Brit Ryle is a leading growth and income expert and editor of The Wealth Advisory; here he reviews two of his portfolio holdings that offer long-term investors exposure to the cannabis sector.
Innovative Industrial Properties (IIPR) is a REIT that’s focused on the acquisition, ownership, and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities.
Management reported earnings early in May and beat funds from operations (FFO) estimates while coming in just shy of revenue targets. The company had to give rent deferrals to three smaller clients (of its 27 total tenants) totaling $1.5 million.
FFO was up 124% over last year’s quarter, and revenues came in 210% higher. Innovative Industrial is still growing and the cannabis industry is actually thriving through Covid lockdowns. We expect to see dividends continue to flow and grow despite the poor economic outlook.
The biggest risk we see ahead is the SAFE Banking Act that would allow U.S. banks to lend to cannabis companies and therefore compete with IIPR. But that’s not a massive risk in that the banks that do currently lend to cannabis companies charge such high rates that IIPR’s deals still look appetizing to companies trying to raise cash and reduce debt.
Also, other REITs have banks lending to their customers and still succeed at delivering profits to shareholders. We think Innovative Industrial will be no different.
The Scotts Miracle-Gro Company (SMG) manufactures, markets, and sells consumer lawn and garden products worldwide. It recently acquired the top hydroponic nutrient supplier in the U.S. And it now supplies nutrients to a large share of the legal marijuana growers in the country.
The company has beat expectations in three of the past four quarters. It’s a super-solid investment, and one that we consider recession resistant.
Management announced earnings and revenues early in May and blew expectations out of the water with EPS a full $1 ahead. The company also opted to keep its dividend steady this quarter.
Hawthorne (the cannabis arm of the company) is still driving solid sales growth, giving revenues a cushion during traditional slow times for the lawn and garden market. We’re really pleased with Scotts, and we see it continuing to perform well for years to come.