A Safe Way to Invest in Cannabis with Innovative Industrial Properties

The U.S. cannabis industry remains highly fragmented and risky, but there is one outlier that provides investors with a relatively safer way to gain exposure – Innovative Industrial Properties (IIPR). As a real estate investment trust (REIT), IIPR owns and leases industrial facilities to state-licensed cannabis operators across the country.

What makes IIPR stand out is its solid fundamentals and attractive dividend yield. The company recently raised its quarterly dividend to $1.82 per share, equating to an impressive 7% annual yield. Even better, this dividend is 121% covered by IIPR’s fiscal 2024 first quarter adjusted funds from operations (AFFO).

IIPR has one of the strongest balance sheets in the cannabis space, with only 11% debt to total gross assets and no variable-rate debt. Its next debt maturity isn’t until 2026. The company also has a long weighted average remaining lease term of approximately 14.8 years on its diversified portfolio of 108 properties leased to 30 tenants across 19 states.

While the path to potential cannabis rescheduling from Schedule I to Schedule III remains unclear, any progress would be a positive catalyst for the industry and IIPR’s tenants. Reclassification could open up banking services and allow standard tax deductions for cannabis companies.

With its defensive attributes, healthy dividend coverage, and low leverage, IIPR provides income-focused investors with a relatively de-risked way to invest in the high-growth U.S. cannabis market. The stock’s recent 45% rally reflects positive sentiment, but IIPR still looks attractive trading at just under 12x forward AFFO guidance.

This is not advice or a recommendation.