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Will Innovative Industrial Properties Thrive or Dive After U.S. Legalization?

By Eric Volkman and Corinne Cardina - Feb 18, 2021 at 7:23PM

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The company is doing gangbusters lately, but its world will change drastically when and if cannabis legalization occurs.

Innovative Industrial Properties (IIPR -0.70%) is one of the rare, consistently profitable marijuana stocks on the market. But will it be an also-ran when cannabis is decriminalized or legalized in this country?

Veteran Motley Fool contributor Eric Volkman and healthcare and cannabis bureau chief Corinne Cardina discuss the likely post-legalization future for Innovative in this segment from Motley Fool Live recorded on Feb. 5, 2021.



Corinne Cardina: "Does legalization help or hurt IIPR?" That is the REIT stock, Innovative Industrial Properties. What do you think about that?

Eric Volkman: I think both decriminalization -- I'm struggling with English today -- and legalization help Innovative. Because the more open their markets are, the more opportunities they have to make deals, to buy out facilities and to lease them back, which is their bread and butter.

Sorry, to back up a second -- with a more open market, we have more opportunities for the marijuana companies themselves, and they're going to need to free up as much cash as possible. They will be in a position where they have essentially somebody in their back pocket like Innovative that's willing to buy their assets. So, OK, we can raise an instant -- put in any number there -- $20 million dollars by selling our three cultivation factories in this state to Innovative.

Let's take that $20 million and open five dispensaries someplace else. It's good. Innovative is one of the rare levers that a lot of marijuana companies can pull when they need good and quick financing. Innovative benefits from that, they know what they're doing, they know the value of the real estate that they're buying, that they're eventually leasing out to companies.

So yeah, I think it very much benefits there.

Cardina: Awesome. I think it's easy to simplify it and just say, "Oh, if cannabis companies can get access to banking services, IIPR's value proposition is obsolete." But that's really not the case here.

Volkman: No, it's another option like anything else. Let's not forget, yeah, it's great to get a bank loan, but bank loans are burdensome. You have to pay them back, there's interest, they have a long tail. Whereas in a well-structured sale-leaseback deal for a facility, it's one and done. You come to terms, you make the arrangement, you sign on the dotted line, you get the money.

The nice thing too is that if you're a marijuana company, it doesn't change your relationship with the facility really. You still occupy it, you still grow and process and ship weed out from there. The only difference is that you're not technically the owner. That's OK.

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