Everyone and their cousin loves a cutting-edge, disruptive company. The marijuana industry has one in particular that any investor considering the sector needs to be aware of.
Longtime Motley Fool contributor Eric Volkman has the skinny in this video clip from a conversation with cannabis and healthcare bureau chief Corinne Cardina during Motley Fool Live. This segment was recorded on Dec. 22, 2020.
Corinne Cardina: One stock that really is in a position where it benefits from pot companies not being able to get traditional loans and capital from banks and financial services. Of course, that's Innovative Industrial Properties (NYSE:IIPR). It's a REIT stock. What do you think about the future for IIPR as we slowly, but --hopefully steadily -- move toward decriminalization?
Eric Volkman: I think they still have a good future, because marijuana even if it's decriminalized, even if it's legalized, even if [marijuana companies] have full access to banking services...
Any kind of business getting a loan from a bank is, well, [that] wouldn't be your first choice for a financing option because it's expensive. Now, like in Canada, for example, some companies are paying double-digit interest rates on bank loans like credit facilities that they get from banks and syndicate lenders. In the States you might have a similar situation just again because of the challenges of the industry generally.
The beautiful thing about what Innovative does is, they do sale-leasebacks in which the financing advantages you're talking about, they'll actually buy a facility like a grow room or a production facility, a factory, and then lease it back to the company that formerly held it.
For the companies, they instantly get this nice little bucket of cash. They don't have to deal with, they don't have to spend money and resources on managing the facility. It can be done relatively quickly, and you don't have to sit there and negotiate with bankers and argue over interest rates, returns, things like that. It's a fairly clean way to do it.
The downside, of course, is that you don't hold this asset anymore, but at the end of the day, especially when you're operating in a habitually money-losing industry, hard assets like that -- property, plant, and equipment -- can be more of a burden than anything else.
So I think Innovative will continue to do well, and also they're basically a first-mover. They're still the only publicly traded marijuana specialty REIT. They're going to be, if not a go-to financing solution for a lot of marijuana companies in this country, they're going to get serious consideration, they'll be a leading candidate for a financing option.