Innovative Industrial Properties (IIPR) got hit with a short attack from a fund called Blue Orca Capital, notes Jason Williams, editor of The Wealth Advisory.
Blue Orca calls itself an activist investor. And while some short sellers play a crucial role in exposing fraud in the markets, I believe that it’s really just trying to make a quick buck by confusing markets.
In this case, Blue Orca challenged IIPR’s status as a REIT and said it’s more of a cannabis bank. I find that kind of hilarious because it’s the fact that IIPR is a REIT that makes it also a cannabis bank.
Cannabis companies can’t get loans from banks because their products are illegal at the federal level. They can sell debt to investors, but they have to pay a super-high interest rate, typically between 20% and 25%.
So IIPR steps in and offers to buy the company’s operations and lease them back at an effective rate of 10%–15%. The cannabis companies get an infusion of cash and pay less for it than if they were to sell debt on the open market. And IIPR gets a tenant that has a strong balance sheet (flush with new cash) to rent its new facility.
The short report shows a basic lack of understanding of commercial real estate in general. It also shows a complete lack of understanding of the cannabis industry and IIPR’s business model.
But this isn’t the first time this has happened. A few years back, a firm called Grizzly Research also tried to take down IIPR. It wrote a similar short report but focused on a IIPR’s biggest tenant at the time: Cresco Labs. The report alleged that Cresco was near bankruptcy and its failure would destroy IIPR.
Several years later and Cresco still operates as a going concern and pays IIPR every penny it’s due. This time is no different. A short seller with a lack of understanding of commercial real estate and cannabis real estate is hoping to capitalize on that same lack of understanding in others.
They’re focused on IIPR because it’s a non-traditional REIT with non-traditional investors. What I mean by that is that typical REIT investors understand corporate real estate and how REITs make money, expand their portfolios, and distribute profits.
IIPR sold off after the short report was released. Not because the report was accurate but because those investors lack the same understanding that the short fund lacks. Shares sold off after the last short attack too. And within two months, they’d rallied nearly 100% from the bottom and sat well above where they were when the report was released.
So I’m calling this a gift and adding shares in the model portfolio, and I recommend you do too. IIPR is a solid operation with a long future of growing distributions. This short report just gives us a chance to get shares at a discount to their intrinsic value. We’re buyers and suggest you be one too.
