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Why This Marijuana Stock Fell "Only" 17% in March While the Group Got Killed

By Beth McKenna - Apr 3, 2020 at 11:37AM

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The coronavirus-driven market sell-off demolished many cannabis stocks, but REIT Innovative Industrial Properties held up fairly well.

What happened

Innovative Industrial Properties (IIPR 2.15%) stock declined 17.4% in March (16.4% if we include dividends), according to data from S&P Global Market Intelligence. The S&P 500 index had a negative 12.4% return last month.

Innovative Industrial Properties, or IIP, is a cannabis industry-focused real estate investment trust (REIT). It specializes in industrial properties used for growing and processing marijuana and hemp products. 

Close-up of a marijuana leaf with water drops on it.

Image source: Getty Images.

So what

We can attribute the stock's drop last month to the big market sell-off stemming from the spread of COVID-19. Investors are naturally concerned about the economic impact of the pandemic.

IIP stock held up much better than most of the cannabis stocks. Shares of Canopy Growth, the largest Canadian grower and the bellwether of the space, fell 23.2%, while shares of its fellow Canada-based growers Aurora Cannabis and Tilray plunged 32.4% and 52.3%, respectively. 

Marijuana stocks as a whole took a much bigger hit last month than the overall market, largely because the group is comprised mostly of unprofitable companies in a space that is having growing pains. During times of economic uncertainty, investors tend to flee from highly valued and riskier stocks. 

It's safe to conclude that IIP stock didn't suffer as much as most cannabis stocks because the company is not only profitable, but also pays a dividend, which is yielding 5.8% as of April 2.

IIP's financial performance has been strong. In the fourth quarter of 2019, revenue rocketed 269% year over year to $17.7 million, earnings per share surged 225% to $0.78, and adjusted funds from operations (FFO) -- a key metric for REITs that drives dividend payouts -- soared 211% to $1.18. 

One month is just one month. The chart below shows how shares of IIP and the top Canadian growers have fared in 2020 through April 2. While IIP's return is negative, it's outperforming the market by about 13 percentage points, and outperforming most other cannabis stocks by more than that. 

IIPR Total Return Price Chart

Data by YCharts.

And here's the three-year picture:

IIPR Total Return Price Chart

Data by YCharts.

Over the last three years, IIP stock has whipped the market and its peers. It's returned 347%, compared with the S&P 500's 13.5% return. Shares of Canopy and Cronos Group have also beaten the market. Aurora stock has not only underperformed, but it's also lost more than half its value.  

Now what

For the first quarter of 2020, Wall Street analysts are projecting that Innovative Industrial Properties' revenue and EPS will soar 237% and 127%, respectively, year over year.

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Innovative Industrial Properties. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Innovative Industrial Properties Stock Quote
Innovative Industrial Properties
IIPR
$98.44 (2.15%) $2.07

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