Cannabis REITs: Smoked Out

Summary

• Cannabis REITs have been slammed this year amid concern over defaults from their cannabis cultivator tenants, which have been smoked by plunging wholesale cannabis prices and setbacks on federal legalization.
• The exclusion of the SAFE Banking Act from the omnibus federal spending package dimmed the once-high hopes that major federal marijuana legislation would be passed during the Biden Presidency.
• Production efficiencies fueled by industry consolidation and the "institutionalization" of cannabis supply chains have pushed wholesale prices down 60% since 2020, which has begun to "weed out" some smaller operators.
• For Cannabis REITs - which have concentrated leasing and lending efforts on larger multi-state operators ("MSOs") and publicly-traded firms in recent years - tenant default issues have remained limited to a handful of smaller single-state operators.
• While still inherently speculative, valuations of Innovative Industrial appear particularly compelling as Cannabis REITs have carved out a legitimate competitive niche as primary capital providers to a maturing industry on an undeniable secular growth trajectory.
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Sunan Wongsa-nga

Analyst’s Disclosure:I/we have a beneficial long position in the shares of RIET, HOMZ, IIPR, AFCG either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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