Innovative Industrial Properties (IIPR -2.31%) published a defense of its business after a blisteringly critical report on the company was published on Thursday.

That 36-page report, written by an investment firm called Grizzly Research, rhetorically asks whether the marijuana real estate investment trust (REIT) is "the WeWork of Cannabis." It supports its answer ("[w]e think it's worse!") by making a host of accusations, including:

  • that, based on in-person visits to Innovative's properties, it operates "a highly toxic portfolio of low-quality assets."
  • it does not conduct proper due diligence on its business partners, or is defrauding investors.
  • numerous lessees are currently insolvent, or at an elevated risk of becoming so.
  • by Grizzly's estimates, roughly 38% to 49% of Innovative's rental income is "in direct jeopardy or already lost."
  • and it "suspect[s] [Innovative] of arranging sham transactions to keep its biggest tenant solvent in the short term."
Marijuana bud burning.

Image source: Getty Images.

"[Innovative] shares many similarities with WeWork which too recently fell off: A real estate company with a flawed business model led by a young charismatic leader," Grizzly wrote. "Both companies are heavily dependent on outside financing. [Innovative] Executive Chairman Alan Gold is now pursuing new ventures, similar to WeWork's [Adam] Neumann." The latter reference was to the controversial ex-CEO of the troubled co-working company.

In its rebuttal, the REIT wrote that: "[t]he report is flawed and demonstrates a fundamental misunderstanding of [Innovative's] business model. As such, most of the report's content does not warrant a response from [Innovative]."

The REIT added that it has "an absolute dedication to transparency to all of our partners, including our valued long-term investors."

In its report, Grizzly disclosed that it has a short position in Innovative stock.

Innovative's share price increased by 9.2% on Thursday, easily outpacing the gains of the broader stock market.