The legal American cannabis market grew 50% during the last couple of years and is seen more than doubling by 2025 to become a $46 billion market, reports Mike Cintolo, growth expert and editor of Cabot Top Ten Trader.
Cannabis is a capital-intensive business, however, requiring secure facilities that can efficiently grow the plant. Innovative Industrial Properties (IIPR) is a real estate investment trust that owns, manages and leases cannabis growing facilities across the country.
The company’s portfolio consists of 74 properties in 18 states where cannabis is legal. They’re 100% leased out on long-term contracts, mostly to the largest growers in the market, including Parallel, PharmaCann and Kings Garden.
Right now the company’s properties total 6.9 million square feet, with another 2.5 million under development. Typically, Innovative works with growers to build out capacity as needed, rather than build on spec.
Growth of cannabis access will drive the business: 18 of the 50 states have legal cannabis for adult use, while 38 allow it for medical use. That still leaves about 30% of the population with no legal access to the drug, and a larger percentage barred from recreational use.
There’s a chance Congress will legalize cannabis federally and even if that doesn’t happen, it appears likely they’ll ease insurance and banking restrictions on the industry, which should help get more capital flowing and spur more facility investments.
States continue to expand legal avenues for the plant — New York recently approved cannabis for recreational use, and Florida has legislation to do the same. Existing legal states are also increasing the number of grower licenses they permit, which opens up new sales in maxed-out markets for IIPR.
Technically, IIPR had a great run into the $220 area in February before entering a well-deserved correction — a dip that didn’t truly find support until May, when the stock tagged its 40-week line.
While the rally from there wasn’t powerful, it has been persistent — helped along by better action in REITs, IIPR rallied 11 weeks in a row to a recent peak of $252. Admittedly, the pullback in recent days has been a bit iffy, but it’s approaching its 50-day line — we’re OK starting a position here with a relatively tight stop.