Applying cannabis laws to different industries could have long-term implications for the industry. But, until legalization all across the US, it’s hard to tell which companies will be most affected by this new legislation.

The “is innovative industrial properties a good stock to buy” is a question that has been asked many times. The answer is no, cannabis legalization will not harm the stock.

Could Cannabis Legalization Harm Innovative Industrial Properties Stock?

Could-Cannabis-Legalization-Harm-Innovative-Industrial-Properties-Stock

 

Innovative Industrial Properties (NYSE: IIPR) is the first among equals when it comes to cannabis-related real estate investment trusts (REITs). IIP owns 76 marijuana-growing facilities, and I prefer to think of it as the industry’s landlord. It’s also one of my most certain investments.

The prospect of marijuana legalization has far-reaching implications for every player in the industry, including IIP. I’ve met with a handful of the stock’s detractors, and they all say the same thing: Things are wonderful now, but legalization will wipe it out, so don’t touch it. As a shareholder, I don’t believe this argument is valid, but let’s break it down into manageable chunks to examine it.

The bears may have a valid argument.

To understand how legalization could affect Innovative Industrial’s stock, it’s vital to first comprehend why the company has been so successful within the present legal framework. One of the continuing issues for cannabis businesses in the United States is raising capital to grow, since big financial institutions are wary of cooperating with the sector due to regulatory concerns.

As a result, IIP is a lifeline for such companies. If you’re unfamiliar with Innovative Industrial’s business strategy, it involves doing sale-leaseback agreements that provide liquid financing to cannabis entrepreneurs.

If the legislation changes in the future, cannabis firms will no longer need to seek cash via IIP sale-leaseback deals since they will be able to get funding from established institutions such as investment banks. Though the option will be available, it will most likely be simpler to take on debt, which does not require the loss of property ownership.

In principle, this implies IIP won’t be able to grow its assets as quickly as it has before. However, this does not imply calamity and is not a foregone conclusion.

Legalization might open the door to a slew of new clients.

When it comes to generating funds for a company, having many sources of funding is incredibly beneficial.

Many businesses, for example, may issue new stock and then take on debt to raise further funds. The ability to issue stock does not restrict them from taking on debt, and vice versa. However, if a company’s stock is already diluted or its shares aren’t priced attractively, that route may be closed. Similarly, a debt burden might ultimately become so huge that it scares away new creditors.

In a nutshell, even if marijuana is completely legalized, IIP is unlikely to be without fresh leaseback targets. There will still be a market for its services if it has to carve out a niche by dealing with indebted or excessively diluted cannabis cultivators.

Then there’s the possibility of the cannabis business booming throughout the country once the floodgates of legalization are eventually unleashed. It’s very likely that, in such a gold rush-like climate, more enterprises than ever would be screaming for capital from IIP to power their new activities. While some of these players will undoubtedly be recruited by banks, it’s difficult to see IIP being shut down with its investment cash still on the table.

In any case, its current tenants have a weighted average lease period of 16.7 years, so it should be able to maintain paying out dividends to shareholders for a long time if it takes some time to settle into a new business model following legalization.

The problem has been put on hold once again.

The notion of federal cannabis legalization isn’t yet on the national agenda, so investors should rest easy.

The SAFE Banking Act, on the other hand, was only on the table for a short time. If approved, the Act would protect banks who collaborate with marijuana firms from being prosecuted. Despite bipartisan support, attempts to attach the measure as a rider to other pieces of legislation, such as the recently enacted National Defense Authorization Act (NDAA), have failed.

For the time being, it seems that everything will remain the same. Even so, cautious investors may argue that IIP’s stock is one to avoid. Whether or whether legalization occurs in the next several years, the profits will continue to accrue for everyone else. The company’s position in the industry offers a lot of potential.

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The “iipr stock rating” is a company that specializes in industrial properties. They have been around for decades and are still going strong. The company’s most recent revenue was $2.4 billion dollars, so it is not likely that cannabis legalization will harm the company greatly.

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