Marijuana REIT Innovative Industrial Properties Grows With LivWell Deal

This REIT is getting a lot of buzz, but what’s powering it isn’t just pipe dreams

Innovative Industrial Properties (NYSE:IIPR) is one of the more interesting real estate investment trusts out there.

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It buys, owns and leases properties to licensed operators of medical-use marijuana facilities, or grow houses. These are big warehouses that are often unloaded as triple net lease properties. That means the companies renting them pay for upkeep, taxes and insurance.

Triple net leases are a great business for REITs since they simply buy the properties, whip them into shape and lease them out. The rest is up to the lessees. That keeps overhead and accounting issues to a bare minimum.

If you follow the cannabis sector, then you have likely heard that IIPR just bought a 156,000 square foot property in Warren, Michigan for $19 million — and the deal will add up to $23 million in improvements.

IIPR also announced that it already has a tenant on a triple net lease ready to move in — LivWell Holdings subsidiary, LivWell Michigan. LivWell is a Colorado-based marijuana grower and distributor that is one of the largest in the nation. And it’s now going to be growing in Michigan.

IIPR Stock Sees Big Growth on the Horizon

There’s no doubt that cannabis stocks have been overhyped the past few years. Major companies, including tobacco companies and alcoholic beverage makers, have invested in a number of facets of the marijuana business.

This brought a wave of credibility to the sector. But, it’s still very much the Wild West, especially when it comes to the U.S. industry. This is because federal law prohibits the sale of cannabis, yet more and more states are legalizing it for medicinal and recreational uses.

At this point, most federally chartered banks can’t even touch cannabis money. That makes it tough to do deals in the industry.

Many investors are looking at cannabis growers as the way to cash in, and they’re investing in Canadian companies since cannabis is legal throughout the country. That’s like looking for gold during the gold rush.

The real money is made selling picks and shovels to prospectors. Once you’ve found that hidden piece of the puzzle, you can achieve market-beating returns.

In this case, that’s what IIPR does — leasing space for growers.

Unlike more high-tech facilities, like buildings for server farms, grow houses are easy to build. Plus, it’s easy to find properties that meet the needs of cannabis growers.

And for IIPR, the triple net lease business is a great way to participate. Also, since it only works with state-licensed operators, it doesn’t have any legal exposure in case there are any federal issues.

Bottom Line on IIPR Stock

Currently IIPR has 32 properties in 12 states, so it has a similar footprint with legalized marijuana — marijuana is only fully legal in 11 states and Washington, DC at this point.

Another thing about being structured as a REIT is that stockholders get a cut of net income in the form of a dividend. Right now, that dividend is a healthy 4.3%. And that’s after the stock has risen 80% in the past year.

Yet the trailing price-earnings ratio — while high at 66 — is still below its growth rate. My Portfolio Grader gives IIPR a Quantitative Grade of “A,” meaning there is immense buying pressure in IIPR stock.

But just remember, this is a young, volatile industry. Safety seekers beware.

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