IIPR’s Q3 beats consensus & is well-positioned for the new growth markets
IIPR is a Hedgeye Cannabis Best Idea LONG.
IIPR beat consensus estimates on both the top-line and bottom-line and expanded in key growth markets in Q3. The company reported total revenues of $34.3 million versus FactSet Consensus $29.6 million, representing growth of 41% QoQ and 197% YoY. The company also beat on the bottom-line with a net income of $18.9 million versus FactSet $16.8 million, increasing 46% QoQ and 205% YoY. Adjusted funds from operations (AFFO) were $27.9 million, growing 33% QoQ and 192% YoY. IIPR paid a quarterly dividend of $1.17 per share on October 15, 2020, to common stockholders of record as of September 30, 2020, an increase of 10% QoQ and 50% YoY.
From July 1, 2020, through November 4, 2020, IIPR acquired five properties, totaling approximately 448,000 rentable square feet (including expected rentable square feet upon completion of properties under development), located in Florida, Michigan, New Jersey. In that same time period, the company also made available additional funding to tenants at seven existing properties for continued buildout and expansion of facilities in Illinois, Michigan, Ohio, and Pennsylvania. These twelve transactions represented an aggregate investment by IIPR of approximately $180.3 million (excl. transaction costs).
The market had perceived the largest risk for 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. We anticipate deregulation and traditional banking institutions' competition to be pushed out until 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.
With four more states joining the adult-use market and two legalizing medical marijuana, these new markets will necessitate investments that need funding. IIPR is uniquely positioned to provide the growth capital the industry sorely needs under federal prohibition. We expect the company to announce several sale-leasebacks transactions in the new states in the coming years.
In September, we presented our long thesis on IIPR. 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. We cover the stock's misunderstood risks and share our current views on the U.S. cannabis industry's investment themes.
CLICK HERE for the replay (includes video and materials link).
MA retailers surpass $1B in gross sales nearly two years after adult-use sales started (CURLF, GTBIF, TCNNF, AYRSF)
According to information reported in the state's mandatory seed-to-sale tracking system, adult-use marijuana retailers in Massachusetts have now tallied more than $1 billion in gross sales. At close of business on Friday, October 30, aggregate data recorded in Metrc by 80 Marijuana Retailers operating statewide reached $1,000,521,905, coming nearly two years after the first two adult-use stores on the East Coast opened their doors on November 20, 2018.
Over the first year of adult-use sales, from November 2018 to November 2019, 33 Marijuana Retailers generated $393.7 million in gross sales, before licensees ultimately tallied $444.9 million for the full calendar year of 2019. Since January 1, 2020, marijuana establishments have already surpassed those figures, generating $547 million in gross sales despite two months of closures as a result of the COVID-19 public health emergency in Massachusetts.
Ayr Strategies expands to Arizona with strategic acquisition (AYRSF)
AYRSF is a Hedgeye Cannabis Best Idea LONG.
Ayr Strategies, a leading vertically integrated cannabis multi-state operator, announced an agreement to acquire Oasis Cannabis in Arizona, including cultivation and processing facilities and three licensed dispensaries, thereby expanding the company’s activities to five key states. Including the pending transactions, Ayr will have operations in Massachusetts, Nevada, Pennsylvania, Ohio, and Arizona.
Oasis Cannabis AZ is a state-licensed medical marijuana dispensary chain focused on providing the highest quality cannabis products to Arizona patients. Oasis has one of Arizona’s largest selections of bulk flower in various strains, prices, and qualities. The company Our concentrates include distillate & live resin vape cartridges, wax, shatter, live resin, rosin, diamonds/sauce, CBD isolate, sublingual sprays, inhalers, and more. It also carries edibles from top Arizona chefs as well as topicals, tinctures & CBD pet products. Oasis employs approximately 110 employees, which will become part of the Ayr family.
Ayr has signed a binding term sheet for three licensed dispensaries in greater Phoenix, two in Chandler and one in Glendale, a 10,000 sq. ft. licensed cultivation and processing facility in Chandler, and an 80,000 sq. ft. licensed cultivation facility under development in Phoenix. The transaction terms include upfront consideration of $81 million, made up of $10 million in cash, $41 million in stock (approximately 2.75 million shares priced at 10-day VWAP before the announcement), and $30 million in seller notes. An additional 2 million shares may be payable upon the achievement of established cultivation targets through 2021 and 2022. This transaction allows AYRSF to enter the newly recreational AZ market with fast-growing, high margin operations at 3.7x 2021 estimated Adjusted EBITDA.
Following the closing of the announced acquisitions in Arizona, Pennsylvania, and Ohio, Ayr will address a population of approximately 43 million people across five states. In total, the company will operate or provide services to 11 dispensaries, with eight further dispensary licenses expected to become operational in 2021, and over 140,000 sq. ft. of active cultivation and processing space, with the ability to expand to approximately 600,000 ft2.
We raised Ayr Strategies to a Best Idea LONG in early October. There are several visible drivers of organic and acquisition-driven revenue growth over the next few years. The associated margins and cash flow should lead to years of compounding growth as it expands in new markets. Ayr Strategies is one of the most compelling organic and acquisitive growth strategies in our covered universe.
