The cannabis real estate investment trust business might be the most stable business in the cannabis industry
Nearly all cannabis stocks reported quarterly operating losses last week. However there was one stock, Innovative Industrial Properties, that managed to turn a profit based on its operating results. The real estate investment trust purchases medical cannabis growing facilities and rents them on long-term leases.
Some of the leading cannabis stocks have reportedly turned a profit, already this year, but not through operating results. Aurora Cannabis, for example, reported gains after selling assets. Other stocks report gains on fair-value adjustment based on their biological assets under a technicality.
Innovative Industrial Properties turned a profit the old fashioned way. The company operates in multiple states and has generated $3.93 million in the last quarter alone. It marks a 152 percent increase from the same quarter last year. The majority of the gains come from acquiring new properties and from tenant reimbursements.
The company is still getting started and to date has less than $4 million in sales. However, it is built on a solid business model that comes with the kind of predictability that appeals to Wall Street. Each of its long-term leases is for 15 years or more, with one out of ten exceeding 20 years. The result is cashflow predictability that is hard to find anywhere else in the cannabis industry.
Additionally, the leases all have a built-in aggregate rental increase of 3.25 percent per year, meaning growth is built into the business model even though the revenue is relatively fixed. The only downside is that the company could use common stock offerings to raise capital, diluting its existing share value.