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Don't Bet Against Innovative Industrial Properties

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  • Innovative Industrial continues to raise capital from the market, filing a prospectus for a $250 million mixed shelf offering.
  • The Cannabis REIT was down 2.41%, as of market open on September 4th.
  • Despite pursuing an aggressive expansion strategy that will increase debt on its balance sheet, it will not be prudent to dump this high-growth stock from your portfolio.
  • Fundamentals remain strong and the POT REIT keeps on beating analyst estimates.

Innovative Industrial Properties (IIPR) continues to outpace the competition and post robust dividend growth, making the stock a must-have for your portfolio. 

American hunger for marijuana is only growing with time, with the industry bringing in $52 billion in sales and posting a 76% increase in cannabis jobs this year. Spending on legal weed was reportedly between $8.6 and $10 billion last year, just a shade less than the $10.8 billion Americans forked over for Taco Bell. Spending on legal weed was reportedly between $8.6 and $10 billion on legal marijuana last year, marginally less than the $10.8 billion Americans forked over for Taco Bell.  

Cannabis-oriented Innovative Industrial is a small-cap company that provides cannabis producers with a place to grow their product. But the most interesting part is its expansion strategy, which focuses on acquiring marijuana farms and leasing them back to the producers. 

In the second quarter, Innovative Industrial logged sales of $8.6 billion, beating analysts’estimates of $8.3 billion, while also reporting FFO of approximately $4.7 million and AFFO of approximately $5.8 million, a176% increase from the second quarter in 2018. 

Zacks Rank for the stock is a hold, with three analysts reporting. With a PEG ratio of 3.11 and 74.30% growth expected in the coming year, the specialized REIT is well-placed for a bumper year.

The stock closed at $85.15, down 6.21%, but has a one-year target estimate of $164.00. Initially financing its growth through an equity-focused approach, IIPR recently started to incorporate debt into its balance sheet. With just $133.67 million of debt, the company can take on more of it before it becomes a liquidity issue. 

However, investors should be wary if the company continues to pursue its aggressive expansion strategy through debt. Piling on too much of it, in an environment that is screaming growth could be a recipe for disaster in the long run. 

IIPR's PE ratio of 76.44 underscores the explosive growth that the company has experienced over the last few years, in a sector where the sky is the limit.  Innovative Industrial Properties stock has increased by 124% YTD through August 29 and although its share price has fallen a bit, it is only a matter of time that it starts to make progress at a nice clip again. 

My price target for the stock is $102.18, a 20% upside to its current value.


Analyst's Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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