Innovative Industrial Properties got stoned by investors during its December 1, 2016 debut on the NYSE, with shares barely stoking the flames of its opening price at $20.00 a share. While the stock zig zagged around for a few hours, IIPR eventually closed down on the day by over 4%, closing at $19.50 a share.
For those investors that were getting high on the prospects of IIPR, their hopes were further burned on Monday, as IIPR gave up an additional 16% of its value, closing at $15.40 a share. Since its debut, IIPR is down by 29.87%, making investors red-eyed and hungry for gains.
What Went Wrong For IIPR
There is probably not a single event that caused IIPR to stumble lower, its decline is more likely associated with investor fatigue. For over five years now, investors have been investing in a host of IPO’s and reverse mergers, most displaying clever trading symbols with absolutely no substance behind the company.
It was almost a sure thing from 2010-2014, with most any company that had the word marijuana in its name seeing its shares skyrocket and stocks like PHOT and MJNA running up valuations in excess of $100 million dollars. And, while the smart retail investors rolled out of positions and the late to the party newbies packed in, hopefully someone left a note to tell the current shareholders that the bag they are now holding won’t make them feel any better about their losses.
IIPR, though, came to the market with an entirely new strategy on how to profit from the worldwide movement to relax laws that restrict both the cultivation and recreational use of the drug.
IIPR is a real estate investment trust that is planning to take advantage of undervalued and distressed properties, mainly large buildings, and lease them to growers of medical marijuana. Quit laughing, I’m being serious, here. Furthermore, give IIPR some credit; these neglected buildings would soon be covered with foliage anyway, so why not make it happen with a plant that has a prolific following.
While I am not laughing, perhaps I am missing the strategic opportunity that IIPR is intent on exploiting. I mean, I get the fact that if you put a whole bunch of organic plant-loving, community-oriented growers into the same highrise building, and then fill the halls full of hydroponic lights, only harmony and good tidings will come of the venture, right? Well, that’s a definite maybe. But, something tells me when there are drugs and money involved, things can turn ugly – even mean. So, supporting a building full of growers, especially in a competitive setting, may ultimately lead to some dysfunctional tenant relationships.
IIPR On The NYSE
Surprisingly, the NYSE took IIPR as a listing, maybe providing a good enough reason for investors to get high on the potential of IIPR. The NYSE does offer some credibility, right?
But even so, I am still wrapping my head around this fire marshal’s nightmare, the soon to be overworked firefighter who is probably ordering a plethora of red tags to hang on each of the extension cords that will be required to keep the lights shining on those budding delights.
Can you even imagine the meters on the outside of each unit spinning, similar to the Griswald’s home decorations for the Christmas season. When the black helicopters fly overhead of these grow-rises, these structures are going to glow like the Northern Lights on steroids.
IIPR did make it to the big board though, delaying the offering until the market could finally determine a fair price and line up demand for the shares. Eventually, IIPR was successful at getting listed for $20.00 bucks per share. Now, they need to grow some shareholder value and spark up the peace pipe to allow investors to chill out for a moment and let the share settle on a price. IIPR needs some relaxed consolidation.
If there is one thing that is a real buzz kill when trading marijuana stocks, its when unrelenting sellers come in to beat the stock down, inevitably harshing the mellow.
From its public debut, IIPR raised approximately $67 million dollars in cash, intent on using these proceeds to purchase properties across a host of states that provide legal cover to grow medical-grade marijuana. IIPR has already stated publicly that they are in late stage discussions (they called it an agreement) to purchase a 127,000 square foot property, inclusive of surrounding acreage, in Montgomery, New York. The purchase price for this fertile piece of property – $30 million dollars. Maybe they can name it Maggie’s Farm for nostalgia’s sake.
The acquisition is a strange deal, but from a business standpoint, it makes sense. IIPR bought the land from a company called PharmaCann, who has a license to grow and dispense medical marijuana in the state of New York. Because PharmaCann already has the license in place, IIPR will now turn around and immediately lease the land back to PharmaCann so they can cultivate the land and start turning buds into dollars. In that sense, IIPR will soon be generating revenue, a relative first for most in the industry.
Green Plants Equal Green Dollars For IIPR?
It’s a tough call trying to speculate on whether this business model can work. After the initial land purchase, IIPR will have a little over $35 million dollars remaining to purchase additional properties where its legal to grow and dispense medical marijuana. IIPR can immediately look to Colorado, California, and Oregon as potential states to advance the business model. Additional states are moving in the direction toward legalization, however, it will take a few more election cycles before a significant number of additional opportunities become available.
The sticking point in all of this speculation, though, is that the cultivation and use of marijuana is still against Federal law. This means that although the state’s continue to pass legalization variances, the underlying threat to the whole industry is that those pesky Fed’s could theoretically put the kibosh on the whole industry. And, if the fed’s ultimately tell the industry to “put that stuff in their pipe and smoke it,” the losses in taxes, medical aid, recreational freedom, and sense of state sovereignty would be devastating.
Rejoice, it won’t happen! The Fed’s need to focus on larger initiatives, like saving the country. With a new guard taking the reins, perhaps the Federal Government can begin to embrace the benefits of marijuana and recognize the measurable efficacy in the treatment of illness and disease.
To maintain the peace, the Fed’s should also allow banking institutions to accept the proceeds of daily sales from licensed and regulated dispensaries. Stop the madness of forcing small business owners to hoard buckets of cash on a daily basis, sending mules out with money belts to clear the cash from the premises.
Can IIPR Make It?
For me, being a product of the 1960’s and ’70’s, nothing would be more refreshing than walking down the streets of Manhattan and getting a waft of air from good ole Maggie’s Farm. While I don’t have any current use for the product, it’s time for the U.S. Government to grow up and allow people to choose freely whether or not they want to use this relatively harmless drug.
Marijuana is no more a gateway drug than is a lottery ticket the gateway to compulsive gambling. Everything in life has a beginning point and and ending point, and it takes all of the experiences and coincidences in between those points to cause a person to take things to another level.
The IIPR model is no more crazy than the guy that developed the hula hoop. It was a crazy idea that most people laughed at, but it made billions. Can IIPR take advantage of distressed real estate and develop an empire of leafy proportions? Who knows. But, there is a whole city named Detroit that is clearly ripe for the concept. With the auto industry leaving the scraps for a new generation of business and innovation, perhaps Detroit will become the centerpiece for medical marijuana cultivation. You never know.
Don’t worry, investors, I’ll keep an eye on the developments. If Detroit decides to embrace the budding empire, I may just have to visit to provide a first hand account of the progress.
I’d have to; it’s part of the job.
[Image Courtesy of Pixabay]