalls resulting from the pandemic. They’ll be desperate for another source of tax revenue.

The thing that truly separates Innovative from the other marijuana companies is that it is making money now and growing like crazy.

Over the last three years, the company’s revenues grew 1,240% and earnings shot up 2,000%. Over the same period, the dividend, currently a hefty 5%, grew at an average annual rate of 93.75%.

But you haven’t missed the boat. There is more torrid growth ahead. It still only has 58 properties while many REITs have hundreds or thousands. In the last quarter, the REIT revenue more than tripled from last year and earnings grew 249%.

For that level of growth the stock is still reasonably priced at more than 40% below last year’s high and paying a stellar and growing 4.75% yield.

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