The market had perceived the largest risk for Innovative Industrial Properties (IIPR) to be the legalization of cannabis nationally or the passage of pro-industry banking legislation. With the Senate unlikely to be Democratic-controlled, the probability that either legislation would pass has fallen dramatically. Senator Cory Gardener (R-CO) was the most pro-cannabis senator in the Republican party, and his loss in the election drastically reduces bipartisan support for federal cannabis bills. As we laid out the bull and bear thesis previously in the following chart, the probability of the bear thesis has been pushed out until at least the next election. It is worth noting that IIPR has an unlevered balance sheet that it would likely have used to offset a near term impact from lower yields.
After last night 16 million Americans will join 93 million others who now live in states that allow adults to use marijuana legally after voters in New Jersey, Arizona, South Dakota, and Montana on Tuesday overwhelmingly approved ballot measures on weed. This means that 1 in 3 Americans now live in states where marijuana is legal for anyone at least 21 years old. While ballots are still being counted, four states have joined the ranks of legal-marijuana states in the U.S., and two have legalized medical marijuana. This opens up new markets that will create new investments that will need funding. IIPR stands is uniquely positioned to provide the growth capital the industry needs. We expect the company to announce several new sales leasebacks in the new states in the coming years.
IIPR is a Hedgeye Cannabis Best Idea Long. We recently presented our long thesis on IIPR, the main three points are summarized below. It stands in a unique position at the intersection of the cannabis industry and the REIT space in a rapidly changing legislative landscape, earning outsized returns in the current environment with few competitors.
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