Last week, many municipalities and even some states (though not all) kept pot dispensaries on their list of essential businesses allowed to operate during the coronavirus outbreak. But even though weed is being sold, the broader cannabis sector will suffer from the wider economic fallout of the pandemic. And, given their loss-making tendencies and thin cash reserves, many such companies won't make it through this tough period.

Might Innovative Industrial Properties (IIPR -2.10%) be one of them? One highly critical investment firm going short on it might think so. And the jury's currently out on Trulieve Cannabis (TCNNF -5.06%), which posted some better-than-expected results in its Q4. Here's more.

Close up of 100 dollar bill with marijuana leaf atop it.

Image source: Getty Images.

Short seller slams Innovative

Last week's winner of "most brutal marijuana company takedown" undoubtedly goes to Grizzly Research, a somewhat low-profile investment firm specializing in short selling. Grizzly is currently ultra-bearish on Innovative, laying out its case in a blistering 36-page report about the conduct of Innovative Industrial Properties, the specialty-property real estate investment trust (REIT).

The headline of the report, "Is Innovative Industrial Properties, Inc. the WeWork of Cannabis? We think it's Worse!" refers to the troubled co-working company, and pretty much sets the tone and the approach for Grizzly's slam. The investment firm implies, at times strongly, that Innovative is guilty of a number of transgressions.

These include significant and willful overpayment for assets, suspicions that the REIT is "arranging sham transactions" to prop up a major tenant, and that it has built a "highly toxic" portfolio on a foundation of poor-quality properties.

Grizzly says that much of its research is based on in-person visits to Innovative properties, in addition to discussions with local officials and other people with knowledge of the company's real estate. Photos in the report seem to back up the firm's claims that it stopped by to take a few looks.

One big caveat to all this is that Grizzly has a short position in Innovative stock, so if the REIT's shares tank, it'll make some money.

The company's response to the report says that it "contains numerous false and misleading statements," about both the company and its CEO, Alan Gold. 

"The report is flawed and demonstrates a fundamental misunderstanding of IIP's business model," Innovative added. "As such, most of the report's content does not warrant a response."

Innovative has been a darling among marijuana investors even through the most discouraging periods for stocks in the sector. It typically posts a profit, and pays a growing dividend with a meaty yield. Considering that, Grizzly's report raises quite a few concerns, and cannabis investors should at least be aware of it.

Believe in Trulieve?

Last week, Trulieve posted the results from its final quarter of 2019, with key headline numbers beating analyst expectations.

For the quarter, Trulieve booked total revenue of $79.7 million, which was up by 13% over the previous quarter. The company's net income according to International Financial Reporting Standards (IFRS) was $45.5 million, down from $60.3 million in Q3.

On average, analysts had expected only $76.5 million on the top line, although since relatively few of them track the stock, their estimates can vary widely. Trulieve did not break down its quarterly net profit on a per-share basis. The most recent outstanding share count according to the company would produce a per-share net earnings figure of $0.39, well above prognosticator estimates of $0.14.

Trulieve attributed its growth to its expansion in the retail segment in Florida (its home state) and its "strong brand and customer loyalty."

Given the current conditions, Trulieve is maintaining its full-year 2020 guidance. It believes it will post $380 million to $400 million in revenue, and $140 million to $160 million in adjusted (non-IFRS) EBITDA. Those numbers for 2019 were nearly $253 million and almost $133 million, respectively.

Trulieve has also been a target of sharp criticism from Grizzly Research, which characterized the marijuana company as a "fraud." Late last year, the investment firm (which again had a short position in its target) wrote a report on Trulieve with a range of accusations and implications not unlike its analysis of Innovative.

In response, the marijuana company said the report "contains several false, slanderous and misleading statements." It subsequently filed a lawsuit against Grizzly for libel, which is pending.