Editor's Note: Below is a quick flashback on our long Innovative Industrial Properties (IIPR) research calls from our Cannabis analysts Howard Penney and Daniel Biolsi. The stock was first added to the long bench on 5/29 when it was trading at $81.72. After reporting earnings it is currently trading around $154.
Consumables Note (09/10):
IIPR, the only U.S. listed cannabis REIT, focuses on the acquisition, ownership, and management of specific industrial properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities.
We are bullish on the U.S. cannabis industry, and IIPR is well-positioned to ride the industry’s overall momentum through a growing pipeline of deals. The company currently owns 62 properties, at approximately 4.7M rentable square feet, and upwards to $1.1B in invested capital.
Since the year-end FY18, the dividend has been raised four times and has increased by 300.2%. While it seems the dividend growth has been incredible, the payout ratio has been maintained below 90% over the past four years. The stock is trading at a forward P/AFFO of 23.7, and as a result, its current dividend yield is 3.7%, and that is assuming management doesn't increase the next dividend.
IIPR has high-quality tenants, a conservative balance sheet, and a stellar management team that can execute.
IIPR was first added to the Hedgeye Cannabis Long Bias Bench on 5/29.
Consumables nOTE (10/05):
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.
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.