The Four Horsemen of Cannabis, Canopy Growth, Tilray, Cronos, and Aurora Cannabis are down more than 75% in the last 12 months. And the last time all four companies reported, the results were dismal at best. What was once one of the hottest sectors a year ago, has now burned up in the smoke. Valuation just got way ahead of the reality.
One day and I do mean one day, the cannabis space will come back smoking hot. According to a report by Grand View Research, Inc., the global legal marijuana market is expected to reach USD 146.4 billion by end of 2025. One all though the four horsemen get all the shine, the love Innovative Industrial…because they pay a dividend…which has done nothing but increase over the last several years.
Innovative Industrial is a marijuana-based REIT that acquires cannabis-related properties. Innovative Industrial went public in 2016 on the New York Stock Exchange (NYSE). Innovative Industrial is the only public company in the space that is taking is on the other side of these real estate transactions.
NOTE: REITs, or real estate investment trusts, are companies that own or finance income-producing real estate in a range of property sectors ad most of them trade on major stock exchanges, REITs lease space and collect rent on its real estate and generates income which is then paid out to shareholders in the form of dividends. But get this…REITs must pay out at least 90 percent of their taxable income to shareholders.
This past week the company reported quarterly earnings. For the first-quarter net income of $11.5 million, or 72 cents a share, compared with net income of $3.3 million, or 33 cents a share a year ago. Revenue rose to $21.1 million from $6.8 million in the year-ago quarter. Despite the amazing numbers, the number missed Wall Street estimates.
The company had in-depth discussions with each of its tenants in March and April about how they're being financially affected by the COVID-19 pandemic. Here's what the company said in the earnings release about the topic:
In light of those discussions, IIP worked with three of its 21 tenants to provide temporary rent deferrals, structured to apply a portion of the security deposit IIP holds under each lease to pay April rent in full, defer rent for May and June in full, and provide for the pro rata repayment of the security deposit and deferred rent over an 18 month time period starting July 1.
Pursuant to these amendments, a total of $743,000 of security deposits that IIP holds in cash were applied to the payment of rent for April; and a total of approximately $1.5 million in rent was deferred for May and June. The total of this amount, $2.3 million, represents approximately 3% of IIP's total revenues as reported for the three months ended March 31, 2020, annualized.
But who care...the company now has 55 cannabis properties in 15 states. And as more states legalize cannabis, that will just be more opportunity for Innovative. However, short term, there will be some hiccups was tenants run into financial trouble and can't pay their rents.
If the Markets do take another leg down, Innovative would be a steal at $35.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
